Registration Number: 333-91485
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
SECOND AMENDMENT TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KINGSGATE ACQUISITIONS, INC.
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(Name of small business
issuer in its charter)
Delaware 6770 98-0211672
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(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
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(Address and telephone number of principal executive offices)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
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(Address of principal place of business or
intended principal place of business)
Roger L. Fidler, Esq. 163 South Street, Hackensack, NJ 07601 (201) 457-1221
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(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: as soon as practicable
after the effective date of the registration statement and date of the
prospectus.
The registrant hereby amends the 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 the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Proposed Proposed Amount of
Securities Being Being Maximum Maximum Registration
Registered Registered Offering Aggregate Fee
Price Per Offering
Unit (1) Price(1)
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Shares of Common Stock
Contained in Units 1,000,000 $ 0.10 $ 100,000 $ 30.30
Warrants 5,000,000 0 0
Shares of Common Stock
Underlying Warrants 5,000,000 1.00 5,000,000 1,515.15
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TOTAL $ 5,100,000 $ 1,545.45
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457.
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
- ---- ------------- --------------------
1. Front of Registration Statement Front of Registration
and Outside Front Cover of Statement and Outside
Prospectus Front Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus of Prospectus and Outside
Front Cover Page of
Prospectus
3. Summary Information and Risk Prospectus Summary;
Factors High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Prospectus Summary -
Price Determination of Offering
Price; High Risk Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management of Common Stock
12. Description of Securities Description of Securities
13. Interest of Named Experts and Legal Opinions; Experts
Counsel
14. Disclosure of Commission Position Statement as to
on Indemnification for Securities Indemnification
Act Liabilities
15. Organization Within Last Management; Certain
Five Years Transactions
16. Description of Business Proposed Business
17. Management's Discussion and Proposed Business -
and Analysis or Plan of Plan of Operation
Operation
18. Description of Property Proposed Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Stock and Prospectus Summary;
Related Stockholder Matters Market for Registrant's
Common Stock and Related
Stockholders Matters;
High Risk Factors
21. Executive Compensation Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure
PROSPECTUS
Initial Public Offering
KINGSGATE ACQUISITIONS, INC.
(A Delaware Corporation)
1,000,000 Units Offered at $0.10 per Unit
Kingsgate Acquisitions, Inc. offers for sale 1,000,000 units, each
consisting of one share of common stock, and five two-year redeemable common
stock purchase warrants, at a purchase price of $0.10 per unit. We are selling
the units on a "best-efforts, all or none basis" for a period of 90 days from
the date of the prospectus or all escrowed funds will be returned with interest.
We will not use an underwriter or securities dealer. Prior to the offering, no
public market has existed in our securities. We cannot guarantee that a trading
market in the units or in the shares of common stock or warrants which
constitute the units will ever develop.
These securities have not been approved or disapproved by the Securities
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and Exchange Commission nor has the Commission passed upon the accuracy or
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adequacy of the prospectus. Any representation to the contrary is a criminal
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offense.
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These securities are highly speculative, involve a high degree of risk and
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should be purchased only by persons who can afford to lose their entire
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investment (see "Risk Factors" commencing page 7 for special risks concerning us
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and the offering).
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Underwriting
Price to Discounts and Proceeds to the
Public Commissions the Company
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Per Unit $ 0.10 $ 0 $ 0.10
TOTAL $ 100,000.00 $ 0 $ 100,000.00
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The date of the Prospectus is , 2000.
2
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................
Summary Financial Information..................................
Investors' Rights and Substantive Protection under Rule 419....
Risk Factors...................................................
Dilution.......................................................
Use of Proceeds................................................
Capitalization.................................................
Proposed Business..............................................
Management.....................................................
Statement as to Indemnification................................
Market for our Common Stock....................................
Certain Transactions...........................................
Principal Stockholders.........................................
Description of Securities......................................
Plan of Distribution...........................................
Expiration Date................................................
Litigation.....................................................
Legal Opinions.................................................
Experts........................................................
Further Information............................................
Financial Statements...........................................
3
PROSPECTUS SUMMARY
The Company
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We were organized under the laws of the State of Delaware on September 28,
1999 as a vehicle to acquire or merge with a business.
We are making the offering in
compliance with Rule 419 of Regulation C to the Securities Act of 1933. Pursuant
to Rule 419, the proceeds of the offering as well as the securities purchased
will be placed in an escrow account. None of the securities and only 10% of the
funds may be removed from escrow until a business combination has been
negotiated and our stockholders have reconfirmed the offering, including the
terms and conditions of the business combination. Our officers, directors,
current stockholders and any of their affiliates or associates may purchase up
to 50% of the offering.
Since our organization, our activities have been limited to the initial
sale of shares of our common stock in connection with our organization and the
preparation of the registration statement and the prospectus for our initial
public offering. We will not engage in any substantive commercial business
following the offering.
We maintain our office at 950 11th Street, West Vancouver, British Columbia
V7T 2M3 Canada. Our phone number is (604) 926-6775.
The Offering
Units offered.................................................... 1,000,000
units
Common Stock outstanding
prior to the offering............................................ 2,000,000
shares
Common Stock to be
outstanding after the offering................................... 3,000,000
shares
Warrants outstanding
prior to the offering............................................ 0
warrants
Warrants to be
outstanding after the offering................................... 5,000,000
warrants
Common Stock to be outstanding after the offering
and assuming exercise of all warrants............................ 8,000,000
warrants
We will realize net proceeds of $1.00 per warrant or an aggregate of
$5,000,000 from the exercise of all the warrants. These proceeds will be added
to the working capital of the target company.
4
Offering Conducted in Compliance with Rule 419
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We are a blank check company which is a development stage company. Our sole
business purpose is to merge with or acquire a presently unidentified company or
business. Consequently, the offering is being conducted in compliance with Rule
419. The securities purchased by investors and the funds received in the
offering will be deposited and held in an escrow account, except for 10% of the
funds which we may withdraw, until an acquisition meeting specific criteria is
completed. Before the acquisition can be completed and before the remainder of
the investors' funds can be released to us and certificates representing the
securities can be released to the investors, we are required to update the
registration statement with a post-effective amendment, and, within the five
days after its effective date, we are required to furnish investors with a
prospectus. The prospectus, which is part of the post-effective amendment, will
contain the terms of a reconfirmation offer and information regarding the
acquisition candidate and its business, including the terms and conditions of
the acquisition agreement and audited financial statements of the acquisition
candidate. Investors must have no fewer than 20 and no more than 45 business
days from the effective date of the post-effective amendment to decide to
reconfirm their investment and remain an investor or, alternately, to require
the return of their funds, including interest, from escrow. Any investor not
making a decision within 45 days will automatically have his or her escrowed
funds returned, plus interest. If we do not complete an acquisition meeting
specified criteria within 18 months of the date of the prospectus, all of the
funds in the escrow account must be returned to investors, plus interest. Thus,
if the offering period is extended to its limit, we will have only 15 months in
which to consummate a merger or acquisition.
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information and is qualified in
its entirety by our audited financial statements.
Upon the sale of all the units in the offering, we will receive funds of
$100,000, all of which must be deposited in an escrow account. We may withdraw
from escrow and use $10,000 as working capital in order to seek a target
company. Our management intends to request release of these funds from escrow.
5
From September 28, 1999
to December 31, 1999
-----------------------
Statement of Income Data:
Net Sales $ 0
Net Gain (Loss) $ (163)
Net Loss Per Share $ 0.00
Shares Outstanding at 12/31/99 2,000,000
Pro-Forma
As of After
December 31, 1999 Offering
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Balance Sheet Data
Working Capital $ 8,052 $ 107,552 (1)
Total Assets $ 20,337 $ 108,052 (2)
Long Term Debt $ 0 $ 0
Total Liabilities $ 500 $ 0
Common stock $ 2,000 $ 3,000
Additional paid in capital $ 18,000 $ 105,215 (2)
Deficit accumulated during
development stage $ (163) (163)
Total Shareholders' Equity $ 19,837 $ 108,052
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(1) Assumes payment of net proceeds of $100,000 less the payment of the $500 in
liabilities.
(2) Assumes net proceeds of $100,000 less allocation of dferred offering costs
of $11,785.
6
RISK FACTORS
The securities we are offering are highly speculative in nature and involve
an extremely high degree of risk. They should be purchased only by persons who
can afford to lose their entire investment.
After the offering, investors must rely on our current management who will be
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able to make all decisions including the choice of a target company.
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Current stockholders will continue to own a controlling interest and will
able to elect all our directors. If the offering is sold, our current
stockholders will own two-thirds of our common stock and can choose, if they so
desire, to continue present management to find a target company. There are no
voting agreements between current management and our remaining stockholders that
will insure management control. Upon the successful completion of a business
combination, we anticipate that we will have to issue to the owners of the
acquired company authorized but unissued common stock representing a majority of
the issued and outstanding shares of our common stock. Therefore, we anticipate
that the consummation of a business combination will result in a change of
control and the resignation or removal of our present officers and directors. If
our management changes, we can provide no assurance of the experience or
qualification of the new management in the operation of the acquired business.
Investors will not have access to their funds after the consummation of the
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offering for a period of up to 18 months.
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Commencing upon the sale of the units, the investor' funds, reduced by 10%
for expenses as permitted by Rule 419, will remain in escrow, in an interest -
bearing account.
Investors may exercise their warrants during the escrow period. However,
both the cash exercise price and the shares of common stock underlying the
warrants must be kept in escrow until reconfirmation.
Investors will have no right to the return of or the use of their funds or
the securities purchased for a period of up to 18 months from the date of the
prospectus. No transfer or other disposition of the escrowed securities can be
permitted other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order, or pursuant to the Employee
Retirement Income Security Act.
We have not entered into or negotiated any arrangements to acquire a target
business. We can give no assurance that we will succeed in finding a suitable
target or entering into an agreement to acquire a business. We cannot consummate
a business combination with a target business unless investors owning at least
80% of the units elect to reconfirm their investments.
Investors will be offered the return, with interest, of their funds held in
escrow only if
+ they vote against reconfirmation in the reconfirmation offering
required to be conducted after execution of an agreement to acquire a
suitable target business; or
+ if we are unable to locate a target business meeting the mandated
acquisition criteria. However, in that event, investors may have to
wait 18 months from the date of the prospectus before a pro rata
portion of their funds, plus interest is returned to them.
+ if investors do not reconfirm their investment within 45 days after
receipt of the post-effective amendment to the registration statement,
their funds will be returned with interest.
7
Conflicts of interest may adversely affect investors.
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A conflict of interest may arise between our management's personal
pecuniary interest and its fiduciary duty to our stockholders. Present
stockholders will own two-thirds of our outstanding common stock after the
offering is completed and would therefore continue to retain control. In
addition, present stockholders may purchase up to 50% of the units in the
offering. Barney Magnusson, President and Treasurer, and his wife, Leslie
McGuffin, Secretary, own a total of 250,000 shares comprising 12.5% of the
outstanding shares before the offering and 8.3% after the offering. Further, our
management's own pecuniary interest may at some point compromise its fiduciary
duty to our stockholders. No proceeds from the offering will be used to
purchase, directly or indirectly, any shares of our common stock owned by our
management or any present stockholder, director or promoter.
Our directors and officers are or may become, in their individual
capacities, officers, directors, controlling stockholders and/or partners of
other entities engaged in a variety of businesses. Each of our officers and
directors is engaged in outside business activities, and the amount of time they
will devote to our business is anticipated to be only about five to twenty hours
each per week. Although our management is not involved in any other blank check
offerings, conflicts in the pursuit of business combinations with other blank
check companies with which members of our management may become affiliated in
the future may arise. To aid the resolution of such conflicts, we have adopted a
procedure whereby in the confirmation offer to our stockholders to vote upon a
business combination with an affiliated entity, stockholders who also hold
securities of the affiliated entity will be required to vote their shares of our
stock in the same proportion as non-affiliated stockholders. Such procedure has
been orally agreed to with our management and will be incorporated in any
acquisition agreement with a target company in which any of our shareholders has
an interest.
Our certificate of incorporation, by-laws and minutes contain no
requirement that our officers and directors disclose potential target businesses
which come to their attention. Our officers and directors do, however, have a
fiduciary duty of loyalty to disclose to us any target businesses which come to
their attention in their capacity as an officer or director or otherwise.
Through an oral understanding with our management, we will not acquire any
company in which more than a majority of its capital stock is beneficially owned
by any of our officers, directors, promoters, affiliates or associates or a
combination thereof.
8
We anticipate making one acquisition and investors will take the risk of the
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quality of the new management and to economic fluctuations in the chosen
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industry.
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In the event we are successful in acquiring a suitable business, we will,
in all likelihood, be required to issue our common stock in an acquisition or
merger transaction so that the owners of the acquired business would own a
majority of our common stock. Thus, we do not believe that we will be able to
negotiate more than one business combination. Our lack of diversification will
subject us to the quality of the new management and to economic fluctuation
within a particular industry in which the target company conducts business.
We may redeem our warrants for nominal consideration and warrantholders who
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live in states in which our common stock has not be qualified may be unable to
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sell or exercise them.
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Each warrant enables the holder to purchase one share of our common stock
at an exercise price of $1.00 for the two year period commencing the date of the
prospectus. We may redeem the warrants for $.001 each upon 30 days' prior
notice, if the closing bid price of our common stock, as reported by the Over
the Counter Bulletin Board or other market on which our common stock trades,
exceeds $1.25 per share, for any twenty consecutive trading days ending within
ten days of the notice of redemption.
We must file a post-effective amendment under the Securities Act:
+ after nine months subsequent to the date of the prospectus when any
information contained in the prospectus is over sixteen months old;
+ when facts or events have occurred which represent a fundamental
change in the information contained in the registration statement; or
+ when any material change occurs in the information relating to the
plan or distribution of the securities registered by such registration
statement.
We will be able to issue shares of our common stock upon the exercise of
the warrants only if
(i) there is a current prospectus relating to the shares of our common
stock underlying the warrants as part and
(ii) the shares stock are qualified for sale or exempt under applicable
state securities laws of the jurisdictions in which holders of warrants reside.
We can offer no assurance that we will be successful in maintaining a current
registration statement.
9
In addition, we will be prevented from issuing shares of our common stock
upon exercise of the warrants in those states where exemptions are unavailable
and we have failed to qualify our shares of common stock issuable upon exercise
of the warrants. We may decide not to seek or not be able to obtain
qualification of the issuance of such common stock in all of the states in which
the ultimate purchasers of the warrants reside. In such a case, the warrants of
those purchasers will expire and have no value if warrants cannot be exercised
or sold. Accordingly, the market for the warrants may be limited because of our
obligation to fulfill both of the foregoing requirements.
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Pursuant to the terms of an escrow agreement, we will immediately deposit
investors' funds in an escrow account maintained by Torrington Savings Bank, 129
Main Street, Torrington, Connecticut 06790-0478. All investors' checks or money
orders should be made payable to "Torrington Savings Bank as Escrow Agent for
Kingsgate Acquisitions, Inc." Unless all 1,000,000 units have been sold, and
$100,000 has been placed in escrow within 90 days from the date of the
prospectus, funds remaining in escrow will be returned to investors in full with
interest.
Upon our sale of all 1,000,000 units within the offering period, other
terms of the escrow agreement, which have been included to comply with Rule 419,
will govern the treatment of the funds tendered by investors and the securities
purchased by investors. Certificates in the investors' names evidencing the
shares and warrants which constitute the units will be promptly deposited into
the escrow account upon issuance. Rule 419 permits 10% of the offering proceeds
to be disbursed to us from the escrow account prior to our consummating a
business combination. We intend to request release of these funds. We will
receive the remainder of the escrowed funds only when we consummate a business
combination.
We have filed with the Commission under the Securities Act, a registration
statement relating to the units, the shares and warrants constituting the units
and the shares underlying the warrants. We have not included in the prospectus
all of the information in the registration statement and the attached exhibits.
Statements of the contents of any document are not necessarily complete. Copies
of these documents are contained as exhibits to the registration statement. We
will provide to you a copy of any of any referenced information if you contact
us at 950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada,
Attention: Chief Financial Officer, telephone (604) 926-6775.
As of the effective date of the registration statement, we will be a
reporting company and will be subject to the reporting requirements of the
Securities Exchange Act. We will file periodic reports voluntarily in the event
that our obligation to file such reports is suspended under Section 15(d) of the
Securities Exchange Act. Our filings may be inspected and copied without charge
at the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: Seven World Trade
Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of our filings
can be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. We have filed this registration statement and will file all future
registration statements and other documents and reports electronically through
EDGAR, the Electronic Data Gathering, Analysis and Retrieval System. These
documents are publicly available through the Commission's Internet World Wide
Web site at http://www.sec.gov.
10
We intend to furnish to our stockholders, after the close of each fiscal
year, an annual report relating to our operations containing audited financial
statements examined and reported upon by an independent certified public
accountant. In addition, we may furnish to our stockholders, from time to time,
such other reports as may be authorized by our board of directors. Our year -
end is December 31.
Until 90 days after the date when the escrowed funds and certificates
representing the common stock and warrants are released from escrow, all dealers
effecting transactions in the units, the shares or warrants contained in the
units, or the shares underlying the warrants may be required to deliver a
prospectus.
DILUTION
Our net tangible book value as of December 31, 1999 was $7,552. Our net
tangible book value per share was $0.00. Net tangible book value represents our
net tangible assets which are our total assets less our total liabilities and
intangible assets. The public offering price per unit (each unit containing one
share of common stock) is $0.10 represents both gross and net proceeds per share
as all expenses of the offering are being paid from funds in our treasury. The
pro forma net tangible book value after the offering will be $107,552. The pro
forma net tangible book value per share after the offering will be $0.04 per
share. The shares (contained in the units) purchased by investors in the
offering will be diluted $0.6 or 60.0%. As of December 31, 1999, there were
2,000,000 shares of our common stock outstanding. Dilution represents the
difference between the public offering price and the net pro forma tangible book
value per share immediately following the completion of the public offering.
The following table illustrates the dilution which will be experienced by
investors in the offering:
Public offering price per unit (containing one share) ........... $ 0.10
Net tangible book value per share before offering................ $ 0.00
Pro-forma net tangible book value per share after offering....... $ 0.04
Pro-forma increase per share attributable to offered shares...... $ 0.04
Pro-forma dilution to public investors........................... $ 0.06
The following table sets forth, as of the date of the prospectus, the
percentage of equity to be purchased by the public investors compared to the
percentage of equity to be owned by the present stockholders, and the
comparative amounts paid for the units (each unit containing one share) by the
public investors as compared to the total consideration paid by our present
stockholders.
Approximate Approximate
Percentage Percentage
Public Shares Total Shares Total Total
Stockholder Purchased Outstanding Consideration Consideration
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New Investors 1,000,000 33.3% $ 100,000 83.3%
Existing
Shareholders 2,000,000 (1) 66.7% $ 20,000 16.7%
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(1) We sold 2,000,000 shares of common stock prior to the offering at $.01 per
share. These shares are not being registered. (See "Certain Transactions")
11
USE OF PROCEEDS
Both gross and net proceeds of the offering will be $100,000 as all costs
associated with the offering have been or will be paid from funds presently in
our treasury. Pursuant to Rule 15c2-4 under the Securities Exchange Act of 1934,
all of offering proceeds must be placed in escrow until all of the units are
sold. Pursuant to Rule 419, after all of the units are sold, we may and intend
to have $10,000, representing 10% of the escrowed funds, released to us. All
funds held in escrow at the time a business combination is consummated will be
released. The combined entity will have full discretion as to the use of the
funds.
Since we are a "blank check" company, the purpose of the offering is to
raise funds to enable us to merge with or acquire an operating company. Upon the
consummation of a business combination, the reconfirmation offering and the any
portion disbursed to us and any amount returned to investors who did not
reconfirm their investment) will be released to us.
Percentage
of net proceeds
Amount of the offering
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Escrowed funds pending
business combination $90,000 90%
While we presently anticipate that we will be able to locate and consummate
suitable a business combination, if we determine that a business combination
requires additional funds, we may seek additional financing through loans,
issuance of additional securities or through other financing arrangements. We
have not negotiated any such financial arrangement, and we can give no
assurances that such additional financing will be available or, if available,
that such additional financing will be on acceptable terms.
We do not intend to advertise or promote ourselves to potential target
businesses. Instead, our management intends actively to search for potential
target businesses among its associates. In the unlikely event our management
decides to advertise in a business publication to attract a target business, our
management will assume the cost of such advertising.
Upon the consummation of a business combination, we anticipate that our
management will change. Our present management anticipates that the escrowed
funds will be used by the post-merger management at its sole discretion. $500
per month will be paid to our President from the closing of the offering until
the consummation of a business combination. In addition, our President will
receive $500 per month during this period for providing office space. This
policy is based upon an oral agreement with our management. Our management is
unaware of any circumstances under which such policy through its own initiative
may be changed. We are not presently considering any individual as a consultant.
However, we cannot rule out the need for outside consultants in the future. We
have not made any decision regarding payment of these consultants, if any are
hired.
Our present management will not make any loans from the $10,000 (10% of the
escrowed funds), nor will our present management borrow funds using either our
working capital or escrowed funds as security. This policy is based upon an oral
agreement with our management. Our management is unaware of any circumstances
under which such policy through its own initiative, may be changed. Once the
escrowed funds are released, our management at that time can loan the proceeds
or borrow funds and use the proceeds as security for a loan, on terms it deems
appropriate.
Offering proceeds will be placed in escrow at Torrington Savings Bank, an
insured depository institution, pending consummation of a business combination
and reconfirmation by investors, in either a certificate of deposit, interest
bearing savings account or in short term government securities.
12
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
and pro forma as adjusted to give effect to the net proceeds from the sale of
1,000,000 units in the offering.
December 31, 1999
----------------------------
Pro-forma
Actual As Adjusted
Long-term debt $ 0 $ 0
Stockholders' equity:
Common stock, $.001 par value;
authorized 50,000,000 shares,
issued and outstanding
2,000,000 shares; $ 2,000 $ 3,000
Preferred stock, $.001 par value;
authorized 5,000,000 shares,
issued and outstanding -0-.
Additional paid-in capital $ 18,000 $ 105,215(1)
Deficit accumulated during
the development period $ (163) $ (163)
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Total stockholders' equity $ 19,837 $ 108,052
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Total capitalization $ 19,837 $ 108,052
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(1) Assumes net proceeds of $100,000 less $11,785 in deferred offering expense.
PROPOSED BUSINESS
History and Organization
------------------------
We were organized under the laws of the State of Delaware on September 28,
1999. Since our inception, we have been engaged in organizational efforts and
obtaining initial financing. We were formed as a vehicle to pursue a business
combination. We have made no efforts to identify a possible business combination
and, as a result, have neither conducted negotiations, nor entered into a letter
of intent concerning any target business.
13
Plan of Operation
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We were organized as a vehicle to seek, investigate and, if such
investigation warrants, to acquire a target company or business which desires to
employ our funds and the potential funds from the exercise of our warrants in
its business or to seek the perceived advantages of a publicly-held corporation.
Our principal business objective will be to seek long-term growth potential
through the acquisition of a business rather than immediate, short-term
earnings. We will not restrict our search to any specific business, industry or
geographical location and, thus, may acquire any type of business.
We do not currently engage in any business activities which provide cash
flow. The costs of identifying, investigating and analyzing business
combinations will be paid with money in our treasury. Persons purchasing units
in the offering and other stockholders will most likely not have the opportunity
to participate in any of these decisions. We are sometimes referred to as a
"blank check" company because investors will entrust their investment monies to
our management without having a chance to analyze the ultimate use to which
their money may be put. Although substantially all of the proceeds of the
offering are intended to be utilized generally to effect a business combination,
the proceeds are not otherwise designated for any specific purposes. Investors
will have an opportunity to evaluate the specific merits or risks of only the
business combination our management decides to enter into. Cost overruns will be
funded through our founding stockholders' voluntary contribution of capital.
We may seek a business which has recently commenced operations, is a
developing company in need of additional funds for expansion into new products
or markets, is seeking to develop a new product or service, or is established
business which may be experiencing financial or operating difficulties and is in
need of additional capital. In the alternative, a business combination may
involve the acquisition of, or merger with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding the time delays, significant expense, loss
of voting control and compliance with various Federal and State securities laws
which would occur in a public offering.
Under Rule 419, we cannot acquire a target business unless its fair value
represents 80% of the offering proceeds. For this purpose, offering proceeds
includes the aggregate exercise price of the warrants which are part of the
units. To determine the fair market value of a target business, our management
will examine the audited financial statements, including balance sheets and
statements of cash flow and stockholders' equity, of any candidate, focusing
attention on its assets, liabilities, sales and net worth. In addition, our
management will participate in a personal inspection of any potential target
business. If we determine that the financial statements of a proposed target
business do not clearly indicate that its fair value represents 80% of the
offering proceeds, we will obtain an opinion from an investment banking firm
which is a member of the National Association of Securities Dealers, Inc. with
respect to the satisfaction of such criteria.
14
None of our officers or directors have had any preliminary contact or
discussions with any representative of any other entity regarding a business
combination. Accordingly, any target business that is selected may be a
financially unstable company or an entity in its early stage of development or
growth, including entities without established records of sales or earnings. In
that event, we will be subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, we may affect a business combination with an entity in
an industry characterized by a high level of risk, and, although our management
will endeavor to evaluate the risks inherent in a particular target business,
there can be no assurance that we will properly ascertain or assess all
significant risks.
Our management anticipates that it may be able to effect only one business
combination, due primarily to our limited financing, and the dilution of
interest for present and prospective stockholders, which is likely to occur as a
result of our management's plan to offer a controlling interest to a target
business in order to achieve a tax free reorganization. This lack of
diversification should be considered a substantial risk in investing in us
because it will not permit us to offset potential losses from one venture
against gains from another.
We anticipate that the selection of a business combination will be complex
and extremely risky. Because of general economic conditions, rapid technological
advances being made in some industries and shortages of available capital, our
management believes that there are numerous firms seeking even the limited
additional capital which we will have and/or the benefits of a publicly traded
corporation. Such perceived benefits of a publicly traded corporation may
include facilitating or improving the terms on which additional equity financing
may be obtained, providing liquidity for the principals of a business, creating
a means for providing incentive stock options or similar benefits to key
employees, providing liquidity (subject to restrictions of applicable statutes)
for all stockholders and other benefits. Potentially available business
combinations may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Evaluation of Business Combinations
- -----------------------------------
Our officers and directors will analyze or supervise the analysis of
business combinations. None of our officers and directors is a professional
business analyst. Our management intends to concentrate on identifying
preliminary prospective business combinations which may be brought to its
attention through present associations. In analyzing prospective business
combinations, our management will consider such matters as the following:
+ available technical, financial, and managerial resources,
+ working capital and other financial requirements,
+ history of operations, if any,
+ prospects for the future,
+ nature of present and expected competition,
15
+ the quality and experience of management services which may be available
and the depth of that management,
+ the potential for further research, development, or exploration,
+ specific risk factors not now foreseeable but which then may be anticipated
to impact on our proposed activities,
+ the potential for growth or expansion,
+ the potential for profit,
+ the perceived public recognition or acceptance or products or services and
+ name identification and other relevant factors.
As a part of the our investigation, our officers and directors will meet
personally with management and key personnel, visit and inspect material
facilities, obtain independent analysis or verification of certain information
provided, check references of management and key personnel, and take other
reasonable investigative measures, to the extent of our limited financial
resources and management expertise.
Since we will be subject to Section 13 or 15 (d) of the Securities Exchange
Act, we will be required to furnish information about significant acquisitions,
including audited financial statements for the target company, covering one, two
or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Securities Exchange Act are applicable. In the
event our obligation to file periodic reports is suspended under Section 15(d)
of that act, we intend voluntarily to file such reports.
We anticipate that any business combination will present certain risks. We
may not be able adequately to identify many of these risks prior to selection.
Our investors must, therefore, depend on the ability of our management to
identify and evaluate these risks. We anticipate that the principals of some of
the combinations which will be available to us were unable to develop a going
concern or that such business is in its development stage in that it has not
generated significant revenues from its principal business activity. The risk
exists that even after the consummation of such a business combination and the
related expenditure of our funds, and proceeds, if any, from warrant exercise,
the combined enterprise will still be unable to become a going concern or
advance beyond the development stage. Many of the potential business
combinations may involve new and untested products, processes, or market
strategies. We may assume such risks although they may adversely impact on our
stockholders because we consider the potential rewards to outweigh them.
16
Business Combinations
- ---------------------
In implementing a structure for a particular business acquisition, we may
become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may alternatively
purchase stock or assets of an existing business.
Any merger or acquisition can be expected to have a significant dilutive
effect on the percentage of shares held by our existing stockholders, including
purchasers in the offering. The target business we consider will, in all
probability, have significantly more assets than we do. Therefore, in all
likelihood, our management will offer a controlling interest in our company to
the owners of the target business. While the actual terms of a transaction to
which we may be a party cannot be predicted, we expect that the parties to the
business transaction will find it desirable to avoid the creation of a taxable
event and thereby structure the acquisition in a so-called "tax-free"
reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code. In
order to obtain tax-free treatment under the Internal Revenue Code, the owners
of the acquired business may need to own 80% or more of the voting stock of the
surviving entity. As a result, our stockholders, including investors in the
offering, would retain 20% or less of the issued and outstanding shares of the
surviving entity, which would result in significant dilution in percentage of
the entity after the combination and may also result in a reduction in the net
tangible book value per share of our investors. In addition, a majority or all
of our directors and officers will probably, as part of the terms of the
acquisition transaction, resign as directors and officers.
Our management will not actively negotiate or otherwise consent to the
purchase of any portion of their common stock as a condition to or in connection
with a proposed business combination, unless such a purchase is demanded by the
principals of the target company as a condition to a merger or acquisition. Our
officers and directors have agreed to this restriction which is based on an oral
understanding between members of our management. Members of our management are
unaware of any circumstances under which such policy, through their own
initiative, may be changed.
The issuance of substantial additional securities and their potential sale
into any trading market which may develop in our common stock may have a
depressive effect on our trading market.
The structure of the business combination will depend on, among other
factors:
+ the nature of the target business,
+ our needs and desires and the needs and desires of those persons
controlling of the target business,
+ the management of the target business and
+ our relative negotiating strength compared to the strength of the persons
controlling the target business.
17
If at any time prior to the completion of the offering, we enter
negotiations with a possible acquisition candidate and such a transaction
becomes probable, we will suspend the offering and file an amendment to the
registration statement which will include financial statements, including
balance sheets, statements of cash flow and stockholders' equity, of the
proposed target.
We will not purchase the assets of any company of which a majority of the
outstanding capital stock is beneficially owned by one or more or our officers,
directors, promoters or affiliates or associates. Furthermore, we intend to
adopt a procedure whereby a special meeting of our stockholders will be called
to vote upon a business combination with an affiliated entity, and stockholders
who also hold securities of such affiliated entity will be required to vote
their shares of stock in the same proportion as our publicly held shares are
voted. Our officers and directors have not approached and have not been
approached by any person or entity with regard to any proposed business venture
which desires to be acquired by us. We will evaluate all possible business
combinations brought to us. If at any time a business combination is brought to
us by any of our promoters, management, or their affiliates or associates,
disclosure as to this fact will be included in the post-effective amendment to
the registration statement, thereby allowing the public investors the
opportunity to evaluate the business combination before voting to reconfirm
their investment.
We have adopted a policy that we will not pay a finder's fee to any member
of management for locating a merger or acquisition candidate. No member of
management intends to or may seek and negotiate for the payment of finder's
fees. In the event there is a finder's fee, it will be paid at the direction of
the successor management after a change in management control resulting from a
business combination. Our policy regarding finder's fees is based on an oral
agreement among management. Our management is unaware of any circumstances under
which such policy through their own initiative may be changed.
We will remain an insignificant player among the firms which engage in
business combinations. There are many established venture capital and financial
concerns which have significantly greater financial and personnel resources and
technical expertise than we will. In view of our combined limited financial
resources and limited management availability, we will continue to be at a
significant competitive disadvantage compared to our competitors. Also, we will
be competing with a number of other small, blank check public and shell
companies.
Regulation
----------
The Investment Company Act defines an "investment company" as an issuer
which is or holds itself out as being engaged primarily in the business of
investing, reinvesting or trading of securities. While we do not intend to
engage in such activities, we could become subject to regulations under the
Investment Company Act in the event we obtain or continue to hold a minority
interest in a number of enterprises. We could be expected to incur significant
registration and compliance costs if required to register under the Investment
Company Act. Accordingly, our management will continue to review our activities
from time to time with a view toward reducing the likelihood we could be
classified as an investment company.
Employees
- ---------
We presently have no employees. Our President/Treasurer and Secretary are
engaged in outside business activities and they anticipate that they each will
devote to the our business only between five and twenty hours per week until the
acquisition of a successful business opportunity has been consummated.
18
Facilities
- ----------
We are presently using the office of our President, Barney Magnusson, at no
cost, as our office, an arrangement which we expect to continue until the
completion of the offering. At the completion of the offering and until a
business combination is consummated, we anticipate paying rent of $500 per
month. We presently do not own any equipment, and do not intend to purchase or
lease any equipment prior to or upon completion of the offering.
Year 2000 Issues
- ----------------
We currently have no operations and do not own or lease any equipment. As a
consequence, we do not anticipate incurring any expense or difficulties with
regard to Year 2000 issues. Management-owned computer and telecommunications
equipment has functioned into the year 2000 without interruption and our
management does not anticipate year 2000 problems in the future.
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
- --------------------------------------------------------------------------------
Barney Magnusson(1)(2) 48 President, Treasurer
950 - 11th Street, and a Director
West Vancouver,
British Columbia V7T 2M3
Leslie McGuffin(1)(2) 47 Secretary and a
950 - 11th Street, Director
West Vancouver,
British Columbia V7T 2M3
- --------------------
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife.
19
Barney Magnusson recently became Chief Financial Officer and Secretary of
CST Coldswitch Technologies Inc., a Vancouver - based private technology company
developing platform photonic fiber optic technology. From 1996 to 1998, he was
Vice-President, Corporate Development, Chief Financial Officer and Director of
Patricia Mines Inc., a Toronto - based mining company, listed on the Vancouver
Stock Exchange, the major asset of which was the Island Gold Project located
near Hemlo, Ontario. From 1994 to 1995, Mr. Magnusson was a Principal of ADX
Trading Group, a financial derivative and stock trading enterprise. That
company's activities included trading futures, options on futures and stocks and
stock trading together with system design, testing and implementation for other
parties. From 1985 to 1993, he was Chief Financial Officer, Secretary/Treasurer
and Director of Dayton Mines Inc., based in Vancouver, British Columbia and
listed on both the Toronto Stock Exchange and American Stock Exchange. Dayton
Mines operated a mine in Chile that produced 140,000 ounces of gold per year.
From 1986 to 1988, Mr. Magnusson was Vice-President Finance and Director of High
River Gold Mines Ltd., a Vancouver based mining company listed on the Toronto
Stock Exchange, with a 50% interest in the Brittania Mine, Manitoba that
produced 80,000 ounces of gold per year. From 1982 to 1985, he was Chief
Financial Officer and Director of Brohm Resources Inc., based in Vancouver,
British Columbia, and listed on the Toronto Stock Exchange, which was the
predecessor to Dakota Mining Inc., headquartered in Denver, Colorado. Brohm
operated the Gilt Edge Mine in South Dakota. In 1981, he was Principal of
Venture Capital Associates, a Vancouver based venture capital firm that focused
on start-up companies. In 1981, he was Controller of First City Developments
Inc., a Vancouver based international real estate company owned by First City
Trust. Mr. Magnusson received his Bachelor of Arts from Simon Fraser University,
Vancouver, British Columbia in 1978. He is a Chartered Accountant and a Member
of the Canadian Institute of Chartered Accountants and Institute of the
Chartered Accountants of British Columbia.
Leslie McGuffin has been President of Western Legal Publications, a
Vancouver - based law publishing company, since 1995. From 1991 to 1995, she was
Legal Information Systems Coordinator for Ladner Downs, Barristers and
Solicitors in Vancouver, British Columbia. Ms. McGuffin served as Managing
Director of British Columbia International Commercial Arbitration Centre,
located in Vancouver, British Columbia, from 1988 to 1989. From 1981 to 1988,
she was Managing Editor of Carswell Legal Publications, Vancouver, B.C. Ms.
McGuffin received her Bachelor of Laws from the University of Alberta, Canada
and her Bachelor of Arts with Honors from Trinity College, University of
Toronto, Canada.
Conflicts of Interest
- ---------------------
No member of our management is currently affiliated or associated with any
blank check company. Our management does not currently intend to promote other
blank check entities. However, our management may become involved with the
promotion of other blank check companies in the future. A potential conflict of
interest may occur in the event of such involvement. Additionally, a member of
our management may be a stockholder in an acquired business. In this event,
pursuant to an oral agreement with the members of our management, the shares of
the affiliate, if any, purchased in the offering will be voted in the same
proportion as shares of non-affiliated investors.
20
Remuneration
- ------------
None of our officers or directors has received any cash remuneration since
our inception. Our President will receive $500 per month upon completion of the
offering until the consummation of an acquisition. No remuneration of any nature
has been paid for or on account of services rendered by a director in such
capacity. Neither of the officers and directors intends to devote more than 20
hours a week of his or her time to our affairs.
Management Involvement
- ----------------------
We have conducted no business as of yet, aside from raising initial funding
associated with our offering. After the closing of the offering, our management
intends to contact business associates and acquaintances to search for target
businesses and then will consider and negotiate with target businesses until an
acquisition agreement is entered into. Our management has not divided these
duties among its members. No member of management has any distinct influence
over the other in connection with his or her participation in our affairs.
Management Control
- ------------------
Our management may not divest themselves of ownership of our shares of
common stock prior to the consummation of an acquisition or merger transaction.
This policy is based on an unwritten agreement among management. Management is
not aware of any circumstances under which such policy, through their own
initiative, may be changed.
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
XI of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement.
This information can also be examined as described in "Further Information."
We have been informed that in the opinion of the Commission indemnification
for liabilities arising under the Securities Act, which may be permitted to our
directors, officers or control persons pursuant to our certificate of
incorporation and by-laws is against the public policy as expressed in the
Securities Act and is, therefore, unenforceable.
21
MARKET FOR THE OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for the our common
stock has existed. Pursuant to the requirements of Rule 15g-8 of the Securities
Exchange Act, a trading market will not develop prior to or after the
effectiveness of the registration statement while certificates representing the
shares of common stock and warrants which constitute the units remain in escrow.
Stock and warrant certificates must remain in escrow until the consummation of a
business combination and its confirmation by our investors pursuant to Rule 419.
There are currently thirteen holders of our outstanding common stock which was
purchased in reliance upon an exemption from registration contained in Section
4(2) of the Securities Act. All purchasers are sophisticated investors. Current
stockholders will own at least two-thirds of the outstanding shares upon
completion of the offering and will own a greater percentage of the outstanding
shares if they purchase units in the offering. We can offer no assurance that a
trading market will develop upon the consummation of a business combination and
the subsequent release of the stock and warrant certificates from escrow. To
date, neither we nor anyone acting on our behalf has taken any affirmative steps
to retain or encourage any broker-dealer to act as a market maker for our common
stock. Further, we have not entered into any discussions, or understandings,
preliminary or otherwise, through our management or through anyone acting on our
behalf and any market maker concerning the participation of a market maker in
the future trading market, if any, for our common stock.
Present management does not anticipate that it will undertake or will
employ consultants or advisers to undertake any negotiations or discussions
prior to the execution of an acquisition agreement. Our management expects that
discussions in this area will ultimately be initiated by the party or parties
controlling the entity or assets which we may acquire who may employ consultants
or advisors to obtain market makers,
We have not issued any options or warrants to purchase, or securities
convertible into, our common equity. The 2,000,000 shares of our common stock
currently outstanding are "restricted securities" as that term is defined in the
Securities Act. Pursuant to Rule 144 of the Securities Act, the holders of the
restricted securities may each sell during any three month period after
September 30, 2000 an amount equal to the greater of one percent of our issued
and outstanding common stock or one week's trading volume. Therefore, if we sell
all the units being offered, those holders may each sell no less than 30,000
shares (1% of 3,000,000 shares) during any three month period.
CERTAIN TRANSACTIONS
We were incorporated in the State of Delaware on September 28, 1999.
Between September 28, 1999 and September 30, 1999, we sold 2,000,000 shares of
our common stock to thirteen persons at $.01 per share, for a total cash
consideration of $20,000.
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth certain information regarding
the beneficial ownership of our common stock as of the date of the prospectus,
and as adjusted to reflect the sale of the units in the offering, by (i) each
person who is known by us to own beneficially more than 5% of our outstanding
Common Stock; (ii) each of our officers and directors; and (iii) all of our
directors and officers as a group.
22
Name/Address Shares of Percent of Percent of
Beneficial Common Stock Class Owned Class Owned
Owner Beneficially Before After
Offering Owned Offering Offering
- --------------------------------------------------------------------------------
Barney Magnusson(1)(2) 200,000 10.0% 6.7%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Leslie McGuffin(1)(2) 50,000 2.5% 1.7%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Tradewinds Investments Ltd. 190,000 9.5% 6.3%
Shirley House
50 Shirley Street
Nassau, Bahamas
Turf Holding Ltd. 190,000 9.5% 6.3%
Oakridge House
5 West Hill Street
Nassau, Bahamas
CCD Consulting, 190,000 9.5% 6.3%
Commerce Distribution AG
Glockengasse 4
Postfach 1220
4001 Basel
Switzerland
The Pembridge
Capital Establishment 180,000 9.0% 6.0%
P. O. Box 1617
Meierhofstrasse 5
Vadus FL-9490
Liechtenstein
Seloz Gestion & Finance SA 190,000 9.5% 6.3%
Boulevard St. Georges 71
1211 Geneva 4
Switzerland
HAPI Handels und
Beteiligungsqesellschaft mbh 110,000 5.5% 3.7%
Easlinggasse 2
1010 Vienna
Austria
Partner Marketing AG 190,000 9.5% 6.3%
Landweg 1
6052 Hergiswil
Switzerland
23
U. K. Menon 190,000 9.5% 6.3%
28, Jalar 17/21 C
Peteling Jaya
Selangor
Malaysia
Otto Zimmerli 190,000 9.5% 6.3%
Poststrasse 2
9050 Appenzil
Switzerland
Noreldin Siam 110,000 5.5% 3.7%
Sandyport Drive 49
Nassau
Bahamas
Total Officers 250,000 12.5% 8.3%
and Directors
(2 Persons)
- --------------------------
(1) May be deemed "Promoters" as that term is defined under the Securities Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife. They disclaim
ownership of each other's shares.
None of the current stockholders have received or will receive any extra or
special benefits that were not shared equally by all holders of shares of our
common stock.
Prior Blank Check Companies Involvement
- ---------------------------------------
None of our officers, directors, founders, promoters or principal
stockholders has been involved as a principal of a blank check company.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
We are authorized to issue 50 million shares of common stock, $.001 par
value per share, of which 2,000,000 shares are issued and outstanding. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
24
Holders of our common stock
(i) have equal ratable rights to dividends from funds legally available
therefor, if declared by our board of directors;
(ii) are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon our liquidation, dissolution
or winding up;
(iii)do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions; and
(iv) are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our stockholders.
All shares of our common stock which are part of the units, or which
underlie the warrants, will be fully paid for and non-assessable when issued,
with no personal liability attaching to ownership. The holders of shares of our
common stock do not have cumulative voting rights, which means that the holders
of more than 50% of outstanding shares voting for the election of directors can
elect all of our directors if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of our directors. At the
completion of the offering, the present officers and directors and present
stockholders will beneficially own at least 66.7% of the outstanding shares of
common stock and a greater percentage of shares if they purchase units in the
offering. Accordingly, after completion of the offering, our present
stockholders will be in a position to control all of our affairs.
Preferred Stock
- ---------------
We may issue up to 5,000,000 shares of our preferred stock from time to
time in one or more series. As of the date of the prospectus, no shares of
preferred stock have been issued. Our board of directors, without further
approval of our stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any series. Issuances
of additional shares of preferred stock, while providing flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could, among other things, adversely affect the voting power of the holders of
other our securities and may, under certain circumstances, have the effect of
deterring hostile takeovers or delaying changes in control or management.
Redeemable Common Stock Purchase Warrants
- -----------------------------------------
The warrants which are part of the units shall be exercisable for a period
of two years commencing the date of the prospectus. Each warrant entitles the
holder to purchase one share of our common stock at an exercise price of $1.00.
The common stock underlying the warrants will, upon exercise of the warrants, be
validly issued, fully paid and non-assessable. The warrants will be subject to
redemption, at any time, for $0.001 per warrant, upon 30 days' prior written
notice, if the closing bid price of our common stock, as reported by the market
on which the common stock trades, exceeds $1.25 per share for any twenty
consecutive trading days ending within ten days prior to the date of the notice
of redemption.
25
The warrants can only be exercised when there is a current effective
registration statement covering the underlying shares of common stock. If we do
not obtain or are unable to maintain a current effective registration statement,
warrantholders will be unable to exercise them and they may become valueless.
Moreover, if the shares of common stock underlying the warrants are not
registered or qualified for sale in the state in which a warrantholder resides,
such holder might not be permitted to exercise any warrants.
We will deliver warrant certificates representing five warrants for each
unit purchased, subject to the escrow provisions under which certificates
representing the warrants will be held in escrow until we enter into an
acquisition agreement with the owners of a target company, the effective date of
a reconfirmation offer and a favorable vote of our stockholders. Thereafter,
warrant certificates may be exchanged for new certificates of different
denominations, and may be exercised or transferred. Holders of warrants may sell
them if a market exists rather than exercise them. However, we can offer no
assurance that a market will develop or continue as to the warrants. If we are
unable to qualify our common stock underlying the warrants for sale in certain
states, holders of the warrants in those states will have no choice but either
to sell their warrants or allow them to expire.
Warrants may be exercised by surrendering the warrant certificate, with the
form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. Warrants may be exercised in whole
or from time to time in part. If less than all of the warrants evidenced by a
warrant certificate are exercised, a new warrant certificate will be issued for
the number of unexercised warrants.
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including, but not limited to, issuance of stock dividends. If
we merge, reorganize or are acquired in such a way as to terminate the warrants,
they may be exercised immediately prior to such action. In the event of
liquidation, dissolution or winding up, holders of the warrants are not entitled
to participate in our assets.
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the then book value of our common stock
and would result in a dilution of the percentage ownership of then existing
stockholders. The terms upon which we may obtain additional capital may be
adversely affected through the period in which the warrants remain exercisable.
Warrantholders may be expected to exercise them at a time when we would, in all
likelihood, be able to obtain equity capital on terms more favorable than the
exercise price of the warrants.
In the event that we call the warrants for redemption, warrantholders may
not be able to exercise their warrants if we have not updated the prospectus in
accordance with the requirements of the Securities Act or the warrants have not
been qualified for sale under the laws of the state where the warrantholder
resides. In addition, a call for redemption could force the warrantholder to
accept the redemption price, which, in the event of an increase in the price of
the stock, would be substantially less than the difference between the exercise
price and the market value at the time of redemption.
26
Future Financing
- ----------------
In the event the proceeds of the offering are not sufficient to enable us
to successfully fund a business combination, we may seek additional financing.
At this time, we believe that the proceeds of the offering will be sufficient
for such purpose and therefore do not expect to issue any additional securities
before the consummation of a business combination. However, we may issue
additional securities, incur debt or procure other types of financing if needed.
We have not entered into any agreements, plans or proposals for such financing
and as of present have no plans to do so. We will not use the escrowed funds as
collateral or security for any loan or debt incurred. Further, the escrowed
funds will not be used to pay back any loan or debts incurred by us. If we
require additional financing, there is no guarantee that such financing will be
available to us or if available that such financing will be on terms acceptable
to us.
Reports to Stockholders
- -----------------------
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
- ---------
We have only been recently organized, have no earnings and have paid no
dividends to date. Since we were formed as a blank check company with our only
intended business being the search for an appropriate business combination, we
do not anticipate having earnings or paying dividends at least until a business
combination is reconfirmed by our stockholders. However, we can give no
assurance that after we consummate a business combination, we will have earnings
or issue dividends.
Transfer Agent
- --------------
We have appointed Olde Monmouth Stock Transfer Co., Inc., 77 Memorial
Parkway, Suite 101, Atlantic Highlands, New Jersey 07716 as transfer agent for
our shares of common stock and warrants.
PLAN OF DISTRIBUTION
Conduct of the Offering
- -----------------------
We hereby offer the right to subscribe for 1,000,000 units at $.10 per unit
on an "best efforts, all or none basis." We will not compensate any person in
connection with the offer and sale of the units.
Our President, Barney Magnusson, shall distribute prospectuses related to
the offering. We estimate that he will distribute approximately 40 to 50
prospectuses, limited to acquaintances, friends and business associates.
27
Barney Magnusson shall conduct the offering of the units. Although Mr.
Magnusson is an "associated person" as that term is defined in Rule 3a4-1 under
the Securities Exchange Act, he will not be deemed to be a broker because:
(1) he will not be subject to a statutory disqualification as that term is
defined in Section 3(a)(39) of the Securities Exchange Act at the time of his
participation in the sale of our securities;
(2) he will not be compensated in connection with his participation in the
sale of our securities by the payment of commission or other remuneration based
either directly or indirectly on transactions in securities;
(3) he will be not an associated person of a broker or dealer at the time of
his participation in the sale of our securities; and
(4) he shall restrict his participation to the following activities:
(a) preparing any written communication or delivering it through the mails
or other means that does not involve his oral solicitation of a
potential purchaser;
(b) responding to inquiries of a potential purchaser in a communication
initiated by the potential purchaser, provided however, that the
content of each response is limited to information contained in a
registration statement filed under the Securities Act or other
offering document; or
(c) performing ministerial and clerical work involved in effecting any
transaction.
As of the date of the prospectus, we have not retained a broker in
connection with the sale of the units. In the event we retain a broker who may
be deemed an underwriter, we will file an amendment to the registration
statement with the Commission. However, we have no present intention of using a
broker.
We will not approach nor permit anyone acting on our behalf to approach a
market maker or take any steps to request or encourage a market in our
securities prior to an acquisition of a business opportunity and confirmation by
our stockholders of the acquisition. We have not conducted any preliminary
discussions or entered into any understandings with any market maker regarding a
future trading market in our securities, nor do we have any plans to engage in
any discussions. We do not intend to use consultants to obtain market makers. No
member of our management, no promoter or anyone acting at their direction will
recommend, encourage or advise investors to open brokerage accounts with any
broker-dealer which makes a market in the units, shares or warrants. Our
investors shall make their own decisions regarding whether to hold or sell their
securities. We shall not exercise any influence over investors' decisions.
Method of Subscribing
- ---------------------
Persons may subscribe for units by filling in and signing the subscription
agreement and delivering it to us prior to the expiration date. Subscribers must
pay $0.10 per unit in cash or by check, bank draft or postal express money order
payable in United States dollars to "Torrington Savings Bank as Escrow Agent for
Kingsgate Acquisitions, Inc." The offering is being made on a "best efforts, all
or none basis." Thus, unless all 1,000,000 units are sold, none will be sold.
28
Our officers, directors, current stockholders and any of their affiliates
or associates may purchase up to 50% of the units. Such purchases may be made in
order to close the "all or none" offering. Units purchased by the our officers,
directors and principal stockholders will be acquired for investment purposes
and not with a view toward distribution.
Expiration Date
- ---------------
The offering will end the earlier of the receipt of subscriptions for
1,000,000 units or 90 days from the date of the prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the Commission a
registration statement on Form SB-2 to register the units, the shares of common
stock and warrants constituting the units and the shares of common stock
underlying the warrants. The prospectus is part of the registration statement,
and, as permitted by the Commission's rules, does not contain all of the
information in the registration statement. For further information about us and
the securities offered under the prospectus, you may refer to the registration
statement and to the exhibits and schedules filed as a part of this registration
statement. You can review the registration statement and its exhibits at public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
You may call the Commission at 1-800-SEC-0330 for further information on the
public reference room. The registration statement is also available
electronically on the World Wide Web at http://www.sec.gov.
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
offering.
LEGAL PROCEEDINGS
We not a party to nor are we aware of any existing, pending or threatened
lawsuits or other legal actions.
LEGAL MATTERS
Roger L. Fidler, Esq., 163 South Street, Hackensack, New Jersey 07601 is
passing upon the validity of the shares of common stock and the warrants
constituting the units offered by the prospectus and the shares of common stock
underlying the warrants. Mr. Fidler owns 20,000 shares of our common stock.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report, for the period from inception, September 28, 1999, to December 31, 1999.
29
REPORT OF INDEPENDENT AUDITOR
To The Board of Directors and Shareholders
of Kingsgate Acquisitions, Inc. (a development stage company)
I have audited the accompanying balance sheet of Kingsgate Acquisitions,
Inc. (a development stage company) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through December 31, 1999. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kingsgate Acquisitions, Inc.
(a development stage company) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kingsgate Acquisitions, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are described in Note 2.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the possible inability of
Kingsgate Acquisitions, Inc. (a development stage company) to continue as a
going concern.
/s/Thomas Monahan
----------------------------
THOMAS MONAHAN
Certified Public Accountant
Paterson, New Jersey
January 18, 2000
F-1
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
BALANCE SHEET
December 31, 1999
ASSETS
Current assets
Cash $ 8,052
Other assets
Deferred offering costs 11,785
Organization costs, Net 500
----------
Total other assets 12,285
----------
Total $ 20,337
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities $ 500
---------
Total current liabilities $ 500
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding
Common stock, $.001 par value;
50,000,000 shares authorized;
2,000,000 shares issued and outstanding $ 2,000
Additional paid-in capital 18,000
Deficit accumulated during the
development stage (163)
---------
Total stockholders equity $ 19,837
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 22,337
=========
See notes to financial statements.
F-2
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, SEPTEMBER 28, 1999, TO DECEMBER 31, 1999
Income $-0-
Costs of goods sold -0-
------
Gross profit -0-
Operations:
General and administrative 185
Depreciation and Amortization -0-
------
Total costs 185
Other income
Interest income 22
------
Total other income 22
Net profit (loss) $ (163)
=======
PER SHARE AMOUNTS:
Net profit (loss) per common
share outstanding - basic $ 0.00
=======
SHARES OF COMMON STOCK OUTSTANDING 2,000,000
=========
See notes to financial statements.
F-3
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 28, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (163)
Item not affecting cash flow from operations:
Amortization 0
Accrued expenses 500
---------
NET CASH USED IN OPERATING ACTIVITIES 337
CASH FLOWS FROM INVESTING ACTIVITY:
Organization costs incurred (500)
Deferred offering costs (11,785)
---------
CASH USED IN INVESTING ACTIVITIES (12,285)
CASH FLOWS FROM FINANCING ACTIVITY:
Sales of common stock 20,000
---------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 20,000
Increase (decrease) in cash 8,052
Cash balance beginning of period -0-
---------
CASH, end of period $ 8,052
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -
Cash paid for income taxes $ -
See notes to financial statements.
F-4
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Additional during
Preferred Preferred Common Common paid in development
stock stock stock stock capital stage Total
(shares) ($) (shares) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------
Sale of 2,000,000
shares of
common stock 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ 20,000
Net profit (loss) $ (163) (163)
- ------------------------------------------------------------------------------------------------------
Balance
December 31,1999 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ (163) $ 19,837
See notes to financial statements.
F-5
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 28, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY
Kingsgate Acquisitions, Inc. (the "Company"), was organized in Delaware on
September 28, 1999 and is authorized to issue 50,000,000 shares of common stock,
$0.001 par value each and 5,000,000 shares of preferred stock, $0.001 par value
each.
The Company is a "blank check" company which plans to search for a suitable
business to merge with or acquire. Operations since incorporation have consisted
primarily of obtaining capital contributions by the initial investors and
activities regarding the registration of the offering with the Securities and
Exchange Commission.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company is dependent upon its ability to have positive cash
flows from operations to sustain any business activity. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress in completing its self underwritten offering, finding a
business to acquire, completing the process of acquiring the business and
obtaining the needed investment capital and working capital to engage in
profitable operations. The Company plans to engage in such financing efforts on
a continuing basis.
The financial statements presented consist of the balance sheet of the
Company as at December 31, 1999 and the related statements of operations and
cash flows and stockholders' equity for period from inception, September 28,
1999, to December 31, 1999.
Deferred Offering Costs
Deferred offering costs, incurred in anticipation of the Company filing a
registration statement pursuant to Rule 419 under the Securities Act of 1933, as
amended, are being deferred until the registration is complete.
Organization Costs, Net
Organization costs are being amortized over a period of 60 months.
Accumulated amortization as of December 31, 1999, was $-0-.
F-6
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets at currently
enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements or tax returns. A valuation allowance
is recognized to reduce the net deferred tax asset to an amount that is more
likely than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated from the
net operating loss is offset in its entirety by a valuation allowance. State
minimum taxes will be expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents, if any, include all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase.
Fair Value of Financial Instruments
Cash, accounts payable and other current liabilities are recorded in the
financial statements at cost, which approximates fair market value because of
the short-term maturity of those instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Concentration of Credit Risk
At December 31, 1999, the Company has a concentration of its credit risk by
maintaining deposits in one bank. The maximum loss that could have resulted from
this risk totaled $-0- which represents the excess of the deposit liabilities
reported by the banks over the amounts that would have been covered by the
insurance.
NOTE 3 - STOCKHOLDERS' EQUITY
Common Stock
For the period from inception, September 28, 1999, to December 31, 1999,
the Company sold an aggregate of 2,000,000 shares of common stock to thirteen
investors for an aggregate consideration of $20,000 or $0.01 per share.
Preferred Stock
Up to 5,000,000 shares of preferred stock may be issued from time to time
in one or more series. The Company's board of directors, without further
stockholder approval, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any such series. Issuances of
additional shares of preferred stock, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things adversely affect the voting power of the holders of other
securities and may, under certain circumstances, have the effect of deterring
hostile takeovers or delaying changes in control or management.
The number of shares of preferred stock outstanding at December 31, 1999
is $-0-.
F-7
NOTE 4 - RULE 419 REQUIREMENTS
Rule 419 requires that offering proceeds be deposited into an escrow or
trust account (the "Deposited Funds" and "Deposited Securities", respectively)
governed by an agreement which contains certain terms and provisions specified
by that rule. The Company may receive 10% of the escrowed funds for working
capital. The remaining Deposited Funds and the Deposited Securities will be
released to the Company and to the investors, respectively, only after the
Company has met the following three basic conditions. First, the Company must
execute an agreement for an acquisition meeting certain prescribed criteria.
Second, the Company must file a post-effective amendment to its registration
statement which includes the terms of a reconfirmation offer that must contain
conditions prescribed by Rule 419. The post-effective amendment must also
contain information regarding the acquisition candidate and its business,
including audited financial statements. The agreement must include, as a
condition precedent to its consummation, a requirement that the number of
investors who contributed at least 80% of the offering proceeds must elect to
reconfirm their investments. Third, the Company must conduct the reconfirmation
offer and satisfy all of the prescribed conditions. The post-effective amendment
must also include the terms of the reconfirmation offer mandated by Rule 419.
After the Company submits a signed representation to the escrow agent that the
requirements of Rule 419 have been met and after the acquisition is consummated,
the escrow agent can release the Deposited Funds and Deposited Securities.
Investors who do not reconfirm their investments will receive the return of a
pro rata portion thereof; and in the event investors representing less than 80%
of the Deposited Funds reconfirm their investments, the Deposited Funds will be
returned to all the investors on a pro rata basis.
NOTE 5 - GAIN (LOSS) PER SHARE OF COMMON STOCK
Net gain (loss) per share of common stock outstanding, as shown on the
statement of operations, is based on the number of shares outstanding at each
balance sheet date. Weighted average shares outstanding was not computed since
it would not be meaningful in the circumstances, as all shares issued during the
period from incorporation through December 31, 1999 were for initial capital.
Therefore, the total shares outstanding at the end of each period was deemed to
be the most relevant number of shares to use for purposes of this disclosure.
For future periods, the Company will utilize the treasury stock method for
computing earnings per share, and will compute a weighted average number of
shares outstanding once additional shares of stock are issued to new
stockholders. Under the treasury stock method, the dilutive effect of
outstanding stock options and other convertible securities for determining
primary earnings per share is computed using the average market price during the
fiscal period, whereas the dilutive effect of outstanding stock options and
convertible securities for determining fully diluted earnings per share is
computed using the market price as of the end of the fiscal period, if greater
than the average market price.
F-8
NOTE 6 - RELATED PARTY TRANSACTIONS
Office Facilities
Rental of office space and use of office, computer and telecommunications
equipment are provided by the President of the Company on a month to month basis
at a monthly rental of $500 per month commencing with the sale of the units in
the proposed offering until consummation of an acquisition. From the period from
inception, September 28, 1999, to December 31, 1999, the accrual for rent is
$-0-.
Officer Salaries
For the period from inception, September 28, 1999, to December 31, 1999, no
officer has received a salary in excess of $100,000. A monthly fee of $500 is to
be charged to operations by the President as his minimal compensation commencing
with the sale of the units in the proposed offering until a target business can
be acquired and the acquisition consummated.
NOTE 7 - PROPOSED OFFERING
The Company intends to prepare and file a registration statement with the
Securities and Exchange Commission pursuant to Rule 419 (see Note 4). The
offering, on a "best efforts all-or-none basis" will consist of 1,000,000 units
at $.10 per unit or an aggregate offering price of $100,000. Each unit will
consist of one share of common stock and five redeemable common stock purchase
warrants. Each warrant is exercisable at $1.00 for a period of two years from
the effective date of a registration statement relating to the underlying shares
of common stock. The warrants are redeemable at any time, upon thirty day's
written notice, in the event the average closing price of the common stock is at
least $1.25 for a period of twenty consecutive trading days ending within ten
days prior to the notice of redemption.
F-9
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of Kingsgate
Acquisitions, Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a 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 a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, 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, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor 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)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
30
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses including attorneys' fees incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who 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 any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
31
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Articles Ninth and Tenth of the Registrant's certificate of incorporate
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article XII of the Registrant's by-laws provides as follows:
32
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any 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 such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
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 such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's 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, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other 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 such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
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, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
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4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, (b) by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
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Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Escrow Fee $ 600.00
Securities and Exchange Commission Registration Fee 1545.45
Legal Fees 5,000.00
Accounting Fees 5,000.00
Printing and Engraving 1,000.00
Blue Sky Qualification Fees and Expenses 950.00
Miscellaneous 404.55
Transfer Agent Fee 500.00
---------
TOTAL $ 15,000.00
Item 26. Recent Sales of Unregistered Securities
The registrant issued 2,000,000 shares of common stock between September
28, 1999 and September 30, 1999 to thirteen investors for cash consideration of
$.01 per share for an aggregate investment of $20,000. Barney Magnusson,
President, Treasurer and Director, and Leslie McGuffin, Secretary and Director,
purchased 200,000 and 50,000 shares of common stock respectively. The registrant
sold these shares of common stock under the exemption from registration provided
by Section 4(2) of the Securities Act. No securities have been issued for
services.
Neither the registrant nor any person acting on its behalf offered or sold
the securities by means of any form of general solicitation or general
advertising. Purchasers or the beneficial owners of purchasers which are
entities are friends or business associates of Barney Magnusson, President of
the registrant. No services were performed by any purchaser as consideration for
the shares issued.. In addition, Roger Fidler, Esq., special securities counsel,
purchased 20,000 shares of our common stock for cash consideration.
All purchasers represented in writing that they acquired the securities for
their own accounts. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom.
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EXHIBITS
Item 27.
3.1 Certificate of Incorporation*
3.2 By-Laws*
4.1 Specimen Certificate of Common Stock*
4.2 Form of Warrant*
4.6 Form of Escrow Agreement*
5.1 Opinion of Counsel*
23.1 Accountant's Consent to Use Opinion
23.2 Counsel's Consent to Use Opinion*
27.1 Financial Data Schedule*
* Previously submitted as exhibits to initial submission
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Item 28.
UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in this registration
statement, including (but not limited to) the addition of an
underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated 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 thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) To deposit into the Escrow Account at the closing, certificates in such
denominations and registered in such names as required by the Company to
permit prompt delivery to each purchaser upon release of such securities
from the Escrow Account in accordance with Rule 419 of Regulation C under
the Securities Act. Pursuant to Rule 419, these certificates shall be
deposited into an escrow account, not to be released until a business
combination is consummated.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant 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 indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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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 of filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, Canada, on February 29, 2000.
KINGSGATE ACQUISITIONS, INC.
By: /s/Barney Magnusson
---------------------------
Barney Magnusson, President
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/Barney Magnusson
- ------------------------------- Dated: February 29, 2000
Barney Magnusson
President, Treasurer, Director
/s/Leslie McGuffin
- ------------------------------- Dated: February 29, 2000
Leslie McGuffin
Secretary, Director
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