Registration No. [_________]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
US Patriot, Inc.
(Name of Small Business Issuer in its Charter)
South Carolina 5699 57-1107699
- --------------------------- ---------------------------- -------------------
(State of Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
5401 Forest Drive
Columbia, SC 29206
(803) 790-5294
(Address and telephone number of principal executive offices
and principal place of business)
Phillips N. Dee
5401 Forest Drive
Columbia, SC 29206
(803) 790-5294
(Name, address and telephone number of agent for service)
Copies to:
James G. Dodrill II, Esq.
James G. Dodrill II, P.A.
3360 NW 53rd Circle
Boca Raton, FL 33496
(561) 862-0529 tel
(561) 862-0927 fax
----------------------
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
----------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. (X)
1
If this Form is filed to register additional securities for an
offering pursuant to Rule 462 (b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of earlier effective registration statement for the same
offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule
462 (c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ).
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( ).
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT
CLASS OF AMOUNT TO OFFERING AGGREGATE OF
SHARES TO BE BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE <F1> PRICE FEE
- ------------- ------------ ----------- ----------- ------------
Common Stock, 500,000 $0.50 $250,000 $59.75
$.0001 par value
to be sold by the
company
Common Stock, 1,670,000 $0.50 $835,000 $199.56
$.0001 par value
to be sold by
selling
shareholders
TOTAL 2,170,000 $1,085,000 $259.31
- ------------------
<FN>
<F1>
Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457.
</FN>
-------------------------------------------
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state in which
the offer or sale is not permitted.
ii
2
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 16, 2002
2,170,000 Shares of Common Stock
US PATRIOT, INC.
The Offering:
This is our initial public offering. We are registering a total
of 2,170,000 shares of our common stock, of which 500,000 are being
offered by the company and 1,670,000 are being offered by selling
shareholders. All shares are being registered for sale at a price of
$0.50 per share
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board, our common stock is not currently
listed or quoted on any quotation service. There can be no assurance
that our common stock will ever be quoted on any quotation service or
that any market for our stock will ever develop.
Proposed Trading Symbol: OTC Bulletin Board - "USPI"
_________________________________
Investing in our stock involves risks. You should carefully
consider the Risk Factors beginning on page 7 of this prospectus.
We have not authorized anyone else to provide you with different
information. The common stock is not being offered in any state where
the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any
date other than the date on the front of those documents.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________________
The information in this prospectus is not complete and may be
changed. None of these securities may be sold until a registration
statement filed with the Securities and Exchange Commission is
effective. The prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
The date of this prospectus is January 16, 2002
3
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
The Offering 4
Summary Financial Information 6
Risk Factors 7
Use of Proceeds 11
Determination of Offering Price 11
Dividend Policy 11
Dilution 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Business 16
Management 24
Principal Shareholders 26
Selling Shareholders 27
Description of Securities 29
Indemnification 31
Plan of Distribution 32
Legal Matters 33
Experts 33
Where You Can Find More Information 34
Index to Financial Statements F-1
As used in this prospectus, the terms "we," "us," "our," "the
company," and "US Patriot" mean US Patriot, Inc., a South Carolina
corporation. The term "selling shareholders" means our shareholders
who are offering to sell their shares of US Patriot common stock that
are being registered through this prospectus. The term "common stock"
means our common stock, par value $0.0001 per share and the term
"Shares" means the 2,170,000 shares of common stock being offered
through this prospectus.
2
4
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire
prospectus. You should consider the information set forth under "Risk
Factors" and our financial statements and accompanying notes that
appear elsewhere in this prospectus.
US Patriot, Inc. is a company based in Columbia, South Carolina
that sells, distributes, tailors and services military and law
enforcement clothing, gear and related equipment. The company
currently sells through its one existing retail store in Columbia, and
plans to expand into law enforcement, correction and security uniforms
and soft goods, through the establishment of a new retail store, also
located in Columbia, and then subsequently through franchising. The
company will serve as the distributor and wholesale supplier to
franchisees for these products.
We were incorporated in South Carolina in 2000. For the fiscal
year ended October 31, 2001, we achieved revenues of approximately
$344,000.
Our office is located at 5401 Forest Drive, Columbia, South
Carolina 29206 and our telephone number is (803) 790-5294.
3
5
The Offering
------------
Securities Offered 2,170,000 shares of
common stock, 500,000 of
which are being offered
by us and 1,670,000
shares of which are being
offered by the selling
shareholders; See
"Description of Securities"
Common Stock Outstanding, before offering 5,335,000
Common Stock Outstanding, after offering (1) 6,170,000
Proposed OTC Bulletin Board Symbol USPI
Use of Proceeds We will use the proceeds
of any sales of our common
stock for general
corporate purposes. We
will not receive any
proceeds from the sale of
common stock by our
selling shareholders. Of
the shares being
registered, 335,000 may be
acquired by the selling
shareholders by exercising
warrants to purchase such
shares from us at a price
of $0.40 per share. We
will receive proceeds to
the extent that any of the
warrants are exercised and
intend to use the proceeds
from the exercise of any
of the warrants for
general corporate
purposes. See "Use of
Proceeds."
Dividend Policy We do not intend to pay
dividends on our common stock.
We plan to retain any earnings
for use in the operation
of our business and to fund
future growth.
(1) assumes the exercise of all
335,000 warrants and the sale of all
500,000 shares offered by us.
4
6
Risk Factors
The securities offered by this prospectus are highly speculative
and very risky. We have described the material risks that we face within
this prospectus. Before you buy, consider the risk factors described and the
rest of this prospectus. This prospectus also contains forward-
looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including
the risks faced by us described below and elsewhere in this
prospectus. Please refer to "Risks Associated with Forward-looking
Statements" on page 10.
5
7
Summary Financial Information
The following is a summary of our Financial Statements, which are
included elsewhere in this prospectus. You should read the following
data together with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this
prospectus as well as with our Financial Statements and the notes
therewith.
Year ended
October
31, 2001
----------
Statement of Operations Data:
Net Sales $ 343,584
=========
Gross Profit $ 134,298
=========
Net Loss $(19,702)
=========
As of
October
31, 2001
--------
Balance Sheet Data
Cash and cash equivalents $ 3,541
Total current assets $ 83,074
Total assets $ 125,809
Total current liabilities $ 55,836
Total stockholders' equity (deficit) $(16,699)
Total liabilities and
stockholders' equity (deficit) $ 125,809
6
8
RISK FACTORS
The securities offered are highly speculative. You should purchase
them only if you can afford to lose your entire investment in us. You
should carefully consider the following risk factors, as well as all
other information in this prospectus.
Certain important factors may affect our actual results and could
cause those results to differ significantly from any forward-looking
statements made in this prospectus or otherwise made by us or on our
behalf. For this purpose, any statements contained in this prospectus
that are not statements of historical fact should be considered to be
forward-looking statements. Words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the
negatives of those words, identify forward-looking statements. These
statements appear in a number of places in this prospectus and include
statements as to our intent, belief or expectations. These forward-
looking statements are subject to the risks detailed below or
elsewhere in this prospectus, or detailed from time to time in our
filings with the Securities and Exchange Commission. See "Risks
Associated With Forward-Looking Statements" on page 10.
Investors should assume that, even if not specifically stated
within this document, if any of the following risks actually
materialize, our business, financial condition or results of future
operations could be materially and adversely affected. In that case,
the trading price of our common stock could decline, and you may lose
all or part of your investment.
We have limited historical information.
- ---------------------------------------
We have limited historical operating and financial data for
potential investors to consider in assessing the advisability of an
investment in our company or in evaluating us and our prospects.
Investors should consider the risks and difficulties frequently
encountered by companies like ours that have recently established a
new business enterprise. Our prospects must be considered inlight of
the risks, expenses and difficulties frequently encountered by new
businesses in a competitive industry. Our ability to sell products,
and the level of success, if any, we achieve, is difficult to
accurately project at this time.
Our management has little experience operating a company such as ours.
- ----------------------------------------------------------------------
We were founded in October of 2000 and only entered our market in
December of 2000. Management has no proven record of success in
establishing and/or running a retail store or in franchising a business
concept.
We need to establish our US Patriot brand.
- ------------------------------------------
Currently the majority of our sales are to military and law
enforcement personnel. We believe that our chosen name, US Patriot,
is an asset that, once established, will contribute to the growth of
our business. Our business strategy includes using the US Patriot
name nationwide. Implementing this strategy requires the commitment
of financial resources that we do not presently have.
7
9
Our officers and directors are not required to continue as
shareholders and may not continue to maintain an equity interest in
the company.
- -------------------------------------------------------------------
We are registering some shares of our common stock that are
currently held by our officers and directors. Additionally, there is
no requirement that any of our officers and/or directors retain any of
their shares of our common stock. Accordingly, there is no assurance
that all or any of our officers and/or directors will continue to
maintain an equity interest in the company.
We face substantial competition.
- --------------------------------
We face competition from various companies in each product line
we offer. One of these competitors in particular, Galls, is very well
established and has substantial capital resources. All of the
companies which we know serve our markets are larger and have greater
capital resources than we do.
Our outstanding warrants may never be exercised.
- ------------------------------------------------
We presently have outstanding warrants to purchase 335,000 shares of
our common stock at a price of $0.40 per share. If all of these warrants
are exercised we will receive proceeds of $134,000. These funds would be
used to expedite execution of our business plan. However, there can be no
assurance that any of the holders of our warrants will ever choose to
exercise any warrants. In that event we would receive no additional funds
from these warrants would likely be forced to seek alternative sources of
funding. In the event we are unable to secure additional funding we may be
unable to execute our business plan at any set timeframe, or at all.
There has never been a market for our common stock.
- ---------------------------------------------------
Prior to this offering, there has been no public trading market
for our common stock and there can be no assurances that a public
trading market for the common stock will develop or, if developed,
will be sustained. Although we hope to be accepted for quotations on
the Over the Counter Bulletin Board, there can be no assurance that a
regular trading market will develop for the common stock offered
through this prospectus, or, if developed, that it will be maintained.
There is no assurance of future dividends being paid.
- -----------------------------------------------------
At this time we do not anticipate paying dividends in the future,
but instead plan to retain any earnings for use in the operation of
our business and to fund future growth. We are under no legal or
contractual obligation to declare or to pay dividends, and the timing
and amount of any future cash dividends and distributions is at the
discretion of our Board of Directors and will depend, among other
things, on our future after-tax earnings, operations, capital
requirements, borrowing capacity, financial condition and general
business conditions.
We do not intend to pay dividends.
- ----------------------------------
We have never paid any dividends and do not intend to pay
dividends in the foreseeable future. It is our present policy to
retain all earnings, if any, for use in the development and expansion
of our business.
8
10
You may not be able to buy or sell our stock at will and may lose your
entire investment.
- ----------------------------------------------------------------------
We are not listed on any stock exchange at this time. We hope
to become a bulletin board traded company. Company's which trade on
the bulletin board are often referred to as "penny stocks" and are
subject to various regulations involving certain disclosures to be
given to you prior to the purchase of any penny stocks. These
disclosures require you to acknowledge you understand the risk
associated with buying penny stocks and that you can absorb the entire
loss of your investment. Penny stocks are low priced securities that
do not have a very high trading volume. Consequently, the price of
the stock is volatile and you may not be able to buy or sell the stock
when you want.
We may require additional financing and would be detrimentally impacted
if we required such funding and were unable to raise it.
- -----------------------------------------------------------------------
At October 31, 2001, we had current assets of $83,074. To assist
us in our cash flow requirements we may determine, depending upon the
prevailing stock price of our shares, to seek subscriptions from the
sale of our securities to private investors, although there can be no
assurance that we will be successful in securing any investment from
private investors at terms and conditions satisfactory to us, if at
all. Based upon our present liquid resources and our present
operating expenses, and if we continue generating revenues from
operations at their present level, we believe we will be able to
maintain our current operations for a minimum of twelve months. If
additional funds are required, but cannot be raised, it will have an
adverse effect upon our operations. To the extent that additional
funds are obtained by the sale of equity securities, our stockholders
may sustain significant dilution.
Future sales of our common stock may have a depressive effect upon its
price.
- ----------------------------------------------------------------------
All 5,335,000 of the currently outstanding shares of common stock were
issued at prices lower than the price of the shares of common stock in
this offering. With the exception of the 1,335,000 shares of common
stock being registered in this Registration Statement for our selling
shareholders, these shares are "restricted securities" as that term is
defined by Rule 144 of the Securities Act, and in the future, may be
sold in compliance with Rule 144 or pursuant to an effective
registration statement. Rule 144 allows a person, subject to certain
requirements, who has beneficially owned restricted securities for a
period of one year to, every three months, sell in brokerage
transactions an amount that does not exceed the greater of (1) 1% of
the outstanding number of shares of a particular class of such
securities or (2) the average weekly trading volume in such securities
on all national exchanges and/or reported through the automated
quotation system of a registered securities association during the
four weeks prior to the filing of a notice of sale by a securities
holder. In the future, sales of presently restricted securities may
have an adverse effect on the market price of our common stock should
a public trading market develop for such shares.
Our shares are "Penny Stocks" which are subject to certain
restrictions that could adversely affect the liquidity of an
investment in us.
- ------------------------------------------------------------
Our shares are "penny stocks" within the definition of that term
contained in Rules 15g-1 through 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended, which imposes sales
practices and disclosure requirements on certain broker-dealers who
engage in certain transactions involving penny stocks. These
additional sales practices and disclosure requirements could impede
the sale of our securities, including securities purchased herein, in
the secondary market. In addition, the liquidity for our securities
may be adversely affected, with related adverse effects on the price
of our securities.
9
11
Under the penny stock regulations, a broker-dealer selling penny
stocks to anyone other than an established customer or "accredited
investor" (generally, an individual with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together
with his or her spouse) must make a special suitability determination
for the purchaser and must receive the purchaser's written consent to
the transaction prior to the sale, unless the broker-dealer is
otherwise exempt. In addition, unless the broker-dealer or the
transaction is otherwise exempt, the penny stock regulations require
the broker-dealer to deliver, prior to any transaction involving a
penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock. A broker-dealer is
also required to disclose commissions payable to the broker-dealer and
the Registered Representative and current quotations for the
securities. A broker-dealer is additionally required to send monthly
statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect
to the limited market in penny stocks.
Risks associated with forward looking statements.
- -------------------------------------------------
This prospectus contains certain forward-looking statements
regarding management's plans and objectives for future operations,
including plans and objectives relating to our planned marketing
efforts and future economic performance. The forward-looking
statements and associated risks set forth in this prospectus include or
relate to:
(1) our ability to obtain a meaningful degree of consumer
acceptance for our products now and in the future,
(2) our ability to market our products at competitive prices
now and in the future,
(3) our ability to maintain brand-name recognition for our
products now and in the future,
(4) our ability to maintain an effective distributors network,
(5) our success in forecasting demand for our services now and
in the future,
(6) our ability to maintain pricing and thereby maintain
adequate profit margins,
(7) our ability to achieve adequate intellectual property
protection and
(8) our ability to obtain and retain sufficient capital for
future operations.
10
12
USE OF PROCEEDS
We will use any proceeds raised from the sale of securities we
are offering for general corporate purposes.
We will not receive any proceeds from the sale of securities
being offered by our selling shareholders.
We will receive proceeds to the extent that any holder of a
warrant decides to exercise such warrant and intend to use the
proceeds from the exercise of any of the 335,000 warrants for working
capital and for general corporate purposes; however, there can be no
assurance that all or any portion of these shares will be sold. If
all of the 335,000 warrants are exercised at $0.40, we will receive
gross proceeds of $134,000.
We expect to incur expenses of approximately $60,000 in
connection with the registration of the shares.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common
stock. The offering price of the shares was arbitrarily determined and
bears no relationship to assets, book value, net worth, earnings,
actual results of operations, or any other established investment
criteria. Among the factors considered in determining the price were
our historical sales levels, estimates of our prospects, the
background and capital contributions of management, the degree of
control which the current shareholders desired to retain, current
conditions of the securities markets and other information.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain
future earnings for use in the operations of the business and to fund
future growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available, our earnings,
financial condition, capital requirements and other factors that the
Board of Directors may think are relevant.
11
13
DILUTION
Net tangible book value per share represents the amount of our
total tangible assets less total liabilities, divided by the total
number of shares of common stock outstanding. Our net tangible book
value at October 31, 2001 was $(16,699), or $(0.003) per share of
common stock. On November 20, 2001, the Company issued 335,000 shares
for $0.02 per share, increasing the net tangible book value by $6,700,
or $.001 per share, to $(0.002) per share. Dilution per share
represents the difference between the offering price of $0.50 per
share and the net tangible book value per share of common stock, as
adjusted, subsequent to this offering.
After giving effect to the completion of the offering and after
deducting offering expenses estimated to be $60,000, our pro forma net
tangible book value will be $180,001, or $0.031 per share assuming the
sale of all 500,000 shares being offered by the Company. This
represents an immediate increase in pro forma net tangible book value
of $0.033 per share to existing stockholders and an immediate dilution
of $0.467 per share, or approximately 93.4% of the offering price, to
investors purchasing shares of common stock in the offering.
Public offering Price per share $ 0.50
Net Tangible Book Value per share before offering $(0.002)
Increase Per Share attributable to sale of these shares $ 0.033
Pro-Forma Net Tangible Book Value after offering $ 0.031
Dilution per share to Public Investors $ 0.469
The following table summarizes as of December 31, 2001, the
number of shares purchased as a percentage of our total outstanding
shares, the aggregate amount paid for such shares, the aggregate
amount paid figured as a percentage of the total amount paid, and the
average amount paid per share for such shares (see "Certain
Transactions" for a description of these transactions). For purposes
of this table, the sale to the public of these shares, is assumed to
have taken place on December 31, 2001.
Shares Purchased Total Consideration Paid Average Price
Number Percent Amount Percent per Share
---------- ---------- --------- --------- -------------
Existing Shareholders 5,335,000 91.43% $ 17,700 6.61% $0.0033
New Investors 500,000 8.57% $ 250,000 93.39% $0.50
--------- ------- --------- ------ -------
Total 5,835,000 100.0% $ 267,700 100.0% $0.0459
The following table sets forth the estimated net tangible book
value ("NTBV") per share after the offering (less offering expenses of
$60,000) and the dilution to persons purchasing shares based upon various
levels of sales of the shares being achieved:
Shares outstanding prior to offering: 5,335,000
Total shares offered 500,000 500,000 500,000 500,000
Shares sold 125,000 250,000 375,000 500,000
Public offering price $0.50 $0.50 $0.50 $0.50
Per share increase attributable to
new investors $ 0.000 $ 0.012 $ 0.022 $ 0.033
NTBV per share prior to offering $ (0.002) $ (0.002) $ (0.002) $ (0.002)
---------- --------- --------- ---------
Post offering pro forma NTBV per share $ (0.002) $ 0.010 $ 0.020 $ 0.031
Dilution to new investors $ 0.50 $ 0.49 $ 0.48 $ 0.469
Percent of dilution of the offering
price 100.0% 98.0% 96.0% 93.8%
12
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following is a discussion of our results of operations and
our liquidity and capital resources. To the extent that our analysis
contains statements that are not of a historical nature, these
statements are forward-looking statements, which involve risks and
uncertainties. See "Risks Associated With Forward Looking
Statements". The following should be read in conjunction with our
Financial Statements and the related notes included elsewhere in this
prospectus.
Overview
US Patriot was incorporated in the state of South Carolina
in 2000. We currently operate one company store, and intend to
establish franchises nationwide supported by our management and
distribution company. By partnering with our franchisees in a
relationship that will maximize everyone's investment, we are
committed to providing our franchisees with a quality, competitively
priced range of products for their resale. We believe that growth
will occur through our company owned stores as well as franchises.
Results and Plan of Operations
- ------------------------------
For the year ended October 31, 2001 we achieved $343,584 in net
sales. This compares to having achieved no net sales during the
period from inception (October 2, 2000) through October 31, 2000.
During that prior period we were solely in the development stage and had
not opened our store. During the year ended October 31, 2001 we
incurred $209,286 as our cost of sales, compared to no cost of sales
during the period from inception through October 31, 2000. Selling,
general and administrative expenses totaled $151,512 during the year
ended October 31, 2001 compared to $3,747 during the period from
inception through October 31, 2000. This increase of $147,765 was the
result of our store opening on December 26, 2000 and having
approximately ten months of operations compared to a period of less
than one month and no operations. Our net loss for the year ended
October 31, 2001 totaled $19,702, compared to a net loss of $2,997 for
the period ended October 31, 2000. This increase of $16,705 was
primarily a result of having approximately ten months of operations
compared to a period of less than one month.
Management believes even if we are unsuccessful in selling any of
the shares of common stock offered by this prospectus, we will be able
to satisfy our cash requirements for at least the next 12 months.
Fully executing our business plan beyond the present stage and opening
additional stores, however, will increase our cash needs and monthly
burn rate and we will not be able to begin such execution until we
have raised substantial additional resources or begun generating
greater sales through our existing store.
We do not anticipate that there will be any significant changes
in the number of employees or expenditures from what is discussed in
this prospectus. There can be no assurance, however, that conditions
will not change forcing us to make changes to any of our plan of
operations or business strategies.
13
15
Liquidity and Capital Resources
- -------------------------------
While at this time, our current liabilities are mainly comprised
of current maturities of long term obligations, there can be no
assurance that current liabilities will continue to be less than our
current assets. Our business expansion will require significant
capital resources that may be funded through the sale of our common
stock, the issuance of notes payable or other debt arrangements that
may affect our debt and capital structure.
As of October 31, 2001 we have spent a total of $151,512 in
selling, general and administrative expenses. For the year ended
October 31, 2001 our funds have primarily been generated by sales of
products. Additionally, between October 2, 2000 and June 1, 2001 our
President loaned us $24,482. These advances were formalized in a note
agreement with us on June 1, 2001. The note was issued as a 5-year
term loan that does not bear interest and requires two payments of
principal per year, beginning on December 31, 2002.
On November 30, 2000 we entered into a 5-year installment loan
agreement with a financial institution to borrow $100,000 for the
purpose of purchasing inventory and equipment. The loan bears
interest at the institution's prime rate plus 1%, which was 6% at
October 31, 2001. The note is payable in 60 monthly principal and
interest payments of $2,156. Inventory, accounts receivable,
furniture and fixtures, equipment, and stockholder's real property
serve as collateral for the loan.
On October 15, 2001 we entered into a one-year installment loan
of $12,500 with a financial institution to purchase equipment. The
note bears interest at the institution's prime rate plus 1%, which was
6% at October 31, 2001. The note is payable in 12 monthly principal
and interest payments of $1,092. The equipment serves as collateral
for the loan.
We also raised $6,700 through a Regulation D private placement in
November of 2001.
Management believes even if we are unsuccessful in selling any of
the shares of common stock offered by this prospectus, we will be able
to satisfy our cash requirements for at least the next 12 months.
Funds raised through this offering will allow us to expedite our
business plan faster.
Forward Looking Statements
Certain statements in this report are forward-looking statements
within the meaning of the federal securities laws. Although the
Company believes that the expectations reflected in its forward-
looking statements are based on reasonable assumptions, there are
risks and uncertainties that may cause actual results to differ
materially from expectations. These risks and uncertainties include,
but are not limited to, competitive pricing pressures at both the
wholesale and retail levels, changes in market demand, changing
interest rates, adverse weather conditions that reduce sales at
distributors, the risk of assembly and manufacturing plant shutdowns
due to storms or other factors, and the impact of marketing and cost-
management programs.
Recent Accounting Pronouncements
In 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 - Revenue Recognition in Financial
Statements. This statement addresses the timing of revenue
recognition. Management believes that they have appropriately
recognized revenue in accordance with the criteria set forth in the
statement.
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In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141- Business Combinations. This FASB addresses
accounting and reporting for all business combinations and defines the
purchase method as the only acceptable method. This statement is
effective for all business combinations initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142 - Goodwill and Other
Intangible Assets. This SFAS addresses how goodwill and other
intangible assets should be accounted for at their acquisition (except
for those acquired in a business combination) and after they have been
initially recognized in the financial statements. The statement is
effective for all fiscal years beginning after December 15, 2001. The
impact of this SFAS will not be material to the Company's financial
statements.
In August 2001, the FASB issued SFAS No. 144 - Accounting for the
Impairment or Disposal of Long-Lived Assets. This SFAS supercedes
prior pronouncements associated with impairment or disposal of long-
lived assets. The SFAS establishes methodologies for assessing
impairment of long-lived assets, including assets to be disposed of by
sale or by other means. This statement is effective for all fiscal
years beginning after December 15, 2001. This SFAS is not expected to
have a material impact on the Company's financial position.
Additional accounting standards that have been issued or proposed
by the FASB that do not require adoption until a future date are not
expected to have a material impact on the consolidated financial
statements upon adoption.
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BUSINESS
GENERAL
US Patriot Inc. is an owner and potential franchiser of retail
stores that sells, distributes, tailors and services military and law
enforcement related clothing, uniforms, gear and associated soft
goods. We currently operate one company store, and intend to
establish franchises nationwide supported by our management and
distribution company. We intend to partner with our franchisees in a
relationship that will maximize everyone's investment. We are
committed to providing our franchisees with a quality, competitively
priced range of products for their resale. A strategy of serving both
the private and public sectors will provide stability for all levels
of the organization.
INDUSTRY OVERVIEW
We believe that the market for military and law enforcement
related products offers a tremendous opportunity. It encompasses
individuals, private companies and organizations, and a large part of
the public sector, at all levels of government. Select, targeted
marketing of select product lines towards specific segments is a key
to our gaining immediate penetration. We also believe that the market
is very favorable for franchise opportunities of this type.
Market Segmentation
-------------------
The military gear market appeals to a wide spectrum of the
population, with little geographic boundaries. While sales of
military gear are higher in the South and near major military
installations, there are veterans and patriotic Americans in every
town of our country. In urban markets military gear can be stylish
while in the rural areas it is a part of everyday life due to its
functionality and durability. There is even some crossover with law
enforcement requiring military type clothing and gear in many
applications. Individuals use the clothing, cold weather gear and
outdoor equipment for camping and other outdoor recreation.
Organizations ranging from the Boy Scouts to church groups to high
school ROTC units also use the clothing and equipment. Military
videos, books and gifts are popular among numerous demographic sub-
groups and income brackets, from history buffs to children.
Law enforcement uniform and equipment products are geared to soft
goods such as clothing, tactical gear and web gear. Officials and
personnel of agencies from the local to state level wear uniforms and
accessories daily in the execution of their jobs. Local police,
sheriff's departments, state agents, paramedics and others in these
professions require large quantities of uniforms and accessories as
they are an integral part of their job.
Private security companies are a growing industry in this
country, and they are becoming more professional and sophisticated in
their uniforms and equipment. As the need for security grows, and
more companies and organizations are sub-contracting this task,
numerous private firms have been founded. They are a growing market
and represent one of our targets.
Miscellaneous uniforms are required for other functions,
including restaurant and hospital functions. Depending on a local
franchisees market, these lines will be available to them to target
these sectors also. Smaller demand uniforms are also available for
nationwide organizations such as the Civil Air Patrol, Coast Guard
Auxiliary and other official functions.
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Industry Analysis
-----------------
The industry for retail and end user sales of both military and
law enforcement type equipment is highly fragmented and locally
oriented. We are offering what we believe to be a unique franchise
concept and also a unique retail concept designed with the local
partners' flexibility and effectiveness in consideration. We have the
opportunity to build our company through franchisees, or
alternatively, particularly in the law enforcement and uniform market,
to grow the company owned store division through acquisitions. Select
acquisitions could potentially immediately bolster our revenue and
allow us to take advantage of economies of scale as a larger
organization.
By offering the two revenue streams under one roof with the
franchises, we give the franchisees a broader base from which to
operate with two related but distinct markets. This allows the
franchisees to enter smaller markets that would support each revenue
stream independently. On the uniform side of the business there is
generally one uniform supplier for a particular region and our format
would allow the franchisee to compete with the existing outlet and
still fall back on the complementing revenue stream for stability.
Management believes that they would also be fairly well protected or
positioned in the smaller markets, since there would be less opportunity
for a third player in small and mid-size markets.
In larger markets the two revenue streams could stand
independently and may in fact need to in select situations. This will
be evaluated in the market studies undertaken for franchisees in these
areas. Additionally, some markets would require the establishment of
more than one US Patriot location. Franchisees would have a protected
radius and market and existing franchisees will have be granted a
right of first refusal to open new locations in fragmented markets.
In some lucrative trade areas franchisees may be required to open more
than one location to ensure complete market coverage and to also limit
the markets appeal to local, upstart competitors.
COMPANY OVERVIEW
We were incorporated in South Carolina in October 2000 and are
based in Columbia, South Carolina. We sell, distribute, tailor and
service military and law enforcement clothing, gear and related
equipment. We currently sell through our one existing retail store in
Columbia, and plan to expand into law enforcement, correction and
security uniforms and soft goods through the establishment of a new
retail store, also located in Columbia, and then subsequently through
franchising. We will serve as the distributor and wholesale supplier
to franchisees for these products.
Our sole currently operating store is located in Columbia, near
Fort Jackson, one of the United States Army's largest training posts.
This store sells new military equipment, clothing and gear to
soldiers, law enforcement, security personnel, Emergency Medical
Technicians (EMT), hunters and other civilians. Established in
December 2000, this store achieved net sales of $343,584 during the
year ended October 31, 2001.
In the future, we intend to establish Patriot Uniform Company as
a wholly owned subsidiary of ours, providing uniform services to local
and state level law enforcement, corrections, fire, security, EMTs,
and private organizations. Because of its proximity to Fort Jackson,
this location will also carry Army dress and formal uniforms. All
required uniforms, boots and soft goods will be stocked and
alterations will also be available. Professionals in these fields are
provided either a set number of uniforms annually, or are given a
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clothing allowance by their sponsoring organizations. Sales
opportunities are through the public bid process and through
individual sales. Marketing is easily targeted at these professional
fields. Currently one supplier, located in Columbia, dominates the
South Carolina market. While they are established and well known, we
believe that we are better positioned to provide a higher level of
service.
Coinciding with the establishment of Patriot Uniform Company will
be the beginning of our franchise division. The appearance and
success of our current Columbia store has generated numerous inquiries
regarding franchise opportunities. Our franchisees will receive a
license to operate a store in their respective territories combining
our two revenue streams in one location. Their stores will sell new
military related clothing and gear and also professional uniforms.
The combined venues will provide a related, though distinctly separate
and substantial sales base for the success of the franchises.
Franchisees will benefit from the market research and sales data
generated from the company owned stores. For their initial fee the
franchises will receive a turnkey store set-up, including retail point
of sales system, market study, site selection, store layout,
management procedures and ongoing management support. A key piece of
our strategy is to remain on the same team as the franchisees, both
working towards maximum profitability together. In this context, the
parent company receives no percentage royalty payment or commission
from franchisees. The profits they earn are theirs. Our primary
source of income as the franchiser is through the wholesale
distribution of merchandise to the franchisees. We will warehouse
adequate inventory to supply the franchisees their inventory, an
inventory that can be held at lower levels for greater cost
effectiveness since the parent company will maintain inventory and
push it forward to the stores as needed. By warehousing it ourselves
we control the distribution for greater efficiency. We also assume
the responsibility to supply the franchisees at competitive prices.
As we grow we will increase our buying power and lower our product
acquisition costs, thus increasing our revenue stream while
maintaining competitive pricing for the franchisees.
Objectives
----------
Our main objectives are as follows:
1. To develop and create a national chain of franchisees under the
name US Patriot, selling military related clothing, gear and
gifts in conjunction with law enforcement and other related
professional uniforms.
2. To create the systems and foundation of a management and
distribution company to support selling franchises in 2002.
3. To establish Patriot Uniform Company in a retail location serving
the Columbia, South Carolina region in 2002.
4. To forge strategic alliances to guarantee adequate, quality
sources of inventory items.
Keys to success
---------------
We believe that the keys to success for US Patriot, Inc. are:
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1. Successful development of a franchise sales and support system to
maximize returns for all parties involved.
2. Targeted marketing efforts with our franchisees to ensure
immediate market penetration.
3. The establishments of strategic public and private sector
alliances to expand our product lines ensure product quality and
maximize sales.
4. The successful management of the company's two retail stores for
product testing and development, cash flow and market research.
5. The establishment of an Internet presence, coordinated with
specific targeted catalogs and mailings to solidify the companies
market presence and reputation.
Products and Services
We provide military and law enforcement clothing, gear, equipment
and related soft goods for retail sale through our company stores, and
intend to provide these in the future through franchises and bid
opportunities. Products are acquired and warehoused in Columbia, SC
for distribution. Military gear can be tailored for the franchisees
in regard to their geographic location and law enforcement related
uniforms are selected based on local preferences. By serving a
diverse client base our company is able to make a range of products
available through corporate or the franchisees. As we grow we will
consider producing some items internally, including screen-printing
and embroidery.
Products and Service Description
Through our store in the Columbia, SC market, we sell military and
related equipment, clothing and uniforms with a direct focus. Located
outside of Fort Jackson, SC, a major Army training post, the inventory
is geared to Army needs. Based on local demographics and market
characteristics, the franchisees inventory would be customized for
their maximum profitability. The inventory falls into two distinct
classes as follows:
1. Military Gear: This includes military clothing, boots, gifts and
other related products. We plan for our stores to be substitutes
for the traditional Army-Navy stores that sold used surplus
items. All of our products are new. From military cold weather
gear to flashlights, the quality and standard of military gear is
tested and known throughout the country. This product line will
be one of the two major income streams for the franchisees.
2. Law Enforcement, Corrections, Security and other related
professional uniforms: We are introducing this product line in
the Columbia, SC market. While this market will sustain these
separate, though related, product lines under two roofs the plan
is for franchisees to put both lines in one location. We will
offer the uniformed professional a single source for a variety of
uniforms and accessories, from hats to boots to badges. While a
particular geographic area may use a certain type of uniform, the
design and production of a corporate catalog would allow us to
show them the different uniform options available.
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STRATEGY
General
-------
Our strategy is to make our new military and law enforcement
products available nationally through a network of franchise or
company owned outlets. By carrying two separate though related
product lines, we and our franchisees will have a broader foundation
for sales. We will warehouse and distribute products to the
franchisees with product selection based on their unique market
situations. We will also own and operate two stores in the Columbia,
SC market, one for military clothing and equipment and the other for
law enforcement and related uniforms and gear. By supporting our
stores and those of the franchisees with product we believe that we
will gain volume buying power and national exposure. This will in
turn support our planned Internet presence and catalog sales. In time
we will seek to gain control of production of certain goods and
products.
Marketing Strategy
------------------
Our marketing strategy is geared towards establishing regional
franchises first then expanding outward from there. While we already
have several prospective franchisees in our current region, we will
identify specific markets for initial franchise locations then begin
our search through shows, business brokers and local advertising.
This approach should give us locations that are in closer proximity
and better known in order to refine our strategy and establish our
logistic support.
Product marketing varies on the inventory items and the markets
served. Law Enforcement and related professions will be targeted with
direct mail, target catalog and specific promotions. Military
clothing and gear apply to military, veterans and civilians.
Marketing guidance for franchisees will be geared to their markets to
include advertising, special promotions and other events. As we find
effective advertising for the company stores, this information, as
well as other data generated from company stores, will be made
available for the franchisees benefit.
The other marketing strategy is focused on Internet and target
catalog sales. This tool will be used for both retail sales and
assisting wholesale accounts with their sale efforts adding another
dimension to our efforts to maximize franchisee sales and profits.
Pricing Strategy
----------------
Our pricing strategy for the franchisee's fees is dictated by
several factors. It is higher than many due to our unique structure
where we act as the wholesaler to the franchisees in lieu of royalties
from their sales. With a proposed franchise fee of $40,000 we can
devote considerable resources to the franchisee's start-up efforts, as
well as generate cash flow for the company to support warehousing
operations.
Pricing of the wholesale inventory items to the franchisees is
dependent on market rates for similar products from other
manufacturers and wholesalers. This is a major part of our commitment
to the franchisees, to supply them their inventory at market pricing.
These require us to better source and negotiate supplier agreements to
make our profit at the wholesale level. An additional benefit of this
is that the cost of goods sold for the company owned stores will be
lowered correspondingly.
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Sales Strategy
--------------
The sales strategy for franchise development for US Patriot
revolves around identifying target markets and seeking franchisees
directly through advertisement, shows and other local efforts.
Included will be providing information to the various military
services retirement and separations offices, which assist exiting
personnel with career selection and development. Our personnel plan
includes hiring an experienced sales manager to serve as Director of
Business Development. This individual will be responsible for closing
sales of franchises.
Product sales will be through our inside sales department. We
will be able to execute wholesale sales through the Internet, fax or
telephone for franchisees and others. Other retailers that wish to
carry our products can purchase from us if they are located outside
the respective trade areas of our franchisees.
SUPPLIERS
We are dedicated to committing significant resources to
thoroughly research and source our products. As a part of our
commitment to our franchisees to provide their supplies at
competitive, market rates, we must continually search out new
suppliers and products that will maintain our reputation for quality,
but also for allowing greater wholesale margins. It will be up to us
to negotiate deals with major suppliers to ensure adequate supply,
quality of workmanship and also favorable pricing to maximize internal
wholesale profits.
As we grow, we believe that new opportunities for expansion and
product development will surface. We will maintain a vigil for these
opportunities at the right times to bring production under our control
of certain items and products. A prime example here is screen-
printing and embroidery. As our need for these types of products
increases we believe we will be able to enter this market in a way
that also allows us to contract out excess capacity.
Our inventory comes from a variety of manufacturers and
distributors across the country. We have made a commitment to carry
high quality goods and products and a part of this is emphasizing
"Made in the USA". While not an absolute, this is a guidance policy
for the company. When selling military clothing and gear, we offer
two price points for our franchisees and guide them accordingly for
their particular market. The first, higher price point is for
products carrying the military National Stock Number, made in the USA,
and with exceptional quality assurances. The second, lower price
point is for similar products produced overseas. In some markets the
franchisee may be best served carrying the lower priced goods in their
store. We anticipate hiring one full time purchasing agent for the
company to work with these vendors within the next twelve months.
COMPETITION
Our management believes that we offer a unique concept when
examined as a total package. In many markets the older Army-Navy
surplus stores are folding. Surplus is getting more difficult to
acquire and the age and image of the older stores is one of a dark,
dusty cavern type store. Our stores bring new military type clothing
and gear to these markets, in a bright, modern setting. For the
uniform products, one major uniform supplier, usually with minimal
competition, generally dominates each region. This has traditionally
been a limited market business and has had a high cost of entry. With
the growth in professional law enforcement and related fields, this
market has experienced rapid growth. Public bid opportunities
combined with personal spending in these fields make it a viable
product line. With the establishment of a corporate warehouse and
inventory, our franchisees would be able to minimize their investment
while having the product lines at their easy access.
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We know of no companies currently offering franchise
opportunities for these types of products. Neither principle product
line nor industry has seen significant consolidation. This opens the
door for our franchisees to enter these local markets and succeed.
Our company owned stores have limited competition in their market and
even though there is limited local competition, our concept, approach
and service has distinguished our stores for immediate market
penetration.
There are two catalog companies with several retail stores with
whom we would compete in the mail order business and in the local
trade areas in which they have stores. US Cavalry has a tremendous
catalog and Internet presence with two retail locations near major
Army installations. Additionally, Ranger Joe's of Columbus, GA has
two retail stores in Georgia and a catalog geared towards field
operations equipment. Their customer service is good and they have a
loyal following in the Army community. Both of these entities, have
substantially greater revenue, financial and other resources than we
do.
Additionally, there are several catalog companies geared towards
outdoorsmen and hunters with whom we overlap to a certain extent for
some of the military related clothing and gear. Additionally there is
Gall's, a law enforcement catalog. On the Internet there are
literally hundreds of virtual storefronts, though these are not major
players and their numbers are decreasing as the Internet retailer
shakeout is currently underway.
In the wholesale arena there are several companies in the country
who sell military and law enforcement related equipment. We would be
competing with them as we wholesale to retailers outside of our
franchisees' trade areas though our primary focus is to supply our
chain of franchisees.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any
legal proceedings.
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EMPLOYEES
As of the date of this prospectus we have 3 full-time employees,
including 2 in sales and 1 in administration. We presently have no
labor union contract between us and any union and we do not anticipate
unionization of our personnel in the foreseeable future. From time to
time, we hire part time employees, ranging from a minimum of 4 to a
maximum of 12.
DESCRIPTION OF PROPERTY
Our principal facility is a 3,500 square foot facility located at
5401 Forest Drive, Columbia South Carolina. We lease this facility
through September 30, 2004 at $3,175 per month.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND/FINANCIAL DISCLOSURE.
We have had no disagreements with our accountants on accounting
and financial disclosure.
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MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
Name: Age Position Director since
- ----------------------------------------------------------------------------
Phillips N. Dee 36 President and Chairman 2000
Scott Massey 31 Director 2000
Phil Dee, President and Chairman of the Board of Directors. Mr. Dee
has served as our President and Chairman since inception and has spent
the past ten years creating new business ventures for others and
himself. As the Market Research Analyst for a northern real estate
investment group he gained valuable experience in investment
strategies. Additionally, he worked as Corporate Marketing Director
for Crowder Construction Company of Charlotte, NC, directing the
marketing efforts for five divisions in three states. He gained
valuable leadership development while serving as an Armor Officer with
the United States Army. He has also built several successful small
businesses, both retail and manufacturing/distribution. From 1995
through 1998 he served as an Army officer. Upon leaving the active
Army, from October 1998 through October 2000, Mr. Dee founded and
managed Big Sky Ice Company in Charlotte, NC. In October of 2000 he
sold Big Sky Ice and founded US Patriot Inc. He holds a MA in Economic
Geography and BA in Geography from University of North Carolina.
Scott Massey, Director. Mr. Massey is a key strategist in guiding
the growth of the company. From 1992 to 1998 he was an officer with
the United States Army, commissioned into the Armor Corps and serving
as a combat unit commander in both Europe and the United States. Upon
leaving the active Army in 1998 he worked with MITEK, a subsidiary of
Johnson & Johnson, as a regional sales representative. After
spending October 2000 until October 2001 with Morgan Stanley as a
investment banker, he again works with MITEK. He holds a BA in
History from The Citadel.
Directors' Remuneration
Our directors are presently not compensated for serving on the
board of directors.
Executive Compensation
Employment Agreements
We have not entered into any employment agreements.
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Summary Compensation Table
The following table sets forth the total compensation paid to or
accrued for the period from inception through October 31, 2001 to our
President.
Annual Compensation
Other Restricted Securities All
Name and Inception Annual Stock Underlying LTIP Other
Principal Position through Salary Bonus Compensation Awards Options Payouts Compensation
- ------------------ --------- ------ ----- ------------ ---------- ---------- ------- ------------
Phillips N. Dee, October $23,500 - - - - - -
President 31, 2001
Stock Option Grants in the past fiscal year
We have not issued any grants of stock options in the past fiscal
year.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of our common stock as of the date of this prospectus and as
adjusted to reflect the sale of all 2,170,000 shares which may
potentially be sold in connection with this registration statement, by
(i) those shareholders known to be the beneficial owners of more than
five percent of the voting power of our outstanding capital stock,
(ii) each director, and (iii) all executive officers and directors as
a group:
Number of Percent Percent
Name and Address of Shares Before After
Beneficial Owner Owned Offering Offering <F1>
- ---------------- ----- -------- -------------
Phillips N. Dee 2,000,000 37.49% 28.36%
C/O US Patriot, Inc.
Scott Massey 2,000,000 37.49% 28.36%
C/O US Patriot
Jim Dodrill 1,000,000 18.74% 8.10%
3360 NW 53rd Circle
Boca Raton, FL 33496
2,000,000
All Directors and 4,000,000 74.98% 56.72%
Officers as a Group
(2 Persons)
_____________
* Less than 1%
<FN>
<F1> Assumes the exercise of all warrants and the sale of all shares offered
hereunder.
</FN>
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SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
ownership of our common stock by selling shareholders as of January
14, 2002. Unless otherwise indicated, none of the selling
shareholders has or had a position, office or other material
relationship with us within the past three years.
Ownership of Shares Number of Ownership of shares of
of Common Stock Prior to Shares Common Stock After
Offering Offered Offering
-------- ------- --------
selling shareholder Shares<F1> Percentage Hereby Shares Percentage
---------- ---------- ------ ------ ----------
Phillips N. Dee<F2> 2,000,000 37.49 250,000 1,750,000 28.36%
Scott Massey<F3> 2,000,000 37.49 250,000 1,750,000 28.36%
Jim Dodrill 1,000,000 18.74 500,000 500,000 8.10%
William Bauer<F4> 50,000 * 50,000 0 *
Peggy Bauer<F4> 50,000 * 50,000 0 *
Greggory Colegrove<F4> 50,000 * 50,000 0 *
Jeffrey Colegrove<F4> 50,000 * 50,000 0 *
James Foxworthy<F4> 50,000 * 50,000 0 *
Melissa Foxworthy<F4> 50,000 * 50,000 0 *
Judith Cooper<F5> 25,000 * 25,000 0 *
Larry Higgins<F5> 25,000 * 25,000 0 *
D.T. Kimble<F5> 25,000 * 25,000 0 *
Kay Kimble<F5> 25,000 * 25,000 0 *
Ania Kwalik<F5> 25,000 * 25,000 0 *
Albert Massey<F5> 25,000 * 25,000 0 *
Diane Massey<F5> 25,000 * 25,000 0 *
Richard Weinacker<F5> 25,000 * 25,000 0 *
Bruce West<F6> 15,000 * 15,000 0 *
Pamela West<F6> 15,000 * 15,000 0 *
Pete Baldwin<F7> 10,000 * 10,000 0 *
Sandra Dee<F7> 10,000 * 10,000 0 *
Gordon English<F7> 10,000 * 10,000 0 *
David Gable<F7> 10,000 * 10,000 0 *
Harry Hunter<F7> 10,000 * 10,000 0 *
Brenda Jellicorse<F7> 10,000 * 10,000 0 *
Steve Jellicorse<F7> 10,000 * 10,000 0 *
Jean Jones<F7> 10,000 * 10,000 0 *
Mike Jones<F7> 10,000 * 10,000 0 *
Bert Kemp<F7> 10,000 * 10,000 0 *
Kristy Massey<F7> 10,000 * 10,000 0 *
Angela Post<F7> 10,000 * 10,000 0 *
James Post<F7> 10,000 * 10,000 0 *
Jim Winders<F7> 10,000 * 10,000 0 *
Total 5,670,000 1,670,000 4,000,000
_______________________
* Indicates less than 1%
<FN>
<F1>
Assumes that all warrants are exercised and all shares are sold
pursuant to this offering and that no other shares of common stock
are acquired or disposed of by the selling shareholders prior to the
termination of this offering. Because the selling shareholders may
sell all, some or none of their shares or may acquire or dispose of
other shares of common stock, no reliable estimate can be made of
the aggregate number of shares that will be sold pursuant to this
offering or the number or percentage of shares of common stock that
each shareholder will own upon completion of this offering.
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<F2>
Mr. Dee is our President and Chairman of the Board of Directors.
<F3>
Mr. Massey is currently one of our directors.
<F4>
Includes warrants to purchase 25,000 shares of common stock that may
be acquired at an exercise price of $0.40 per share commencing 90
days following the date of this prospectus.
<F5>
Includes warrants to purchase 12,500 shares of common stock that may
be acquired at an exercise price of $0.40 per share commencing 90
days following the date of this prospectus.
<F6>
Includes warrants to purchase 7,500 shares of common stock that may
be acquired at an exercise price of $0.40 per share commencing 90
days following the date of this prospectus.
<F7>
Includes warrants to purchase 5,000 shares of common stock that may
be acquired at an exercise price of $0.40 per share commencing 90
days following the date of this prospectus.
</FN>
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DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of
common stock, par value $0.0001 per share, and 20,000,000 shares of
preferred stock, par value $.0001 per share. As of the date of this
prospectus, 5,335,000 shares of common stock and no shares of
preferred stock were outstanding. We presently act as the transfer agent
for our common stock but anticipate that in the future we will use
Computershare Trust Company of Denver, CO as our transfer agent.
Common Stock
We are authorized to issue 100,000,000 shares of our common
stock, $0.0001 par value, of which 5,335,000 shares are issued and
outstanding as of the date of this prospectus. Except as provided by
law or our certificate of incorporation with respect to voting by
class or series, holders of common stock are entitled to one vote on
each matter submitted to a vote at a meeting of shareholders.
Subject to any prior rights to receive dividends to which the
holders of shares of any series of the preferred stock may be
entitled, the holders of shares of common stock will be entitled to
receive dividends, if and when declared payable from time to time by
the board of directors, from funds legally available for payment of
dividends. Upon our liquidation or dissolution, holders of shares of
common stock will be entitled to share proportionally in all assets
available for distribution to such holders.
Preferred Stock
The board of directors has the authority, without further action
by our shareholders, to issue up to 20,000,000 shares of preferred
stock, par value $.0001 per share, in one or more series and to fix
the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. No shares
of preferred stock are currently issued and outstanding. The issuance
of preferred stock could adversely affect the voting power of holders
of common stock and could have the effect of delaying, deferring or
preventing a change of our control.
Warrants
Certain shares of common stock offered by US Patriot on November
20, 2001 had warrants attached. We presently have 335,000 warrants
outstanding. Each warrant entitles the holder thereof to purchase one
share of common stock at a price per share of $0.40 beginning 90 days
following the effectiveness of this registration statement and ending
on November 20, 2004. Each unexercised warrant is redeemable by us at
a redemption price of $0.001 per warrant at any time, upon 30 days
written notice to holders thereof, if (a) our common stock is traded
on the Over the Counter Bulletin Board and (b) the Market Price
(defined as the average closing bid price for twenty (20) consecutive
trading days) equals or exceed 120% of the exercise price.
29
31
Pursuant to applicable federal and state securities laws, in the
event a current prospectus is not available, the warrant holders may
be precluded from exercising the warrants and we would be precluded
from redeeming the warrants. There can be no assurance that we will
not be prevented by financial or other considerations from maintaining
a current prospectus. Any warrant holder who does not exercise prior
to the redemption date, as set forth in our notice of redemption, will
forfeit the right to purchase the common stock underlying the
warrants, and after the redemption date or upon conclusion of the
exercise period, any outstanding warrants will become void and be of
no further force or effect, unless extended by our Board of Directors.
The number of shares of common stock that may be purchased with
the warrants is subject to adjustment upon the occurrence of certain
events, including a dividend distribution to our shareholders or a
subdivision, combination or reclassification or our outstanding shares
of common stock. The warrants do not confer upon holders any voting
or any other rights as our shareholders.
We may at any time, and from time to time, extend the exercise
period of the warrants, provided that written notice of such extension
is given to the warrant holders prior to the expiration date then in
effect. Also, we may reduce the exercise price of the warrants for
limited periods or through the end of the exercise period if deemed
appropriate by the Board of Directors. Any extension of the term
and/or reduction of the exercise price of the warrants will be subject
to compliance with Rule 13e-4 under the Exchange Act including the
filing of a Schedule 14E-4. Notice of any extension of the exercise
period and/or reduction of the exercise price will be given to the
warrant holders. We do not presently contemplate any extension of the
exercise period or any reduction in the exercise price of the
warrants. The warrants are also subject to price adjustment upon the
occurrence of certain events including subdivisions or combinations of
our common stock.
Market for Common Equity and Related Stockholder Matters
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board, our common stock is not currently
listed or quoted on any quotation service. There can be no assurance
that our common stock will ever be quoted on any quotation service or
that any market for our stock will ever develop or, if developed, will
be sustained.
As of January 14, 2002, there were 33 shareholders of record of
our common stock and a total of 5,335,000 shares outstanding.
30
32
INDEMNIFICATION
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the South Caronlina Revised Statutes, which
provides for indemnification of directors and officers against certain
liabilities. Pursuant to our Articles of Incorporation, our officers
and directors are indemnified, to the fullest extent available under
South Caronlina Law, against expenses actually and reasonably incurred
in connection with threatened, pending or completed proceedings,
whether civil, criminal or administrative, to which an officer or
director is, was or is threatened to be made a party by reason of the
fact that he or she is or was one of our officers, directors,
employees or agents. We may advance expenses in connection with
defending any such proceeding, provided the indemnitee undertakes to
repay any such amounts if it is later determined that he or she was
not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
31
33
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading
facility on which the shares are then traded or in private
transactions at a price of $0.50 per share. The selling stockholders
may use any one or more of the following methods when selling shares:
* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* an exchange distribution in accordance with the rules of the
applicable exchange;
* privately negotiated transactions;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144
under the Securities Act, if available, rather than under this
prospectus.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may
not be sold unless they have been registered or qualified for sale in
such state or an exemption from such registration or qualification
requirement is available and complied with.
The selling stockholders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange
for other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling stockholders (or, if
any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do
not expect these commissions and discounts to exceed what is customary
in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that
are involved in selling the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the
Securities Act.
32
34
We will pay all of the expenses incident to the registration,
offering and sale of the shares to the public, but will not pay
commissions and discounts, if any, of underwriters, broker-dealers or
agents, or counsel fees or other expenses of the selling shareholders.
We have also agreed to indemnify the selling shareholders and related
persons against specified liabilities, including liabilities under the
Securities Act.
We have advised the selling shareholders that while they are
engaged in a distribution of the shares included in this prospectus
they are required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. With certain exceptions,
Regulation M precludes the selling shareholders, any affiliated
purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to
induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution
of that security. All of the foregoing may affect the marketability
of the shares offered hereby in this prospectus.
LEGAL MATTERS
The Law Office of James G. Dodrill II, PA of Boca Raton, Florida
will give an opinion for us regarding the validity of the common stock
offered in this prospectus.
EXPERTS
The financial statements as of and for the year ended October 31,
2001 and for the period from inception through October 31, 2000
included in this prospectus have been so included in reliance on the
report of Elliott Davis, LLP independent accountants, given on the
authority of said firm as certified public accountants.
33
35
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement under the Securities Act
with respect to the securities offered hereby with the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. This prospectus, which is
a part of the registration statement, does not contain all of the
information contained in the registration statement and the exhibits
and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. For further
information with respect to Cycle Country Accessories Corp. and the
securities offered hereby, reference is made to the registration
statement, including all exhibits and schedules thereto, which may be
inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N. W., Room 1024, Washington, D. C.
20549, and at its Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates
during regular business hours. You may obtain information on the
operation of the public reference facilities by calling the Commission
at 1-800-SEC-0330. Also, the SEC maintains an Internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commssion at http://www.sec.gov. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the
copy of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in its
entirety by such reference. We will provide, without charge upon oral
or written request of any person, a copy of any information
incorporated by reference herein. Such request should be directed to
us at US Patriot, Inc. 5401 Forest Drive, Columbia South Carolina 29206
Attention: Phillips N. Dee, President.
Following the effectiveness of this registration statement, we
will file reports and other information with the Commission. All of
such reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The
Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
34
36
US PATRIOT, INC.
REPORT ON FINANCIAL STATEMENTS
FOR THE YEAR ENDED
OCTOBER 31, 2001
AND THE PERIOD FROM
OCTOBER 2, 2000 (INCEPTION) TO
OCTOBER 31, 2000
F-1
37
US PATRIOT, INC.
COLUMBIA, SOUTH CAROLINA
CONTENTS
--------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Balance sheet F-4
Statements of operations F-5
Statements of changes in stockholders' equity (deficit) F-6
Statements of cash flows F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-12
F-2
38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders
US Patriot, Inc.
Columbia, South Carolina
We have audited the accompanying balance sheet of US Patriot, Inc.
as of October 31, 2001 and the related statements of operations, changes
in stockholders' equity and cash flows for the year ended October 31,
2001 and the period from October 2, 2000 (inception) to October 31,
2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of US Patriot,
Inc. as of October 31, 2001 and the results of its operations, changes
in stockholders' equity and its cash flows for the year ended October
31, 2001 and the period from October 2, 2000 (inception) to October 31,
2000 in conformity with accounting principles generally accepted in the
United States of America.
Elliott Davis, LLP
November 27, 2001
Columbia, South Carolina
F-3
39
US PATRIOT, INC.
BALANCE SHEET
OCTOBER 31, 2001
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 3,541
Accounts receivable 930
Deferred tax asset 879
Inventories 77,724
----------
Total current assets 83,074
----------
PROPERTY AND EQUIPMENT-
Net of accumulated depreciation 33,882
----------
OTHER ASSETS
Accrued interest 334
Deferred tax asset 4,830
Building and utility deposits 3,689
----------
$ 125,809
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of notes payable $ 30,133
Current portion of capital lease obligation 602
Current portion of related party note payable 4,896
Accounts payable 4,599
Accrued expenses 13,312
Sales tax payable 2,294
----------
Total current liabilities 55,836
----------
LONG-TERM DEBT
Notes payable 66,088
Capital lease obligation 998
Related party note payable 19,586
----------
Total long-term debt 86,672
----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - $.0001 par value;
20,000,000 shares authorized; none issued -
Common stock - $.0001 par value;
100,000,000 shares authorized; 5,000,000 shares issued 500
Additional paid-in-capital 10,500
Stock subscription receivable (5,000)
Accumulated deficit (22,699)
----------
Total stockholders' equity (deficit) (16,699)
----------
$ 125,809
==========
See notes to financial statements which are an integral part of this statement.
F-4
40
US PATRIOT, INC.
STATEMENTS OF OPERATIONS
October 2,
For the 2000
year ended (inception) to
October 31, October 31,
2001 2000
----------- -------------
NET SALES $ 343,584 $ -
COST OF SALES 209,286 -
----------- ------------
Gross profit 134,298 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 151,512 3,747
----------- ------------
Loss from operations (17,214) (3,747)
INTEREST EXPENSE (7,447) -
----------- ------------
Net loss before income tax benefit (24,661) (3,747)
INCOME TAX BENEFIT 4,959 750
----------- ------------
Net loss $ (19,702) $ (2,997)
=========== ============
LOSS PER COMMON SHARE $ - $ -
=========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,333,333 1,000,000
=========== ============
See notes to financial statements which are an integral part of this statement.
F-5
41
US PATRIOT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the year ended October 31, 2001 and the period from October 2, 2000
(inception) to October 31, 2000
Total
stock-
Additional Stock Accumu- holder's
Preferred stock Common stock paid-in subscriptions lated equity
Shares Dollars Shares Dollars capital receivable deficit (deficit)
------ ------- ------ ------- ---------- ------------- -------- ---------
ISSUANCE OF COMMON STOCK, OCTOBER 2, 2000 - $- 1,000,000 $100 $ 900 $(1,000) $ - $ -
Net loss - - - - - - (2,997) (2,997)
------ ------- ------ ------- ---------- ------------- --------- ---------
BALANCE, OCTOBER 31, 2000 - - 1,000,000 100 900 (1,000) (2,997) (2,997)
Issuance of common stock, January 2, 2001 - - 4,000,000 400 9,600 (7,500) - 2,500
Stock subscriptions paid, June 1, 2001 - - - - - 3,500 - 3,500
Net loss - - - - - - (19,702) (19,702)
------ ------- --------- ------- ---------- ------------ --------- ---------
BALANCE, OCTOBER 31, 2001 - $- 5,000,000 $500 $10,500 $(5,000) $(22,699) $(16,699)
====== ======= ========= ====== =========== =========== ========= =========
See notes to financial statements which are an integral part of this statement.
F-6
42
US PATRIOT, INC.
STATEMENTS OF CASH FLOWS
October 2,
For the 2000
year ended (inception)
October 31, to October
2001 31, 2000
----------- -----------
OPERATING ACTIVITIES
Net loss $ (19,702) $ (2,997)
Adjustments to reconcile net loss to net cash
used for operating activities
Depreciation 5,332 -
Deferred taxes (4,959) (750)
Professional fees provided in exchange for stock 2,500 -
Changes in deferred and accrued amounts
Accounts receivable (930) -
Inventories (77,724) -
Building and utility deposits 287 (3,976)
Accrued interest (334) -
Accounts payable 4,599 -
Accrued expenses 10,402 2,910
Sales tax payable 2,294 -
---------- -----------
Net cash used for operating activities (78,235) (4,813)
---------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (33,792) (3,822)
---------- -----------
Net cash used for investing activities (33,792) (3,822)
---------- -----------
FINANCING ACTIVITIES
Payment of stock subscription 3,500 -
Proceeds from related party note payable 15,847 8,635
Proceeds from notes payable 112,500 -
Principal payments on notes payable (16,279) -
---------- -----------
Net cash provided by financing activities 115,568 8,635
---------- -----------
Increase in cash and cash equivalents 3,541 -
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD - -
---------- -----------
END OF PERIOD $3,541 $ -
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $7,447 $ -
========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through
capital lease $1,600 $ -
========== ===========
Stock issued for subscriptions receivable $7,500 $1,000
========== ===========
See notes to financial statements which are an integral part of this statement.
F-7
43
US PATRIOT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of the operations
------------------------
US Patriot, Inc. (the "Company") was incorporated in the State of
South Carolina on October 2, 2000. From inception through December
26, 2000, the Company had not yet commenced operations and no
revenue was derived. The Company sells, distributes, tailors, and
services military and law enforcement clothing, gear and related
equipment from a leased retail facility located in Columbia, South
Carolina. Accordingly, the Company was considered a development
stage enterprise for the period from October 2, 2000 to October 31,
2000.
Basis of accounting
-------------------
These financial statements are prepared on the accrual basis of
accounting which is in conformity with accounting principles
generally accepted in the United States of America.
Cash and cash equivalents
-------------------------
The Company considers all liquid, non-equity investments with an
original maturity of three months or less to be cash equivalents.
Inventories
-----------
Inventories are valued at the lower of cost (determined on first-in,
first-out method) or market (net realizable value).
Property and equipment
----------------------
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated life of each
asset. The carrying amount of all property and equipment is
evaluated periodically to determine if adjustment to the useful life
is warranted. Following are the useful lives by asset class:
Computer equipment 3 years
Leasehold improvements 3 years
Sewing equipment 5 years
Furniture and fixtures 7 years
Income taxes
------------
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable (refundable) for the period and the change during
the period in deferred tax assets and liabilities.
Advertising costs
-----------------
The Company expenses advertising costs as they are incurred.
Advertising costs for the year ended October 31, 2001 and the period
ended October 31, 2000, were $2,765 and $0, respectively.
F-8
44
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Estimates
---------
The financial statements include estimates and assumptions that
affect the Company's financial position and results of operations
and disclosure of contingent assets and liabilities. Actual results
could differ from these estimates.
Loss per common share
---------------------
Basic loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the
year.
Revenue recognition
-------------------
Sales are recorded when inventory is shipped or delivered and title
transfers.
Concentration of credit risk
----------------------------
The Company sells goods and services to military and law enforcement
personnel primarily located in Columbia, South Carolina.
NOTE 2 - INVENTORIES
- --------------------
The Company's inventory consisted of the following at October 31, 2001:
Military apparel and accessories $ 80,012
Allowance for excess and slow moving inventory (2,288)
---------
$ 77,724
=========
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following at October 31, 2001:
Computer equipment $ 5,781
Leasehold improvements 6,486
Sewing equipment 17,956
Furniture and fixtures 8,991
--------------
39,214
Less accumulated depreciation (5,332)
--------------
$ 33,882
==============
Included in sewing equipment is an asset acquired under a capital
lease for $1,600. The carrying value of this asset was $1,333 at October
31, 2001.
F-9
45
NOTE 4 - NOTES PAYABLE
On November 30, 2000, the Company entered into a 5-year installment
loan agreement with a financial institution to borrow $100,000 for the
purpose of purchasing inventory and equipment. The loan bears interest at
the institution's prime rate plus 1%, which was 6% at October 31, 2001.
The note is payable in 60 monthly principal and interest payments of
$2,156. Inventory, accounts receivable, furniture and fixtures, equipment,
and stockholder's real property serve as collateral for the loan.
On October 15, 2001, the Company entered into a one-year installment
loan of $12,500 with a financial institution to purchase equipment. The
note bears interest at the institution's prime rate plus 1%, which was 6%
as October 31, 2001. The note is payable in 12 monthly principal and
interest payments of $1,092. The equipment is collateral for the note.
Future maturities on the notes detailed above are as follows for the
years ending October 31:
2002 $ 30,133
2003 19,603
2004 21,794
2005 24,229
2006 462
--------------
$ 96,221
==============
NOTE 5 - INCOME TAXES
- ---------------------
At October 31, 2001, the Company has available for income tax
purposes, the following net operating loss carryforwards:
Amount Expiration
--------- ----------
Federal $ 21,946 2021
State 1,155 2021
Deferred tax assets are as follows at October 31, 2001:
Current $ 879
Long-term 4,830
--------
$ 5,709
========
At October 31, 2001, the deferred tax asset consists primarily of the
value of net operating loss carryforwards.
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows for the year ended October 31,
2001 and period ended October 31, 2000:
2001 2000
------ ------
U.S. Statutory rate 34.0% 34.0%
State income tax benefit, net of federal tax 3.3 3.3
Tax effect of lower brackets (18.0) (18.0)
All other, net .8 .7
------ ------
20.1% 20.0%
====== ======
F-10
46
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
From October 2, 2000 to June 1, 2001, the original stockholder loaned
the Company $24,482. This was formalized in a note agreement with the
Company on June 1, 2001. The note was issued as a 5-year term loan that
does not bear interest and requires two payments of principal per year,
beginning on December 31, 2002. Future maturities on the note are as
follows for the years ending October 31:
2002 $ 4,896
2003 4,896
2004 4,896
2005 4,896
2006 4,898
-------------
$ 24,482
=============
On March 1, 2001, the Company entered into a 4-year equipment lease
with the son of the original stockholder. Ownership of the equipment will
transfer to the Company at the expiration of the term, and accordingly, the
lease is being accounted for as a capital lease. The equipment and the
related liability under the capital lease were recorded at the present
value of the future payments due under the leases, as determined with an
8.5% discount rate. The lease is payable in monthly installments of $39
including interest. Payments totaling $312, including principal of $228
and interest of $84, were due but not paid in 2001.
The following is a schedule of the future minimum lease payments
under the capital lease together with the present value of the net minimum
lease payments as of October 31, 2001:
2002 $ 696
2003 468
2004 468
2005 177
------------
Total minimum lease payments 1,809
Less the amount representing interest (209)
------------
Present value of net minimum lease payments $ 1,600
============
On August 1, 2001, the Company issued 1,000,000 shares of common stock
to an attorney in exchange for present and future legal services for an
agreed upon value of $2,500. This amount was expensed as of the issuance
date.
At October 31, 2001, the Company held a note for stock subscriptions
totaling $5,000 from a director of the Company. The note accrues interest
annually at 8% and all payments of interest are due upon the maturity of
the note on January 2, 2004. This note arose from the stock issued January
2, 2001 and is shown on the balance sheet as a reduction in stockholders'
equity (deficit).
F-11
47
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------
On August 1, 2001, the Company reduced the par value of its common
stock from $.10 per share to $.0001 per share. The effect was treated as a
1,000-for-1 stock split. The Company also authorized 20,000,000 preferred
shares at $.0001 per share with attributes to be determined by the Board of
Directors. No preferred shares were issued. For the period ended October
31, 2000 and the year ended October 31, 2001, weighted average common
shares have been retroactively adjusted for this reduction in par value as
if it occurred on October 2, 2000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
On October 1, 2001, the Company entered into a 3-year lease agreement
for $3,175 per month. The lease required a deposit of $3,375 which is
refundable to the Company upon termination of the agreement. Future
minimum lease payments are as follows for the years ending October 31:
2002 $ 38,100
2003 38,100
2004 34,925
--------------
$ 111,125
==============
NOTE 9 - SUBSEQUENT EVENTS
- --------------------------
On November 15, the Company issued 335,000 shares of common stock for
$6,700. Each share issued was accompanied by a stock purchase warrant.
Each warrant represents the right to purchase one share of the Company's
common stock at a price of $0.40 per share no earlier than 90 days after
the effective date of the Company's filing of an SB-2 registration
statement with the Securities and Exchange Commission. Each warrant
expires on the three year anniversary of the effective date. Each
unexercised warrant may be redeemed by the Company at a price of $0.001 per
warrant at anytime, upon 30 days written notice to the holders thereof, if
the Company's common stock is traded on the Over the Counter Bulletin Board
and the market price equals or exceeds 120% of the exercise price. Five
thousand of these shares were issued to the wife of the original
stockholder.
F-12
48
No dealer, salesman or other
person is authorized to give any
information or to make any
representations not contained in
this prospectus in connection with
the offer made hereby, and, if
given or made, such information or
representations must not be relied
upon as having been authorized by
US Patriot. This prospectus does
not constitute an offer to sell or
a solicitation to an offer to buy
the securities offered hereby to
any person in any state or other
jurisdiction in which such offer or
solicitation would be unlawful.
Neither the delivery of this
prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to the date
hereof.
Until _________ __, 2002 (90 days
after the date of this prospectus)
all dealers that effect
transactions in these securities,
whether or not participating in
this offering, may be required to
deliver a prospectus . This is in
addition to the dealer's obligation
to deliver a prospectus when acting
as underwriters and with respect to
their unsold allotments or
subscriptions.
TABLE OF CONTENTS
Page
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Prospectus Summary 3 US Patriot, Inc.
The Offering 4
Summary Financial Data 6
Risk Factors 7
Use of Proceeds 11
Determination of Offering Price.. 11
Dividend Policy 11 2,170,000 SHARES
Dilution 12
Management's Discussion and Analysis 13
Business 16
Management 24
Principal Shareholders 26
Selling Shareholders 27
Description of Securities 29
Indemnification 31 PROSPECTUS
Plan of Distribution 32
Legal Matters 33
Experts 33
Where You Can Find More Information 34
Financial Statements F-1
January 16, 2002
49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the South Caronlina Revised Statutes, which
provides for indemnification of directors and officers against certain
liabilities. Pursuant to our Articles of Incorporation, our officers
and directors are indemnified, to the fullest extent available under
South Caronlina Law, against expenses actually and reasonably incurred
in connection with threatened, pending or completed proceedings,
whether civil, criminal or administrative, to which an officer or
director is, was or is threatened to be made a party by reason of the
fact that he or she is or was one of our officers, directors,
employees or agents. We may advance expenses in connection with
defending any such proceeding, provided the indemnitee undertakes to
repay any such amounts if it is later determined that he or she was
not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with this registration
statement will be as follows:
SEC registration fee $ 260
Legal fees and expenses $ 50,000
Accounting fees and expenses $ 6,000
Miscellaneous $ 3,740
-----------
Total $ 60,000
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities
sold by US Patriot, Inc within the past three years that were not
registered under the Securities Act. The issuances described hereunder
were made in reliance upon the exemptions from registration set forth in
Section 4(2) and Regulation D of the Securities Act relating to sales by
an issuer not involving any public offering. None of the foregoing
transactions involved a distribution or public offering.
Date Name # of Shares Total Price
- ---- ---- ----------- -----------
11/15/01 William Bauer 25,000 $500
11/15/01 Peggy Bauer 25,000 $500
11/15/01 Gregory Colegrove 25,000 $500
11/15/01 Jeffrey Colegrove 25,000 $500
11/15/01 James Foxworthy 25,000 $500
11/15/01 Melissa Foxworthy 25,000 $500
11/15/01 Judith Cooper 12,500 $250
11/15/01 Larry Higgins 12,500 $250
11/15/01 D.T. Kimble 12,500 $250
11/15/01 Kay Kimble 12,500 $250
11/15/01 Ania Kwalik 12,500 $250
11/15/01 Albert Massey 12,500 $250
11/15/01 Diane Massey 12,500 $250
11/15/01 Richard Weinacker 12,500 $250
11/15/01 Bruce West 7,500 $150
11/15/01 Pamela West 7,500 $150
11/15/01 Pete Baldwin 5,000 $100
11/15/01 Sandra Dee 5,000 $100
11/15/01 Gordon English 5,000 $100
11/15/01 David Gable 5,000 $100
11/15/01 Harry Hunter 5,000 $100
11/15/01 Brenda Jellicorse 5,000 $100
11/15/01 Steve Jellicorse 5,000 $100
11/15/01 Jean Jones 5,000 $100
11/15/01 Mike Jones 5,000 $100
11/15/01 Bert Kemp 5,000 $100
11/15/01 Kristy Massey 5,000 $100
11/15/01 Angela Post 5,000 $100
11/15/01 James Post 5,000 $100
11/15/01 Jim Winders 5,000 $100
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ITEM 27. EXHIBITS
Exhibit Number Description
- -------------- -----------
3.1 Articles of Incorporation of US Patriot, Inc.
3.2 Bylaws of US Patriot, Inc.
4.1 Specimen certificate of the Common Stock of US
Patriot, Inc.
4.2 Specimen certificate of the Warrants of US
Patriot, Inc.
5.1 Opinion of Law Office of James G. Dodrill II,
P.A. as to legality of securities being registered*
10.1 Lease of Business Property entered into October
1, 2001 between US Patriot, Inc. and Covold
Partners.
10.2 Promissory Note Dated November 30, 2000 with
SouthTrust Bank
10.3 Promissory Note Dated October 11, 2001 with
SouthTrust Bank
23.1 Consent of Elliott Davis LLP
23.2 Consent of James G. Dodrill II (included in
Exhibit 5.1)
*to be filed by amendment.
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ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and as expressed in the Act
and is, therefore, unenforceable.
The Company hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
i. Include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement.
iii. Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(4) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part
of this registration statement as of the time the Commission
declared it effective.
(5) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of
those securities.
(6) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to our
directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised by the
Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons 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, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by us 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 193, the
registrant certifies that it has reasonable ground to believe that it
meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Columbia state
of South Carolina, on January 16, 2002.
US PATRIOT, INC.
By: /s/ Phillips N. Dee
--------------------------------------
Phillips N. Dee
Principal Executive Officer, President
and Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in
the capacities indicated on January 16, 2002.
By: /s/ Phillips N. Dee Principal Executive Officer, President
-------------------- and Director
Phillips N. Dee
By: /s/ Scott Massey Director
--------------------
Scott Massey
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