As Filed with the Securities and Exchange Commission on February 2 , 2005
Registration No.: 333-121070
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2/Amendment 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ABC Funding, Inc.
(Name of Small Business Issuer in its Charter)
Nevada 6162-03 56-2458730
- ------------------------------- -------------------- ---------------------
(State or other jurisdiction of Primary Industrial (I.R.S. Employer
incorporation or organization) Class Code No. Identification No.)
9160 South 300 West
Sandy, Utah 84070
801-601-2138
(Address and telephone number of principal executive offices)
Harold Barson
ABC Funding, Inc.
9160 South 300 West
Sandy, Utah 84070
801-601-2138
(Name, address and telephone number of agent for service)
WITH A COPY TO
Gary B. Wolff, P.C.
805 Third Avenue, 21st Floor
New York, New York 10022
212-644-6446
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class Of Proposed Maximum Amount of
Securities To Be Amount To Be Offering Price Aggregate Offering Registration
Registered Registered Per Unit 1 Price 1 Fee
- --------------------------- ------------------ ------------------ ------------------------- --------------
Common stock, $ .001 1,656,000 shares $.01 $16,560 $2.10
Par value per share
- --------------------------
1 Estimated solely for the purpose of computing the amount of the
registration fee and based upon the amount of consideration received by ABC
Funding, Inc. pursuant to Rule 457(a) under the Securities Act of '33, as
amended. As of the date hereof, there is no established public market for the
common stock being registered. Accordingly, and in accordance with Item 505 of
Regulation S-B requirements certain factor(s) must be considered and utilized in
determining the offering price. All outstanding shares were issued at $.001 per
share. Accordingly, in determining the offering price, we selected $.01 per
share which is the nearest full cent higher than the price per share paid by
stockholders.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to completion February __ , 2005
1,656,000 SHARES
ABC FUNDING, INC.
COMMON STOCK
As of January 27, we had 10,000,000 shares of our common shares
outstanding.
This is a resale prospectus for the resale of up to 1,656,000 shares of
our common stock by the selling stockholders listed herein. We will not receive
any proceeds from the sale of the shares.
Our common stock is not traded on any public market. In July 2004 we
sold 740,000 shares of our common stock in a private placement at $.001 per
share to 38 individuals. The price per share was determined by our board of
directors so as to be equal to the issuance price per share ($.001) for our
acquisition of ABC Funding in May 2004 at which time an aggregate of 9,260,000
shares were issued at $.001 per share. See also "Certain Relationships and
Related Transactions."
Selling stockholders will sell at a fixed price of $.01 per share until
our common shares are quoted on the Over-the-Counter Bulletin Board and
thereafter at prevailing market prices, or privately negotiated prices.
Investing in our common stock involves very high risks. See "Risk
Factors" beginning on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February ___, 2005.
PROSPECTUS SUMMARY
About ABC Funding, Inc.
ABC Funding, Inc. was incorporated under the laws of the State of
Nevada on May 13, 2004 to succeed ABC Funding, an unincorporated entity
controlled and operated by our founder, Harold Barson since 2002. ABC functions
as a licensed mortgage broker. We may refer to ourselves in this document as
"ABC", "we," or "us." Our principal executive offices are located at 9160 South
300 West, Sandy, Utah 84070, and our telephone number at that address is
801-601-2138.
The Offering
The shares being offered for resale under this prospectus consist of
approximately 17% of the outstanding shares of our common stock held by the
selling stockholders identified herein.
Shares of common stock offered by us None
Shares of common stock which may be
sold by the selling stockholders 1,656,000
Use of proceeds We will not receive any proceeds
from the resale of shares
offered by the selling
stockholders hereby, all of
which proceeds will be paid to
the selling stockholders.
Risk factors The purchase of our common stock
involves a high degree of risk.
You should carefully review and
consider "Risk Factors."
Trading Market None
Selling stockholders will sell at a fixed price of $.01 per share until
our common shares are quoted on the Over-the-Counter Bulletin Board and
thereafter at prevailing market prices, or privately negotiated prices.
RISK FACTORS
You should be aware that there are various risks to an investment in
our common stock, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide to invest in shares of our common stock.
If any of the following risks develop into actual events, then our
business, financial condition, results of operations or prospects could be
materially adversely affected. If that happens, the market price of our common
stock, if any, could decline, and investors may lose all or part of their
investment.
1. ABC is an early stage company with a limited operating history and,
therefore, no means exist to evaluate future performance.
o We have been in operation for a relatively short period of time and
have almost no assets. Therefore, we have insufficient operating
history upon which an evaluation of our future performance and
prospects can be made. ABC's future prospects must be considered in
light of the risks, expenses, delays, problems and difficulties
frequently encountered in the establishment of a new business. An
investor in ABC's common stock must consider the risks and
difficulties frequently encountered by early stage companies operating
in new and competitive markets.
-2-
ABC cannot be certain that our business strategy will be successful or
that we will ever be able to significantly increase revenue generating
activities. Furthermore, we believe that it is probable that we will incur
operating losses and negative cash flow for the foreseeable future.
2. ABC has limited financial resources and our auditors' report on our
financial statements indicates that ther is substantial doubt about our
ability to continue as a going concern.. Absent financial resources, we
will be unable to undertake programs designed to expand our business other
than those indicated herein.
ABC has not established a source of equity or debt financing and its
operating revenue has not been sufficient to result in profitable operations.
Our auditors indicated that there is substantial doubt about our ability to
continue as a going concern in their report on our financial statements for the
fiscal year ended June 30, 2004. As of December 31, 2004 we had $3,666 in cash..
During the three-month period subsequent to September 30, 2004, we
contacted realtors to get referrals and also began brokering construction loans
for home builders. Contacting realtors is a cost effective marketing approach
because it principally involves telephone calls. These efforts resulted in
December 2004 generating $44,000 in fees which is the highest monthly fee amount
since our inception. We will continue these efforts of contacting realtors and
with construction loans, although there is no assurance that these efforts will
be successful. We have used the website, Google, for advertising, but do not
know whether we received any direct benefit therefrom. ABC may require financing
to continue implementing our strategic plan beyond the efforts described
directly above if sufficient numbers of loans are not originated to result in
profitable operations. . There can be no assurance that we will generate
sufficient numbers of loan originations to result in profitable operations or
that sufficient levels of financing will be available or found. If ABC is unable
to obtain financing, we may not be able to undertake programs designed to expand
our business beyond those indicated herein.
If we are unable to originate sufficient numbers of loans to result in
profitable operations, or obtain financing or if the financing we do obtain is
insufficient to cover any operating losses we may incur, we may be required to
substantially curtail or terminate our operations or seek other business
opportunities through strategic alliances, acquisitions or other arrangements
that may dilute the interests of existing stockholders. To date, no ABC officer,
director, affiliate or associate has had any preliminary contact or discussions
with, nor are there any present plans, proposals, arrangements or understandings
with any representatives of the owners of any business or company regarding the
possibility of an acquisition or merger transaction referred to herein or
otherwise.
See also Management's Discussion And Analysis Or Plan Of Operation for
a description of proposed business expenses.
-3-
3. Shareholders may be diluted significantly through our efforts to obtain
financing and satisfy obligations through issuance of additional shares of
ABC common stock.
We have no committed source of financing. Wherever possible, we will
attempt to use noncash consideration to satisfy obligations. In many instances,
we believe that the noncash consideration will consist of shares of our stock.
Our board of directors has authority, without action or vote of the
shareholders, to issue all or part of the authorized (24,000,000) but un-issued
(14,000,000) shares. In addition, if a trading market develops for our common
stock, we may attempt to raise capital by selling shares of our common stock,
possibly at a discount to market. These actions will result in dilution of the
ownership interests of existing shareholders, may further dilute common stock
book value, and that dilution may be material. Such issuances may also serve to
enhance existing management's ability to maintain control of ABC.
4. Dependence upon sole officer and employee, the loss of whose services may
cause our business operations to cease and need for additional personnel.
Our chief executive officer, Harold Barson, is entirely responsible for
the development and execution of our business and currently devotes his full
time and best efforts to our day-to-day business operations. He is under no
contractual obligation to remain employed by us, although he has no intent to
leave. If he should choose to leave us for any reason before we have hired
additional personnel, our operations will fail. Even if we are able to find
additional personnel, it is uncertain whether we could find someone who could
develop our business along the lines described herein. We will fail without Mr.
Barson or an appropriate replacement(s). We intend to acquire key-man life
insurance on the life of Mr. Barson naming us as the beneficiary when and if we
obtain the resources to do so and Mr. Barson is insurable. We have not yet
procured such insurance, and there is no guarantee that we will be able to
obtain such insurance in the future. Accordingly, it is important that we are
able to attract, motivate and retain highly qualified and talented personnel and
independent contractors.
Mr. Barson's current intentions are to remain with us regardless of
whether he sells all or a substantial portion of his stockholdings in us. He,
nevertheless, is offering ten (10%) percent or 916,000 of the 9,160,000 common
shares of ABC owned by him in this offering (approximately 9.2% of all
outstanding common shares), since otherwise sales by him would be restricted to
1% (or approximately 100,000 shares) of all outstanding ABC shares every three
months in accordance with Rule 144. As an officer/control person of ABC, Mr.
Barson may not avail himself of the provisions of Rule 144(k) which otherwise
would permit a non-affiliate to sell an unlimited number of restricted shares
provided that he satisfies a two-year holding period requirement.
-4-
5. Potential conflicts of interest
None of our key personnel (See Business - Employees) is required by
contract to commit full time to our affairs and, accordingly, these individuals
may have conflicts of interest in allocating time among their various business
activities. In the course of their other business activities, certain key
personnel may become aware of business opportunities which may be appropriate
for presentation to us, as well as the other entities with which they are
affiliated. As such, they may have conflicts of interest in determining to which
entity a particular business opportunity should be presented.
Each officer and director is, so long as he is an officer or director
subject to the restriction that all opportunities contemplated by our plan of
operation that come to his attention, either in the performance of his duties or
in any other manner, will be considered opportunities of, and be made available
to us and the companies that he is 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 or the companies to which the officer or director is affiliated
each desire to take advantage of an opportunity, then the applicable officer or
director would abstain from negotiating and voting upon the opportunity.
However, the officer or director may still 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 in connection with these types of
transactions.
6. The mortgage brokerage markets are highly competitive, and we may not be
able to compete effectively.
We compete with mortgage bankers, state and national banks, thrift
institutions and insurance companies as well as other mortgage brokers for loan
originations. Many of these organizations have substantially more financial
resources and experience in the mortgage origination business and may be better
known and have more customers than we do. We may also be at a disadvantage with
many of our competitors because we do not have our own financing for the loans
that we originate. Instead, we act as a broker for our network of wholesale
mortgage lending institutions
7. We are dependent on mortgage lender relationships to approve our clients'
loans, and if we lose these relationships without replacing them, our
business could decline and cause your investment to become worthless.
We are currently dependent on ten mortgage lender relationships to fund
the mortgage loans that we originate. We function as a broker and do not fund
any loans with our own resources. The lenders with whom we deal are under no
obligation to continue their relationships with us or make a loan to any
potential borrower who we present to them. Our reliance on this group of lenders
makes our origination volume more susceptible to changes in the rates, services
and products such lenders offer. The loss of our relationship with a portion of
these lenders, or the failure of these lenders to offer competitive terms, could
have a material adverse impact on our ability to attract borrowers and close
loans which could cause the value of your investment to decline or become
worthless.
-5-
8. If there are interruptions or delays in obtaining appraisal, credit
reporting, title searching and other underwriting services from third
parties, we may experience customer dissatisfaction and difficulties
closing loans which would affect our revenue, and the value of your
investment would decline or become worthless.
We rely on other companies to perform certain aspects of the loan
underwriting process, including appraisals, credit reporting and title searches.
If the providing of these ancillary services were interrupted or delayed, it
could cause delays in processing and closing loans for our customers. The value
of the service that we offer and the ultimate success of our business are
dependent on our ability to secure the timely delivery of these ancillary
services by the third parties with whom we have these relationships. If we are
unsuccessful in securing the timely delivery of these ancillary services we will
likely experience customer dissatisfaction and our revenues would suffer causing
the value of your investment to decline or become worthless.
9. Our operations are more directly linked to prevailing economic conditions
than most other businesses because the demand for mortgages is directly
dependent on interest rates and the level of prosperity.
Our business is and will continue to be adversely affected by periods
of economic slowdown or recession that may be accompanied by decreased demand
for consumer credit and declining real estate values. Any material decline in
real estate values reduces the ability of borrowers to use home equity to
support borrowings by negatively affecting loan-to-value ratios of the home
equity collateral. To the extent that loan-to-value ratios of the home equity
collateral of prospective borrowers do not meet the underwriting criteria of the
lenders with whom we deal, the volume of loans originated could decline. A
decline in loan origination volumes would have a material adverse effect on our
business, financial condition and results of operations. In addition, changes in
the level of consumer confidence, real estate values and prevailing interest
rates, each of which tend to be affected by an economic slowdown, could
adversely affect the level and amount of consumer borrowing.
10. If interest rates rise or the economy declines, demand for mortgages
generally declines. A decline in the demand for mortgages results in fewer
loans being referred to us for placement which affects our revenue
adversely and will cause your investment to decline in value.
The residential mortgage business depends upon the overall levels of
sales and refinancing of residential real estate, as well as on mortgage loan
interest rates. An increase in interest rates, which is outside our control,
could have a material adverse impact on our business. Rising interest rates
discourage refinancing activities and generally reduce the number of home sales
that occur. If interest rates should rise, our revenue could be adversely
affected, and the value of your investment will decline.
11. Some of the mortgage lenders with whom we broker our customers' loans,
compete directly with us for mortgage originations.
When we broker a mortgage loan, we find a mortgage institution that has
parameters consistent with the attributes of the loans that we are processing.
Some of these institutions have retail or wholesale operations that compete
directly with us for residential mortgage originations. These institutions
generally are much larger and have greater capital resources than we do and the
loss of their activity in the loan market could adversely affect us by making it
harder for us to find mortgage investors to broker loans for. If that should
happen, our revenue could be reduced and the value of your investment could
decline or become worthless.
-6-
12. Our articles of incorporation provide for indemnification of officers and
directors at our expense and limit their liability.
Our articles of incorporation and applicable Nevada law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on behalf of ABC. We will also bear the expenses of such
litigation for any of our directors, officers, employees, or agents, upon such
person's promise to repay us therefor if it is ultimately determined that any
such person shall not have been entitled to indemnification. This
indemnification policy could result in substantial expenditures by us which we
will be unable to recoup.
We have been advised that in the opinion of the SEC, this type of
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against these types of liabilities, other than the payment by us
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding, is asserted by a director,
officer or controlling person in connection with the securities being
registered, we will (unless in the opinion of our counsel, the matter has been
settled by controlling precedent) submit to a court of appropriate jurisdiction,
the question whether indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such
issue.
13. There currently is no market for our securities, and there can be no
assurances that any market will ever develop or that our common stock will
be quoted for trading and if quoted, it is likely to be subject to
significant price fluctuations.
Prior to the date of this prospectus, there has not been any
established trading market for our common stock, and there is currently no
market whatsoever for our securities. We will seek to have a market maker file
an application with the NASD on our behalf to quote the shares of our common
stock on the OTC Bulletin Board ("OTCBB") maintained by the NASD. There can be
no assurance as to whether such market maker's application will be accepted or,
if accepted, the prices at which our common stock will trade if a trading market
develops, of which there can be no assurance. We are not permitted to file such
application on our own behalf. If the application is accepted, we cannot predict
the extent to which investor interest in ABC will lead to the development of an
active, liquid trading market. Active trading markets generally result in lower
price volatility and more efficient execution of buy and sell orders for
investors.
In addition, our common stock is unlikely to be followed by any market
analysts, and there may be few institutions acting as market makers for the
common stock. Either of these factors could adversely affect the liquidity and
trading price of our common stock. Until our common stock is fully distributed
and an orderly market develops in our common stock, if ever, the price at which
it trades is likely to fluctuate significantly. Prices for our common stock will
be determined in the marketplace and may be influenced by many factors,
including the depth and liquidity of the market for shares of our common stock,
developments affecting our business, including the impact of the factors
referred to elsewhere in these Risk Factors, investor perception of ABC and
general economic and market conditions. No assurances can be given that an
orderly or liquid market will ever develop for the shares of our common stock.
-7-
Because of the anticipated low price of the securities, many brokerage
firms may not be willing to effect transactions in these securities. See
subheading to "Plan of Distribution" entitled "Selling Shareholders and any
purchasers of our securities should be aware that any market that develops in
our stock will be subject to the penny stock restrictions."
14. Our board of directors has the authority, without stockholder approval, to
issue preferred stock with terms that may not be beneficial to common stock
holders and with the ability to adversely affect stockholder voting power
and perpetuate the board's control over ABC.
Our certificate of incorporation authorizes the issuance of up to
1,000,000 shares of preferred stock, par value $ .001 per
share.
The specific terms of the preferred stock have not been determined,
including:
o designations;
o preferences;
o conversions rights;
o cumulative, relative;
o participating; and
o optional or other rights, including:
o voting rights;
o qualifications;
o limitations; or
o restrictions of the preferred stock
-8-
The board of directors is entitled to authorize the issuance of up to
1,000,000 shares of preferred stock in one or more series with such limitations
and restrictions as may be determined in its sole discretion, with no further
authorization by security holders required for the issuance thereof.
The issuance of preferred stock could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or
prevent a change in control of ABC or make removal of management more difficult.
As a result, the board of directors' ability to issue preferred stock may
discourage the potential hostility of an acquirer, possibly resulting in
beneficial negotiations. Negotiating with an unfriendly acquirer may result in,
among other things, terms more favorable to us and our stockholders. Conversely,
the issuance of preferred stock may adversely affect any market price of, and
the voting and other rights of the holders of the common stock. We presently
have no plans to issue any preferred stock.
15. All 1,656,000 shares of our common stock currently being registered may be
sold by selling stockholders subsequent to the effectiveness of this
registration statement. Significant sales of these shares over a short or
concentrated period of time is likely to depress the market for and price
of our shares in any market that may develop.
All 1,656,000 shares of our common stock being registered in this
offering and being held by 40 shareholders may be sold subsequent to
effectiveness of this registration statement either at once and/or over a period
of time. These sales may take place because the 1,656,000 shares of common stock
are being registered hereunder and, accordingly, reliance upon Rule 144 is not
necessary. See also "Selling Stockholders" and "Plan of Distribution"
hereinafter. The ability to sell these shares of common stock and/or the sale
thereof reduces the likelihood of the establishment and/or maintenance of an
orderly trading market for our shares at any time in the near future.
16. The ability of our president to control our business may limit minority
shareholders' ability to influence corporate affairs.
Upon the completion of this offering, our president will own 82.44% of
our outstanding common stock assuming that all shares being registered are sold.
Because of his stock ownership, he will be in a position to continue to elect a
majority of the board of directors, decide all matters requiring stockholder
approval and determine our policies. The interests of our president may differ
from the interests of other shareholders with respect to the issuance of shares,
mergers with or sales to other companies, selection of officers and directors
and all other business decisions. The minority shareholders would have no way of
overriding decisions made by the majority shareholder. The level of control may
also have an adverse impact on the market value of our shares.
-9-
17. If a market develops for our shares, Rule 144 sales may depress prices in
that market.
All of the outstanding shares of our common stock held by present
stockholders are "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended.
As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Act and as required under
applicable state securities laws. Rule 144 provides in essence that a person who
has held restricted securities for a prescribed period may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed 1.0% of a company's outstanding common stock. The
alternative average weekly trading volume during the four calendar weeks prior
to the sale is not available to our shareholders being that the OTCBB (if and
when listed thereon) is not an "automated quotation system" and, accordingly,
market based volume limitations are not available for securities quoted only
over the OTCBB. As a result of revisions to Rule 144 which became effective on
or about April 29, 1997, there is no limit on the amount of restricted
securities that may be sold by a non-affiliate (i.e., a stockholder who is not
an officer, director or control person) after the restricted securities have
been held by the owner for a period of two years. A sale under Rule 144 or under
any other exemption from the Act, if available, or pursuant to registration of
shares of common stock of present stockholders, may have a depressive effect
upon the price of the common stock in any market that may develop.
18. Any market that develops in shares of our common stock will be subject to
the penny stock restrictions which will create a lack of liquidity and make
trading difficult or impossible.
Until our shares of common stock qualify for inclusion in the NASDAQ
system, if ever, the trading of our securities, if any, will be in the
over-the-counter markets which is are commonly referred to as the OTCBB as
maintained by the NASD. As a result, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the price of our securities.
SEC Rule 15g-9 establishes 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 an exercise price of less than $5.00 per share,
subject to a limited number of exceptions. It is likely that our shares will be
considered to be penny stocks for the immediately foreseeable future. For any
transaction involving a penny stock, unless exempt, the penny stock rules
require that a broker or dealer approve a person's account for transactions in
penny stocks and 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 obtain financial information and investment
experience and objectives of the person and 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 transactions in penny stocks.
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The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the SEC relating to the penny
stock market, which, in highlight form, sets forth:
o the basis on which the broker or dealer made the suitability
determination, and
o 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
stock in both public offerings and in secondary trading and 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. The above-referenced
requirements will create a lack of liquidity, making trading difficult or
impossible, and accordingly, shareholders may find it difficult to dispose of
our shares.
For all of the foregoing reasons and others set forth herein, an investment in
our securities in any market which may develop in the future involves a high
degree of risk.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of the
common stock offered by the selling stockholders. We are registering 1,656,000
of our 10,000,000 currently outstanding 10,000,000 shares for resale to provide
the holders thereof with freely tradable securities, but the registration of
such shares does not necessarily mean that any of such shares will be offered or
sold by the holders thereof.
SELLING STOCKHOLDERS
All shares offered under this prospectus may be sold from time to time
for the account of the selling stockholders named in the following table. The
table also contains information regarding each selling stockholder's beneficial
ownership of shares of our common stock as ofJanuary 27, 2005 , and as adjusted
to give effect to the sale of the shares offered hereunder.
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*Number And Percentage
ABC Shares Of ABC Shares To Be
Owned Before ABC Shares Being Owned After Offering Relationship To ABC
Selling Security Holders Offering Offered Completed or Affiliates
............................... ................ .................... ......................... ..........................
Harold Barson 9,160,000 916,000 8,244,000 President
82.44%
............................... ................ .................... ......................... ..........................
Jeffrey Brown 100,000 -0- 100,000 Director
1.0%
............................... ................ .................... ......................... ..........................
Rachel Butter 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jacqueline Jacobs 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Adrian David Van Os 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jill Chapman 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Sherrie R. Reynolds 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Larry Coates 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jennifer Baich 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jeremy C. Jones 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jonathan L. Jones 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Terry Brady 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Robert Westenskow 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Scott Hansen 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Matt White 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Scott Rowan 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Bruce Jones 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Klaus Langheinrich 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Donald Gehrig 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Kent Pratt 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jolene Jones 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
K. Ivan F. Gothner 90,000 90,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Gary B. Wolff 100,000 100,000 -0- Counsel to the Company
............................... ................ .................... ......................... ..........................
Holly Bottega 25,000 25,000 -0- Assistant to Gary Wolff
............................... ................ .................... ......................... ..........................
R. Bret Jenkins 90,000 90,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Stephen B. Schneer 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Edward A. Heil 90,000 90,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Kelly Trimble 185,000 185,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Elizabeth Davison 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jody Walker 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Nancy Molesworth 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Edward A. Sundberg 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Glen Jensen 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Pasquale Melfi 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Jeremy Seitz 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Juan Ferreira 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
B. Alva Schoomer 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Gail Morris Schoomer 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Emily Tong 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Wallace Boyack 5,000 5,000 -0- Shareholder only
............................... ................ .................... ......................... ..........................
Total 10,000,000 1,656,000 8,344,000
* Percentage is only indicated if greater than 1%
None of the Selling Security Holders are broker/dealers or affiliates
of broker/dealers.
Harold Barson, our president and a Selling Security holder will be
considered to be an underwriter for purposes of this offering.
Selling stockholders will sell at a fixed price of $.01 per share until
our common shares are quoted on the Over-The-Counter Bulletin Board and
thereafter at prevailing market prices, or privately negotiated prices. All
non-management selling shareholders received their shares in a private placement
in July 2004 for $.001 per share.
-12-
DETERMINATION OF OFFERING PRICE
There is no established public market for the common equity being
registered. All of our outstanding shares were issued at $.001 per share.
Accordingly, in determining the offering price, we selected $.01 per share which
is the nearest full cent higher than the price per share paid by stockholders.
DIVIDEND POLICY
We have never paid a cash dividend on our common stock, and we do not
anticipate paying cash dividends in the foreseeable future. Moreover, any future
credit facilities might contain restrictions on our ability to declare and pay
dividends on our common stock. We plan to retain all earnings, if any, for the
foreseeable future for use in the operation of our business and to fund the
pursuit of future growth. Future dividends, if any, will depend on, among other
things, our results of operations, capital requirements and on such other
factors as our board of directors, in its discretion, may consider relevant.
MARKET FOR SECURITIES
There is no public market for our common stock, and a public market may
never develop. While we will seek to obtain a market maker to apply for the
inclusion of our common stock in the OTCBB we may not be successful in our
efforts, and owners of our common stock may not have a market in which to sell
the shares. Even if the common stock were quoted in a market, there may never be
substantial activity in such market and if there is substantial activity, such
activity may not be maintained, and no prediction can be made as to what prices
may prevail in such market.
There is no ABC common equity subject to outstanding options or
warrants to purchase or securities convertible into common equity of ABC.
The number of shares of our common stock that could be sold pursuant to
Rule 144 (once we are eligible therefor) is up to 1% of 10,000,000 (i.e.,
100,000 shares) each three (3) months bv each of our shareholders.
ABC has agreed to register 1,656,000 shares of the 10,000,000 shares
currently outstanding for sale by security holders.
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
prospectus.
-13-
================================ ======================= =======================
Balance Sheet Data:
June 30, 2004 September 30, 2004
Cash $ 208 $ 118
Accrued liabilities $ 20,000 $ 22,500
Net stockholders' deficit $ (19,792) $ (22,382)
================================ ======================= =======================
Income Statement Data:
Three Months Three Months
Year ended Year ended Ended September Ended September
June 30, 2004 June 30, 2003 30, 2004 30, 2003
----------------- ------------------- ----------------- -----------------
Revenue $ 106,495 $ 224,864 $ 24,497 $ 29,804
Net income (loss) $ (23,308) $ 2,726 $ (3,330) $ (2,755)
Weighted average number of shares
outstanding 2 9,260,000 9,260,000 10,000,000 9,260,000
Income (loss) per share 2 $ (.01) $ .00 $ (.01) $ (.01)
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus on Form SB-2 are
forward-looking statements. Such forward-looking statements contained in this
prospectus involve risks and uncertainties, including statements as to:
o our future operating results,
o our business prospects,
o our contractual arrangements and relationships with third parties,
o the dependence of our future success on the general economy,
o our possible financings, and
o the adequacy of our cash resources and working capital.
- --------------------------
2 The acquisition of ABC Funding (the "Predecessor") by ABC Funding, Inc.
("ABC") has been accounted for as a recapitalization for financial accounting
purposes. Since ABC had no operations prior to the reverse merger, the financial
statements of the Predecessor and ABC are being combined for all periods
presented. In these financial statements, the Predecessor is the operating
entity for financial reporting purposes, and the financial statements for all
periods presented represent the Predecessor's financial position and results of
operations. The equity of ABC is the historical equity of the Predecessor
retroactively restated to reflect the number of shares issued by ABC in the
transaction.
-14-
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as we "believe," "anticipate,"
"expect," "estimate" or words of similar meaning. Similarly, statements that
describe our future plans, objectives or goals are also forward-looking
statements. Such forward-looking statements are subject to certain risks and
uncertainties which are described in close proximity to such statements and
which could cause actual results to differ materially from those anticipated as
of the date of this prospectus. Shareholders, potential investors and other
readers are urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements included herein are only made as of
the date of this prospectus, and we undertake no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Operations
2004 Compared to 2003
We commenced operations on May 29, 2002.
During the year ended June 30, 2003, we originated 60 loans. During the
year ended June 30, 2004, we only originated 38 loans. Because of the limited
number of mortgages that have been closed, a large individual mortgage or a
small number of nonrecurring closings, may have a distortionary impact on
operations. Therefore, we do not believe that period-to-period comparisons of
our operating results are necessarily meaningful nor should they be relied upon
as reliable indicators of future performance, thus making it difficult to
accurately forecast quarterly and annual revenues and results of operations.
Our principal expense in both periods was origination costs ($84,872 in
2004 and $180,831 in 2003) which consist primarily of commissions paid to the
individual who brought or referred each customer into our business. Of these
amounts, $ 19,160 in 2004 and $41,563 in 2003 were paid to our president.
Expenses in 2004 include $20,000 to consultants and advisors to assist us in
structuring our business.
Revenue declined significantly from $224,864 in 2003 to $106,495 in
2004. The two principal reasons for the decline were that (i) the demand for
mortgage refinancings decreased because of rate increases and the fact that many
people in the area serviced by ABC who intended to refinance their mortgages had
already done so and (ii) certain principal individuals serving as referral
sources to us ceased doing so in December 2003 and have not been replaced. We
believe that the second of these factors impacted us much more severely than the
first, although there is no way for us to quantify the impact of each
individually. Our operations are affected by a decline in refinancings even if
new home sales are at a high level because we are not licensed to refer
mortgages that use many government-guaranteed loan programs. These types of
mortgages are widely used by purchasers in the areas serviced by us. Our efforts
and procedures used to originate new loans did not change during the period.
-15-
We will not incur any cash obligations that we cannot satisfy with
known resources which are currently limited except as hereinafter indicated. As
a corporate policy, we will not incur any cash obligations that we cannot
satisfy with known resources, of which there are currently none except as
described in "Liquidity" below. We have embarked upon an effort to become a
public company and, by doing so, have incurred and will continue to incur
additional significant expenses for legal, accounting and related services. Once
we become a public entity, subject to the reporting requirements of the Exchange
Act of '34, we will incur ongoing expenses associated with professional fees for
accounting and, legal services. We estimate that these costs will approximate
$25,000 (exclusive of any additional fees we may incur regarding printing and/or
photocopying and subsequent mailing of any proxy statements or annual reports)
during the next 12 months and will increase if our business volume and activity
increases. These obligations will reduce our ability and resources to fund other
aspects of our business. If necessary, our president has agreed in writing to
defer compensation otherwise payable to him to the extent that gross profits are
insufficient to pay ABC's costs and expenses so as to permit us to remain viable
and has further agreed to loan to ABC amounts necessary to meet ABC expenses if
sufficient revenues are not generated therefore. If and when loaned, the loan
will be evidenced by a non-interest bearing unsecured corporate note to be
treated as a loan until repaid, if and when ABC has the financial resources to
do so. This obligation is evidenced by Exhibit 10.3 to ABC's Registration
Statement of which this prospectus is a part.
Our monthly financial activity is relatively small and consists of
several cash receipts per month relating to loan closings. Cash disbursements
relate to payments made for origination fees, appraisals, rent, professional
fees, supplies and utilities. Generally, we issue less than 50 checks per month.
Our president has the experience to maintain our records at this level of
activity. If our activity increases, we may have to seek a part or fulltime
accountant or engage an accounting firm other than our independent auditors to
assist us in maintaining effective and accurate records.
We hope to be able to use our status as a public company to increase
our ability to use non-cash means of settling obligations and compensate
independent contractors who work with us as loan originators. We believe that
the perception that many of these people have of a public company make it more
likely that they will accept securities as consideration than they would if we
are a private company. We have not performed any studies of this matter. Our
conclusion is based on our own observations. However, there can be no assurances
that we will be successful in any of those efforts even if we are a public
entity.
Three Months Ended September 30, 2004 compared to Three Months Ended September
30, 2003
Revenue for the three month period of 2004 was $24,497 compared to
$29,804 in 2003. Revenue continued the trend experienced during the fiscal year
ended June 30, 2004 when revenue was substantially lower than the previous year.
Slightly higher interest rates seem to have reduced the demand for mortgage
refinancings. Activity for the three months ended September 30, 2004 was
substantially the same as the corresponding period in 2003. Two loans closed
during the first week of October 2004. If those loans had closed during the last
week of September, revenue for the two periods would have been nearly identical.
We have continued to seek potential business in the same manner as previously.
In addition, we have been adversely affected by employee turnover in the
businesses of various referral sources.
-16-
During the thre-month period subsequent to September 30, 2004, we
contacted realtors to get referrals and also began brokering construction loans
for home builders. Contacting realtors is a cost effective marketing approach
because it principally involves telephone calls. These efforts resulted in
December 2004 generating $44,000 in fees which is the highest monthly fee amount
since our inception. We will continue these efforts of contacting realtors and
with construction loans, although there is no assurance that these efforts will
be successful. We have used the website, Google, for advertising, but do not
know whether we received any direct benefit therefrom.
Expenses are very similar from period to period. A substantial portion of
expenses consists of fees paid to the individual who originated the loan for us.
Expenses for appraisals and administration have been kept to a minimum. The
largest administrative items in each period are facilities and communications
expenses. There were virtually no marketing expenses during either period.
Liquidity
As of December 31, 2004, we had $3,666 in cash.
ABC does not have any credit facilities or other commitments for debt
or equity beyond the amounts already borrowed. No assurances can be given that
advances when needed will be available. We do not believe that we need funding
to continue our present level of operations because we do not have a capital
intensive business plan and our president can continue to solicit referral
business from his business contacts. However, funding will be necessary for us
to increase our current level of operations significantly. Private capital, if
sought, will be sought from former business associates of our founder or private
investors referred to us by those business associates. To date, we have not
sought any funding source and have not authorized any person or entity to seek
out funding on our behalf. If a market for our shares ever develops, of which
there can be no assurances, we may use shares to compensate
employees/consultants and independent contractors wherever possible.
ABC will pay all costs relating to this offering estimated at $68,601.
This amount will be paid as and when necessary and required or otherwise accrued
on the books and records of ABC until we are able to pay the full amount due
either from revenues or loans from our president. Absent sufficient revenues to
pay these amounts within six months of the effective date of this prospectus our
president has agreed to loan us the funds to cover the balance of outstanding
professional and related fees relating to our prospectus. If and when loaned,
the loan will be evidenced by a non-interest-bearing unsecured corporate note to
be treated as a loan until repaid, if and when ABC has the financial resources
to do so. A formal written arrangement exists with respect to our president's
commitment to loan funds as indicated herein, and accordingly, the agreement
between ABC, our president and our counsel (filed as Exhibit 10.2) is binding
upon all parties.
-17-
Recent Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants or the Securities
and Exchange Commission is expected to have a material impact on our reported
financial position or results of operations.
Critical Accounting Policies
The preparation of financial statements and related notes requires us
to make judgments, estimates, and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. An accounting policy is considered to be
critical if it requires an accounting estimate to be made based on assumptions
about matters that are highly uncertain at the time the estimate is made, and if
different estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could
materially impact the financial statements
Because of our limited level of operations, we have not had to make
material assumptions or estimates other than our assumption that we are a going
concern.
Seasonality
To date, we have not noted seasonality as a major impact on our
business.
BUSINESS
ABC Funding, Inc. was incorporated in the state of Nevada on May 13,
2004 to be a mortgage brokerage firm succeeding the business of ABC Funding, an
unincorporated business conducted by our founder since May 2002.
Since May 2002, we have been and continue to be a mortgage broker
licensed in the State of Utah. Our operations as a mortgage broker have been
conducted in substantially the same way since our inception. We originate or
locate possible mortgage loans that we refer to lending sources to fund. We
perform credit checks and obtain appraisals and title information for each
prospective loan before referring it to a lending source. However, we do not
fund any loans ourselves.
-18-
We offer a broad spectrum of mortgage loan financing options including:
o conventional loans,
o jumbo loans,
o home equity and second mortgages,
o non-conforming loans, and
o sub-prime loans.
Conventional loans are loans that conform to the underwriting
guidelines set forth by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
Jumbo loans are considered non-conforming mortgage loans because they
have a principal loan amount in excess of the loan limits set by Fannie Mae and
Freddie Mac (currently $322,700 for single-family, one-unit mortgage loans in
the continental United States).
Home Equity and Second Mortgage Loans are generally secured by second
liens on the related property. Home equity mortgage loans can take the form of a
home equity line of credit, which generally bears an adjustable interest rate,
while second mortgage loans are closed- end loans with fixed interest rates.
Both types of loans are designed for borrowers with high credit-quality
profiles. Some of the equity and second mortgage loans that we originate are
closed in conjunction with a first mortgage. By taking a first and second
mortgage to purchase a home, a customer can avoid paying mortgage insurance and
may be able to qualify for a conforming loan as opposed to a jumbo loan.
Non-Prime Mortgage Loans focus on customers whose borrowing needs are
not served by traditional financial institutions. Borrowers of non-prime
mortgage loans may have impaired or limited credit profiles, high levels of debt
service to income, or other factors that disqualify them for conforming loans.
Offering this category of mortgage loans on a limited basis allows us to provide
loan products to borrowers with a variety of differing credit profiles.
In late 2004 we also started to place construction loans for
homebuilders.
Originating
We obtain prospective customers by:
o Availing ourselves of our founder's contacts in the real estate
industry,
o Advertising in the print media,
o Telemarketing, and
o Participating in real estate industry functions.
We also receive repeat business from previous customers who are refinancing or
buying a new home.
-19-
Processing
We prepare a credit history for each prospective borrower.
Employment and Income - Applicants must exhibit the ability to generate income,
on a regular ongoing basis, in an amount sufficient to pay the mortgage payment
and any other debts the applicant may have. We consider various sources of
income when determining the applicant's ability, such as:
o salary and wages,
o bonus,
o overtime,
o commissions,
o retirement benefits,
o notes receivable,
o interest,
o dividends,
o unemployment benefits,
o rental income, and
o other verifiable sources of income.
The type and level of income verification and supporting documentation
required may vary based upon the type of loan program selected by the applicant.
For salaried applicants, evidence of employment and income is obtained through
written verification of employment with the current and prior employer(s) or by
obtaining a recent pay stub and W-2 form. Self-employed applicants are generally
required to provide income tax returns, financial statements or other
documentation to verify income.
Debt-to- Income Ratios - Generally, an applicant's monthly housing expense,
including loan payment, real estate taxes, hazard insurance and homeowner
association dues, if applicable, should be an acceptable debt ratio for the
targeted investor program. Total fixed monthly obligations consist of housing
expense plus other obligations such as car loans and credit card payments. Other
areas of financial strength, such as equity in the property, large cash reserves
or a history of meeting home mortgage or rental obligations are considered to be
favorable compensating factors.
Credit History - An applicant's credit history is reviewed for both favorable
and unfavorable occurrences. An applicant who has made payments on outstanding
or previous credit obligations according to the contractual terms may be
considered favorably. Items such as slow payment history, legal actions,
judgments, bankruptcy, liens, foreclosure or garnishments are viewed
unfavorably. In some instances, extenuating circumstances beyond the applicant's
control may mitigate the effect of such unfavorable items on the credit
decision.
-20-
Property - The property's market value is assessed to ensure that the property
provides adequate collateral for the loan. Generally, properties are appraised
by independent licensed real estate appraisers. Automated or streamlined
appraisal systems may also be used to confirm property values on some loan
programs.
Maximum Indebtedness to Appraised Value - Generally, the maximum amount most
lenders will consider is equal to 95% of the property value. For this purpose,
property value is defined as appraised value or purchase price, whichever is
less. However, under certain loan programs this percentage may be exceeded. Loan
amounts in excess of 80% of the appraised value generally require primary
mortgage insurance to protect against foreclosure loss.
Funds for Closing - Generally, applicants are required to have sufficient funds
of their own to meet the down payment requirement. A portion of the funds may
come from a gift or an unsecured loan from a municipality or a nonprofit
organization. Certain programs may require the applicant to also have cash
reserves after closing.
Sub-Prime Loans - Generally, the same information is reviewed in the sub-prime
origination process as in the prime credit quality first mortgage loan
underwriting process. Borrowers who qualify generally have payment histories and
debt-to-income ratios that would not satisfy Freddie Mac and Fannie Mae
underwriting guidelines and may have a record of major derogatory credit items,
such as outstanding judgments or prior bankruptcies. However, sub-prime credit
borrowers also include individuals whose credit histories are not adverse, but
who are seeking an expedited mortgage process, or persons such as the
self-employed, who have difficulty verifying their income. Compensating factors
may include:
o low loan-to value ratio,
o low debt-to-income ratios,
o stable employment, and
o length of time in the same residence.
Evaluation
Based on the information assembled during the processing phase, we
determine which lender or lenders are most likely to approve the prospective
loan and forward the loan package to those lenders.
We deal with the wholesale lending departments of the lending
institutions to whom we refer loans. The wholesale departments offer rates that
are below the rates offered by retail lenders. If the loan is approved, we
charge and collect an origination fee that generally equals 3.5% of the loan.
-21-
We refer loans to the following lending sources:
o Security National Mortgage,
o Fremont Investment & Loan,
o First Horizon Home Loans,
o World Savings,
o Red Hot Funding,
o New Century Mortgage Corporation,
o Countrywide Home Loans,
o First Magnus,
o First Franklin Wholesale Lending, and
o Wells Fargo Home Mortgage.
We are currently licensed only in the State of Utah. However, we have
affiliated with a group (Western Thrift and Loan) as an agent which effectively
permits us to operate in 37 states. The terms of such affiliation require us to
pay the higher of (i) $500 or (ii) 10% of our commission on all loans originated
in states outside of Utah. Through December 31, 2004, we have limited our
activities to the State of Utah because our limited financial resources makes
marketing outside our area not feasible. We have run occasional ads on Internet
sites, but have not realized any discernible benefit from those ads.
Competition
We compete with mortgage bankers, state and national banks, thrift
institutions and insurance companies as well as other mortgage brokers for loan
originations. Many of these organizations have substantially more financial
resources, more employees and experience in the mortgage origination business
and may be better known and have more customers than we do. We may also be at a
disadvantage with many of our competitors because we do not have our own
financing for the loans that we originate. Instead we act as a broker for our
network of wholesale mortgage lending institutions.
We strive to obtain the best rates possible for our customers in the
shortest amount of time. However, no assurances can be given that we will be
successful.
Employees
At January 27, 2005, we had two fulltime employees, Harold Barson and a
processor. We also had two part time loan originators. No one has an employment
contract or is covered by a collective employment agreement.
-22-
Property
We currently operate out of office space located at 9160 South 300
West, Sandy, Utah 84070. The lease covering this space is month-to-month and
calls for minimum monthly rental payments of $312 plus telephone line costs
which average approximately $300 per month. Our founder is a party to the lease
and pays approximately 50% of the cost with ABC paying the balance..
Litigation
We are not party to any pending, or to our knowledge, threatened
litigation of any type.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our management consists of:
Name Age Title
Harold Barson 54 President, CEO, CFO and chairman
Jeffrey Brown 50 Director, Secretary and Treasurer
Harold Barson - founded our business in May 2004 to succeed ABC Funding, an
unincorporated entity founded by Mr. Barson in May 2002. Since 1995, Mr. Barson
has held the position of loan originator or loan officer as follows: (i) from
1995 to 1998, served as loan originator with Full Court Financial; (ii) from
1999 to September 2001, served as loan officer with New World Mortgage; and
(iii) from October 2001 through April 2002, served as loan officer with American
Union Mortgage. Each of these three companies are located in the State of Utah.
Jeffrey Brown - became an officer and director in 2004. From 1973 through 2002
he was a customer service representative and manager for Larry H. Miller Ford in
Salt Lake City, Utah; from January 2002 to February 2003 he was a mortgage loan
processor and officer for Intermountain Mortgage Co.; and from February 2003 he
has been a customer service representative for LaPoint Ford in Murray, Utah. Mr.
Brown attended the University of Utah.
Possible Potential Conflicts
No member of management is or will be required by us to work on a full
time basis. Accordingly, certain conflicts of interest may arise between us and
our officer(s) and director(s) in that they have other business interests to
which they devote their attention, and they may be expected to continue to do so
although management time must also be devoted to our business. As a result,
conflicts of interest may arise that can be resolved only through their exercise
of such judgment as is consistent with each officer's understanding of his
fiduciary duties to us. Currently we have only two officers and directors and
are in the process of seeking to add additional officer(s) and/or director(s) as
and when the proper personnel are located and terms of employment are mutually
negotiated and agreed to.
-23-
Board of Directors
All directors hold office until the completion of their term of office,
which is not longer than one year, or until their successors have been elected.
All officers are appointed annually by the board of directors and subject to any
existing employment agreement serve at the discretion of the board. Currently,
directors receive no compensation. The terms of the current directors continue
until December 31, 2005.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, the ABC board
of directors will establish an audit committee and a compensation committee. The
audit committee will review the results and scope of the audit and other
services provided by the independent auditors and review and evaluate the system
of internal controls. The compensation committee will manage the stock option
plan and review and recommend compensation arrangements for the officers. No
final determination has yet been made as to the memberships of these committees
or when we will have sufficient members to establish committees.
All directors will be reimbursed by ABC for any expenses incurred in
attending directors' meetings provided that ABC has the resources to pay these
fees. ABC will consider applying for officers and directors liability insurance
at such time when it has the resources to do so.
Stock Option Plan
Pursuant to the May 14, 2004 board of directors approval and subsequent
stockholder approval, ABC adopted our 2004 Non-Statutory Stock Option Plan (the
"Plan") whereby we reserved for issuance up to 1,500,000 shares of our common
stock. Non-Statutory Stock Options do not meet certain requirements of the
Internal Revenue Service as compared to Incentive Stock Options which meet the
requirements of Section 422 of the Internal Revenue Code. Nonqualified options
have two disadvantages compared to incentive stock options. One is that
recipients have to report taxable income at the time that they exercise the
option to buy stock, and the other is that the income is treated as
compensation, which is taxed at higher rates than long-term capital gains. We
intend to file a Registration Statement on Form S-8 so as to register those
1,500,000 shares of common stock underlying the options in the Plan once we are
eligible to do so which will be after we are subject to the 1934 Act Reporting
Requirements and have filed all required reports during the preceding 12 months
or such shorter period of time as required.
As of January 27, 2005 , no options have been issued under the Plan.
-24-
As previously indicated, the board of directors, on May 14, 2004,
adopted the Plan so as to provide a long-term incentive for employees,
non-employee directors, consultants, attorneys and advisors of ABC and our
subsidiaries, if any. The board of directors believes that our policy of
granting stock options to such persons will provide us with a potential critical
advantage in attracting and retaining qualified candidates. In addition, the
Plan is intended to provide us with maximum flexibility to compensate plan
participants. We believe that such flexibility will be an integral part of our
policy to encourage employees, non-employee directors, consultants, attorneys
and advisors to focus on the long-term growth of stockholder value. The board of
directors believes that important advantages to ABC are gained by an option
program such as the Plan which includes incentives for motivating our employees,
while at the same time promoting a closer identity of interest between
employees, non-employee directors, consultants, attorneys and advisors on the
one hand, and the stockholders on the other.
The principal terms of the Plan are summarized below; however, it is
not intended to be a complete description thereof and such summary is qualified
in its entirety by the actual text of the Plan, a copy of which has been filed
as an exhibit to our registration statement of which this prospectus is a part.
Summary Description of the ABC Funding Inc, Inc. 2004 Non-Statutory Stock Option
Plan
The purpose of the Plan is to provide directors, officers and employees
of, as well as consultants, attorneys and advisors to, ABC and our subsidiaries,
if any, with additional incentives by increasing their ownership interest in
ABC. Directors, officers and other employees of ABC and our subsidiaries are
eligible to participate in the Plan. Options in the form of Non-Statutory Stock
Options ("NSO") may also be granted to directors who are not employed by us and
consultants, attorneys and advisors to us providing valuable services to us and
our subsidiaries. In addition, individuals who have agreed to become an employee
of, director of or an attorney, consultant or advisor to us and/or our
subsidiaries are eligible for option grants, conditional in each case on actual
employment, directorship or attorney, advisor and/or consultant status. The Plan
provides for the issuance of NSO's only, which are not intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code, as amended. Further, NSO's have two disadvantages compared to
ISO's in that recipients of NSOs must report taxable income at the time of NSO
option exercise and income from NSO's is treated as compensation which is taxed
at higher rates than long-term capital gains.
Our board of directors or a compensation committee (once established)
will administer the Plan with the discretion generally to determine the terms of
any option grant, including the number of option shares, exercise price, term,
vesting schedule and the post-termination exercise period. Notwithstanding this
discretion (i) the term of any option may not exceed 10 years and (ii) an option
will terminate as follows: (a) if such termination is on account of termination
of employment for any reason other than death, without cause, such options shall
terminate one year thereafter; (b) if such termination is on account of death,
such options shall terminate 15 months thereafter; and (c) if such termination
is for cause (as determined by the board of directors and/or compensation
committee), such options shall terminate immediately. Unless otherwise
determined by the board of directors or compensation committee, the exercise
price per share of common stock subject to an option shall be equal to no less
than 10% of the fair market value of the common stock on the date such option is
granted. No NSO shall be assignable or otherwise transferable except by will or
the laws of descent and distribution or except as permitted in accordance with
SEC Release No.33-7646 as effective April 7, 1999.
-25-
The Plan may be amended, altered, suspended, discontinued or terminated
by the board of directors without further stockholder approval, unless such
approval is required by law or regulation or under the rules of the stock
exchange or automated quotation system on which the common stock is then listed
or quoted. Thus, stockholder approval will not necessarily be required for
amendments which might increase the cost of the Plan or broaden eligibility
except that no amendment or alteration to the Plan shall be made without the
approval of stockholders which would:
a. decrease the NSO price (except as provided in paragraph 9 of the Plan)
or change the classes of persons eligible to participate in the Plan,
or
b. extend the NSO period, or
c. materially increase the benefits accruing to Plan participants, or
d. materially modify Plan participation eligibility requirements, or
e. extend the expiration date of the Plan.
Unless otherwise indicated the Plan will remain in effect for a period
of ten years from the date adopted unless terminated earlier by the board of
directors except as to NSOs then outstanding, which shall remain in effect until
they have expired or been exercised.
Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
......................... ........................... ........................ .........................
Equity compensation plans - - 1,500,000
approved by security
holders
......................... ........................... ........................ .........................
Equity compensation plans
not approved by security
holders - - -
......................... ........................... ........................ .........................
Total - - 1,500,000
-26-
Executive Compensation
The only officer or director who received compensation in fiscal years
ended June 30, 2004 and June 30, 2003 was Harold Barson, our president who
received compensation of $41,563 and $19,160 in 2003 and 2004 respectively; all
of which relates to origination fees for loans originated by him. No director,
officer or employee has a contract or commitment to receive annual compensation
in excess of $100,000. We currently have no formal written salary arrangement
with our president and, while no specific annual salary or length of employment
has been determined, we anticipate providing an annual salary not to exceed
$100,000 commencing with the successful expansion of our business. The salary
will be paid out of revenues, if any, or accrued if sufficient cash is not
available to make payments. Each officer and director will be paid a negotiated
percentage of profits for the loans that they originate and close. They will
receive no other compensation from us until we are operating profitably.
==================================================================================================================================
Long Term Compensation
Annual Compensation Awards Payouts
Restricted Securities
Year Other Stock Underlying LTIP
Name and Ended Bonus Annual Award(s) Options/ Payouts All Other
Principal Position June 30 Salary ($) ($) Compensation ($) ($) SARs (#) ($) Compensation ($)
Harold Barson 2004 $ 19,160 - - - - - -
President 2003 $ 41,563 - - - - - -
==================================================================================================================================
All amounts paid to Mr. Barson relate to origination fees for loans
originated by him.
PRINCIPAL SHAREHOLDERS
As of January 27, 2005 2004, we had 10,000,000 shares of common stock
outstanding which are held by 40 shareholders. The chart below sets forth the
ownership, or claimed ownership, of certain individuals and entities. This chart
discloses those persons known by the board of directors to have, or to claim to
have, beneficial ownership of more than 5% of the outstanding shares of our
common stock as of January 27, 2005 December 31, 2004; of all directors and
executive officers of ABC and of our directors and officers as a group.
3 Name and Address of 4 Number of Shares
Beneficial Owner Beneficially Owned Percent of Class
- ---------------------------- ------------------ ----------------
Harold Barson 9,160,000 91.60%
- ---------------------------- ------------------ ----------------
Jeffrey Brown 100,000 1.00%
- ---------------------------- ------------------ ----------------
Officers and Directors
as a group ( 2 members) 9,260,000 92.60%
- ----------------------------
3 The address for each person is 9160 South 300 West, Sandy, Utah 84070.
4 Unless otherwise indicated, ABC believes that all persons named in the
table have sole voting and investment power with respect to all shares of the
common stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities which may be acquired by such person within 60 days from the
date indicated above upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are exercisable within
60 days of the date indicated above, have been exercised.
-27-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Harold Barson received origination and other fees aggregating $19,160
in 2004 and $41,563 in 2003 and $3,831 during the three months ended Sepember
30, 2004. In addition, a consulting firm associated with a shareholder (holding
less than 1% of our outstanding common stock) is owed a fee of $20,000.
Upon incorporation in May 2004, we issued 9,160,000 shares to our
president, Harold Barson, and 100,000 shares to Jeffrey Brown, our
Secretary/Treasurer and a Director, all valued at $.001 per share and all in
exchange for the business of ABC Funding.
Mr. Barson is also a party to the lease covering our office space. The
payments under that lease amounted to $4,029 in 2004 and $2,089 in 2003 with ABC
being required to pay 50% of such costs. (See "Business" subsection entitled
"Property").
The sole promoter of ABC is our president, Harold Barson.
DESCRIPTION OF CAPITAL STOCK
Introduction
ABC is authorized to issue 24,000,000 shares of common stock and
1,000,000 shares of preferred stock.
Preferred Stock
ABC's certificate of incorporation authorizes the issuance of 1,000,000
shares of preferred stock with designations, rights and preferences determined
from time to time by its board of directors. No shares of preferred stock have
been designated, issued or are outstanding. Accordingly, our board of directors
is empowered, without stockholder approval, to issue up to 1,000,000 shares of
preferred stock with voting, liquidation, conversion, or other rights that could
adversely affect the rights of the holders of the common stock. Although we have
no present intention to issue any shares of preferred stock, there can be no
assurance that we will not do so in the future.
Among other rights, our board of directors may determine, without further
vote or action by our stockholders:
-28-
o the number of shares and the designation of the series;
o whether to pay dividends on the series and, if so, the dividend rate,
whether dividends will be cumulative and, if so, from which date or
dates, and the relative rights of priority of payment of dividends on
shares of the series;
o whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of the voting rights;
o whether the series will be convertible into or exchangeable for shares
of any other class or series of stock and, if so, the terms and
conditions of conversion or exchange;
o whether or not the shares of the series will be redeemable and, if so,
the dates, terms and conditions of redemption and whether there will
be a sinking fund for the redemption of that series and, if so, the
terms and amount of the sinking fund; and
o the rights of the shares of the series in the event of our voluntary
or involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
We presently do not have plans to issue any shares of preferred stock.
However, preferred stock could be used to dilute a potential hostile acquirer.
Accordingly, any future issuance of preferred stock or any rights to purchase
preferred shares may have the effect of making it more difficult for a third
party to acquire control of us. This may delay, defer or prevent a change of
control in our company or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings attributable to, and
assets available for distribution to, the holders of our common stock and could
adversely affect the rights and powers, including voting rights, of the holders
of our common stock.
Common Stock
There are 10,000,000 shares of common stock issued and outstanding at
January 27, 2005 held by 40 shareholders. The holders of ABC's common stock:
o have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of
directors;
o are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution
or winding up of our affairs;
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
-29-
Authorized but Unissued Capital Stock
One of the effects of the existence of unissued and unreserved common
stock may be to enable the board of directors of ABC to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of ABC by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of our
management and possibly deprive the stockholders of opportunities to sell their
shares of our common stock at prices higher than prevailing market prices.
Shareholder Matters
As a Nevada corporation, we are subject to the Nevada Revised Statutes
("NRS" or "Nevada law"). Certain provisions of Nevada law create rights that
might be deemed material to our shareholders. Other provisions might delay or
make more difficult acquisitions of our stock or changes in our control or might
also have the effect of preventing changes in our management or might make it
more difficult to accomplish transactions that some of our shareholders may
believe to be in their best interests.
Directors' Duties. Section 78.138 of the Nevada law allows our directors and
officers, in exercising their powers to further our interests, to consider the
interests of our employees, suppliers, creditors and customers. They can also
consider the economy of the state and the nation, the interests of the community
and of society and our long-term and short-term interests and shareholders,
including the possibility that these interests may be best served by our
continued independence. Our directors may resist a change or potential change in
control if they, by a majority vote of a quorum, determine that the change or
potential change is opposed to or not in our best interest. Our board of
directors may consider these interests or have reasonable grounds to believe
that, within a reasonable time, any debt which might be created as a result of
the change in control would cause our assets to be less than our liabilities,
render us insolvent, or cause us to file for bankruptcy protection
Amendments to Bylaws - Our articles of incorporation provide that the power to
adopt, alter, amend, or repeal our bylaws is vested exclusively with the board
of directors. In exercising this discretion, our board of directors could
conceivably alter our bylaws in ways that would affect the rights of our
shareholders and the ability of any shareholder or group to effect a change in
our control; however, the board would not have the right to do so in a way that
would violate law or the applicable terms of our articles of incorporation.
Transfer Agent
The transfer agent for our common stock will be Continental Stock
Transfer and Trust Company, 18 Battery Place, New York, New York 10004. Its
telephone number is 212-845-3212.
-30-
PLAN OF DISTRIBUTION
The selling stockholders may offer the shares at various times in one
or more of the following transactions:
o on any market that might develop;
o in transactions other than market transactions;
o by pledge to secure debts or other obligations;
o (if a market should develop) in connection with the writing of
non-traded and exchange-traded call options, in hedge transactions and
in settlement of other transactions in standardized or
over-the-counter options;
o 5purchases by a broker-dealer as principal and resale by the
broker-dealer for its account; or
o in a combination of any of the above.
Selling stockholders will sell at a fixed price of $.01 per share until
our common shares are quoted on the Over- the-Counter Bulletin Board and
thereafter at prevailing market prices or privately negotiated prices. In order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or dealers.
The selling stockholders may use broker-dealers to sell shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling stockholders, or they will receive commissions from purchasers of shares
for whom they have acted as agents. To date, no discussions have been held or
agreements reached with any broker/dealers.
Affiliates and/or promoters of ABC who are offering their shares for
resale and any broker-dealers who act in connection with the sale of the shares
hereunder will be deemed to be "underwriters" of this offering within the
meaning of the Securities Act, and any commissions they receive and proceeds of
any sale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
Selling shareholders and any purchasers of our securities should be
aware that any market that develops in our common stock will be subject to
"penny stock" restrictions.
We will pay all expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. We also agreed to indemnify the selling
stockholders against certain liabilities, including liabilities under the
Securities Act.
- ----------------------------
5 If any of the selling shareholders enter into an agreement after the
effectiveness of this registration statement to sell all or a portion of their
shares in ABC to a broker-dealer as principal and the broker-dealer is acting as
underwriter, ABC will file a post-effective amendment to our registration
statement identifying the broker-dealer, providing the required information on
the Plan of Distribution, revising disclosures in this registration statement as
required and filing the agreement as an exhibit to this registration statement.
-31-
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons, we have
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
Selling shareholders and any purchasers of our securities should be
aware that any market that develops in our stock will be subject to the penny
stock restrictions.
Until our shares of common stock qualify for inclusion in the NASDAQ
system, if ever, the trading of our securities, if any, will be in the
over-the-counter markets which are commonly referred to as the OTCBB as
maintained by the NASD. As a result, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the price of, our securities.
SEC Rule 15g-9 establishes 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 an exercise price of less than $5.00 per share,
subject to a limited number of exceptions. It is likely that our shares will be
considered to be penny stocks for the immediately foreseeable future. For any
transaction involving a penny stock, unless exempt, the penny stock rules
require that a broker or dealer approve a person's account for transactions in
penny stocks and 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 obtain financial information and investment
experience and objectives of the person and 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 transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the SEC relating to the penny
stock market, which, in highlight form, sets forth:
o the basis on which the broker or dealer made the suitability
determination, and
o 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
stock in both public offerings and in secondary trading and 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.
-32-
This offering will terminate on the earlier of (a) the date on which
the shares are eligible for resale without restrictions pursuant to Rule 144
under the Securities Act or (b) the date on which all shares offered by this
prospectus have been sold by the selling stockholders.
State Securities - Blue Sky Laws
There is no public market for our common stock, and there can be no
assurance that any market will develop in the foreseeable future. Transfer of
our common stock may also be restricted under the securities or securities
regulations laws promulgated by various states and foreign jurisdictions,
commonly referred to as "Blue Sky" laws. Absent compliance with such individual
state laws, our common stock may not be traded in such jurisdictions. Because
the securities registered hereunder have not been registered for resale under
the blue sky laws of any state, the holders of such shares and persons who
desire to purchase them in any trading market that might develop in the future,
should be aware that there may be significant state blue-sky law restrictions
upon the ability of investors to sell the securities and of purchasers to
purchase the securities. Accordingly, investors may not be able to liquidate
their investments and should be prepared to hold the common stock for an
indefinite period of time.
Selling Securityholders may contact us directly to ascertain procedures
necessary for compliance with Blue Sky Laws in the applicable states relating to
Sellers and/or Purchasers of Strong shares of common stock.
Limitations Imposed by Regulation M
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, each selling stockholder will be subject to
applicable provisions of the Exchange Act and the associated rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of our common
stock by the selling stockholders. We will make copies of this prospectus
available to the selling stockholders and have informed them of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby. We assume no obligation to so deliver
copies of this prospectus or any related prospectus supplement.
-33-
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for us by Gary B. Wolff, P.C., 805 Third Avenue, New
York, New York 10022. Gary B. Wolff, president and sole stockholder of Gary B.
Wolff, P.C., owns 100,000 shares of our common stock.
EXPERTS
The financial statements of ABC Funding, Inc. as of June 30, 2004 and
the years ended June 30, 2004 and 2003.included in this prospectus have been
audited by an independent registered public accounting firm and have been so
included in reliance upon the report of MantylaMcReynolds, LLC given on the
authority of such firm as experts in accounting and auditing.
UNAUDITED INTERIM STATEMENTS
The information for the interim periods ended September 30, 2004 and
2003 is unaudited, however, it includes all adjustments considered necessary for
a fair presentation of our financial condition and results of operations.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2, including exhibits, schedules and
amendments, under the Securities Act with respect to the shares of common stock
to be sold in this offering. This prospectus does not contain all the
information included in the registration statement. For further information
about us and the shares of our common stock to be sold in this offering, please
refer to this registration statement.
As of the date of this prospectus, ABC Funding became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended.
Accordingly, we will file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N. W.,
Washington, D.C. 20549. You should call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings will also be
available to the public at the SEC's web site at "http:/www.sec.gov."
You may request, and we will voluntarily provide, a copy of our
filings, including our annual report which will contain audited financial
statements, at no cost to you, by writing or telephoning us at the following
address:
ABC Funding, Inc.
9160 South 300 West
Sandy, Utah 84070
801-601-2138
ABC FUNDING, INC.
FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm..................F-2
Balance Sheet............................................................F-3
Statements of Operations.................................................F-4
Statement of Stockholders' Deficit.......................................F-5
Statements of Cash Flows.................................................F-6
Notes to the Financial Statements........................................F-7
Unaudited Interim Financial Statements...................................F-15
F-1
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ABC Funding, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheet of ABC Funding, Inc. as of June
30, 2004 and the related statements of operations, stockholders' deficit and
cash flows for the years ended June 30, 2004 and 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ABC Funding, Inc. as of June
30, 2004 and the results of its operations and its cash flows for the years
ended June 30, 2004 and 2003 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has extremely limited financial resources and its
operations during the year ended June 30, 2004 were unprofitable. Operations
during the three months ended September 30, 2004 continued to be unprofitable.
The Company also has no source of funding or credit facilities. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Mantyla McReynolds
Salt Lake City, Utah
October 7, 2004
F-2
ABC FUNDING, INC.
Balance Sheet
June 30, 2004
ASSETS
CURRENT ASSETS:
Cash $ 208
---------------------
Total Current Assets 208
---------------------
TOTAL ASSETS $ 208
=====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses $ 20,000
---------------------
Total Current Liabilities 20,000
---------------------
STOCKHOLDERS' DEFICIT:
Preferred stock at $0.001 par value; 1,000,000
shares authorized, -0- outstanding -
Common stock at $0.001 par value; authorized
24,000,000 shares; 9,260,000 shares issued and
outstanding 9,260
Accumulated deficit (29,052)
---------------------
Stockholders' deficit (19,792)
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 208
=====================
The accompanying notes are an integral part of these financial statements.
F-3
ABC FUNDING, INC.
Statements of Operations
For the Years Ended June 30, 2004 and 2003
2004 2003
---------------------- ----------------------
Commission Revenue $ 106,495 $ 224,864
---------------------- ----------------------
Costs and Expenses:
Origination 84,872 180,831
Appraisals 9,056 18,370
Selling and administrative 35,477 14,357
Other 398 8,580
---------------------- ----------------------
Total 129,803 222,138
---------------------- ----------------------
Net Income (Loss) $ (23,308) $ 2,726
====================== ======================
Pro Forma:
Income (loss) $ (23,308) $ 2,726
Pro forma income tax (benefit)
(8,857) 954
---------------------- ----------------------
Pro forma net income (loss)
$ (14,451) $ 1,772
====================== ======================
Basic and diluted loss per share
$ (.01) $ .00
====================== ======================
Weighted average number of common
shares outstanding
9,260,000 9,260,000
====================== ======================
The accompanying notes are an integral part of these financial statements.
F-4
ABC FUNDING, INC.
Statement of Stockholders' Deficit
Common Stock
---------------------------
Additional Retained
Paid-in Earnings
Shares Amount Capital (Deficit)
------------- ------------- -------------- ---------------
Common stock issued for acquisition
of ABC Funding at $0.001 per
share on May 13, 2004 9,260,000 $ 9,260 $ - $ (9,260)
Results of operations from May 29,
2002 (inception) to June 30,
2002 - - - 790
Net income for the year ended June
30, 2003 - - - 2,726
------------- ------------- -------------- ---------------
Balance, June 30, 2003 9,260,000 9,260 - )
Net loss for the year ended June
30, 2004 - - - (23,308)
------------- ------------- -------------- ---------------
Balance, June 30, 2004 9,260,000 9,260 - )
============= ============= ============== ===============
The accompanying notes are an integral part of these financial statements.
F-5
ABC FUNDING, INC.
Statements of Cash Flows
For the Years Ended June 30, 2004 and 2003
2004 2003
---------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (23,308) $ 2,726
Increase in accrued expenses 20,000 -
---------------------- -----------------------
Net Cash Provided (Used) by Operating Activities (3,308) 2,726
---------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
---------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES - -
---------------------- -----------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (3,308) 2,726
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,516 790
---------------------- -----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 208 $ 3,516
====================== =======================
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
Cash Paid For:
Interest $ - $ -
====================== =======================
Income taxes $ - $ -
====================== =======================
The accompanying notes are an integral part of these financial statements.
F-6
ABC FUNDING, INC.
Notes to the Financial Statements
June 30, 2004
NOTE 1 - ORGANIZATION
ABC Funding, Inc. (the "Company") was incorporated under the laws of
the State of Nevada on May 13, 2004 to succeed ABC Funding, an unincorporated
entity controlled and operated by the founder of the Company since May 2002. The
Company will function as a mortgage broker operating in the state of Utah.
The acquisition of ABC Funding (the "Predecessor") by ABC Funding, Inc.
("ABC") has been accounted for as a recapitalization for financial accounting
purposes. Since ABC had no operations prior to the reverse merger, the financial
statements of the Predecessor and ABC are being combined for all periods
presented. In these financial statements, the Predecessor is the operating
entity for financial reporting purposes, and the financial statements for all
periods presented represent the Predecessor's financial position and results of
operations. The equity of ABC is the historical equity of the Predecessor
retroactively restated to reflect the number of shares issued by ABC in the
transaction.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a fiscal
year ending on June 30.
b. Provision for Taxes
The Company will account for income taxes using the asset and
liability method. Under this method, income taxes are provided
for amounts currently payable and for amounts deferred as tax
assets and liabilities based on differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Deferred income taxes are
measured using the enacted tax rates that are assumed will be in
effect when the differences reverse.
F-7
The operating results prior to May 13, 2004 related ABC Funding
and were included in the tax return of the Company's founder.
The Company is not entitled to the potential benefit of any of
those losses.
The pro forma amounts included on the accompanying Statements of
Operations reflect the provision for income tax which would have
been recorded if the Company had been incorporated as of the
beginning of the first date presented.
c. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
d. Estimates
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 and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
e. Basic Loss Per Common Share
Basic loss per common share has been calculated based on the
weighted average number of shares outstanding assuming that the
Company incorporated as of the beginning of the first period
presented.
f. Impact Of New Accounting Standards
In December 2003, the FASB revised SFAS No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits,"
("SFAS No. 132") establishing additional annual disclosures
about plan assets, investment strategy, measurement date, plan
obligations and cash flows.
In addition, the revised standard established interim disclosure
requirements related to the net periodic benefit cost recognized
and contributions paid or expected to be paid during the current
fiscal year. The new annual disclosures are effective for
financial statements with fiscal years ending after December 15,
2003 and the interim- period disclosures are effective for
interim periods beginning after December 15, 2003. The Company
will adopt the annual disclosures for its fiscal year ending
December 31, 2004 and the interim disclosures for its fiscal
quarter ending March 31, 2004. The adoption of the revised SFAS
No. 132 will have no impact on the Company's results of
operation or financial condition.
F-8
In March 2004, the Financial Accounting Standards Board
published an Exposure Draft Share-Based Payment, an Amendment of
FASB Statements No. 123 and 95. The proposed change in
accounting would replace existing requirements under SFAS 123,
Accounting for Stock-Based Compensation, and APB Opinion No 25,
Accounting for Stock Issued to Employees. Under this proposal,
all forms of share-based payments to employees, including
employee stock options, would be treated the same as other forms
of compensation by recognizing the related cost in the income
statement. The expense of the award would generally be measured
at fair value at the grant date. Current accounting guidance
requires that the expense relating to so-called fixed plan
employee stock options only be disclosed in the footnotes to the
financial statements. The comment period for the exposure draft
ended June 30, 2004.
g. Revenue Recognition
The Company recognizes revenues in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin
(SAB) number 104, Revenue Recognition. SAB 104 clarifies
application of U. S. generally accepted accounting principles
with respect to revenue transactions. The Company recognizes
commission revenue on the date that the loan to which the
commission relates closes. The Company records an account
receivable for revenue earned but net yet collected. An
allowance for bad debt has been provided based on estimated
losses. For revenue received in advance of services, the Company
records a current liability classified as either deferred
revenue or customer deposits.
h. Stock Options and Warrants
As permitted by Statement of Financial Accounting Standards No.
123 Accounting for Stock based Compensation ("SFAS No. 123"),
the Company has elected to measure and record compensation cost
relative to employee stock option and warrant costs in
accordance with Accounting Principles Board (`APB") Opinion 25,
Accounting for Stock Issued to Employees, and related
Interpretations and will make pro forma disclosures of net
income and earnings per share as if the fair value method of
valuing stock options and warrants had been applied. Under APB
Opinion 25. compensation cost is recognized for stock options
and warrants granted to employees when the option or warrant
price is less than the market price of the underlying common
stock on the date of grant. In addition, the Company will
provide pro forma disclosure of stock-based compensation, as
measured under the fair value requirements of SFAS No. 123,
Accounting for Stock-Based Compensation. These pro forma
disclosures will be provided as required under SFAS No 148,
Accounting for Stock-Based Compensation.
F-9
Transition and Disclosure.
Options and warrants issued to individuals other than employees
or directors will be accounted for in accordance with SFAS
No.123 which requires recognition of compensation expense for
grants of stock, stock options, and other equity instruments
over the vesting periods of such grants, based on the estimated
grant-date fair values of those grants.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has extremely limited financial resources and its
operations during the year ended June 30, 2004 were unprofitable. Operations
during the three months ended September 30, 2004 continued to be unprofitable.
The Company also has no source of funding or credit facilities. These factors
raise substantial doubt about its ability to continue as a going concern.
The Company is marketing its services with local realtors to increase
its presence in the home resale market. It is also expanding into the
construction loan market. If the Company is unsuccessful in these efforts and
cannot sufficient numbers of loan originations to permit profitable operations
or if it cannot obtain a source of funding or investment, it may substantially
curtail or terminate its operations
NOTE 4 - SHAREHOLDERS' DEFICIT
Preferred Stock
The Company's certificate of incorporation authorizes the issuance of
1,000,000 shares of preferred stock with designations, rights and preferences
determined from time to time by its board of directors. Accordingly, the
Company's board of directors is empowered, without stockholder approval, to
issue shares of preferred stock with voting, liquidation, conversion, or other
rights that could adversely affect the rights of the holders of the common
stock.
The Board of Directors is authorized to determine:
o the number of shares and the designation of the series;
o whether to pay dividends on the series and, if so, the dividend rate,
whether dividends will be cumulative and, if so, from which date or
dates, and the relative rights of priority of payment of dividends on
shares of the series;
F-10
o whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of the voting rights;
o whether the series will be convertible into or exchangeable for shares
of any other class or series of stock and, if so, the terms and
conditions of conversion or exchange;
o whether or not the shares of the series will be redeemable and, if so,
the dates, terms and conditions of redemption and whether there will
be a sinking fund for the redemption of that series and, if so, the
terms and amount of the sinking fund; and
o the rights of the shares of the series in the event of our voluntary
or involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
The Company has no shares of preferred stock issued or outstanding.
Common Stock and Subsequent Events
On May 13, 2004, the Board of Directors issued 9,260,000 shares of
common stock (of which 9,160,000 were issued to Harold Barson, the President,
and 100,000 were issued to Jeffrey Brown, a Director) for the acquisition of ABC
Funding valued at $.001 per share ($9,260). In July 2004, the Company sold
740,000 shares of its common stock for $740 or $.001 per share.
The holders of the Company's common stock:
o Have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of
directors;
o Are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution
or winding up of our affairs;
o Do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o Are entitled to one noncumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
Stock Option Plan
Pursuant to a May 14, 2004 Board of Directors approval and subsequent
stockholder approval, the Company adopted its 2004 Non-Statutory Stock Option
Plan (the "Plan") whereby it reserved for issuance up to 1,500,000 shares of its
common stock. The purpose of the Plan is to provide directors, officers and
employees of, consultants, attorneys and advisors to the Company and its
subsidiaries with additional incentives by increasing their ownership interest
in the Company. Directors, officers and other employees of the Company and its
F-11
subsidiaries are eligible to participate in the Plan. Options in the form of
Non-Statutory Stock Options ("NSO") may also be granted to directors who are not
employed by the Company and consultants, attorneys and advisors to the Company
providing valuable services to the Company and its subsidiaries. In addition,
individuals who have agreed to become an employee of, director of or an
attorney, consultant or advisor to the Company and/or its subsidiaries are
eligible for option grants, conditional in each case on actual employment,
directorship or attorney, advisor and/or consultant status. The Plan provides
for the issuance of NSO's only, which are not intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code,
as amended.
The Board of Directors of the Company or a Compensation Committee (once
established) will administer the Plan with the discretion generally to determine
the terms of any option grant, including the number of option shares, exercise
price, term, vesting schedule and the post-termination exercise period.
Notwithstanding this discretion (i) the term of any option may not exceed 10
years and (ii) an option will terminate as follows: (a) if such termination is
on account of termination of employment for any reason other than death, without
cause, such options shall terminate one year thereafter; (b) if such termination
is on account of death, such options shall terminate 15 months thereafter; and
(c) if such termination is for cause (as determined by the Board of Directors
and/or Compensation Committee), such options shall terminate immediately. Unless
otherwise determined by the Board of Directors or Compensation Committee, the
exercise price per share of common stock subject to an option shall be equal to
no less than 10% of the fair market value of the common stock on the date such
option is granted. No NSO shall be assignable or otherwise transferable except
by will or the laws of descent and distribution or except as permitted in
accordance with SEC Release No.33-7646 as effective April 7, 1999. The Plan may
be amended, altered, suspended, discontinued or terminated by the Board of
Directors without further stockholder approval, unless such approval is required
by law or regulation or under the rules of the stock exchange or automated
quotation system on which the common stock is then listed or quoted. Thus,
stockholder approval will not necessarily be required for amendments which might
increase the cost of the Plan or broaden eligibility except that no amendment or
alteration to the Plan shall be made without the approval of stockholders which
would (a) increase the total number of shares reserved for the purposes of the
Plan or decrease the NSO price (except as provided in paragraph 9 of the Plan)
or change the classes of persons eligible to participate in the Plan or (b)
extend the NSO period or (c) materially increase the benefits accruing to Plan
participants or (d) materially modify Plan participation eligibility
requirements or (e) extend the expiration date of the Plan. Unless otherwise
indicated the Plan will remain in effect for a period of ten years from the date
adopted unless terminated earlier by the board of directors except as to NSOs
then outstanding, which shall remain in effect until they have expired or been
exercised.
As of June 30, 2004, there are no outstanding options or warrants.
F-12
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company's president received origination and other fees aggregating
$19,160 in 2004 and $41,563 in 2003. In addition, a consulting firm associated
with a shareholder (holding less than 1% of the Company's outstanding common
stock) is owed a fee of $20,000.
The Company's President is also a party to the lease covering our
office space. The payments under that lease amounted to $4,029 in 2004 and
$2,089 in 2003, respectively.
NOTE 6 - CONCENTRATIONS
The Company is currently dependent on ten mortgage lender relationships
to fund the mortgage loans that it originates. The Company functions as a broker
and does not fund any loans with its own resources. The lenders with which the
Company deals are under no obligation to continue their relationships or make a
loan to any potential borrower who is presented to them by the Company. The
Company's reliance on this group of lenders makes its origination volume more
susceptible to changes in the rates, services and products such lenders offer.
The loss of its relationship with any of these lenders, or the failure of these
lenders to offer competitive terms, could have a material adverse impact on the
Company's ability to attract borrowers and close loans which could cause the
value of an investment in the shares of ABC Funding, Inc. to decline or become
worthless.
F-13
ABC FUNDING, INC.
Balance Sheet
September 30, 2004
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 118
---------------------
Total Current Assets 118
---------------------
TOTAL ASSETS $ 118
=====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses $ 22,500
---------------------
Total Current Liabilities 22,500
---------------------
STOCKHOLDERS' DEFICIT:
Preferred stock at $0.001 par value; 1,000,000
shares authorized, -0- outstanding -
Common stock at $0.001 par value; authorized
24,000,000 shares; 10,000,000 shares issued and
outstanding 10,000
Accumulated deficit (32,382)
---------------------
Stockholders' deficit (22,382)
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 118
=====================
The accompanying notes are an integral part of these financial statements.
F-14
ABC FUNDING, INC.
Statements of Operations
For the Three Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
---------------------- ----------------------
Commission Revenue $ 24,497 $ 29,804
---------------------- ----------------------
Costs and Expenses:
Origination 20,776 23,833
Appraisals 1,850 2,742
Selling and administrative 5,201 5,984
---------------------- ----------------------
Total 27,827 32,559
---------------------- ----------------------
Net (Loss) $ (3,330) $ (2,755)
====================== ======================
Basic and diluted loss per share $ (.01) $ (.01)
====================== ======================
Weighted average number of
common shares outstanding 10,000,000 9,260,000
====================== ======================
The accompanying notes are an integral part of these financial statements.
F-15
ABC FUNDING, INC.
Statements of Cash Flows
For the Three Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
---------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (3,330) $ (2,755)
Increase in accrued expenses 2,500 -
---------------------- -----------------------
Net Cash Provided (Used) by Operating Activities (830) (2,755)
---------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
---------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 740 -
---------------------- -----------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (90) (2,755)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 208 3,516
---------------------- -----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 118 $ 761
====================== =======================
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
Cash Paid For:
Interest $ - $ -
====================== =======================
Income taxes $ - $ -
====================== =======================
The accompanying notes are an integral part of these financial statements.
F-16
ABC FUNDING, INC.
Notes to the Financial Statements
September 30, 2004
(Unaudited)
1. Basis of Presentation
The accompanying interim condensed financial statements for the
three-month periods ended September 30, 2004 and 2003 are unaudited and include
all adjustments considered necessary by Management for a fair presentation. The
results of operations realized during an interim period are not necessarily
indicative of results to be expected for a full year. These condensed financial
statements should be read in conjunction with the information filed as part of
the Company's Registration Statement on Form SB-2, of which this Prospectus is a
part.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amount of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
2. Common Stock Issuance
In July 2004, the Company issued 740,000 shares of its common stock to
various parties valued at $740 or $.001 per share.
3. GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has extremely limited financial resources and its
operations during the year ended June 30, 2004 were unprofitable. Operations
during the three months ended September 30, 2004 continued to be unprofitable.
The Company also has no source of funding or credit facilities. These factors
raise substantial doubt about its ability to continue as a going concern.
F-17
The Company is marketing its services with local realtors to increase
its presence in the home resale market. It is also expanding into the
construction loan market. If the Company is unsuccessful in these efforts and
cannot sufficient numbers of loan originations to permit profitable operations
or if it cannot obtain a source of funding or investment, it may substantially
curtail or terminate its operations
F-18
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
No one (including any salesman or broker) is authorized to provide oral
or written information about this offering that is not included in this
prospectus.
The information contained in this prospectus is correct only as of the
date set forth on the cover page, regardless of the time of the delivery of this
prospectus.
Until ________ , 2005 (90 days after the commencement of the offering),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
1,656,000 Shares
ABC Funding, Inc.
Common Stock
PROSPECTUS
January , 2005
-41-
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................3
RISK FACTORS.................................................................2
USE OF PROCEEDS.............................................................11
SELLING STOCKHOLDERS........................................................11
DETERMINATION OF OFFERING PRICE.............................................13
DIVIDEND POLICY.............................................................13
MARKET FOR SECURITIES.......................................................13
SUMMARY FINANCIAL DATA......................................................13
NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................15
BUSINESS....................................................................18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................23
PRINCIPAL SHAREHOLDERS......................................................27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................28
DESCRIPTION OF CAPITAL STOCK................................................28
PLAN OF DISTRIBUTION........................................................31
LEGAL MATTERS...............................................................34
EXPERTS.....................................................................34
WHERE YOU CAN FIND MORE INFORMATION.........................................34
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has a provision in Certificate of Incorporation providing
for indemnification of its officers and directors as follows.
The corporation shall indemnify all directors, officers,
employees, and agents to the fullest extent permitted by Nevada law as
provided within NRS 78.751 or any other law then in effect or as it may
hereafter be amended.
The corporation shall indemnify each present and future
director, officer, employee, or agent of the corporation who becomes a
party or is threatened to be made a party to any suit or proceeding,
whether pending, completed, or merely threatened, and whether said suit
or proceeding is civil, criminal, administrative, investigative, or
otherwise, except an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against expenses, including but not limited to attorneys' fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit, or
proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
The expenses of directors and officers incurred in defending a
civil or criminal action, suit, or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit, or proceeding if and only if the
director or officer undertakes to repay said expenses to the
corporation if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation.
The indemnification and advancement of expenses may not be
made to or on behalf of any director or officer if a final adjudication
establishes that the director's of officer's acts or omission involved
intentional misconduct, fraud, or a knowing violation of the law and
was material to the cause of action.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
-42-
Company of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant is bearing all expenses in connection with this registration
statement other than sales commissions, underwriting discounts and underwriter's
expense allowances designated as such. Estimated expenses payable by the
Registrant in connection with the registration and distribution of the Common
Stock registered hereby are as follows:
SEC Registration fee $ 1.00
NASD Filing Fee 100.00
*Accounting fees and expenses 10,000.00
*Legal fees and expenses 50,000.00
*Transfer Agent fees 2,500.00
*Blue Sky fees and expenses 3,500.00
*Miscellaneous expenses 2,500.00
---------------------------
Total $ 68,601.00
===========================
*Indicates expenses that have been estimated for filing purposes.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the three years preceding the filing of this Form SB-2,
Registrant has issued securities without registration under the Securities Act
on the terms and circumstances described in the following paragraphs:
On May 13, 2004, 9,160,000 shares of common stock were issued to the
Company's president and 100,000 were issued to its secretary/treasurer. These
9,260,000 shares were issued at $.001 per share for acquisition of ABC Funding.
An additional 740,000 shares were issued to 38 additional shareholders at $.001
per share for $740 in cash. These individuals had an opportunity to ask
questions of and receive answers from executive officers of Registrant and were
provided with access to Registrant's documents and records in order to verify
the information provided. Each of these 38 shareholders who was not an
-43-
accredited investor either alone or with his purchaser representative(s), if
any, represented that he had such knowledge and experience in financial and
business matters that he was capable of evaluating the merits and risks of the
investment, and the Issuer had grounds to reasonably believe immediately prior
to making any sale that such purchaser comes within this description. All
transactions were negotiated in face-to-face or telephone discussions between
executives of Registrant and the individual purchaser, each of whom, or their
respective representative, indicated that they met the definition of
"sophisticated" investor as defined in Regulation D and ABC has made a
determination that each of such investors are "sophisticated investors". Because
of sophistication of each investor as well as, education, business acumen,
financial resources and position, each such investor had an equal or superior
bargaining position in its dealings with ABC. No underwriter participated in the
foregoing transactions, and no underwriting discounts or commissions were paid,
nor was any general solicitation or general advertising conducted. The
securities bear a restrictive legend, and stop transfer instructions are noted
on the stock transfer records of the Registrant.
The foregoing issuances of securities were effected in reliance upon
the exemption from registration provided by section 4(2) under the Securities
Act of 1933, as amended.
ITEM 27. EXHIBITS.
*3.1 Articles of Incorporation
*3.2 By-Laws
*5.1 Opinion of Gary B. Wolff, P.C.
*10.1 2004 Non-Statutory Stock Option Plan
*10.2 Agreement between ABC, its president and its counsel
*23.1 Consent of MantylaMcReynolds, LLC
*23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1)
**3.1a Articles of Incorporation as filed in Nevada with the Secretary
of State Certification
**3.2a Amended By-Laws
**5.1a Opinion of Gary B. Wolff, P.C.
**10.2a Agreement between ABC, its president and its counsel
**10.3 Agreement between ABC and its president regarding potential
deferred compensation
**23.1a Consent of MantylaMcReynolds, LLC
**23.2a Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1)
* Filed with the initial filing
** Filed with Amendment One
The exhibits are not part of the prospectus and will not be distributed with the
prospectus.
-44-
ITEM 28. UNDERTAKINGS.
The Registrant undertakes:
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant is registering securities under Rule 415 of the
Securities Act and hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii)Notwithstanding the forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation From the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iv) Include any additional or changed material information on the plan of
distribution.
2. That, for the purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. Request For Acceleration of Effective Date. If the small business issuer
(Registrant) requests acceleration of the effective date of this registration
statement under Rule 461 under the Securities Act, it shall include the
following:
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"Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable."
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this SB-2 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Sandy, Utah on the 24th
day of January 2005.
ABC Funding, Inc.
/s/ Harold Barson
By: ________________________________
Harold Barson, Principal Executive,
Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
/s/ Harold Barson Principal Executive, Financial January 24, 2005 ,
and Accounting Officer
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Harold Barson
/s/ Jeffrey Brown Secretary, Treasurer and Director January 24, 2005 ,
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Jeffrey Brown
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