As filed with the Securities and Exchange Commission on March 24, 2003
SEC Registration No. 333-88090
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Fenton Graham Marketing, Inc.
(Name of small business issuer in its charter)
Nevada 7380 86-1042805
(State or other (Primary Standard (I.R.S.
jurisdiction Industrial Employer
of Classification Code Identification
incorporation) Number) Number)
13215 Verde River Drive, Unit 1
Fountain Hills, AZ 85268
(480) 836-8720
(Address and telephone number of principal executive offices)
J.P. Schrage, President
Fenton Graham Marketing, Inc.
13215 Verde River Drive, Unit 1
Fountain Hills, AZ 85268
(480) 836-8720
(Name, address and telephone number of agent for service)
With copy to:
Chapman & Flanagan, Ltd.
777 N. Rainbow Blvd., Suite 390
Las Vegas, NV 89107
Approximate date of proposed sale to the public: As soon as
reasonably practicable after the effective date of this
Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.__
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number or the earlier
effective registration statement for the same offering. __
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. __
(i)
Title of each Proposed Proposed
class of maximum maximum
securities Amount offering aggregate Amount of
to be to be price per offering registration
registered registered share price fee (1)
- -------------- ---------- --------- --------- ------------
Common Shares, 5,000,000 $0.02 $100,000 $9.20
$0.001 par
value, to be
sold by the
Company
Common Shares, 1,000,000 $0.02 $20,000 $1.84
$0.001 par
value, to be
sold by selling
security holders
- ------------------------------------------------------------------------
Total 6,000,000 $120,000 $11.04
- ------------------------------------------------------------------------
(1) Previously paid.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Explanatory Note
This registration statement contains two prospectuses: one
relating to the offering by Fenton Graham of 5,000,000 shares of
its common stock, par value $0.001 per share, for cash and
another prospectus relating to the offering of 1,000,000 shares
of common stock held by selling security holders who may wish to
sell their common stock. The prospectus relating to the selling
security holders is referred to as the selling security holders
prospectus. Following the prospectus are substitute pages of the
selling security holders prospectus, including alternate pages
front outside and back cover pages, an alternative "The Offering"
section of the "Prospectus Summary" and sections entitled "Use of
Proceeds", "Determination of Offering Price", "Selling Security
Holders", and "Plan of Distribution". Each of the alternate
pages for the selling security holder prospectus is labeled
"Alternate Page for Selling Security Holder Prospectus." All
other sections of the prospectus are to be used in the selling
security holder prospectus. In addition, cross-references in the
prospectus will be adjusted in the selling security holder
prospectus to refer to the appropriate sections.
(ii)
Initial Public Offering Prospectus
Fenton Graham Marketing, Inc.
5,000,000 Shares of Common Stock
We are offering a maximum of 5,000,000 shares of our common stock
for sale at $0.02 per share on a best-efforts basis and without
the assistance of an underwriter. There is no minimum amount of
shares we must sell and no money raised from the sale of our
stock will go into escrow, trust or any other similar
arrangement.
Unless we decide to cease selling efforts at a prior date, we
will close the offering on the earlier of (1) the date all of the
5,000,000 shares are sold, or (2) the one year anniversary of the
date of this prospectus.
There is no public market for our common stock.
Concurrent with this offering, we are registering 1,000,000
additional shares of common stock for sale by 18 of our
shareholders. These selling shareholders will offer their stock
at a price of $0.02 per share until our shares are quoted on the
OTC Bulletin Board and thereafter at prevailing market prices, or
at privately negotiated prices.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE THESE SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE BUYING ANY OF THESE SECURITIES.
Offering Price Underwriting Proceeds to
to the public discounts the Company
-------------- ------------ -----------
Per share $0.02 $ 0 $0.02
Total maximum $100,000 $ 0 $100,000
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is ____________, 2003
1
TABLE OF CONTENTS
Page
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 5
We are a development stage company with no operating history........... 5
Because we will need to raise additional funds and these funds may
not be available to us, we may need to change our business plan........ 6
The loss of services or unavailability of our sole officer and
director would have an adverse affect on our business.................. 6
If our ad delivery and tracking technology proves to be
ineffective, we may be unable to attract and retain
advertising clients.................................................... 6
Sales of our shares held by the Selling Shareholders in a
concurrent offering may make it difficult for us to sell shares
in the offering........................................................ 7
There is no minimum purchase requirement............................... 7
There is no current public market for our common stock................. 7
Our shares may be considered a "penny stock"........................... 8
Forward-Looking Statements................................................ 8
Use of Proceeds........................................................... 9
Determination of Offering Price........................................... 10
Dilution.................................................................. 10
Plan of Distribution...................................................... 10
Legal Proceedings......................................................... 12
Directors, Executive Officers, Promoters and Control Persons.............. 12
Security Ownership of Certain Beneficial Owners and Management............ 13
Description of Securities................................................. 14
Interest of Named Experts and Counsel..................................... 14
2
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................................ 14
Organization Within the Last Five Years................................... 15
Description of Business................................................... 15
Management's Plan of Operation............................................ 24
Description of Property................................................... 27
Certain Relationships and Related Transactions............................ 28
Market for Common Equity and Related Stockholder Matters.................. 28
Executive Compensation.................................................... 29
Financial Statements...................................................... 30
Where You Can Find More Information....................................... 45
Experts................................................................... 45
Legal Matters............................................................. 45
3
PROSPECTUS SUMMARY
The Company
Fenton Graham was incorporated in the State of Nevada on October
17, 2001 for the purpose of offering marketing solutions to
Internet businesses which will help them build brands, acquire
customers, drive traffic, increase sales and garner customer
relations.
Since our inception, our activities have been limited to raising
funds and developing our software and business plan. As of
December 31, 2002, we have realized $106,675 net losses and have
not yet established profitable operations. We do not expect to
earn significant revenues until May 2003 or later.
Our principal executive offices are located 13215 Verde River
Drive, Unit 1, Fountain Hills, Arizona 85268. Our telephone
number is (480) 836-8720.
The Offering
Securities offered by the Company 5,000,000 shares of our common
stock
Offering price per share $0.02
Common stock presently outstanding 6,000,000
Common stock to be outstanding
after completion of the offering 11,000,000
Termination date Upon the earlier of the one
year anniversary of the date
of this prospectus or the sale
of all the shares of common
stock that are being offered
How to subscribe Each prospective investor who
desires to purchase shares of
common stock should complete,
date, and execute the
Subscription Agreement, make a
check, bank draft, or money
order payable to "Fenton
Graham Marketing, Inc." in the
amount of $0.02 times the
number of shares subscribed
for, and deliver the completed
Subscription Agreement and
check to the Company at the
following address: 13215 Verde
River Drive, Unit 1, Fountain
Hills, Arizona 85268.
Estimated net proceeds to us $91,000 after estimated
offering costs of $9,000
4
Use of proceeds Working capital and general
corporate purposes.
Risk factors The securities offered hereby
involve a high degree of risk
and immediate substantial
dilution from the public
offering price.
Selling shareholders offering The selling security holders
offering will run concurrently
with the primary offering. We
are simultaneously registering
1,000,000 additional shares of
our common stock to be sold by
18 of our shareholders. These
selling security holders will
offer their stock at a price
of $0.02 per share until our
shares are quoted on the OTC
Bulletin Board and thereafter
at prevailing market prices,
or at privately negotiated
prices.
In this prospectus, reference to "we," "our" and "us" refers to
Fenton Graham Marketing, Inc.
RISK FACTORS
An investment in the securities that are being offered involves a
high degree of risk and should only be made by those who can
afford to lose up to their entire investment. Before purchasing
these securities, you should consider carefully the following
risk factors, in addition to the other information in this
prospectus.
Risks related to our financial condition
WE ARE A DEVELOPMENT STAGE COMPANY ORGANIZED IN OCTOBER 2001 AND
HAVE NO OPERATING HISTORY, WHICH MAKES AN EVALUATION OF US
EXTREMELY DIFFICULT. AT THIS STAGE OF OUR BUSINESS OPERATIONS,
EVEN WITH OUR GOOD FAITH EFFORTS, YOU HAVE A HIGH PROBABILITY OF
LOSING YOUR INVESTMENT.
We were incorporated in October of 2001 as a Nevada corporation.
As a result of our recent start up, Fenton Graham has yet to
generate revenues from operations and anticipates losses for the
foreseeable future. Since incorporation, our business activities
have been limited to raising funds, developing our software and
business plan. Because our technology is not fully developed and
we have no customers, there is nothing at this time on which to
base an assumption that our business operations will prove to be
successful or that we will ever be able to operate profitably.
Our future operating results will depend on many factors,
including our ability to raise adequate working capital, demand
for our products and services, the level of our competition and
our ability to attract and maintain key management and employees.
You should not invest in this offering unless you can afford to
lose your entire investment.
5
BECAUSE WE WILL NEED TO RAISE ADDITIONAL FUNDS AND THESE FUNDS
MAY NOT BE AVAILABLE TO US WHEN WE NEED THEM, WE MAY NEED TO
CHANGE OUR BUSINESS PLAN OR WE WILL FACE BANKRUPTCY AND CEASE
OPERATIONS AND YOU WILL LOSE YOUR ENTIRE INVESTMENT.
Based on our current projections, we will need to raise funds
after the expiration of one year from the closing of this
offering through the issuance of equity, equity-related or debt
securities in addition to the funds we are raising in this
offering. We will need to raise additional capital sooner than
one year after the closing of this offering if we are unable to
sell the maximum number of shares of common stock being offered
or if we receive the maximum proceeds and our sales are lower
than expected. Additional capital may not be available to us on
favorable terms when required, or at all. If this additional
financing is not available to us, we may need to dramatically
change our business plan, sell or merge our business or face
bankruptcy and cease operations. In addition, our issuance of
equity or equity-related securities will dilute the ownership
interest of existing shareholders and our issuance of debt
securities could increase the risk or perceived risk of our
company. Any of these actions could cause our stock price to
fall. Apart from our requirements for capital in addition to the
anticipated proceeds of this offering, prospective investors
should be aware of the possibility that we will not raise any
funds in this offering and we will not be able to commence
operations.
Risks related to our business
J.P. SCHRAGE IS OUR SOLE OFFICER AND DIRECTOR. THE LOSS OR
UNAVAILABILITY TO FENTON GRAHAM OF HIS SERVICES WOULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS, OPERATIONS AND PROSPECTS AND YOUR
INVESTMENT COULD BE LOST.
We face the risk that Mr. Schrage could leave Fenton Graham with
little or no prior notice because he is not bound by an
employment agreement. We do not have "key person" life insurance
policies covering Mr. Schrage. In the event we should lose the
services of Mr. Schrage prior to hiring additional management, we
would be required to cease pursuing our business plan, which
would result in the loss of your entire investment.
IF OUR AD DELIVERY AND TRACKING TECHNOLOGY PROVES TO BE
INEFFECTIVE, WE WILL BE UNABLE TO ATTRACT AND MAINTAIN
ADVERTISING CLIENTS. IF WE ARE UNABLE TO GENERATE REVENUE FROM
ADVERTISING CLIENTS YOUR INVESTMENT MAY BE LOST.
If the online advertising market does not develop further, or
develops more slowly than expected, we may not generate enough
advertising revenue to turn a profit. Since we expect to derive
substantially all of our revenue from online advertising, our
future success is highly dependent on the increased use of the
Internet as an advertising medium. Because we have not yet fully
developed our WarRoom and Redirector technology and it has not
been proven effective for business use, we cannot assure you that
the use of our WarRoom and Redirector software, if and when
developed, will be effective in serving, targeting and tracking
advertisements or other marketing and promotional activities.
Once our technology is ready for business use, our revenue would
6
be adversely affected if marketers do not perceive that the use
of our WarRoom and Redirector software will improve the
effectiveness of their marketing campaigns.
Risks related to this offering
SALES OF OUR SHARES BY THE SELLING SECURITY HOLDERS IN A
CONCURRENT OFFERING MAY MAKE IT DIFFICULT FOR US TO SELL SHARES
IN THE OFFERING. IF WE ARE UNABLE TO RAISE MONEY FROM THIS
OFFERING WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS AND YOU WILL
LOSE YOUR INVESTMENT.
Upon completion of this offering we will have outstanding
11,000,000 shares of common stock if all the shares offered are
sold. Of these shares, the shares of common stock sold in this
offering and the concurrent selling security holders' offerings
will be freely tradable in the public market without restrictions
or further registrations under the 1933 Act. Thus, concurrent
with the offer and sale of shares of our common stock described
in this Prospectus, our selling security holders may offer
1,000,000 shares of our common stock for sale in a non-
underwritten offering by this Prospectus. Sale of a substantial
number of shares of our common stock in the public market by our
selling security holders concurrently with this offering could
depress the market price of our common stock and could impair our
ability to raise capital by preventing us from selling all of the
shares in the offering.
THERE IS NO MINIMUM PURCHASE REQUIREMENT. THEREFORE WE MAY
RECEIVE LITTLE OR NO FUNDING FROM THIS OFFERING. IF ONLY A
MINIMAL AMOUNT OF SHARES ARE SOLD, YOU WILL HOLD SHARES IN A
COMPANY THAT IS SUBSTANTIALLY UNDERCAPITALIZED AND CONTROLLED BY
INSIDERS.
Purchasers should realize that all sales will be final and no
proceeds will be returned to any purchasers regardless of how few
shares are sold and proceeds raised. Should we raise only a
minimal amount through this initial public offering, and since we
will not receive any of the proceeds from the sales by the
selling security holders, we will rely upon our officers and
directors, who are our major shareholders, to cover operating
costs and provide the professional expertise to keep us
operational until such time as we can raise the funds necessary
to proceed with our planned operations.
THERE IS NO CURRENT PUBLIC MARKET FOR OUR COMMON STOCK; THEREFORE
YOU MAY BE UNABLE TO SELL YOUR SHARES AT ANY TIME, FOR ANY
REASON, AND AT ANY PRICE, RESULTING IN A LOSS OF YOUR INVESTMENT.
As of the date of this prospectus, there is no public market for
our common stock. Although we plan to contact an authorized OTC
Bulletin Board market maker for sponsorship of our securities on
the Over-the-Counter Bulletin Board, there can be no assurance
that our attempts to do so will be successful. Furthermore, if
our securities are not quoted on the OTC Bulletin Board or
elsewhere, there can be no assurance that a market will develop
for the common stock or that a market in the common stock will be
maintained. As a result of the foregoing, investors may be unable
to sell their shares for any reason.
7
OUR SHARES MAY BE CONSIDERED A "PENNY STOCK" WITHIN THE MEANING
OF RULE 3A-51-1 OF THE SECURITIES EXCHANGE ACT WHICH WILL AFFECT
YOUR ABILITY TO SELL YOUR SHARES; "PENNY STOCKS" OFTEN SUFFER
WIDE FLUCTUATIONS AND HAVE CERTAIN DISCLOSURE REQUIREMENTS WHICH
MAKES IT DIFFICULT FOR YOU TO RESELL YOUR SHARES IN THE SECONDARY
MARKET.
Our shares will be subject to the Penny Stock Reform Act which
will affect your ability to sell your shares in any secondary
market which may develop. If our shares are not listed on a
nationally approved exchange or the NASDAQ, do not meet the
minimum financing requirements, or have a bid price of at least
$5.00 per share, they will likely be defined as a "penny stock."
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by the SEC. Rules associated with
transactions in penny stocks include the following:
- the delivery of standardized risk disclosure documents;
- the provision of other information like current bid/offer
quotations, compensation to be provided broker-dealer and
salesperson, monthly accounting for penny stocks held in
the customers account;
- written determination that the penny stock is a suitable
investment for purchaser;
- written agreement to the transaction from purchaser.
These disclosure requirements and the wide fluctuations that
"penny stocks" often experience in the market may make it
difficult for you to sell your shares in any secondary market
which may develop.
FORWARD-LOOKING STATEMENTS
Some information in this prospectus may contain forward-looking
statements. You can identify these statements by their forward-
looking terminology such as "may," "will," "expect,"
"anticipate," "continue," or other similar words. Forward-
looking statements discuss future expectations, contain
projections of results of operations or of financial condition or
state other "forward-looking" information. When considering
forward-looking statements in this prospectus, you should keep in
mind the risk factors and other cautionary statements included in
this prospectus. The risk factors noted in the "Risk Factors"
section and the other factors noted throughout this prospectus,
could cause our actual results to differ materially from those
contained in any forward-looking statement.
8
USE OF PROCEEDS
If all the shares are sold, the net proceeds to Fenton Graham
from the sale of the shares of common stock offered hereby are
estimated to be approximately $91,000, after deduction of
estimated offering related expenses, consisting of legal and
accounting fees, copying, filing fees and postage. Fenton Graham
intends to use these proceeds for the proposed expenses shown in
the table that follows. The following table shows Fenton Graham's
use of proceeds if 25%, 50%, 75% and/or 100% of the shares are
sold. We cannot predict whether or not any shares at all will be
sold in this offering.
25% 50% 75% 100%
--------- -------- -------- --------
Gross proceeds $25,000 $50,000 $75,000 $100,000
Offering expenses 9,000 9,000 9,000 9,000
--------- -------- -------- --------
$16,000 $41,000 $66,000 $91,000
Business development 1,000 2,000 2,500 3,000
Rent and utilities 3,000 7,000 11,000 13,000
Staff 4,000 16,000 28,000 43,000
Legal and accounting 2,000 3,000 4,000 5,000
Computer hardware 2,000 4,000 6,000 8,000
Software development 2,000 4,000 6,000 8,000
Sales and advertising 1,000 3,000 5,000 7,000
General working capital 1,000 2,000 3,500 4,000
--------- -------- -------- --------
$16,000 $41,000 $66,000 $91,000
We believe that if we sell at least 25% of the offering we can
begin to put our business plan into effect although this amount
will be insufficient to meet our needs over the next 12 months.
We believe we need to raise maximum proceeds to most effectively
implement our business plan and less than that amount will
require us to limit the amount we spend on bringing our product
to market, salaries, and the purchase of office equipment.
The working capital reserve may be used for general corporate
purposes to operate, manage and proceed with our proposed
operations, including travel expenses, labor costs, office
supplies, office furniture and equipment, network fees,
advertising or promotion, equipment maintenance and other
administrative costs. Travel expenses include airline tickets and
hotel accommodations for management to attend meetings with
potential business contacts, and other business travel expenses,
such as meals. We presently have no commitments or agreements to
hire employees and are not involved in any negotiations.
Commencing November 1, 2002, Fenton Graham began paying Mr.
Schrage a salary at the annual rate of $40,000. Mr. Schrage's
salary will be renegotiated once we have generated revenues from
operations.
9
If the amounts set forth in the use of proceeds table prove to be
insufficient to proceed with our business as planned, we may, in
the future, seek additional funds through loans or other
financing arrangements.
Pending expenditures of the proceeds of this offering, we may
make temporary investments in short-term, investment grade,
interest-bearing securities, money market accounts, insured
certificates of deposit and/or in insured banking accounts.
DETERMINATION OF OFFERING PRICE
The offering price of the Shares has been arbitrarily determined
by the Company based upon factors like the Company's capital
needs and the percentage of ownership to be held by investors as
a result of this offering. The offering price does not
necessarily bear any relationship to assets, book value,
earnings history or other historical factors.
DILUTION
As of December 31, 2002, Fenton Graham's net tangible book value
was $44,625, or $0.007 per share of common stock. Net tangible
book value is the aggregate amount of Fenton Graham's tangible
assets less its total liabilities. Net tangible book value per
share represents Fenton Graham's total tangible assets less its
total liabilities, divided by the number of shares of common
stock outstanding. After giving effect to the sale of 5,000,000
shares at an offering price of $0.02 per share of common stock,
application of the estimated net sale proceeds (after deducting
offering expenses of $9,000), Fenton Graham's net tangible book
value as of the closing of this offering would increase from
$0.007 to $0.013 per share. This represents an immediate increase
in the net tangible book value of $0.006 per share to current
shareholders, and immediate dilution of $0.007 per share to new
investors, as illustrated in the following table:
Public offering price per share of common stock $0.02
Net tangible book value per share before offering $0.007
Increase per share attributable to new investors $0.006
Net tangible book value per share after offering $0.013
Dilution per share to new investors $0.007
Percentage dilution 35%
PLAN OF DISTRIBUTION
The shares in this offering will be sold by the efforts of our
sole officer and director, J.P. Schrage. He will not receive any
commission from the sale of any shares. He will not register as a
broker-dealer pursuant to Section 15 of the Securities and
Exchange Act of 1934 in reliance upon Rule 3a4-1, which sets
forth those conditions under which a person associated with an
issuer may participate in the offering of the issuer's securities
and not be deemed to be a broker-dealer. These conditions
included the following:
10
1. No selling person is subject to a statutory
disqualification, as that term is defined in Section 3(a)(39) of
the Exchange Act, at the time of participation,
2. No selling person is compensated in connection with his
participation by the payment of commissions or other remuneration
based either directly or indirectly on transactions in
securities,
3. No selling person is, at the time of participation, an
associated person of a broker-dealer, and
4. Each selling person meets the conditions of paragraph (a)
(4) (ii) of Rule 3a4-1 of the Exchange Act, in that the person
(A) primarily performs or is intending primarily to perform at
the end of the offering, substantial duties for or on behalf of
the issuer otherwise than in connection with transactions in
securities, and (B) is not a broker or dealer, or an associated
person of a broker or dealer, within the preceding twelve months,
and (C) does not participate in selling and offering of
securities for any issuer more than once every twelve months
other than in reliance on this rule.
This offering will commence on the date of this prospectus. The
offering will terminate on the earlier of the one year
anniversary of the date of this prospectus or the sale of all the
shares of common stock that are being offered. In addition, we
may terminate this offering at any time, for any reason; thus not
selling any or all of the shares offered. The offering may be
terminated, for example, because the market price of the common
stock is less than the offering price which would impede our
ability to sell the offered shares. There is no minimum number of
shares that we are required to sell.
Procedure of Subscription
If you decide to subscribe for shares in this offering, you will
be required to execute a subscription agreement and tender it,
together with a check or wired funds to us, for acceptance or
rejection. All checks should be made payable to Fenton Graham
Marketing, Inc. A copy of the subscription agreement will
accompany a prospectus or may be obtained from us by persons who
have received a prospectus and requested the subscription
agreement. Subscription documents and payment should be mailed
or delivered to Fenton Graham Marketing, Inc., 13215 Verde River
Drive, Unit 1, Fountain Hills, Arizona 85268.
We have the right to accept or reject subscriptions in whole or
in part, for any reason or for no reason. All monies from
rejected subscriptions will be returned immediately by us to the
subscriber, without interest or deductions.
Subscriptions for securities will be accepted or rejected
promptly. Once accepted, the funds will be deposited in an
account maintained by the Company and considered property of the
Company once cleared by our bank. Subscription funds will not be
deposited in an escrow account. Certificates for the shares
purchased will be issued and distributed by our transfer agent,
within ten business days after a subscription is accepted and
"good funds" are received in our account. Certificates will be
sent to the address supplied in the investor subscription
agreement by regular mail.
11
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be
Executive Registrar and Transfer Agency, Inc., 3118 W. Thomas
Road, Suite 707, Phoenix, Arizona 85017.
LEGAL PROCEEDINGS
Neither Fenton Graham, nor any of its affiliates, officers or
directors is a party to any pending legal proceeding, and none of
our property is the subject of any pending legal proceeding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The members of the Board of Directors of the Company serve until
the next annual meeting of the stockholders, or until their
successors have been elected. The officers serve at the pleasure
of the Board of Directors.
There are no agreements for any officer or director to resign at
the request of any other person, and the officer and director
named below is not acting on behalf of, or at the direction of,
any other person.
Name and Address Age Position
J.P. Schrage 26 President, Secretary, Treasurer
and Director
Mr. Schrage is engaged with the Company on a full-time basis.
J.P. Schrage
Mr. Schrage has been Secretary/Treasurer and a director of Fenton
Graham since its inception. On July 5, 2002, he was appointed
President when our former President resigned. Mr. Schrage began
working full time for Fenton Graham on November 1, 2002. From
May 2002 to November 1, 2002, Mr. Schrage served on a part-time
basis as Operations Manager for VVVRRR, Inc. (VRI), an Internet
marketing firm which deals with affiliate programs, a service
also offered by Fenton Graham. VRI is not a direct competitor to
Fenton Graham as VRI does not do anything else in Internet
Marketing other than affiliate programs. VRI is a small company
with few employees and Mr. Schrage assisted the CEO in overseeing
its daily operations. Mr. Schrage performed project manager
duties and bookkeeping duties. In July 2002, Fenton Graham
entered into a co-location agreement with VRI for the use of a
portion of the space VRI leases from Technology Alliance Group to
house its servers. From January 2000 to August 2002, Mr. Schrage
served on a part-time basis as the Operations Manager with
Quantum Leap Media, Inc., another small Internet marketing firm
which provided products and services similar to those offered by
Fenton Graham. Schrage acted as a project manager, taking many
Internet sites and projects from start to finish. He also
handled the company's finances, hired and dealt with employees,
and assisted the CEO with both professional and personal matters.
Quantum Leap Media ceased operations in August 2002. In December
1999, Mr. Schrage graduated with Honors from the University of
Arizona, with a triple major in Entrepreneurship, Finance, and
Marketing. He completed applicable course work such as
Development of New Venture Plans, Marketing Planning and
12
Operating Decision-Making, New Venture Development and Industry
Analysis, New Venture Marketing and Finance, Consumer Behavior,
International Marketing Management, Services Retailing, Marketing
Research, Investments, Real Estate Finance and Investments, and
Corporate Finance. During his time at the university, Mr.
Schrage honed his management skills with a variety of employers.
From May to August 1999, he was employed as a management intern
for Wal-Mart. There he supervised many employees and processes
while learning all aspects of running a Wal-Mart store. In May
1997, Mr. Schrage helped plan and set up a video rental store,
Planet Video. He was employed with Planet Video through August
1998 as the nighttime manager and was responsible for supervising
three to five employees nightly. From May 1996 to January 1997,
Mr. Schrage was employed as the principal delivery person at
Poma's Restaurante. He was responsible for training new
employees and managing deliveries. Before attending the
university, from April 1993 to August 1995, Mr. Schrage was the
head cook at Big Daddy's Pizza. He coordinated all kitchen
activities, supervised and delegated jobs to employees, dealt
with vendors, and opened and closed the restaurant.
The Company's Board of Directors has not established any
committees.
Conflicts of Interest
The officers and directors of Fenton Graham are accountable to it
and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in
handling the Company's affairs. A shareholder may be able to
institute legal action on behalf of Fenton Graham or on behalf of
itself and other similarly situated shareholders to recover
damages or for other relief in cases of the resolution of
conflicts is in any manner prejudicial to Fenton Graham.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person known to us, as of the
date of this Prospectus to be a beneficial owner of five percent
(5%) or more of the Company's outstanding common stock and our
sole officer and director. No other class of voting securities
is outstanding. Mr. Schrage has sole voting and investment power
with respect to the shares shown.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ------------------- -------------------- ----------
J.P. Schrage 5,000,000 Direct 83.3%
c/o Fenton Graham
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DESCRIPTION OF SECURITIES
The authorized capital stock of Fenton Graham consists of
100,000,000 shares of Common Stock, $0.001 par value per share.
Upon completion of this offering, assuming all the shares are
sold, there will be 11,000,000 shares of common stock
outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders,
including the election of directors.
Holders of common stock do not have subscription, redemption or
conversion rights, nor do they have any preemptive rights.
Holders of common stock do not have cumulative voting rights,
which means that the holders of more than half of all voting
rights with respect to common stock can elect all of Fenton
Graham's directors. The Board of Directors is empowered to fill
any vacancies on the Board of Directors created by resignations,
subject to quorum requirements.
Holders of common stock will be entitled to receive such
dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, and
will be entitled to receive, pro rata, all assets of the Company
available for distribution to such holders upon liquidation.
There are currently 19 shareholders of record of Fenton Graham's
common stock. To date, Fenton Graham has paid no dividends on its
common stock, and intends, for the near future, not to pay
dividends, but, instead, to retain any earnings to finance future
growth.
INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis, will
receive a direct or indirect interest in the small business
issuer, or was a promoter, underwriter, voting trustee, director,
officer or employee of the small business issuer.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of Fenton Graham pursuant to the Nevada
General Corporation Law or the provisions of Fenton Graham's
Articles of Incorporation, as amended, or Bylaws, or otherwise,
Fenton Graham has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for the indemnification against such
liabilities, other than the payment by Fenton Graham of expenses
incurred or paid by a director, officer or controlling person of
the company in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling
person in connection with the securities being registered, Fenton
Graham will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
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indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
ORGANIZATION WITHIN THE LAST FIVE YEARS
Fenton Graham was founded on October 12, 2001 by Ken Greble and
J.P. Schrage. Mr. Greble and Mr. Schrage received 2,500,000
shares each in consideration of services provided to Fenton
Graham valued at $2,500 each. Mr. Greble and Mr. Schrage were
compensated for assisting in the formation of the Company.
On July 5, 2002, Mr. Greble resigned from his positions as
President and director of the Company and he voluntarily tendered
back his 2,500,000 shares to the Company for cancellation. The
shares were cancelled and reissued to Mr. Schrage in
consideration of his continued services to the Company.
DESCRIPTION OF BUSINESS
Overview
Since our inception last year, we have had no revenue and have
generated operating and net losses. We were formed for the
purpose of becoming a results driven Internet marketing company
that specializes in providing its clients with custom Internet
marketing campaigns.
Beginning in the first quarter of 2003, we plan to target small
and medium sized businesses in North America, primarily in the
United States. Because our President, J.P. Schrage, has worked
in the Internet Marketing arena for 3 years and has been actively
involved with the Internet since 1995, we believe we can offer
Internet marketing services and use Mr. Schrage's media expertise
and our proprietary software technology to provide these
companies with complete solutions to close the marketing circle
by helping them build brands, acquire new customers, increase
traffic, drive sales and grow customer relationships. We have
nearly completed developing our WarRoom and Redirector software
technology which will deliver solutions to marketers that include
pop-ups, domain redirects, banner ads, affiliate programs, and
other marketing methods. This will create a compelling marketing
solution: the ability to deliver the right message at the right
time to the right person.
Services
Our services will be designed to allow our clients to interact in
an environment that maximizes e-mail, Web-based and wireless
inventory, while driving one-to-one, business-to-consumer
communication that stimulates transactions, optimizes campaigns
in real time and fosters the development of loyal relationships
with customers. Following is a brief description of each of the
services we hope to provide by the end of the first quarter of
2003.
Goals Analysis - We will begin with a phone interview about our
client's desires, visions and goals for the purpose of
developing a rough sketch of the scope of the project.
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Analysis of Competition - Part of the preliminary site review
that we will do includes online searches using keywords to
find our client's competition. Discovering what their
competition is doing online can be the launching pad for
fresh ideas.
Web Site Marketing Analysis - We will analyze our client's
existing site with respect to titling (the title on each page
of the website), keyword use (specific keywords sprinkled
throughout the site for search engine positioning purposes),
search engine strategy implementation (finding out what
search engines the client has pursued being listed on),
alternative statement (text that appears as you mouse over a
graphic on a website) use and current online marketing
strategies. As part of an extensive site review, we will
create a report listing their company's current rankings
along with recommendations for enhancements.
In addition to market analysis we will perform a technical
review, checking for coding issues that may impact search
engine positioning as well as overall Web page performance.
The time it takes a client's webpage to load is also an
important factor in site creation and maintenance. The main
incentive for users to buy online are convenience and the
amount of time saved.
Site Design - A well-designed Web site attracts customers,
strengthens product awareness and differentiates a company
from its competition. We plan to develop a design program
which will deliver a Web site that maximizes our client's
business opportunities in a fast, cost effective way, using
proven Web architecture. This proven Web architecture
consists of pre-designed templates for Web pages as well as
pre-designed program modules for handling common Webpage
functions such as a shopping cart or e-mail address
collector.
Online Ad Creation and Placement - A targeted campaign of well-
crafted ads placed in carefully researched locations can lead
to volumes of quality traffic. After assessment of goals, we
will develop a budgeted and targeted program for our client's
review, and then place ads as planned.
Targeted E-mail Campaigns - We will drive traffic to our clients'
sites by sending mass e-mails to opt-in e-mail lists ("opt-
in" refers to the process of a web surfer opting to receive
special notices or offers via e-mail). These lists can be
generated by placing forms on webpages to capture web
surfers' e-mail addresses. The web surfers themselves type
in their address to request inclusion in the list (the web
surfer benefits be receiving either an incentive or
information they see as useful to them). The use of these
opt-in lists prevents our clients from receiving a bad name
through spamming (sending unsolicited commercial e-mail).
Online Advertising Services
We plan to administer the following advertising vehicles for any
e-business. We will develop advertising campaigns, ensure against
fraudulent advertisers with tracking capabilities built into our
software and review and measure the results. Fraudulent
advertisers are prevented with the tracking that our software
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provides. Our software records the IP address of every user who
sees one of our ads. If an ad on a website is served to the same
IP address more than once in 24 hours, the ad is not paid for by
Fenton Graham. This is standard practice in any advertising on
the Internet today. This prevents someone from having a computer
automatically refresh a webpage thousands of times in one day to
get paid for serving more ads.
CTP = Content Transfer Pages - these pages appear on
Web sites as a separate browser usually sized as a 400
by 400 pixel pop-up, which means that the pop-up will
take up about 33% of the average screen. These are
fully navigable browsers that show your site and its
contents.
CPA = Cost Per Acquisition - these advertisements
appear on a Web site and the advertiser is charged only
when the visitor takes a predetermined action (i.e.
signing up for a membership or subscription.)
CPC = Cost Per Click through - these advertisements
appear on a Web site and the advertiser is charged only
when the Web surfer clicks on the advertiser's ad.
CPM = Cost per Thousand - this type of advertising
consists of banner style ads that the advertiser is
charged per thousand impressions that appear on Web
sites.
Online Traffic Generation
Our goal is to continually find new ways to harness highly
targeted Internet traffic. This traffic will be used in
campaigns for our clients. The primary traffic techniques we are
currently developing are:
- Pop-up Windows
- Domain Names
- Banner Advertising
- Banner Exchanges
- Exit Traffic Retention
- Search Engine Positioning
- Paid Directory Listings
- E-mail Marketing
- Affiliate Programs
"Pop-up Windows" are advertisements that "pop-up" in a new window
as people are browsing Internet sites. Pop-ups can be purchased
for relatively low amounts of money from large networks of web
sites. This can provide quick exposure on large web sites for
clients of Fenton Graham. Pop-ups are low priced and cannot be
marked up much, but large profits can still be realized as
clients will purchase campaigns of 500,000 or 1,000,000 or more
pop-ups. Pop-ups can also be deployed when people leave web
sites. These are generally more cost effective while working
just as well.
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"Domain Names" are typed in by Internet users into a web browser
to get them where they're going (i.e.: yahoo.com). Many domain
names generate significant amounts of traffic from people typing
them into their web browsers. This traffic can be rented from
the owners of the domain names (there is no affiliation between
Fenton Graham and the owners of these domains). Most of the
domains we will rent are now defunct websites that still receive
traffic, while others are misspellings of popular domains such as
"yhaoo.com." As an example, Fenton Graham might have an online
travel agent as a client. Fenton Graham would then find the
people or companies that own domain names related to travel such
as "vacations.com" Searching for domains to rent can be done at
websites such as allfordomains.com or showcasedomain.net. If
Fenton Graham could successfully rent the traffic from the owner
of vacations.com, everyone that types in vacations.com would
essentially be redirected to the travel agent's site. The web
surfer gets redirected to a useful site (when otherwise they
might have received a page not found error), the travel agent
gets a possible sale, and Fenton Graham gets paid by the travel
agent for marketing their site. In the case of a misspelled
domain, the web surfer may not reach their intended site, but
rather one of our clients' sites. The web surfer could then
continue on to their intended site by properly entering the
domain name into their web browser.
Fenton Graham plans to rent at least 1,000 different domain names
from various domain name owners to take advantage of this
opportunity. As an example, Fenton Graham would look to rent a
domain name that is travel related and receives 500 hits (number
of times the domain is typed into web browsers worldwide) per day
for approximately $150.00 per month ($0.01 per hit). With this
domain name, the traffic could be directed to a travel agency's
website for $0.025 per hit. Another option is to again direct
the traffic to the travel agency's website, but be paid on a per
click basis of $0.125 or on a per action basis of $3.00 to $10.00
per plane ticket or vacation sold. In total, Fenton Graham aims
to control 100,000 hits per day in domain traffic. Using the
money budgeted for operating expenses, the number of domains
rented will slowly increase each month as revenues increase.
"Banner Advertisements" are commonly used on most Internet web
pages. They act as small billboards for the countless products
and services that are advertised on the Internet. Fenton Graham
will locate competitively priced banner ad inventory from leading
publishers. This allows us to offer our clients a positive
return on their advertising dollars while building product
recognition at the same time.
"Banner Exchanges" allow webmasters to trade advertising space on
their web page in return for advertising space on someone else's
web page. The goal is to participate in targeted banner
exchanges by capitalizing on our ability to generate online
traffic. We will accumulate banner credits for each of our
clients. Each banner credit is worth one advertisement on a
webpage. In most cases one banner credit is given to us for
every two banners that we display. For example, Websites A and B
are part of a banner exchange. If Website A displays Website B's
advertisement twice, Website A would receive one banner credit.
This credit allows Website A to advertise on another Website that
is participating in the banner exchange. The banner exchange
gets the other credit as payment for making the process possible
by serving and tracking the advertisements.
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"Exit Traffic" is the large amount of "lost" online traffic
commonly known as "404 Error Traffic" or "File Not Found." An
estimated 5% of all pages downloaded from the Internet end up as
404 Errors (James Pitkow. Summary of WWW Characterizations,
Seventh International World Wide Web Conference, April 1998,
Brisbane, Australia). This translates into over 100 million
pages daily. This traffic can be garnered by purchasing the 404
traffic from web hosting companies.
"Search Engine Positioning" is the process of designing and
submitting your web page to search engines in a way that makes
your page be displayed higher in search results than your
competitors' pages. Search engine positioning is a constantly
evolving art. Currently, meta tags (script at the beginning of
web pages that can only be seen by robots on the web), keywords,
and content are three of the biggest factors in getting high
search engine rankings. Fenton Graham can apply this search
engine positioning knowledge to any client's web site to make it
a top performer on most of the major search engines.
"Paid Directory Listings" involves paying pay-per-click search
engines, such as overture.com, for rankings. In order to have a
high ranking for a particular key word, you must outbid others
who want to be listed high for that same key word.
"E-mail Marketing" - we will compile large databases of "opt-in"
subscribers, people who have requested to receive various types
of offers, via in-house marketing efforts. We will also purchase
or rent targeted e-mail lists from reputable suppliers if needed.
"Affiliate Programs" - we will be able to set up affiliate
programs for any of our clients. This is basically establishing
an army of web sites linking back to our client's web site in
return for a CPA (cost per action) reward. Third party
monitoring is provided by sites such as Commission Junction,
BeFree, and Linkshare.
Software
We are developing two proprietary programs to be used internally
to serve and track online campaigns:
The Redirector - The Redirector works strictly with domain names
and the traffic they generate. For example, if Fenton Graham
rents the traffic from a domain name, that domain name is
pointed to the Fenton Graham servers. From there, the
traffic from the domain name is funneled through The
Redirector to be sent to the correct Fenton Graham client's
Website. Full tracking and statistics are kept throughout
the process. The program was developed using ColdFusion, a
programming language, and SQL, a Microsoft database
application. The Redirector has a web page from which
administrative functions and tracking can be performed.
WarRoom - WarRoom handles all other types of traffic that Fenton
Graham will buy and sell. Banner ads, pop-ups, and exit
traffic will all go through WarRoom. WarRoom is a program
that can be set up to begin with an inventory of traffic
available on a given day, and disperse the traffic to many
different clients in a targeted manner with full accounting
19
and statistics tracking. In essence, WarRoom automates the
entire process. Humans buy and sell the traffic and enter
what they've bought and sold into WarRoom. As an example, a
Fenton Graham employee may find someone who wants to sell
1,000,000 pop-ups (the vendor) on their computer information
website. The Fenton Graham employee would fill out a
purchase order from that company for the pop-ups and enter
the available inventory of 1,000,000 into WarRoom. WarRoom
will automatically match up these pop-ups to a client who
needs it. For example, maybe 600,000 would go to a computer
store online (client) while the other 400,000 would go to a
computer help service (client). As the ads are served by the
vendor to the client, they are tracked by WarRoom. The
program was developed using ColdFusion, a programming
language, and SQL, a Microsoft database application. WarRoom
has a web page from which administrative functions and
tracking can be performed. WarRoom also has a log in page
for clients and vendors where they can see their statistics
and invoices.
Both programs were partially completed by contract labor hired by
Quantum Leap Media, Inc. (QLM). QLM began winding up its affairs
and when it discontinued its operations in July 2002, we
purchased the partially developed software programs from QLM for
$20,000 cash. In order for the programs to be complete and ready
for use in our business, the following must be finished:
- Minor tracking bugs worked out
- Automatic billing incorporated into the software
- User friendly client log-in area - backend programming as
well as graphic design
Currently, we do not plan to seek a patent or other similar
intellectual property protection for the software.
Privacy Concerns
We believe that issues relating to the privacy of Internet users
and the use of personal information about these users are
extremely important. In the course of delivering ads to a Web
user, we will only collect non-personally identifiable
information about the Web user. We do not collect any personally
identifiable information about the Web user unless the Web user
voluntarily and knowingly provides personally identifiable
information.
In implementing any service or program designed to gather
consumer data, we will always be mindful of our commitment to
uphold the privacy principles of the Direct Marketing
Association. We will actively monitor privacy laws and
regulations and seek to comply with all applicable privacy
requirements.
Sales and Marketing
Our staff will work strategically with our customers to develop
comprehensive marketing solutions. We believe that our clients
desire integrated programs that go beyond the banner to include
content integration, contextual sponsorships, promotions,
sweepstakes, e-mail sponsorships, pop-ups, custom content and
20
other highly effective advertising tools. When fully staffed,
our personnel will possess the marketing, media, creative and
advertising skills required to develop sophisticated advertising
campaigns.
Our personnel will be trained to use a variety of marketing
programs to generate demand for our products and services, build
market awareness, develop customer leads and establish business
relationships. Our marketing activities will include public
relations, print advertisements, online advertisements and direct
marketing, Web advertising seminars, trade shows, special events
and ongoing customer communications programs.
We currently have no contracts with advertisers and will not have
any until our software is complete and we are able to begin
business.
The marketing towards advertisers that we will do will cost
approximately $8,000 per year. This money will be used for media
kits and various forms of advertising.
Seasonality and Cyclicality
J.P. Schrage, who serves as our sole officer and director, has
previous experience in this business and has found that it is
subject to seasonal fluctuations. It has been his experience
that marketers generally place fewer advertisements during the
first and third calendar quarters of each year, and direct
marketers generally mail substantially more marketing materials
in the third calendar quarter of each year. In addition, he found
that expenditures by advertisers and direct marketers vary in
cycles and tend to reflect the overall economic conditions, as
well as budgeting and buying patterns. Furthermore, user traffic
on the Internet seemed to decrease during the summer months which
resulted in fewer advertisements to sell and deliver. A decline
in the general economy or in the economic prospects of
advertisers and direct marketers could adversely affect our
revenue.
Competition
The market for interactive, Internet-based marketing solutions is
extremely competitive. We believe that our ability to compete
depends upon many factors both within and beyond our control,
including the following:
- the timing and market acceptance of new solutions and
enhancements to existing solutions developed either by us or our
competitors;
- the continued and increasing acceptance by marketers of the
Internet as an effective and cost-efficient means of advertising;
- the ability to adapt to the rapidly changing trends of the
Internet;
- our customer service and support efforts;
- our sales and marketing efforts;
- our ability to adapt and scale our technology as customer
needs change and grow; and
21
- the ease of use, performance, price and reliability of
solutions developed either by us or our competitors.
As we expand the scope of our Web services, we may face greater
competition from a number of Web sites and other media companies
across a wide range of different Web services, including in
vertical markets where competitors may have advantages in
expertise, brand recognition and other factors. Several companies
offer competitive products or services through Web advertising
networks, including DoubleClick, 24/7 Media and Engage
Technologies. Our business may also encounter competition from
providers of advertising inventory and database management
products and related services, including DoubleClick and Engage
Technologies. We will also compete with television, radio, cable
and print for a share of the overall advertising budgets of
marketers.
The Fenton Graham Difference
While a number of companies are competing in the Internet based
marketing solutions business, we hope that advertisers will
utilize our services instead of those of the established
competitiors for a number of reasons.
Flexible Technology. Fenton Graham's WarRoom and Redirector
technology is being developed to serve and track the
sophisticated, relationship-building marketing programs that are
designed to convert Internet users into loyal, long-term
customers for businesses. The WarRoom and Redirector will track
campaigns and provide real-time, customized reports, allowing
marketers to increase the effectiveness of their marketing
efforts and to realize the value of their customer base. In
essence, our proprietary software will provide our clients with a
full suite of serving, tracking, management and measurement
tools. In addition, our software can allow small website
operators to place ads on large (top 100) websites. For example,
we could buy 10,000,000 banner impressions on Yahoo! and sell
them to many other smaller websites that couldn't otherwise
purchase banners on such a large site due to minimum purchase
requirements. We are not aware of any specific companies but, as
it is typical in the technology industry, we believe that other
marketing companies have or are developing similar software and
ideas.
Marketing. Fenton Graham intends to hire a staff with experience
and a rich knowledge base to offer clients counsel and expertise
in developing an integrated, Internet strategy designed to meet
branding, customer acquisition, and revenue-generating goals. Our
marketing services will include assisting marketers in designing
contextually relevant marketing campaigns that attract and retain
the Internet user.
We believe that we will be competitive in our industry because
Fenton Graham will offer full service sales and marketing
solutions designed to allow our client's to interact in an
environment that maximizes e-mail, Web-based and wireless
inventory, while driving one-to-one, business-to-consumer
communication that stimulates transactions, optimizes campaigns
in real time and fosters the development of loyal relationships
with their customers.
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Intellectual Property
On July 15, 2002, Fenton Graham purchased all rights, title and
interest in theWar Room and Redirector technologies from Quantum
Leap Media, Inc. who was developing the software. We will hire
outside consultants to assist us in completing the development
and hope to have fully workable versions of the technologies no
later than the first quarter 2003. The software will be
considered a "fully workable version" once it is to the point
where it could be used in live marketing situations.
We do not plan to seek a patent or other similar intellectual
property protection. We intend to enter into confidentiality or
license agreements with our employees, consultants and corporate
partners in order to control access to and distribution of our
technologies, documentation and other proprietary information.
Despite these efforts, unauthorized parties may attempt to
disclose, obtain or use our advertising solutions or
technologies. Our precautions may not prevent misappropriation of
our advertising solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not
protect our rights as fully as in the United States.
Our technology will collect and utilize data derived from user
activity on the Internet. This information will be used for
targeting advertising and predicting advertising performance.
Although we believe that we generally have the right to use this
information and to compile it in our database, we cannot assure
you that any trade secret, copyright or other protection will be
available for this information. In addition, others may claim
rights to this information. Furthermore, we cannot guarantee that
any of our intellectual property will be viable or valuable in
the future since the validity, enforceability and scope of
protection of intellectual property in Internet related
industries is uncertain and still evolving. In addition, third
parties may assert infringement claims against us. Any claims
could subject us to significant liability for damages and could
result in the invalidation of our intellectual property rights.
In addition, any claims could result in litigation, which would
be time-consuming and expensive to defend, and divert our time
and attention. Even if we prevail, this litigation could cause
our business, results of operations and financial condition to
suffer. Any claims or litigation from third parties may also
result in limitations on our ability to use the intellectual
property subject to these claims or litigation unless we enter
into arrangements with the third parties responsible for these
claims or litigation, which could be unavailable on commercially
reasonable terms. We believe that factors such as the
technological and creative skills of our personnel, new service
offerings, brand recognition and reliable customer service are
more essential to establishing and maintaining our position in
the marketplace, rather than the legal protection of our
technology. We cannot assure you that others will not develop
technologies that are similar or superior to our technology.
Research and Development
In July 2002, Fenton Graham purchased its WarRoom and Redirector
proprietary programs from Quantum Leap Media, Inc. ("QLM") for
$20,000. The programs were partially developed when purchased
and all research and development costs to that point had been
paid by QLM. We will engage contract labor to complete the
development of the programs which will be paid from the proceeds
of this offering.
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Employees
Currently, the only employee is our sole officer, J.P. Schrage,
who is currently working part-time. Over the next few months, we
plan to hire 3 contract workers to assist in completing the
development of our software and technology. We are not subject
to any collective bargaining agreements and believe that our
employee relations are excellent. Our future success depends in
part on our ability to attract, retain, integrate and motivate
highly-skilled employees. Competition for employees in the
industry is moderate.
MANAGEMENT'S PLAN OF OPERATION
Overview
Fenton Graham was recently formed to provide online marketing
services to small to medium sized companies. We plan to supply
Internet traffic to the Websites of our clients by using
marketing expertise and traffic generation techniques such as pop-
up windows, domain names, banner ads, banner exchanges, exit
traffic, search engine positioning, paid directory listings,
e-mail marketing and affiliate programs. We will also assist our
clients in developing relationships with vendors.
As additional funds become available, our objective is to
position ourself as a leading provider of technology and
marketing solutions that are designed to go beyond simple banners
to produce better customer conversion rates, resulting in higher
prices for our clients' inventory and more value for marketers.
However, there is no assurance that we will be successful in
doing so.
Plan of Operations
During the next 12 months, we plan to complete the development of
our proprietary software, purchase or lease hardware, hire an
initial staff, and begin business. We anticipate requiring
approximately $100,000 to fund our minimum level of operations
during this period. Approximately $9,000 will be used to pay the
costs of this offering, $11,000 will be used to complete the
development of our software and business, $8,000 will be used to
purchase or lease hardware, $13,000 will be used towards office
space and related equipment, $7,000 will be used in sales and
advertising, $5,000 is set aside for legal and accounting
assistance, $43,000 to facilitate the hiring of staff, and $4,000
will be general working capital.
Our current cash is not adequate to satisfy our requirements.
This stock offering is a critical aspect of our plan and it is
intended to provide the funds necessary to develop our
proprietary software and to establish operations. Without the
maximum funds provided from this offering, our plan could not
proceed as contemplated. If we are unsuccessful in raising the
maximum amount in this offering, we will need to raise the
additional amount we need by selling shares of our common stock
through one or more private placements followed by a secondary
public offering if necessary. We do not have any arrangements in
place at this time for any future equity financing.
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The timing and extent of our growth will depend upon our ability
to raise additional funds. To the extent that we are able to sell
all of the shares offered hereby, it will allow us to accelerate
our timetable. If we are only able to sell the a small amount of
the shares offered hereby, then we anticipate that the amount of
time necessary for us to achieve our goals will be greater and we
may not be able to realize our goals before our financial
resources are depleted.
Management believes we will need to raise between $100,000 and
$200,000 over the next 24 months, which include the funds raised
in this offering. The exact amount we will need to raise will be
determined by the then current market conditions, and the status
of cash flow within Fenton Graham. It is anticipated that an
initial injection of $100,000 will be required within the next 12
to 15 months. Should we fail to raise at least $100,000 during
the next 12 months from this and other offerings, we may not be
able to fulfill our business plans and you could lose your entire
investment.
Should management decide that raising funds by means of one or
more private placements or a secondary public offering would be
detrimental to Fenton Graham and its shareholders due to adverse
stock market conditions or because our cash flow is limited as a
result of little or no revenues, we will attempt to secure a line
of credit with an established financial institution to assist
with the software development, staffing, marketing and general
working capital purposes.
Costs and Expenses
Currently, we have minimal monthly expenditures. We will use the
funds raised in this offering to complete the development of our
software, hire people as employees and on a contract basis,
market our services and begin business. During the next 12
months, we intend to hire one employee to handle administrative
and marketing tasks and we intend to hire, on a contract basis,
three technical consultants to complete the development of our
software and handle hardware issues.
To date, our business has been in the early stages of development
and has had no operations. Accordingly, we have had no revenues.
All incurred expenses have been funded by our private offering.
We are dependent upon the raising of capital through placement of
our common stock. There can be no assurance that we will be
successful in raising the capital we require to complete each of
our Milestones detailed below through the sale of our common
stock.
Milestones
Our business plan is to develop a complete Internet marketing
business. We will need to raise at least $100,000 from this
offering in order to implement our plan of operations for the
next 12 months. This minimum amount of capital must be raised in
order for us to properly execute our plan of operations. The
shares are being offered and sold on a best efforts basis. If we
fail to sell all of the shares offered, we will need to raise
additional funds through more offerings of our common stock to
achieve the following milestones.
Milestone 1: Establish an Office. We currently have an office
from where we can conduct operations. We anticipate total office
costs to be $23,000 for the next 12 months. This includes legal
and accounting expenses, rent, equipment such as computers and
telephones, and utilities.
25
Milestone 2: Complete Software Development. We will need at
least $8,000 to complete the development of our Redirector and
WarRoom software. On July 12, 2002, we purchased the software
from Quantum Leap Media, Inc. for $20,000 cash. We used the
proceeds from our private offering completed in January 2002 to
make this purchase. At the time of the purchase, the software
was not fully developed. Currently, the Redirector and WarRoom
can redirect domains and serve ads as required, but they still
need to be able to track all of this and present the information
to clients in a well formatted online report. It is anticipated
that following completion of this software, sales to clients
could begin almost immediately. This work will be completed by
contract labor in the first quarter of 2003.
Milestone 3: Purchase/Lease Hardware. We intend to lease three
dual pentium servers with a minimum of 1 Gigabyte of RAM and
purchase all peripherals including a backup device and
miscellaneous cabling. This will allow us to serve and track the
traffic we buy. (Accurate tracking of the traffic is very
important as it is how we will bill our clients). This will cost
at least $8,000 over the next 12 months. We expect the hardware
to be fully purchased in the second quarter of 2003.
Milestone 4: Hire Staff. We will engage an administrative person
as well as additional technical people. We expect that we may
hire one administrative person during our first year of business.
We expect that we may engage two to three technical people on a
contract basis to help design future software, configure
hardware, and keep our systems up and running. The hiring
process would include running advertisements in the local
newspaper and on the Internet and conducting interviews. It is
estimated that to hire a full time administrative person, as well
as have a technical team available on a contract basis will cost
$43,000 per year. This hiring will take place in the second
quarter of 2003.
Milestone 5: Develop Marketing Campaign. The next step would be
to develop an advertising campaign, including establishing a list
of prospects based on potential clients identified in the market
survey, and designing and printing sales materials.
Potential clients of Fenton Graham Marketing are small to medium
sized companies in North America, and primarily the United
States. These companies in most cases will already be offering a
product or service on the Internet.
It is anticipated that it would take approximately six to eight
weeks to develop the advertising campaign, although, depending on
the availability of resources, we will attempt to develop our
advertising campaign concurrently with establishing an office,
developing software, purchasing hardware, and hiring employees
and consultants. The cost of developing the first campaign is
estimated at approximately $3,000.
Milestone 6: Implementation of Advertising Campaign and Sales
Calls. Implementation of the advertising campaign would begin
with sending out e-mails and calling prospective clients.
Immediately following this, we would begin telephone follow ups.
The cost of these first round sales efforts is estimated at
$7,000. The implementation of advertising campaigns and sales
calls will begin in the third quarter of 2003.
26
Milestone 7: Achieve Revenues. It is difficult to quantify how
long it will take to convert our efforts into actual sales and
revenues. We hope that clients will begin using our services
within days of implementation of our advertising campaign, but it
may take several weeks before people begin to purchase our
services. Moreover, customers may not be willing to pay for the
service at the time they order, and may insist on buying on
account, which would delay receipt of revenues another month or
two. Assuming we have received all necessary approvals to begin
raising funds by October 15, 2002, and assuming an offering
period of approximately one month, in a best case scenario we may
receive our first revenues by August 1, 2003. However, a more
realistic estimate of first revenues would be September 1, 2003
or later. Fenton Graham will not generate revenues directly from
the sale or leasing of any software; we will use our software as
a means for delivering our product, targeted Internet traffic.
Our revenue will come from clients that receive our Internet
marketing efforts which include things like banner ads, pop-up
ads, and domain redirects. We will be paid based on the number
of people we send to a client's site or on a percentage of sales
generated from the people we send to their site.
We have no current plans, preliminary or otherwise, to merge with
or acquire any other entity.
DESCRIPTION OF PROPERTY
Our principal administrative, sales, marketing, research and
development offices are located at 13215 Verde River Drive, Unit
1, Fountain Hills, Arizona 85268. On February 1, 2002, we
entered into an agreement to lease, on a month-to-month basis,
1,485 square feet at a cost of $1,431 per month.
Our servers will be housed at Technology Alliance Group (TAG) in
Scottsdale, Arizona. VVVRRR, Inc. (VRI) leases, on a month-to-
month basis, approximately half of one server rack in TAG's data
center and uses about 2.5 Megabits of bandwidth. VRI is
responsible for payment of the monthly datacenter fees to TAG and
we currently pay VRI $200 per month for the use of 1/8 of the
rack of space and 1 Megabit of bandwidth. Until our software has
been fully developed and ready for business use, we lease this
limited space and bandwidth in order to house the one server we
use to test and develop our software. The facility at TAG
provides us with a secure area to store and operate our computer
systems and capacity for communications links and Internet
connectivity systems. Once our software is ready for business
use and we have purchased additional hardware, we will need to re-
evaluate our facility requirements and possibly enter into a
lease agreement directly with TAG in order to meet our housing
needs.
Since Fenton Graham is incorporated in Nevada it is required to
maintain a resident office in that state in which corporate
documents are available. The resident office is located at 777 N.
Rainbow Blvd., Suite 390, Las Vegas, Nevada 89107. No activities
take place in the resident office and no fees are charged by the
resident agent at this address. All other activities have been
consolidated to the facilities described above.
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 17, 2001 our founding officers and directors, Ken
Greble and J.P. Schrage, each received 2,500,000 shares of our
common stock for assisting in the formation of Fenton Graham.
The services were valued at at $2,500 each.
In December 2001, Ken Greble, former President and a director of
Fenton Graham, loaned the Company $1,100, which was used to pay
the costs related to the sales of the Company's common stock in a
private placement. The loan was non-interest bearing. $1,000 of the
loan was repaid on April 8, 2002 from the proceeds of the private
placement.
On July 1, 2002, Fenton Graham entered into a co-location
agreement with VVVRRR, Inc. (VRI) for the use of a portion of the
space VRI leases from Technology Alliance Group (TAG) to house
its servers. Fenton Graham will pay VRI $200 per month, on a
month-to-month basis, for partial use of the space it leases from
TAG. At the time Fenton Graham entered into the agreement, our
President, J.P. Schrage, was employed by VRI on a part-time
basis. Mr. Schrage received no benefit from the lease payments
made by Fenton Graham to VRI.
On July 5, 2002, Mr. Greble resigned as an officer and director
and returned his 2,500,000 shares to the Company for
cancellation. The shares were cancelled and reissued to Mr.
Schrage in consideration of his continued services to the
Company.
On July 12, 2002, Fenton Graham purchased for $20,000 cash all
rights, title and interest in the Redirector and WarRoom software
from Quantum Leap Media, Inc. (QLM). Mr. Schrage was employed by
QLM since January 2000 on a part-time basis as the Operations
Manager until it ceased operations in August 2002. Mr. Schrage
was not an officer, director or owner of QLM and received no
benefit from the sale of the software to Fenton Graham.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
As of the date of this prospectus and for the foreseeable future,
there is no public or private market for our shares. Management
has not undertaken any discussions, preliminary or otherwise,
with any prospective market maker concerning his participation in
the after-market for the our securities and Management does not
intend to initiate any discussions until we have raised enough
capital to conduct our business. There is no assurance that a
trading market will ever develop or, if a market does develop
that it will continue.
Holders
There are currently 19 holders of Fenton Graham's common stock.
28
Dividends
We do not have a policy of paying dividends, and it is currently
anticipated that no cash dividends will be paid in order to
retain earnings to finance future growth. Any future decision to
pay cash dividends will be made on the basis of earning,
alternative needs for funds and other conditions existing at the
time.
Shares Eligible for Future Sale
As of the date of this Prospectus, we had an aggregate of
6,000,000 shares of our common stock issued and outstanding, all
of which are "restricted securities," which may be sold only in
compliance with Rule 144 under the Securities Act of 1933, as
amended or exemptions from registration requirements of this act.
Rule 144 provides, in essence, that a person holding restricted
securities for a period of one year after payment therefore may
sell, in brokers' transactions or to market makers, an amount not
exceeding 1% of the outstanding class of securities being sold,
or the average weekly reported volume of trading of the class of
securities being sold over a four-week period, whichever is
greater, during any three-month period. (Persons who are not our
affiliates and who had held their restricted securities for at
least two years are not subject to the volume or transaction
limitations.) The sale of a significant number of these shares in
the public market may adversely affect prevailing market prices
of our securities.
EXECUTIVE COMPENSATION
Compensation of Directors. Our sole director receives no extra
compensation for his service on our Board of Directors.
Compensation of Officers. Effective November 1, 2002, we began
paying our sole officer, J.P. Schrage, a salary of $40,000 per
year when he became a full-time employee of the Company. Mr.
Schrage will not be compensated with cash for his prior services.
Mr. Schrage received 2,500,000 shares of our common stock, valued
at $2,500, for assisting us in our formation. On July 5, 2002,
when our former President resigned, he returned the 2,500,000
shares owned by him to the Company which were cancelled and
reissued to Mr. Schrage in consideration for his continued
services to the Company. Considering the $0.02 per share
offering price in this initial public offering, these shares were
valued at $50,000.
Employment Contracts. We anticipate that we will enter into an
employment contract with Mr. Schrage during the first quarter of
fiscal 2003. We do not currently know the material terms of that
contract although his salary may be renegotiated at that time if
the Company has generated revenues from operations.
Stock Option Plans. We have not adopted any stock option plans
for the benefit of our employees as of the date of this
prospectus.
29
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
CONTENTS
Page
Independent auditors' report F-1
Financial Statements:
Balance Sheet F-2
Statements of Operations F-3
Statement of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-14
30
INDEPENDENT AUDITORS' REPORT
Board of Directors
Fenton Graham Marketing, Inc.
Fountain Hills, Arizona
We have audited the accompanying balance sheet of Fenton Graham
Marketing, Inc. (A Development Stage Company) as of December 31,
2002, and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 2002 and
the periods from October 17, 2001 (inception) to December 31,
2002 and 2001. 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 auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits 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 Fenton Graham Marketing, Inc. as of December 31, 2002, and the
results of its operations and its cash flows for the year ended
December 31, 2002 and the periods from October 17, 2001
(inception) to December 31, 2002 and 2001, in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has losses
from operations and has not generated significant revenue. These
factors raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 5, 2003
F-1
31
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET - DECEMBER 31, 2002
ASSETS
Current assets -
cash and cash equivalents $ 26,325
Software 20,000
--------
Total assets $ 46,325
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities -
Accounts payable and accrued expenses $ 1,600
Due to officer 100
-------
Total current liabilities $ 1,700
Stockholder's equity:
Common stock, $0.001 par value, 100,000,000
shares authorized, 6,000,000 shares issued
and outstanding 6,000
Additional Paid-in Capital 145,300
Deficit accumulated during the
development stage (106,675)
---------
Total stockholder's equity 44,625
--------
$ 46,325
========
See accompanying notes to the financial statements. F-2
32
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the For the
period period
from from
October 17, October 17.
For the 2001 2001
year (inception) (inception)
ended to to
December December December
31, 2002 31, 2001 31, 2002
---------- ---------- ----------
Net revenue $ 5,708 $ - $ 5,708
Cost of revenue - - -
---------- ---------- ----------
Gross profit 5,708 - 5,708
Selling, general and
administrative expenses 106,370 6,013 112,383
---------- ---------- ----------
Loss from operations before
provision for income taxes (100,662) (6,013) (106,675)
Provision for income taxes - - -
---------- ---------- ----------
Net loss $(100,662) $ (6,013) $(106,675)
========== ========== ==========
Loss per share - basic and $ (0.02) $ (0.00)
diluted ========== ==========
Weighted average number of
shares - basic and diluted 5,995,753 5,148,077
basic and diluted ========= =========
See accompanying notes to the financial statements. F-3
33
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<Table>
<s> <c> <c> <c> <c> <c>
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
---------- -------- ---------- ----------- ------------
Balance at October 17, 2001 - $ - $ - $ - $ -
Issuance of founder shares for
services on October 17, 2001 5,000,000 5,000 - - 5,000
Sale of shares for cash at $0.10
per share on December 4, 2001 385,000 385 38,115 - 38,500
Subscribed shares of common stock
at $0.10 per share on December
4, 2001 - - 29,500 - 29,500
Costs incurred for private
placement on December 4, 2001 - - (1,200) - (1,200)
Net loss for the period from
October 17, 2001 (inception)
to December 31, 2001 - - - (6,013) (6,013)
----------- --------- --------- --------- --------
Balance at December 31, 2001 5,385,000 5,385 66,415 (6,013) 65,787
Issuance of subscribed stock in
January 2002 295,000 295 (295) - -
Sale of shares for cash at $0.10
per share on January 4, 2002 320,000 320 31,680 - 32,000
Return of founder shares in
July 2002 (2,500,000) (2,500) - - (2,500)
Issuance of shares for services
in July 2002 2,500,000 2,500 47,500 - 50,000
Net loss for the year ended
December 31, 2002 - - - (100,662) (100,662)
----------- --------- --------- ---------- ---------
Balance at December 31, 2002 6,000,000 $ 6,000 $145,300 $(106,675) $ 45,625
=========== ========= ========= ========== =========
See accompanying notes to the financial statements. F-4
</Table<
34
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For the For the
period period
from from
October 17, October 17,
For the 2001 2001
year (inception) (inception)
ended to to
December December December
31, 2002 31, 2001 31, 2002
---------- ---------- ----------
Cash flows provided by (used
for) operating activities:
Net Loss $(100,662) $ (6,013) $(106,675)
---------- ---------- ----------
Adjustments to reconcile net
loss to net cash used for
operating activities -
non-cash compensation 50,000 5,000 55,000
Increase (decrease) in
liabilities - accounts
and accrued expenses 600 1,000 1,600
---------- ---------- ----------
Total adjustments 50,600 6,000 56,600
---------- ---------- ----------
Net cash used for operating
activities (50,062) (13) (50,075)
---------- ---------- ----------
Cash flows used for investing
activities - payments to
acquire software (20,000) - (20,000)
---------- ---------- ----------
Cash flows provided by (used
for) financing activities:
Proceeds from officer-
stockholder advance - 1,100 1,100
Payment on advance from
officer-stockholder (1,000) - (1,000)
Issuance of common stock 59,000 37,300 96,300
---------- ---------- ----------
Net cash provided by
financing activities 58,000 38,400 96,400
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (12,062) 38,387 26,325
Cash and cash equivalents,
beginning of year 38,387 - -
---------- ---------- ----------
Cash and cash equivalents, end
of year $ 26,325 $ 38,387 $ 26,325
========== ========== ==========
Supplemental disclosusre of cash
flow information:
Interest paid $ - $ -
========== ==========
Income taxes paid $ - $ -
========== ==========
Non cash activities:
Issuance of common stock for
services $ 50,000 $ 5,000
========== ==========
Stock subscription receivable
for unissued shares $ - $ 29,500
========== ==========
See accompanying notes to the financial statements. F-5
35
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(1) Description of Business and Summary of Significant Accounting Policies:
Nature of Operations:
Fenton Graham Marketing, Inc. (the "Company") is
currently a development stage company under the
provisions of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards
("SFAS") No. 7. The Company was incorporated under the
laws of the State of Nevada on October 17, 2001.
Although the Company recognized $5,708 in revenue in
the year ended December 31, 2002, they do not consider
this to be significant revenues, and therefore have
determined to remain as a development stage entity.
The Company does not expect to generate significant
revenues until May 2003 or later.
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
revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid investments
purchased with original maturities of three months or
less to be cash equivalents.
Software:
Software includes the cost paid for the rights, title,
and interest to use a software. Such cost is
capitalized and amortized on a straight-line basis over
a period of three years, commencing with product
release. As of December 31, 2002, the software has not
yet been placed in service; therefore, software cost
has not been amortized.
Research and Development:
Costs incurred in research and development activities
are charged to expense as incurred.
F-6
36
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(1) Description of Business and Summary of Significant Accounting Policies,
Continued:
Income Taxes:
Income taxes are provided for based on the liability
method of accounting pursuant to SFAS No. 109,
"Accounting for Income Taxes." Deferred income
taxes, if any, are recorded to reflect the tax
consequences on future years of differences between
the tax bases of assets and liabilities and their
financial reporting amounts at each year-end.
Earnings (loss) per share:
The Company calculates earnings (loss) per share in
accordance with SFAS no. 128, "earnings per share,"
which requires presentation of basic earnings per
share ("BEPS") and diluted earnings per share
("DEPS"). The computation of BEPS is computed by
dividing income available to common stockholders by
the weighted average number of outstanding common
shares during the period. DEPS gives effect to all
dilutive potential common shares outstanding during
the period. The computation of DEPS does not assume
conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on
earnings. As of December 31, 2002 and 2001, the
Company had no securities that would affect loss per
share if they were to be dilutive.
Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and
cash equivalents and accrued expenses. The carrying
amounts of these assets and liabilities approximate
their fair value due to the highly liquid nature of
these short-term instruments.
Stock-Based Compensation:
The Company accounts for stock-based employee
compensation arrangements in accordance with the
provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to
Employees" and complies with the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation cost is
recognized over the vesting period based on the excess,
if any, on the date of grant of the fair value of the
Company's shares over the employee's exercise price.
When the exercise price of the employee share options
is less than the fair value price of the underlying
shares on the grant date, deferred stock compensation
is recognized and amortized to expense in accordance
with FASB Interpretation No. 44 over the vesting period
of the individual options. Accordingly, if the
exercise price of the Company's employee options equals
or exceeds the market price of the underlying shares on
the date of grant, no compensation expense is
recognized. Options or shares awards issued to non-
employees or non-employee directors are valued using
the fair value method and expensed over the period
services are provided.
F-7
37
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(1) Description of Business and Summary of Significant Accounting Policies,
Continued:
Comprehensive Income:
SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for the reporting and display
of comprehensive income and its components in the
financial statements. The Company had no items of
other comprehensive income and therefore has not
presented a statement of comprehensive income.
Recent Accounting Pronouncements:
On June 29, 2001, SFAS No. 141, "Business
Combinations," was approved by the Financial Accounting
Standards Board ("FASB"). SFAS No. 141 requires that
the purchase method of accounting be used for all
business combinations initiated after June 30, 2001.
Goodwill and certain intangible assets will remain on
the balance sheet and not be amortized. On an annual
basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets
must be tested for impairment, and write-downs may be
necessary. The Company has implemented SFAS No. 141 on
January 1, 2002.
On June 29, 2001, SFAS No. 142, "Goodwill and Other
Intangible Assets," was approved by the FASB. SFAS No.
142 changes the accounting for goodwill from an
amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded
in past business combinations, will cease upon adoption
of this statement. The Company has implemented SFAS
No. 142 as of January 1, 2002.
In August 2001, SFAS No. 143, "Accounting for Asset
Retirement Obligations," was issued which requires the
recognition of a liability for an asset retirement
obligation in the period in which it is incurred. When
the liability is initially recorded, the carrying
amount of the related long-lived asset is
correspondingly increased. Over time, the liability is
accreted to its present value and the related
capitalized charge is depreciated over the useful life
of the asset. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company does
not expect the adoption to have a material impact to
the Company's financial position or results of
operations.
In August 2001, SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," was
issued. This statement addresses the financial
accounting and reporting for the impairment or disposal
of long-lived assets and broadens the definition of
what constitutes a discontinued operation and how
results of a discontinued operation are to be measured
and presented. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal
years beginning after December 15, 2001. The Company
does not expect the adoption to have a material impact
to the Company's financial position or results of
operations.
F-8
38
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(1) Description of Business and Summary of Significant Accounting Policies,
Continued:
Recent Accounting Pronouncements, Continued:
In April 2002, the FASB issued Statement No. 145,
"Rescission of SFAS Statements No. 4, 44, and 64,
Amendment of SFAS Statement No. 13, and Technical
Corrections," to update, clarify, and simplify existing
accounting pronouncements. SFAS Statement No. 4, which
required all gains and losses from debt extinguishment
to be aggregated and, if material, classified as an
extraordinary item, net of related tax effect, was
rescinded. Consequently, SFAS Statement No. 64, which
amended SFAS Statement No. 4, was rescinded because it
was no longer necessary. The Company has implemented
SFAS No. 142 as of January 1, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 addresses accounting and reporting for
cost associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized and
measured initially at fair value when the liability is
incurred. FASB No. 146 is effective for exit or
disposal activities that are initiated after
December 31, 2002, with early application encouraged.
The adoption of this statement did not have a material
effect on the Company's financial statements.
In October 2002, the FASB issued Statement No. 147,
"Acquisitions of Certain Financial Institutions-an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," which removes acquisitions of
financial institutions from the scope of both Statement
72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with
Statements No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to
include in its scope long-term customer-relationship
intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets
and credit cardholder intangible assets. The
requirements relating to acquisitions of financial
institutions is effective for acquisitions for which
the date of acquisition is on or after October 1, 2002.
The provisions related to accounting for the impairment
or disposal of certain long-term customer-relationship
intangible assets are effective on October 1, 2002.
The adoption of this Statement did not have a material
impact to the Company's financial position or results
of operations as the Company has not engaged in either
of these activities.
F-9
39
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(1) Description of Business and Summary of Significant Accounting Policies,
Continued:
Recent Accounting Pronouncements, Continued:
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure," which amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in
both annual and interim financial statements about the
method of accounting for stock-based employee
compensation and the effect of the method used on
reported results. The transition guidance and annual
disclosure provisions of Statement No. 148 are
effective for fiscal years ending after December 15,
2002, with earlier application permitted in certain
circumstances. The interim disclosure provisions are
effective for financial reports containing financial
statements for interim periods beginning after December
15, 2002. The adoption of this statement did not have
a material impact on the Company's financial position
or results of operations as the Company has not elected
to change to the fair value based method of accounting
for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities."
Interpretation No. 46 changes the criteria by which one
company includes another entity in its consolidated
financial statements. Previously, the criteria were
based on control through voting interest.
Interpretation No. 46 requires a variable interest
entity to be consolidated by a company if that company
is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or
both. A company that consolidates a variable interest
entity is called the primary beneficiary of that
entity. The consolidation requirements of
Interpretation No. 46 apply immediately to variable
interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements
apply in all financial statements issued after January
31, 2003, regardless of when the variable interest
entity was established. The Company does not expect the
adoption to have a material impact to the Company's
financial position or results of operations.
F-10
40
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(2) Going Concern:
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in
the United States of America, which contemplate continuation
of the Company as a going concern. As of December 31, 2002,
the Company has not generated significant revenue and has
incurred substantial losses for the year ended December 31,
2002 totaling $100,662.
There can be no assurances that sufficient financing will be
available on terms acceptable to the Company or at all. If
the Company is unable to obtain such financing or to
increase its revenue, the Company will be forced to scale
back operations, which could have an adverse effect on the
Company's financial condition and results of operations.
These factors raise substantial doubt about the Company's
ability to continue as a going concern.
Management intends to raise additional equity through a
private equity sale and a public offering. The Company
plans to use such proceeds to expand its current product
offering to allow for additional services for its customers.
Management anticipates revenue to grow as a result of
additional services offered to its customers. Management
believes that the additional financing and increase in
revenue will enable the Company to generate positive
operating cash flows and continue its operations. The
financial statements do not include any adjustments that
might result from the outcome of the uncertainty.
Management believes that actions presently being taken to
revise the Company's operating and financial requirements
provide the opportunity for the Company to continue as a
going concern.
(3) Software:
On July 12, 2002, the Company entered into an agreement,
with an entity that formerly employed the Company's
president, to purchase the software technology that the
Company needs to implement its plan of operations. The
acquired software was purchased for $20,000.
F-11
41
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(4) Income Taxes:
The components of the provision for income taxes for the
year ended December 31, 2002 and the periods from October
17, 2001 (inception) to December 31, 2002 and 2001 are as
follows:
December 31, December 31,
2002 2001
--------- --------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
------------ ------------
Total current $ - $ -
------------ ------------
Deferred Tax Expense:
U.S. Federal $ - $ -
State and Local - -
------------ ------------
Total Deferred $ - $ -
============ ============
Total Tax Provision (Benefit)
from Continuing Operations $ - $ -
============ ============
The reconciliation of the effective income tax rate to the
Federal statutory rate is as follows:
Federal Income Tax Rate 34.0% 34.0%
Effect of Valuation Allowance (34.0)% (34.0)%
--------- ---------
Effective Income Tax Rate 0.0% 0.0%
========= =========
At December 31, 2002 and 2001, the Company had a net
carryforward loss of $106,675 and $6,013, respectively.
Because of the current uncertainty of realizing the benefits
of the tax carryforward, a valuation allowance equal to the
tax benefits for deferred taxes has been established. The
full realization of the tax benefit associated with the
carryforward depends predominantly upon the Company's
ability to generate taxable income during the carryforward
period.
Deferred tax assets and liabilities reflect the net tax
effect of temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and
liabilities as of December 31, 2002 and 2001 are as follows:
F-12
42
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(4) Income Taxes, Continued:
December 31, December 31,
2002 2001
----------- -----------
Deferred Tax Assets
Loss carryforwards $ 44,000 $ 2,500
Less: Valuation allowance (44,000) (2,500)
----------- -----------
Net Deferred Tax Assets $ - $ -
=========== ===========
Net operating loss carryforwards begin to expire in 2021.
(5) Stockholders' Equity:
In October 2001, the Company issued 5,000,000 shares of
common stock for services valued at $5,000.
In December 2001, the Company sold 385,000 shares of common
stock at $0.10 per share for gross proceeds of $38,500, less
$1,200 for private placement costs.
In December 2001, an additional 295,000 shares of common
stock were subscribed at $0.10 per share for a total of
$29,500. During January 2002, the Company collected the
subscription receivable of $29,500. The 295,000 shares of
common stock were issued during the month.
In January 2002, the Company sold an additional 320,000
shares of common stock at $0.10 per share for gross proceeds
of $32,000.
On July 5, 2002, the President and Director of the Company
resigned and tendered back the 2,500,000 shares of common
stock issued to him. The shares were canceled and reissued
to the remaining founder as consideration for his continued
service to the Company. The shares reissued were valued at
$50,000, the value of the services provided.
F-13
43
FENTON GRAHAM MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2002
AND THE PERIODS FROM OCTOBER 17, 2001 (INCEPTION)
TO DECEMBER 31, 2002 AND 2001
(6) Related Party Transactions:
The officers/directors of the Company provide office and
other services without charge. Such costs are immaterial to
the financial statements and, accordingly, have not been
reflected therein. These individuals are involved in other
business activities and may, in the future, become involved
in other business opportunities.
As of December 31, 2001, the Company was obligated to a
stockholder in the amount of $1,100 for funds advanced for
working capital. The funds were used to pay the cost of the
sale of common stock described in Note 2. The advances bear
no interest and were due upon demand. On April 8, 2002, the
Company paid $1,000 of the outstanding balance.
(7) Commitments:
On February 1, 2002, the Company entered into a lease
agreement to house its principal administrative and
corporate office. The lease term is on a month-to-month
basis at a cost of $1,431 per month.
On July 1, 2002, the Company entered into a lease agreement,
with an entity that through November 1, 2002 employed the
Company's president, to house its computer hardware. The
lease term is on a month-to-month basis at a cost of $200
per month.
F-14
44
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the
Securities and Exchange Commission in connection with this
offering. This prospectus does not contain all of the information
set forth in the registration statement, as permitted by the
Rules and Regulations of the Securities and Exchange Commission.
Whenever reference is made in this prospectus to any contract or
other document of ours, the reference may not be complete and you
should refer to the exhibits that are part of the registration
statement for a copy of the contract or document.
We also file annual, quarterly and current reports and other
information with the Securities and Exchange Commission. You may
read and copy any report or document we file, and the
registration statement, including the exhibits, may be inspected
at the Securities and Exchange Commission's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Securities
and Exchange Commission filings are also available to the public
from the SEC's website at: http://www.sec.gov.
EXPERTS
The audited financial statements of the Company for the year
ended December 31, 2002 and the period from October 17, 2001
(inception) to December 31, 2002 and 2001 were audited by
Stonefield Josephson, Inc., an independent public accounting firm
with offices in Santa Monica, California. Their report regarding
the Company's financial statements is included in this prospectus
in reliance upon their authority as experts in accounting,
auditing, and giving such reports.
LEGAL MATTERS
The law office of Chapman & Flanagan, Ltd., Las Vegas, Nevada,
has acted as the Company's legal counsel regarding the validity
of the securities being offered by this prospectus.
45
OUTSIDE BACK COVER PAGE OF PROSPECTUS
Until _____________, 20___, all dealers that effect transactions
in these securities, whether or not participating in the
offering, may be required to deliver a prospectus. This is in
addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person is authorized to give any information or to make any
representation other than those contained in this prospectus, and
if given or made, such information or representation must not be
relied upon as having been authorized. This prospectus does
constitute an offer to sell or a solicitation of an offer to buy
any securities other than the shares offered by this prospectus
or an offer to sell or a solicitation of an offer to buy the
shares in any jurisdiction to any person to whom it is unlawful
to make such an offer or solicitation in such jurisdiction.
-------------------------------
Up to 5,000,000 Shares
Fenton Graham Marketing, Inc.
Common Stock
-------------------------------
Prospectus
-------------------------------
Fenton Graham Marketing, Inc.
13215 Verde River Drive, Unit 1
Fountain Hills, AZ 85268
(480) 836-8720
46
[ALTERNATIVE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
Prospectus
1,000,000 SHARES OF COMMON STOCK
OF
FENTON GRAHAM MARKETING, INC.
We are registering 1,000,000 shares of our common stock for sale
by certain selling security holders. These shareholders are
referred to throughout this prospectus as "selling security
holders."
These selling shareholders will sell their shares at a price of
$0.02 per share until our shares are quoted on the OTC Bulletin
Board and thereafter at prevailing market prices, or at privately
negotiated prices. We will not receive any of the proceeds from
the sales of shares by the selling security holders.
No public trading market for our common stock exists.
OUR COMMON STOCK BEING OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD READ THE "RISK FACTORS" SECTION
BEGINNING ON PAGE 5 BEFORE YOU DECIDE TO PURCHASE ANY COMMON
STOCK.
Neither the Securities and Exchange Commission nor any state
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Nor have
they made, nor will they make, any determination as to whether
anyone should buy these securities. Any representation to the
contrary is a criminal offense.
The date of this Prospectus is ________, 2003
47
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
THE OFFERING
Shares offered by Selling
Security Holders 1,000,000 shares of common stock.
Plan of distribution The offering of our
shares of common stock
are being made by 18
shareholders of Fenton
Graham who may wish to
sell their shares.
These selling
shareholders will offer
their stock at a price
of $0.02 per share until
our shares are quoted on
the OTC Bulletin Board
and thereafter at
prevailing market
prices, or at privately
negotiated prices.
Use of proceeds Fenton Graham will not
receive any proceeds
from the sale of shares
owned by the selling
security holders.
CONCURRENT OFFERING
The registration statement of which this prospectus is a part
also includes a prospectus with respect to the offering by Fenton
Graham for cash of 5,000,000 shares of Fenton Graham common
stock. This distribution may have a material adverse effect on
the market price of the common stock offered by the selling
security holders.
Shares offered by Fenton Graham 5,000,000 shares of
common stock.
Shares to be sold by Selling 1,000,000 shares of
Security Holders common stock.
Plan of distribution Fenton Graham will offer
and sell 5,000,000
shares for cash at a
price of $0.02 per
share.
Use of proceeds Fenton Graham will
receive the proceeds to
be derived from the sale
of an aggregate
5,000,000 shares of its
common stock.
48
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
USE OF PROCEEDS
This prospectus is part of a registration statement that permits
the shareholders of Fenton Graham who are identified in this
prospectus to sell their shares of Fenton Graham's common stock
in the open market or in privately negotiated transactions. We
will not receive any of the proceeds from the sale of the shares
by the selling security holders but have agreed to bear all
expenses for registration of the shares under federal securities
laws. All proceeds from the sale of the common stock will be
paid to the selling security holders.
49
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
DETERMINATION OF OFFERING PRICE
The selling security holders will offer and sell the shares at
$0.02 per share until our shares are qutoed on the OTC Bulletin
Board and thereafter at prevailing market prices or privately
negotiated prices. The price of the offered shares is based on
our management's belief about the value of our business plan.
Our common stock is presently not traded on any market or
securities exchange.
50
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
SELLING SECURITY HOLDERS
The following table sets forth the name of the selling security
holders, the number of shares of common stock beneficially owned
by each selling security holder as of May 7, 2002, the number of
shares that each may offer, and the number of shares of common
stock beneficially owned by each selling security holder upon
completion of the offering, assuming all of the shares are sold.
<Table>
<s> <c> <c> <c> <c>
Before the Offering After the Offering
-------------------------- --------------------------
Shares Percentage Shares Percentage
Name of Selling Beneficially of Common Beneficially of Common
Security Holder Owned Stock Owned Stock
- --------------- ------------ ---------- ------------ ----------
Risque, LLC (1) 250,000 4.2% 0 *
James Wexler (2) 250,000 4.2% 0 *
Regina Wexler (2) 15,000 * 0 *
Merial H. Schine 15,000 * 0 *
Deborah Wexler 15,000 * 0 *
Tara Romeo (3) 30,000 * 0 *
Daniel Wexler (2)(3) 30,000 * 0 *
Dennis Pannulo (4) 30,000 * 0 *
Sandra Downing (4) 30,000 * 0 *
Dennis Reissig (5) 15,000 * 0 *
Sherri L. Reissig (5) 15,000 * 0 *
Constance J. Fournier (6)(7) 30,000 * 0 *
Francis O. Fournier (6) 30,000 * 0 *
Mark Griggs (7) 250,000 4.2 0 *
Mary G. Fuoco 15,000 * 0 *
Julie Norrod 15,000 * 0 *
Naomi L. McKee 15,000 * 0 *
Paul DeRosa 40,000 * 0 *
- -----------------------------
</Table>
* Denotes less than 1% of the issued and outstanding shares of common stock.
(1) Cinda Hey is the principal of Risque LLC. Neither Ms. Hey
nor Risque LLC is deemed to be an affiliate of Fenton Graham. No
other relationship exists between Ms. Hey, Risque LLC and any of
the selling security holders.
(2) Regina Wexler is the mother of James Wexler and Daniel
Wexler. Both James and Daniel Wexler are adults. Each disclaim
beneficial ownership of each other's shares.
(3) Tara Romero and Daniel Wexler are husband and wife. Tara
Romero directly owns 15,000 shares and Daniel Wexler directly
owns 15,000 shares. Therefore, Ms. Romero and Mr. Wexler are
deemed to beneficially own each other's shares.
51
(4) Sandra Downing and Dennis Pannullo are husband and wife.
Sandra Downing directly owns 15,000 shares and Dennis Pannullo
directly owns 15,000 shares. Therefore, Ms. Downing and Mr.
Pannullo are deemed to beneficially own each other's shares.
(5) Sherri L. Reissig and Dennis Reissig are husband and wife.
Sherri L. Reissig directly owns 15,000 shares and Dennis Reissig
directly owns 15,000 shares. Therefore, Mr. and Mrs. Reissig are
deemed to beneficially own each other's shares.
(6) Constance Fournier and Francis Fournier are husband and
wife. Constance Fournier directly owns 15,000 shares and Francis
Fournier directly owns 15,000 shares. Therefore, Mr. and Mrs.
Fournier are deemed to beneficially own each other's shares.
(7) Constance Fournier is the mother of Mark Griggs. Mark
Griggs is an adult. Each disclaim beneficial ownership of each
other's shares.
52
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling security
holders. We will pay all costs, expenses and fees in connection
with the registration of the shares offered by this prospectus.
Brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares will be paid by the selling
security holders.
The selling security holders will offer their stock at a price of
$0.02 per share until our shares are quoted on the OTC Bulletin
Board and thereafter at prevailing market prices, or at privately
negotiated prices. Such transactions may or may not involve
brokers or dealers.
The selling security holders have advised us that they have not
entered into any agreements, understandings or arrangements with
any underwriters or brokers-dealers regarding the sale of their
securities. In addition, there is not an underwriter or
coordinating broker acting in connection with the proposed sale
of shares by the selling security holders.
The selling security holders may effect such transactions by
selling shares directly to purchasers or to or through broker-
dealers, which may act as agents or principals. Such broker-
dealers may receive compensation in the form of discounts,
concessions, or commissions from the selling security holders
and/or the purchasers of shares for whom such broker-dealers may
act as agents or to whom they sell as principal, or both. The
compensation paid as to a particular broker-dealer might be in
excess of customary commissions.
The selling security holders and any broker-dealers that act in
connection with the sale of shares might be deemed to be
underwriters within the meaning of Section 2(11) of the
Securities Act. Any commissions received by such broker-dealers
and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts
or commissions under the Securities Act.
Because selling security holders may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act, the
selling security holders will be subject to the prospectus
delivery requirements of the Securities Act. We will make copies
of this prospectus available to the selling stockholders and have
informed them of the need for delivery of copies of this
prospectus to purchasers at or prior to the time of any sale of
the shares of common stock. The selling stockholders may
indemnify any broker-dealer that participates in transactions
involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
Regulation M
We have informed the selling security holders that Regulation M
promulgated under the Securities Exchange Act of 1934 may be
applicable to them with respect to any purchase or sale of our
common stock. In general, Rule 102 under Regulation M prohibits
53
any person connected with a distribution of our common stock from
directly or indirectly bidding for, or purchasing for any account
in which it has a beneficial interest, any of the common stock or
any right to purchase this stock, for a period of one business
day before and after completion of its participation in the
distribution.
During any distribution period, Regulation M prohibits the
selling security holders and any other persons engaged in the
distribution from engaging in any stabilizing bid or purchasing
our common stock except for the purpose of preventing or
retarding a decline in the open market price of the common stock.
None of these persons may effect any stabilizing transaction to
facilitate any offering at the market. As the selling security
holders will be reoffering and reselling our common stock at the
market, Regulation M will prohibit them from effecting any
stabilizing transaction in contravention of Regulation M with
respect to this stock.
54
[ALTERNATIVE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
Outside back cover page of prospectus
Until _____________, 20___, all dealers that effect transactions
in these securities, whether or not participating in the
offering, may be required to deliver a prospectus. This is in
addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person is authorized to give any information or to make any
representation other than those contained in this prospectus, and
if given or made, such information or representation must not be
relied upon as having been authorized. This prospectus does
constitute an offer to sell or a solicitation of an offer to buy
any securities other than the shares offered by this prospectus
or an offer to sell or a solicitation of an offer to buy the
shares in any jurisdiction to any person to whom it is unlawful
to make such an offer or solicitation in such jurisdiction.
-------------------------------
Up to 1,000,000 Shares
Fenton Graham Marketing, Inc.
Common Stock
-------------------------------
Prospectus
-------------------------------
Fenton Graham Marketing, Inc.
13215 Verde River Drive, Unit 1
Fountain Hills, AZ 85268
(480) 836-8720
55
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
The Company's Articles of Incorporation and By-laws provide that
the Corporation shall indemnify any Directors, Officer, Employee
or Agent of the Corporation who was or is party or is threatened
to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in
the right of the Corporation, by reason of the fact that he is or
was a Director, Officer, employee or agent of the Corporation or
is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and, in the case of conduct in his official capacity
with the Corporation, in a manner he reasonably believed to be in
the best interest of the Corporation, or, in all other cases,
that his conduct was at least not opposed to the Corporation's
best interests. In the case of any criminal proceeding, he must
have had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment,
order settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, or itself, determine that the
individual did not meet the standard of conduct set forth in this
paragraph.
Fenton Graham currently maintains no director's and officer's
insurance policy or any liability insurance concerning its
officers and directors.
Item 25. Other Expenses of Issuance and Distribution
The following expenses of the offering, except for the SEC fees,
are estimated, all of which will be paid by the Registrant.
SEC Registration Fee $ 11
Blue Sky Fees and Expenses 0
Legal Fees and Expenses 3,500
Accountants' Fees and Expenses 5,000
Miscellaneous 489
Total $ 9,000
Item 26. Recent Sales of Unregistered Securities
Between December 4, 2001 and January 11, 2002, Fenton Graham
conducted a private placement of its common stock in reliance
upon the exemptions from registration set forth in Section 4(2)
of the Securities Act of 1933, as amended and Rule 506 of
Regulation D promulgated thereunder. None of the transactions
involved a distribution or public offering. Each of the
56
investors were given the opportunity to ask questions and receive
answers from the Company concerning the terms and conditions of
the offering or receive additional information prior to their
purchase.
Each purchaser executed and delivered to the Company checks
representing payment in full for the shares subscribed for along
with an investment letter acknowledging that they:
- were an accredited investor as that term is defined in Rule
501 of Regulation D;
- were aware that the securities had not been and may never be
registered under federal or state securities laws;
- acquired the securities for his/her/its own account for
investment purposes only, and not with a view toward reselling,
transferring or distributing such securities except in accordance
with applicable law;
- understood that the securities would need to be indefinitely
held unless registered or an exemption from registration applied
to a proposed disposition; and
- were aware that the certificate representing the securities
would bear a legend restricting its transfer.
The offers and sales were made by Mr. Ken Greble and Mr. J.P.
Schrage, our officers and directors at the time of the offering.
Messrs. Greble and Schrage offered and sold a total of 1,000,000
shares of our common stock for the offering price of $0.10 per
share to a total of 18 accredited investors for a total
consideration of $100,000 cash, as follows
Date Purchaser Shares
12/04/01 Risque, LLC 250,000
12/04/01 Regina Wexler 15,000
12/04/01 Merial H. Schine 15,000
12/04/01 Deborah Wexler 15,000
12/04/01 Tara Romeo 15,000
12/04/01 Daniel Wexler 15,000
12/04/01 Sandra Downing 15,000
12/04/01 Dennis Reissig 15,000
12/04/01 Sherri L. Reissig 15,000
12/04/01 Dennis Pannullo 15,000
01/03/02 Constance J. Fournier 15,000
01/03/02 Francis O. Fournier 15,000
01/03/02 Mary G. Fuoco 15,000
01/03/02 Julie Norrod 15,000
01/03/02 Naomi L. McKee 15,000
01/03/02 Mark Griggs 250,000
01/03/02 James Wexler 250,000
01/11/02 Paul DeRosa 40,000
57
On July 5, 2002, following the resignation of Ken Greble as
President and director, the Company issued 2,500,000 shares of
common stock to J.P. Schrage, the Company's sole remaining
officer and director, in consideration of his continued services
to the Company. The issuance of these securities was deemed to
be exempt from registration under Section 4(2) of the Securities
Act, as transactions by an issuer not involving a public
offering.
Item 27. Exhibits
Number Description
3.1* Amended and Restated Articles of Incorporation
3.2* By-laws
4.1* Form of Common Stock Certificate
5.1 Opinion of Chapman & Flanagan, Ltd.
10.1* Assignment of the Redirector and WarRoom software
to Fenton Graham by Quantum Leap Media, Inc.
dated July 12, 2002.
10.2 Co-Location Agreement between the Company and
VVVRRR, Inc. dated July 1, 2002
23.1 Consent of Stonefield Josephson, Inc., Certified
Public Accountants
23.2 Consent of Chapman & Flanagan, Ltd. (contained in
Exhibit 5.1)
99* Subscription Agreement
* Previously filed.
Item 28. Undertakings
The undersigned registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this
registration statement to:
i. include any prospectus required by section 10(a)(3) of the
Securities Act;
ii. reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement; and
notwithstanding the forgoing, any increase or decrease in
volume of securities offered, if the total dollar value of
securities offered would not exceed that which was registered,
and any deviation from the low or high end of the estimated
58
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
iii. include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) Provide to the underwriter at the closing specified in
the underwriting agreement certificates in such
denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities, other than the payment by the small business
issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding, is
asserted by such director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
59
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of Fountain Hills, State of Arizona, on March 24, 2003
FENTON GRAHAM MARKETING, INC.
By: /s/ J.P. Schrage,
President/Secretary/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ J.P. Schrage Chief Executive Officer, March 24, 2003
Principal Financial and
Accounting Officer, and
Director
60
EXHIBIT INDEX
Number Description Page
3.1 Amended and Restated Articles of Incorporation *
3.2 Bylaws *
4.1 Form of Common Stock Certificate *
5.1 Opinion of Chapman & Flanagan, Ltd. 62
10.1 Assignment of the Redirector and WarRoom software *
to Fenton Graham by Quantum Leap Media, Inc.
dated July 12, 2002
23.1 Consent of Stonefield Josephson, Inc., Certified 63
Public Accountants
23.2 Consent of Chapman & Flanagan, Ltd. (contained in 62
Exhibit 5.1)
99 Subscription Agreement *
* Previously filed.
61