UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
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(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the fiscal year ended June 30, 2006
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
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Commission File Number: 33-25350-FW
United National Film Corporation
(Exact name of small business issuer as specified in its charter)
Colorado 84-1092589
(State of incorporation) (IRS Employer ID Number)
211 West Wall, Midland, Texas 79701
(Address of principal executive offices)
(432) 682-1761
(Issuer's telephone number)
1901 Avenue of the Stars, #1775, Los Angeles, CA 90067
(Former name, former address and former fiscal year,
if changed since last report)
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Securities registered under Section 12 (b) of the Exchange Act - None
Securities registered under Section 12(g) of the Exchange Act: -
Common Stock - $.0001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [X] No [ ]
The issuer's revenues for the fiscal year ended June 30, 2006 were $-0-. The
aggregate market value of voting common equity held by non-affiliates as of
September 28, 2006 was approximately $-0-. As of September 28, 2006, there were
27,751,500 shares of Common Stock issued and outstanding.
Transitional Small Business Disclosure Format : Yes [ ] No [X]
UNITED NATIONAL FILM CORPORATION.
INDEX TO CONTENTS
Page
Number
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PART I
Item 1 Description of Business 3
Item 2 Description of Property 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for Company's Common Stock and Related Stockholders Matters 15
Item 6 Management's Discussion and Analysis or Plan of Operation 16
Item 7 Financial Statements 18
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 19
Item 8A Controls and Procedures 19
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 20
Item 10 Executive Compensation 20
Item 11 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 21
Item 12 Certain Relationships and Related Transactions 21
Item 13 Exhibits and Reports on 8-K 21
Item 14 Principal Accountant Fees and Services 21
SIGNATURES 23
2
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-KSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
United National Film Corporation (the Company) was formed under the laws of the
State of Colorado on July 19, 1988 as Riverside Capital, Inc. in order to
evaluate, structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnership or sole proprietorships.
On February 28, 1989, the Company completed a public offering of 20,500,000
Units at an offering price of $0.01 per unit. Each Unit consisted of one share
of the Company's no par value common stock and three Class A Common Stock
purchase Warrants. Each A Warrant entitled the holder to purchase one share of
Common Stock and one Class B Common Stock purchase Warrant exercisable through
December 22, 1992 at an exercise price of $0.02. Each B Warrant entitled the
holder to purchase one share of Common Stock at $0.05 per share through December
22, 1992. The proceeds to the Company from this offering were approximately
$159,090.
None of the Company's business endeavors since inception have been unsuccessful.
In October Glenn A. Little purchased 18,818,017 shares of restricted common
stock for $18,818.02 and provided a working capital loan of $88,181.98 at an
interest rate of 6% per annum.pursuant to a Convertible Promissory Note. The
Promissory Note is convertible at any time prior to maturity, solely at Mr.
Little's, option, into restricted and unregistered shares of the Company's
common stock at par value. As a result of this transaction Mr. Little became the
majority stockholder of the Company.
The Company may be referred to as a reporting shell corporation. Shell
corporations have zero or nominal assets and typically no stated or contingent
liabilities. Private companies wishing to become publicly trading may wish to
merge with a shell (a reverse merger or reverse acquisition) whereby the
shareholders of the private company become the majority of the shareholders of
the combined company. The private company may purchase for cash all or a portion
of the common shares of the shell corporation from its major stockholders.
Typically, the Board and officers of the private company become the new Board
3
and officers of the combined Company and often the name of the private company
becomes the name of the combined entity.
The Company has very limited capital, and it is unlikely that the Company will
be able to take advantage of more than one such business opportunity. The
Company intends to seek opportunities demonstrating the potential of long-term
growth as opposed to short-term earnings. However, at the present time, the
Company has not identified any business opportunity that it plans to pursue, nor
has the Company reached any agreement or definitive understanding with any
person concerning an acquisition.
It is anticipated that the Company's officers and directors will contact
broker-dealers and other persons with whom they are acquainted who are involved
with corporate finance matters to advise them of the Company's existence and to
determine if any companies or businesses that they represent have a general
interest in considering a merger or acquisition with a blind pool or blank check
or shell entity. No direct discussions regarding the possibility of merger are
expected to occur until after the effective date of this registration statement.
No assurance can be given that the Company will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions. Furthermore, no assurance can be
given that any acquisition, which does occur, will be on terms that are
favorable to the Company or its current stockholders.
The Company's search will be directed toward small and medium-sized enterprises,
which have a desire to become public corporations. In addition these enterprises
may wish to satisfy, either currently or in the reasonably near future, the
minimum tangible asset requirement in order to qualify shares for trading on
NASDAQ or on an exchange such as the American Stock Exchange. (See Investigation
and Selection of Business Opportunities). The Company anticipates that the
business opportunities presented to it will (I) either be in the process of
formation, or be recently organized with limited operating history or a history
of losses attributable to under-capitalization or other factors; (ii)
experiencing financial or operating difficulties; (iii) be in need of funds to
develop new products or services or to expand into a new market, or have plans
for rapid expansion through acquisition of competing businesses; (iv) or other
similar characteristics. The Company intends to concentrate its acquisition
efforts on properties or businesses that it believes to be undervalued or that
it believes may realize a substantial benefit from being publicly owned. Given
the above factors, investors should expect that any acquisition candidate may
have little or no operating history, or a history of losses or low
profitability.
The Company does not propose to restrict its search for investment opportunities
to any particular geographical area or industry, and may, therefore, engage in
essentially any business, to the extent of its limited resources. This include
industries such as service, finance, natural resources, manufacturing, high
technology, product development, medical, communications and others. The
Company's discretion in the selection of business opportunities is unrestricted,
subject to the availability of such opportunities, economic conditions, and
other factors.
As a consequence of this registration of its securities, any entity, which has
an interest in being acquired by, or merging into the Company, is expected to be
an entity that desires to become a public Company and establish a public trading
market for its securities. In connection with such a merger or acquisition, it
is highly likely that an amount of stock constituting control of the Company
would either be issued by the Company or be purchased from the current principal
stockholders of the Company by the acquiring entity or its affiliates. If stock
is purchased from the current principal stockholders, the transaction is likely
to result in substantial gains to the current principal stockholders relative to
their purchase price for such stock. In the Company's judgment, none of the
officers and directors would thereby become an underwriter within the meaning of
the Section 2(11) of the Securities Act of 1933, as amended as long as the
transaction is a private transaction rather than a public distribution of
securities. The sale of a controlling interest by certain principal shareholders
of the Company would occur at a time when minority stockholders are unable to
sell their shares because of the lack of a public market for such shares.
Depending upon the nature of the transaction, the current officers and directors
of the Company may resign their management and board positions with the Company
in connection with a change of control or acquisition of a business opportunity
(See Form of Acquisition, below, and Risk Factors, The Company, Lack of
Continuity of Management). In the event of such a resignation, the Company's
4
current management would thereafter have no control over the conduct of the
Company's business.
It is anticipated that business opportunities will come to the Company's
attention from various sources, including its officers and directors, its other
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. The Company has no
plan, understandings, agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company.
The Company does not foresee that it will enter into a merger or acquisition
transaction with any business with which its officers or directors are currently
affiliated. Should the Company determine in the future, contrary to the forgoing
expectations, that a transaction with an affiliate would be in the best
interests of the Company and its stockholders, the Company is, in general,
permitted by Colorado law to enter into a transaction if: The material facts as
to the relationship or interest of the affiliate and as to the contract or
transaction are disclosed or are known to the Board of Directors, and the Board
in good faith authorizes, approves or ratifies the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or the material facts
as to the relationship or interest of the affiliate and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically authorized, approved or
ratified in good faith by vote of the stockholders; or the contract or
transaction is fair as to the Company as of the time it is authorized, approved
or ratified, by the Board of Directors or the stockholders.
INVESTIGATION AND SELECTION OF BUSINESS OPPORTUNITIES
To a large extent, a decision to participate in a specific business opportunity
may be made upon management's analysis of the quality of the other Company's
management and personnel, the anticipated acceptability of new products or
marketing concepts, the merit of technological changes, the perceived benefit
the business opportunity will derive from becoming a publicly held entity, and
numerous other factors which are difficult, if not impossible, to analyze
through the application of any objective criteria. In many instances, it is
anticipated that the historical operations of a specific business opportunity
may not necessarily be indicative of the potential for the future because of a
variety of factors, including, but not limited to, the possible need to expand
substantially, shift marketing approaches, change product emphasis, change or
substantially augment management, raise capital and the like.
It is anticipated that the Company will not be able to diversify, but will
essentially be limited to the acquisition of one business opportunity because of
the Company's limited financing. This lack of diversification will not permit
the Company to offset potential losses from one business opportunity against
profits from another, and should be considered an adverse factor affecting any
decision to purchase the Company's securities.
Certain types of business acquisition transactions may be completed without any
requirement that the Company first submit the transaction to the stockholders
for their approval. In the event the proposed transaction is structured in such
a fashion that stockholder approval is not required, holders of the Company's
securities (other than principal stockholders holding a controlling interest)
should not anticipate that they will be provided with financial statements or
any other documentation prior to the completion of the transaction. Other types
of transactions require prior approval of the stockholders.
In the event a proposed business combination or business acquisition transaction
is structured in such a fashion that prior stockholder approval is necessary,
the Company will be required to prepare a Proxy or Information Statement
describing the proposed transaction, file it with the Securities and Exchange
Commission for review and approval, and mail a copy of it to all Company
stockholders prior to holding a stockholders meeting for purposes of voting on
the proposal. Minority shareholders that do not vote in favor of a proposed
transaction will then have the right, in the event the transaction is approved
by the required number of stockholders, to exercise statutory dissenter's rights
and elect to be paid the fair value of their shares.
5
The analysis of business opportunities will be undertaken by or under the
supervision of the Company's officers and directors, none of whom are
professional business analysts (See Management). Although there are no current
plans to do so, Company management might hire an outside consultant to assist in
the investigation and selection of business opportunities, and might pay a
finder's fee. Since Company management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of business
opportunities, no policies have been adopted regarding use of such consultants
or advisors, the criteria to be used in selecting such consultants or advisors,
the services to be provided, the term of service, or the total amount of fees
that may be paid. However, because of the limited resources of the Company, it
is likely that any such fee the Company agrees to pay would be paid in stock and
not in cash.
Otherwise, in analyzing potential business opportunities, Company management
anticipates that it will consider, among other things, the following factors:
* Potential for growth and profitability indicated by new technology,
anticipated market expansion, or new products;
* The Company's perception of how any particular business opportunity
will be received by the investment community and by the Company's
stockholders;
* Whether, following the business combination, the financial condition
of the business opportunity would be, or would have a significant
prospect in the foreseeable future of becoming, sufficient to enable
the securities of the Company to qualify for listing on an exchange or
on a national automated securities quotation system, such as NASDAQ,
so as to permit the trading of such securities to be exempt from the
requirements of Rule 15g-9 adopted by the Securities and Exchange
Commission (See Risk Factors The Company Regulations of Penny Stocks).
* Capital requirements and anticipated availability of required funds,
to be provided by the Company or from operations, through the sale of
additional securities, through joint ventures or similar arrangements,
or from other sources;
* The extent to which the business opportunity can be advanced;
* Competitive position as compared to other companies of similar size
and experience within the industry segment as well as within the
industry as a whole;
* Strength and diversity of existing management or management prospects
that are scheduled for recruitment; o The cost of participation by the
Company as compared to the perceived tangible and intangible values
and potential; and
* The accessibility of required management expertise, personnel, raw
materials, services, professional assistance, and other required
items.
In regard to the possibility that the shares of the Company would qualify for
listing on NASDAQ, the current standards for initial listing include, among
other requirements, that the Company (1) have net tangible assets of at least
$4.0 million, or a market capitalization of $50.0 million, or net income of not
less that $0.75 million in its latest fiscal year or in two of the last three
fiscal years; (2) have a public float (i.e., shares that are not held by any
officer, director or 10% stockholder) of at least 1.0 million shares; (3) have a
minimum bid price of at least $4.00; (4) have at least 300 round lot
stockholders (i.e., stockholders who own not less than 100 shares); and (5) have
an operating history of at least one year or have a market capitalization of at
least $50.0 million. Many, and perhaps most, of the business opportunities that
might be potential candidates for a combination with the Company would not
satisfy the NASDAQ listing criteria.
Not one of the factors described above will be controlling in the selection of a
business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired. The Company is unable to predict
when it may participate in a business opportunity. It expects, however, that the
analysis of specific proposals and the selection of a business opportunity may
take several months or more.
6
Prior to making a decision to participate in a business opportunity, the Company
will generally request that it be provided with written materials regarding the
business opportunity containing as much relevant information as possible,
including, but not limited to, such items as a description of products, services
and Company history; management resumes; financial information; available
projections, with related assumptions upon which they are based; an explanation
of proprietary products and services; evidence of existing patents, trademarks,
or service marks, or rights thereto; present and proposed forms of compensation
to management; a description of transactions between such Company and its
affiliates during the relevant periods; a description of present and required
facilities; an analysis of risks and competitive conditions; a financial plan of
operation and estimated capital requirements; audited financial statements, or
if they are not available, unaudited financial statements, together with
reasonable assurance that audited financial statements would be able to be
produced within a reasonable period of time not to exceed 60 days following
completion of a merger or acquisition transaction; and the like.
As part of the Company's investigation, the Company's executive officers and
directors may meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.
It is possible that the range of business opportunities that might be available
for consideration by the Company could be limited by the impact of Securities
and Exchange Commission regulations regarding purchase and sale of penny stocks.
The regulations would affect, and possibly impair, any market that might develop
in the Company's securities until such time as they qualify for listing on
NASDAQ or on an exchange which would make them exempt from applicability of the
penny stock regulations. (See Risk Factors Regulation of Penny Stocks)
Company management believes that various types of potential merger or
acquisition candidates might find a business combination with the Company to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current stockholders,
acquisition candidates which have long-term plans for raising capital through
public sale of securities and believe that the possible prior existence of a
public market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of development
of a public market for their securities will be of assistance in that process.
Acquisition candidates, which have a need for an immediate cash infusion, are
not likely to find a potential business combination with the Company to be an
attractive alternative.
FORM OF ACQUISITION
It is impossible to predict the manner in which the Company may participate in a
business opportunity. Specific business opportunities will be reviewed as well
as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of the review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization. In addition, the present management and stockholders of the
Company most likely will not have control of a majority of the voting stock of
the Company following a merger or reorganization transaction. As part of such a
transaction, the Company's existing directors may resign and new directors may
be appointed without any vote by stockholders.
It is likely that the Company will acquire its participation in a business
opportunity through the issuance of Common Stock or other securities of the
Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called B tax free reorganization under the
Internal Revenue Code of 1986 as amended, depends upon the issuance to the
stockholders of the acquired Company of a controlling interest (i.e., 80% or
more) of the common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
7
provisions rather than other a tax free provisions provided under the Internal
Revenue Code, the Company's current stockholders would retain in the aggregate
20% or less of the total issued and outstanding shares. This could result in
substantial additional dilution in the equity of those who were stockholders of
the Company prior to such reorganization. Any such issuance of additional shares
might also be done simultaneously with a sale or transfer of shares representing
a controlling interest in the Company by the current officers, directors and
principal stockholders.
It is anticipated that any new securities issued in any reorganization would be
issued in reliance upon one or more exemptions from registration under
applicable federal and state securities laws to the extent that such exemptions
are available. In some circumstances, however, as a negotiated element of the
transaction, the Company may agree to register such securities either at the
time the transaction is consummated or under certain conditions at specified
times thereafter. The issuance of substantial additional securities and their
potential sale into any trading market that might develop in the Company's
securities may have a depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its principal
stockholders will enter into a letter of intent with the management, principals
or owners of a prospective business opportunity prior to signing a binding
agreement. Such a letter of intent will set forth the terms of the proposed
acquisition but will not bind any of the parties to consummate the transaction.
Execution of a letter of intent will by no means indicate that consummation of
an acquisition is probable. Neither the Company nor any of the other parties to
the letter of intent will be bound to consummate the acquisition unless and
until a definitive agreement is executed. Even after a definitive agreement is
executed, it is possible that the acquisition would not be consummated should
any party elect to exercise any right provided in the agreement to terminate it
on specific grounds.
It is anticipated that the investigation of specific business opportunities and
the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to participate in a specific business opportunity, the
costs incurred in the related investigation would not be recoverable. Moreover,
because many providers of goods and services require compensation at the time or
soon after the goods and services are provided, the inability of the Company to
pay until an indeterminate future time may make it impossible to produce goods
and services.
INVESTMENT COMPANY ACT AND OTHER REGULATION
The Company may participate in a business opportunity by purchasing, trading or
selling the securities of such business. The Company does not, however, intend
to engage primarily in such activities. Specifically, the Company intends to
conduct its activities so as to avoid being classified as an investment Company
under the Investment Company Act of 1940 (the Investment Act), and therefore to
avoid application of the costly and restrictive registration and other
provisions of the Investment Act, and the regulations promulgated thereunder.
The Company's plan of business may involve changes in its capital structure,
management, control and business, especially if it consummates the
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, in order to protect purchasers of investment Company securities.
Since the Company will not register as an investment Company, stockholders will
not be afforded these protections.
8
COMPETITION
The Company expects to encounter substantial competition in its efforts to
locate attractive business combination opportunities. The competition may in
part come from business development companies, venture capital partnerships and
corporations, small investment companies, brokerage firms, and the like. Some of
these types of organizations are likely to be in a better position than the
Company to obtain access to attractive business acquisition candidates either
because they have greater experience, resources and managerial capabilities than
the Company, because they are able to offer immediate access to limited amounts
of cash, or for a variety of other reasons. The Company also will experience
competition from other public companies with similar business purposes, some of
which may also have funds available for use by an acquisition candidate.
EMPLOYEES
The Company currently has no employees. Management of the Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate a
need to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressed in connection with the decision whether or not to acquire or
participate in specific business opportunities.
RISK FACTORS
The Company's business and plan of operation is subject to numerous risk
factors, including, but not limited to, the following:
LIMITED OPERATING HISTORY MAKES POTENTIAL DIFFICULT TO ASSESS
The Company has had no operating history nor any revenues or earnings from
operations since at least 2001. All efforts from our 1988 inception through 2006
were unsuccessful. The Company has no assets or financial resources. The Company
will, in all likelihood, continue to sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. These will most likely result in the Company incurring a net
operating loss which will increase continuously until the Company can consummate
a business combination with a target company. There is no assurance that the
Company can identify such a target company and consummate such a business
combination.
THERE IS NO AGREEMENT FOR A BUSINESS COMBINATION AND NO MINIMUM REQUIREMENTS FOR
A BUSINESS COMBINATION
The Company has no current arrangement, agreement or understanding with respect
to engaging in a business combination with a specific entity. There can be no
assurance that the Company will be successful in identifying and evaluating
suitable business opportunities or in concluding a business combination. No
particular industry or specific business within an industry has been selected
for a target company. The Company has not established a specific length of
operating history or a specified level of earnings, assets, net worth or other
criteria which it will require a target company to have achieved, or without
which the Company would not consider a business combination with such business
entity. Accordingly, the Company may enter into a business combination with a
business entity having no significant operating history, losses, limited or no
potential for immediate earnings, limited assets, negative net worth or other
negative characteristics. There is no assurance that the Company will be able to
negotiate a business combination on terms favorable to the Company.
NO ASSURANCE OF SUCCESS OR PROFITABILITY
There is no assurance that the Company will acquire a favorable business
opportunity. Even if the Company should become involved in a business
opportunity, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's outstanding shares will be increased
thereby.
9
TYPE OF BUSINESS ACQUIRED
The type of business to be acquired may be one that desires to avoid effecting
its own public offering an the accompanying expense, delays, uncertainties, and
federal and state requirements which purport to protect investors. Because of
the Company's limited capital, it is more likely than not that any acquisition
by the Company will involve other parties whose primary interest is the
acquisition of control of a publicly traded Company. Moreover, any business
opportunity acquired may be currently unprofitable or present other negative
factors.
LACK OF DIVERSIFICATION
Because of the limited financial resources that the Company has, it is unlikely
that the Company will be able to diversify its acquisitions or operations. The
Company's probable inability to diversify its activities into more than one area
will subject the Company to economic fluctuations within a particular business
or industry and therefore increase the risks associated with the Company's
operations.
DEPENDENCE UPON MANAGEMENT; LIMITED PARTICIPATION OF MANAGEMENT
The Company will be entirely dependant upon the experience of its officers and
directors in seeking, investigating, and acquiring a business and in making
decisions regarding the Company's operations. It is possible that, from time to
time, the inability of such persons to devote their full time attention to the
Because investors will not be able to evaluate the merits of possible future
business acquisitions by the Company, they should critically assess the
information concerning the Company's officers and directors. (See Management.)
CONFLICTS OF INTEREST
Certain conflicts of interest exist between the Company and its officers and
directors. They have other business interests to which they currently devote
attention, and are expected to continue to do so. As a result, conflicts of
interest may arise that can be resolved only through their exercise of judgment
in a manner which is consistent with their fiduciary duties to the Company. (See
Management, Conflicts of Interest.)
It is anticipated that the Company's principal shareholders may actively
negotiate or otherwise consent to the purchase of a portion of their common
stock as a condition to, or in connection with, a proposed merger or acquisition
transaction. In this process, the Company's principal shareholders may consider
their own personal pecuniary benefit rather than the best interest of other
Company shareholders. Depending upon the nature of a proposed transaction,
Company shareholders other than the principal shareholders may not be afforded
the opportunity to approve or consent to a particular transaction.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company has very limited funds, and such funds, may not be adequate to take
advantage of any available business opportunities. Even if the Company's
currently available funds prove to be sufficient to pay for its operations until
it is able to acquire an interest in, or complete a transaction with, a business
opportunity, such funds will clearly not be sufficient to enable it to exploit
the opportunity. Thus, the ultimate success of the Company will depend, in part,
upon its availability to raise additional capital. In the event that the Company
requires modest amounts of additional capital to fund its operations until it is
able to complete a business acquisition or transaction, such funds, are expected
to be provided by the principal shareholders. However, the Company has not
investigated the availability, source, or terms that might govern the
acquisition of the additional capital which is expected to be required in order
to exploit a business opportunity, and will not do so until it has determined
the level of need for such additional financing. There is no assurance that
additional capital will be available from any source or, if available, that it
can be obtained on terms acceptable to the Company. If not available, the
Company's operations will be limited to those that can be financed with its
modest capital.
10
DEPENDENCE UPON OUTSIDE ADVISORS
To supplement the business experience of its officers and directors, the Company
may be required to employ accountants, technical experts, appraisers, attorneys,
or other consultants or advisors. The selection of any such advisors will, be
made by the Company's officers, without any input by shareholders. Furthermore,
it is anticipated that such persons may be engaged on an as needed basis without
a continuing fiduciary or other obligation to the Company. In the event the
officers of the Company consider it necessary to hire outside advisors, they may
elect to hire persons who are affiliates, if those affiliates are able to
provide the required services.
REGULATION OF PENNY STOCKS
The Commission has adopted a number of rules to regulate "penny stocks." Such
rules include Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities
Exchange Act of 1934, as amended. Because the securities of the Company may
constitute "penny stocks" within the meaning of the rules (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, largely traded in the National
Association of Securities Dealers' (NASD) OTC Bulletin Board or the "Pink
Sheets", the rules would apply to the Company and to its securities. The
Commission has adopted Rule 15g-9 which established sales practice requirements
for certain low price securities. Unless the transaction is exempt, it shall be
unlawful for a broker or dealer to sell a penny stock to, or to effect the
purchase of a penny stock by, any person unless prior to the transaction: (I)
the broker or dealer has approved the person's account for transactions in penny
stock pursuant to this rule and (ii) the broker or dealer has received from the
person 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 stock, the broker or dealer must: (a) obtain
from the person information concerning the person's financial situation,
investment experience, and investment objectives; (b) reasonably determine that
transactions in penny stock are suitable for that person, and that the person
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stock; (c) deliver to the person a written statement setting forth the
basis on which the broker or dealer made the determination (I) stating in a
highlighted format that it is unlawful for the broker or dealer to affect a
transaction in penny stock unless the broker or dealer has received, prior to
the transaction, a written agreement to the transaction from the person; and
(ii) stating in a highlighted format immediately preceding the customer
signature line that (iii) the broker or dealer is required to provide the person
with the written statement; and (iv) the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience, and investment objectives;
and (d) receive from the person a manually signed and dated copy of the written
statement. It is also required that disclosure be made as to the risks of
investing in penny stock and the commissions payable to the broker-dealer, as
well as current price quotations and the remedies and rights available in cases
of fraud in penny stock transactions. Statements, on a monthly basis, must be
sent to the investor listing recent prices for the Penny Stock and information
on the limited market. Shareholders should be aware that, according to
Securities and Exchange Commission Release No. 34-29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (I) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) "boiler room" practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differential and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. The Company's management is aware of the abuses that
have occurred historically in the penny stock market. Although the Company does
not expect to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns from being
established with respect to the Company's securities.
11
THERE MAY BE A SCARCITY OF AND/OR SIGNIFICANT COMPETITION FOR BUSINESS
OPPORTUNITIES AND COMBINATIONS
The Company is and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A large
number of established and well-financed entities, including venture capital
firms, are active in mergers and acquisitions of companies which may be merger
or acquisition target candidates for the Company. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will also
compete in seeking merger or acquisition candidates with other public shell
companies, some of which may also have funds available for use by an acquisition
candidate.
REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION
Pursuant to the requirements of Section 13 of the Exchange Act, the Company is
required to provide certain information about significant acquisitions including
audited financial statements of the acquired company. These audited financial
statements must be furnished within 15 days following the effective date of a
business combination. Obtaining audited financial statements are the economic
responsibility of the target company. The additional time and costs that may be
incurred by some potential target companies to prepare such financial statements
may significantly delay or essentially preclude consummation of an otherwise
desirable acquisition by the Company. Acquisition prospects that do not have or
are unable to obtain the required audited statements may not be appropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable. Notwithstanding a target company's agreement to obtain audited
financial statements within the required time frame, such audited financials may
not be available to the Company at the time of effecting a business combination.
In cases where audited financials are unavailable, the Company will have to rely
upon unaudited information that has not been verified by outside auditors in
making its decision to engage in a transaction with the business entity. This
risk increases the prospect that a business combination with such a business
entity might prove to be an unfavorable one for the Company.
LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION
The Company has neither conducted, nor have others made available to it, market
research indicating that demand exists for the transactions contemplated by the
Company. In the event demand exists for a transaction of the type contemplated
by the Company, there is no assurance the Company will be successful in
completing any such business combination.
REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
In the event the Company engages in business combinations which result in the
Company holding passive investment interests in a number of entities, the
Company could be subject to regulation under the Investment Company Act of 1940.
In such event, the Company would be required to register as an investment
company and could be expected to incur significant registration and compliance
costs. The Company has obtained no formal determination from the Securities and
Exchange Commission as to the status of the Company under the Investment Company
Act of 1940 and, consequently, any violation of such Act could subject the
Company to material adverse consequences.
PROBABLE CHANGE IN CONTROL OF THE COMPANY AND/OR MANAGEMENT
In conjunction with completion of a business acquisition, it is anticipated that
the Company will issue an amount of the Company's authorized but unissued common
stock that represents the greater majority of the voting power and equity of the
Company, which will, in all likelihood, result in shareholders of a target
company obtaining a controlling interest in the Company. As a condition of the
business combination agreement, the current shareholder of the Company may agree
to sell or transfer all or a portion of the Company's common stock he owns so to
provide the target company with all or majority control. The resulting change in
control of the Company will likely result in removal of the present officer and
director of the Company and a corresponding reduction in or elimination of his
participation in the future affairs of the Company.
12
POSSIBLE DILUTION OF VALUE OF SHARES UPON BUSINESS COMBINATION
A business combination normally will involve the issuance of a significant
number of additional shares. Depending upon the value of the assets acquired in
such business combination, the per share value of the Company's common stock may
increase or decrease, perhaps significantly.
NO PUBLIC MARKET EXISTS
The Company's equity securities are not listed for trading on any system and
there is no significant or consistent public market for the Company's common
stock, and no assurance can be given that a market will develop or that a
shareholder will ever be able to liquidate his investment without considerable
delay, if at all. If a market should develop, the price may be highly volatile.
Factors such as those discussed in this Risk Factors section may have a
significant impact upon the market price of the securities offered hereby. Owing
to the low price of the securities, many brokerage firms may not be willing to
effect transactions in the securities. Even if a purchaser finds a broker
willing to effect a transaction in theses securities, the combination of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many leading institutions will not permit
the use of such securities as collateral for any loans.
NO FORESEEABLE DIVIDENDS
The Company has not paid dividends on its Common Stock and does not anticipate
paying such dividends in the foreseeable future.
RULE 144 SALES
Of the 27,751,500 presently issued and outstanding shares of the Company's
stock, approximately 20,278,017 shares 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 state
securities law. 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 the greater of 1.0% of a Company's outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to sale.
There is no limit on the amount of restricted securities that may be sold by a
non-affiliate after the restricted securities have been held by the owner, for a
period of at least two years. A sale under Rule 144, or under an other exemption
from the Act, if available, or pursuant to subsequent registrations of common
stock of present shareholders, may have a depressive effect upon the price of
the Common Stock in may market that may develop. As of the date hereof, the
former controlling shareholders have held 730,000 of the 27,751,500 common
shares (or approximately 2.6%) of the total issued and outstanding shares of the
common stock of the Company thereof since November 22, 2005. Accordingly, such
shares are not currently available for resale in accordance with the provisions
of Rule 144.
BLUE SKY CONSIDERATION
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 should consider the secondary
market for the Company's securities to be a limited one.
13
ADDITIONAL RISKS - DOING BUSINESS IN A FOREIGN COUNTRY
The Company may effectuate a business combination with a merger target whose
business operations or even headquarters, place of formation or primary place of
business are located outside the United States of America. In such event, the
Company may face the significant additional risks associated with doing business
in that country. In addition to the language barriers, different presentations
of financial information, different business practices, and other cultural
differences and barriers that may make it difficult to evaluate such a merger
target, ongoing business risks result from the international political
situation, uncertain legal systems and applications of law, prejudice against
foreigners, corrupt practices, uncertain economic policies and potential
political and economic instability that may be exacerbated in various foreign
countries.
TAXATION
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination that the Company may undertake.
Currently, such transactions may be structured so as to result in tax-free
treatment to both companies, pursuant to various federal and state tax
provisions. The Company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the Company and the
target entity; however, there can be no assurance that such business combination
will meet the statutory requirements of a tax-free reorganization or that the
parties will obtain the intended tax-free treatment upon a transfer of stock or
assets. A non-qualifying reorganization could result in the imposition of both
federal and state taxes, which may have an adverse effect on both parties to the
transaction.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company currently maintains a mailing address at 211 West Wall, Midland,
Texas 79701. The Company's telephone number there is (432) 682-1761. Other than
this mailing address, the Company does not currently maintain any other office
facilities, and does not anticipate the need for maintaining office facilities
at any time in the foreseeable future. The Company pays no rent or other fees
for the use of the mailing address as these offices are used virtually full-time
by other businesses of the Company's officer.
It is likely that the Company will not establish an office until it has
completed a business acquisition transaction, but it is not possible to predict
what arrangements will actually be made with respect to future office
facilities.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security Holders during the fiscal year
ended June 30, 2006.
14
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
TRANSFER AGENT
Our independent stock transfer agent is Corporate Stock Transfer, 1370 17th
Street, Suite 2350, Denver, Colorado 80202. Their phone number is (303)
282-4800.
MARKET FOR TRADING
There is no public trading market for the Company's Common stock. There has been
no reported trading of the shares of the Company in the preceding three (3)
fiscal years.
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 30,000,000
shares of $.0001 par value Common Stock. Each record holder of Common Stock is
entitled to one vote for each share held on all matters properly submitted to
the stockholders for their vote. The Company's Articles of Incorporation do not
permit for cumulative voting for the election of directors.
Holders of outstanding shares of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors out of legally
available funds; and, in the event of liquidation, dissolution or winding up of
the affairs of the Company, holders are entitled to receive, ratably, the net
assets of the Company available to stockholders after distribution is made to
the preferred stockholders, if any, who are given preferred rights upon
liquidation. Holders of outstanding shares of Common Stock have no preemptive,
conversion or redemptive rights. All of the issued and outstanding shares of
Common Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and non-assessable. To the extent that
additional shares of the Company's Common Stock are issued, the relative
interests of then existing stockholders may be diluted.
Preferred Stock
The Company's Articles of Incorporation allow for the issuance of up to
3,000,000 shares of $0.001 par value Preferred Stock.
As of the date of this filing, there are no shares of Preferred Stock issued and
outstanding.
STOCK OPTION PLAN
In February 1998, the Company adopted an incentive stock option plan whereby
both qualified and non-qualified stock options up to an aggregate of 1,000,000
shares of common stock will be made available to selected employees,
consultants, officers and directors. Options may be either incentive stock
options or non-qualified stock options, except that only employees may be
granted incentive stock options. Options vest at the discretion of the Board of
Directors. The maximum term of any granted option may be ten years. The 1998
Stock Option Plan will terminate in February 2008, though options granted prior
to termination may expire after that date. In Fiscal 2005 and 2006, there were
no grants of stock options and there were none issued and outstanding from prior
periods.
RECENT ISSUANCES OF UNREGISTERED SECURITIES
On November 22, 2005, the Company entered into an agreement to sell
approximately 18,818,017 shares of common stock to Glenn A. Little pursuant to a
Loan and Purchase Stock Agreement, for gross proceeds of $18,818.02. The Company
relied upon Section 4(2) of the Securities Act of 1933, as amended (the "Act"),
for an exemption from registration on these shares and no underwriter was used
in this transaction.
15
On November 23, 2005, the Company issued shares to various officers and
directors for services rendered. The Company relied upon Section 4(2) of the Act
for an exemption from registration on these shares and no underwriter was used
in this transaction. These recipients of these shares are as follows:
Officers/Directors
Deno Paoli - 300,000 shares
Arthur L. Stashower - 300,000 shares
Peter D. Finch - 40,000 shares
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders with an annual report for each
fiscal year ending June 30 containing financial statements audited by its
independent certified public accountants. In the event the Company enters into a
business combination with another Company, it is the present intention of
management to continue furnishing annual reports to stockholders. Additionally,
the Company may, in its sole discretion, issue unaudited quarterly or other
interim reports to its stockholders when it deems appropriate. The Company
intends to maintain compliance with the periodic reporting requirements of the
Securities Exchange Act of 1934.
DIVIDEND POLICY
No dividends have been paid to date and the Company's Board of Directors does
not anticipate paying dividends in the foreseeable future. It is the current
policy to retain all earnings, if any, to support future growth and expansion.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company had no revenue from operations for the years ended June 30, 2005 and
2006, respectively.
General and administrative expenses for the years ended June 30, 2005 and 2006
were approximately $144 and $986, respectively. Earnings per share for the
respective years ended June 30, 2005 and 2006 was $(0.00) and $(0.00) based on
the weighted-average shares issued and outstanding at the end of each respective
year.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under the Securities Exchange Act of 1934 unless and until
such time that the Company's operating subsidiary begins meaningful operations.
At June 30, 2005 and 2006, respectively, the Company had working capital of
approximately $(5,580) and $(65), respectively.
In October 2005, the Company signed a Loan and Purchase Stock Agreement with
Glenn A. Little (Little) in which Little agreed to purchase 18,818,017 shares of
restricted common stock for $18,818.02 and provide a working capital loan of
$88,181.98 at an interest rate of 6% per annum. The Promissory Note issued in
connection with such loan is convertible at any time prior to maturity, solely
at Little's option, into restricted and unregistered shares of the Company's
common stock at par value.
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
16
The Company's need for working capital may change dramatically as a result of
any business acquisition or combination transaction. There can be no assurance
that the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
PLAN OF BUSINESS
GENERAL
The Company intends to locate and combine with an existing, privately-held
company which is profitable or, in management's view, has growth potential,
irrespective of the industry in which it is engaged. However, the Company does
not intend to combine with a private company which may be deemed to be an
investment company subject to the Investment Company Act of 1940. A combination
may be structured as a merger, consolidation, exchange of the Company's common
stock for stock or assets or any other form which will result in the combined
enterprise's becoming a publicly-held corporation.
Pending negotiation and consummation of a combination, the Company anticipates
that it will have, aside from carrying on its search for a combination partner,
no business activities, and, thus, will have no source of revenue. Should the
Company incur any significant liabilities prior to a combination with a private
company, it may not be able to satisfy such liabilities as are incurred.
If the Company's management pursues one or more combination opportunities beyond
the preliminary negotiations stage and those negotiations are subsequently
terminated, it is foreseeable that such efforts will exhaust the Company's
ability to continue to seek such combination opportunities before any successful
combination can be consummated. In that event, the Company's common stock will
become worthless and holders of the Company's common stock will receive a
nominal distribution, if any, upon the Company's liquidation and dissolution.
COMBINATION SUITABILITY STANDARDS
In its pursuit for a combination partner, the Company's management intends to
consider only combination candidates which are profitable or, in management's
view, have growth potential. The Company's management does not intend to pursue
any combination proposal beyond the preliminary negotiation stage with any
combination candidate which does not furnish the Company with audited financial
statements for at least its most recent fiscal year and unaudited financial
statements for interim periods subsequent to the date of such audited financial
statements, or is in a position to provide such financial statements in a timely
manner. The Company will, if necessary funds are available, engage attorneys
and/or accountants in its efforts to investigate a combination candidate and to
consummate a business combination. The Company may require payment of fees by
such combination candidate to fund the investigation of such candidate. In the
event such a combination candidate is engaged in a high technology business, the
Company may also obtain reports from independent organizations of recognized
standing covering the technology being developed and/or used by the candidate.
The Company's limited financial resources may make the acquisition of such
reports difficult or even impossible to obtain and, thus, there can be no
assurance that the Company will have sufficient funds to obtain such reports
when considering combination proposals or candidates. To the extent the Company
is unable to obtain the advice or reports from experts, the risks of any
combined enterprise's being unsuccessful will be enhanced. Furthermore, to the
knowledge of the Company's officers and directors, neither the candidate nor any
of its directors, executive officers, principal shareholders or general
partners:
1) will not have been convicted of securities fraud, mail fraud, tax
fraud, embezzlement, bribery, or a similar criminal offense involving
misappropriation or theft of funds, or be the subject of a pending
investigation or indictment involving any of those offenses;
17
2) will not have been subject to a temporary or permanent injunction or
restraining order arising from unlawful transactions in securities,
whether as issuer, underwriter, broker, dealer, or investment advisor,
may be the subject of any pending investigation or a defendant in a
pending lawsuit arising from or based upon allegations of unlawful
transactions in securities; or
3) will not have been a defendant in a civil action which resulted in a
final judgment against it or him awarding damages or rescission based
upon unlawful practices or sales of securities.
The Company's officers and directors will make these determinations by asking
pertinent questions of the management of prospective combination candidates.
Such persons will also ask pertinent questions of others who may be involved in
the combination proceedings. However, the officers and directors of the Company
will not generally take other steps to verify independently information obtained
in this manner which is favorable. Unless something comes to their attention
which puts them on notice of a possible disqualification which is being
concealed from them, such persons will rely on information received from the
management of the prospective combination candidate and from others who may be
involved in the combination proceedings.
LIQUIDITY AND CAPITAL RESOURCES
In October 2005, the Company signed a Loan and Purchase Stock Agreement with
Glenn A. Little (Little) in which Little agreed to purchase 18,818,017 shares of
restricted common stock for $18,818.02 and provide a working capital loan of
$88,181.98 at an interest rate of 6% per annum. The Promissory Note issued in
connection with such loan is convertible at any time prior to maturity, solely
at Mr. Little's option, into restricted and unregistered shares of the Company's
common stock at par value.
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company has no current plans, proposals, arrangements or understandings with
respect to the sale or issuance of additional securities prior to the location
of a merger or acquisition candidate. Accordingly, there can be no assurance
that sufficient funds will be available to the Company to allow it to cover the
expenses related to such activities. The Company does not currently contemplate
making a Regulation S offering. Regardless of whether the Company's cash assets
prove to be inadequate to meet the Company's operational needs, the Company
might seek to compensate providers of services by issuances of stock in lieu of
cash. For information as to the Company's policy in regard to payment for
consulting services, see Certain Relationships and Transactions.
ITEM 7 - INDEX TO FINANCIAL STATEMENTS
The required financial statements begin on page F-1 of this document.
18
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
RESIGNATION OF SHERB & Co., LLP
On June 6, 2006, the Management of United National Film Corporation (Company)
was notified by the staff of the U. S. Securities and Exchange Commission (SEC)
that the Company's independent auditing firm of Sherb & Co., LLP (Sherb) of New
York had provided the SEC staff with a letter noting that the client/auditor
relationship had ceased. Prior to this letter from the SEC staff, management had
engaged in conversations with representatives of Sherb regarding the
requirements of SEC Release 34-42266 related to the auditor's review of our
interim financial statements on Form 10-QSB; however, management had never been
directly notified, in any manner of written or verbal communication, that Sherb
had terminated the client/auditor relationship.
The Board of Directors became aware of and acknowledged the resignation of Sherb
on Monday, June 12, 2006.
No accountant's report on the financial statements for either of the past two
(2) years contained an adverse opinion or a disclaimer of opinion or was
qualified or modified as to uncertainty, audit scope or accounting principles,
except for a going concern opinion expressing substantial doubt about the
ability of the Company to continue as a going concern.
During the Company's two most recent fiscal years (ended June 30, 2005 and 2004)
and from July 1, 2005 to the date of this Report, there were no differences with
Sherb on any matter of accounting principles or practices, financial disclosure,
or auditing scope or procedure. There were no reportable events, as described in
Item 304(a)(1)(iv)(B) of Regulation S-B, during the Company's two most recent
fiscal years (ended June 30, 2005 and 2004) and from July 1, 2005 to the date of
this Report.
APPOINTMENT OF S. W. HATFIELD, CPA
On September 25, 2006, the Board of Directors and Management of United National
Film Corporation (Company) engaged the registered certified public accounting
firm of S. W. Hatfield, CPA as successor auditors for the Company, commencing
with the year ended June 30, 2006.
During the Company's two most recent fiscal years (ended June 30, 2005 and 2004)
and from July 1, 2005 to the date of this Report, the Company had not consulted
with S. W. Hatfield, CPA regarding either (i) the application of accounting
principles to a specified transaction, either completed or contemplated, or the
type of audit opinion that might be rendered on the Company's financial
statements, and either written or oral advice was provided to the Company that
was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; (ii) or any matter that
was the subject of a disagreement or event required to be reported under Item
304(a)(1)(iv) of the Regulation S-B and the related instructions thereto.
ITEM 8A - CONTROLS AND PROCEDURES
As of the date of this filing, an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures was carried
out under the supervision and with the participation of management, including
our Chief Executive and Financial Officer. Based upon that evaluation, our Chief
Executive and Financial Officer concluded that the Company's disclosure controls
and procedures are effective. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to the date we carried out the evaluation.
19
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officer serving the Company are as follows:
Glenn A. Little, age 53, is a graduate of The University of Florida, Gainesville
(Bachelor of Science in Business Administration) and the American Graduate
School of International Management (Master of Business Administration
International Management) and has been the principal of Little and Company
Investment Securities (LITCO), a Securities Broker/Dealer with offices in
Midland, Texas since 1979. Before founding LITCO, Mr. Little was a stockbroker
with Howard, Weil, Labouisse Friedrich in their New Orleans, Louisiana and
Midland, Texas offices and also worked for First National Bank of Commerce in
New Orleans, Louisiana.
Mr. Little was appointed an Adjudicatory Official for the State Bar of Texas and
served in that capacity from 1997 through 2003.
The director(s) and officer(s) will devote their time to the Company's affairs
on an as needed basis, which, depending on the circumstances, could amount to as
little as two hours per month, or more than forty hours per month, but more than
likely encompass less than an aggregate of five (5) hours per month. There are
no agreements or understandings for any officer or director to resign at the
request of another person, and none of the officers or directors are acting on
behalf of, or will act at the direction of, any other person.
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's By-Laws provide for the indemnification of its, 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 the
Company. The Company will also bear the expenses of such litigation for any of
its directors, officers, employees, or agents, upon such persons promise to
repay the Company therefore 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 the Company, which it may be unable
to recoup.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Glenn A. Little, the sole Officer and Director and Beneficial Owner of more than
10% of the Company's common stock was required to file an Initial Statement of
Beneficial Ownership of Securities on Form 3 at the time he acquired his
ownership in the Company's stock. He has represented to the Company that he will
complete all required filings under Section 16(a) on or before October 31, 2006.
ITEM 10 - EXECUTIVE COMPENSATION
Currently, management of the Company requires less than five (5) hours per
month. Accordingly, no officer or director has received any compensation from
the Company. Until the Company acquires additional capital, it is not
anticipated that any officer or director will receive compensation from the
Company other than reimbursement for out-of-pocket expenses incurred on behalf
of the Company. See Certain Relationships and Related Transactions.
20
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Annual Report, the number
of shares of Common Stock owned of record and beneficially by executive
officers, directors and persons who hold 5% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all executive
officers and directors as a group.
% of Class
Name and address Number of Shares Beneficially Owned
---------------- ---------------- ------------------
Glenn A Little* 18,818,017 67.8%
Deno Paoli 2,020,000 7.28%
As a Group 20,838,017 75.08%
----------
* Sole Director and Officer
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Chief
Executive Officer
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 - Chief
Financial Officer.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company paid or accrued the following fees in each of the prior two fiscal
years to it's principal accountant for the respective time periods.
Year ended Year ended
June 30, 2005 June 30, 2006
------------- -------------
1. Audit fees $10,000 $ 2,291
2. Audit-related fees -- --
3. Tax fees -- --
4. All other fees -- --
------- -------
Totals $ -- $ --
======= =======
The Company has no formal audit committee. However, as defined in Sarbanes-Oxley
Act of 2002, the entire Board of Directors is the Company's defacto audit
committee.
In discharging its oversight responsibility as to the audit process, the Board
obtained from the independent auditors a formal written statement describing all
relationships between the auditors and the Company that might bear on the
auditors' independence as required by Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees." The Board discussed with
the auditors any relationships that may impact their objectivity and
independence, including fees for non-audit services, and satisfied itself as to
the auditors' independence. The Board also discussed with management, the
internal auditors and the independent auditors the quality and adequacy of the
Company's internal controls. The Board reviewed with the independent auditors
their management letter on internal controls, if one was issued by the Company's
auditors.
The Board discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".
21
The Board reviewed the audited consolidated financial statements of the Company
as of and for the year ended June 30, 2005 and 2006, with management and the
independent auditors. Management has the sole ultimate responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for their examination of those statements.
Based on the above-mentioned review and discussions with the independent
auditors and management, the Board of Directors approved the Company's audited
consolidated financial statements and recommended that they be included in its
Annual Report on Form 10-KSB for the year ended June 30, 2006, for filing with
the Securities and Exchange Commission.
22
SIGNATURES
In accord with Section 13 or 15(d) of the Securities Act of 1933, as amended,
the Company caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
UNITED NATIONAL FILM CORPORATION
Dated: September 28, 2006 By: /s/ Glenn A Little
------------------ -------------------------------------
Glenn A Little
Chairman, Chief Executive Officer,
Chief Financial Officer and Director
In accordance with the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date as indicated.
Dated: September 28, 2006 By: /s/ Glenn A Little
------------------ -------------------------------------
Glenn A Little
Chairman, Chief Executive Officer,
Chief Financial Officer and Director
23
UNITED NATIONAL FILM CORPORATION
INDEX
Page
----
Report of Registered Independent Certified Public Accounting Firm F-2
Financial Statements
Balance Sheets as of June 30, 2006 and 2005 F-3
Statements of Operations and Comprehensive Loss
for the years ended June 30, 2006 and 2005 F-4
Statement of Changes in Stockholders' Deficit
for the years ended June 30, 2006 and 2005 F-5
Statements of Cash Flows
for the years ended June 30, 2006 and 2005 F-6
Notes to Financial Statements F-7
F-1
Letterhead of S. W. Hatfield, CPA
Report of Independent Registered Certified Public Accounting Firm
Stockholders and Board of Directors
United National Film Corporation
We have audited the accompanying balance sheets of United National Film
Corporation (a Colorado corporation) and Subsidiary (Company) as of June 30,
2006 and 2005 and the related statements of operations and comprehensive loss,
changes in stockholders' deficit and cash flows for each of the years ended June
30, 2006 and 2005, respectively. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United National Film
Corporation as of June 30, 2006 and 2005 and the results of their consolidated
operations and cash flows for each of the years ended June 30, 2006 and 2005,
respectively, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred significant
losses and has a working capital deficiency as more fully described in Notes to
Financial Statements. These issues among others raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ S. W. Hatfield, CPA
-----------------------------
S. W. HATFIELD, CPA
Dallas, Texas
September 27, 2006
F-2
UNITED NATIONAL FILM CORPORATION
Balance Sheets
June 30, 2006 and 2005
June 30, 2006 June 30, 2005
------------- -------------
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 5,580 $ 65
--------- ---------
TOTAL CURRENT ASSETS $ 5,580 $ 65
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ -- $ 23,057
Loan from stockholder 115,202 15,635
Accrued interest payable to stockholder 1,626 --
--------- ---------
TOTAL CURRENT LIABILITIES 116,828 38,692
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value
3,000,000 shares authorized
None issued and outstanding -- --
Common stock - $0.0001 par value
30,000,000 shares authorized
27,751,500 and 8,203,483 shares issued and outstanding 2,775 820
Additional paid-in capital 580,218 556,055
Accumulated deficit (693,941) (595,502)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (110,948) (38,627)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,880 $ 65
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
UNITED NATIONAL FILM CORPORATION
Statements of Operations and Comprehensive Loss
Years ended June 30, 2006 and 2005
Year ended Year ended
June 30, 2006 June 30, 2005
------------- -------------
REVENUES $ -- $ --
------------ ------------
OPERATING EXPENSES
Reorganization expenses 67,135 --
Professional fees 27,836 --
General and administrative expense 986 144
------------ ------------
TOTAL OPERATING EXPENSES 95,957 144
------------ ------------
LOSS FROM OPERATIONS (95,957) (144)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 17 --
Interest expense (2,799) (1,564)
------------ ------------
LOSS BEFORE INCOME TAXES (98,739) (1,708)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS (98,739) (1,708)
OTHER COMPREHENSIVE INCOME -- --
------------ ------------
COMPREHENSIVE LOSS $ (98,739) $ (1,708)
============ ============
Loss per weighted-average share of common stock outstanding,
computed on net loss - basic and fully diluted $ (0.01) nil
============ ============
Weighted-average number of common shares outstanding 13,836,654 8,203,483
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
UNITED NATIONAL FILM CORPORATION
Statement of Changes in Stockholders' Deficit
Years ended June 30, 2005 and 2004
Preferred Stock Common Stock Additional
------------------ ------------------ paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
------ ------ ------ ------ ------- ------- -----
BALANCES AT JULY 1, 2004 -- -- 8,203,483 $ 820 $556,055 $(593,794) $ (36,919)
Net loss for the year -- -- -- -- -- (1,708) (1,708)
BALANCES AT JUNE 30, 2005 -- -- 8,203,483 820 556,055 (595,502) (38,627)
Common stock issued for
Payment of services -- -- 730,000 73 7,227 -- 7,300
Cash -- -- 18,818,017 1,882 16,936 -- 18,818
Net loss for the year -- -- -- -- -- (98,739) (98,739)
------ ------ ---------- ------ -------- --------- ---------
BALANCES AT JUNE 30, 2006 -- $ -- 27,751,500 $2,775 $580,218 $(694,241) $(111,248)
====== ====== ========== ====== ======== ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
UNITED NATIONAL FILM CORPORATION
Statements of Cash Flows
Years ended June 30, 2006 and 2005
Year ended Year ended
June 30, 2006 June 30, 2005
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (98,739) $ (1,708)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization -- --
Expenses paid with common stock 7,300 --
Increase (Decrease) in
Accounts payable and other accrued liabilities (23,057) 1,564
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (111,870) (144)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used to repay loan to stockholder (15,635) --
Cash received on loan from stockholder 115,202 --
Cash received from sale of common stock 18,818 --
--------- ---------
Net cash provided by financing activities 118,385 --
--------- ---------
INCREASE (DECREASE) IN CASH 5,515 (144)
Cash at beginning of year 65 209
--------- ---------
CASH AT END OF YEAR $ 5,580 $ 65
========= =========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID
Interest paid for the period $ 1,173 $ --
========= =========
Income taxes paid for the period $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES $ -- $ --
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
UNITED NATIONAL FILM CORPORATION
Notes to Financial Statements
June 30 2006 and 2005
NOTE A - DESCRIPTION OF BUSINESS
United National Film Corporation (the Company) was formed under the laws of the
State of Colorado on July 19, 1988 as Riverside Capital, Inc.
In June 2001, the Company suspended all business activities and established a
business plan to locate and combine with an existing, privately-held company
which is profitable or, in management's view, has growth potential, irrespective
of the industry in which it is engaged. However, the Company does not intend to
combine with a private company which may be deemed to be an investment company
subject to the Investment Company Act of 1940. A combination may be structured
as a merger, consolidation, exchange of the Company's common stock for stock or
assets or any other form which will result in the combined enterprise's becoming
a publicly-held corporation.
During Fiscal 2006, the Company effectively dissolved or abandoned all
subsidiaries which may or may not have been active in periods prior to June
2001.
On August 22, 2006, the shareholders of the Company approved a proposal to
redomicile the Company from the State of Colorado to the State of Nevada. The
Company will effect the redomicile through a merger with a new Nevada
corporation which will be formed by the Company solely and specifically for the
purpose of effecting the redomicile of the Company. The Company anticipates that
the redomicile will be completed by October 31, 2006.
NOTE B - PREPARATION OF FINANCIAL STATEMENTS
The Company follows the accrual basis of accounting in accordance with generally
accepted accounting principles and has adopted a year-end of June 30.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
NOTE C - GOING CONCERN UNCERTAINTY
The Company has nominal cash on hand, has no operating assets and has a business
plan with inherent risk. Because of these factors, the Company's auditors have
issued an audit opinion on the Company's financial statements which includes a
statement describing our going concern status. This means, in the auditor's
opinion, substantial doubt about our ability to continue as a going concern
exists at the date of their opinion.
The Company's majority stockholder maintains the corporate status of the Company
and has provided all nominal working capital support on the Company's behalf
since the bankruptcy discharge date. Because of the Company's lack of operating
assets, its continuance is fully dependent upon the majority stockholder's
continuing support. The majority stockholder intends to continue the funding of
nominal necessary expenses to sustain the corporate entity.
F-7
UNITED NATIONAL FILM CORPORATION
Notes to Financial Statements - Continued
June 30, 2006 and 2005
NOTE C - GOING CONCERN UNCERTAINTY - CONTINUED
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis. Further, the Company faces considerable risk in it's business plan
and a potential shortfall of funding due to our inability to raise capital in
the equity securities market. If no additional operating capital is received
during the next twelve months, the Company will be forced to rely on existing
cash in the bank and additional funds loaned by management and/or significant
stockholders.
The Company's business plan is to seek an acquisition or merger with a private
operating company which offers an opportunity for growth and possible
appreciation of our stockholders' investment in the then issued and outstanding
common stock. However, there is no assurance that the Company will be able to
successfully consummate an acquisition or merger with a private operating
company or, if successful, that any acquisition or merger will result in the
appreciation of our stockholders' investment in the then outstanding common
stock.
The Company remains dependent upon additional external sources of financing;
including being dependent upon its management and/or significant stockholders to
provide sufficient working capital in excess of the Company's initial
capitalization to preserve the integrity of the corporate entity.
The Company anticipates offering future sales of equity securities. However,
there is no assurance that the Company will be able to obtain additional funding
through the sales of additional equity securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company.
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. CASH AND CASH EQUIVALENTS
The Company considers all cash on hand and in banks, certificates of
deposit and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents.
2. REORGANIZATION COSTS
The Company has adopted the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" whereby all costs incurred
with the incorporation and reorganization, post-bankruptcy, of the Company
were charged to operations as incurred.
3. INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. At June 30, 2006 and 2005, respectively, the deferred tax asset and
deferred tax liability accounts, as recorded when material to the financial
statements, are entirely the result of temporary differences. Temporary
differences generally represent differences in the recognition of assets
and liabilities for tax and financial reporting purposes, primarily
accumulated depreciation and amortization, allowance for doubtful accounts
and vacation accruals.
As of June 30, 2006 and 2005, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have no
net operating loss carryforwards available to offset financial statement or
tax return taxable income in future periods as a result of a change in
control involving 50 percentage points or more of the issued and
outstanding securities of the Company.
4. INCOME (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
F-8
UNITED NATIONAL FILM CORPORATION
Notes to Financial Statements - Continued
June 30, 2006 and 2005
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. INCOME (LOSS) PER SHARE - CONTINUED
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
At June 30, 2006 and 2005, and subsequent thereto, the Company has no
outstanding stock warrants, options or convertible securities which could
be considered as dilutive for purposes of the loss per share calculation.
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The Company does not use derivative
instruments to moderate its exposure to financial risk, if any.
NOTE F - LOANS DUE TO SHAREHOLDER
The Company's former Chief Executive Officer made aggregate advances of
approximately $15,635 to provide working capital to the Company in prior
periods. These advances bear interest at 10.0% per annum and are repayable upon
demand. In conjunction with the March 2006 change in control, these advances
were repaid in full.
On March 31, 2006, pursuant to am October 2005 Loan and Purchase Stock Agreement
with Glenn A. Little (Little), Little funded a loan to the Company in the amount
of $88,181.98 at an interest rate of 6% per annum. This note shall be
convertible at any time prior to maturity at Little's option into restricted
common stock of the Company at par value.
Additionally, the Company and it's current controlling shareholder, Glenn A.
Little, agreed that additional funds may be necessary in the future to support
the corporate entity and comply with the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended. To this end, Little has agreed to
lend the Company up to an additional $50,000 with a maturity period not to
exceed two (2) years from the initial funding date at an interest rate of 6.0%
per annum. As of June 30, 2006, Little has advanced approximately $27,020 under
this agreement.
NOTE G - COMMON STOCK TRANSACTIONS
On November 22, 2005, the Company entered into an agreement to sell
approximately 18,818,017 shares of common stock to Glenn A. Little pursuant to a
Loan and Purchase Stock Agreement, for gross proceeds of $18,818.02. The
completion of this transaction is subject to the provision of certain documents
by the Company and it's former officers/directors. All of the transaction
provisions were met and this transaction closed on March 31, 2006. The Company
relied upon Section 4(2) for an exemption from registration on these shares and
no underwriter was used in this transaction.
F-9
UNITED NATIONAL FILM CORPORATION
Notes to Financial Statements - Continued
June 30, 2006 and 2005
NOTE G - COMMON STOCK TRANSACTIONS - CONTINUED
On November 23, 2005, the Company issued an aggregate 730,000 shares, valued at
approximately $7,300, to various officers and directors for services rendered.
The Company relied upon Section 4(2) for an exemption from registration on these
shares and no underwriter was used in this transaction.
NOTE H - INCOME TAXES
The components of income tax (benefit) expense for each of the years ended June
30, 2006 and 2005, respectively, are as follows:
Year ended Year ended
June 30, 2006 June 30, 2005
------------- -------------
Federal:
Current $ -- $ --
Deferred -- --
------- -------
-- --
------- -------
State:
Current -- --
Deferred -- --
------- -------
-- --
------- -------
Total $ -- $ --
======= =======
Due to a change in control on March 31, 2006, the Company has a net operating
loss carryforward of approximately $90,000 to offset future Federal and State
income taxes. The amount and availability of any net operating loss
carryforwards will be subject to the limitations set forth in the Internal
Revenue Code. Such factors as the number of shares ultimately issued within a
three year look-back period; whether there is a deemed more than 50 percent
change in control; the applicable long-term tax exempt bond rate; continuity of
historical business; and subsequent income of the Company all enter into the
annual computation of allowable annual utilization of any net operating loss
carryforward(s).
The Company's income tax expense for each of the years ended June 30, 2006 and
2005, respectively, are as follows:
Year ended Year ended
June 30, 2006 June 30, 2005
------------- -------------
Statutory rate applied to income before income taxes $(33,600) $ (600)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other, including reserve for
deferred tax asset and application
of net operating loss carryforward 33,600 600
-------- --------
Income tax expense $ -- $ --
======== ========
The Company's only temporary differences as of June 30, 2006 and 2005,
respectively, relate to the Company's net operating loss carryforward.
Accordingly, any deferred tax asset, as fully reserved, or liability, if any, as
of June 30, 2006 and 2005, respectively, is not material to the accompanying
financial statements.
(Remainder of this page left blank intentionally)
F-10