-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qj7ZbBDweVhJ1HFPjEXEdrr7qbgOmN1gdzXGXO2CXc3oMBZR/N3H6EVerXTqtbM2 vdmK4CrovTJN1HCT4ELe5g== 0001002334-99-000129.txt : 19990802 0001002334-99-000129.hdr.sgml : 19990802 ACCESSION NUMBER: 0001002334-99-000129 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARADAY FINANCIAL INC CENTRAL INDEX KEY: 0000910639 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 330565710 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-22236 FILM NUMBER: 99674091 BUSINESS ADDRESS: STREET 1: 24901 DANA POINT HARBOR DR STREET 2: SUITE 200 CITY: DANA POINT STATE: CA ZIP: 92629 BUSINESS PHONE: 7144892400 MAIL ADDRESS: STREET 1: 24901 DANA POINT HARBOR DR STREET 2: STE 200 CITY: DANA POINT STATE: CA ZIP: 92629 10KSB 1 MAR 96- 10KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended March 31, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to Commission file number 0-22236 FARADAY FINANCIAL, INC. (Exact name of small business issuer in its charter) DELAWARE 33-0565710 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1500 Quail Street, Suite 550 Newport Beach, California 92660 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 660-1500 ------------------- Securities registered pursuant to Section 12(b) of the Act: None ---------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant 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 is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ X ] State issuer's revenues for its most recent fiscal year: None The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1996 was not determinable since the Common Stock was not traded. The number of shares outstanding of the issuer's classes of Common Stock as of March 31, 1996: Common Stock, $.001 Par Value - 424,600 shares DOCUMENTS INCORPORATED BY REFERENCE: NONE PART I Item 1. DESCRIPTION OF BUSINESS Background Faraday Financial, Inc.,a Delaware corporation (the "Company") was incorporated on June 11, 1992. The Company has no operating history other than organizational matters, and was formed specifically to be a "clean public shell" and for the purpose of either merging with or acquiring an operating company with operating history and assets. The Securities and Exchange Commission has defined and designated these types of companies as "blind pools" and "blank check" companies. The primary activity of the Company will involve seeking merger or acquisition candidates with whom it can either merge or acquire. The Company has not selected any company for acquisition or merger and does not intend to limit potential acquisition candidates to any particular field or industry, but does retain the right to limit acquisition or merger candidates, if it so chooses, to a particular field or industry. The Company's plans are in the conceptual stage only. The executive offices of the Company are located at 1500 Quail Street, Suite 550, Newport Beach, California 92660. Its telephone number is (714) 660-1500. Plan of Operation - General The Company was organized for the purpose of creating a corporate vehicle to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation. At this time,the Company has no plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company, and the Company has not identified any specific business or company for investigation and evaluation. No member of Management or promotor of the Company has had any material discussions with any other company with respect to any acquisition of that company. Although the Company's Common Stock is currently not freely tradeable, it will eventually become so under exemptions such as Rule 144 promulgated under the Securities Act of 1933. See "Description of Securities." The Company will not restrict its search to any specific business, industry or geographical location, and the Company may participate in a business venture of virtually any kind or nature. The discussion of the proposed business under this caption and throughout this Registration Statement is purposefully general and is not meant to be restrictive of the Company's virtually unlimited discretion to search for and enter into potential business opportunities. The Company intends to obtain funds in one or more private placements to finance the operation of any acquired business. Persons purchasing securities in these placements and other shareholders will likely not have the opportunity to participate in the decision relating to any acquisition. The Company's proposed business is sometimes referred to as a "blind pool" because any investors will entrust their investment monies to the Company's management before they have a chance to analyze any ultimate use to which their money may be put. Consequently, the Company's potential success is heavily dependent on the Company's management, which will have virtually unlimited discretion in searching for and entering into a business opportunity. None of the officers and directors of the Company has had any experience in the proposed business of the Company. There can be no assurance that the Company will be able to raise any funds in private placements. In any private placement, management may purchase shares on the same terms as offered in the private placement. (See "Risk Factors" and "Management"). Management anticipates that it will only participate in one potential business venture. This lack of diversification should be considered a substantial risk in investing in the Company because it will not permit the Company to offset potential losses from one venture against gains from another (see "Risk Factors"). 2 The Company may seek a business opportunity with a firm which only recently commenced operations, or a developing company in need of additional funds for expansion into new products or markets, or seeking to develop a new product or service, or an established business which may be experiencing financial or operating difficulties and is in the need for additional capital which is perceived to be easier to raise by a public company. In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock. The Company may purchase assets and establish wholly owned subsidiaries in various business or purchase existing businesses as subsidiaries. The Company anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking the benefits of a publicly traded corporation. Such perceived benefits of a publicly traded corporation may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all shareholders, and other factors. 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. As is customary in the industry, the Company may pay a finder's fee for locating an acquisition prospect. If any such fee is paid, it will be approved by the Company's Board of Directors and will be in accordance with the industry standards. Such fees are customarily between 1% and 5% of the size of the transaction, based upon a sliding scale of the amount involved. Such fees are typically in the range of 5% on a $1,000,000 transaction ratably down to 1% in a $4,000,000 transaction. Management has adopted a policy that such a finder's fee or real estate brokerage fee could, in certain circumstances, be paid to any employee, officer, director or 5% shareholder of the Company, if such person plays a material role in bringing a transaction to the Company. As part of any transaction, the acquired company may require that Management or other stockholders of the Company sell all or a portion of their shares to the acquired company, or to the principals of the acquired company. It is anticipated that the sales price of such shares will be lower than the current market price or anticipated market price of the Company's Common Stock. The Company's funds are not expected to be used for purposes of any stock purchase from insiders. The Company shareholders will not be provided the opportunity to approve or consent to such sale. The opportunity to sell all or a portion of their shares in connection with an acquisition may influence management's decision to enter into a specific transaction. However, management believes that since the anticipated sales price will be less than market value, that the potential of a stock sale by management will be a material factor on their decision to enter a specific transaction. The above description of potential sales of management stock is not based upon any corporate bylaw, shareholder or board resolution, or contract or agreement. No other payments of cash or property are expected to be received by Management in connection with any acquisition. The Company has not formulated any policy regarding the use of consultants or outside advisors, but does not anticipate that it will use the services of such persons. The Company has, and will continue to have, insufficient capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes the Company will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant post-merger or acquisition registration costs in the event they wish to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition of a business opportunity including the costs of preparing post-effective amendments, Forms 8-K, agreements and related reports and documents nevertheless, the officers and 3 directors of the Company have not conducted market research and are not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity. The Company does not intend to make any loans to any prospective merger or acquisition candidates or to unaffiliated third parties. Sources of Opportunities The Company anticipates that business opportunities for possible acquisition will be referred by various sources, including its officers and directors, professional advisers, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. The Company will seek a potential business opportunity from all known sources, but will rely principally on personal contacts of its officers and directors as well as indirect associations between them and other business and professional people. It is not presently anticipated that the Company will engage professional firms specializing in business acquisitions or reorganizations. The officers and directors of the Company are currently employed in other positions and will devote only a portion of their time (not more than one hour per week) to the business affairs of the Company, until such time as an acquisition has been determined to be highly favorable, at which time they expect to spend full time in investigating and closing any acquisition for a period of two weeks. In addition, in the face of competing demands for their time, the officers and directors may grant priority to their full-time positions rather than to the Company. Evaluation of Opportunities The analysis of new business opportunities will be undertaken by or under the supervision of the officers and directors of the Company (see "Management"). Management intends to concentrate on identifying prospective business opportunities which may be brought to its attention through present associations with management. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operation, if any; prospects for the future; present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. Officers and directors of each Company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of their investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited financial statements cannot be obtained. It may be anticipated that any opportunity in which the Company participates will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and the Company's shareholders must, therefore, depend on the ability of management to identify and evaluate such risk. In the case of some of the opportunities available to the Company, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activities prior to the Company's participation. There is a risk, even after the Company's participation in the activity and the related expenditure of the Company's funds, that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by the Company and, therefore, its shareholders. The Company will not restrict its search for any specific kind of business, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is currently impossible to predict the status of any business in which the Company may become engaged, 4 in that such business may need additional capital, may merely desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer. Acquisition of Opportunities In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, franchise or licensing agreement with another corporation or entity. It may also purchase stock or assets of an existing business. On the consummation of a transaction, it is possible that the present management and shareholders of the Company will not be in control of the Company. In addition, a majority or all of the Company's officers and directors may, as part of the terms of the acquisition transaction, resign and be replaced by new officers and directors without a vote of the Company's shareholders. It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable Federal and state securities laws. In some circumstances, however, as a negotiated element of this transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified time thereafter. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company's Common Stock may have a depressive effect on such market. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition in a so called "tax free" reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to obtain tax free treatment under the Code, it may be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company, including investors in this offering, would retain less than 20% of the issued and outstanding shares of the surviving entity, which could result in significant dilution in the equity of such shareholders. As part of the Company's investigation, officers and directors of the Company will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check reference of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise. The manner in which each Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity, and the relative negotiating strength of the Company and such other management. With respect to any mergers or acquisitions, negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilative effect on the percentage of shares held by the Company's then shareholders, including purchasers in this offering. (See "Risk Factors.") The Company will not have sufficient funds (unless it is able to raise funds in a private placement) to undertake any significant development, marketing and manufacturing of any products which may be acquired. Accordingly, following the acquisition of any such product, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company would probably be required to give up a substantial portion of its interest in any acquired product. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired. 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 5 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 therefore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss of the Company of the related costs incurred. Management believes that the Company may be able to benefit from the use of "leverage" in the acquisition of a business opportunity. Leveraging a transaction involves the acquisition of a business through incurring significant indebtedness for a large percentage of the purchase price for that business. Through a leveraged transaction, the Company would be required to use less of its available funds for acquiring the business opportunity and, therefore, could commit those funds to the operations of the business opportunity, to acquisition of other business opportunities or to other activities. The borrowing involved in a leveraged transaction will ordinarily be secured by the assets of the business opportunity to be acquired. If the business opportunity acquired is not able to generate sufficient revenues to make payments on the debt incurred by the Company to acquire that business opportunity, the lender would be able to exercise the remedies provided by law or by contract. These leveraging techniques, while reducing the amount of funds that the Company must commit to acquiring a business opportunity, may correspondingly increase the risk of loss to the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. During periods when interest rates are relatively high, the benefits of leveraging are not as great as during periods of lower interest rates because the investment in the business opportunity held on a leveraged basis will only be profitable if it generates sufficient revenues to cover the related debt and other costs of the financing. Lenders from which the Company may obtain funds for purposes of a leveraged buy-out may impose restrictions on the future borrowing, distribution, and operating policies of the Company. It is not possible at this time to predict the restrictions, if any, which lenders may impose or the impact thereof on the Company. Competition The Company is an insignificant participant among firms which engage in business combinations with, or financing of, development stage enterprises. There are many established management and financial consulting companies and venture capital firms which have significantly greater financial and personnel resources, technical expertise and experience than the Company. In view of the Company's limited financial resources and management availability, the Company will continue to be a significant competitive disadvantage vis-a-vis the Company's competitors. Regulation and Taxation The Investment Company Act of 1940 defines an "investment company" as an issuer which is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading of securities. While the Company does not intend to engage in such activities, the Company could become subject to regulation under the Investment Company Act of 1940 in the event the Company obtains or continues to hold a minority interest in a number of development stage enterprises. The Company could be expected to incur significant registration and compliance costs if required to register under the Investment Company Act of 1940. Accordingly, management will continue to review the Company's activities from time to time with a view toward reducing the likelihood the Company could be classified as an "investment company." The Company intend to structure a merger or acquisition in such manner as to minimize Federal and state tax consequences to the Company and to any target company. Employees The Company's only employees at the present time are its officers and directors, who will devote as much time as the Board of Directors determine is necessary to carry out the affairs of the Company. (See "Management"). 6 Item 2. DESCRIPTION OF PROPERTY The Company rents an executive suite on an as needed basis. The Company pays its own charges for long distance telephone calls and other miscellaneous secretarial, photocopying and similar expenses. Item 3. LEGAL PROCEEDINGS Not Applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 1996. 7 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has not traded. As of March 31, 1996, there were approximately 110 stockholders of record. Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Company has been recently formed and has not engaged in any operations other than organizational matters. Its operating deficit is being funded by an officer and director. Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company required to be included in Item 7 are set forth in the Financial Statements Index. Its operating deficit is being funded by an officer and director. Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 8 PART III Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Directors and Executive Officers The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Information as to the directors and executive officers of the Company is as follows. The officer and director holds similar positions in a number of other "blind pool-blank check" companies. See "Conflicts of Interest." Jehu Hand has been President, Secretary and Chief financial Officer since April 1, 1994. Mr. Hand has been engaged in corporate and securities law practice and has been a partner of the law firm of Hand & Hand since 1992. From January 1992 to December 1992 he was the Vice President-Corporate Counsel and Secretary of Laser Medical Technology, Inc., which designs, manufactures and markets dental lasers and endodontics equipment. He was a director of Laser Medical from February 1992 to February 1993. From January to October, 1992 Mr. Hand was Of Counsel to the Law Firm of Lewis, D'Amato, Brisbois & Bisgaard. From January 1991 to January 1992 he was a shareholder of McKittrick, Jackson, DeMarco & Peckenpaugh, a law corporation. From January to December 1990 he was a partner of Day, Campbell & Hand, and was an associate of its predecessor law firm from July 1986 to December 1989. From 1984 to June 1986 Mr. Hand was an associate attorney with Schwartz, Kelm, Warren & Rubenstein in Columbus, Ohio. Jehu Hand received a J.D. from New York University School of Law and a B.A. from Brigham Young University. Conflicts of Interest Certain conflicts of interest now exist and will continue to exist between the Company and its officers and directors due to the fact that each has other business interests to which he devotes his primary attention. Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company. Certain conflicts of interest may exist between the Company and its management, and conflicts may develop in the future. The Company has not established policies or procedures for the resolution of current or potential conflicts of interests between the Company, its officers and directors or affiliated entities. There can be no assurance that management will resolve all conflicts of interest in favor of the Company, and failure by management to conduct the Company's business in the Company's best interest may result in liability to the management. The officers and directors are accountable to the Company as fiduciaries, which means that they are required to exercise good faith and integrity in handling the Company's affairs. Shareholders who believe that the Company has been harmed by failure of an officer or director to appropriately resolve any conflict of interest may, subject to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce their rights and the Company's rights. The Company has no arrangement, understanding or intention to enter into any transaction for participating in any business opportunity with any officer, director, or principal shareholder or with any firm or business organization with which such persons are affiliated, whether by reason of stock ownership, position as an officer or director, or otherwise. The Company, by resolution of its Board of Directors and stockholders, adopted a 1992 Stock Option Plan (the "Plan")on June 11, 1992.The Plan enables the Company to offer an incentive based compensation system to employees, officers and directors and to employees of companies who do business with the Company. In the discretion of a committee comprised of non-employee directors (the "Committee"), directors, officers, and key employees of the Company and its subsidiaries or employees of companies with which the 9 Company does business become participants in the Plan upon receiving grants in the form of stock options or restricted stock. A total of 2,000,000 shares are authorized for issuance under the Plan, of which 20,000 shares are issuable under options granted to an officer and director at $.50 per share, exercisable until May 4, 1997. The Company does not intend to grant additional options until such time as a merger or acquisition has been consummated. The Company may increase the number of shares authorized for issuance under the Plan or may make other material modifications to the Plan without shareholder approval. However, no amendment may change the existing rights of any option holder. Any shares which are subject to an award but are not used because the terms and conditions of the award are not met, or any shares which are used by participants to pay all or part of the purchase price of any option may again be used for awards under the Plan. However, shares with respect to which a stock appreciation right has been exercised may not again be made subject to an award. Stock options may be granted as non-qualified stock options or incentive stock options, but incentive stock options may not be granted at a price less than 100% of the fair market value of the stock as of the date of grant (110% as to any 10% shareholder at the time of grant); non-qualified stock options may not be granted at a price less than 85% of fair market value of the stock as of the date of grant. Restricted stock may not be granted under the Plan in connection with incentive stock options. Stock options may be exercised during a period of time fixed by the Committee except that no stock option may be exercised more than ten years after the date of grant or three years after death or disability, whichever is later. In the discretion of the Committee, payment of the purchase price for the shares of stock acquired through the exercise of a stock option may be made in cash, shares of the Company's Common Stock or by delivery or recourse promissory notes or a combination of notes, cash and shares of the Company's common stock or a combination thereof. Incentive stock options may only be issued to directors, officers and employees of the Company. Stock options may be granted under the Plan may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option grant contains the AO feature and if a participant pays all or part of the purchase price of the option with shares of the Company's common stock, then upon exercise of the option the participant is granted an AO to purchase, at the fair market value as of the date of the AO grant, the number of shares of common stock the Company equal to the sum of the number of whole shares used by the participant in payment of the purchase price and the number of whole shares, if any, withheld by the Company as payment for withholding taxes. An AO may be exercised between the date of grant and the date of expiration, which will be the same as the date of expiration of the option to which the AO is related. Stock appreciation rights and/or restricted stock may be granted in conjunction with, or may be unrelated to stock options. A stock appreciation right entitles a participant to receive a payment, in cash or common stock or a combination thereof, in an amount equal to the excess of the fair market value of the stock at the time of exercise over the fair market value as of the date of grant. Stock appreciation rights may be exercised during a period of time fixed by the Committee not to exceed ten years after the date of grant or three years after death or disability, whichever is later. Restricted stock requires the recipient to continue in service as an officer, director, employee or consultant for a fixed period of time for ownership of the shares to vest. If restricted shares or stock appreciation rights are issued in tandem with options, the restricted stock or stock appreciation right is canceled upon exercise of the option and the option will likewise terminate upon vesting of the restricted shares. 10 Item 10. EXECUTIVE COMPENSATION No compensation is paid or anticipated to be paid by the Company until an acquisition is made. On acquisition of a business opportunity, current management may resign and be replaced by persons associated with the business opportunity acquired, particularly if the Company participates in a business opportunity by effecting a reorganization, merger or consolidation. If any member of current management remains after effecting a business opportunity acquisition, that member's time commitment will likely be adjusted based on the nature and method of the acquisition and location of the business which cannot be predicted. Compensation of management will be determined by the new board of directors, and shareholders of the Company will not have the opportunity to vote on or approve such compensation. Directors currently receive no compensation for their duties as directors. Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information relating to the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company capital stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as a group, as of March 31, 1996.
Percentage Name of Number of of Outstanding Stockholder Shares Owned Common Stock Jehu Hand (1)(2) 665,400 66.5% Elizabeth Rodelli 90,000 21.2% 2249 Via Salvador San Clemente, CA 92672 All officers and directors as a group (1 person) (1) 665,400 66.5%
(1) Includes 20,000 shares issuable upon exercise of stock options held by Mr. Hand, and 575,400 shares of common stock issuable upon conversion of a promissory note. (2) The address of such person is care of the Company. 11 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with organizing the Company, persons consisting of its officers, directors, and other individuals paid an aggregate of $500 in cash to purchase a total of 400,000 shares of Common Stock at an average sales price of $.00125 per share. In April 1993 Messrs. Hand and Anderson also contributed $500.00 to the Company as a contribution to capital. Under Rule 405 promulgated under the Securities Act of 1933, Messrs. Hand and Anderson may be deemed to be promoters of the Company. No other persons are known to Management which would be deemed to be promoters. An officer of the Corporation has advanced certain expenses on behalf of the Company. As of March 31, 1995 and 1996 such expenses totalled $1,216 and $1,326. On April 1, 1995 the Company gave the officer a demand promissory note convertible into 575,400 shares of common stock at the officer's option. 12 PART IV Item 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits of the Company are included herein. Exhibit No. Document Description 3. Certificate of Incorporation and Bylaws 3.1. Articles of Incorporation(1) 3.2 Bylaws(1) 3.3 Certificate of Designation for Series A Non-Convertible Preferred Stock(2) 10. Material Contracts 10.1. 1992 Stock Option Plan(1) 10.2 Stock Option Agreement with Jehu Hand(1) 10.3 Demand Convertible Promissory Note from Jehu Hand(2) (1) Incorporated by reference to such exhibit as filed with the Company's registration statement on Form 10- SB, File No. 0-22236. (2) Filed herewith. (b) Reports on Form 8-K. Not Applicable. 13
FARADAY FINANCIAL, INC. (A Development Stage Company) Statements of Financial Position ASSETS March 31, March 31, 1996 1995 CURRENT ASSETS - CASH $ $ OTHER ASSETS Organization costs, net of accumulated amortization of $215 and $161 (Note 1) 56 110 TOTAL ASSETS $ 56 $ 110 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES - Accounts payable $ 1,326 $ 1,216 STOCKHOLDERS' EQUITY Preferred Stock, $.001 par value; 1,000,000 shares authorized, including one share of Series A Preferred Stock; no shares issued and outstanding Common Stock, $.001 par value; 20,000,000 shares authorized; 424,600 shares issued and outstanding 425 425 Additional paid-in Capital 821 821 Accumulated deficit during the development stage (2,516) (2,352) TOTAL STOCKHOLDERS' EQUITY (1,270) (1,106) TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 56 $ 110
The accompanying notes are an integral part of the financial statements. 14
FARADAY FINANCIAL, INC. (A Development Stage Company) Statements of Operations CUMULATIVE FROM FOR THE INCEPTION YEAR ENDED (June 11, 1992) TO TO March 31, 1996 March 31, 1995 March 31, 1996 REVENUES $ $ $ OPERATING EXPENSES General and Administrative 110 268 2,301 Amortization 54 57 215 TOTAL OPERATING EXPENSES 164 1,225 2,516 NET (LOSS) $ (224) $ (1,225) $ (2,516) NET (LOSS) PER SHARE $ (Nil) $ (Nil) $ .01 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 424,600 424,600 417,311
The accompanying notes are an integral part of the financial statements. 15
FARADAY FINANCIAL, INC. Statement of Changes in Stockholders' (A Development Stage Company) Equity From Inception (June 11, 1992) Through March 31, 1996 Accumulated Deficit Common Stock Additional During the Paid-In Development Shares Amount Capital Stage Total Issuance of common stock for cash 400,000 $ 400 $ 100 $ $ 500 Net (loss) (270) (270) Balances at March 31, 1993 400,000 400 100 (270) 230 Net (loss) (857) (857) Contribution to capital 500 500 Sale of shares in private placement 24,600 25 221 246 on September 30, 1993 Balances at March 31, 1994 424,600 $ 425 $ 821 $ (1,127) $ 119 Net (loss) (unaudited) (1,225) (1,225) Balances at March 31, 1995 (unaudited) 424,600 $ 425 $ 821 $ (2,352) $ (1,106) Net (loss) (unaudited) (164) (164) Balances at March 31, 1996 (unaudited) 424,600 $ 425 $ 825 $ (2,516) $ (1,270)
The accompanying notes are an integral part of these financial statements. 16
FARADAY FINANCIAL, INC. (A Development Stage Company) Statements of Cash Flows CUMULATIVE FOR THE FOR THE FROM INCEPTION YEAR YEAR (June 11, 1992) ENDED ENDED TO March 31, 1996 March 31, 1995 March 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) $ (164) $ (1,225) $ (2,516) Add item not requiring the use of cash - amortization 54 57 215 Increase (decrease) in accounts payable 110 1,168 1,326 Net cash flows from operating activities (975) CASH FLOWS FROM INVESTING ACTIVITIES Organization Costs (271) CASH FLOWS FROM FINANCING ACTIVITIES Contribution to Capital 500 Sale of common stock 746 Net Cash flows from financing activities 1,246 NET INCREASE IN CASH CASH BALANCE AT BEGINNING OF PERIOD CASH BALANCE AT END OF PERIOD $ $ $
The accompanying notes are an integral part of the financial statements. 17 FARADAY FINANCIAL, INC. (A Development Stage Company) Notes to Financial Statements NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Company was incorporated under the laws of the State of Delaware on June 11, 1992, for the purpose of seeking out business opportunities, including acquisitions. The Company is in the development stage and will be very dependent on the skills, talents, and abilities of management to successfully implement its business plan. Due to the Company's lack of capital, it is likely that the Company will not be able to compete with larger and more experienced entities for business opportunities which are lower risk and are more attractive for such entities. Business opportunities in which the Company may participate will likely be highly risky and speculative. Since inception, the Company's activities have been limited to organizational matters. Organizational costs are amortized on a straight-line basis over five years. The financial statements as of and for the years ended March 31, 1996 and 1995 are unaudited, pursuant to the exemption provided by Rule 3-11 of Regulation S-X. NOTE 2 CASH AND CASH EQUIVALENTS The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. NOTE 3 RELATED PARTY TRANSACTIONS The officer and director of the Company currently serves without compensation. An officer of the Corporation has advanced certain expenses on behalf of the Company. As of March 31, 1995 and 1996 such expenses totalled $1,216 and $1,326. The Company has given the officer a demand promissory note convertible into 575,400 shares of common stock at the officer's option, which is included in accounts payable, representing this obligation. NOTE 4 INCOME TAXES The fiscal year end of the Company is March 31st and an income tax return has not been filed. However, if an income tax return had been filed, the Company would have a net operating loss carryforward of $1,326 that would begin expiring in the year 2008. NOTE 5 STOCK OPTION PLAN The Company has stock option plans for directors, officers, employees, advisors, and employees of companies that do business with the Company, which provide for non-qualified and qualified stock options. The Stock Option Committee of the Board determines the option price which cannot be less than the fair market value at the date of the grant of 110% of the fair market value if the Optionee holds 10% or more of the Company's common stock. The price per share of share subject to a Non-Qualified Option shall not be less than 85% of the fair market value at the date of the grant. Options generally expire either three months after termination of employment, or ten years after date of grant (five years if the optionee holds 10% or more of the Company's common stock at the time of grant). 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized April 10, 1996. FARADAY FINANCIAL, INC. By: /s/ Jehu Hand Jehu Hand President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on April 10, 1996. By: /s/ Jehu Hand President, Secretary, Chief Financial Officer and Director Jehu Hand 19 EX-3.(I) 2 3.3 SERIES A DESIGNATION CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF FARADAY FINANCIAL, INC. (Pursuant to Section 242 of the Delaware General Corporation Law) The undersigned, Eric W. Anderson and Jack A. Thomsen, being respectively the President and Secretary of Faraday Financial, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: 1. The Certificate of Incorporation of the Corporation is hereby amended pursuant to Section 242(a)(3) of the General Corporation Law of the State of Delaware by amending Article FOURTH in its entirety, to read as follows: FOURTH: The total number of shares of all classes which the Corporation is authorized to have outstanding is Twenty One Million (21,000,000) shares of which stock Twenty Million (20,000,000) shares in the par value of $.001 each, amounting in the aggregate of Twenty Thousand Dollars ($20,000) shall be common stock and of which One Million (1,000,000) shares in the par value of $.001 each, amounting in the aggregate to One Thousand Dollars ($1,000) shall be preferred stock. The board of directors is authorized to effect any forward or reverse stock split without the approval of stockholders. The rights of preferred stock shall be as follows: (1) Series A Non-Convertible Preferred Stock. There is hereby authorized a series of preferred stock to be designated Series A Non-Convertible Preferred Stock, having the following rights, powers, preferences, qualifications, limitations and restrictions. (a) Number. The number of shares constituting the Series A Non- Convertible Preferred Stock shall be One (1) Share. (b) Dividend Rights. The holders of Series A Non-Convertible Preferred Stock shall not be entitled to receive any dividends. (c) Redemption. The Series A Non-Convertible Preferred Stock may not be redeemed. (d) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of Series A Non-Convertible Preferred Stock shall be entitled to receive from the assets of the Corporation $1.00 per share, all of which shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to, the holders of common stock in connection with such liquidation, dissolution, or winding up. Each share of Series A Non-Convertible Preferred Stock shall rank on a parity with each other share of Series Non-Convertible Preferred Stock, with respect to the respective preferential amounts fixed for such series payable upon any distribution of assets by way of liquidation, dissolution, or winding up of the Corporation. After the payment or the setting apart of payment to the holders of Series Non-Convertible Preferred Stock of the preferential amount so payable to them, the holders of common stock shall be entitled to receive, ratably, all remaining assets of the Corporation. (e) Voting Rights. The holders of Series A Non-Convertible Preferred Stock shall vote as a class with the holders of common stock on any matter submitted to the holders of common stock. Holders of the Series A NonConvertible Preferred Stock shall be entitled to two million (2,000,000) votes per share (the "Voting Rights"). (A) Stock Splits and Combinations. If the Corporation shall at any ----------------------------- time subdivide the outstanding shares of common stock without an equivalent subdivision of the Series A Non-Convertible Preferred Stock, the Voting Rights then in effect immediately before that subdivision shall be proportionately increased, and, if the Corporation shall at any time combine the outstanding shares of common stock without an equivalent combination of the Series A Non-Convertible Preferred Stock, the Voting Rights then in effect immediately before that combination shall be proportionately decreased. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective. A dividend on any security of the Corporation payable in common stock of the Corporation shall be considered a subdivision of common stock for purposes of this subsection (e)(A) at the close of business on the record date for the determination of holders of any security entitled to receive such dividend. (B) Reclassification, Exchange and Substitution. If the common stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the 2 Voting Rights of the holders of the Series A Non-Convertible Preferred Stock shall be deemed to apply with respect to such class of stock; provided, however, that the number of Voting Rights shall be increased or decreased proportionately so that they bear the same percentage of voting power to the total number of shares outstanding as they did with respect to the common stock immediately prior to the capital reorganization, reclassification, or other change. (C) Reorganizations, Mergers, Consolidations or Sale of Assets. If -------------------------------------------- at any time there shall be a capital reorganization of the Corporation's common stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this subsection (e) or merger of the Corporation into another corporation, or the sale of the Corporation's properties and assets as, or substantially as, an entirety to any other person), then, as a part of such reorganization, merger or sale, lawful provision shall be made so that the holders of the Series A Non-Convertible Preferred Stock shall thereafter be entitled to receive a number of Voting Rights in proportion to the percentage of voting power held with respect to the common stock immediately prior to the capital reorganization or merger or sale of assets. (f) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, merger, dissolution, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provision of this subsection (1) and in the taking of all such action as may be necessary or appropriate in order to protect the Voting Rights and other rights of the holders of the Series A Non-Convertible Preferred Stock against impairment. (g) Conversion Rights. The Series A Non-Convertible Preferred Stock shall not be convertible into common stock or any other class of shares of the Corporation. (2) Other Series of Preferred Stock. The board of directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the remaining authorized shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the board with respect to each series shall include, but not be limited to, determination of the following: 3 (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions, and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) Any other relative rights, preferences and limitations of that series, unless otherwise provided by the certificate of determination. 2. The foregoing Amendment to the Certificate of Incorporation was first authorized by the Board of Directors and subsequently duly adopted by the stockholders by the written consent of the stockholders holding all of the Corporation's outstanding stock entitled to vote thereon in accordance with Section 228 of the General Corporation Law of the State of Delaware. 3. In accordance with Section 228 of the General Corporation Law of the State of Delaware, notice of the authorization and adoption of this Certificate of Amendment has been promptly given to all stockholders of the Corporation who have not consented in writing to this corporate action. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of June __, 1993 and DO HEREBY CERTIFY, that the facts stated in this Certificate of Amendment are true and correct. 4 Eric W. Anderson President Jack A. Thomsen Secretary 5 EX-10 3 10.4 CONVERTIBLE NOTE CONVERTIBLE PROMISSORY NOTE $1,216 April 1, 1995 FOR VALUE RECEIVED, the undersigned Faraday Financial, Inc., a Delaware corporation ("Maker") promises to pay to the order of Jehu Hand ("Lender"), at its principal office, or at such other place as may be designated in writing by the holders of this Promissory Note ("Note"), the principal sum of ONE THOUSAND TWO HUNDRED SIXTEEN AND 00/100 DOLLARS ($1,216.00) (the "Principal Sum"). The unpaid Principal Sum shall bear interest from the date hereof until paid at a rate equal 4% per annum. The unpaid Principal Sum and all accrued but unpaid interest thereon shall all be due and payable on two years of the date of this Note. All payments to be made under this Note shall be payable in lawful money of the United States of America which shall be legal tender for public and private debts at the time of payment. In the event that an action is instituted to collect this Note, or any portion thereof, Maker promises to pay all costs of collection, including but not limited to reasonable attorneys' fees, court costs, and such other sums as the court may establish. In the event of a default under this Note when due, then the holder of this Note, at its election, may declare the entire unpaid Principal Sum and all accrued but unpaid interest thereon immediately due and payable. Lender shall have the right at any time to convert the Principal Sum and all accrued and unpaid interest thereon into 575,400 shares of common stock of the Maker ("Shares"). Every provision hereof is intended to be several. If any provision of this Note is determined, by a court of competent jurisdiction to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other provisions hereof, which shall remain binding and enforceable. This Note is made in the State of California and it is mutually agreed that California law shall apply to the interpretation of the terms and conditions of this Note. All agreements between the holder of this Note and Maker are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of deferment or acceleration of the maturity of this Note or otherwise, shall the rate of interest hereunder exceed the maximum permissible under applicable law with respect to the holder. If, from any circumstances whatsoever, the rate of interest resulting from the payment 1 and/or accrual of any amount of interest hereunder, at any time that payment of interest is due and/or at any time that interest is accrued, shall exceed the limits prescribed by such applicable law, then the payment and/or accrual of such interest shall be reduced to that resulting from the maximum rate of interest permissible under such applicable law. This provision shall never be superseded or waived. The makers, endorsers, and/or guarantors of this Note do hereby severally waive presentment, demand, protest and notices of protest, demand, dishonor and nonpayment. IN WITNESS WHEREOF, this instrument is executed as of the date first hereinabove set forth. FARADAY FINANCIAL, INC. By: Name: Its: 2 EX-27 4 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS FOR THE YEAR ENDED MARCH 31, 1996 AND AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000910639 FARADAY FINANCIAL, INC. 1 US dollars 12-MOS Mar-31-1996 Apr-01-1995 Mar-31-1996 1 0 0 0 0 0 0 0 0 0 1,326 0 0 0 1,246 (2,516) 0 0 0 0 164 0 0 0 (164) 0 (164) 0 0 0 (164) (.00) (.00)
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