Filed Pursuant to Rule 424(b)(3)
Rgistration No. 333-114622
PROSPECTUS
SRKP 1, INC.
700,000 SHARES OF COMMON STOCK
SRKP 1, Inc. is a start-up company organized in the State of Delaware
to pursue a business combination. We are offering for sale 700,000 shares of our
common stock at a purchase price of $0.17 per share. We are selling the shares
on a "best-efforts, all or none basis" for a period of 180 days from the date of
the prospectus. Neither our management or our promoters will purchase any of
the 700,000 shares offered hereby. If all of the 700,000 shares are not sold
with the 180 day period, all escrowed funds will be promptly returned, without
interest. We will not use an underwriter or securities dealer. This offering
will be conducted through one of our shareholders without the use of a
professional underwriter or securities dealer. We will not pay commissions on
the sale of the shares.
This is our initial public offering, and no public market currently
exists for our stock. Our initial public offering price for our stock will be
$0.17 per share which is only an estimate of market value for purposes of this
offering.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THESE SECURITIES ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR RISKS CONCERNING US AND
THE OFFERING.
UNDERWRITING DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS PROCEEDS TO THE COMPANY
--------------- ----------- -----------------------
Per Share.................. $ 0.17 $ 0 $ 0.17
TOTAL...................... $ 119,000 $ 0 $ 119,000
The date of this prospectus is November 8, 2004
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................1
SUMMARY FINANCIAL INFORMATION.................................................2
RISK FACTORS..................................................................4
WARNING ABOUT FORWARD-LOOKING STATEMENTS......................................6
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419 DEPOSIT OF OFFERING
PROCEEDS AND SECURITIES.....................................................7
DILUTION......................................................................9
USE OF PROCEEDS...............................................................9
CAPITALIZATION...............................................................11
DIVIDEND POLICY..............................................................11
PROPOSED BUSINESS............................................................11
MANAGEMENT...................................................................17
STATEMENT AS TO INDEMNIFICATION..............................................19
MARKET FOR OUR COMMON STOCK..................................................19
SHARES ELIGIBLE FOR FUTURE SALE..............................................20
CERTAIN TRANSACTIONS.........................................................21
PRINCIPAL STOCKHOLDERS.......................................................21
DESCRIPTION OF SECURITIES....................................................22
PLAN OF DISTRIBUTION.........................................................23
WHERE YOU CAN FIND MORE INFORMATION..........................................24
LEGAL MATTERS................................................................24
EXPERTS......................................................................25
Until 90 days after the date when the funds and securities are released
from the escrow account, all dealers effecting transactions in the shares,
whether or not participating in the distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters to their unsold allotments or
subscriptions.
PROSPECTUS SUMMARY
SRKP 1, INC.
SRKP 1, Inc. is a "blank check" company formed as a Delaware
corporation on March 16, 2004. We have no operating business. We are conducting
a blank check offering subject to the Securities and Exchange Commission's Rule
419 under the Securities Act of 1933, as amended (the "Securities Act"). Since
our inception, our operating activities have been limited to our organization
and the preparation of a registration statement and prospectus for our initial
public offering. We were formed as a vehicle to effect a business combination
with a company that we believe has significant growth potential. We have no
plans, arrangements or understandings with any prospective business combination
candidates and have not targeted any business for investigation and evaluation.
We cannot assure you that we will find a suitable business with which to
combine.
As described in more detail in this prospectus, the business must have
a minimum fair market value of at least 80% of the maximum offering proceeds. We
will need a sufficient number of investors to reconfirm their investments prior
to consummating any business combination. Before you vote, we must file and
deliver to you an amendment to this prospectus outlining the proposed
combination and business. Unless we complete a business combination within 18
months of the date of the commencement of this offering, the entire proceeds
will be returned to those who subscribed to this offering.
We maintain our office at 1900 Avenue of the Stars, Suite 310, Los
Angeles, California. Our telephone number is (310) 203-2902.
PRINCIPAL TERMS OF THE OFFERING
Shares offered....................................... 700,000 shares
Common Stock outstanding prior to the offering....... 2,700,000 shares
Common Stock to be outstanding after the offering.... 3,400,000 shares
Price per share...................................... $0.17
Use of Proceeds...................................... The proceeds of the offering will initially be
deposited in a non - interest bearing escrow account. If
all of the 700,000 offered shares are sold within 180
days, then all of the funds will be transferred to an
interest bearing escrow account. If all of the 700,000
shares are not sold in the 180-day period, the funds
will be returned to the investors, without interest.
Neither our management or our promoters will purchase
any of the 700,000 shares offered hereby. If the funds
are retained in the escrow account, SRKP 1 has 18
months following the date of this prospectus to
consummate a business combination with another
entity. If we fail to consummate such a combination
within the 18-month period, then it will return the
funds to the investors, plus interest. Each investor
will have an opportunity to respond to a
reconfirmation offer given when such a combination is
anticipated, included in a post-effective amendment to
this registration statement, to reconfirm its interest
in the offering and approve the potential business
combination or have its funds returned, plus interest.
1
OFFERING CONDUCTED IN COMPLIANCE WITH RULE 419
We are a "blank check" company which is a development stage company.
Our sole business purpose is to merge with, or acquire or otherwise combine with
a presently unidentified company or business. Consequently, the offering is
being conducted in compliance with Rule 419 as follows:
o The securities purchased by investors and all of the funds received
in the offering will be deposited and held in an escrow account
until an acquisition is completed.
o Before the acquisition can be completed and before the investors'
funds can be released to us and certificates representing the
securities sold in the offering can be released to the investors, we
are required to update the registration statement with a
post-effective amendment. Within five days after the effective date
of the post-effective amendment, we are required to furnish
investors with a prospectus.
o The prospectus, which is part of the post-effective amendment, will
contain a reconfirmation of the offering and information regarding
the acquisition candidate and its business, including the terms and
conditions of the acquisition and audited financial statements of
the acquisition candidate.
o Investors will have no less than 20 and no more than 45 business
days from the effective date of the post-effective amendment to
decide to reconfirm their investment and remain an investor or,
alternately, to require the return of their funds, plus interest,
from escrow.
Investors not making a decision within 45 business days will
automatically have their escrowed funds returned, plus interest.
o If we do not complete an acquisition meeting our specified criteria
within 18 months of the date of this prospectus, all of the funds in
the escrow account will be returned to investors, plus interest.
o Thus, if the offering period extends to its 180-day limit, we will
have only 12 months in which to consummate a merger or acquisition.
None of our officers, directors or principal stockholders have prior
experience in blank check offerings.
LIMITED STATE REGISTRATION
Initially, the only states in which our securities may be sold are:
Hawaii, Illinois, New York and Nevada. Therefore, you may only resell your
shares in those states. We relied on exemptions from state registration
requirements in Hawaii and applied to have our securities registered for sale in
Illinois, New York and Nevada. In the event we expand the number of states in
which our securities will be sold, we will file a post-effective amendment to
the registration statement and re-circulate prospectuses to all prospective
investors to whom prospectuses had previously been distributed.
SUMMARY FINANCIAL INFORMATION
The table below contains certain summary historical financial data. The
summary information in this table should be read in conjunction with the
financial statements and notes to the financial statements, and other financial
information included in this prospectus.
2
PERIOD FROM MARCH 16, 2004 PERIOD FROM MARCH 16, 2004
(DATE OF INCEPTION) (DATE OF INCEPTION)
TO MARCH 31, 2004 TO JUNE 30, 2004
-------------------------- --------------------------
Statement of Income Data:
Net sales........................................... $0 $0
Net loss............................................ $(23,477) $(39,925)
Net loss per share.................................. $(.01) $(.01)
Shares outstanding.................................. 2,700,000 2,700,000
AT MARCH 31, 2004 AT JUNE 30, 2004
--------------------------- ---------------------------
Balance Sheet Data: Actual As Adjusted(1) Actual As Adjusted
------ -------------- ------ --------------
Working capital................................. $100,000 $95,523 $60,075 $101,088
Total assets.................................... $100,000 $219,000 $77,987 $196,987
Long-term debt.................................. $0 $0 $0 $0
Total liabilities............................... $23,477 $123,477 $17,912 $117,912
Additional paid-in capital...................... $97,300 $115,600 $97,300 $115,600
Deficit accumulated during development stage.... $(23,477) $(23,477) $(39,925) $(39,925)
Total stockholders' equity $76,523 $95,523 $60,075 $79,075
- -----------
(1) Assumes receipt of proceeds of $119,000 and payment of the total costs of
the offering in the amount of $100,000, all of which is to be paid from
SRKP 1's treasury and none of which is to be paid from the proceeds of the
offering. Total costs of the offering are estimated to be $100,000. Also
assumes the $119,000 if restricted cash from the offering is a current
asset.
3
RISK FACTORS
THE SECURITIES WE ARE OFFERING ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE AN
EXTREMELY HIGH DEGREE OF RISK. YOU SHOULD NOT PURCHASE THESE SECURITIES UNLESS
YOU CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. YOU SHOULD CAREFULLY CONSIDER
THE RISK FACTORS RELATING TO OUR BUSINESS AND THE PURCHASE OF THESE SECURITIES,
INCLUDING, BUT NOT LIMITED TO, THOSE RISK FACTORS DISCUSSED BELOW.
CONFLICTS OF INTEREST CREATE THE RISK THAT MANAGEMENT MAY HAVE AN INCENTIVE TO
ACT ADVERSELY TO THE INTERESTS OF OTHER INVESTORS.
A conflict of interest may arise between our management's personal
pecuniary interest and its fiduciary duty to our stockholders. Present
stockholders will own seventy-nine percent (79%) of our outstanding common stock
after the offering is completed and would therefore continue to retain control.
Further, our management's own pecuniary interest may at some point compromise
its fiduciary duty to our stockholders. In addition, our officers and directors
may become involved with other blank check offerings and conflicts in the
pursuit of business combinations with such other blank check companies with such
persons in the future be affiliated with may arise. If we and the other blank
check companies that our officers and directors may become affiliated with
desire to take advantage of the same opportunity, then those officers and
directors that are affiliated with both companies would abstain from voting upon
the opportunity. In the event of identical officers and directors, the company
that first filed a registration statement with the Securities and Exchange
Commission will be entitled to proceed with the proposed transaction.
AS WE HAVE NO OPERATING HISTORY OR REVENUE AND ONLY MINIMAL ASSETS, THERE IS A
RISK THAT WE WILL BE UNABLE TO CONTINUE AS A GOING CONCERN AND CONSUMMATE A
BUSINESS COMBINATION.
We have had no operating history nor any revenues or earnings from
operations since inception. We have no significant assets or financial
resources. We will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. This may result in our incurring a net operating loss that will
increase continuously until we can consummate a business combination with a
profitable business opportunity. We cannot assure you that we can identify a
suitable business opportunity and consummate a business combination.
THE REPORT OF OUR INDEPENDENT AUDITORS INDICATES UNCERTAINTY CONCERNING OUR
ABILITY TO CONTINUE AS A GOING CONCERN AND THIS MAY IMPAIR OUR ABILITY TO
CONSUMATE A BUSINESS COMBINATION.
Our independent auditors have raised substantial doubt about our
ability to continue as a going concern. We cannot assure you that this will
impair our ability to consummate a business combination. Additionally, we cannot
assure you that we will ever achieve significant revenues and therefore remain a
going concern.
ESCROWED SECURITIES CAN ONLY BE TRANSFERRED UNDER LIMITED CIRCUMSTANCES,
RESULTING IN LITTLE OR NO LIQUIDITY FOR YOUR INVESTMENT FOR A SUBSTANTIAL PERIOD
OF TIME.
No transfer or other disposition of the escrowed securities sold in
this offering is permitted other than by will or the laws of descent and
distribution, or under a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title 7 of the Employee Retirement
Income Security Act of 1974, or the related rules. Under Rule 15g-8 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), it is unlawful
for any person to sell or offer to sell the securities or any interest in or
related to the securities held in a Rule 419 escrow account other than under a
qualified domestic relations order in divorce proceedings. Therefore, any and
all contracts for sale to be satisfied by delivery of the securities and sales
of derivative securities to be settled by delivery of the securities are
prohibited. You are further prohibited from selling any interest in the
securities or any derivative securities whether or not physical delivery is
required while the securities are in the Rule 419 escrow. As a result, you will
have little or no liquidity for your investment for a substantial period of
time, and may therefore be unable to invest your funds in alternative
investments. Depending upon how soon a business combination could be
consummated, you will have no right to the return of or the use of your funds or
the securities purchased for a period of up to 18 months from the date of this
prospectus. You will be offered the return of your funds only under the
circumstances set forth in Rule 419.
THE NATURE OF OUR OPERATIONS IS HIGHLY SPECULATIVE AND THERE IS A CONSEQUENT
RISK OF LOSS OF YOUR INVESTMENT.
The success of our plan of operation will depend to a great extent on
the operations, financial condition and management of the identified business
opportunity. While management intends to seek business combination(s) with
entities having established operating histories, we cannot assure you that we
will be successful in locating candidates meeting that criteria. In the event we
complete a business combination, the success of our operations may be dependent
upon management of the successor firm or venture partner firm and numerous other
factors beyond our control.
4
WE ARE IN A HIGHLY COMPETITIVE MARKET FOR A SMALL NUMBER OF BUSINESS
OPPORTUNITIES WHICH COULD REDUCE THE LIKELIHOOD OF CONSUMMATING A SUCCESSFUL
BUSINESS COMBINATION.
We are and will continue to be an insignificant participant in the
business of seeking mergers with, joint ventures with and acquisitions of small
private and public entities. A large number of established and well-financed
entities, including small public companies and venture capital firms, are active
in mergers and acquisitions of companies that may be desirable target candidates
for us. Nearly all these entities have significantly greater financial
resources, technical expertise and managerial capabilities than we do;
consequently, we will be at a competitive disadvantage in identifying possible
business opportunities and successfully completing a business combination. These
competitive factors may reduce the likelihood of our identifying and
consummating a successful business combination.
WE HAVE NO EXISTING AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION
AND THEREFORE CANNOT GUARANTEE THAT WE WILL BE ABLE TO NEGOTIATE A BUSINESS
COMBINATION ON FAVORABLE TERMS.
We have no arrangement, agreement or understanding with respect to
engaging in a merger with, joint venture with or acquisition of, a private or
public entity. No assurances can be given that we will successfully identify and
evaluate suitable business opportunities or that we will conclude a business
combination. Management has not identified any particular industry or specific
business within an industry for evaluation. We cannot guarantee that we will be
able to negotiate a business combination on favorable terms, and there is
consequently a risk that funds allocated to the purchase of our shares will not
be invested in a company with active business operations. If we are unable to
make such an investment, it is unlikely that you will make a substantial return
on your investment in SRKP 1.
IF WE CONSUMMATE A BUSINESS COMBINATION WITH A FOREIGN CORPORATION, WE MAY BE
SUBJECT TO SIGNIFICANT RISKS, INCLUDING WORLDWIDE POLITICAL, ECONOMIC, LEGAL AND
OTHER UNCERTAINTIES.
We may consummate a business consummation with a foreign corporation.
If so, our international operations may be subject to significant political and
economic risks and legal uncertainties, including:
o changes in economic and political conditions and in governmental
policies,
o changes in international and domestic customs regulations,
o wars, civil unrest, acts of terrorism and other conflicts,
o natural disasters,
o changes in tariffs, trade restrictions, trade agreements and
taxation,
o difficulties in managing or overseeing foreign operations,
o limitations on the repatriation of funds because of foreign exchange
controls,
o different liability standards, and
o uncertainties related to foreign currency fluctuations.
The occurrence or consequences of any of these factors may harm our
profitability in the future.
In addition, outside the United States it may be difficult for
investors and stockholders to enforce judgments against a foreign corporation
obtained in the United States in any such actions, including actions predicated
upon civil liability provisions of the United States securities laws. If we
consummate a business combination with a foreign corporation, it is likely that
some, if not all, of the officers and directors of that corporation will become
officers and directors of our company. Such officers and directors may reside
outside the United States and the assets of these persons may be located outside
of the United States. As a result, it may not be possible for investors to
effect service of process within the United States upon such persons, or to
enforce against such persons judgments obtained in the United States courts
predicated upon the liability provisions of the United States securities laws.
MANAGEMENT INTENDS TO DEVOTE ONLY A LIMITED AMOUNT OF TIME TO SEEKING A TARGET
COMPANY WHICH MAY ADVERSELY IMPACT OUR ABILITY TO IDENTIFY A SUITABLE
ACQUISITION CANDIDATE.
While seeking a business combination, management anticipates devoting
between two and 10 hours per week to SRKP 1's affairs in total. None of our
officers have entered into written employment agreements with us and none is
expected to do so in the foreseeable future. This limited commitment may
adversely impact our ability to identify and consummate a successful business
combination.
NONE OF OUR OFFICERS OR DIRECTORS HAS ANY EXPERIENCE WITH "BLANK CHECK"
OFFERINGS THAT YOU CAN USE TO EVALUATE OUR FUTURE POTENTIAL.
None of our officers or directors have any experience with "blank
check" offerings and none of them are currently involved with other "blank
check" offerings. We cannot assure you that our management's lack of experience
will not adversely affect our ability to identify a suitable aquisition
candidate and successfully negotiate a timely business combination.
THERE MAY BE AN ABSENCE OF A TRADING MARKET, WHICH WOULD ELIMINATE OR ADVERSELY
IMPACT YOUR ABILITY TO SELL YOUR SHARES.
There currently is no trading market for our stock and a trading market
will not develop prior to or after the effectiveness of this prospectus or while
the common stock under this offering is maintained in escrow. Under Rule 15g-8
of the Exchange Act, it is unlawful for any person to sell the securities or any
interest in or related to the securities held in a Rule 419 escrow account other
than under a qualified domestic relations order in divorce proceedings.
Additionally, we expect the initial market for our stock following the release
of shares from escrow to be limited. You will not be permitted to sell, or
except in very limited circumstances, otherwise transfer your shares while they
are in escrow, and a trading market may not develop. Even if a limited trading
market does develop following the release of shares from escrow, there is a risk
that the absence of potential buyers will prevent you from selling your shares
if you determine to reduce or eliminate your investment in SRKP 1. Additionally,
the offering price may not reflect the market price of our shares after the
offering. There is a risk that a lack of potential buyers will result in your
receiving a low price for your shares upon their sale.
WE CANNOT GUARANTEE THAT THE BUSINESS COMBINATION WILL MEET THE STATUTORY
REQUIREMENTS OF A TAX-FREE REORGANIZATION OR THAT THE PARTIES WILL OBTAIN THE
INTENDED TAX-FREE TREATMENT UPON A TRANSFER OF STOCK OR ASSETS AND YOU MAY
THEREFORE BE SUBJECT TO TAXATION.
If a business combination does not meet the statutory requirements of a
tax-free reorganization, the business combination result in the imposition of
both federal and state taxes that may have an adverse effect on both parties to
the transaction.
5
THE AVAILABILITY OF OUR SHARES FOR SALE COULD ADVERSELY AFFECT OUR SHARE PRICE
AS THERE IS A RISK OUR PROMOTERS OR AFFILIATES COULD SELL A SUFFICIENT VOLUME OF
SHARES TO LOWER THE SHARE PRICE.
The 2,700,000 shares of our common stock presently issued and
outstanding as of the date hereof are held by our promoters or affiliates, are
"restricted securities" as that term is defined under the Securities Act and in
the future may be sold pursuant to a registration statement filed under the
Securities Act. It should be noted that these shares may not be sold by these
promoters or affiliates, or their transferees, pursuant to Rule 144 of the
Securities Act. This is true for any such sale either before or after a business
combination with an operating company or other person, regardless of technical
compliance with the rule. The position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission is that any such
resale transaction under Rule 144 would appear to be designed to distribute or
redistribute such shares to the public without coming within the registration
requirements of the Securities Act. Therefore, these promoters or affiliates, or
their exemptions to the transferees, can only resell the shares they hold as of
the date hereof through a registration statement filed under the Securities Act.
Investors should be aware that there is a risk that such sales pursuant to a
registration statement filed under the Securities Act would have a depressive
effect on the market price of our securities in any market which may develop for
such securities. If our promoters or affiliates did not hold these shares, there
would not be the same risk of a depressive effect on the price of the shares you
hold.
THE OFFERING PRICE HAS BEEN ARBITRARILY DETERMINED AND YOU RUN THE RISK OF
PAYING AN AMOUNT IN EXCESS OF WHAT YOU WILL ULTIMATELY RECEIVE.
The initial offering price of $0.17 per share has been arbitrarily
determined by us, and bears no relationship whatsoever to our assets, earnings,
book value or any other objective standard of value. Among the factors
considered by us were our lack of operating history, estimates of our business
potential, the proceeds to be raised by the offering, the amount of capital to
be contributed by the public in proportion to the amount of stock to be retained
by present stockholders, our relative requirements, and the current market
conditions in the over-the-counter market. You are therefore bearing the risk
that you are paying more for our shares than our shares are objectively worth or
are valued by the public markets. This could result in an insufficient return,
or even a loss, on your investment even if we successfully consummate a business
combination.
THERE WILL BE ADDITIONAL DILUTION AS ADDITIONAL SHARES ARE ISSUED WHICH MAY
DECREASE THE MARKET PRICE OF OUR COMMON STOCK.
Once a business combination is consummated, additional offerings will
likely have to be made in the future to meet additional cash flow needs. Such
offerings may include warrants for issuance of additional common stock, further
diluting the common stock outstanding. An increase in the number of our shares
of common stock in the marketplace may result in a decrease of the market price
for our common stock.
WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and the documents referred to in this prospectus
contain "forward-looking statements."
6
Forward-looking statements address future events, developments or
results and typically use words such as believe, anticipate, expect, intend,
plan or estimate. For example, our forward-looking statements may include
statements regarding:
o our growth plans, including our plans to acquire an operating
business entity;
o the possible effect of inflation and other economic changes on our
costs, and profitability, including the possible effect of future
changes in operating costs and capital expenditures;
o our cash needs, including our ability to fund our proposed capital
expenditures and working capital requirements;
o this being a start-up situation, the timing of cash requirements and
the expected projected profitability; and
o our expectations regarding competition.
For a discussion on the risks, uncertainties, and assumptions that
could affect our future events, developments or results, you should carefully
review "Risk Factors." In light of these risks, uncertainties and assumptions,
the future events, developments or results described by our forward-looking
statements in this prospectus or in the documents referred to in this prospectus
could turn to be materially different from those we discuss or imply.
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
DEPOSIT OF OFFERING PROCEEDS AND SECURITIES
RIGHTS AND PROTECTIONS UNDER SECURITIES ACT RULE 419
Rule 419 requires that offering proceeds, after deduction for
underwriting commissions, underwriting expenses and dealer allowances, if any,
and the securities purchased by you and other investors in this offering, be
deposited into an escrow or trust account governed by an agreement that contains
certain terms and provisions specified by Rule 419. Please note that we will pay
no underwriting commission or underwriting expenses and dealer allowances in
connection with this offering. Under Rule 419, the full amount of the proceeds
of the offering will be released to us and the securities you purchased in the
offering will be released to you only after we have met five basic conditions.
First, we must execute an agreement for an acquisition of a business or
asset that will constitute our business and for which the fair value of the
business or net assets to be acquired represents at least 80% of the maximum
offering proceeds, but excluding underwriting commissions, underwriting expenses
and dealer allowances, if any.
Second, we must file a post-effective amendment to the registration
statement that includes the results of this offering including the gross
offering proceeds raised, the amounts paid for underwriting commissions,
underwriting expenses and dealer allowances, if any, amounts dispersed to us and
amounts remaining in the escrow account. In addition, we must disclose the
specific amount, use and appropriation of funds disbursed to us, including,
payments to officers, directors, controlling shareholders or affiliates, the
amounts and purposes of these payments, and the terms of a reconfirmation offer
that must contain conditions prescribed by the rules. The post-effective
amendment must also contain information regarding the acquisition candidate and
its business, including audited financial statements.
Third, we must mail to each investor, within five business days of the
effectiveness of the post-effective amendment, a copy of the prospectus
contained therein.
Fourth, in accordance with Rule 419(e)(2)(ii), the post-effective
amendment must contain the terms of a reconfirmation offer with respect to which
you will have no less than 20 and no more than 45 business days from the
effective date of the post-effective amendment to decide to reconfirm your
investment and remain an investor, or, alternately, to require the return of
your funds, plus interest, from escrow. If you do not make a decision within 45
business days, your escrowed funds will be automatically returned to you, plus
interest.
7
Fifth, we must submit a signed representation to the escrow agent that
the requirements of Rule 419 have been met and the acquisition is closed, after
which the escrow agent can release the funds in the escrow to us and the
securities you purchased in the offering to you.
In accordance with the requirements of Rule 419(e)(2)(iv), if we do not
complete an acquisition meeting specified criteria within 18 months from the
date of this prospectus, all of the funds in the escrow account must be returned
to investors, plus interest. Thus, if the offering period is extended to its
180-day limit, we will have only approximately 12 months in which to consummate
a merger, an acquisition or another type of business combination.
Finally, in accordance with the requirements of Rule 419(d), if during
the period in which we are offering our securities for sale a significant
acquisition becomes probable, we will promptly file a post-effective amendment
to this registration statement disclosing the information applicable to such
acquisition. This information includes, among other things, information from
appropriate industry guides, our financial statements, the financial statements
of the company to be acquired and pro forma financial information required by
applicable rules and regulations.
RIGHTS AND PROTECTIONS UNDER THE TERMS AND PROVISIONS OF THE ESCROW AGREEMENT
In accordance with the above requirements, we have entered into an
escrow agreement with City National Bank, as escrow agent and insured depositary
institution, and U.S. Stock Transfer Corporation, as administrator, which
provides that the proceeds of the offering are to be deposited into the escrow
account maintained by the escrow agent promptly upon their receipt. The funds
and any dividends or interest thereon, if any, are to be held for the sole
benefit of the investor and can only be invested in bank deposit, in money
market mutual funds, federal government securities or securities for which the
principal or interest is guaranteed by the federal government.
All securities sold in the offering and any other securities issued,
including stock splits, stock dividends or similar rights are to be deposited
directly into the escrow account promptly upon their issuance. Your name must be
included on the stock certificates or other documents evidencing the securities.
The securities held in the escrow account must remain in the name in which they
are issued, and will be held for your sole benefit. You retain the voting
rights, if any, to the securities held in your name. You may not transfer or
dispose of any interest created in your securities in the escrow account other
than by will or the laws of descent and distribution, or under a qualified
domestic relations order as defined by the Internal Revenue Code of 1986 or
Table 1 of the Employee Retirement Income Security Act of 1974.
Pursuant to the escrow agreement, funds representing the subscription
price of the 700,000 shares offered hereby will be held in a separate
non-interest bearing escrow account until the completion of the "best efforts,
all or none" offering. If that offering is not successfully completed within 180
days after the date of this prospectus, the funds in the non-interest bearing
escrow account will be returned to the subscribers, without interest. If the
offering is successfully completed, the escrow account will commence bearing
interest on the funds and SRKP 1 shall deposit stock certificates representing
700,000 shares into the escrow account. After the escrow agent receives a signed
representation from SRKP 1 that it has consummated a business merger or
acquisition in accordance with the requirements of Rule 419, all of the funds in
the escrow account will be released to SRKP 1. The escrow agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
RIGHTS TO INFORMATION
We have filed a registration statement relating to the shares with the
Commission under the Securities Act. We have not included in the prospectus all
of the information in the registration statement and the attached exhibits.
Statements of the contents of any document are not necessarily complete. Copies
of these documents are contained as exhibits to the registration statement. We
will provide to you a copy of any referenced information if you contact us at
1900 Avenue of the Stars, Suite 310, Los Angeles, CA 90067, telephone (310)
203-2902.
8
We intend to furnish to our stockholders, after the close of each
fiscal year, an annual report relating to our operations containing audited
financial statements examined and reported upon by an independent certified
public accountant. In addition, we may furnish to our stockholders, from time to
time, such other reports as may be authorized by our Board of Directors. Our
year-end is December 31.
RIGHT TO PROSPECTUS DELIVERY
Until 90 days after the date when the escrowed funds and certificates
representing the common stock are released from escrow, all dealers effecting
transactions in the shares may be required to deliver a prospectus.
DILUTION
Our net tangible book value as of June 30, 2004 was $60,075. Our net
tangible book value per share was $0.022. Net tangible book value represents our
net tangible assets which are our total assets less our total liabilities and
intangible assets. The public offering price per share of common stock is $0.17.
The pro forma net tangible book value after the offering will be $79,075. The
pro forma net tangible book value per share after the offering will be $0.023
per share. The shares purchased by investors in the offering will be diluted
$0.147 or 86.5%. As of June 30, 2004, there were 2,700,000 shares of our common
stock outstanding. Dilution represents the difference between the public
offering price and the net pro forma tangible book value per share immediately
following the completion of the public offering.
The following table illustrates the dilution which will be experienced
by investors in the offering:
Public offering price per share................................... $0.170
Net tangible book value per share before offering................. $0.022
Pro-forma net tangible book value per share after offering........ $0.023
Pro-forma decrease per share attributable to offered shares....... $ --
Pro-forma dilution to public investors............................ $0.147
The following table sets forth, as of the date of the prospectus, the
percentage of equity to be purchased by the public investors compared to the
percentage of equity to be owned by the present stockholders, and the
comparative amounts paid for the shares by the public investors as compared to
the total consideration paid by our present stockholders.
APPROXIMATE
PERCENTAGE TOTAL PERCENTAGE TOTAL
SHARES PURCHASED SHARES OUTSTANDING TOTAL CONSIDERATION CONSIDERATION
---------------- ------------------ ------------------- -------------
New Investors 700,000 21% $ 119,000 54.33%
Existing Stockholders(1) 2,700,000 79% $ 100,000 45.67%
Total 3,400,000 100% $ 219,000 100.00%
(1) We sold 2,700,000 shares of common stock prior to the offering at $0.037
per share. These shares are not being registered. See "Certain
Transactions."
USE OF PROCEEDS
Gross proceeds of the offering will be $119,000, as set forth in the
following table:
PERCENTAGE OF NET PROCEEDS
Escrowed funds pending business combination AMOUNT OF THE OFFERING
-------- ---------------
$119,000(1) 100%
(1) Since we are a "blank check" company, the purpose of the offering is to
raise funds to enable us to merge with or acquire an operating company.
Upon the consummation of a business combination and the reconfirmation
thereof, which reconfirmation offering must precede such consummation, pursuant
to Rule 419, $119,000, plus any dividends received, if any, but less amount
returned to investors who did not reconfirm their investment pursuant to Rule
419, will be released to us.
The fees and expenses relating to this offering will be first paid from
our treasury. Fees and expenses in excess of amounts held in treasury will
either be advanced by our management or promotors pursuant to loans described
below or deferred until closing of the business combination. Any advances made
by management will bear no interest and will be repaid only on consummation of a
merger or acquisition. Upon consummation of a merger transaction, the proceeds
of the offering may be used to repay such loans or we may seek to have the other
party to a consummated merger transaction complete the repayment of such loans
from other funds. All offering proceeds shall be placed in escrow until all of
the shares are sold. Rule 419 permits ten percent of the offering proceeds to be
released from escrow to us. However, we do not intend to request the release of
these funds. All funds held in escrow at the time a business combination is
consummated will be released. No amounts will be paid with respect to salaries
as our officers do not receive any salary-based compensation. Currently, we have
no other employees.
9
While we presently anticipate that we will be able to locate and
consummate a suitable business combination, if we determine that a business
combination requires additional funds, we may seek additional financing through
loans, issuance of additional securities or through other financing
arrangements. We have not negotiated any such financial arrangement, and we can
give no assurances that such additional financing will be available or, if
available, that such additional financing will be on acceptable terms.
Anticipated legal fees relating to this offering and the anticipated business
combination are subject to numerous factors, including the length of time
required to complete all related regulatory matters and the nature of the
business combination SRKP 1's counsel, Kirkpatrick & Lockhart LLP, has agreed,
if necessary, to defer a portion of their fees pending consummation of such a
business combination. We estimate the total legal fees involved in the present
offering to be approximately $75,000 and for a standard business combination to
be approximately $75,000.
Our management may consider potential target businesses among its
business associates. If we consumate a business combination with an entity
introduced to us by a third party we expect to pay a customary "finders fee" in
connection with such introductions. However, we do not currently intend to
retain any entity to act as a "finder" to identify and analyze the merits of
potential target businesses.
Offering proceeds will be placed in escrow at City National Bank, an
insured depository institution, pending consummation of a business combination
and reconfirmation by investors, in a certificate of deposit, interest bearing
savings account or in short-term government securities as required by Rule 419.
10
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2004
and June 30, 2004, respectively, and as adjusted to give effect to the net
proceeds from the sale of 700,000 shares in the offering.
MARCH 31, 2004 JUNE 30, 2004
---------------------------- ----------------------------
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
----------- ------------- ----------- -------------
Long-term debt................................. $0 $0 $0 $0
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized, none issued and
outstanding actual and as adjusted........ 0 0 0 0
Common stock, $.001 par value; 100,000,000
shares authorized; 2,700,000 shares issued
and outstanding actual; 3,400,000 issued
and outstanding as adjusted............... 2,700 3,400 2,700 3,400
Additional paid-in capital.................. 97,300 115,600 97,300 115,600
Deficit accumulated during the development
stage..................................... (23,477) (23,477) (39,925) (39,925)
----------- ------------- ----------- -------------
Total stockholders' equity.................. $76,523 $95,523 $60,075 $79,075
=========== ============= =========== =============
Total capitalization........................ $100,000 $219,000 $100,000 $219,000
=========== ============= =========== =============
DIVIDEND POLICY
Holders of our common stock are entitled to dividends when, as and if
declared by the Board of Directors, out of funds legally available therefore. We
do not anticipate the declaration of payment of any dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the development and
expansion of its business. Future dividend policy will be subject to the
discretion of the Board of Directors and will be contingent upon future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors. Therefore, there can be no assurance that
any dividends of any kind will ever be paid.
PROPOSED BUSINESS
HISTORY AND ORGANIZATION
We were organized under the laws of the State of Delaware on March 16,
2004. Since our inception, we have been engaged in organizational efforts and
obtaining initial financing. We were formed as a vehicle to pursue a business
combination. We have made no efforts to identify a possible business combination
and, as a result, have not conducted negotiations or entered into a letter of
intent concerning any target business.
We are, based on proposed business activities, a "blank check" company.
The Commission defines those companies as "any development stage company that is
issuing a penny stock, within the meaning of Section 3 (a)(51) of the Exchange
Act, and that has no specific business plan or purpose, or has indicated that
its business plan is to merge with an unidentified company or companies." Many
states have enacted statutes, rules and regulations limiting the sale of
securities of "blank check" companies in their respective jurisdictions.
Management does not intend to undertake any efforts to cause a market to develop
in our securities, either debt or equity, until we have successfully concluded a
business combination. We intend to comply with the periodic reporting
requirements of the Exchange Act for so long as we are subject to those
requirements.
11
PLAN OF OPERATION
We were organized as a vehicle to investigate and, if such
investigation warrants, acquire a target company or business seeking the
perceived advantages of being a publicly held corporation. Our principal
business objective for the next 18 months will be to achieve long-term growth
potential through a combination with a business rather than immediate,
short-term earnings. We will not restrict our potential candidate target
companies to any specific business, industry or geographical location and, thus,
may acquire any type of business.
We do not currently engage in any business activities that provide cash
flow. Investors purchasing shares in the offering and other stockholders will
not have the opportunity to participate in any of these decisions. The reference
to us as a "blank check" company is because investors will entrust their
investment monies to our management without knowing the ultimate use to which
their money may be put. All of the proceeds of the offering are intended to be
utilized generally to effect a business combination. Investors will have an
opportunity to evaluate the specific merits or risks only of the business
combination our management decides to enter into.
During the next 18 months we anticipate incurring costs related to:
(i) filing of Exchange Act reports (approximately $15,000),
(ii) filing of a post-effective registration statement amendment
and related to the reconfirmation offer, upon identification
of a suitable merger candidate (approximately $25,000), and
(iii) costs relating to consummating a stockholder approved
acquisition (approximately $50,000).
We believe will be able to meet these costs through current monies in
our treasury ($77,987 as of June 30, 2004), additional amounts, as necessary, to
be loaned to us by our management or promoters and deferral of fees by certain
service providers, if necessary. Any advancement would be made in connection
with our management's and promoters' oral commitment to make payments for our
expenses, prior to the consummation of a business combination, to the extent
such expenses are not deferred and would either exceed our available funds or
would render us effectively insolvent upon our payment. Any loans by our
management or promoters would be on an interest free basis, payable only upon
consummation of a merger transaction. Upon consummation of a business
combination, we may reimburse our management or promoters for any such loans out
of the proceeds of this offering or of that transaction.
We may consider a business which has recently commenced operations, is
a developing company in need of additional funds for expansion into new products
or markets, is seeking to develop a new product or service, or is an established
business which may be experiencing financial or operating difficulties and is in
need of additional capital. In the alternative, a business combination may
involve the acquisition of, or merger with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding, among other things, the time delays,
significant expense, and loss of voting control which may occur in a public
offering.
Under Rule 419, we cannot acquire a target business unless its fair value
represents at least 80% of the maximum offering proceeds.
To determine the fair market value of a target business, our management
will examine the audited financial statements, including balance sheets and
statements of cash flow and stockholders' equity, of any candidate, focusing
attention on its assets, liabilities, sales and net worth. In addition, our
management will participate in a personal inspection of any potential target
business. If we determine that the financial statements of a proposed target
business do not clearly indicate that its fair value represents at least 80% of
the maximum offering proceeds, we may obtain an opinion from an investment
banking firm which is a member of the National Association of Securities
Dealers, Inc. with respect to the satisfaction of such criteria.
12
None of our officers or directors has had any preliminary contact or
discussions with any representative of any other entity regarding a business
combination with us. Any target business that is selected may be a financially
unstable company or an entity in its early stages of development or growth,
including entities without established records of sales or earnings. In that
event, we will be subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, we may effect a business combination with an entity in
an industry characterized by a high level of risk, and, although our management
will endeavor to evaluate the risks inherent in a particular target business,
there can be no assurance that we will properly ascertain or assess all
significant risks.
Our management anticipates that it will likely be able to effect only
one business combination, due primarily to our limited financing, and the
dilution of interest for present and prospective stockholders, which is likely
to occur as a result of our management's plan to offer a controlling interest to
a target business in order to achieve a tax free reorganization. This lack of
diversification should be considered a substantial risk in investing in us,
because it will not permit us to offset potential losses from one venture
against gains from another.
We anticipate that the selection of a business combination will be
complex and extremely risky. Because of general economic conditions, rapid
technological advances being made in some industries and shortages of available
capital, our management believes that there are numerous firms seeking even the
limited additional capital which we will have and/or the perceived benefits of
becoming a publicly traded corporation. Such perceived benefits of becoming a
publicly traded corporation include, among other things, facilitating or
improving the terms on which additional equity financing may be obtained,
providing liquidity for the principals of a business, creating a means for
providing incentive stock options or similar benefits to key employees, and
providing liquidity, subject to restrictions of applicable statutes, for all
stockholders. Potentially available business combinations may occur in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex.
EVALUATION OF BUSINESS COMBINATIONS
Our officers and directors will analyze or supervise the analysis of
prospective business combinations. Our management intends to concentrate on
preliminary prospective business combinations, which may be brought to its
attention through present associations or other third parties. We do not
currently intend to retain any entity to act as a "finder" to identify and
analyze the merits of potential target businesses. While we have not established
definitive criteria for acquisition candidates, we intend to focus on candidates
satisfying some, but not necessarily all, of the following criteria:
o A minimum of two years' operating history,
o At least $5.0 million in annual revenue and/or pre-tax profit of
$300,000 and
o At least $300,000 in stockholders' equity.
In analyzing prospective business combinations, our management will
also consider such matters as the following:
o Available technical, financial, and managerial resources,
o Working capital and other financial requirements,
o Prospects for the future,
o Nature of present and expected competition,
o The quality and experience of management services which may be
available and the depth of that management,
o The potential for further research, development, or exploration,
o Specific risk factors not now foreseeable but which then may be
anticipated to impact on our proposed activities,
o The potential for growth or expansion,
13
o The potential for profit,
o The perceived public recognition or acceptance or products or
services, and
o Name identification and other relevant factors.
As a part of our investigation, our officers and directors will meet
personally with management and key personnel, visit and inspect material
facilities, check references of management and key personnel, and take other
reasonable investigative measures, to the extent of our limited financial
resources and management expertise.
Since we will be subject to Section 13 or 15 (d) of the Exchange Act,
we will be required to furnish information about significant acquisitions,
including audited financial statements for the target company, covering one, two
or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable. In the event our
obligation to file periodic reports is suspended under Section 15(d) of that
Act, we intend to voluntarily register with the Securities and Exchange
Commission in order to file such reports.
We anticipate that any business combination will present certain risks.
We may not be able adequately to identify many of these risks prior to
selection. Our investors must, therefore, depend on the ability of our
management to identify and evaluate these risks. We anticipate that the
principals of some of the combinations which will be available to us will have
been unable to develop a going concern or that such business will be in its
development stage in that it has not generated significant revenues from its
principal business activity. The risk exists that even after the consummation of
such a business combination and the related expenditure of our funds, the
combined enterprise will still be unable to become a going concern or advance
beyond the development stage. Many of the potential business combinations may
involve new and untested products, processes or market strategies. We may assume
such risks although they may adversely impact on our stockholders because we
consider the potential rewards to outweigh them.
At present, we contemplate that at least one of the third parties who
may introduce business combinations to SRKP 1 may be Westpark Capital, Inc., a
Colorado corporation and a registered broker-dealer. Richard Rappaport, our
President and one of our controlling stockholders, indirectly holds a 100%
interest in Westpark Capital, Inc., an NASD member. There is currently no signed
agreement or preliminary agreements or understandings between Westpark Capital,
Inc. and SRKP 1. Any finders fees paid to Westpark Capital, Inc. will be
comparable with unaffiliated third party fees. Given the limited cash resources
of SRKP 1, we anticipate that any fees to be paid to finders will be paid in
equity of SRKP 1 or through the cash resources of the target company. These fees
will likely be negotiated among SRKP 1, the business combination target and the
finder as part of any business combination agreement. We do not intend to enter
into any arrangement with a finder obligating us to make any payments in the
absence of a consummated business acquisition. As a result, it is not possible
for us to currently estimate our costs in respect of any finder's fees, although
we currently do not expect to pay a finder's fee in excess of the lesser of 2%
of book value of the target company or $150,000. SRKP 1 will file a
post-effective amendment identifying any third parties to be paid finders fees
in connection with a business combination, describing the material terms of any
agreement with such third party, addressing the compensation to be paid to such
third party, and including such agreement as an exhibit to the amendment.
BUSINESS COMBINATIONS
In implementing a structure for a particular business combination, we
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may alternatively
purchase stock or assets of an existing business.
Any merger, acquisition or other business combination can be expected
to have a significant dilutive effect on the percentage of shares held by our
existing stockholders, including investors in the offering. The target business
we consider will, in all probability, have significantly more assets than we do.
Therefore, in all likelihood, our management will offer a controlling interest
in our company to the owners of the target business. While the actual terms of a
transaction to which we may be a party cannot be predicted, we expect that the
parties to the business transaction will find it desirable to avoid the creation
of a taxable event and thereby structure the acquisition in a so-called
"tax-free" reorganization under Sections 368(a)(1) or 351 of the Internal
Revenue Code. In order to obtain tax-free treatment under the Internal Revenue
Code, the owners of the acquired business may need to own 80% or more of the
voting stock of the surviving entity. As a result, our stockholders, including
investors in the offering, would retain 20% or less of the issued and
outstanding shares of the surviving entity, which would result in significant
dilution in percentage of the entity after the combination and may also result
in a reduction in the net tangible book value per share of our investors. In
addition, a majority or all of our directors and officers will probably, as part
of the terms of the acquisition transaction, resign as directors and officers.
14
Our management will not actively negotiate or otherwise consent to the
purchase of any portion of their common stock as a condition to or in connection
with a proposed business combination, unless such a purchase is demanded by the
principals of the target company as a condition to a merger or acquisition. Our
officers and directors have agreed to this restriction which is based on an oral
understanding between members of our management. Members of our management are
unaware of any circumstances under which such policy, through their own
initiative, may be changed.
The issuance of substantial additional securities and their potential
sale into any trading market which may develop in our common stock may have a
depressive effect on our trading market.
The structure of the business combination will depend on, among other
factors:
o The nature of the target business,
o Our needs and desires and the needs and desires of the persons
controlling the target business,
o The management of the target business, and
o Our relative negotiating strength compared to the strength of the
persons controlling the target business.
If at any time prior to the completion of the 180-day or shorter period
of the offering, we enter negotiations with a possible acquisition candidate and
such a transaction becomes probable, we will suspend the offering and file an
amendment to the registration statement which will include financial statements,
including balance sheets, statements of cash flow and stockholders' equity, of
the proposed target.
We will not purchase the assets of any company of which a majority of
the outstanding capital stock is beneficially owned by one or more or our
officers, directors, promoters or affiliates or associates. Furthermore, we
intend to adopt a procedure whereby a special meeting of our stockholders will
be called to vote upon a business combination with an affiliated entity, and
stockholders who also hold securities of such affiliated entity will be required
to vote their shares of stock in the same proportion as our publicly held shares
are voted. Our officers and directors have not approached and have not been
approached by any person or entity with regard to any proposed business venture
which desires to be acquired by us. If at any time a business combination is
brought to us by any of our promoters, management, or their affiliates or
associates, disclosure as to this fact will be included in the post-effective
amendment to the registration statement required by Rule 419. This will allow
our public investors the opportunity to evaluate the business combination before
voting to reconfirm their investment.
COMPETITION
We are an insignificant player among the firms which engage in business
combinations. There are many established venture capital and financial concerns
which have significantly greater financial and personnel resources and technical
expertise than we will. In view of our combined limited financial resources and
limited management availability, we will continue to be at a significant
competitive disadvantage compared to our competitors. Also, we will be competing
with a number of other small, blank check public and shell companies.
15
DETERMINATION OF OFFERING PRICE
The offering price of $0.17 per share has been arbitrarily determined
by us. This price bears no relation to our assets, book value or other customary
investment criteria, including, among other things, our prior operating history.
Among the factors considered by us in determining the offering price were:
o Our lack of operating history,
o Estimates of our business potential,
o Our limited financial resources,
o The amount of equity desired to be retained by present stockholders,
o The amount of dilution to the public, and
o The general condition of the securities markets, specifically the
over-the-counter market.
INVESTMENT COMPANY REGULATION
The Investment Company Act defines an "investment company" as an issuer
which is, or holds itself out as, being engaged primarily in the business of
investing, reinvesting or trading of securities. While we do not intend to
engage in such activities, we could become subject to regulations under the
Investment Company Act in the event we obtain a minority interest in a number of
enterprises. We would incur significant registration and compliance costs if
required to register under the Investment Company Act. Accordingly, our
management will continue to review our activities from time to time with a view
toward reducing the likelihood we could be classified as an investment company.
"PENNY STOCK" REGULATION
Broker-dealers participating in sales of our stock will be subject to
the so called "penny stock" regulations covered by Rule 15g-9 under the Exchange
Act. Under the rule, broker-dealers must furnish to all investors in penny
stocks a risk disclosure document required by the rule, make a special
suitability determination of the purchaser and have received the purchaser's
written agreement to the transaction prior to the sale. In order to approve a
person's account for a transaction in a penny stock, the broker or dealer must
(i) obtain information concerning the person's financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on the
information required by paragraph (i) that transactions in penny stock are
suitable for the person and that the person has sufficient knowledge and
experience in financial matters that the person reasonably may be expected to be
capable of evaluating the risks of transactions in penny stock; and (iii)
deliver to the person a written statement setting forth the basis on which the
broker or dealer made the determination required by paragraph (ii) in this
section, stating in a highlighted format that it is unlawful for the broker or
dealer to effect a transaction in a designated security subject to the
provisions of paragraph (ii) of this section unless the broker or dealer has
received, prior to the transaction, a written agreement to the transaction from
the person; and stating in a highlighted format immediately preceding the
customer signature line that the broker or dealer is required to provide the
person with the written statement and the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience and investment objectives
and obtain from the person a manually signed and dated copy of the written
statement.
A "penny stock" is any equity security other than a security (i)
registered, or approved for registration, upon notice of issuance on a national
securities exchange that makes transaction reports available pursuant to 17 CFR
11Aa3-1; (ii) authorized or approved for authorization upon notice of issuance,
for quotation on the Nasdaq NMS; (iii) that has a price of five dollars or more;
or (iv) whose issuer has net tangible assets in excess of $3,000,000
demonstrated by financial statements dated less than 15 months previously that
the broker or dealer has reviewed and has a reasonable basis to believe are true
and complete in relation to the date of the transaction with the person.
Consequently, the rule may adversely affect the ability of broker-dealers to
sell our securities.
16
EMPLOYEES
We presently have no employees apart from our management. Our
President, Chief Financial Officer and Secretary are engaged in outside business
activities and they anticipate that they each will devote to our business only
between two and 10 hours per week until the acquisition of a successful business
opportunity has been consummated. We expect no significant changes in the number
of our employees other than such changes, if any, incident to a business
combination.
FACILITIES
We are presently using the offices of our President, Richard Rappaport,
at no cost, as our office, an arrangement which we expect to continue until the
completion of the offering. At the completion of the offering and until a
business combination is consummated, we are not required to pay any rent. We
presently do not own any equipment, and do not intend to purchase or lease any
equipment prior to or upon completion of a business combination.
RECENT ACCOUNTING PRONOUNCEMENTS
We have adopted all recently issued accounting pronouncements. The
adoption of the accounting pronouncements is not anticipated to have a material
effect on our operations.
LITIGATION; LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
MANAGEMENT
The following table provides information concerning our officers and
directors. All directors hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified.
NAME AGE POSITION YEAR APPOINTED
Richard A. Rappaport(1) 44 President and Director 2004
Glenn L. Krinsky(1) 45 Secretary, Chief Financial Officer and Director 2004
- -----------
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
Richard A. Rappaport, President and Director, is the founder of
Westpark Capital, Inc. and has been its Chief Executive Officer since September
1999. Westpark Capital, Inc. is a full service investment banking and securities
brokerage firm, which serves the needs of both private and public companies
worldwide, as well as individual and institutional investors. From April 1995
through September 1999, Mr. Rappaport was Director of Corporate Finance for
Global Securities, where he was responsible for all of the firms North American
Corporate finance activities. Global Securities was a registered broker-dealer
that has since terminated operations. Mr. Rappaport has served as a director of
Digital Learning Management Corporation since March 2004. Digital Learning
Management Corporation is a reporting company with the SEC and operates as a
for-profit continued education company that leverages existing universities'
accreditations and campuses to provide training and education. Mr. Rappaport
received a B.S. in 1981 from the University of California at Berkeley and a
M.B.A. in 1986 from the University of California at Los Angeles.
Glenn L. Krinsky, Secretary, Chief Financial Officer and Director,
served as general counsel and secretary of City of Hope located in Duarte,
California from January 1996 through December 2003. Mr. Krinsky's
responsibilities at City of Hope included oversight of legal matters relating to
litigation, intellectual property, labor, public finance, tax and real estate.
From October 1992 through December 1995, Mr. Krinsky was a partner at the law
firm of Hanna and Morton in Los Angeles, California. Mr. Krinsky served as
Chairman of the tax department and was responsible for representing clients in
all major areas of federal and state taxation. Mr. Krinsky received a B.A. and a
J.D. from the University of California at Los Angeles in 1980 and 1983,
respectively.
There are currently no agreements or understandings whereby any officer or
director would resign at the request of another person. None of our officers or
directors are acting on behalf of or will act at the direction of any other
person.
There are currently no agreements or understandings between non-management
shareholders and management under which non-management shareholders may directly
or indirectly participate in or influence the management of the affairs of the
Company. We anticipate that non-management stockholders will exercise their
voting rights to continue to elect our current directors.
CONFLICTS OF INTEREST
Members of our management are, and may in the future become, associated
with other firms involved in a range of business activities. Consequently, there
are inherent potential conflicts of interest in their acting as officers and
directors of SRKP 1. Because the officers and directors are engaged in other
business activities, they anticipate that they will devote only a limited amount
of time to our affairs.
We do not currently plan to enter into any related-party transactions.
If we do enter into any related-party transactions in the future, any such
transactions will be made on an arms-length basis and will be on terms no more
favorable than those given to an unaffiliated third party.
17
Each of Messrs. Rappaport and Krinsky will likely in the future become
stockholders, officers or directors of other companies that may be formed for
the purpose of engaging in business activities similar to those to be conducted
by us. Accordingly, additional direct conflicts of interest may arise in the
future with respect to individuals acting on behalf of SRKP 1 and other
entities. Moreover, additional conflicts of interest may arise with respect to
opportunities that come to the attention of these individuals in the performance
of their duties. SRKP 1 does not currently have a right of first refusal
pertaining to opportunities that come to management's attention where the
opportunity may relate to SRKP 1's proposed business operations.
The officers and directors are, so long as they remain officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation that come to their attention, in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the other companies that they are affiliated with on an
equal basis. A breach of this requirement will be a breach of the fiduciary
duties of the officer or director. If we and the companies that the officers and
directors are affiliated with both desire to take advantage of an opportunity,
then those officers and directors would abstain from voting upon the
opportunity. In the event of identical officers and directors, the company that
first filed a registration statement with the SEC will be entitled to proceed
with the proposed transaction. However, all directors may still individually
take advantage of opportunities if we should decline to do so. Except as set
forth above, we have not adopted any other conflict of interest policy with
respect to those transactions.
REMUNERATION
None of our officers or directors has received any cash remuneration
since our inception. Officers will not receive any remuneration on account of
services rendered in such capacity. No remuneration of any nature has been or
will be paid for or on account of services rendered by a director in such
capacity. Neither of the officers and directors intends to devote more than 10
hours a week to our affairs.
It is possible that, after we successfully consummate a business
combination with an unaffiliated entity, that entity may desire to employ or
retain one or a number of members of our management for the purposes of
providing services to the surviving entity. However, we have adopted a policy
whereby the offer of any post-transaction employment to members of management
will not be a consideration in our decision whether to undertake any proposed
transaction. Each member of management has agreed to disclose to the Board of
Directors discussions concerning possible employment by any entity that proposes
to undertake a transaction with us and further, to abstain from voting on the
transaction. Therefore, as a practical matter, if each member of the Board of
Directors is offered employment in any form from any prospective business
combination candidate, the proposed transaction will not be approved by the
Board of Directors as a result of the inability of the Board to affirmatively
approve the transaction. The transaction would then be presented to our
stockholders for approval.
No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by SRKP 1 for the benefit
of its employees.
MANAGEMENT INVOLVEMENT
We have conducted no business as of yet, aside from raising initial
funding associated with our offering. After the closing of the offering, our
management intends to search for target businesses and then will consider and
negotiate with target businesses until an acquisition agreement is entered into.
Our management has not divided these duties among its members. No member of
management has any distinct influence over the other in connection with his or
her participation in our affairs. However, Mr. Krinsky will be responsible for
distributing to stockholders written communications pertaining to SRKP 1 and for
responding to potential investor inquiries.
MANAGEMENT CONTROL
Our management may not divest themselves of ownership of our shares of
common stock prior to the consummation of an acquisition or merger transaction.
This policy is based on an unwritten agreement among management. Management is
not aware of any circumstances under which such policy, through their own
initiative, may be changed.
18
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
VII of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement
of which this prospectus forms a part. This information can also be examined as
described in "Further Information."
We have been informed that in the opinion of the Commission
indemnification for liabilities arising under the Securities Act, which may be
permitted to our directors, officers or control persons pursuant to our
certificate of incorporation and by-laws, is against the public policy as
expressed in the Securities Act and is, therefore, unenforceable.
MARKET FOR OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for our common
stock has existed. Pursuant to the requirements of Rule 15g-8 of the Exchange
Act, a trading market will not develop prior to or after the effectiveness of
the registration statement while certificates representing the shares of common
stock remain in escrow. Stock certificates must remain in escrow until the
consummation of a business combination and its confirmation by our investors
pursuant to Rule 419. There are currently six holders of our outstanding common
stock, which was purchased in reliance upon an exemption from registration
contained in Section 4(2) of the Securities Act. All current stockholders are
sophisticated investors. Current stockholders will own seventy-nine percent
(79%) of the outstanding shares upon completion of this offering. We can offer
no assurance that a trading market will develop upon the consummation of a
business combination and the subsequent release of the stock certificates from
escrow. To date, neither we, nor anyone acting on our behalf, has taken any
affirmative steps to retain or encourage any broker-dealer to act as a market
maker for our common stock. Further, we have not entered into any discussions,
or understandings, preliminary or otherwise, through our management or through
anyone acting on our behalf and any market maker concerning the participation of
a market maker in the future trading market, if any, for our common stock.
Our common stock is not quoted at the present time. The Commission has
adopted a rule that established the definition of a "penny stock," for purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with any exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transaction in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule in a form specified by
the Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, about commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
19
Management intends to strongly consider a prospective business
combination that will allow our securities to be traded without the aforesaid
"penny stock" limitations. We hope to do this by compliance with the
requirements for exemption from classification as a penny stock under Rule
3a51-1 of the Exchange Act. There are various exemptions available to a company
under this rule, including, subject to certain qualifications and limitations,
possessing assets in excess of $5,000,000, average revenue of $6,000,000 or
listing of stock on a national securities exchange or the NASDAQ. Requirements
to list a stock upon a national securities exchange or the NASDAQ vary depending
upon the exchange and the type of listing. A summary of NASDAQ listing
requirements can be found at www.nasdaq.com/about/ listing_information.stm.
These requirements can involve, depending upon the type of listing, anywhere
from a minimum of $5,000,000 to $30,000,000 in equity and a minimum of from 300
to 400 shareholders. A summary of listing requirements for the New York Stock
Exchange can be found at www.nyse.com/listed/listed.html. These requirements are
generally more stringent than those of NASDAQ.
We cannot predict whether, upon a successful business combination, our
securities will be exempt from the commission penny stock regulations for
listing on Nasdaq or some other national exchange, or be able to maintain the
maintenance criteria necessary to insure continued listing. If our securities
fail to qualify for the exemption or fail to qualify or meet to qualify the
relevant maintenance criteria after qualification in the future may result in
the discontinuance of the inclusion of our securities on a national exchange.
However, trading, if any, in our securities may then continue in the non-Nasdaq
over-the-counter market. As a result, a stockholder may find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, our
securities.
The offering price of $0.17 per share has been arbitrarily determined
by us. This price bears no relation to our assets, book value or any other
customary investment criteria, including our prior operating history. Among the
factors considered by us in determining the offering price were:
o Our lack of operating history,
o Estimates of our business potential,
o Our limited financial resources,
o The amount of equity desired to be retained by present shareholders,
o The amount of dilution to the public, and
o The general condition of the securities markets, specifically the
over-the-counter market.
Present management does not anticipate that it will undertake or will
employ consultants or advisers to undertake any negotiations or discussions with
market makers prior to the execution of an agreement for a business combination.
Our management expects that discussions in this area will ultimately be
initiated by the party or parties controlling the entity or assets which we may
acquire who may employ consultants or advisors to obtain market makers.
SHARES ELIGIBLE FOR FUTURE SALE
There has been no public market for our common stock and we cannot
assure you that a significant public market for our common stock will be
developed or be sustained after this offering. Sales of substantial amounts of
common stock in the public market after this offering, or the possibility of
substantial sales occurring, could adversely affect prevailing market prices for
the common stock or our future ability to raise capital through an offering of
equity securities.
The 2,700,000 shares of our common stock currently outstanding are
"restricted securities" as that term is defined in the Securities Act and are
held by certain of our officers, directors and promoters. These shares may not
be sold by these persons, or their transferees pursuant to Rule 144 of the
Securities Act either before or after a business combination, regardless of
technical compliance with the rule. The position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission is that any such
resale transaction by those persons under Rule 144 would appear to be designed
to distribute or redistribute such shares to the public without coming within
the exemption from the registration requirements of the Securities Act.
Therefore, these persons, and their affiliates, or transferees, can only resell
the shares they hold as of the date hereof through such registration.
20
The sales of substantial amounts of our common stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of our common stock.
Our promoters, who held 2,700,000 shares of our common stock, have
received certain registration rights to sell shares of common stock held by them
in the public market. Such rights consist of demand and piggyback registration
rights. Demand registration obligates us to register up to the entire 2,700,000
shares of our common stock upon written request from the promoters holding a
majority of such shares. Our promoters paid $0.037 per share for their shares of
common stock. We shall not be obligated to effect more than two demand
registrations under our agreement. Piggy-back registration obligates us to
include the promoters shares in any subsequent registration made by us under the
Securities Act, subject to certain exclusions specified in our
agreement. Both demand and piggyback registration rights become effective six
months following the consummation of a merger or acquisition. A subsequent sale
of a large number of shares by our promoters following a demand or piggyback
registration may have the effect of reducing the fair market value of our common
stock by increasing the number of shares available in the open market.
We have not issued any options or warrants to purchase, or securities
convertible into, our common equity.
CERTAIN TRANSACTIONS
The sales of substantial amounts of our common stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of our common stock. Our promoters, who held 2,700,000 shares of
our common stock, have received certain registration rights to sell shares of
common stock held by them in the public market.
In March 2004, our promoters purchased an aggregate of 2,700,000 shares
of our common stock for an aggregate cash consideration of $100,000. No other
assets, services or other consideration was received by our company from any of
our promoters.
Nothing of value has been paid by our company to any of our promoters.
However, we contemplate that at least one of the finders of business
combinations for SRKP 1 may be Westpark Capital, Inc., a Colorado corporation
and a registered broker-dealer. Richard Rappaport, our President and one of our
controlling stockholders, indirectly holds a 100% interest in Westpark Capital,
Inc., an NASD member. There is currently no signed agreement between Westpark
Capital, Inc. and SRKP 1. Any finders fees paid to Westpark Capital, Inc. will
be comparable with unaffiliated third party fees. Given the limited cash
resources of SRKP 1, we anticipate that any fees to be paid to finders will be
paid in equity of SRKP 1 or through the cash resources of the target company.
These fees will likely be negotiated among SRKP 1, the business combination
target and the finder as part of any business combination agreement. We do not
intend to enter into any arrangement with a finder obligating us to make any
payments in the absence of a consummated business acquisition. As a result, it
is not possible for us to currently estimate our costs in respect of any
finder's fees.
Mr. Rappaport is our President and owns 548,100 shares of our common
stock and the trustee of the trusts for his children that own in the aggregate
594,000 shares of our common stock.
Except as otherwise indicated herein, there have been no related party
transactions, or any other transactions or relationships required to be
disclosed pursuant to Item 404 of Regulation S-B.
PRINCIPAL STOCKHOLDERS
The table that follows sets forth certain information regarding the
beneficial ownership of our common stock as of June 30, 2004, and as adjusted
to reflect the sale of the shares in the offering, by
o each person who is known by us to own beneficially more than 5% of
our outstanding common stock;
o each of our officers and directors; and
o all of our directors and officers as a group.
SHARES OF COMMON STOCK BENEFICIALLY OWNED
PRIOR TO OFFERING OWNED AFTER OFFERING
--------------------------- ---------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) CLASS OF STOCK NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------- -------------- ------ ------- ------ -------
Richard Rappaport(2) Common 1,142,100 (4) 42.3 1,142,100 (4) 33.6
The Amanda Rappaport Trust(3) Common 297,000 11.0 297,000 8.7
The Kailey Rappaport Trust(3) Common 297,000 11.0 297,000 8.7
Debbie Schwartzberg(2) Common 1,142,100 42.3 1,142,100 33.6
Glenn Krinsky(2) Common 270,000 10.0 270,000 7.9
Charles Frisco(2) Common 145,800 5.4 145,800 4.2
Officers and Directors (2 persons) Common 1,412,100 (4) 52.3 1,412,100 (3) 41.5
(1) The address for each person or entity listed on the table is c/o SRKP
1, Inc., 1900 Avenue of the Stars, Suite 310, Los Angeles, CA 90067,
Telephone (310) 203-2902.
(2) Individual has sole voting and investment power over shares.
(3) Mr. Rappaport is the trustee of the trust. As trustee, Mr. Rappaport has
sole voting and investment power over shares. Amanda and Kailey Rappaport
are the minor children of Mr. Rappaport.
(4) Includes shares held by The Amanda Rappaport Trust and The Kailey
Rappaport Trust. See also footnote (3) above.
Each of Messrs. Rappaport, Krinsky, and Frisco and Dr. Schwartzberg may
be deemed "Promoters" as that term is defined under the Securities Act.
21
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock, $.001
par value per share, of which 2,700,000 shares are issued and outstanding. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
Holders of our common stock
(i) have equal ratable rights to dividends from funds legally
available therefore, if declared by our Board of Directors;
(ii) are entitled to share ratably in all of our assets available
for distribution to holders of common stock upon our
liquidation, dissolution or winding up;
(iii) do not have preemptive, subscription or conversion rights or
redemption or sinking fund provisions; and
(iv) are entitled to one non-cumulative vote per share on all
matters on which stockholders may vote at all meetings of our
stockholders.
The holders of shares of our common stock do not have cumulative voting
rights, which means that the holders of more than fifty percent (50%) of
outstanding shares voting for the election of directors can elect all of our
directors if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of our directors. At the completion of the
offering, the present officers and directors and present stockholders will
beneficially own at least seventy-nine percent (79%) of the outstanding shares
of common stock. Accordingly, after completion of the offering, our present
stockholders will be in a position to control all of our affairs.
PREFERRED STOCK
We may issue up to 10,000,000 shares of our preferred stock, par value
$.001 per share, from time to time in one or more series. As of the date of the
prospectus, no shares of preferred stock have been issued. Our Board of
Directors, without further approval of our stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights, liquidation preferences and other rights and restrictions relating to
any series. Issuances of shares of preferred stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of our common stock and prior series of preferred stock then
outstanding.
FUTURE FINANCING
In the event the proceeds of the offering are not sufficient to enable
us to successfully fund a business combination, we may seek additional
financing. At this time, we believe that the proceeds of the offering will be
sufficient for such purpose and therefore do not expect to issue any additional
securities before the consummation of a business combination. However, we may
issue additional securities, incur debt or procure other types of financing if
needed. We have not entered into any agreements, plans or proposals for such
financing and at present have no plans to do so. We will not use the escrowed
funds as collateral or security for any loan or debt incurred. If we require
additional financing, there is no guarantee that such financing will be
available to us or if available that such financing will be on terms acceptable
to us.
REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
22
TRANSFER AGENT
We have appointed U.S. Stock Transfer Corporation as transfer agent for
our shares of common stock.
PLAN OF DISTRIBUTION
CONDUCT OF THE OFFERING
We hereby offer the right to subscribe for 700,000 shares at $0.17 per
share on an "best efforts, all or none basis." We will not compensate any person
in connection with the offer and sale of the shares.
Glenn Krinsky, one of our stockholders, shall distribute prospectuses
related to the offering. We estimate that he will distribute approximately 100
prospectuses, limited to acquaintances, friends and business associates of the
promoters.
One of our stockholders, Glenn Krinsky, shall conduct the offering of
the shares and shall only contact potential investors only with whom our
promoters have a pre-existing relationship, except for Richard Rappaport. Mr.
Krinsky will not contact existing or former clients of Mr. Rappaport, will not
use any relationship with Westpark Capital, Inc. in this offering and none of
the customers of Westpark Capital, Inc. will be offered or sold securities in
this offering. Although Mr. Krinsky is an "associated person" of us as that term
is defined in Rule 3a4-1 under the Exchange Act, he will not be deemed to be a
broker because:
(1) he will not be subject to a statutory disqualification as that
term is defined in Section 3(a)(39) of the Exchange Act at the
time of his participation in the sale of our securities;
(2) he will not be compensated in connection with his
participation in the sale of our securities by the payment of
commissions or other remuneration based either directly or
indirectly on transactions in securities;
(3) he will not be an associated person of a broker or dealer at
the time of his participation in the sale of our securities;
and
(4) he shall restrict his participation to the following
activities:
(a) preparing any written communication or delivering it
through the mails or other means that does not involve
the oral solicitation of a potential purchaser;
(b) responding to inquiries of a potential purchaser in a
communication initiated by the potential purchaser,
provided however, that the content of each response is
limited to information contained in a registration
statement filed under the Securities Act or other
offering document; and
(c) performing ministerial and clerical work involved in
effecting any transaction.
As of the date of the prospectus, we have not retained a broker in
connection with the sale of the shares. In the event we retain a broker who may
be deemed an underwriter, we will file an amendment to the registration
statement with the Commission. However, we have no present intention of using a
broker.
We will not approach nor permit anyone acting on our behalf to approach
a market maker or take any steps to request or encourage a market in our
securities prior to the completion of a business combination and reconfirmation
by our stockholders of their offering and their approval of the business
combination transaction. We have not conducted any preliminary discussions or
entered into any understandings with any market maker regarding a future trading
market in our securities, nor do we have any plans to engage in any discussions.
We do not intend to use consultants to obtain market makers. No member of our
management, no promoter or anyone acting at their direction will recommend,
encourage or advise investors to open brokerage accounts with any broker-dealer
which makes a market in the shares. Our investors shall make their own decisions
regarding whether to hold or sell their securities. We shall not exercise any
influence over investors' decisions.
23
METHOD OF SUBSCRIBING
Persons may subscribe for shares by filling in and signing the
subscription agreement and delivering it to us prior to the expiration date of
the offering. Subscribers must pay $0.17 per share in by check payable in United
States dollars to "City National Bank/SRKP 1, Inc.'s Escrow Account" or via wire
transfer, as provided in the subscription agreement. The offering is being made
on a "best efforts, all or none basis." Thus, unless all 700,000 shares are
sold, none will be sold.
EXPIRATION DATE
The offering will end upon the earlier of the receipt of subscriptions
for 700,000 shares or 180 days from the date of this prospectus.
ESCROW
The proceeds from the offering will be held in escrow pursuant to an
escrow agreement in accordance with Rule 419. Initially funds received from
investors will be held in a non-interest bearing account with an insured
depositary institution. If in the 180-day offering period we are not successful
in selling all of the 700,000 shares in the offering, the funds raised will be
promptly returned to the investors, without interest. If we are successful, the
escrow account will begin to bear interest; none of the funds will be released
to us to cover our initial fees and expenses. The remaining funds will be left
in escrow until we consummate a business combination in accordance with Rule 419
or 18 months from the date of this prospectus have passed. If the time period
elapses, the remaining funds in escrow, plus interest, will be returned to the
investors. If a business combination is consummated, the remaining funds in the
escrow account, other than funds returned to investors that elect not to
continue their investment in the combined entity pursuant to the reconfirmation
offer, will be disbursed to SRKP 1 for its operations.
WHERE YOU CAN FIND MORE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Exchange Act. We have filed with the Commission a
registration statement on Form SB-2 to register the shares of common stock. The
prospectus is part of the registration statement, and, as permitted by the
Commission's rules, does not contain all of the information in the registration
statement. For further information about us, and the securities offered under
the prospectus, you may refer to the registration statement and to the exhibits
and schedules filed as a part of this registration statement. As of the
effective date of the registration statement, we will be a reporting company and
will be subject to the reporting requirements of the Exchange Act. In the event
that our obligation to file such reports is suspended under Section 15(d) of the
Exchange Act we will voluntarily register in order to continue to file such
periodic reports. Our filings may be inspected and copied without charge at the
offices of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of our filings can be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. You may call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. We have filed this registration statement and will file all future
registration statements and other documents and reports electronically through
EDGAR, the Electronic Data Gathering, Analysis and Retrieval System. These
documents are publicly available through the Commission's Internet World Wide
Web site at http://www.sec.gov.
You can also call or write us at any time with any questions you may
have. We would be pleased to speak with you about any aspect of our business and
the offering.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Los Angeles, California, will pass upon the
validity of the shares of common stock offered by the prospectus for us.
24
EXPERTS
Our financial statements as of the period ended June 30, 2004, included
in this prospectus and in the registration statement, have been so included in
reliance upon the report of AJ. Robbins, PC, independent auditors, included in
this prospectus, and upon the authority of said firm as experts in accounting
and auditing.
25
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statement of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
216 SIXTEENTH STREET
SUITE 600
DENVER, COLORADO 80202
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SRKP 1, INC.
LOS ANGELES, CALIFORNIA
We have audited the accompanying balance sheet of SRKP 1, Inc. (a development
stage company) as of March 31, 2004, and the related statements of operations,
changes in stockholders' equity, and cash flows for the period from March 16,
2004 (inception) to March 31, 2004. 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 audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 SRKP 1, Inc. as of March 31,
2004, and the results of its operations and its cash flows for the period from
March 16, 2004 (inception) to March 31, 2004, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has not
commenced operations. Its ability to continue as a going concern is dependent
upon its ability to develop additional sources of capital, locate and complete a
merger with another company and ultimately achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
DENVER, COLORADO
MARCH 31, 2004
F-2
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31,
2004 2004
--------- ---------
(UNAUDITED)
ASSETS:
Cash $ 77,987 $ 100,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 17,912 $ 23,477
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none issued -- --
Common stock, $.001 par value, 100,000,000 shares
authorized, 2,700,000 shares issued and
outstanding 2,700 2,700
Additional paid-in capital 97,300 97,300
(Deficit) accumulated during development stage (39,925) (23,477)
--------- ---------
Total Stockholders' Equity 60,075 76,523
--------- ---------
$ 77,987 $ 100,000
========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
CUMULATIVE
FROM
MARCH 16,
FOR THE PERIOD 2004
FROM MARCH 16, (INCEPTION)
2004 TO TO
MARCH 31, JUNE 30,
2004 2004
----------- -----------
(UNAUDITED)
REVENUE $ -- $ --
----------- -----------
EXPENSES 23,477 39,925
----------- -----------
NET (LOSS) $ (23,477) $ (39,925)
=========== ===========
NET (LOSS) PER COMMON SHARE - BASIC $ (.01) $ (.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,700,000 2,700,000
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 16, 2004 (INCEPTION)
TO MARCH 31, 2004 AND FOR THE THREE MONTHS ENDED JUNE 30 2004 (UNAUDITED)
(DEFICIT)
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
-------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- --------- --------- --------- ---------
BALANCES, MARCH 16, 2004 -- $ -- $ -- $ -- $ --
Sale of common stock on
March 31, 2004 at $.037
per share 2,700,000 2,700 97,300 -- 100,000
Net (loss) -- -- -- (23,477) (23,477)
--------- --------- --------- --------- ---------
BALANCES, MARCH 31, 2004 2,700,000 2,700 97,300 (23,477) 76,523
Net (loss) for the period -- -- -- (16,448) (16,448)
--------- --------- --------- --------- ---------
BALANCES, JUNE 30, 2004 2,700,000 $ 2,700 $ 97,300 $ (39,925) $ 60,075
========= ========= ========= ========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CUMULATIVE
FROM
MARCH 16,
FOR THE PERIOD 2004
FROM MARCH 16, (INCEPTION)
2004 TO TO
MARCH 31, JUNE 30,
2004 2004
--------- ---------
(UNAUDITED)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) $ (23,477) $ (39,925)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Changes in:
Accounts payable 23,477 17,912
--------- ---------
Net Cash (Used) by Operating Activities -- (22,013)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 100,000 100,000
--------- ---------
Net Cash Provided by Financing Activities 100,000 100,000
--------- ---------
NET CHANGE IN CASH AND ENDING BALANCE $ 100,000 $ 77,987
========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
SRKP 1, Inc. (the Company), a development stage company, was organized under the
laws of the State of Delaware on March 16, 2004. The Company is in the
development stage as defined in Financial Accounting Standards Board Statement
No. 7. The fiscal year end is December 31.
GOING CONCERN AND PLAN OF OPERATION
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company is in the
development stage and has not earned any revenues from operations to date.
The Company is currently devoting its efforts to locating merger candidates. The
Company's ability to continue as a going concern is dependent upon its ability
to develop additional sources of capital, locate and complete a merger with
another company, and ultimately, achieve profitable operations. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
DEFERRED OFFERING COSTS
Deferred offering costs, consisting of legal, accounting and filing fees
relating to the offering will be capitalized. The deferred offering costs will
be offset against offering proceeds in the event the offering is successful. In
the event the offering is unsuccessful or is abandoned, the deferred offering
costs will be expensed.
INCOME TAXES
The Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109. Under this method, deferred
income taxes are recorded to reflect the tax consequences in future years of
temporary differences between the tax basis of the assets and liabilities and
their financial amounts at year end.
For federal income tax purposes, substantially all expenses must be deferred
until the Company commences business and then they may be written off over a 60
month period. These expenses will not be deducted for tax purposes and will
represent a deferred tax asset. The Company will provide a valuation allowance
in the full amount of the deferred tax asset since there is no assurance of
future taxable income. Tax deductible losses can be carried forward for 20 years
until utilized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.
CONCENTRATIONS OF CREDIT RISK
The Company maintains all cash in deposit accounts, which at times may exceed
federally insured limits. The Company has not experienced a loss in such
accounts.
F-7
SRKP 1, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share consists of the weighted average number of common shares outstanding plus
the dilutive effects of options and warrants calculated using the treasury stock
method. In loss periods, dilutive common equivalent shares are excluded as the
effect would be anti-dilutive.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates and assumptions.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted all recently issued accounting pronouncements. The
adoption of the accounting pronouncements is not anticipated to have a material
effect on the operations of the Company.
NOTE 2 - STOCKHOLDERS' EQUITY
During March 2004, the Company sold for $100,000 cash 2,700,000 shares of its
$.001 par value common stock to various investors.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. Most office
services are provided without charge by the president. Such costs are immaterial
to the financial statements and accordingly, have not been reflected therein.
The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities becomes available, such persons may face a conflict in selecting
between the Company and their other business interests. The Company has not
formulated a policy for the resolution of such conflicts.
NOTE 4 - SUBSEQUENT EVENTS
The Company has filed a registration statement with the United States Securities
and Exchange Commission to conduct a blank check offering subject to Rule 419 of
Regulation C. This offering is still in the registration process and has not yet
been approved. This offering calls for the sale of 700,000 shares of common
stock at a price of $.17 per share. When completed, the sale will net the
Company $119,000.
F-8