As filed with the Securities and Exchange Commission on July 24, 2001
Securities Act File No. 333-_________; Exchange Act File No. 27321
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BAIL CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 1311 84-1493152
----------------------------- -------------------------- ------------
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Id No.)
11952 Farley
Shawnee Mission, KS 66213
(913) 814-8313
-----------------------------------------------------------
(Address and telephone number of principal executive offices
and principal place of business)
Charles A. Ross, Sr.
11952 Farley, Shawnee Mission, KS 66213
(913) 814-8313
-------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies of Communications to:
Roger V. Davidson
Ballard, Spahr, Andrews & Ingersoll, LLP
1225 17th Street, Suite 2300, Denver, Colorado 80202
(303) 292-2400
Approximate date of commencement of proposed sale to public: as soon
as practicable after the registration statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
------------------------ ----------------- ------------------- ---------------------- ------------
Proposed Maximum Proposed Maximum Amount of
Title of Securities to Amount to be Offering Price per Aggregate Offering Registration
Be Registered Registered(1) Share(2) Price Fee(3)
------------------------ ----------------- ------------------- ---------------------- ------------
Common stock, no par 1,440,000 shares $0.25 $360,000 $90
value
------------------------ ----------------- ------------------- ---------------------- ------------
(1) This registration statement covers an additional indeterminate number of
shares of the Registrant's common stock which may be issued in accordance
with Rule 416.
(2) Solely for purpose of computing the registration fee in accordance with
Rule 457(c), the price shown is based upon the price of $0.25 per share.
The Registrant's common stock is not currently listed or quoted on any
quotation medium. The price of the shares was determined by the Registrant
on the basis of the last sale price received by the Registrant for shares
of its common stock.
(3) Calculated under Section 6(b) of the Securities Act as $.000250 of the
aggregate offering price.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
ii
BAIL CORPORATION
CROSS REFERENCE SHEET
SB-2 S-B
Item Item Item Topic Location/ Caption in Prospectus
---- ---- ---------- -------------------------------
Part I
1 501 Front of Registration Statement and Outside Front of Registration Statement and
Front Cover Page of Prospectus Outside Front Cover Page of
Prospectus
2 502 Inside Front and Outside Back Cover Pages Inside Front Cover Page
of Prospectus
3 503 Summary Information and Risk Factors Prospectus Summary; Risk Factors
4 504 Use of Proceeds Use of Proceeds
5 505 Determination of Offering Price Plan of Distribution
6 506 Dilution not applicable
7 507 Selling Security Holders Selling Security Holders
8 508 Plan of Distribution Plan of Distribution
9 103 Legal Proceedings Legal Proceedings
10 401 Directors, Executive Officers, Management
Promoters andControl Persons
11 403 Security Ownership of Certain Beneficial Security Ownership of Certain Owners
Owners and Management and Management
12 202 Description of Securities Description of Our Stock
13 509 Interest of Named Experts and Counsel Legal Matters; Experts
14 510 Disclosure of Commission Position on Securities and Exchange Commission
Indemnification for Securities Act Position on Certain Indemnification
Liabilities
15 404 Organization Within Last Five Years Certain Transactions
16 101 Description of Business About Us and Our Current Plan of
Operation
17 303 Management's Discussion and Analysis or About Us and Our Current Plan of
Plan of Operation Operation
18 102 Description of Property About Us and Our Current Plan of
Operation
19 404 Certain Relationships and Related Certain Transactions
Transactions
20 201 Market for Common Equity and Related Market for Common Stock and
Stockholder Matters Related Shareholder Matters; Shares
Eligible for Future Sale
21 402 Executive Compensation Execution Compensation
22 310 Financial Statements Financial Statements
iii
BAIL CORPORATION
CROSS REFERENCE SHEET
SB-2 S-B
Item Item Item Topic Location/ Caption in Prospectus
---- ---- ---------- -------------------------------
23 304 Changes In and Disagreement with not applicable
Accountants on Accounting and Financial
Disclosure
Part II
24 702 Indemnification of Directors and Officers
25 511 Other Expenses of Issuance and Distribution
26 701 Recent Sales of Unregistered Securities
27 601 Exhibits
28 512 Undertakings
iv
Subject to Completion - - Dated July 24, 2001
--------------------------------------------------------
PROSPECTUS
Bail Corporation
1,440,000 Shares of Common Stock
The shares of our common stock covered by this prospectus are being
sold by the security holders listed under the heading "Selling Security
Holders." Those selling security holders previously received their shares of
common stock from us. We will not receive any of the proceeds from the sales of
the shares of common stock by the selling security holders. While presently
there is no market for our securities, our management intends to establish
trading of our common stock through the over-the-counter bulletin board, or OTC
Bulletin Board, established by the National Association of Securities Dealers,
Inc. The selling security holders may sell these shares from time to time in
over the counter market transactions, in regular brokerage transactions, in
transactions directly with market makers or in privately negotiated
transactions.
Our common stock is not currently listed or quoted on any quotation
medium.
There are certain risks involved with the ownership of our common
stock, including risks related to our new business and the market for our common
stock. (See "Risk Factors" beginning on page 4.)
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The information in this prospectus is not complete and may be changed.
The selling security holders may not sell these securities until the
registration statement filed with the SEC is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is _________, 2001
1
Table of Contents
Page
ABOUT THIS PROSPECTUS..........................................................1
INFORMATION MADE AVAILABLE TO YOU..............................................1
PROSPECTUS SUMMARY.............................................................2
RISK FACTORS...................................................................4
USE OF PROCEEDS................................................................9
ABOUT US AND OUR CURRENT PLAN OF OPERATION.....................................9
MANAGEMENT....................................................................14
EXECUTIVE COMPENSATION........................................................15
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT...........................16
SELLING SECURITY HOLDERS......................................................17
PLAN OF DISTRIBUTION..........................................................19
CERTAIN TRANSACTIONS..........................................................20
DESCRIPTION OF OUR STOCK......................................................20
SHARES ELIGIBLE FOR FUTURE SALE...............................................21
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS.......................22
LEGAL MATTERS.................................................................23
EXPERTS.......................................................................23
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN
INDEMNIFICATION..........................................................23
INDEX TO FINANCIAL STATEMENTS................................................F-1
i
ABOUT THIS PROSPECTUS
You only should rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
INFORMATION MADE AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form SB-2 that
we filed with the Securities and Exchange Commission. Certain information in the
Registration Statement has been omitted from this prospectus in accordance with
the rules of the SEC.
We file annual reports, quarterly reports and current reports, proxy
statements and other information with the SEC. Our file number is 27321. We are
required to file electronic versions of these documents with the SEC. Those
documents may be accessed through the SEC's Internet site at http://www.sec.gov.
You may read and copy materials that we have filed with the SEC,
including the Registration Statement, at the following SEC public reference
rooms:
450 Fifth Street, N.W. Northwest Atrium Center 7 World Trade Center
Room 1024 500 West Madison Street, Suite 1300
Washington, DC 20549 Suite 1400 New York, NY 10048
Chicago, IL 60661
You can call the SEC at 1-800-732-0330 for further information about the public
reference room.
1
PROSPECTUS SUMMARY
This is only a summary and does not contain all the information that
may be important to you. You should read the more detailed information contained
in this prospectus, including but not limited to, the risk factors beginning on
page 4.
About Us
We were formed as a development stage (blank check) company on April
9, 1998, with the purpose of evaluating, structuring, and completing a merger
with, or acquisition of, a privately owned company desiring the perceived
benefits offered by us as a result of our having a class of securities
registered under the Exchange Act of 1934. On or about March 3, 2001, Mr.
Charles A. Ross, Sr., currently our sole officer and director, entered into an
agreement to acquire approximately 73% of our outstanding shares in order to
acquire control of us and to change us from an inactive company to a company
active in the oil and gas business. We currently are seeking to acquire oil and
gas leases in portions of southeast Kansas to drill for coal bed methane gas.
Our principal business office is located at 11952 Farley, Shawnee
Mission, Kansas 66213. The telephone number at that address is (913) 814-8313.
Forward-Looking Statements
This prospectus contains forward-looking statements that concern our
business. Such statements are not guarantees of future performance and actual
results or developments could differ materially from those expressed or implied
in such statements as a result of certain factors, including those factors set
forth in "About Us and Our Current Plan of Operation," "Risk Factors" and
elsewhere in this prospectus. All statements, other than statements of
historical facts, included in this prospectus that address activities, events or
developments that we expect, believe, intend or anticipate will or may occur in
the future, including the following matters, are forward looking statements:
o our ability to acquire valuable properties,
o future capital costs of acquisitions and exploration,
o the size of various markets,
o market share,
o project margins,
o business strategies, and
o expansion and growth of our operations.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of the following:
o historical trends,
o current conditions,
o expected future developments, and
o other factors we believe are appropriate under the circumstances.
Such statements are subject to a number of assumptions including the following:
o risks and uncertainties, including the risk factors in this
prospectus,
o general economic and business conditions,
o the business opportunities that may be presented to and pursued by us,
o changes in laws or regulations and other factors, many of which are
beyond our control, and
o ability to obtain financing on favorable conditions.
2
The cautionary statements contained or referred to in this prospectus should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by us or persons acting on our behalf. We
undertake no obligation to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Capital Structure
Shares of common stock authorized: 20,000,000
Shares of common stock outstanding prior to this offering: 5,640,000
Shares of preferred stock authorized: 5,000,000
Shares of preferred stock outstanding prior to this offering: 0
The Offering
Of the 5,640,000 shares of common stock outstanding prior to this
offering, 1,440,000 shares are being offered for resale pursuant to this
prospectus. While presently there is no market for our securities, our
management intends to establish trading of our common stock through the OTC
Bulletin Board established by the NASD. The selling security holders may sell
these shares from time to time in over the counter market transactions, in
regular brokerage transactions, in transactions directly with market makers or
in privately negotiated transactions.
Summary Financial Information
The following tables set forth summary financial information and other
equity information about us. You should read this summary information in
conjunction with "About Us and Our Current Plan of Operation" which includes a
discussion of factors materially affecting the comparability of the information
presented, and in conjunction with our financial statements included elsewhere
in this prospectus.
Fiscal Year Ended Fiscal Year Ended
April 30, 2000(1) March 31, 2001(1)
Statement of Operations Data
----------------------------
Income (from interest) $57 $8
Net Loss (5,269) (6,438)
Loss per Share -- (2) -- (2)
Weighted Average Shares Outstanding 1,230,000 1,230,000
(1) On April 18, 2001, we changed our fiscal year-end from April 30 to March
31.
(2) Less than $0.01 per share.
Balance Sheet Data
------------------
Cash $ 161 $ 73
Total Assets $ 267 $10,073
Total Liabilities $3,471 $18,615
Stockholders' Deficit (3,204) (8,542)
3
RISK FACTORS
The purchase of our common stock is a substantial transaction
involving a high degree of risk. Prior to making an investment decision, you
should carefully consider, together with the other information contained in this
prospectus, the following risk factors. The order in which these risk factors
are presented is not necessarily indicative of the magnitude of the risk
described.
Risk Factors Relating to Our Status as a Start-up
We have a limited operating history and are subject to the risks associated with
a new business.
We are subject to all the risks associated with a new business
enterprise. Although we have been in business since April 1998, we have been
essentially dormant since then and only recently have developed a new plan of
operation to acquire oil and gas leases, production and/or related assets. Thus,
we have a very limited operating history upon which an evaluation of our
business and prospects can be based. The likelihood of our success should be
considered relative to the problems frequently encountered in connection with
the operation and development of a new business operating in a competitive
industry, including, but not limited to, the ability to fund our operations from
unpredictable cash flow and capital-raising transactions. There can be no
assurance that we will achieve the objectives set forth herein.
We anticipate continued losses for the foreseeable future.
We have not been profitable since our inception. We incurred a net
loss of $6,438 during the 11 months ended March 31, 2001. To date we have not
had any revenue or earnings from operations and we will continue, in all
likelihood, to sustain operating expenses without corresponding revenues until
we are able to successfully implement our new plan of operation, if ever.
Even if we are able to implement our new plan, we may experience
fluctuations in future operating results due to a variety of factors, including
the following:
o general economic conditions,
o economic conditions in the oil and gas industry, and
o capital and other costs relating to the acquisition and exploration of
oil and gas properties.
Many of these factors are out of our control. Furthermore, our current business
plan may not result in income from operations. Cash flow will be created only if
our investments in oil and gas assets later become liquid or our investments are
subsequently acquired by third parties.
There can be no assurance that our operations will generate sufficient
revenues to become profitable or that if we become profitable, that we will be
able to sustain profitability.
We will need to obtain additional financing to implement our business plan.
Our capital requirements will be significant as we are attempting to
redefine our business from a position where we have no revenue producing assets,
no significant assets or financial resources, and no revenues or earnings from
operations since our formation. We do not expect to have any revenues from
operations prior to acquiring and developing suitable oil and gas properties.
We do not currently own any oil and gas properties or interests. We
intend to use a portion of the proceeds from our recent private sales of common
stock to acquire oil and gas leases. See "About Us and Our Current Plan of
Operation - Liquidity and Capital Resources."
4
We will need to raise additional funds to explore, drill, test and
complete wells on the oil and gas properties that we acquire. We anticipate that
each well will cost approximately $40,000 to explore, drill, test and complete.
We currently do not have any binding commitments for, or readily available
sources of, additional financing.
If we do not obtain additional financing we will be forced to curtail
or abandon our future operational plans. We cannot assure you that additional
financing will be available to us when needed or, if available, that it can be
obtained on commercially reasonably terms.
Even if we obtain additional financing and are able to expand our
business, there is no assurance that our shareholders will derive a profit from
an investment in us.
Additional infusions of capital may have a dilutive effect on your investment.
Any additional equity financing that we receive may involve
substantial dilution to our then-existing shareholders. Furthermore, we may
issue stock to acquire properties, assets, or businesses. In the event that any
such shares are issued, the proportionate ownership and voting power of other
shareholders may be reduced.
There is substantial doubt that we can continue as a going concern.
Our auditors have included an explanatory paragraph in their opinion
on our financial statements for the year ended March 31, 2001, to state that our
losses since inception and our net capital deficit at March 31, 2001 raise
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern is dependent upon raising additional capital and
achieving profitable operations through the acquisition and development/
exploitation of oil and gas producing properties. We cannot assure you that our
business plans will be successful in addressing this issue.
Risk Factors Relating to Our New Plan of Operations
We may not be successful in acquiring and developing oil and gas properties.
The successful acquisition and development of oil and gas properties
requires an assessment of recoverable reserves, future oil and gas prices and
operating costs, potential environmental and other liabilities and other
factors. Such assessments are necessarily inexact. As a result, we may not
recover the purchase price of a property from the sale of production from that
property, or may not recognize an acceptable return from properties we acquire.
In addition, we cannot assure you that our exploitation and development
activities will result in any reserves. Our operations may be curtailed, delayed
or canceled as a result of lack of adequate capital or other factors, such as
price controls. In addition, the costs of exploitation and development may
materially exceed initial estimates.
There are drilling risks associated with oil and gas operations.
The drilling of oil and gas wells involves a high degree of risk,
especially the risk of dry holes or of wells that are not sufficiently
productive to provide an economic return on the capital expended to drill the
wells. In addition, our drilling operations may be curtailed, delayed or
cancelled as a result of numerous factors, including the following:
o fires, explosions, cratering, or blow-outs,
o unexpected formations or pressures that could cause environmental
damage, personal injury or damage to equipment,
o title problems,
o weather conditions,
o compliance with governmental requirements,
o equipment failure or shortages in the delivery of equipment, and
o unavailability of third parties to conduct our drilling operations.
5
The occurrence of any of these risks could result in losses to us. We
will maintain insurance against some of these risks in amounts that we believe
to be reasonable and in accordance with customary industry practices. The
occurrence of a significant event that is not fully insured could have a
material adverse effect on our financial position.
We will compete with companies with greater market share and resources.
We will compete in the area of exploiting natural resources with other
companies which have substantially greater market share, greater financial and
other resources, better name recognition and longer operating histories than we
do, which may adversely affect our ability to compete. Because of this
competition, we may not be able to acquire or lease desirable oil and gas
properties or to hire third parties to drill our properties.
Our financial results may be adversely affected by volatile oil and gas prices.
Historically, oil and gas prices and markets have been volatile and
are likely to continue to be volatile in the future. Prices for oil and gas are
subject to wide fluctuations in response to relatively minor changes in supply
of and demand for oil and gas, market uncertainty, and a variety of additional
factors that are beyond our control. These factors include:
o international political conditions (including wars and civil unrest),
o the domestic and foreign supply of oil and gas,
o the level of consumer demand,
o weather conditions,
o domestic and foreign governmental regulations and other actions,
o actions taken by the Organization of Petroleum Exporting Countries
(OPEC),
o the price and availability of alternative fuels, and
o overall economic conditions.
Our revenues, profitability and liquidity will be dependent upon prevailing
prices for oil and natural gas. Any substantial or extended decline in the price
of oil and/or natural gas would have a material adverse effect on our financial
condition and results of operations.
Furthermore, we expect that our quarterly operating results may
fluctuate significantly due to the fluctuation of oil and gas prices. If our
operating results in one or more quarters do not meet expectations, the market
for our common stock could be materially adversely affected.
Compliance with environmental and other governmental regulations could be costly
and negatively affect our operations.
There can be no assurance that we will not incur significant costs in
the future to comply with laws passed by federal, state and local governments
relating to our oil and gas business. The production and sale of oil and gas are
subject to a variety of federal, state and local government regulations
including regulation of the following:
o the prevention of waste,
o the discharge of materials into the environment,
o the conservation of oil and natural gas,
o pollution,
o permits for drilling operations,
o drilling bonds,
o reports concerning operations,
o the spacing of wells,
o the unitization and pooling of properties, and
o various other matters, including taxes.
6
Under these laws and regulations, we could be liable for personal
injury and clean-up costs and other environmental and property damages, as well
as administrative, civil and criminal penalties. Although we will maintain
insurance coverage for some environmental damages, we do not believe that
insurance coverage for the full potential liability of environmental damages is
available at a reasonable cost. Accordingly, we may be subject to liability or
we may be required to cease exploration on leased properties in the event of
environmental damages.
Additionally, many jurisdictions have imposed, at various times,
limitations on the production of oil and gas by restricting the rate of flow for
oil and gas wells below their actual capacity to produce. Many states have
raised state taxes on energy sources and additional increases may occur. There
can be no certainty of the effect that increases in state energy taxes will have
on oil and natural gas prices.
Information in this prospectus regarding our future exploration and development
activities reflects our current intent and is subject to change.
We describe our current exploration and development plans in this
prospectus. Whether we ultimately undertake an exploitation or exploration
project will depend on the following factors:
o availability and cost of capital,
o receipt of seismic data,
o current and forecasted oil or gas prices,
o the costs and availability of drilling rigs and other equipment,
supplies and personnel necessary to conduct these operations,
o success or failure of activities in similar areas,
o changes in the estimates of the costs to complete project,
o our ability to attract other industry partners to acquire a portion of
the working interest to reduce exposure to costs and risks, and
o decisions of any joint working interest owners.
We will continue to gather data about our proposed projects, and it is
possible that additional information may cause us to alter our schedule or
determine that a project should not be pursued at all. You should understand
that our plans regarding our projects are subject to change.
Other Risk Factors Relating to Our Business
We arbitrarily determined the offering price of our common stock.
We recently completed a private placement of 360,000 shares of our
common stock at a price of $0.25 per share. The offering price of the shares was
arbitrarily determined by us and bears no relationship to our assets, book
value, earnings or other generally accepted criteria of value. Furthermore, the
offering price provides no indication of the value of our common stock. In
determining the offering price, we considered such factors as our limited
financial resources, the nature of our assets, estimates of our business
potential, general economic conditions, and the funds necessary for us to
achieve our objectives in the offering.
We have not previously paid dividends on our common stock.
Investors in our common stock will likely not derive any profits from
their investment for the foreseeable future other than through price
appreciation of our common stock. We have not previously paid any cash or other
dividends on our common stock and do not anticipate payment of any dividends for
the foreseeable future. We anticipate that any earnings would be retained by us
to finance our operations and future growth and expansion.
7
Our common stock is inactively traded.
Although our common stock is widely held, there currently is not an
active trading market for our common stock and our common stock currently has no
trading symbol. While presently there is no market for our securities, our
management intends to establish trading of our common stock through the OTC
Bulletin Board established by the NASD. Other than applying for a trading symbol
and pre-clearing our shares for trading, we do not intend to undertake any
efforts to cause a market to develop in our securities.
To the extent that there will be trading in our common stock, of which
there is no assurance, our common stock will trade in the over-the-counter
market and will be quoted on the OTC Bulletin Board. Our common stock will not
be quoted on the Nasdaq system or any exchange for the foreseeable future. It
should be assumed that even with the OTC Bulletin Board quote of our common
stock, there will be an extremely limited trading market and very little
liquidity for our common stock. There can be no assurance that if an active
trading market for our common stock develops, that it can be maintained.
Our common stock will be subject to the "penny stock" regulations for the
foreseeable future.
Generally, penny stocks are equity securities with a price of less
than $5.00 which are not quoted on the national exchange or the Nasdaq system.
Our common stock currently does not qualify for any exemption to the penny stock
regulations because it will be quoted on the OTC Bulletin Board, if it is quoted
at all. The penny stock rules require a broker/dealer to deliver, prior to a
transaction in a penny stock, a standardized risk disclosure document prescribed
by the SEC and to provide the potential purchaser of penny stock with the
following information:
o information about penny stocks,
o the nature and level of risk in the penny stock market,
o the bid and offer quotations for the stock, and
o other burdensome and detailed information.
Those delivery and disclosure requirements tend to reduce the level of interest
of broker/dealers in dealing with penny stocks, which could have the effect of
reducing the level of trading activity in the secondary market for our common
stock during the time that the price of our common stock remains below $5.00. If
the price of our common stock remains below $5.00, the penny stock regulations
could reduce the liquidity of our common stock and make it more difficult for
investors to sell our common stock.
The price of our common stock could be volatile.
Any market price for shares of our common stock is likely to be
volatile for the foreseeable future. The trading prices of our common stock
could be subject to wide fluctuations in response to a variety of factors,
including the following:
o limited trading market,
o quarterly variations in actual or anticipated results of our
operations, and
o changes in analysts' earnings estimates.
Shares eligible for future sale by our current shareholders may adversely affect
our stock price.
The possibility that substantial amounts of shares of our common stock
may be sold in the public market may adversely affect prevailing market prices
for our common stock and could impair our ability to raise capital through the
sale of our equity securities. We currently have 5,640,000 shares of common
stock outstanding, of which 1,440,000 shares are being registered for resale
under this prospectus. All of the 4,200,000 outstanding shares of common stock
not registered for resale hereunder are "restricted securities" as that term is
8
defined under Rule 144 of the Securities Act of 1933. Those restricted
securities may only be sold by a registration statement under the Securities Act
or under another exemption under the Securities Act.
The resale of 1,440,000 shares of common stock classified as
"restricted securities" has been registered with the SEC under this prospectus.
Those securities will become tradable without restriction or further
registration to the extent they are sold to persons not affiliated with us. See
"Shares Eligible for Future Sale."
No prediction can be made as to the effect, if any, that sales of
shares of common stock or even the availability of such shares for sale will
have on the market prices of our common stock prevailing from time to time.
Our Articles of Incorporation eliminate our directors' liability.
Our Articles of Incorporation contain a provision eliminating our
directors' liability to us or our shareholders for monetary damages for a breach
of their fiduciary duty. However, a director's liability is not eliminated in
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Our Articles of Incorporation also
obligate us to indemnify our directors and officers to the fullest extent
permitted under Colorado law. While we believe that these provisions are very
standard and necessary to assist us in attracting and retaining qualified
individuals to serve as directors, they could also serve to insulate our
directors against liability for actions which damage us or our shareholders.
Furthermore our assets could be used or attached to satisfy any liabilities
subject to such indemnification.
Our controlling shareholders may be able to significantly affect the actions we
take.
Gary J. Grieco directly owns 22.2% of our outstanding common stock and
Jeffrey P. Frazier and Terrie L. Pham each directly own 17.7% of our outstanding
common stock. Charles Ross, our sole officer and director, directly owns 16% of
our outstanding common stock. See "Security Ownership of Certain Owners and
Management." Mr. Grieco, Mr. Frazier, Ms. Pham and/or Mr. Ross, as a result of
their stock ownership, may be in a position to significantly affect the
corporate actions we take.
We depend on our President.
Mr. Ross, our President and sole officer, has not entered into a
written employment agreement with us and he is not expected to do so in the
foreseeable future. We have not obtained key man life insurance on Mr. Ross. The
loss of Mr. Ross' services could adversely affect the development of our
business and our likelihood of implementing our business plan and continuing
operations.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling security holders.
ABOUT US AND OUR CURRENT PLAN OF OPERATION
Our Recent History
We were incorporated in Colorado on April 9, 1998, as a "blank check"
company for the purpose of evaluating, structuring, and completing a merger
with, or acquisition of, a privately owned corporation. Our purpose was to
provide a method for a foreign or domestic private company to become a reporting
(or public) company whose securities would be qualified for trading in the
United States secondary market. In furtherance of these goals, on September 13,
1999, our management voluntarily filed a registration statement on Form 10-SB
with the Securities and Exchange Commission and we became a reporting company.
Our management also actively sought a suitable acquisition or merger candidate
but did not find one. Consequently, we have not had a source of cash flow or
income since our inception.
9
On or about March 3, 2001, we and our largest shareholder, Corporate
Management Services, Inc. or CMS, entered into an Agreement for the Purchase of
Common Stock whereby CMS sold a controlling interest to Mr. Charles A. Ross, Sr.
in order to change us from an inactive company to a company active in the oil
and gas business. Prior to entering into the stock purchase agreement, Mr. Ross
was not affiliated with us and did not own any of our common stock.
In connection with Mr. Ross' acquisition of a controlling interest,
our then sole officer and director, Mr. George Andrews, resigned and Mr. Ross
became our President and sole director. We have moved our principal place of
business from Littleton, Colorado, to Shawnee Mission, Kansas. In April 2001, we
changed our fiscal year end from April 30 to March 31.
Our Current Plan of Operation
We intend to acquire and develop oil and gas producing properties in
the United States. This may be accomplished by way of leasing oil and gas
interests and drilling the leased property to prove reserves or by acquiring
working interests in production or reserves.
Commencing on March 20, 2001, we attempted to acquire interests in
125,000 acres in the northeast region of Alabama for the purpose of conducting
pre-drilling activities to determine the prospects for drilling or farming out
our interest. However, these negotiations failed because we could not obtain
adequate guarantees of good title and because we felt there was insufficient
historical engineering and geological information regarding prior drilling
activities on the property.
Subsequently we attempted to acquire drilling interests on
approximately 3,500 acres in Unitah County, Utah, from a Denver-based oil and
gas exploration company. Our management determined that the available seismic
data was not adequate to determine appropriate drilling locations and therefore
a seismic 3-D analysis would be appropriate. However, our management estimated
that the cost of such analysis, together with other appropriate pre-drilling
activities, would have been approximately $250,000. Based on our current
financial situation, we determined that we did not have adequate financial
resources to pursue these interests.
Currently we are seeking to acquire oil and gas leases in portions of
southeast Kansas to drill for coal bed methane gas. We have retained a
geological consultant to identify areas in southeast Kansas suitable for coal
bed methane exploration and development. We are interested in properties lying
in the Cherokee Basin which contain Pennsylvanian age coal beds. These coal beds
are believed to be contiguous from the northern part of the basin that runs from
the Bourbon Arch in the north to the state border with Oklahoma to the south.
Historically, coal bed methane gas flow rates for wells completed in
the Cherokee Basin south of Miami and Johnson Counties in Kansas and south of
Jackson County in Missouri have varied from 50 to over 900 thousand cubic feet
(or "Mcf") from a single four foot coal seam or black shale. Water production
from these wells generally has been less than 50 barrels per day initially,
eventually dropping to below 10 barrels per day. Other wells drilled in the
Cherokee Basin within the last 15 years have reported similar reservoir
thickness and production rates in Labette, Wilson, Neosho and Cherokee Counties,
Kansas.
We recently have opened an office in Burlington, Kansas for $350.00
per month and, with the help of our consultant, we have chosen to start leasing
land in the south half of Coffey County, Kansas (the "Shiloh Project") which is
also in the Cherokee Basin. If we are successful at leasing enough land to move
forward with drilling activities (25,000 acres is our minimum goal), we will
need additional capital to develop these properties. Our initial intent is to
drill and, if commercial quantities of gas is produced, to complete the drilled
wells. If this phase is successful, we may determine to perform core drilling
activities to prove up reserves. If we take this action and we are able to prove
up reserves that merit additional drilling activity, our management may
determine to either raise additional funds to expand drilling or partner or farm
out certain parcels to rapidly develop our leases.
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Recently we concluded three private placements of our common stock
raising $198,000 to pay legal and accounting fees, to retain our geological
consultant and to fund our operations. In addition to general operating
expenses, we will use this capital to acquire operating leases in our targeted
area. We anticipate that each well in the Cherokee Basin will cost approximately
$25,000 to explore, drill and test and an additional $15,000 to complete. We
intend to hire third parties to perform our drilling activities.
Although there are existing gas pipelines in southern Kansas, until we
identify specific properties to lease it will be difficult to estimate the costs
of transporting our products to such pipelines or other distribution facilities,
should we successfully drill and complete any gas wells.
The prices obtained for oil and gas are dependent on numerous factors
beyond our control, including domestic and foreign production rates of oil and
gas, market demand and the effect of governmental regulations and incentives. We
do not have any delivery commitments with respect to any oil or gas produced
from any properties that we acquire. However, due to the high demand for natural
gas, we do not anticipate any difficulties in selling any oil and gas that we
produce, once it has been delivered to a distribution facility.
Additionally we recently acquired an option for a lease on 4,560 acres
in Blaine County, Montana from Geominerals Corp. for $1,400. Geominerals Corp.
is controlled by George Andrews, our former president and sole director.
Assuming we discover and prove reserves on any properties that we
lease, we may decide to sell some or all of these fields if we receive an
appropriate offer for them.
We intend to change our name to "Vista Exploration Corporation" to
reflect our new plan of operation. At our annual shareholders meeting scheduled
for Friday, August 10, 2001, our shareholders will vote on an amendment to our
Articles of Incorporation to change our name.
Liquidity and Capital Resources
During March 2001, we spent approximately $6,000 pursuing potential
oil and gas properties and approximately $10,000 in legal fees in connection
with negotiating potential acquisitions and preparing investment documents in
connection with our capital raising efforts. These funds were advanced to us by
Mr. Charles Ross, currently our sole officer and director. At March 31, 2001, we
had cash of $73, a decrease of $740 from March 31, 2000.
In April 2001, we raised $33,000 through the sale of 3,300,000 shares
of our common stock and in June 2001 we raised an additional $165,000 through
the sale of another 1,110,000 shares. A portion of the proceeds was used to
repay the March 2001 advances. We intend to use the remaining proceeds to
acquire oil and gas leases, as discussed above in "Our Current Plan of
Operation," and to prepare and file the registration statement of which this
prospectus is a part. We will need to raise additional funds to commence
drilling operations, as discussed above in "Our Current Plan of Operation."
As a result of our changed plan of operation, we have not yet
developed a formal budget for the balance of the fiscal year. Our budget is
almost entirely discretionary and therefore our inability to finance operations
will slow our progress but should not cause us to cease operations. However, if
we were unable to meet a required payment for land leased for our oil and gas
operations or for well completion, we could suffer a substantial loss of a
business opportunity.
Employees
We currently have no full time employees except our president who is
devoting his full-time to our activities. We expect to employ one or two persons
in the near future to help us lease land for our oil and gas operations.
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Competition
Competition in the oil and gas business is intense, particularly with
respect to the acquisition of producing properties, proved undeveloped acreage
and leases. Major and independent oil and gas companies actively bid for
desirable oil and gas properties and for the equipment and labor required for
their operation and development. Many of our competitors have substantially
greater market share, greater financial and other resources, better name
recognition and longer operating histories than we do, which may adversely
affect our ability to compete. Because of this competition, we may not be able
to acquire or lease desirable oil and gas properties or to hire third parties to
drill our properties.
Government Regulation
Our oil and gas business will be subject to various federal, state and
local laws and governmental regulations which may be changed from time to time
in response to economic or political conditions.
Federal Regulation of First Sales and Transportation of Natural Gas
Historically, the transportation and sale of natural gas in U.S.
interstate commerce has been regulated pursuant to several laws enacted by
Congress and the regulations promulgated under these laws by the Federal Energy
Regulatory Commission, or FERC. The FERC regulates the transportation and sale
for resale of natural gas in interstate commerce pursuant to the Natural Gas Act
of 1938, or NGA, and the Natural Gas Policy Act of 1978, or NGPA. In the past,
the federal government has regulated the prices at which oil and gas could be
sold. While "first sales" by producers of natural gas, and all sales of crude
oil, condensate and natural gas liquids can currently be made at uncontrolled
market prices, Congress could reenact price controls in the future. Deregulation
of wellhead sales in the natural gas industry began with the enactment of the
NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act.
The Decontrol Act removed all NGA and NGPA price and non-price controls
affecting wellhead sales of natural gas effective January 1, 1993. FERC
jurisdiction over transportation and sales other than "first sales" has not been
affected.
Commencing in the mid-1980s, FERC promulgated several orders designed
to correct market distortions and to make gas markets more competitive by
removing the transportation barriers to market access. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of a large spot market for gas. The
following is a brief description of the most significant of those orders and is
not intended to constitute a complete description of those orders or their
impact.
In April 1992, FERC issued Order 636, which restructured both the
sales and transportation services provided by interstate natural gas pipelines.
The purpose of Order 636 is to improve the competitive structure of the pipeline
industry and maximize consumer benefits from the competitive wellhead gas
market. The major function of Order 636 is to assure that the services
non-pipeline companies can obtain from pipelines are comparable to the services
pipeline companies offer to their gas sales customers. One of the key features
of the Order is the "unbundling" of services that pipelines offer their
customers. This means that pipelines must offer transportation and other
services separately from the sale of gas. The courts have largely affirmed the
significant features of Order No. 636 and numerous related orders pertaining to
individual pipelines, although certain appeals remain pending and FERC continues
to review and modify their open access regulations. These initiatives may affect
the intrastate transportation of gas under certain circumstances.
In particular, FERC is conducting a broad review of their
transportation regulations, including how they operate in conjunction with state
proposals for retail gas market restructuring, whether to eliminate
cost-of-service rates for short-term transportation, whether to allocate all
short-term capacity on the basis of competitive auctions, and whether changes to
long-term transportation policies may also be appropriate to avoid a market bias
toward short-term contracts. In February 2000, FERC issued Order No. 637
amending certain regulations governing interstate natural gas pipeline companies
in response to the development of more competitive markets for natural gas and
natural gas transportation. The goal of Order No. 637 is to "fine tune" the open
access regulations implemented by Order No. 636 to accommodate subsequent
changes in the market. Key provisions of Order No. 637 include: (1) waiving the
price
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ceiling for short-term capacity release transactions until September 30, 2002,
subject to review and possible extension of the program at that time; (2)
permitting value-oriented peak/off peak rates to better allocate revenue
responsibility between short-term and long-term markets; (3) permitting
term-differentiated rates, in order to better allocate risks between shippers
and the pipeline; (4) revising the regulations related to scheduling procedures,
capacity, segmentation, imbalance management, and penalties; (5) retaining the
right of first refusal, or ROFR, and the 5 year matching cap for long-term
shippers at maximum rates, but significantly narrowing the ROFR for customers
that FERC does not deem to be captive; and (6) adopting new web site reporting
requirements that include daily transactional data on all firm and interruptible
contracts and daily reporting of scheduled quantities at points or segments. The
new reporting requirements became effective September 1, 2000. We cannot predict
what action FERC will take on these matters in the future, nor can we accurately
predict whether FERC's actions will, over the long term, achieve the goal of
increasing competition in markets in which our natural gas may be sold. We do
not believe that we will be affected by any action taken materially differently
than other natural gas producers, gatherers and marketers with which we will
compete.
FERC regulates the rates and services of "natural-gas companies,"
which the NGA defines as persons engaged in the transportation of gas in
interstate commerce for resale. As previously discussed, the regulation of
producers under the NGA has been phased out. Interstate pipelines, however,
continue to be regulated by FERC under the NGA. Various state commissions also
regulate the rates and services of pipelines whose operations are purely
intrastate in nature, although generally sales to and transportation on behalf
of other pipelines or industrial end-users are not subject to material state
regulation.
There are many legislative proposals pending in Congress and in the
legislatures of various states that, if enacted, might significantly affect the
petroleum industry. It is impossible to predict what proposals will be enacted
and what effect, if any, such proposals would have on us and our proposed
operations.
State and Local Regulation of Drilling and Production
State regulatory authorities have established rules and regulations
requiring permits for drilling, drilling bonds and reports concerning
operations. The states in which we may operate also have statutes and
regulations governing a number of environmental and conservation matters,
including the unitization and pooling of oil and gas properties and
establishment of maximum rates of production from oil and gas wells. A few
states also prorate production to the market demand for oil and gas.
Environmental Regulations
Our oil and gas exploration activities will be subject to numerous
laws and regulations governing virtually all facets of these activities,
including the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations require the acquisition
of a permit before drilling commences, prohibit drilling activities on certain
lands lying within wilderness and other protected areas and impose substantial
liabilities for pollution resulting from drilling operations. Permits also are
required to plug and abandon wells. Such laws and regulations also restrict the
emissions of air or other pollution resulting from our operations, and impose
liability for the clean up of contaminated properties. Moreover, state and
federal environmental laws and regulations may become more stringent in the
future. State initiatives to further regulate the disposal of oil and gas wastes
are pending in some states, including states in which we may operate, and these
various initiatives could have a similar impact on us.
Operational Hazards and Insurance
Our operations will be subject to the usual hazards incident to the
drilling and production of oil and gas, such as blowouts, cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution, releases of
toxic gas and other environmental hazards and risks. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
13
We will obtain and maintain general liability insurance in amounts and
on terms that we consider to be reasonable for our operations and in accordance
with customary industry practices. Such insurance will not cover every potential
risk associated with the drilling, production and processing of oil and gas. In
particular, coverage is not obtainable for all types of environmental hazards.
The occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse effect on our financial
condition and results of operations. Moreover, no assurance can be given that we
will be able to obtain or maintain adequate insurance at rates we consider
reasonable.
Our Headquarters
Prior to April 2001, we occupied offices in the home of our former
president in Littleton, Colorado. During that period we incurred a rent expense
of $100 per month to Corporate Management Services, Inc. which also occupies
offices in the same location.
In April 2001, we moved our headquarters to 11952 Farley, Shawnee
Mission, Kansas 66213, where we occupy offices in the home of our sole officer
and director at no cost to us. Mr. Ross has agreed to continue this arrangement
until we make other arrangements.
We recently have rented an approximately 200 square foot office on a
month-to-month basis for $350.00 per month in Burlington, Kansas near our
planned coal bed methane gas leasing operations.
Litigation
We do not know of any pending or threatened legal proceedings to which
we are a party. We also are not aware of any proceedings being contemplated by
governmental authorities against us.
MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position of each of
our officers and directors as of the date of this prospectus.
Name Age Position Term
---- --- -------- ----
Charles A. Ross, Sr. 61 President and Director April 2001 to present
Charles A. Ross, Sr. has been our President and a Director since April
10, 2001. Mr. Ross has agreed to devote as much time to our activities as is
required to implement our new plan of operation.
From June 1998 until March 2001, Mr. Ross was self-employed and an
investor. From August 1995 until May 1998, he was the President and CEO and a
director of Edgerton Technology, Inc. and from July 1996 until May 1998 he was
the Chairman of the Board, President, CEO and Treasurer of Edgerton Musical
Amplifiers, Inc. From August 1992 to August 1995, Mr. Ross was a self-employed
consultant and investor.
Other public companies in which Mr. Ross served as an officer or
director include Copilot Electronic Products, Inc. from 1989 to 1992, Birdview
Satellite Communications, Inc. from 1981 to 1986, and Kustom Electronics, Inc.
from 1965 to 1973. In 1968 he was named Kansas Small Businessman of the Year by
the Small Business Administration.
Our board of directors consists of three directors and we currently
have two vacancies. At our shareholders meeting on August 10, 2001, our
shareholders will vote on one nominee to our board, Mr. Ross. Mr. Ross is
actively seeking additional qualified individuals to serve as directors on our
board.
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We are in the process of soliciting the consent of our shareholders to
amend our Articles of Incorporation to provide for staggered three year terms
for our directors. If such amendment is approved, Mr. Ross will serve for a
three-year term while the other two directors, if appointed, will serve one and
two year terms. Upon the expiration of the initial staggered terms, directors
will be elected for terms of three years, to succeed those whose terms have
expired.
Staggered terms tend to protect against sudden changes in management
and may have the effect of delaying, deferring or preventing a change in our
control without further action by our shareholders, such as removing directors
from our board as provided under Colorado law.
Our officers are elected by the board of directors at the first board
of directors meeting after each annual meeting of our shareholders and hold
office until their successors are duly elected and qualified in accordance with
our Bylaws. Our next annual meeting of shareholders is scheduled for August 10,
2001.
There are no agreements or understandings for our sole officer and
director to resign at the request of another person nor is he acting on behalf
of or at the direction of any other person.
EXECUTIVE COMPENSATION
The following table sets out the annual compensation paid to our sole
officer for the last three completed fiscal years. No executive officer of ours
received annual compensation in excess of $100,000 during the last three
completed fiscal years.
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities
Fiscal Other Restricted Underlying
Name and Year Annual Stock Options/ LTIP All Other
Principal Position Ending Salary ($) Bonus ($) Comp. Awards ($) SARs (#) Payouts ($) Comp.($)
------------------ ------- ---------- --------- ----- ---------- -------- ----------- --------
George Andrews, 3/31/01 0 0 0 0 0 0 0
former President 4/30/00 0 0 0 0 0 0 0
4/30/99 0 0 0 0 0 0 0
Officer Compensation
As of the date hereof, no executive officer has received any
compensation for services rendered to us nor have they accrued any compensation
pursuant to any agreement with us. In the future, we likely will compensate our
officers for their services.
Option Exercises and Values
None of our executive officers holds any stock options to purchase our
common stock.
Long-Term Incentive Plans
We do not have any long-term incentive plans. No retirement, pension,
profit sharing, stock option, insurance programs or other similar programs have
been adopted by us for the benefit of our employees.
15
Employment Contracts and Termination of Employment Arrangements
There are no other compensatory plans or arrangements, including
payments to be received from us, with respect to the resignation, retirement or
other termination of the employment of any executive officer or related to a
change in control in us.
Director Compensation
None of our directors received any compensation during our most recent
fiscal year for serving in their position as directors. If we do have funds
available in the future, we likely will reimburse our directors for expenses
incurred by them in their duties as a director.
SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth information as of the date of this
prospectus concerning the beneficial ownership of our common stock: by each of
our executive officers, directors and director nominees; by all executive
officers, directors and director nominees as a group; and by each person who
beneficially owns more than 5% of our common stock (each a "Principal
Stockholder").
Name and Address of Common Stock Percent of Class
Beneficial Owner Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------
Charles A. Ross, Sr., Director and President 900,000 17 %
11952 Farley
Shawnee Mission, KS 66213
All directors and executive officers as a group (1 900,000 17 %
person):
Jeffrey P. Frazier, Principal Stockholder 1,000,000 17.7 %
2956 Nova Road
Pine, CO 80470
Gary J. Grieco, Principal Stockholder 1,250,000 22.2 %
2856 La Casita Avenue
Las Vegas, NV 89120
Terrie L. Pham, Principal Stockholder 1,000,000 17.7 %
16511 E. 27 Terrace
Independence, MO 64055
The Hedge Fund, LLC, Principal Stockholder 360,000 6.4 %
Brad Beveri, Managing Member
15139 W. 119th
Overland Park, KS 66062
Rule 13d-3 under the Securities Exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has, or
shares, voting power and/or investment power with respect to such securities.
Rule 13d-3 also includes as a beneficial owner of a security any person who has
the right to acquire beneficial ownership of such security within sixty days
through any means, including the exercise of any option, warrant or conversion
of a security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
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SELLING SECURITY HOLDERS
The following table shows for each selling security holder:
o the number of shares of common stock beneficially owned by him or her
as of the date of this prospectus,
o the number of shares of common stock covered by this prospectus, and
o the number of shares of common stock to be retained after this
offering, if any, assuming the selling security holder sells the
maximum number of shares (and percentage of outstanding shares of
common stock owned after this offering, if more than 1%).
The selling security holders are not required, and may choose not, to sell any
of their shares of common stock.
Number of Shares of Number of Shares of
Common Stock Number of Shares of Common Stock
Beneficially Owned Common Stock Beneficially Owned After
Name Before the Offering to Be Sold the Offering
---- ------------------- ---------- ------------
Corporate Management Services, Inc. 100,000 100,000 0
(1), (2)
George Andrews (1) 5,000 5,000 0
Joan Andrews (1) 5,000 5,000 0
Barbara Davidson (1) 5,000 5,000 0
Arnold L. Weyand Trust 5,000 5,000 0
Bradford & Nancy Oesch 5,000 5,000 0
Douglas H. Willson 5,000 5,000 0
Alan J. Woydziak 5,000 5,000 0
Ronald Sauter 5,000 5,000 0
Raymond A. Ritter Trust 5,000 5,000 0
James A. Christy 5,000 5,000 0
William N. Gunderson 5,000 5,000 0
Boxer Capital Ltd. 5,000 5,000 0
Donald A. Christensen 5,000 5,000 0
Robert & Jane Hooper 5,000 5,000 0
L. A. Wuischpard 5,000 5,000 0
Anthony Clanton 5,000 5,000 0
Britt Clanton 5,000 5,000 0
Leigh Shelley Clanton 5,000 5,000 0
Barbara & Michael Sauter 5,000 5,000 0
Jeffrey & Christa Sauter 5,000 5,000 0
William & Joanna Woodward 5,000 5,000 0
Kathleen Cavanaugh 5,000 5,000 0
Emprise, Inc. 5,000 5,000 0
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Number of Shares of Number of Shares of
Common Stock Number of Shares of Common Stock
Beneficially Owned Common Stock Beneficially Owned After
Name Before the Offering to Be Sold the Offering
---- ------------------- ---------- ------------
Don Kramer 5,000 5,000 0
Robert B. Reed 5,000 5,000 0
Jolaine Roth 5,000 5,000 0
John K. Zerwick 5,000 5,000 0
Bruce C. Carey 5,000 5,000 0
Carol L. Curtiss 5,000 5,000 0
Dennis E. & Katherine Nattress 5,000 5,000 0
Betty Crowley 5,000 5,000 0
Jim Hesselgrave 5,000 5,000 0
Andrew & Gigi Pidcock 5,000 5,000 0
Gary N. TenEyck 5,000 5,000 0
Colorado Resorts, Inc. 5,000 5,000 0
Dacono Park, LLC 5,000 5,000 0
Paul B. Knight 5,000 5,000 0
Transwestern Mortgages, Inc. 5,000 5,000 0
Stephen Co. 5,000 5,000 0
Karla M. Alvarez 5,000 5,000 0
Natalie R. Shields 5,000 5,000 0
Randolph S. Julian 5,000 5,000 0
Devon Golding 5,000 5,000 0
Paul & Margaret McManigal 5,000 5,000 0
Thomas G. Ispas 5,000 5,000 0
Charles A. Baird 5,000 5,000 0
Gary J. Grieco 1,250,000 250,000 1,000,000 (17.7%)
Harvey M. Burstein 250,000 250,000 0
Mallard Management Inc. 250,000 250,000 0
The Hedge Fund, LLC (3) 360,000 360,000 0
(1) From April 11, 1998, to April 10, 2001, Corporate Management Services, Inc.
or CMS owned approximately 81% of our issued and outstanding common stock. See
"Certain Transactions" below regarding transactions between us and CMS during
this period. George Andrews is the sole director and a 50% shareholder of CMS
and was our sole officer and director until April 10, 2001. Barbara Davidson is
a 50% shareholder of CMS.
(2) As part of the sale of a controlling interest to Mr. Ross, CMS agreed not to
sell 50% of its shares for a period of 180 days after the effective date of the
resale registration statement of which this prospectus is a part.
(3) The Hedge Fund, LLC has agreed to limit the number of shares that it may
sell in any six month period to 250,000.
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PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
As used in this prospectus, selling security holder includes any
donees, pledgees, transferees or other successors in interest who will hold the
selling security holders' shares after the date of this prospectus. We are
paying the costs, expenses and fees of registering the common stock, but the
selling security holders will pay any underwriting or brokerage commissions and
similar selling expenses relating to the sale of the shares of common stock.
The selling security holders may sell our common stock at market
prices prevailing at the time of the sale, at prices related to the prevailing
market prices, at negotiated prices or at fixed prices, which may be changed.
The selling security holders may sell some or all of their common stock through:
o ordinary brokers' transactions which may include long or short sales;
o transactions involving cross or block trades or otherwise;
o purchases by brokers, dealers or underwriters as principal and resale
by those purchasers for their own accounts under this prospectus;
o market makers or into an existing market for our common stock;
o other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents;
o transactions in options, swaps or other derivatives; or
o any combination of the selling options described in this prospectus,
or by any other legally available means.
The selling security holders may enter into hedging transactions with
broker-dealers who may engage in short sales of our common stock in the course
of hedging the positions they assume. The selling security holders also may
enter into option or other transactions with broker-dealers that require the
delivery by those broker-dealers of the common stock. Thereafter, the shares may
be resold under this prospectus.
In their selling activities, the selling security holders will be
subject to applicable provisions of the Securities Exchange Act of 1934 and the
Exchange Act's rules and regulations, including Regulation M, which may limit
the selling security holders' timing of purchases and sales of our common stock.
The selling security holders and any broker-dealers involved in the
sale or resale of our common stock may qualify as "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. In addition, the
broker-dealers' commissions, discounts or concessions may qualify as
underwriters' compensation under the Securities Act. If any selling security
holders or any broker-dealer qualifies as an "underwriter," then they will be
subject to the prospectus delivery requirements of Section 153 of the Securities
Act, which may include delivery through the facilities of the NASD.
In conjunction with sales to or through brokers, dealers or agents,
the selling security holders may agree to indemnify them against liabilities
arising under the Securities Act. We know of no existing arrangements between
the selling security holders, any other shareholder, broker, dealer, underwriter
or agent relating to the sale or distribution of our common stock.
In addition to selling their shares of common stock under this
prospectus, the selling security holders may:
o transfer their common stock in other ways not involving market makers
or established trading markets, including by gift, distribution, or
other transfer; or
o sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
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The selling security holders have been advised by us that during the
time each is engaged in distribution of the securities covered by this
prospectus, each must comply with Rule 10b-5 and Regulation M under the Exchange
Act. They must do all of the following under those rules:
o not engage in any stabilization activity in connection with our
securities;
o furnish each broker through which securities covered by this
prospectus may be offered the number of copies of this prospectus
which are required by each broker; and
o not bid for or purchase any securities of ours or attempt to induce
any person to purchase any of our securities other than as permitted
under the Exchange Act.
Any selling security holders who may be "affiliated purchasers" of
ours, as defined in Regulation M, have been further advised that they must
coordinate their sales under this prospectus with each other and us for purposes
of Regulation M.
We will amend or supplement this prospectus if required under the
Securities Act.
CERTAIN TRANSACTIONS
On April 11, 1998, we issued a total of 1,000,000 shares of our common
stock to Corporate Management Services, Inc., or CMS, in exchange for services
related to management and organization costs of $500. Mr. George Andrews, our
sole officer and director until April 2001, is the sole director and a 50%
shareholder of CMS. From April 11, 1998, to April 10, 2001, CMS provided us with
administrative and marketing services on an as-needed basis without additional
charge.
Additionally, from our inception to March 31, 2001, we incurred an
expense of $100 per month for rent and other administrative services which were
performed by CMS on our behalf. As of March 31, 2001, we had incurred rent and
administrative service expenses totaling $3,600, which amount has been credited
to additional paid-in capital on our financial statements.
From April 11, 1998, to April 10, 2001, CMS advanced to us any
additional funds which we needed for operating capital and for costs in
connection with searching for or completing an acquisition or merger. Such
advances were made without expectation of repayment (other than offsets of
earned interest) unless the owners of a business which we acquired or merged
with agreed to repay all or a portion of such advances. As of March 31, 2001,
CMS had advanced a total of $5,155 to us for legal, accounting, general and
administrative expenses, which amount was treated as an accrued liability on our
financial statements but which was forgiven by CMS as of April 30, 2001.
On or about March 3, 2001, we and CMS entered into an Agreement for
the Purchase of Common Stock with Charles A. Ross, Sr. pursuant to which CMS
sold 900,000 shares of our common stock to Mr. Ross for $1,000. Pursuant to that
agreement, on April 10, 2001, Mr. Andrews resigned as our sole officer and
director and Mr. Ross became our sole officer and director.
DESCRIPTION OF OUR STOCK
We are authorized to issue 20,000,000 shares of common stock, no par
value, and 5,000,000 shares of non-voting preferred stock, no par value. There
are 5,640,000 shares of common stock currently outstanding and no shares of
preferred stock outstanding.
20
Common Stock
Holders of common stock are entitled to dividends when declared by our
board of directors. Dividends on our common stock will be subject to any
priority as to dividends for any preferred stock that may be outstanding.
Holders of our common stock are entitled to cast one vote for each share held at
all shareholder meetings for all purposes, including the election of directors.
Cumulative voting for the election of directors is not permitted. The holders of
a majority of our common stock entitled to vote constitute a quorum at meetings
of shareholders. The vote of the holders of a majority of common stock present
at such a meeting will decide any question brought before such meeting.
Upon our liquidation or dissolution, the holder of each outstanding
share of common stock will be entitled to share ratably in our net assets after
the payment of all debts and other liabilities. No holder of common stock has
any preemptive or preferential rights to purchase or subscribe for any part of
any unissued or any additional authorized stock or any of our securities
convertible into shares of our stock. No holder of common stock has redemption
or conversion rights. Our outstanding shares of common stock are fully paid and
nonassessable.
Preferred Stock
Our board of directors is authorized by our Articles of Incorporation
to provide for the issuance of shares of preferred stock in series and, by
filing a certificate pursuant to Colorado law, 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 without any further
vote or action by our shareholders. Any shares of preferred stock so issued
would have priority over our common stock with respect to dividend or
liquidation rights. Any future issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in our control without further
action by our shareholders and may adversely affect the voting and other rights
of the holders of our common stock. At present we have no plans to issue any
preferred stock nor to adopt any series, preferences or other classification of
preferred stock.
The issuance of shares of preferred stock, or the issuance of rights
to purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock might impede
a business combination by including class voting rights that would enable a
holder to block such a transaction. In addition, under certain circumstances,
the issuance of preferred stock could adversely affect the voting power of
holders of our common stock. Although our board of directors is required to make
any determination to issue preferred stock based on its judgment as to the best
interests of our stockholders, our board could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of our stockholders might believe to be in their best interests or in which such
stockholders might receive a premium for their stock over the then market price
of such stock. Our board presently does not intend to seek stockholder approval
prior to the issuance of currently authorized stock, unless otherwise required
by law or applicable stock exchange rules.
Transfer Agent and Registrar
The transfer agent for our common stock is Computer Share Investor
Services, 12039 West Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228.
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 5,640,000 shares of common stock outstanding, of
which 1,440,000 shares are being registered for resale pursuant to the
registration statement of which this prospectus is a part. The 1,440,000 shares
of common stock registered for resale hereunder will be freely tradable without
restriction or further registration under the Securities Act to the extent that
a market develops for our securities. All of the 4,200,000 outstanding shares of
common stock not registered for resale hereunder are "restricted securities."
21
Any shares purchased by an affiliate of ours will be subject to the
resale limitations of Rule 144 under the Securities Act. An affiliate of ours is
a person who has a control relationship with us, which generally includes our
executive officers, directors and 10% or more stockholders.
"Restricted securities" may only be sold as follows:
o pursuant to a registration statement under the Securities Act,
o in compliance with the exemption provisions of Rule 144, or
o pursuant to another exemption under the Securities Act.
In general, Rule 144 requires that affiliates and persons owning
restricted securities hold their securities for a minimum of one year, limits
the number of securities that may be sold within any 3 month period, requires
that sales must be made through unsolicited brokers' transactions or in
transactions directly with a market maker, and requires the filing of a Form 144
if the securities to be sold during any three-month period exceeds 500 shares or
has a total sales price over $10,000. Rule 144 limits the number of shares of
our common stock that may be sold within any 3 month period to the greater of:
o one percent of the outstanding shares of our common stock, and
o the average weekly trading volume of our common stock during the four
calendar weeks prior to such sale.
Sales under Rule 144 are also subject to the availability of current public
information about us. However, persons who are not affiliated with us and who
have held their restricted securities for at least two years may resell their
shares without regard to the foregoing requirements of Rule 144.
A sale of shares by our current shareholders, whether pursuant to Rule
144 or otherwise, may have a depressing effect upon the market price of our
common stock. To the extent that these shares enter the market, the value of our
common stock in the over-the-counter market may be reduced.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
There is no public market for our common stock. Our common stock does
not have a trading symbol and is not currently listed or quoted on any quotation
medium. Once we have applied for a trading symbol and pre-cleared our shares for
trading, our common stock may be traded in the over-the-counter market. However,
there can be no assurance of whether, when or at what price trading in our stock
will occur.
Holders
As of July 20, 2001, we had approximately 57 beneficial owners of our
common stock. We do not have outstanding any options or warrants to acquire, or
any securities convertible into, any shares of our common stock.
Dividends
Holders of our common stock are entitled to receive such dividends as
may be declared by our board of directors. We have not declared any cash
dividends on our common shares for the last two fiscal years and we do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to use all available funds for the development of our business. We are
not currently a party to any agreement restricting the payment of dividends.
22
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP will pass upon the validity of
the common stock offered by this prospectus. Barbara Davidson, the wife of a
partner in the Denver office of Ballard Spahr Andrews & Ingersoll, LLP is a
selling security holder and is a 50% shareholder of Corporate Management
Services, Inc.
EXPERTS
Our financial statements for the year ended April 30, 2000, and the
eleven months ended March 31, 2001, in this prospectus have been audited by
Cordovano & Harvey, P.C., independent certified public accountants, to the
extent and for the periods set forth in their report, and are set forth in this
prospectus in reliance upon such report given upon the authority of them as
experts in auditing and accounting.
SECURITIES AND EXCHANGE COMMISSION POSITION ON CERTAIN INDEMNIFICATION
The Colorado Business Corporation Act provides for indemnification by
a corporation of costs incurred by directors, employees, and agents in
connection with an action, suit, or proceeding brought by reason of their
position as a director, employee, or agent. The person being indemnified must
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation.
Our Articles of Incorporation obligate us to indemnify our directors
and officers to the fullest extent permitted under Colorado law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
23
BAIL CORPORATION
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
F-2 Independent Auditors' Report
F-3 Balance Sheet as of March 31, 2001
F-4 Statements of Operations for the eleven months ended March 31, 2001 and
2000 (unaudited), for the year ended April 30, 2000, and from April 9, 1998
(inception) through March 31, 2001
F-5 Statement of Shareholders' Deficit from April 9, 1998 (inception) through
March 31, 2001
F-6 Statements of Cash Flows for the eleven months ended March 31, 2001 and
2000 (unaudited), for the year ended April 30, 2000, and from April 9, 1998
(inception) through March 31, 2001
F-7 Notes to Financial Statements
F-1
Independent Auditors' Report
To the Board of Directors and Shareholders
Bail Corporation
We have audited the balance sheet of Bail Corporation (a development stage
company) as of March 31, 2001 and the related statements of operations,
shareholders' deficit and cash flows for the eleven months ended March 31, 2001,
for the year ended April 30, 2000, and for the period from April 9, 1998
(inception) through March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 Bail Corporation as of March
31, 2001, and the related statements of operations and cash flows for the eleven
months ended March 31, 2001, for the year ended April 30, 2000, and for the
period from April 9, 1998 (inception) through March 31, 2001 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company has incurred losses since inception and has a net
capital deficit at March 31, 2001. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note A. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Cordovano and Harvey, P.C
-----------------------------
Cordovano and Harvey, P.C
Denver, Colorado
July 3, 2001
F-2
BAIL CORPORATION
(A Development Stage Company)
Balance Sheet
March 31, 2001
ASSETS
Current assets:
Cash ........................................................ $ 73
--------
Total current assets 73
Deferred offering costs ........................................... 10,000
--------
$ 10,073
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued liabilities ......................................... $ 2,000
Accounts payable, related party (Note B) .................... 6,115
Due to officer (Note B) ..................................... 10,500
--------
Total current liabilities 18,615
--------
Shareholders' deficit (Note D):
Preferred Stock, no par value, 5,000,000 shares
authorized, -0- shares issued and outstanding ............. --
Common stock, no par value, 20,000,000 shares
authorized, 1,230,000 shares issued and outstanding ...... 2,673
Additional paid-in capital .................................. 3,600
Deficit accumulated during the development stage ............ (14,815)
--------
Total shareholders' deficit (8,542)
--------
$ 10,073
========
See accompanying notes to financial statements
F-3
BAIL CORPORATION
(A Development Stage Company)
Statements of Operations
April 9, 1998
Eleven Months Ended (Inception)
March 31, Year Ended Through
-------------------------- April 30, March 31,
2001 2000 2000 2001
----------- ----------- ----------- -----------
(Unaudited)
Costs and expenses:
Legal fees ..................................... 1,492 2,097 2,097 3,895
Accounting fees ................................ 2,750 751 2,001 5,751
Travel ......................................... 5,339 -- -- 5,339
General and administrative ..................... 920 21 28 999
Rent, related party (Note B) ................... 1,100 1,100 1,200 3,600
Organizational costs ........................... -- -- -- 500
----------- ----------- ----------- -----------
Operating loss (11,601) (3,969) (5,326) (20,084)
Interest income .................................... 8 49 57 114
----------- ----------- ----------- -----------
Loss before income taxes and extraordinary item (11,593) (3,920) (5,269) (19,970)
Provision for income taxes (Note C) ................ -- -- -- --
----------- ----------- ----------- -----------
Loss before extraordinary item (11,593) (3,920) (5,269) (19,970)
Extraordinary gain on extinguishment of debt,
net of income taxes of $-0- (Note A) ........... 5,155 -- -- 5,155
----------- ----------- ----------- -----------
Net loss $ (6,438) $ (3,920) $ (5,269) $ (14,815)
=========== =========== =========== ===========
Basic and diluted loss per common share:
Before extraordinary item ...................... $ * $ * $ *
=========== =========== ===========
Gain on extinguishment of debt ................. $ * $ * $ *
=========== =========== ===========
Net loss ....................................... $ * $ * $ *
=========== =========== ===========
Basic and diluted weighted average
common shares outstanding ...................... 1,230,000 1,230,000 1,230,000
=========== =========== ===========
* Less than $.01 per share
See accompanying notes to financial statements
F-4
BAIL CORPORATION
(A Development Stage Company)
Statement of Shareholders' Deficit
April 9, 1998 (inception) through March 31, 2001
Deficit
Accumulated
Preferred Stock Common Stock Additional During
---------------- ---------------------- Paid-In Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ----------- ------- ------- --------- --------
Beginning balance, April 9, 1998 .................... -- $ -- -- $ -- $ -- $ -- $ --
April 1998, common stock issued in
exchange for services and organizational
costs (Note B) .................................. -- -- 1,000,000 500 -- -- 500
Contributed rent (Note B) ........................... -- -- -- -- 100 -- 100
Net loss for the period ended April 30, 1998 ........ -- -- -- -- -- (688) (688)
------ ------ ----------- ------- ------- --------- --------
BALANCE, APRIL 30, 1998 -- -- 1,000,000 500 100 (688) (88)
May 1998, common stock issued for cash,
net of $127 of offering costs (Note B) .......... -- -- 230,000 2,173 -- -- 2,173
Contributed rent (Note B) ........................... -- -- -- -- 1,200 -- 1,200
Net loss for year ended April 30, 1999 .............. -- -- -- -- -- (2,420) (2,420)
------ ------ ----------- ------- ------- --------- --------
BALANCE, APRIL 30, 1999 -- -- 1,230,000 2,673 1,300 (3,108) 865
Contributed rent (Note B) ........................... -- -- -- -- 1,200 -- 1,200
Net loss for year ended April 30, 2000 .............. -- -- -- -- -- (5,269) (5,269)
------ ------ ----------- ------- ------- --------- --------
BALANCE, APRIL 30, 2000 -- -- 1,230,000 2,673 2,500 (8,377) (3,204)
Contributed rent (Note B) ........................... -- -- -- -- 1,100 -- 1,100
Net loss for eleven months ended March 31, 2001 ..... -- -- -- -- -- (6,438) (6,438)
------ ------ ----------- ------- ------- --------- --------
BALANCE, MARCH 31, 2001 -- $ -- 1,230,000 $ 2,673 $ 3,600 $ (14,815) $ (8,542)
====== ====== =========== ======= ======= ========= ========
See accompanying notes to financial statements
F-5
BAIL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
April 9, 1998
Eleven Months Ended (Inception)
March 31, Year Ended Through
-------------------- April 30, March 31,
2001 2000 2000 2001
-------- -------- -------- --------
(Unaudited)
Cash flows from operating activities:
Net loss ...................................... $ (6,438) $ (3,920) $ (5,269) $(14,815)
Transactions not requiring cash:
Common stock issued for services ........... -- -- -- 500
Contributed rent (Note B) .................. 1,100 1,100 1,200 3,600
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 4,644 1,598 2,203 8,115
Interest income receivable ............. 106 (49) (57) --
-------- -------- -------- --------
Net cash used in operating activities (588) (1,271) (1,923) (2,600)
-------- -------- -------- --------
Cash flows from financing activities:
Advances from officer (Note B) ................ 10,500 -- -- 10,500
Sale of common stock ......................... -- -- -- 2,300
Offering costs incurred ....................... (10,000) -- -- (10,127)
-------- -------- -------- --------
Net cash provided by financing activities 500 -- -- 2,673
-------- -------- -------- --------
Net change in cash ................................ (88) (1,271) (1,923) 73
Cash, beginning of period ......................... 161 2,084 2,084 --
-------- -------- -------- --------
Cash, end of period $ 73 $ 813 $ 161 $ 73
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................... $ -- $ -- $ -- $ --
======== ======== ======== ========
Income taxes ............................... $ -- $ -- $ -- $ --
======== ======== ======== ========
Non-cash financing activities:
Extraordinary gain on the extinguishment
of debt (Note A) ....................... $ 5,155 $ -- $ -- $ 5,155
======== ======== ======== ========
See accompanying notes to financial statements
F-6
BAIL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note A: Organization and summary of significant accounting policies
Organization
Bail Corporation (the "Company") was incorporated under the laws of Colorado on
April 9, 1998 to engage in any lawful corporate undertaking. The Company is a
development stage enterprise in accordance with Statement of Financial
Accounting Standard (SFAS) No. 7. The Company was originally formed as a "blank
check" company with the purpose to evaluate, structure and complete a merger
with, or acquisition of, a privately owned corporation. Effective March 3, 2001,
900,000 shares (approximately 73 percent) of the Company's issued and
outstanding common stock was sold, resulting in a change in control of the
Company. The Company's new business plan is to engage in the oil and gas
business by acquiring oil and gas properties and developing those properties
and/or purchasing producing properties principally located in the mid-western
and western United States.
The Company's management is currently seeking to acquire oil and gas leases in
portions of southeast Kansas to drill for coal bed methane gas. The Company
opened an office in Burlington, Kansas and plans to lease land in the south half
of Coffey County, Kansas with the help of its geological consultant. If the
Company is successful at leasing enough land to move forward with drilling
activities, the Company will need additional capital to develop the properties.
It is the Company's intent to complete drilled wells; however, the Company may
have acquire a partner or out-source certain properties to rapidly develop
leases.
Following the change in control, the Company sold 4,410,000 shares of its no par
value common stock through three private offerings for net proceeds of $188,000
after deducting offering costs of $10,000 (see Note E). The Company intends to
use the net proceeds from those offerings for administrative and professional
fees required to transition the business and to acquire oil and gas properties
and develop a drilling program. The Company will require additional funds to
commence drilling operations and there are no commitments in place for any
additional funds.
During the period from April 9, 1998 (inception) through February 28, 2001,
Corporate Management Services, Inc. ("CMS"), an affiliate and previous majority
shareholder, paid professional fees and administrative expenses on behalf of the
Company totaling $5,155, which were unpaid as of February 28, 2001. As part of
the stock purchase agreement that resulted in the change in control, CMS
released the Company from its obligation to repay the $5,155. The $5,155 is
included in the accompanying statements of operations as extraordinary gain on
extinguishment of debt.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the development
stage. It has incurred losses since inception and has a net capital deficit at
March 31, 2001. These factors, among others, may indicate that the Company will
be unable to continue as a going concern for reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company raised $198,000 through private stock offerings
following March 31, 2001 (see Note E), to fund its operations. The Company
believes it will need additional capital to develop the property leases
discussed above. There is no assurance that the Company will obtain the
additional capital or that it will attain profitability.
F-7
BAIL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Summary of significant accounting policies
Basis of presentation
On April 18, 2001, the Company changed its year-end from April 30 to March 31.
The accompanying statements of operations, shareholders' deficit and cash flows
reflect the eleven-month transition period ended March 31, 2001 and the
historical fiscal year results for April 30, 2000. The comparative figures for
the eleven months ended March 31, 2000 have been included in the accompanying
statements of operations and cash flows on an unaudited basis.
Cash equivalents
For financial accounting purposes and the statement of cash flows, cash
equivalents include all highly liquid debt instruments purchased with an
original maturity of three months or less. The Company had no cash equivalents
at March 31, 2001.
Fair value of financial instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, the fair values of its financial
instruments approximate carrying values. The carrying amounts of cash, accounts
payable, and other current liabilities approximate fair value due to the
short-term maturity of the instruments.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities;
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. Accordingly, actual results could differ from those estimates.
Organization costs
Costs related to the organization of the Company have been expensed as incurred.
Deferred offering costs
Costs related to common stock offerings are recorded initially as a deferred
asset until the offering is successfully completed, at which time they are
recorded as a reduction of gross proceeds in shareholders' deficit. If an
offering is not successful, the costs are charged to operations at that time.
Income taxes
The Company reports income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes", which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the difference between the
tax basis of an asset or liability and its reported amount on the financial
statements. Deferred tax amounts are determined by using the tax rates expected
to be in effect when the taxes will actually be paid or refunds received, as
provided under currently enacted law. Valuation allowances are established when
necessary to reduce the deferred tax assets to the amounts expected to be
realized. Income tax expense or benefit is the tax payable or refundable,
respectively, for the period plus or minus the change during the period in the
deferred tax assets and liabilities.
F-8
BAIL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Loss per common share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share uses the average market price per share when
applying the treasury stock method in determining common stock equivalents.
However, the Company has a simple capital structure for the period presented
and, therefore, there is no variance between the basic and diluted loss per
share.
Stock based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" permits the use of
either a "fair value based method" or the "intrinsic value method" defined in
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" (APB 25) to account for stock-based compensation arrangements.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company has
elected to continue to determine the value of stock-based compensation
arrangements with employees under the provisions of APB 25. No pro forma
disclosures have been included with the accompanying financial statements as
there was no pro forma effect to the Company's net loss or loss per share.
Unaudited financial statements
The financial statements presented for the eleven months ended March 31, 2000
are unaudited.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments), which are necessary to provide a fair presentation of
operating results for the eleven months ended March 31, 2000, have been made.
Note B: Related party transactions
On February 28, 2001, an officer advanced the Company $10,500 for working
capital. The advance carries no interest rate and is payable on demand. The
$10,500 is included in the accompanying financial statements as due to officer.
The Company repaid the advance subsequent to March 31, 2001.
The officer also paid travel and administrative expenses totaling $6,115 on
behalf of the Company during the eleven months ended March 31, 2001. The $6,115
is included in the accompanying financial statements as accounts payable,
related party. The Company repaid the expenses subsequent to March 31, 2001.
On April 11, 1998, the Company issued an affiliate 1,000,000 shares of common
stock in exchange for services related to management and organization costs of
$500. The affiliate will provide administrative and marketing services as
needed. The affiliate may, from time to time, advance to the Company any
additional funds that the Company needs for operating capital and for costs in
connection with searching for or completing an acquisition or merger.
F-9
BAIL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
During 1998, the Company sold 230,000 shares of common stock in a private
placement for $2,300. The private placement also included the offering of common
shares in nineteen other corporations. The costs related to the offering and
certain legal fees and general and administrative fees were allocated to each of
the twenty companies participating in the offering. The Company's pro rate one
twentieth share of the costs and expenses were deducted from the gross proceeds
from the sale of the Company's common shares. The gross proceeds of $2,300 were
transferred to the Company net of offering costs of $127 and certain general and
administrative costs incurred by the affiliate of $89.
The Company incurs an expense of $100 per month for office space contributed by
Corporate Management Services, Inc. ("CMS"), an affiliate of the Company. The
Company reported rent expense of $1,100, $1,100 (unaudited), $1,200, and $3,600,
respectively, for the eleven months ended March 31, 2001 and 2000, the year
ended April 30, 2000, and the period from April 9, 1998 (inception) through
March 31, 2001. The rent expense has been offset by charges to additional
paid-in capital.
Note C: Income taxes
Following are reconciliations of U.S. statutory federal income tax rate to the
effective rate:
Eleven Months Ended
March 31, Year Ended
------------------ April 30,
2001 2000 2000
------- ------- -------
(Unaudited)
U.S. statutory federal rate ................. 15.00% 15.00% 15.00%
State income tax rate, net of federal benefit 4.04% 4.04% 4.04%
Net operating loss (NOL) for which no tax
benefit is currently available .......... -19.04% -19.04% -19.04%
------- ------- -------
0.00% 0.00% 0.00%
======= ======= =======
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The change in the valuation allowance for the eleven
months ended March 31, 2001, the year ended April 30, 2000, and for the period
from April 9, 1998 (inception) through March 31, 2001 were $1,226, $657, and
$2,483, respectively. NOL carryforwards at March 31, 2001 will expire through
2021.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
Should the Company undergo an ownership change, as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of those losses.
F-10
BAIL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note D: Shareholders' equity
The preferred stock may be issued in series as determined by the Board of
Directors. As required by law, each series must designate the number of share in
the series and each share of a series must have identical rights of (1)
dividend, (2) redemption, (3) rights in liquidation, (4) sinking fund provisions
for the redemption of the share, (5) terms of conversion and (6) voting rights.
Note E: Subsequent events
During April of 2001, the Company conducted a private placement offering of
5,000,000 shares of its no par value common stock for $.01 per share pursuant to
an exemption from registration claimed under Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the "Act"). The Company closed the offering
after selling 3,300,000 shares. The Company received net proceeds of $29,666
after deducting offering costs totaling $3,334.
During June of 2001, the Company conducted a private placement offering of
800,000 shares of its no par value common stock for $.10 per share pursuant to
an exemption from registration claimed under Rule 504 of Regulation D of the
Act. The Company closed the offering after selling 750,000 shares. The Company
received net proceeds of $71,667 after deducting offering costs totaling $3,333.
During June of 2001, the Company conducted a private placement offering of
1,000,000 shares of its no par value common stock for $.25 per share pursuant to
an exemption from registration claimed under Rule 504 of Regulation D of the
Act. The Company closed the offering after selling 360,000 shares. The Company
received net proceeds of $86,667 after deducting offering costs totaling $3,333.
Following the stock offerings conducted subsequent to March 31, 2001, the
Company had 5,640,000 common shares issued and outstanding.
F-11
PART II - Information Not Required In Prospectus
Item 24. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation eliminate the personal
liability of its directors to the Registrant or its shareholders for monetary
damages for breach of fiduciary duty to the extent permitted by Colorado law.
The Colorado Business Corporation Act does not eliminate personal liability for
monetary damages for (i) any breach of the director's duty of loyalty to the
Registrant or its shareholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) voting
for or assenting to a distribution in violation of Colorado law or the
Registrant's Articles of Incorporation, or (iv) any transaction from which the
director directly or indirectly derived an improper personal benefit.
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify its officers and directors to the extent permitted by
Colorado law, which authorizes a corporation to indemnify directors, officers,
employees or agents of the corporation in non-derivative suits if such party
acted in good faith and in a manner such party reasonably believed to be in or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Colorado Business Corporation Act further provides
that indemnification shall be provided if the party in question is wholly
successful, on the merits or otherwise.
There is no litigation pending, and neither the Registrant nor any of
its directors know of any threatened litigation, which might result in a claim
for indemnification by any director or officer.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering, all of which are to be borne
by the Registrant, are as follows:
Total Registration Fee under Securities Act of 1933 $ 90.00
Printing and Engraving $10,000*
Accounting Fees and Expenses $10,000*
Legal Fees and Expenses $50,000*
Blue Sky Fees and Expenses (including related legal fees) $ 3,000*
Transfer Agent Fees $ 1,000*
Miscellaneous $ 6,000*
Total $80,100*
* Estimated
Item 26. Recent Sales of Unregistered Securities.
Since its inception, the Registrant has sold securities which were not
registered as follows:
Date Name No. of Shares Consideration
---- ---- ------------- -------------
(1) April 11, 1998 Corporate Management Services, Inc.* 1,000,000 Services valued at $500
(2) April 22, 1998 to 46 shareholders (listed under "Selling 5,000 each/ $50.00 each/
August 26, 1998 Security Holders") 230,000 total $2,300 total
(3) April 23, 2001 Jeffery P. Frazier 1,000,000 $10,000
(4) April 23, 2001 Terrie L. Pham 1,000,000 $10,000
(5) April 25, 2001 Gary J. Grieco 1,000,000 $10,000
(6) April 30, 2001 3 shareholders 100,000 each/ $1,000 each/
300,000 total $3,000 total
(7) June 7, 2001 Gary J. Grieco 250,000 $25,000
(8) June 7, 2001 Mallard Management Inc. 250,000 $25,000
(9) June 7, 2001 Harvey M. Burstein 250,000 $25,000
(10) June 28, 2001 The Hedge Fund, LLC 360,000 $90,000
* Mr. George Andrews, the sole officer and director of the Registrant until
April of 2001, is the sole director and a 50% shareholder of Corporate
Management Services, Inc. Mr. Andrews is also a selling security holder.
24
No underwriter or selling or placement agent was involved in any of
the transactions described above. The sales by the Registrant listed in lines
(1) and (2) were made pursuant to Section 4(2) of the Securities Act of 1933.
The sales by the Registrant listed in lines (3) through (10) were made pursuant
to Section 4(2) and Rule 506 of Regulation D adopted under the Securities Act of
1933.
All of the individuals and/or entities listed above that purchased the
unregistered securities were all known to the Registrant and its management
through pre-existing business or personal relationships, as long standing
business associates, friends, employees, relatives or members of the immediate
family of management or other shareholders. All purchasers were provided access
to the material information which they requested and all information necessary
to verify such information, and were afforded access to management of the
Registrant in connection with their purchases. All purchasers of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to the Registrant.
Item 27. Exhibits.
Reference is made to the Exhibit Index appearing on Page 29.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereto) which, individually
or the aggregate, represent a fundamental change in the information
set forth in this Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
25
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Shawnee Mission, State of Kansas, on July 23, 2001.
BAIL CORPORATION
By: /s/ Charles A. Ross, Sr.
--------------------------------
Charles A. Ross, Sr.,
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
------------------------- -------------- ----------------
/s/ Charles A. Ross, Sr. Director July 23, 2001
-------------------------
Charles A. Ross, Sr.
26
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
------------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
BAIL CORPORATION
-------------------------------------------
(Name of Company as specified in its charter)
27
BAIL CORPORATION
FORM SB-2 REGISTRATION STATEMENT
EXHIBIT INDEX
The following exhibits are filed as part of Registrant's Registration
Statement on Form SB-2:
Exhibit
No. Description
--- -----------
3.1 Articles of Incorporation of Bail Corporation (incorporated by
reference to Exhibit 2.1 to Registrant's Registration Statement
on Form 10-SB filed with the Commission on September 13, 1999).
3.2 Bylaws of Bail Corporation (incorporated by reference to Exhibit
2.2 to Registrant's Registration Statement on Form 10-SB filed
with the Commission on September 13, 1999).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP*
10.1 Agreement for the Purchase of Common Stock dated as of February
27, 2001, and effective as of March 3, 2001, by and between
Corporate Management Services, Inc., Bail Corporation and Charles
A. Ross, Sr. (incorporated by reference herein to Exhibit 7.1 of
the Form 8-K filed March 9, 2001, Commission file #000-27321).
10.2 Mutual Release dated as of April 30, 2001, between Bail
Corporation and Corporate Management Services, Inc. (incorporated
by reference herein to Exhibit 10.2 of the Registrant's 10-KSB
for the period ended March 31, 2001).
10.3 Agreement dated June 22, 2001, between Bail Corporation, TCC
Royalty Corp. and Austin Exploration L.L.C. regarding Shiloh
Project / Cherokee Basin Coal Bed Methane (incorporated by
reference herein to Exhibit 10.3 of the Registrant's 10-KSB for
the period ended March 31, 2001).
23.1 Consent of Cordovano & Harvey, P.C.*
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1)*
----------------------------
* Filed herewith.
28