As filed with the Securities and Exchange Commission on January 18, 2005
Registration No. 000-50776
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
AMERICAN CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 6311 65-0895564
--------------- ------------------- -----------------
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
Richard C. Turner
100 Village Square Crossing, Suite 202 4200 Oak Street
Palm Beach Gardens, FL 33410 Palm Beach Gardens, FL 33418
(561) 207-6395 (561) 207-6395
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(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and, telephone number, including
of registrant's principal area code, of agent for service)
executive offices)
copy to:
Gerald W. Gritter, Esq.
Redgrave & Rosenthal LLP
120 E. Palmetto Park Road
Suite 450
Boca Raton, FL 33432
(561) 347-1700
Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Proposed
Each Class Proposed Maximum
of Securities Amount Maximum Aggregate Amount of
to be to be Offering Price Offering Registration
Registered Registered Per Security Price Fee (3)
--------------- --------------- ----------------- ------------- ------------
Common Stock
offered hereby 20,000,000 $ 5.00 100,000,000 $ 12,670.00
Common Stock to be
issued upon exercise
of Warrants offered
hereby (1) 2,000,000 6.00 12,000,000 1,520.40
Common Stock to be
issued upon exercise
of outstanding
Warrants (2) 1,315,000 .01 13,150 1.67
Common Stock to be
issued upon exercise
of outstanding
Warrants (2) 216,209 6.00 1,297,254 164.36
Common Stock to be
issued upon exercise
of Warrants to be
issued (2) 1,500,000 .01 15,000 1.90
Common Stock to be
issued pursuant
to subscriptions
received 1,450,000 1.00 1,450,000 183.72
------------
Total Registration Fees $ 14,542.05
(1) No additional consideration is to be received in this offering from issuance
of the Warrants. In accordance with Rule 457(i), the aggregate offering price
of the shares represents the additional consideration to be received by the
Registrant upon exercise of the Warrants.
(2) Represents shares of Common Stock to be issued upon exercise of outstanding
warrants, plus warrants to be issued to directors of the Company. In accordance
with Rule 457(g), the aggregate offering price of these shares is calculated
based on the price at which the warrants may be exercised.
(3) The registration fee was previously paid via electronic transfer.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission 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.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION; dated January 18, 2005
$100,000,000
AMERICAN CAPITAL HOLDINGS, INC.
20,000,000 Shares of Common Stock
and
2,000,000 Detachable Warrants
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We are offering up to Twenty Million (20,000,000) shares of our Common Stock at
a purchase price of Five ($5.00) Dollars per share. This is our initial public
offering. We expect to offer the shares and warrants from time to time as
capital is required for our business operations.
For every ten (10) shares purchased, the purchaser will also receive one
detachable warrant. Each warrant will entitle the holder to purchase one (1)
share of our Common Stock at a purchase price of Six ($6.00) Dollars per share.
The warrants will expire two (2) years after the date of issuance.
The shares and warrants will be marketed and sold through our officers and
directors and through registered broker/ dealers. This offering is not
contingent upon any minimum number of shares being sold. All proceeds from
sales of the shares and warrants will be placed in our general treasury as sales
are made. Currently, there is no public trading market for the shares and
warrants, or of our common stock. We intend to apply for listing of our Common
Stock on the American Stock Exchange.
We are also registering the issuance of 1,450,000 shares of our common stock
which we will be issuing as a result of the conversion of certain convertible
notes previously made to the Company, as well as 5,031,209 shares of our common
stock which will be issued if and when certain outstanding warrants are
exercised, at exercise prices of $.01 and $6.00 per share.
Investing in our Common Stock involves risks that are described in the "Risk
Factors" section beginning on page * of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Offering Sales Proceeds to
Price Commissions (1) the Company (2)
-------------------------------------------------------------------------------
Maximum Offering $100,000,000 $ 5,000,000 $ 95,000,000
===============================================================================
(1) We are offering the shares primarily through our officers and directors, who
will receive no commission in connection with their selling efforts. However, we
may sell some of the common stock through one or more licensed broker/dealers,
to whom we may pay commissions of up to 10%. The amount of sales commissions
noted above is an estimate.
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(2) Before deducting estimated offering expenses of $160,000.
The date of this Prospectus is __________, 2005.
You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. You should assume that the information appearing in this prospectus
is accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date. We are not making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted.
PROSPECTUS SUMMARY
This summary highlights key aspects of our business and our common stock
offering that are described more fully elsewhere in this prospectus. This
summary does not contain all of the information which you should consider before
making an investment decision. You should read this entire prospectus carefully,
including "Risk Factors" and the consolidated financial statements and the notes
to the consolidated financial statements included elsewhere in this prospectus.
In this prospectus, "we," "us," "our," "ours" and "our company" refer to
American Capital Holdings, Inc. and, where applicable, our insurance
subsidiaries, Universe Life Insurance Company and IS Direct Agency, Inc.
The Company
American Capital Holdings, Inc., ("ACH") is a holding company which owns five
(5) proprietary financial products These products are known as Guaranteed
Principle Insured Convertible Securities ("GPICS(TM)"), Energy Tax Incentive
Preferred Securities ("ETIPS(TM)"), Equipment Tax Incentive Convertible
Securities ("ETICS(TM)"), Guaranteed Pension Accounting Contract Solutions
("GPACS(TM)") and Government Pension Accounting Contract Solutions
("GPACS(TM)"). The GPACS(TM) products are designed to provide solutions for
unfunded government and private sector pension plan liability. The GPICS(TM),
ETIPS(TM) and ETICS(TM) products are investment structures designed to
facilitate the use of energy and depreciation tax incentives while insuring the
capital investment through guarantees of principal. Our Chairman, Barney A.
Richmond, has applied for a patent for one of these products, known as
Government Pension Accounting Contract Solutions (GPACS(TM)). If and when the
patent is granted, Mr. Richmond will assign the patent to ACH.
The GPACS(TM) and some of our other products use insurance as a part of their
structures. The insurance contracts will be written through several licensed
insurance carriers. We intend to underwrite insurance policies through three
subsidiaries, through which we intend to conduct our primary business
operations. These subsidiaries are IS Direct Agency, Inc. ("IS Direct"),
Universe Life Insurance Company ("Universe") and Cosmopolitan .Life Insurance
Company ("Cosmopolitan").
IS Direct is a wholly-owned subsidiary of ACH, and is a licensed insurance
agency through which we will sell our products. IS Direct is currently licensed
in thirty three (33) states. Chris Dillon, president of IS Direct, is authorized
to do business as an individual agent in forty nine (49) states (all but Alaska)
and in the District of Columbia. IS Direct expects to obtain the necessary
licenses for it to operate in all fifty (50) states. In addition to placing the
insurance components of our financial products, IS Direct will also sell term
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life products, annuities and other traditional insurance products. We expect
most of the insurance products sold by IS Direct will be eventually underwritten
by Universe Life, which the Company has a contract to purchase. However, ACH
also is planning to use IS Direct to sell additional products of other licensed
insurance carriers.
The Company has a contract to purchase Universe Life Insurance which is planned
as another wholly-owned subsidiary of ACH, pending regulatory approval of the
change in control by the Insurance Commissioner of the State of Idaho. Universe
is a life, health and annuities insurance carrier, which is currently licensed
to operate in three (23) states. Universe will be initiating the application
process to become licensed in all remaining states, and expects to obtain the
necessary licenses to operate in all fifty (50) states in the near future. ACH
expects Universe to be domiciled in the State of South Carolina, with its
principal offices in Charleston.
On October 30, 2004, we entered into an agreement to purchase eighty (80%)
percent of Cosmopolitan Life Insurance Company. We expect to close our
acquisition of Cosmopolitan in March 2005, upon regulatory approval by the
Arkansas Department of Insurance. Cosmopolitan Life Insurance Company is a
stipulated premium insurer chartered in 1931 in the State of Arkansas. Since
1998, Cosmopolitan has offered both direct and re-insurance coverage related to
health and dental care plans, with a specialty in providing stop-loss coverage
for self-funded employer plans.
We intend to use some of the financial products of our subsidiaries as
solutions, addressing the needs of governmental and private sector businesses
regarding unfunded pension liabilities and other post-employment benefit
("OPEB") liabilities. We also plan to sell annuities and other insurance
products, through our subsidiaries, to both the public and private sectors. We
also intend to invest and/or sell our proprietary ETIPS(TM) and ETICS(TM)
products in the public marketplace.
Our principal executive offices are located at 100 Village Square Crossing,
Suite 202, Palm Beach Gardens, FL 33410, and our telephone number is (561) 207-
6395. The Company's website is www.americancapitalholdings.com as of January
20, 2005. The Company's fiscal year ends May 31, 2005.
The Offering
Issuer: American Capital Holdings, Inc.
Securities Offered: 20,000,000 shares of our common stock, and
2,000,000 warrants with an exercise price of $6.00
Offering Price: Five ($5.00) Dollars per share of common stock
The warrants have an exercise price of Six ($6.00)
Dollars per share.
Offering Period: The offering will commence on *[to be provided on
amendment] and we expect the offering to continue
from time to time until all 20,000,000 shares are
sold, unless we terminate the offering sooner in
our discretion.
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Method of Purchase: In order to purchase shares and warrants, please
complete and return to us the Subscription
Agreement attached to this Prospectus as
Attachment A, along with payment for your shares.
We will then mail you a written confirmation that
your subscription has been accepted and will
promptly cause to be issued a certificate for your
shares, and your warrants. If for any reason your
subscription is not accepted, we will return to
you the full purchase price.
Use of Proceeds: We expect to contribute most of the proceeds directly
or indirectly to the capital and surplus of our
insurance subsidiaries, as needed to support
growth and to maintain regulatory compliance. We
may also use a portion of the proceeds for
additional acquisitions of businesses related, and
complimentary, to that of our existing
subsidiaries. This offering is not contingent
upon any minimum number of shares being sold. All
proceeds from sales of the shares will be placed
in our general operating account as sales are
made.
Absence of Public Market: There is currently no public trading market for
our common stock, or for the warrants included in
the offering. We intend to apply for listing of
our Common Stock on the American Stock Exchange.
Summary Consolidated Financial Statements
The following summary financial information has been derived from the financial
statements that are included in this prospectus.
Statement of Operations Data:
(unaudited)
Year ended Six Months ended
May 31,2004 November 30, 2004
Net Sales 0 123
Total Operating Expenses 486,526 503,741
Net Other Expenses 160,746 68,081
Net Other Comprehensive Loss 512,997 1,873,994
Net Loss 1,164,221 2,453,772
Net Loss Per Common Share .18 .16
Weighted Average Shares Outstanding 6,551,685 15,723,903
Balance Sheet Data:
May 31, 2004 November 30, 2004
(unaudited)
Total Current Assets 3,239,008 3,200,293
Total Assets 14,455,329 12,733,716
Total Liabilities 931,485 1,368,644
Total Stockholders' Equity 13,523,844 11,365,072
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RISK FACTORS
The risk factors discussed below could cause our actual results to differ
materially from those expressed in any forward-looking statements. See "Forward-
Looking Statements." Although we have attempted to list comprehensively these
important factors, we caution you that other factors may in the future prove to
be important in affecting our results of operations. New factors emerge from
time to time and it is not possible for us to predict all of these factors, nor
can we assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
The risks described below set forth what we believe to be the most material
risks associated with the purchase of our common stock. Before you invest in our
common stock, you should carefully consider these risk factors, as well as the
other information contained in this prospectus.
Lack of Operating History. We have not yet begun operations and have not
yet realized revenues or earnings from operations. We will sustain initial
operating expenses without corresponding revenues. This will result in
our incurring net operating losses until we can realize profits from our
proposed business operations.
Speculative Nature of the Company's Proposed Operations. The success of our
proposed plan of operation will depend primarily on our ability to sell the
proprietary products we have created. There can be no assurance that we will be
successful in these efforts.
Dividend Policy. We have not yet paid any dividends on our Common Stock.
Payment of dividends will be within the sole discretion of our Board of
Directors and will depend, among other factors, upon earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, our anticipated financial capital requirements are such that we
intend to continue to follow a policy of retaining earnings in order to finance
the development of our business.
We Will Face Intense Competition. We are and will continue to be only one
participant in the business of selling life insurance backed financial
solutions. We will face competition from companies that have greater financial
resources, broader arrays of products, higher ratings and stronger financial
performance, which may impair our ability to retain existing customers, attract
new customers and maintain our profitability and financial strength. We operate
in a highly competitive industry. Many of our competitors are substantially
larger and enjoy substantially greater financial resources, broader and more
diversified product lines and more widespread agency relationships. Our products
can be expected to face competition with products sold by other insurance
companies, financial intermediaries and other institutions based on a number of
factors, including premium rates, policy terms and conditions, service provided
to distribution channels and policyholders, ratings by rating agencies,
reputation and commission structures.
Conflicts of Interest - General. Certain conflicts of interest may exist from
time to time between the Company and its officers and directors. They have
other business interests to which they devote their attention, and they will
continue to do so. As a result, conflicts of interest may arise that can be
resolved only through exercise of such judgment as is consistent with the
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fiduciary duties of management to the Company.
No Public Market Currently Exists. Although we intend to apply for listing of
our Common Stock on the American Stock Exchange, there is currently no public
market for the Company's common stock. There can be no assurance, however, that
a market will in fact develop, or that a shareholder ever will be able to sell
his shares without considerable delay. If a market should develop, the price
may be highly volatile. Factors such as those discussed in this "Risk Factors"
section may have a significant impact upon the market price of the Company's
stock.
We may require additional capital to support sustained future growth which may
not be available when needed or may be available only on unfavorable terms. Our
long-term strategic capital requirements will depend on many factors including
the accumulated statutory earnings of our life subsidiaries and the relationship
between the statutory capital and surplus of our life subsidiaries and (i) the
rate of growth in sales of our products; and (ii) the levels of credit risk
and/or interest rate risk in our invested assets. To support long-term capital
requirements, we may need to increase or maintain the statutory capital and
surplus of our life subsidiaries through additional financings, which could
include debt, equity, financial reinsurance and/or other surplus relief
transactions. Such financings, if available at all, may be available only on
terms that are not favorable to us. In the case of additional equity offerings,
dilution to our shareholders could result, and/or such securities may have
rights, preferences and privileges that are senior to those of our common stock.
In the case of debt offerings or placements, the holders of the debt will have
rights preferences and privileges that are senior to those of our common stock.
If we cannot maintain adequate capital, we may be required to limit growth, and
such action could adversely affect our business, financial condition and results
of operations.
Changes in state and federal regulation may affect our profitability. We are
subject to regulation under applicable insurance statutes, including insurance
holding company statutes, in the various states in which our life subsidiaries
write insurance. Insurance regulation is intended to provide safeguards for
policyholders rather than to protect shareholders of insurance companies or
their holding companies. Regulators oversee matters relating to trade practices,
policy forms, claims practices, guaranty funds, types and amounts of
investments, reserve adequacy, insurer solvency, minimum amounts of capital and
surplus, transactions with related parties, changes in control and payment of
dividends.
State insurance regulators and the National Association of Insurance
Commissioners, or NAIC, continually reexamine existing laws and regulations, and
may impose changes in the future. Our life subsidiaries are subject to the
NAIC's risk-based capital requirements which are intended to be used by
insurance regulators as an early warning tool to identify deteriorating or
weakly capitalized insurance companies for the purpose of initiating regulatory
action. Our life subsidiaries also may be required, under solvency or guaranty
laws of most states in which they do business, to pay assessments up to certain
prescribed limits to fund policyholder losses or liabilities of insolvent
insurance companies. In addition, federal legislation and administrative
policies in several areas, including pension regulation, age and sex
discrimination, financial services regulation, securities regulation and federal
taxation, can significantly affect the insurance business. As increased scrutiny
has been placed upon the insurance regulatory framework, a number of state
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legislatures have considered or enacted legislative proposals that alter, and in
many cases increase, state authority to regulate insurance companies and holding
company systems. The regulatory framework at the state and federal level
applicable to our insurance products is continuously evolving. The changing
regulatory framework could affect the design of such products and our ability to
sell certain products. Any changes in these laws and regulations could
materially and adversely affect our business, financial condition and results of
operations.
The Common Stock May Not Be a Suitable Investment for All Investors. Our common
stock may not be a suitable investment for you, and we advise you to consult
your investment, tax and other professional financial advisors prior to
purchasing our stock. No independent rating agency has reviewed our financial
condition to determine whether the stock is a suitable investment for any
purchaser. The stock may not be a suitable investment for you based on your
ability to withstand a loss of your investment or other aspects of your
financial situation, including your income, net worth, financial needs,
investment risk profile, return objectives, investment experience and other
factors. Prior to purchasing any stock, you should consider your investment
allocation with respect to the amount of your contemplated investment in our
stock in relation to your other investment holdings and the diversity of those
holdings.
You will incur immediate and substantial dilution in net tangible book value.
We expect that the initial public offering price of our common stock will be
substantially higher than the net tangible book value of each outstanding share
of common stock. If you purchase common stock in this offering, you will suffer
immediate and substantial dilution. The dilution will be $2.41 per share in the
net tangible book value of the common stock from the initial public offering
price. For a more detailed discussion of dilution, see "Dilution" on page *.
After the offering, our executive officers, directors, and parties related to
them, in the aggregate, may have the ability to control matters requiring
shareholder approval. Our executive officers, directors and parties related to
them own a large enough stake in us to have an influence on the matters
presented to shareholders. As a result, these shareholders may have the ability
to control matters requiring shareholder approval, including the election and
removal of directors, the approval of significant corporate transactions, such
as any merger, consolidation or sale of all or substantially all of our assets,
and the control of our management and affairs. Accordingly, this concentration
of ownership may have the effect of delaying, deferring or preventing a change
in control of us, impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in turn could have
an adverse effect on the market price of our common stock.
Our management will have broad discretion in allocating proceeds from this
offering. The net proceeds to us from this offering, after deducting expenses
payable by us, are estimated to be approximately $94,840,000. The primary
purpose of this offering is to increase the capital and surplus of our life
subsidiaries to support future growth of our business. Our management will
retain broad discretion as to the allocation of the proceeds of this offering.
The failure of management to apply these funds effectively could negatively
impact our business and prospects. See "Use of Proceeds."
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FORWARD-LOOKING STATEMENTS
This prospectus contains certain statements of a forward-looking nature relating
to future events or our future performance. These forward-looking statements are
based on our current expectations, assumptions, estimates and projections about
us and our industry. When used in this prospectus, the words "expects,"
"believes," "anticipates," "estimates," "intends" and similar expressions are
intended to identify forward-looking statements. These statements include, but
are not limited to, statements of our plans, strategies and prospects under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," and other
statements contained elsewhere in this prospectus.
These forward-looking statements are only predictions and are subject to risks
and uncertainties that could cause actual events or results to differ materially
from those projected. The cautionary statements made in this prospectus should
be read as being applicable to all related forward-looking statements wherever
they appear in this prospectus. We assume no obligation to update these forward-
looking statements publicly for any reason. Actual results could differ
materially from those anticipated in these forward-looking statements.
USE OF PROCEEDS
We estimate that our net proceeds from this offering, after expenses, will be
approximately $94,840,000. We expect to contribute most of the proceeds directly
or indirectly to the capital and surplus of our insurance subsidiaries, as
needed to support growth and to maintain regulatory compliance. We may also use
a portion of the proceeds for additional acquisitions of businesses related, and
complimentary, to that of our existing subsidiaries. This offering is not
contingent upon any minimum number of common stock or warrants being sold. As a
result, all proceeds from sales of the common stock will be placed in our
general operating account as sales are made.
CAPITALIZATION
The following table sets forth our capitalization, as of November 30, 2004, and
as adjusted to reflect the sale of all of the common shares and warrants. The
table below should be read in conjunction with our consolidated financial
statements, related notes and other financial information included elsewhere in
this prospectus.
As of November 30, 2004
Actual As Adjusted
Liabilities
Accounts Payable and Accrued Expenses $ 42,585 $ 42,585
Loan Payable to Related Parties 276,082 276,082
Current Portion of Notes and Loans Payable 1,049,977 1,049,977
Total Liabilities $ 1,368,644 $ 1,368,644
Shareholder Equity
Common Stock, $.0001 par value $ 1,732 $ 3,732
Additional paid-in capital 14,981,333 114,979,333
Retained earnings (3,617,993) (3,617,993)
Total Stockholders' Equity $ 11,365,072 $111,365,072
Total Capitalization $ 12,733,716 $112,733,716
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DILUTION
Purchasers of our common stock in this offering will suffer immediate and
substantial dilution in net tangible book value per share. Dilution is the
amount by which the offering price paid by the purchasers of our common stock to
be sold in this offering exceeds the net tangible book value per share of our
common stock after the offering. Net tangible book value per share is determined
by subtracting our total liabilities from the total book value of our tangible
assets and dividing the difference by the number of shares of our common stock
deemed to be outstanding on the date the book value is determined.
Our net tangible book value as of November 30, 2004 was approximately
$1,887,524, or $.11 per share of common stock, including 1,595,000 shares
subscribed and paid for as of that date, but not yet issued . After giving
effect to this offering, and after deducting estimated offering expenses, our
net tangible book value as of November 30, 2004, would have been $96,787,524
million or $2.59 per share. This represents an immediate increase in net
tangible book value of $2.48 per share to the existing shareholders and an
immediate dilution of $2.41 per share to new investors purchasing shares in this
offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share $ 5.00
Net tangible book value per share before this offering $ .11
Pro forma increase in net tangible book value per share
attributable to new investors $ 2.48
Pro forma net tangible book value per share after this offering $ 2.59
Dilution per share to new investors $ 2.41
The following table summarizes, as of November 30, 2004, the differences between
existing shareholders and the new investors with respect to the number of shares
of common stock purchased from us, the total consideration paid and the average
price per share paid before deducting estimated underwriting discounts,
commissions and other expenses payable by us.
Existing Shareholders New Investors
Shares Purchased 17,318,903 20,000,000
Total Consideration $ 14,713,065 $ 100,000,000
Average Price Per Share $ .85 $ 5.00
PLAN OF OPERATION
Overview
American Capital Holdings, Inc., ("ACH") is a holding company which owns five
(5) proprietary financial products These products are known as Guaranteed
Principle Insured Convertible Securities ("GPICS(TM)"), Energy Tax Incentive
Preferred Securities ("ETIPS(TM)"), Equipment Tax Incentive Convertible
Securities ("ETICS(TM)), Guaranteed Pension Accounting Contract Solutions
("GPACS(TM)) and Government Pension Accounting Contract Solutions ("GPACS(TM)").
The GPACS(TM) products are designed to provide solutions for unfunded government
and private sector pension plan liability. The GPICS(TM), ETIPS(TM) and
9
ETICS(TM) products are investment structures designed to facilitate the use of
energy and depreciation tax incentives while insuring the capital investment
through guarantees of principal. Our Chairman, Barney A. Richmond, has applied
for a patent for one of these products, known as Government Pension Accounting
Contract Solutions (GPACS(TM)). If and when the patent is granted, Mr. Richmond
will assign the patent to ACH.
The GPACS(TM) and some of our other products use insurance as a part of their
structures. The insurance contracts will be written through several licensed
insurance carriers. We intend to underwrite insurance policies through three
subsidiaries, through which we intend to conduct our primary business
operations. These subsidiaries are IS Direct Agency, Inc. ("IS Direct"),
Universe Life Insurance Company ("Universe") and Cosmopolitan .Life Insurance
Company ("Cosmopolitan").
IS Direct is a wholly-owned subsidiary of ACH, and is a licensed insurance
agency through which we will sell our products. IS Direct is currently licensed
in thirty three (33) states. Chris Dillon, president of IS Direct, is authorized
to do business as an individual agent in forty nine (49) states (all but Alaska)
and in the District of Columbia. IS Direct expects to obtain the necessary
licenses for it to operate in all fifty (50) states. In addition to placing the
insurance components of our financial products, IS Direct will also sell term
life products, annuities and other traditional insurance products. We expect
most of the insurance products sold by IS Direct will be eventually underwritten
by Universe Life, which the Company has a contract to purchase. However, ACH
also is planning to use IS Direct to sell additional products of other licensed
insurance carriers.
The Company has a contract to purchase Universe Life Insurance which is planned
as another wholly-owned subsidiary of ACH, pending regulatory approval of the
change in control by the Insurance Commissioner of the State of Idaho. Universe
is a life, health and annuities insurance carrier, which is currently licensed
to operate in three (23) states. Universe will be initiating the application
process to become licensed in all remaining states, and expects to obtain the
necessary licenses to operate in all fifty (50) states in the near future. ACH
expects Universe to be domiciled in the State of South Carolina, with its
principal offices in Charleston.
On October 30, 2004, we entered into an agreement to purchase eighty (80%)
percent of Cosmopolitan Life Insurance Company. We expect to close our
acquisition of Cosmopolitan in March 2005, upon regulatory approval by the
Arkansas Department of Insurance. Cosmopolitan Life Insurance Company is a
stipulated premium insurer chartered in 1931 in the State of Arkansas. Since
1998, Cosmopolitan has offered both direct and re-insurance coverage related to
health and dental care plans, with a specialty in providing stop-loss coverage
for self-funded employer plans.
ACH's principal executive offices are located at 100 Village Square Crossing,
Suite 202, Palm Beach Gardens, FL 33410, and our telephone number is (561) 207-
6395. The Company's fiscal year ends May 31, 2005.
History
The Company was incorporated in the State of Florida on January 25, 1999 as US
Amateur Sports Company, a wholly owned subsidiary of eCom eCom.com, Inc.
("eCom") which trades on the OTC/Bulletin Board under the symbol 'ECEC.' On
10
March 24, 2003, the Company changed its name to USA SportsNet, Inc., and
recently changed its name to American Capital Holdings, Inc. in connection with
its spin off by eCom and its acquisition of certain assets of a company formerly
known as American Capital Holdings, Inc. (now known as ACHI, Inc.) The
Company's main office is located at 100 Village Square Crossings, Suite 202,
Palm Beach Gardens, Florida 33410, and the telephone number is (561) 622-4395.
While a wholly owned subsidiary of eCom, the Company developed an e-commerce
Internet infrastructure. This product provided an affordable, user-friendly
technological platform and professional resources to facilitate web business
development. It also operated an on-line business as a test model, using
Company developed e-commerce concepts to sell sports products.
The Company was one of ten wholly owned subsidiaries of eCom, with varying
business plans. In recent years, eCom concluded that it did not have the
financial resources necessary to develop all of its ten business units
collectively. eCom decided to spin off its subsidiaries into independent
companies in the belief that independent companies, each with a distinct
business, would be better able to obtain necessary funding and develop their
business plans. This belief was based in part on eCom's experience with
potential business partners which sought involvement with only one of eCom's
subsidiaries, rather than involvement with the multi-faceted eCom.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of the
Company. They voted to issue to the shareholders of eCom one share of the
Company for every one share of eCom owned as of the record date of January 5,
2004. Fractional shares will be purchased by the Company. No payment was
required of the eCom shareholders.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of the
Company. They voted to issue to the shareholders of eCom one share of the
Company for every one share of eCom owned as of the record date of January 5,
2004. Fractional shares will be purchased by the Company. No payment was
required of the eCom shareholders.
After the spin off of the Company was completed, the Company was presented with
an opportunity to acquire certain assets of American Capital Holdings, Inc. (now
known as, and referred to hereafter as ACHI) On January 12, 2004, the Company
entered into an Asset Purchase Agreement with ACHI whereby the Company agreed to
acquire certain assets of ACHI in return for the issuance of common stock of the
Company in an amount equal to 95% of the total ownership of the Company. In
order to accomplish this transaction, the Company effected a 20 to 1 reverse
stock split, which reduced its outstanding stock to 2,497,756 shares, and agreed
to issue to ACHI 49,955,112 shares. ACHI agreed to accept the issuance of
13,561,804 shares at closing, and assigned its right to receive the 13,561,804
shares to its principle, Barney A. Richmond, now the President of the Company.
The remaining 36,393,308 shares were reserved for issuance by the Company in
connection with future acquisitions and financings. The Company then changed
its name to American Capital Holdings, Inc., and ACHI changed its name to ACHI,
Inc. Of the 36,393,308 shares reserved for future issuance, 2,162,099 shares
have now been issued to the shareholders of Spaulding Ventures, LLC, in
replacement of shares of ACHI to be issued to Spaulding in connection with a
prior acquisition of assets by ACHI from Spaulding.
The assets acquired from ACHI consist primarily of approximately $10.8 million
11
of investment interests in ten developing companies (described below),
approximately $5.3 million of restricted securities, approximately $233,000 of
marketable securities, approximately $100,000 in cash, and proprietary
investment programs known as Energy Tax Incentive Preferred Securities
("ETIPS")and Guaranteed Principal Insured Convertible Securities ("GPICS") which
ACHI had developed and specifically designed to facilitate investment in oil and
gas exploration in the United States, and in developing companies. See the
American Capital Holdings balance sheet included in the Financial Statements
section of this report.
On December 30, 2003, prior to the Company's acquisition from ACHI, ACHI entered
into a letter agreement with Spaulding Ventures, LLC, pursuant to which ACHI
agreed to acquire all of Spaulding's assets in return for 2,093,351 shares of
ACHI common stock, plus warrants to purchase a total of 209,335 additional
shares of ACHI common stock at a purchase price of $6.00 per share. As part of
its acquisition from ACHI of the assets ACHI acquired from Spaulding, the
Company agreed to replace the shares and warrants to be issued by ACHI with
shares and warrants of the Company. The Company is registering in this offering
the shares to be issued when the warrants are exercised.
The assets acquired by ACHI from Spaulding, and subsequently acquired by the
Company from ACHI, consist primarily of equity ownership positions in the
following ten developing companies:
Smart Pill Holding Corporation Brilliant Roadways, Inc.
@visory, LLC eSmokes, Inc.
Efficien, Inc. IS Direct Agency, Inc.
Solid Imaging, Ltd. Century Aerospace Corporation.
Traffic Engine, Inc. Metroflex, Inc.
Business Strategy
We intend to use the financial products of our subsidiaries as solutions,
addressing the needs of governmental and private sector businesses regarding
unfunded pension liabilities and other post-employment benefit ("OPEB")
liabilities. We also plan to sell annuities and other insurance products,
through our subsidiaries, to both the public and private sectors. We also
intend to invest and/or sell our proprietary ETIPS(TM) and ETICS(TM) products in
the public marketplace.
Our GPACS(TM) products, which refers to both the Guaranteed Pension Accounting
Contract Solutions product and the Government Pension Accounting Contract
Solutions product, relate to a business method of adjusting the balance sheet of
a business or governmental organization, and particularly to a system for
organizing the unfunded obligations of the organization so that the liability on
the balance sheet becomes offset by an asset. The product also provides a
systematic investing capability to enhance the profitability of the organization
and the improved treatment of tax obligations.
GPACS was created in response to the General Accounting Standards Board ("GASB")
Statement 45, which generally requires state and local governmental employers to
account for and report the annual cost of OPEB and the outstanding obligations
and commitments related to OPEB in essentially the same manner as currently
required pension obligations. Annual OPEB costs for most employers will be based
on actuarially determined amounts that, if paid on an ongoing basis, generally
12
would provide sufficient resources to pay benefits as they come due. The
provisions of Statement 45 do not require governments to fund their OPEB plans.
An employer may establish its OPEB liability at zero as of the beginning of the
initial year of implementation. However, the unfunded actuarial liability is
required to be amortized over future periods. Statement 45 is effective for
periods beginning after December 15, 2006, 2007, or 2008, depending on the size
of the government entity based on annual revenues used for GASB 34
implementation requirements.
In May of 2004, the GASB issued a corresponding "plan" statement, Statement 43-
Financial Reporting for Postemployement Benefit Plans Other than Pension Plans.
Statement 43 is effective one year prior to Statement 45. This statement
requires a statement of plan net assets, statement of changes in plan net
assets, schedule of funding progress, and schedule of employer contributions in
the stand-alone financial reports of OPEB plans, as well as in the financial
statements of governments having OPEB trust funds.
Actuarial services will be required one year earlier if the "plan" Statement 43
is applicable, unless an alternative measurement method is utilized. However,
the alternative measurement method is only an option for plans with a total
membership of fewer than one hundred. Many OPEB plans are currently paying
benefits on a pay-as-you-go basis. If a government does not have an acceptable
trust or equivalent arrangement established, actuarial valuations will not be
necessary until Statement 45 is effective. Establishing a trust may be an option
for funding OPEB benefits; employers should consider the impact of required
actuarial services.
Our GPICS(TM), ETIPS(TM) and ETICS(TM) products are each investment structures
designed to maximize the benefit of energy and equipment tax incentives, in
order to facilitate investment in energy related and other business enterprises.
An essential feature of these products is a guarantee of the principal invested,
as a result of the structuring of the investment.
Our plan of operation includes the underwriting of the insurance aspects of our
products through our subsidiaries. Pending approvals of our above described
proposed acquisitions of Universe and Cosmopolitan, we will use third party
insurance carriers. However, upon receiving the approvals, which are expected
in due course, we will retain as much premium and commission money as possible
within our subsidiaries.
IS Direct currently sells primarily term and whole life insurance products.
However, upon the completion of our proposed acquisition of Universe, the scope
of products available for sale by IS Direct is expected to broaden. Universe is
a life insurance company which we expect to use to underwrite the insurance
policies required by our GPACS products.
Until 1998, Cosmopolitan was engaged exclusively in providing burial/final
expense insurance, and was operated as a small stipulated premium carrier in
association with the funeral home business. In 1998, Cosmopolitan was acquired
by Stephen E. Whitwell and Matt Lile, who implemented plans to grow the company.
In 1998 a dental insurance product was file-approved and marketing commenced.
Cosmopolitan also became involved in providing specific stop-loss coverage for
self-funded employer plans for which there was a retro-session agreement. In
2001, Cosmopolitan introduced a new product, Employers Choice Health Plan,
referred to as ECHP. Recently, most of Cosmopolitan's revenues have been
realized from re-insurance assumed, while its dental product has been a small
13
but profitable segment for the company. Cosmopolitan sees great opportunity for
each product to expand and to have great growth potential with the added
authority by way of either obtaining Certificate of Authority in additional
jurisdictions or by affiliating with an issuing carrier with authority in other
jurisdictions to enter into a quota share agreement.
Government Regulation
Life insurance companies are subject to regulation and supervision by the states
in which they transact business. State insurance laws establish supervisory
agencies with broad regulatory authority, including the power to:
* grant and revoke licenses to transact business
* regulate and supervise trade practices and market conduct
* establish guaranty associations
* license agents
* approve policy forms
* approve premium rates for some lines of business
* establish reserve requirements
* prescribe the form and content of required financial statements and
reports
* determine the reasonableness and adequacy of statutory capital and
surplus
* perform financial, market conduct and other examinations
* define acceptable accounting principles
* regulate the type and amount of permitted investments
* limit the amount of dividends and surplus note payments that can be
paid without obtaining regulatory approval.
Our life subsidiaries are subject to periodic examinations by state regulatory
authorities. The payment of dividends or the distributions, including surplus
note payments, by our life subsidiaries is subject to regulation by each
subsidiary's state of domicile's insurance department. In addition, dividends
and surplus note payments may be made only out of earned surplus, and all
surplus note payments are subject to prior approval by regulatory authorities.
Most states have also enacted regulations on the activities of insurance holding
company systems, including acquisitions, extraordinary dividends, the terms of
surplus notes, the terms of affiliate transactions and other related matters.
Most states have enacted legislation or adopted administrative regulations
affecting the acquisition of control of insurance companies as well as
transactions between insurance companies and persons controlling them. The
nature and extent of such legislation and regulations currently in effect vary
from state to state. However, most states require administrative approval of the
direct or indirect acquisition of 10% or more of the outstanding voting
securities of an insurance company incorporated in the state. The acquisition of
10% of such securities is generally deemed to be the acquisition of "control"
for the purpose of the holding company statutes and requires not only the filing
of detailed information concerning the acquiring parties and the plan of
acquisition, but also administrative approval prior to the acquisition. In many
states, the insurance authority may find that "control" in fact does not exist
in circumstances in which a person owns or controls more than 10% of the voting
securities.
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Federal legislation and administrative policies in several areas, including
pension regulation, age and sex discrimination, financial services regulation,
securities regulation and federal taxation can significantly affect the
insurance business.
State insurance regulators and the NAIC are continually reexamining existing
laws and regulations and developing new legislation for the passage by state
legislatures and new regulations for adoption by insurance authorities. Proposed
laws and regulations or those still under development pertain to insurer
solvency and market conduct and in recent years have focused on:
* insurance company investments
* risk-based capital ("RBC") guidelines, which consist of regulatory
targeted surplus levels based on the relationship of statutory
capital and surplus, with prescribed adjustments, to the sum of
stated percentages of each element of a specified list of company
risk exposures
* the implementation of non-statutory guidelines and the circumstances
under which dividends may be paid
* product approvals
* agent licensing
* underwriting practices
* insurance and annuity sales practices.
Properties
The Company does not own any real property. The Company leases its
headquarters, consisting of approximately 1.022 square feet of office and
warehouse space located at 100 Village Square Crossings, Suite 202, Palm Beach
Gardens, Florida. The lease is for a term of one year, at a rental of $2,687
per month including sales tax.
Legal Proceedings
The Company is not a party to any legal proceedings, except for an Involuntary
Bankruptcy Petition filed by the Company against eCom, which proceeding is
pending in the Federal District Court in Broward County, Florida.
Employees
The Company currently has seven employees, none of which are full time
employees, since they all also provide services to affiliated companies.
MANAGEMENT
The following individuals are our executive officers and the members of our
board of directors. Each director is elected at our annual meeting of
shareholders and holds office until the next annual meeting of shareholders, or
until his or her successor is elected and qualified. Our by-laws permit the
board of directors to fill any vacancy and such director may serve until the
next annual meeting of stockholders or until his or her successor is elected and
qualified. The board of directors elects officers annually and their terms of
office are at the discretion of the board.
15
Name Age Positions Held
---------------------- ---- ------------------------------
Barney A. Richmond 53 Chairman/President/Director
Richard C. Turner 45 Treasurer/Chief Financial
Officer/Secretary/Director
Mathew Salmon 46 Director
Barry M. Goldwater, Jr. 66 Director
Douglas Sizemore 74 Director
Norman E. Taplin 54 Director
Michael Camilleri 51 Director
Barney A. Richmond has been President and a Director of the Company since its
acquisition of certain assets from ACHI in January 2004, and was President and a
Director of ACHI prior to that time. From 1985 to the present, Mr. Richmond has
been an independent advisor and investor in assisting companies, as well as
individuals, regarding public offerings, mergers, reverse mergers and a variety
of corporate financing issues. Mr. Richmond has also been an investor in
numerous reorganizations and business turnarounds, including many substantial
bankruptcy reorganizations. Mr. Richmond has been a member of the Boards of
Directors of The Richmond Company, Inc., Benny Richmond, Inc., 877 Management
Corporation, King Technologies, Inc., King Radio Corporation, United States
Financial Group, Inc., JSV Acquisition Corporation, Chase Capital, Inc,
Berkshire International, Inc. and Dunhall Pharmaceuticals, Inc.
Richard C. Turner has been Treasurer and Chief Financial Officer of the Company
since June 2001, and became a Director of the Company in February 2004. From
September 1990, until he joined the Company in June 2001, Mr. Turner was
employed as an accountant by Glenn G. Schanel, CPA, where he was responsible for
corporate and individual tax returns, business write-up services, and business
consulting services, including computer and database management. Prior to 1990,
Mr. Turner was Vice President of Finance at First American Bank, Lake Worth,
Florida, where he was responsible for the bank's financial reporting, budgeting
and cost accounting.
Michael Camilleri has been a Director of the Company since November 2004, and
holds a number of positions within the insurance industry. He is a principal of
Preferred Insurance Capital Consultants, LLC. Preferred specializes in
actuarial, litigation support and insurance management consulting services. Mr.
Camilleri serves as a director and General Counsel of First Commercial Insurance
Company, and as a director and officer of various insurance related affiliates
of First Commercial. Mr. Camilleri is also President of Newport Star
Reinsurance Company, Inc.; a director and Vice President of CEIB Marketing
Group, LLC; President, Treasurer and Vice President of Spoleto Holdings, LLC;
and Manager of Power One Real Estate Investments, LLC. Within the last five
years, Mr. Camilleri has also served as Secretary of Accident Insurance Company,
Inc., President and CEO of AmTrust Insurance Company, and Senior Vice President
of Insurance Services Offices, Inc.. From 1996 to 1999, he was President of
Insurance Data Resources, Inc. (IDR) and IDR Statistical Services, Inc. (IDRSS),
national workers compensation rating organizations. Prior to joining IDR in
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1996, Mr. Camilleri was a senior partner and head of the insurance regulatory
and health practices for Adorno & Zeder, P.A. From 1978 to 1991 he was with the
National Council on Compensation Insurance, Inc. (NCCI), where he served as
Senior Vice President and General Counsel. At NCCI, Mr. Camilleri directed the
Legal, National Affairs, Public Affairs and Residual Markets division. During
his career with NCCI, he managed countrywide workers compensation assigned risk
plans and reinsurance pools, established a prototype National Affairs
Department, managed all internal and external affairs, provided oversight on
multi state and federal issues including testimony before U.S. Congress, and
served as Secretary to the Board of Directors. Mr. Camilleri is the author of
texts and articles on workers compensation and health care and is a frequent
speaker on workers compensation and health related issues at national
conferences.
Barry M. Goldwater, Jr., has been a Director of the Company since November 2004.
Mr. Goldwater is President of B2 Solutions, which represents client companies
before Congress and various branches of the United States Government, as well as
the California and Arizona state legislatures . Prior to joining B2 Solutions,
Mr. Goldwater served as a General Partner for 13 equipment leasing partnerships.
Mr. Goldwater's background includes 14 years as a United States Congressman and
8 years as a Series 7 Registered Representative in the securities brokerage
industry and a member of the New York Stock Exchange. .While in Congress, Mr.
Goldwater served on committees that had jurisdiction over Energy, Aviation,
Space, Defense and Public Works. Mr. Goldwater served on the Joint Committee on
Energy, which responded to the oil crisis on 1974.
Matthew Salmon has been a Director of the Company since January 2004. Since
November 2000, Mr. Salmon has been President of Upstream Consulting, a Public
Affairs consulting company. From November 1994 until November 2000, Mr. Salmon
served in the United States House of Representatives, representing Arizona's
First Congressional District.
Douglas Sizemore has been a Director of the Company since November 2004. Mr.
Sizemore has been President of Accident Insurance Company, Inc., since 2003, and
has also been a self-employed insurance consultant since 2000. From 1995 to
2000, Mr. Sizemore was Commissioner of Insurance for the State of Tennessee.
Prior to his position as Commissioner of Insurance, Mr. Sizemore was President
of Johnston City Insurance Agency, Inc., dating back to 1959.
Norman E. Taplin has been a Director of the Company since November 2004. Mr.
Taplin is an attorney, concentrating his practice in the areas of regulatory
insurance, administration law, corporate and commercial law representing
companies, industries, business matters involving governmental regulation, the
securing and maintaining of licenses, governmental approvals and other
regulatory issues, real estate, estate planning and probate. He is also involved
in matters regarding the establishment of new businesses, real estate
developments, and other transactions which may or may not involve governmental
regulation. Mr. Taplin has been active in insurance matters since 1975 and has
represented a variety of insurance companies in the United States, District of
Columbia and select foreign jurisdictions. He is also a member of NALC, and has
been appointed to the Hurricane Advisory Board in Georgia.
Our Board of Directors has determined that we have at least one financial
expert, Richard C. Turner, serving on our audit committee. Since Mr. Turner is
an officer of the Company, as well as a director, he is not considered
independent.
17
Our by-laws require us to indemnify directors and officers, to the fullest
extent permitted by law, against liabilities which they may incur under the
following circumstances:
(a) the officer or director conducted himself or herself in good faith;
(b) his or her conduct was in our best interests, or if the conduct was
not in an official capacity, that the conduct was not opposed to
our best interests; and
(c) in the case of a criminal proceeding, he or she had no reasonable
cause to believe that his or her conduct was unlawful. We may not
indemnify our officers or directors in connection with a proceeding
by or in our right, where the officer or director was adjudged
liable to us, or in any other proceeding, where our officer or
director are found to have derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
Prior to January 5, 2004, when the Company was spun off from eCom, our executive
officers were paid by eCom. After the Company was spun off from eCom, Richard
C. Turner, our Chief Financial Officer, has been paid an annual salary of
$50,000, plus a minimum annual bonus of $50,000. No other executive officer
currently receives compensation from the Company.
Mathew Salmon, one of our directors, has been granted warrants to purchase Five
Hundred Thousand (500,000) shares of our Common Stock at an exercise price of
$.01 per share, as compensation for his directorial and consulting services over
the last fifteen (15) months. Each of our other four (4) independent directors
have been granted warrants to purchase 250,000 shares each of our Common Stock
at an exercise price of $.01 per share, as compensation for their directorial
and consulting services. The Company plans to add Mr. Ernst Csiszar to its
Board of Directors and expects this to occur within the next seven (7) days.
Upon Mr. Csiszar's official acceptance, Mr. Csiszar will be compensated the
same warrants to purchase 250,000 shares of our Common Stock @ $.01 per share
as the other four (4) independent directors. Additionally, the Company has
agreed to pay each independent director $7,500 per quarter for their respective
services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions, and there are no proposed transactions,
between the Company and any of its Directors, executive officers or
beneficial owners of five (5%) percent or more of the Company's Common
Stock, or any member of their immediate families, as to which the
Director, officer, beneficial owner, or family member had a material
interest.
18
PRINCIPAL SHAREHOLDERS
As of January 15, 2005, there were a total of 15,723,903 shares of the Company's
stock outstanding, plus 2,250,000 shares of common stock subscribed for, but not
yet issued, pursuant to the conversion of certain convertible notes previously
issued by the Company. In addition, the Company has issued warrants to purchase
an additional 1,931,209 shares of common stock, and has committed to issue
another 4,500,000 warrants to purchase common stock. The table below shows the
number of shares of common stock held by (a) each director and executive officer
of the Company, (b) the directors and executive officers of the Company as a
group, and (c) each person known by us to be the beneficial owner of more than
5% of the Company's outstanding stock. All percentages assume the shares
currently subscribed for are issued and assumes all of the warrants are issued
and exercised.
Number of % of Shares
Name and Address Shares Owned Outstanding
----------------------- ----------------- --------------
Barney A. Richmond, Director & President 7,084,048 29.0%
601 Seafarer Circle
Jupiter, FL 33477
Richard C. Turner, Director & 230,870 .9%
& Chief Financial Officer
4200 Oak Street
Palm Beach Gardens, FL 33418
Matthew Salmon, Director 500,000 (1) 1.9%
2700 N. 3rd Street, Suite 2012
Phoenix, AZ 85004
Barry M. Goldwater, Jr., Director 250,000 (1) 1.0%
3104 E. Camelback, Suite 274
Phoenix, AZ 85016
Douglas Sizemore, Director 250,000 (1) 1.0%
707 Rambling Road
Johnson City, TN 37604
Norman E. Taplin, Director 250,000 (1) 1.0%
1555 Palm Beach Lakes Blvd, Ste 1510
West Palm Beach, FL 33401
Michael Camilleri, Director 250,000 (1) 1.0%
2101 NW Corporate Blvd. Suite 415
Boca Raton, FL 33431
David W. Pong 2,000,000 (2) 8.2%
161 San Antonio Way
Sacramenta, CA 95819
----------------- -------
All Directors & Executive Officers
as a group (7 persons) 8,814,918 36.1%
(1) Represent warrants to purchase common stock which the Company has committed
to issue.
19
(2) All shares are held by the David W. Pong Revocable Trust. Includes 380,000
shares currently owned, 810,000 shares to be issued pursuant to the
conversion of convertible notes held by the Trust, and warrants to purchase
an additional 810,000 shares.
DESCRIPTION OF SECURITIES
Common Stock. Our authorized capital stock consists of 300,000,000 shares of
Common Stock, $.0001 par value per share. As of November 30, 2004, 15,723,903
shares of our Common Stock were issued and outstanding, and an additional
1,595,000 shares had been subscribed to but were not yet issued. Of these
shares, only the 2,497,756 shares retained by those who were shareholders prior
to our acquisition of assets from ACHI are freely tradable. We currently have
approximately 5,600 shareholders.
The holders of our Common Stock are entitled to one vote per each share held and
have the sole right and power to vote on all matters on which a vote of
stockholders is taken. Voting rights are non-cumulative. The holders of shares
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefore and to share pro
rata in any distribution to stockholders. Upon liquidation, dissolution, or
winding up of the Company, the holders of the Common Stock are entitled to
receive the net assets of the Company in proportion to the respective number of
shares held by them after payment of liabilities which may be outstanding.
Warrants. Each warrant will entitle the holder to purchase the number of
shares of the Company's common stock as shown on the warrant, for a purchase
price of $6.00 per share. The warrants may be exercised at any time within two
years from the date of issuance of the warrant.
Florida Law Restricting Change in Control. Florida has enacted legislation that
may deter or frustrate takeovers of Florida corporations. The Florida Control
Share Act generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority or a corporation's disinterested shareholders. The
Florida Affiliated Transactions Act generally requires supermajority approval by
disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of outstanding voting shares of that
corporation (or their affiliates). Florida law and the Company's Articles of
Incorporation and Bylaws also authorize the Company to indemnify its directors,
officers, employees and agents. In addition, Florida law presently limits the
personal liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper person benefit, certain unlawful distributions or
certain reckless, wanton or willful acts or misconduct.
Transfer Agent. The Company's Transfer Agent is Florida Atlantic Stock
Transfer, 7130 Nob Hill Road, Tamarac, Florida 33321.
PLAN OF DISTRIBUTION
The common stock will be offered by the Company through its officers and
directors in states that they are permitted to do so without registration as a
20
broker-dealer and in reliance upon Rule 3a4-1 under the 1934 Act. No selling
commission or other remuneration will be paid directly or indirectly to any
officer, director or employee of the Company in connection with the sale of the
stock. All proceeds from sales of the stock will be placed in the general
treasury of the Company as sales are made, and this offering is not contingent
upon any minimum amount of common stock being sold. The following estimated
expenses will be paid by the Company. The selling shareholders will not be
required to pay any portion of these expenses.
Securities and Exchange Commission registration fee $ 14,542
Accounting fees and expenses 50,000
Blue Sky fees and expenses 10,000
Legal fees and expenses 65,000
Printing expenses 15,000
Miscellaneous 5,458
-------------
TOTAL $ 160,000
Each purchaser of the common stock will be required to complete a Subscription
Agreement. The Subscription Agreement indicates the amount of securities being
purchased by the purchaser along with other required information about the
purchaser. The Subscription Agreement must be properly completed and executed
by the purchaser and returned to our executive offices with cash, check or money
order made payable to American Capital Holdings, Inc. The investment is not
effective until accepted by our executive office.
Prior to this offering, there has been no public market for our common stock. We
intend to apply for listing of our Common Stock on the American Stock Exchange.
In addition to prevailing market conditions, the factors we considered in
determining the initial public offering price, the price at which the Debentures
may be converted, and the warrant exercise price, are:
* the valuation multiples of publicly-traded companies that we believe
are comparable to us
* our financial information
* the history of, and the prospects for, our company and the industry in
which we compete
* an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,
* the present state of our development
* the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act
21
with the SEC with respect to the common stock offered by this prospectus. This
prospectus has been filed as part of that registration statement. This
prospectus does not contain all of the information set forth in the registration
statement because parts of the registration statement are omitted in accordance
with the rules and regulations of the SEC. The registration statement, including
all exhibits, may be inspected without charge, or copies of these materials may
be made upon the payment of prescribed fees, at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at 1-
800-732-0330. In addition, this registration statement, and all exhibits, filed
with the Securities and Exchange Commission through its Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system are publicly available through
the Securities and Exchange Commission's web site located at http//www.sec.gov.
Following the effective date of the registration statement relating to this
prospectus, we will continue to be subject to the reporting requirements of the
Exchange Act and in accordance with these requirements, will file annual,
quarterly and special reports, and other information with the Securities and
Exchange Commission. We also intend to furnish our shareholders and note
holders with annual reports containing audited financial statements and other
periodic reports as we think appropriate or as may be required by law.
You may request a copy of these filings, at no cost, by writing to American
Capital Holdings, Inc., 100 Village Square Crossing, Suite 202, Palm Beach
Gardens, Florida, 33410, Attention: Corporate Secretary. Telephone requests may
be directed to the office of the Corporate Secretary of the Company at (561)
207-6395.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon
for us by Redgrave & Rosenthal LLP, 120 E. Palmetto Park Road, Suite 450, Boca
Raton, FL 33432.
EXPERTS
Our consolidated financial statements as of May 31, 2004 and 2003, and for the
years then ended, appearing in this prospectus and registration statement have
been audited by Wieseneck & Andres, P.A. , independent auditors, as set forth in
their report thereon appearing elsewhere in this prospectus, and are included in
reliance upon this report given on the authority of such firm as experts in
auditing and accounting.
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by American Capital Holdings, Inc.
This prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell, or a solicitation of any offer to buy,
to any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the information set
forth herein is correct as of any time subsequent to the date hereof.
22
FINANCIAL STATEMENTS
American Capital Holdings, Inc. May 31, 2004
INDEX - PART F/S
PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . F-2
Consolidated Balance Sheet
May 31, 2004 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations
For The Twelve Months Ended May 31, 2004 . . . . . . F-4
Consolidated Statement of Changes in Shareholders' Equity
From June 1, 2003 Through May 31, 2004 . . . . . . . F-5
Consolidated Statement of Cash Flows
For The Twelve Months Ended May 31, 2004 . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-8
F-1
23
Wieseneck, Andres & Company, P.A.
Certified Public Accountants
772 U. S. Highway 1, Suite 100
North Palm Beach, Florida 33408
(561) 626-0400
Thomas B. Andres, C.P.A.*, C.V.A. FAX (561) 626-3453
Paul M. Wieseneck, C.P.A.
*Regulated by the State of Florida
Independent Auditors' Report
To the Board of Directors and Stockholders
American Capital Holdings, Inc.
We have audited the accompanying consolidated balance sheet of American Capital
Holdings, Inc. as of May 31, 2004 and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the period
from June 1, 2003 through May 31, 2004. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with standards established by the Public
Company Accounting Oversight Board (United States). Those standards require
that we Plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of American Capital Holdings, Inc. as of May 31, 2004 and the results
of its consolidated operations and cash flows for the period from June 1, 2003
through May 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
/s/Wieseneck, Andres & Company, P.A.
North Palm Beach, Florida
November 10, 2004
F-2
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 2004
ASSETS
Current Assets
Cash and Cash Equivalents $ 22,614
Notes Receivable 138,952
Loans Receivable Related Parties (net) 27,067
Prepaid Expenses 87,197
Marketable Securities 2,963,178
------------
Total Current Assets 3,239,008
------------
Property and Equipment, net 43,472
------------
Other Assets
Intangible Assets, net 2,960,668
Goodwill 8,209,071
Security Deposit 3,110
------------
Total Other Assets 11,172,849
------------
TOTAL ASSETS $ 14,455,329
============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 27,806
Accrued Expenses 11,021
Loan Payable Related Party 57,681
Current Portion of Notes
and Loans Payable 834,977
------------
Total Current Liabilities 931,485
------------
Total Liabilities 931,485
------------
Stockholders' Equity
Common Stock $.0001 par value, 100 million
shares authorized, 15,723,903 shares issued
and outstanding, 1,300,000 shares unissued 1,702
Paid-in-Capital 14,686,363
Accumulated Deficit (651,224)
Accumulated Comprehensive Loss (512,997)
------------
Total Stockholders' Equity 13,523,844
TOTAL LIABILITIES & STOCHHOLDERS' EQUITY $ 14,455,329
============
See accompanying summary of accounting policies and notes to financial
statements.
F-3
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED
MAY 31, 2004
Revenues
Net Sales $ -
Cost of Sales (3,952)
------------
Gross Profit (3,952)
Operating Expenses
General and Administrative 122,647
Bad Debt 343,995
Sales and Marketing 13,391
Impairment Expense 6,493
------------
Total Operating Expenses 486,526
------------
Loss from Operations (490,478)
------------
Other Income (Expense)
Interest Income 2,260
Interest Expense (23,006)
Loss on Disposition of Common Stock (140,000)
------------
Net Other Expenses (160,746)
------------
Net Loss Before Other Comprehensive Losses (651,224)
------------
Other Comprehensive Income / (Loss)
Unrealized Holding Loss During Period (537,604)
Unrealized Holding Gain During Period 24,607)
------------
Net Other Comprehensive Loss (512,997)
------------
Net Loss $(1,164,221)
============
Basic and Diluted
Net Loss Per Common Share $ (.18)
============
Weighted Average Shares Outstanding 6,551,685
============
See accompanying summary of accounting policies and notes to financial
statements.
F-4
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FROM JUNE 1, 2003 THROUGH MAY 31, 2004
Number Add'l Paid
Of At Par in Capital Retained Accum. other Total
Shares Value & Treasury Earnings Comprehen- Stockholder
Issued $.0001 Stock (Loss) sive Inc. Equity
---------- ------ ----------- ---------- ---------- -----------
Balance,
May 31, 2003 5 $ 0 $ 0 $ 0 $ 0 $ 0
Cancellation of
Common Stock held
by eCom eCom (5) (0) (0) 0 0 0
Issuance of
Common Stock to
eCom eCom.com Inc.
shareholders 2,497,756 250 - - - 250
Issuance of
Common Stock
for the acquisition
of ACHI, Inc.
assets. 13,226,147 1,322 13,176,443 - - 13,177,765
Issuance of
Detachable warrants - - 10,050 - - 10,050
Purchase of
IS Direct Agency NY
for 800,000,
subscribed but
unissued shares - 80 999,920 - - 1,000,000
Conversion of
$500,000 Debt to
stock - unissued - 50 499,950 - - 500,000
Accumulated other
comprehensive
loss, net - - - - (512,997) (512,997)
Net Operating Loss - - - (651,224) - (651,224)
---------- ------ ----------- ---------- ---------- -----------
Balance,
May 31, 2004 15,723,903 $1,702 $14,686,363 $(651,224) $(512,997) $13,523,844
========== ====== =========== ========== ========== ===========
See accompanying summary of accounting policies and notes to financial
statements.
F-5
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED MAY 31, 2004
Cash Flows From Operating Activities
Cash received from customers -
Cash paid to suppliers of goods
and services $ (143,268)
Income Taxes Paid -
Interest Paid (13,691)
Interest Received -
_______________
Net Cash Flows Used in
Operating Activities (156,959)
_______________
Cash Flows From Financing Activities
Proceeds of Loans from Stockholders 329,997
Proceeds of Loans from Related Company 57,661
Collection of Loan From Related Company 25,793
Loan to Related Company (27,067)
Loan to Related Company (343,995)
Purchase of Common Stock (362,816)
Loan Proceeds Converted to Common Stock 500,000
_______________
Net Cash Flows Provided By
Financing Activities 179,573
_______________
Net Increase in Cash 22,614
Cash and Cash Equivalents at
Beginning of Period, June 1, 2003 0
_______________
Cash and Cash Equivalents at
End of Period, May 31, 2004 $ 22,614
===============
See accompanying summary of accounting policies and notes to financial
statements.
F-6
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED MAY 31, 2004
Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities
Net Loss $ (1,164,221)
Cash was increased by:
Other Comprehensive Income 512,997
Loss on Disposition of Common Stock 140,000
Valuation Loss 6,493
Amortization -
Depreciation 3,952
Bad Debt adjustment 343,995
Increase in Accounts Payable 27,806
Increase in Accrued Expenses 1,706
Cash was decreased by
Increase in Prepaid Expenses (26,577)
Increase in Security Deposits (3,110)
_______________
Net Cash Flows Used in
Operating Activities $ (156,959)
===============
Supplemental Disclosures
Of Non Cash Investing and
Financing Activities:
------------------------
On February 29, 2004 the Company acquired approximately $137,000 in notes
receivable, common and preferred stock in various entities valued at $3.1
million, equipment of $47,000, intangible assets of $6,000, intellectual
property valued at $3.5 million, various prepaid assets valued at $92,000,
goodwill of $7.2 million and assumed $1,005,000 in debt for the issuance of
13,226,147 shares of the Company's common stock.
See accompanying summary of accounting policies and notes to financial
statements.
F-7
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE A - NATURE OF OPERATIONS
American Capital Holdings, Inc. (the "Company") was incorporated in the State
of Florida on January 27, 1999 as U S Amateur Sports Company, a wholly owned
subsidiary of eCom eCom.com, Inc.("eCom") which trades on the OTC/Bulletin
Board under the symbol 'ECEC.' On March 19, 2003, the Company changed its name
to USA SportsNet Company, and on December 12, 2003 changed its name to American
Capital Holdings, Inc. in connection with its spin off by eCom and its
acquisition of certain assets of a company formerly known as American Capital
Holdings, Inc. (now known as ACHI, Inc.) The Company's main office is located
at 100 Village Square Crossing, Suite 202, Palm Beach Gardens, Florida 33410,
and the telephone number is (561) 207-6395.
IS Direct Agency, Inc. ("ISDA") was incorporated in the State of Florida on May
20, 2004. On May 21, 2004 ISDA acquired the assets of IS Direct Agency, Inc., a
New York Corporation. ISDA provides internet based term life insurance quotes.
While a wholly owned subsidiary of eCom, the Company developed an e-commerce
Internet infrastructure. This product provided an affordable, user-friendly
technological platform and professional resources to facilitate web business
development. It also operated an on-line business as a test model using
Company developed e-commerce concepts to sell sports products.
The Spin-Off. The Company was one of ten wholly owned subsidiaries of eCom,
with varying business plans. In recent years, eCom concluded that it did not
have the financial resources necessary to develop all of its ten business units
collectively. eCom decided to spin off its subsidiaries into independent
companies in the belief that independent companies, each with a distinct
business, would be better able to obtain necessary funding and develop their
business plans. This belief was based in part on eCom's experience with
potential business partners which sought involvement with only one of eCom's
subsidiaries, rather than involvement with the multi-faceted eCom.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of
the Company. They voted to issue to the shareholders of eCom one share of the
Company for every one share of eCom owned as of the record date of January 5,
2004. Fractional shares will be purchased by the Company. No payment was
required of the eCom shareholders.
Acquisition from American Capital Holdings. After the spin off of the Company
was completed, the Company was presented with an opportunity to acquire certain
assets of American Capital Holdings, Inc. (now known as, and referred to
hereafter as ACHI). On January 12, 2004, the Company entered into an Asset
Purchase Agreement with ACHI whereby the Company acquired certain assets of
ACHI in return for the issuance of common stock of the Company in an amount
equal to 84.1% of the total ownership of the Company. In order to accomplish
this transaction, the Company effected a 20 to 1 reverse stock split, which
reduced its outstanding stock to 2,497,756 shares, and agreed to issue to ACHI
See accompanying independent accountants' audit report.
F-8
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE A - NATURE OF OPERATIONS (CONTINUED)
49,955,112 shares. ACHI agreed to accept the issuance of 13,561,804 shares at
closing, and assigned its right to receive the 13,561,804 shares to its
principle, Barney A. Richmond, now the President of the Company. The remaining
36,393,308 shares were reserved for issuance by the Company in connection with
future acquisitions and financings. The Company then changed its name to
American Capital Holdings, Inc., and ACHI changed its name to ACHI, Inc. Of the
36,393,308 shares reserved for future issuance, 2,162,099 shares have now been
issued to the shareholders of Spaulding Ventures, LLC, in replacement of shares
of ACHI to be issued to Spaulding in connection with a prior acquisition of
assets by ACHI from Spaulding.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation, Use of Estimates
The Company maintains its accounts on the accrual basis of accounting. The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue and Dividends from investments is recognized at the time the investment
dividends are declared payable by the underlying investment. Capital Gains and
losses are recorded on the date of sale of the investment.
Cash
Cash consists of deposits in banks and other financial institutions having
original maturities of less than ninety days.
Allowance for Doubtful Accounts
It is the policy of management to review the outstanding accounts receivable
at year end, as well as the bad debt write-offs experienced in the past, and
establish an allowance for doubtful accounts for uncollectible amounts.
Depreciation
Property and equipment is recorded at cost and is depreciated over the
estimated useful lives of the related assets. Depreciation is computed using
the straight-line method.
See accompanying independent accountants' audit report.
F-9
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization
The accounting for a recognized intangible asset acquired after June 30, 2001
is based on its useful life to the Company. If an intangible asset has a
finite life, but the precise length of that life is not known, that intangible
asset shall be amortized over management's best estimate of its useful life.
An intangible asset with a indefinite useful life is not amortized. The useful
life to an entity is the period over which the asset is expected to contribute
directly or indirectly to the future cash flows of that entity.
Investments
Investments are stated at the lower of cost and market value.
NOTE C - NOTES RECEIVABLE
Notes Receivable at May 31, 2004 consist of the following:
An 8% non-collateralized note that matures in December 2004,
Interest is payable quarterly. Included in the balance is
$11,963 of accrued interest receivable. $ 111,963
A 4% non-collateralized note due on demand. Included in
the balance is $1,989 of accrued interest receivable. 26,989
----------
Total Notes Receivable $ 138,952
==========
Management has made a determination that all of the notes receivable are
collectable and therefore, has not established an allowance for doubtful
accounts.
NOTE D - LOANS RECEIVABLE RELATED PARTIES
The three loans receivable from related corporate entities are non-
collateralized, non-interest bearing and are due on demand.
The loans due as of May 31, 2004 are as follows:
eCom eCom.com Inc. $ 27,067
Freedom 4 Wireless, Inc. 343,995
Less bad debts (343,995)
---------
Total $ 27,067
=========
See accompanying independent accountants' audit report.
F-10
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE E - INVESTMENTS
The Company accounts for its investments in common stock using the equity
method for those investments which the Company does not own a controlling
interest. These investments are currently recorded at cost. The Company's
share of the investors earnings or losses, if any, are not available at the
date of these financial statements. No quoted market price is available for
these investments.
The Company accounts for investments in common stock for which there is a
quoted market price as an Available-for-Sale security under Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
On May 31, 2004, investments consisted of the following:
Equity Method of Accounting
Investment Securities at Cost
@Visory, LLC $ 112,500
Brilliant Coatings, Inc. 250,000
Century Aerospace Corporation 285,000
eSmokes, Inc. 100,000
Efficien, Inc. 287,000
Smartpill Diagnostics, Inc. 770,000
Metroflex, Inc. 900,000
-----------
Total Equity Method Securities at Cost 2,704,500
Available-for-Sale method of accounting
eCom eCom.com Inc. 258,678
-----------
Total Available-for-Sale securities 258,678
-----------
Total Investment Securities $ 2,963,178
===========
Equity Method Securities:
@Visory, LLC is a limited liability company located in East Aurora NY. The
Company owns 250,000 Series A units of @Visory LLC. The Company's investment
amounts to 1.2% of the outstanding units of @Visory, LLC. @Visory, LLC is
taxed as a partnership, not publicly traded. As of May 31, 2004 @Visory,
LLC had investments in the following companies: Appraisal.com; SmartPill
Diagnostics; Efficien; Liquid Matrix; Saturn Internet Reservations;
StudentVoice; Synacor; and Yipee, Inc.
See accompanying independent accountants' audit report.
F-11
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE E - INVESTMENTS (CONTINUED)
Brilliant Coatings is a Nevada Corporation. The Company owns 15,000,000 common
shares of Brilliant Coatings. The Company's investment amounts to 2.3% of the
outstanding common shares of Brilliant Coatings Inc.
Century Aerospace is a Delaware Corporation. The Company owns 57,000 common
shares of Century Aerospace. The Company's investment amounts to .7% of the
outstanding common shares of Century Aerospace
eSmokes, Inc is a Florida Corporation. The company owns 300,000 common shares
of eSmokes, Inc. The Company's investment amounts to 3.3% of the outstanding
shares of eSmokes, Inc.
Efficien, Inc. is a Delaware Corporation. The Company owns 500,000 common
shares of Efficien. The Company's investment amounts to 11.9% of the
outstanding common shares of Efficien, Inc. Efficent specializes in the
development of internet based applications to improve the efficiency of
hospital supply and material flow through an integrated application service
provider (ASP) solution.
SmartPill Diagnostics, Inc. is a Delaware Corporation. The Company owns
1,194,824 Series A preferred shares of SmartPill Diagnostics, Inc. The
Company's investment amounts to 11.60% of the outstanding shares of SmartPill
Diagnostics, Inc. SmartPill Diagnostics is a leading developer of SmartPill
Capsule endoscopy technology. About the size of a vitamin pill, the SmartPill
Capsule is a capsule endoscopy device that uses patented technology to measure
peristaltic pressure, pH and transit time, and determine real-time location;
factors that aid Gastroenterologists in the diagnosis of such GI motility
disorders as Gastroparesis and Dyspepsia. The patient benefits from a more
accurate diagnosis and a more comfortable, non-invasive, non-surgical approach
to GI exploratory examinations.
Metroflex, Inc. is a Delaware Corporation. The Company owns 900,000 common
shares of Metroflex, Inc. Metroflex's MetroFlexCard operates as a MasterCard
debit card. The card enables employers to set up programs through which
employees can pay for commuter expenses-mass transit and parking expenses on a
pretax basis.
Available-for-Sale Securities:
eCom eCom.com, Inc. is a Florida Corporation and trades on the OTC/BB:ECEC. The
company which was the former parent of USA SportsNet Company now American
Capital Holdings, Inc., owns 1,437,100 common shares of eCom. The Company's
investment amounts to 2.9% of the outstanding shares of eCom. The cost for
this investment as of May 31, 2004 was $235,071. On May 31, 2004 the
market value based on a closing bid price of 0.16 per share was $258,678. The
difference in cost versus market value is recorded as Accumulated Other
Comprehensive Income of $23,607.
See accompanying independent accountants' audit report.
F-12
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE F - PROPERTY AND EQUIPMENT
Equipment consisting of various Cisco routers, switches, cables, and dual speed
hubs were acquired from a company owned by a majority stockholder of American
Capital Holdings, Inc. The equipment is being used to support a hosting
operations center. Depreciation expense of $3,952 has been recorded as of May
31, 2004.
NOTE G - PREPAID EXPENSES
Prepaid expenses consist principally of amounts paid for auditing work for the
Company, along with marketing and research material to be used for investor
relations.
NOTE H - INTANGIBLE ASSETS
On February 29, 2004, the Company received intellectual property rights when it
acquired 53,910,922 common shares of Air Media Now, Inc. from a related
company. The fair value of the publicly traded shares at date of receipt was
$3,469,622. The Intellectual property rights were not amortized at February
29, 2004. Management reviews intangible assets for impairment annually.
Intangible assets with a finite useful life acquired after June 30, 2001 are
amortized over their useful lives to the company. Intangible assets acquired
after June 30, 2001 having a infinite useful life are recovered at their fair
value and are not amortized. Management reviews all intangible assets for
impairment annually. Market value of the Air Media Now property decreased
between February 29, 2004 and May 31, 2004. This decrease has been recorded
has been recorded as a decrease in paid in capital of $536,604.
NOTE I - OTHER ASSETS
Other assets consist primarily of security deposits on the lease of office
facilities.
NOTE J - Loan Payable Related Party
A non-interest bearing, non-collateralized loan payable to a related company in
the amount of $57,681 is due on demand.
See accompanying independent accountants' audit report.
F-13
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE K - PROMISSORY NOTES
Promissory Notes as of May 31, 2004 consisted of:
May 31, 2004
---------------
Four interest bearing, non-collateralized
loans. The loans have various maturities
throughout 2004. $ 494,950
----------
Total Notes Payable 494,950
Less Current Portion (494,950)
----------
Net Long-term Debt $ 0
==========
The short-term notes payable mature as follows:
May 31, 2004 $ 494,950
==========
Two non-interest bearing, non-collateralized loans
due on demand $ 340,027
==========
The notes and loans can be converted to shares of the Company's $.0001 par value
common stock at the option of the holder. The notes pay interest at 10% per
annum. Interest is paid quarterly. The loan can be converted at 80% of the
average closing price of Company's common stock for the preceding five (5)
consecutive trading days with a floor of $1. The holder of a $500,000 10% note
payable with accrued interest of $9,315 agreed on May 7, 2004 to convert their
debt to common shares. By Agreement, the shares of common stock at conversion
will not be issued until the effective date of the Company's filings with the
United States Securities & Exchange Commission.
NOTE L - WARRANTS
The Company has issued 1,005,000 (505,000 + 500,000) detachable warrants for
each dollar of debt as described in Note K above. Management has determined
that the value of the detachable warrants to be $.01 on the date of issuance and
have charged paid in capital $10,050 during the period. Each warrant entitles
the holder to purchase one (1) share of common stock at $.01. The Company also
issued 400,000 warrants to one of the former owners of IS Direct Agency for
providing his insurance licensing in all fifty states. The warrants can be
exercised for $.01 each. An additional 216,209 warrants were issued in
connection with the Spaulding acquisition, one warrant for every ten shares
owned. Each unit of Spaulding entitled the owner to one warrant with an
exercise price of $6.00 each.
See accompanying independent accountants' audit report.
F-14
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE L - WARRANTS (CONTINUED)
The following is a summary of warrants through May 31, 2004:
Outstanding warrants at the beginning of the year 0
Warrants issued 1,621,209
Warrants expired 0
Warrants exercised 0
------------
Warrants outstanding at May 31, 2004 1,621,209
The warrants expire as follows:
Expiration Date Number of Warrants
-------------------- ------------------
September 30, 2004 75,000
January 31, 2005 130,000
August 15, 2005 300,000
December 15, 2005 500,000
December 31, 2005 216,209
Warrants expiring beyond 2005 400,000
-------------
1,621,209
=============
NOTE M - COMMITMENTS AND CONTINGENCIES
The Company leases approximately 1200 feet office facilities in Palm Beach
Gardens, Florida under an operating lease of $3,297 per month which expires on
January 31, 2005. ISDA leases approximately 200 square feet of office
facilities in Buffalo, NY under a month to month agreement of $425.00 per month.
Future minimum lease payments including sales tax as of May 31, 2004 are:
Fiscal Years ending:
May 31, 2005 26,373
-------
Total Minimum Lease Payments $ 26,373
Rent expense for the Twelve month period ending May 31, 2004 was $8,579.
NOTE N - INCOME TAXES
No provision for federal and state income taxes has been recorded
because the Company has incurred net operating losses since inception. The
Company's net operating loss carry-forward as of May 31, 2004 totals
approximately $495,000. These carry-forwards, which will be available to
offset future taxable income, and expire beginning in May 31, 2024.
See accompanying independent accountants' audit report.
F-15
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE N - INCOME TAXES (CONTINUED)
The Company does not believe that the realization of the related net
deferred tax asset meets the criteria required by generally accepted
accounting principles and, accordingly, the deferred income tax asset arising
from such loss carry forward has been fully reserved.
The Company accounts for income taxes in accordance with FASB Statement No.
109, Accounting for Income Taxes (FASB 109). Under FASB 109, income taxes are
provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related to
certain income and expenses recognized in different periods for financial and
income tax reporting purposes. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses and tax credits that
are available to offset future taxable income and income taxes, respectively.
A valuation allowance is provided if it is more likely than not that some or
all of the deferred tax assets will not be realized.
NOTE O - STOCKHOLDERS' EQUITY
To facilitate the purchase of the assets of ACHI, the Company recorded a one
for twenty reverse split on the Effective Date of the currently outstanding
common stock, while maintaining the conversion and exercise prices of the
Senior Notes, the Secured Notes, the Subordinated Notes and the related
warrants. All prior period share and per-share amounts have been restated to
account for the reverse split. Any fractional shares remaining after the
reverse split will be paid out in cash to the shareholder on the Effective
Date.
Warrants were granted to Promissory Noteholders with detachable warrants.
Management has determined that the fair value of each warrant is $0.01.
The computation of diluted loss per share before extraordinary item for the year
ended May 31, 2004 does not include shares from potentially dilutive securities
as the assumption of conversion or exercise of these would have an antidilutive
effect on loss per share before extraordinary items. In accordance with
generally accepted accounting principles, diluted loss per share from
extraordinary item is calculated using the same number of potential common
shares as used in the computation of loss per share before extraordinary
items.
NOTE P - DEFERRED TAX ASSET
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and
See accompanying independent accountants' audit report.
F-16
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
liabilities. Temporary differences, net operating loss carry forwards
and valuation allowances comprising the net deferred taxes on the balance
sheets is as follows:
May 31, 2004
--------------
Loss carry forward for tax purposes $ 495,075
==============
Deferred tax asset (34%) 168,326
Valuation allowance (168,326)
--------------
Net deferred tax asset -
==============
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The Company's net
operating loss carry-forward as of May 31, 2004 was approximately
$495,000. These carry-forwards, which will be available to offset future
taxable income, will expire through the year 2024.
The Company does not believe that the realization of the related net deferred
tax asset meets the criteria required by generally accepted accounting
principles and, accordingly, the deferred income tax asset arising from such
loss carry forward has been fully reserved.
NOTE Q - RELATED PARTY TRANSACTIONS
The Company has accounts receivables due from two related company entities.
eCom eCom.com, Inc. owes $27,067 for services paid to the Company's transfer
agent and accountant. Freedom 4 Wireless, Inc. owes the Company $343,995 for
working capital and inventory purchased by ACHI, subsequently purchased by the
Company on February 29, 2004. These related party transactions totaled
$371,062 on May 31, 2004.
NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations with
an effective date for financial statements issued for fiscal years beginning
after June 15, 2002. The statement addresses financial accounting and
reporting for obligations related with the retirement of tangible long-lived
assets and the costs associated with asset retirement. The statement requires
the recognition of retirement obligations which will, therefore, generally
increase liabilities; retirement costs will be added to the carrying value of
long-lived assets, therefore, assets will be increased; and depreciation and
accretion expense will be higher in the later years of an assets life than in
earlier years. The Company adopted SFAS No. 143 at January 1, 2002. The
adoption of SFAS No. 143 had no impact on the Company's operating results or
financial positions.
See accompanying independent accountants' audit report.
F-17
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
The FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets and is effective for financial statements issued for
fiscal years beginning January 1, 2002. This statement addresses financial
accounting and reporting for the impairment or the disposal of long-lived
asset. An impairment loss is recognized if the carrying amount of a long-
lived group exceeds the sum of the undiscounted cash flow expected to result
from the use and eventual disposition of the asset group. Long-lived assets
should be tested at least annually or whenever changes in circumstances
indicate that its carrying amount may not be recoverable. This statement
does not apply to goodwill and intangible assets that are not amortized. The
Company adapted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS
No. 144 had no impact on the Company's operating results or financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of the FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections"("SFAS No. 145"). SFAS No. 145 eliminates the requirement to
classify gains and losses from the extinguishment of indebtedness as
extraordinary, requires certain lease modifications to be treated the same as a
sale-leaseback transaction, and makes other non-substantive technical
corrections to existing pronouncements. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. SFAS No. 145 was adopted on June 1, 2003
and did not have a material effect on the Company's financial position or
results of operations.
The FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" and is effective for
financial instruments entered into after May 31, 2003. This Statement
establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability because
that financial instrument embodies an obligation of the issuer. The Company
has adopted SFAS No. 150 and the adoption has had no impact on the Company's
operating results or financial position.
Goodwill and intangible assets acquired prior to July 1, 2001 will continue to
be amortized and tested for impairment in accordance with pre- SFAS No. 142
requirements until adoption of SFAS No. 142. Under the provision of SFAS
No.142, intangible assets with definite useful lives will be amortized to their
estimated residual values over those estimated useful lives in proportion to
the economic benefits consumed. Such intangible assets remain subject to the
impairment provisions of SFAS No. 121. Intangible assets with indefinite useful
lives will be tested for impairment annually in lieu of being amortized. The
impact of adopting SFAS Nos. 141 and 142 will not cause a material change in
the Company's consolidated financial statements as of the date of this report.
See accompanying independent accountants' audit report.
F-18
End of May 31, 2004 Financials
American Capital Holdings, Inc. November 30, 2004
INDEX - PART F/S
PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Independent Accountants' Report . . . . . . . . . . . . . . F-20
Consolidated Balance Sheets
November 30 2004 and May 31, 2004 . . . . . . . . . . . . F-21
Consolidated Statement of Operations
Six Months Ended November 30, 2004 and November 30, 2003. . F-22
Consolidated Statement of Operations
Three Months Ended November 30, 2004 and November 30, 2003. F-23
Consolidated Statement of Changes in Shareholders' Equity
from June 1, 2003 Through November 30, 2004 . .. . . . . . F-24
Consolidated Statement of Cash Flows
for the Three Months Ended November 30, 2004 and 2003 . . . F-25
Notes to Consolidated Financial Statements . . . . . . . . . F-27
F-19
Wieseneck, Andres & Company, P.A.
Certified Public Accountants
772 U. S. Highway 1, Suite 100
North Palm Beach, Florida 33408
(561) 626-0400
Thomas B. Andres, C.P.A.*, C.V.A. FAX (561) 626-3453
Paul M. Wieseneck, C.P.A.
*Regulated by the State of Florida
Independent Accountants' Report
To the Board of Directors and Stockholders
American Capital Holdings, Inc.
Palm Beach Gardens, Florida
We have reviewed the accompanying consolidated balance sheet of American Capital
Holdings, Inc. as of November 30, 2004 and May 31, 2004, and the related
consolidated statements of operations, for the three-month periods and the six-
month periods ended November 30, 2004 and 2003, the consolidated statement of
changes in stockholders' equity from June 1, 2003 through November 30, 2004, and
the consolidated statement of cash flows for the six-month periods ended
November 30, 2004 and 2003, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of American Capital Holdings, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
/s/Wieseneck, Andres & Company, P.A.
North Palm Beach
January 7, 2005
F-20
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2004 MAY 31, 2004
ASSETS
Current Assets
Cash and Cash Equivalents $ 33,618 $ 22,614
Notes Receivable 155,353 138,952
Loans Receivable Related Parties (net) 380,447 27,067
Prepaid Expenses 103,749 87,197
Marketable Securities 2,277,126 2,963,178
Other Current Assets 250,000 -
------------ ------------
Total Current Assets 3,200,293 3,239,008
------------ ------------
Property and Equipment, net 52,765 43,472
------------ ------------
Other Assets
Intangible Assets, net 1,268,477 2,960,668
Goodwill 8,209,071 8,209,071
Security Deposit 3,110 3,110
------------ ------------
Total Other Assets 9,480,658 11,172,849
------------ ------------
TOTAL ASSETS $ 12,733,716 $ 14,455,329
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 20,640 $ 27,806
Accrued Expenses 21,945 11,021
Loan Payable Related Parties 276,082 57,681
Current Portion of Notes
and Loans Payable 1,049,977 834,977
------------ ------------
Total Current Liabilities 1,368,644 931,485
------------ ------------
Total Liabilities 1,368,644 931,485
------------ ------------
Stockholders' Equity
Common Stock $.0001 par value, 100 million
shares authorized, 15,723,903 shares issued
and outstanding, 1,595,000 unissued 1,732 1,702
Paid-in-Capital 14,981,333 14,686,363
Accumulated Deficit (1,231,002) (651,224)
Accumulated Comprehensive Loss (2,386,991) (512,997)
------------ ------------
Total Stockholders' Equity 11,365,072 13,523,844
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 12,733,716 $ 14,455,329
============ ============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-21
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 2004 AND 2003
NOVEMBER 30, 2004 NOVEMBER 30, 2003
Revenues
Net Sales $ 123 $ -
Cost of Sales (8,079) -
------------ ------------
Gross Profit (7,956) -
------------ ------------
Operating Expenses
General and Administrative 488,385 -
Sales and Marketing 15,357 -
Amortization - -
------------ ------------
Total Operating Expenses 503,741 -
------------ ------------
Loss from Operations (511,698) -
------------ ------------
Other Income (Expense)
Interest Income 4,943 -
Interest Expense (24,659) -
Loss on Disposition
of Marketable Securities (48,364) -
------------ ------------
Net Other Expenses (68,081) -
------------ ------------
Net Loss Before Other Comprehensive Losses (579,778) -
Other Comprehensive Income / (Loss)
Unrealized Holding Loss During Period (1,873,994) -
------------ ------------
Total Comprehensive Loss (1,873,994) -
------------ ------------
Net Loss $ (2,453,772) $ 0
============ ============
Basic and Diluted
Net Loss Per Common Share (.16) -
============ ============
Weighted Average Shares Outstanding 15,723,903 5
============ ============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-22
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2004 AND 2003
NOVEMBER 30, 2004 NOVEMBER 30, 2003
Revenues
Net Sales $ 57 $ -
Cost of Sales (4,069) -
------------ ------------
Gross Profit (4,012) -
------------ ------------
Operating Expenses
General and Administrative 243,224 -
Sales and Marketing 1,806 -
Amortization - -
------------ ------------
Total Operating Expenses 245,029 -
------------ ------------
Loss from Operations (249,041) -
------------ ------------
Other Income (Expense)
Interest Income 2,479 -
Interest Expense (12,054) -
Loss on Disposition
of Marketable Securities (55,000) -
------------ ------------
Net Other Expenses (64,575) -
------------ ------------
Net Loss Before Other Comprehensive Losses (313,617) -
Other Comprehensive Income / (Loss)
Unrealized Holding Loss During Period (757,674) -
------------ ------------
Total Comprehensive Loss (757,674) -
------------ ------------
Net Loss $ (1,071,290) $ 0
============ ============
Basic and Diluted
Net Loss Per Common Share (.07) -
============ ============
Weighted Average Shares Outstanding 15,723,903 5
============ ============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-23
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FROM JUNE 1, 2003 THROUGH NOVEMBER 30, 2004
Add'l Paid
Number of At Par in Capital Retained Accum. other Total
Shares Value & Treasury Earnings Comprehen- Stockholder
Issued $.0001 Stock (Loss) sive Inc. Equity
---------- ------ ----------- ---------- ---------- -----------
Balance 6/01/03 5 $ 0 $ 0 $ 0 $ 0 $ 0
Cancellation of Common Stock
held by eCom eCom (5) (0) (0) 0 0 0
Issuance of Common Stock
To eCom eCom.com Inc.
shareholders 2,497,756 250 - - - 250
Issuance of Common Stock
for the acquisition
of ACHI, Inc.
assets. 13,226,147 1,322 13,176,443 - - 13,177,765
Issuance of
detachable warrants - - 10,050 - - 10,050
Purchase of IS Direct
Agency NY for 800,000,
subscribed but
unissued shares - 80 999,920 - - 1,000,000
Conversion of
$500,000 Debt
to stock - unissued - 50 499,950 - - 500,000
Accumulated other
Comprehensive loss - - - - (512,997) (512,997)
Net Operating Loss - - - (651,224) - (651,224)
---------- ------ ----------- ---------- ---------- -----------
Balance 5/31/04 15,723,903 1,702 14,686,363 (651,224) (512,997) 13,523,844
Sale of 295,000
shares of Common
Stock - unissued - 30 294,970 - - 295,000
Accumulated other
Comprehensive Loss - - - - (1873,994) (1,873,994)
Net Operating Loss - - - (579,778) - (579,778)
---------- ------ ----------- ---------- ---------- -----------
Bal. 11/30/04 15,723,903 $1,732 $14,981,333$(1231,002)$(2386,991)$11,365,072
========== ====== =========== ========== ========= ============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-24
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2004 AND 2003
NOVEMBER 30, 2004 NOVEMBER 30, 2003
Cash Flows From Operating Activities
Cash received from customers $ 123 $ -
Cash paid to suppliers of goods
and services (570,201) -
Income Taxes Paid - -
Interest Paid (14,863) -
Interest Received 448 -
_______________ _______________
Net Cash Flows Used in
Operating Activities (584,493) -
_______________ _______________
Cash Flows From Investing Activities
Purchase of Equipment (1,400) -
Deposit Made on Insurance Carrier in Escrow (250,000) -
Sale of Marketable Securities 821,636 -
Purchase of Marketable Securities (377,348) -
Purchase of Promissory Notes (11,906)
_______________ _______________
Net Cash Flows Provided By
(Used In) Investing Activities 180,982 -
_______________ _______________
Cash Flows From Financing Activities
Loans from Related Companies 882,736 -
Repayment of Loans from Related Companies (978,221) -
Proceeds from Sale of Stock 545,000 -
Payments on Notes Payable (35,000) -
_______________ _______________
Net Cash Flows Provided By
Financing Activities 414,515 -
_______________ _______________
Net Increase / (Decrease) in Cash 11,004 -
Cash and Cash Equivalents at
Beginning of Period, June 1, 2004 and 2003 22,614 0
_______________ _______________
Cash and Cash Equivalents at
End of Period, November 30, 2004 and 2003 $ 33,618 $ 0
=============== ===============
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-25
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2004 AND 2003
Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities
NOVEMBER 30, 2004 NOVEMBER 30, 2003
Net Income (Loss) $ (2,453,772) $ -
Cash was increased by:
Increase in accrued expenses
Other Comprehensive Income 1,873,994 -
Valuation Loss
Amortization - -
Depreciation 8,079 -
Increase in Accrued Expenses 10,924 -
Cash was decreased by
Decrease in Accounts Payable (7,166) -
Increase in Prepaid Expenses (16,552) -
_______________ _______________
Net Cash Flows Used in
Operating Activities $ (584,493) $ -
=============== ===============
Supplemental Disclosures
Of Non Cash Investing and
Financing Activities:
------------------------
On February 29, 2004 the Company acquired approximately $137,000 in notes
receivable, common and preferred stock in various entities valued at $3.1
million, equipment of $47,000, intangible assets of $6,000, intellectual
property valued at $3.5 million, various prepaid assets valued at $92,000,
goodwill of $7.2 million and assumed $1,005,000 in debt for the issuance of
13,226,147 shares of the Company's common stock.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-26
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE A - NATURE OF OPERATIONS
American Capital Holdings, Inc. (the "Company") was incorporated in the State
of Florida on January 27, 1999 as U S Amateur Sports Company, a wholly owned
subsidiary of eCom eCom.com, Inc.("eCom") which trades on the OTC/Bulletin
Board under the symbol 'ECEC.' On March 19, 2003, the Company changed its name
to USA SportsNet Company, and on December 12, 2003 changed its name to American
Capital Holdings, Inc. in connection with its spin off by eCom and its
acquisition of certain assets of a company formerly known as American Capital
Holdings, Inc. (now known as ACHI, Inc.) The Company's main office is located
at 100 Village Square Crossing, Suite 202, Palm Beach Gardens, Florida 33410,
and the telephone number is (561) 207-6395.
IS Direct Agency, Inc. ("ISDA") was incorporated in the State of Florida on May
20, 2004. On May 21, 2004 ISDA acquired the assets of IS Direct Agency, Inc., a
New York Corporation. ISDA provides internet based term life insurance quotes.
While a wholly owned subsidiary of eCom, the Company developed an e-commerce
Internet infrastructure. This product provided an affordable, user-friendly
technological platform and professional resources to facilitate web business
development. It also operated an on-line business as a test model using
Company developed e-commerce concepts to sell sports products.
The Spin-Off. The Company was one of ten wholly owned subsidiaries of eCom,
with varying business plans. In recent years, eCom concluded that it did not
have the financial resources necessary to develop all of its ten business units
collectively. eCom decided to spin off its subsidiaries into independent
companies in the belief that independent companies, each with a distinct
business, would be better able to obtain necessary funding and develop their
business plans. This belief was based in part on eCom's experience with
potential business partners which sought involvement with only one of eCom's
subsidiaries, rather than involvement with the multi-faceted eCom.
On December 1, 2003, the Board of Directors of eCom approved the spin-off of
the Company. They voted to issue to the shareholders of eCom one share of the
Company for every one share of eCom owned as of the record date of January 5,
2004. Fractional shares will be purchased by the Company. No payment was
required of the eCom shareholders.
Acquisition from American Capital Holdings. After the spin off of the Company
was completed, the Company was presented with an opportunity to acquire certain
assets of American Capital Holdings, Inc. (now known as, and referred to
hereafter as ACHI). On January 12, 2004, the Company entered into an Asset
Purchase Agreement with ACHI whereby the Company acquired certain assets of
ACHI in return for the issuance of common stock of the Company in an amount
equal to 84.1% of the total ownership of the Company. In order to accomplish
this transaction, the Company effected a 20 to 1 reverse stock split, which
reduced its outstanding stock to 2,497,756 shares, and agreed to issue to ACHI
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-27
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE A - NATURE OF OPERATIONS (CONTINUED)
49,955,112 shares. ACHI agreed to accept the issuance of 13,561,804 shares at
closing, and assigned its right to receive the 13,561,804 shares to its
principle, Barney A. Richmond, now the President of the Company. The remaining
36,393,308 shares were reserved for issuance by the Company in connection with
future acquisitions and financings. The Company then changed its name to
American Capital Holdings, Inc., and ACHI changed its name to ACHI, Inc. Of the
36,393,308 shares reserved for future issuance, 2,162,099 shares have now been
issued to the shareholders of Spaulding Ventures, LLC, in replacement of shares
of ACHI to be issued to Spaulding in connection with a prior acquisition of
assets by ACHI from Spaulding.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation, Use of Estimates
The Company maintains its accounts on the accrual basis of accounting. The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue and Dividends from investments is recognized at the time the investment
dividends are declared payable by the underlying investment. Capital Gains and
losses is recorded on the date of sale of the investment.
Cash
Cash consists of deposits in banks and other financial institutions having
original maturities of less than ninety days.
Allowance for Doubtful Accounts
It is the policy of management to review the outstanding accounts receivable
at year end, as well as the bad debt write-offs experienced in the past, and
establish an allowance for doubtful accounts for uncollectible amounts.
Depreciation
Property and equipment is recorded at cost and is depreciated over the
estimated useful lives of the related assets. Depreciation is computed using
the straight-line method.
Amortization
The accounting for a recognized intangible asset acquired after June 30, 2001
is based on its useful life to the Company. If an intangible asset has a
finite life, but the precise length of that life is not known, that intangible
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-28
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
asset shall be amortized over management's best estimate of its useful life.
An intangible asset with a indefinite useful life is not amortized. The useful
life to an entity is the period over which the asset is expected to contribute
directly or indirectly to the future cash flows of that entity.
Investments
Investments are stated at the lower of cost and market value.
NOTE C - NOTES RECEIVABLE
Notes Receivable at November 30, 2004 consist of the following:
An 8% non-collateralized note that matures in December 2004,
Interest is payable quarterly. Included in the balance is
$15,957 of accrued interest receivable. $115,957
A 4% non-collateralized note due on demand. Included in
The balance is $2,490 of accrued interest receivable. 27,490
Nine 8% promissory notes purchased from holders of notes
with Air Media Now, Inc. 11,906
----------
Total Notes Receivable $155,353
==========
Management has made a determination that all of the notes receivable are
collectable and therefore, has not established an allowance for doubtful
accounts.
NOTE D - LOANS RECEIVABLE RELATED PARTIES
The three loans receivable from related corporate entities are non-
collateralized, non-interest bearing and are due on demand.
The loans due as of November 30, 2004 are as follows:
A Super Deal.com, Inc $ 10,000
Swap and Shop.net Corp. 8,000
A Classified Ad, Inc. 10,000
AAB National Company 8,000
Pro Card Corporation 8,000
USAS Digital, Inc. 10,000
eSecureSoft Company 8,000
eCom eCom.com Inc. 64,527
Freedom 4 Wireless, Inc. 597,915
Less bad debts (343,995)
---------
Total $ 380,447
=========
See accompanying summary of accounting policies, notes to financial statements
and independent accountants' review report.
F-29
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE E - INVESTMENTS
The Company accounts for its investments in common stock using the equity
method for those investments which the Company does not own a controlling
interest. These investments are currently recorded at cost. The Company's
share of the investors earnings or losses, if any, are not available at the
date of these financial statements. No quoted market price is available for
these investments.
The Company accounts for investments in common stock for which there is a
quoted market price as an Available-for-Sale security under Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
On November 30, 2004, investments consisted of the following:
Equity Method of Accounting
Investment Securities at Cost
@Visory, LLC $ 112,500
Brilliant Coatings, Inc. 250,000
Century Aerospace Corporation 285,000
eSmokes, Inc. 0
Efficien, Inc. 287,000
Smartpill Diagnostics, Inc. 345,000
Metroflex, Inc. 900,000
-----------
Total Equity Method Securities at Cost 2,179,500
Available-for-Sale method of accounting
eCom eCom.com Inc. 97,626
-----------
Total Available-for-Sale securities 97,626
-----------
Total Investment Securities $ 2,277,126
===========
Equity Method Securities:
@Visory, LLC is a limited liability company located in East Aurora NY. The
Company owns 250,000 Series A units of @Visory LLC. The Company's investment
amounts to 1.2% of the outstanding units of @Visory, LLC. @Visory, LLC is
taxed as a partnership, not publicly traded. As of August 31, 2004 @Visory,
LLC had investments in the following companies: Appraisal.com; SmartPill
Diagnostics; Efficien; Liquid Matrix; Saturn Internet Reservations;
StudentVoice; Synacor; and Yipee, Inc.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-30
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE E - INVESTMENTS (CONTINUED)
Brilliant Coatings is a Nevada Corporation. The Company owns 15,000,000 common
shares of Brilliant Coatings. The Company's investment amounts to 2.3% of the
outstanding common shares of Brilliant Coatings Inc.
Century Aerospace is a Delaware Corporation. The Company owns 57,000 common
shares of Century Aerospace. The Company's investment amounts to .7% of the
outstanding common shares of Century Aerospace
eSmokes, Inc is a Florida Corporation. The company owns 300,000 common shares
of eSmokes, Inc. The Company's investment amounted to 3.3% of the outstanding
shares of eSmokes, Inc. On October 19, 2004, the company sold the 300,000
commons shares for the cost of $45,000, with a loss of $55,000.00.
Efficien, Inc. is a Delaware Corporation. The Company owns 500,000 common
shares of Efficien. The Company's investment amounts to 11.9% of the
outstanding common shares of Efficien, Inc. Efficent specializes in the
development of internet based applications to improve the efficiency of
hospital supply and material flow through an integrated application service
provider (ASP) solution.
SmartPill Diagnostics, Inc. is a Delaware Corporation. The Company owns
1,194,824 Series A preferred shares of SmartPill Diagnostics, Inc. The
Company's investment amounts to 11.60% of the outstanding shares of SmartPill
Diagnostics, Inc. SmartPill Diagnostics is a leading developer of SmartPill
Capsule endoscopy technology. About the size of a vitamin pill, the SmartPill
Capsule is a capsule endoscopy device that uses patented technology to measure
peristaltic pressure, pH and transit time, and determine real-time location;
factors that aid Gastroenterologists in the diagnosis of such GI motility
disorders as Gastroparesis and Dyspepsia. The patient benefits from a more
accurate diagnosis and a more comfortable, non-invasive, non-surgical approach
to GI exploratory examinations. On June 28, 2004 the Company sold all 1,194,824
shares for $776,635.60, resulting in a gain on sale of $6,635.60. On June 30,
2004 the Company purchased 175,909 shares for $345,000.
Metroflex, Inc. is a Delaware Corporation. The Company owns 900,000 common
shares of Metroflex, Inc. Metroflex's MetroFlexCard operates as a MasterCard
debit card. The card enables employers to set up programs through which
employees can pay for commuter expenses-mass transit and parking expenses on a
pretax basis.
Available-for-Sale Securities:
eCom eCom.com, Inc. is a Florida Corporation and trades on the OTC/BB:ECEC. The
company which was the former parent of USA SportsNet Company now American
Capital Holdings, Inc. owns 1,437,100 common shares of eCom. The Company's
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-31
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE E - INVESTMENTS (CONTINUED)
investment amounts to 2.9% of the outstanding shares of eCom. The cost for
this investment as of August 31, 2004 was $235,071. On May 31, 2004 the
market value based on a closing bid price of 0.16 per share was $215,565. The
difference in cost versus market value is recorded as a deficit in Accumulated
Other Comprehensive Income of $19,506.
NOTE F - PROPERTY AND EQUIPMENT
Equipment consisting of various Cisco routers, switches, cables, and dual speed
hubs were acquired from a company owned by a majority stockholder of American
Capital Holdings, Inc. The equipment is being to support a hosting operations
center. Additional equipment was purchased by IS Direct Agency during the
quarter ending August 31, 2004. Depreciation expense of $4,010 has been
recorded for the quarter ending November 30, 2004. Accumulated depreciation at
November 30, 2004 is $11,973.
NOTE G - PREPAID EXPENSES
Prepaid expenses consist principally of amounts paid for auditing work for the
Company, along with marketing and research material to be used for investor
relations.
NOTE H - INTANGIBLE ASSETS
On February 29, 2004, the Company received intellectual property rights when it
acquired 53,910,922 common shares of Air Media Now, Inc. from a related
company. The fair value of the publicly traded shares at date of receipt was
$3,469,622. The Intellectual property rights were not amortized at February
29, 2004. Management reviews intangible assets for impairment annually.
Intangible assets with a finite useful life acquired after June 30, 2001 are
amortized over their useful lives to the company. Intangible assets acquired
after June 30, 2001 having a infinite useful life are recorded at their fair
value and are not amortized. Management reviews all intangible assets for
impairment annually. Market value of the Air Media Now property decreased
between February 29, 2004 and November 30, 2004. This decrease has been
recorded
has been recorded as a decrease in paid in capital of $1,609,811.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-32
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE I - OTHER ASSETS
Other assets consist primarily of security deposits on the lease of office
facilities.
NOTE J - PROMISSORY NOTES
Promissory Notes as of November 30, 2004 consisted of:
November 30, 2004
---------------
Four interest bearing, non-collateralized
loans. The loans have various maturities
throughout 2004. $ 469,950
----------
Total Notes Payable 469,950
Less Current Portion (469,950)
----------
Net Long-term Debt $ 0
==========
The short-term notes payable mature as follows:
November 30, 2004 $ 469,950
==========
The notes and loans can be converted to shares of the Company's $.0001 par value
common stock at the option of the holder. The notes pay interest at 10% per
annum. Interest is paid quarterly. The loan can be converted at 80% of the
average closing price of Company's common stock for the preceding five (5)
consecutive trading days with a floor of $1. The holder of a $500,000 10% note
payable with accrued interest of $9,315 agreed on May 7, 2004 to convert their
debt to common shares. By Agreement, the shares of common stock at conversion
will not be issued until the effective date of the Company's filings with the
United States Securities & Exchange Commission.
NOTE K - WARRANTS
The Company has issued 1,005,000 (505,000 + 500,000) detachable warrants for
each dollar of debt as described in Note J above. Management has determined
that the value of the detachable warrants to be $.01 on the date of issuance and
have charged paid in capital $10,050 during the period. Each warrant entitles
the holder to purchase one (1) share of common stock at $.01. The Company also
issued 400,000 warrants to one of the former owners of IS Direct Agency for
providing his insurance licensing in all fifty states. The warrants can be
exercised for $.01 each. An additional 216,209 warrants were issued in
connection with the Spaulding acquisition, each unit of Spaulding entitled the
owner to one warrant with an exercise price of $6.00 each.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-33
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE K - WARRANTS (CONTINUED)
The following is a summary of warrants through November 30, 2004:
Outstanding warrants at the beginning of the year 1,621,209
Warrants issued 0
Warrants expired 0
Warrants exercised 0
------------
Warrants outstanding at November 30, 2004 1,621,209
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company leases approximately 1200 feet office facilities in Palm Beach
Gardens, Florida under an operating lease of $3,297 per month which expires on
January 31, 2005. ISDA leases approximately 200 square feet of office
facilities in Buffalo, NY under a month to month agreement of $425.00 per month.
Future minimum lease payments including sales tax as of November 30, 2004 are:
Fiscal Years ending:
May 31, 2005 7,018
-------
Total Minimum Lease Payments $ 7,018
Rent expense for the six month period ending November 30, 2004 was $21,239
NOTE M - INCOME TAXES
No provision for federal and state income taxes has been recorded
because the Company has incurred net operating losses since inception. The
Company's net operating loss carry-forward as of November 30, 2004 totals
approximately $1,059,400. These carry-forwards, which will be available to
offset future taxable income, expire beginning in May 31, 2024.
The Company does not believe that the realization of the related net
deferred tax asset meets the criteria required by generally accepted
accounting principles and, accordingly, the deferred income tax asset arising
from such loss carry forward has been fully reserved.
The Company accounts for income taxes in accordance with FASB Statement No.
109, Accounting for Income Taxes (FASB 109). Under FASB 109, income taxes are
provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related to
certain income and expenses recognized in different periods for financial and
income tax reporting purposes. Deferred tax assets and liabilities represent
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-34
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE M - INCOME TAXES (CONTINUED)
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses and tax credits that
are available to offset future taxable income and income taxes, respectively.
A valuation allowance is provided if it is more likely than not that some or
all of the deferred tax assets will not be realized.
NOTE N STOCKHOLDERS' EQUITY
To facilitate the purchase of the assets of ACHI, the Company recorded a one
for twenty reverse split on the Effective Date of the currently outstanding
common stock, while maintaining the conversion and exercise prices of the
Senior Notes, the Secured Notes, the Subordinated Notes and the related
warrants. All prior period share and per-share amounts have been restated to
account for the reverse split. Any fractional shares remaining after the
reverse split will be paid out in cash to the shareholder on the Effective
Date.
Warrants were granted to Promissory Note holders with detachable warrants.
Management has determined that the fair value of each warrant is $0.01.
The computation of diluted loss per share before extraordinary item for the six
months ended November 30, 2004 does not include shares from potentially dilutive
securities as the assumption of conversion or exercise of these would have an
antidilutive effect on loss per share before extraordinary items. In accordance
with generally accepted accounting principles, diluted loss per share from
extraordinary item is calculated using the same number of potential common
shares as used in the computation of loss per share before extraordinary items.
NOTE O - DEFERRED TAX ASSET
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and
liabilities. Temporary differences, net operating loss carry forwards
and valuation allowances comprising the net deferred taxes on the balance
sheets is as follows:
November 30, 2004
-----------------
Loss carry forward for tax purposes $ 1,059,411
=================
Deferred tax asset (34%) 360,200
Valuation allowance (360,200)
-----------------
Net deferred tax asset $ -
=================
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-35
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE O - DEFERRED TAX ASSET (CONTINUED)
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The Company's net
operating loss carry-forward as of November 30, 2004 was approximately
$1,059,000. These carry-forwards, which will be available to offset future
taxable income, will expire through the year 2024.
The Company does not believe that the realization of the related net deferred
tax asset meets the criteria required by generally accepted accounting
principles and, accordingly, the deferred income tax asset arising from such
loss carry forward has been fully reserved.
NOTE P - RELATED PARTY TRANSACTIONS
The Company has accounts receivables due from nine related company entities.
eCom eCom.com, Inc. owes $64,527 for services paid to the Company's transfer
agent and accountant. Freedom 4 Wireless, Inc. owes the Company $597,915 for
working capital and inventory purchased by ACHI, subsequently purchased by the
Company on February 29, 2004. Addition advances were made of $10,000 into each
of the following seven spin-off of eCom; A Super Deal.com, Inc, Swap and
Shop.net Corp, A Classified Ad, Inc, AAB National Company, Pro Card Corporation,
USAS Digital Inc, and eSecureSoft Company. These related party transactions
totaled $380,447 on November 30, 2004. The Company has received loans from
various Officers and Directors. As of November 30, 2004, the company owes
$243,524 to Barney A. Richmond.
NOTE Q - RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations with
an effective date for financial statements issued for fiscal years beginning
after June 15, 2002. The statement addresses financial accounting and
reporting for obligations related with the retirement of tangible long-lived
assets and the costs associated with asset retirement. The statement requires
the recognition of retirement obligations which will, therefore, generally
increase liabilities; retirement costs will be added to the carrying value of
long-lived assets, therefore, assets will be increased; and depreciation and
accretion expense will be higher in the later years of an assets life than in
earlier years. The Company adopted SFAS No. 143 at January 1, 2002. The
adoption of SFAS No. 143 had no impact on the Company's operating results or
financial positions.
The FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets and is effective for financial statements issued for
fiscal years beginning January 1, 2002. This statement addresses financial
accounting and reporting for the impairment or the disposal of long-lived
asset. An impairment loss is recognized if the carrying amount of a long-
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-36
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 2004
NOTE Q - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
lived group exceeds the sum of the undiscounted cash flow expected to result
from the use and eventual disposition of the asset group. Long-lived assets
should be tested at least annually or whenever changes in circumstances
indicate that its carrying amount may not be recoverable. This statement
does not apply to goodwill and intangible assets that are not amortized.
The Company adapted SFAS No. 144 in the first quarter of 2002. The adoption
of SFAS No. 144 had no impact on the Company's operating results or
financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of the FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections"("SFAS No. 145"). SFAS No. 145 eliminates the requirement to
classify gains and losses from the extinguishment of indebtedness as
extraordinary, requires certain lease modifications to be treated the same as a
sale-leaseback transaction, and makes other non-substantive technical
corrections to existing pronouncements. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. SFAS No. 145 was adopted on June 1, 2003
and did not have a material effect on the Company's financial position or
results of operations.
The FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" and is effective for
financial instruments entered into after May 31, 2003. This Statement
establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability because
that financial instrument embodies an obligation of the issuer. The Company
has adopted SFAS No. 150 and the adoption has had no impact on the Company's
operating results or financial position.
Goodwill and intangible assets acquired prior to July 1, 2001 will continue to
be amortized and tested for impairment in accordance with pre- SFAS No. 142
requirements until adoption of SFAS No. 142. Under the provision of SFAS
No.142, intangible assets with definite useful lives will be amortized to their
estimated residual values over those estimated useful lives in proportion to
the economic benefits consumed. Such intangible assets remain subject to the
impairment provisions of SFAS No. 121. Intangible assets with indefinite useful
lives will be tested for impairment annually in lieu of being amortized. The
impact of adopting SFAS Nos. 141 and 142 will not cause a material change in the
Company's consolidated financial statements as of the date of this report.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-37
End of November 30, 2004 Financials
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by American Capital Holdings, Inc.
This prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell, or a solicitation of any offer to buy,
to any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the information set
forth herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary 2
Risk Factors 5 20,000,000 shares
Forward-Looking Statements 8 Common Stock
Use of Proceeds 8 and
Capitalization 8 2,000,000 warrants
Dilution 9
Plan of Operation 9 AMERICAN CAPITAL HOLDINGS, INC.
Management 15
Executive Compensation 18 PROSPECTUS
Certain Relationships and
Related Transactions 18
Principal Shareholders 19
Description of Securities 20 January 18, 2004
Plan of Distribution 20
Where You Can Find More Information 21
Legal Matters 22
Experts 22
Financial Statements 23 / F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act allows us to indemnify each of our officers
and directors who are made a party to a proceeding if:
(a) the officer or director conducted himself or herself in good faith;
(b) his or her conduct was in our best interests, or if the conduct was
not in an official capacity, that the conduct was not opposed to our best
interests; and
(c) in the case of a criminal proceeding, he or she had no reasonable
cause to believe that his or her conduct was unlawful. We may not indemnify our
officers or directors in connection with a proceeding by or in our right, where
the officer or director was adjudged liable to us, or in any other proceeding,
where our officer or director are found to have derived an improper personal
benefit.
II-1
Our by-laws require us to indemnify directors and officers against, to the
fullest extent permitted by law, liabilities which they may incur under the
circumstances described above.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the registrant has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are expenses expected to be incurred in connection with the
issuance and distribution of the securities registered hereby. With the
exception of the Securities and Exchange Commission registration fee, the
amounts set forth below are estimates and actual expenses may vary considerably
from these estimates depending upon how long the common stock is are offered and
other factors:
Securities and Exchange Commission registration fee $ 14,542
Accounting fees and expenses 50,000
Blue Sky fees and expenses 10,000
Legal fees and expenses 65,000
Printing expenses 15,000
Miscellaneous 5,458
--------------
TOTAL $ 160,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In February 2004, the Company issued 13,226,147 shares of its common stock to
American Capital Holdings, Inc. in connection with the Company's acquisition of
certain assets from that company (See "Description of Business - Acquisition of
American Capital Holdings"). Inasmuch as American Capital Holdings had access
to comprehensive information about the Company, the shares were issued in
reliance upon Section 4(2) of the Securities Act. A legend was placed on the
certificates stating that the securities were not registered under the
Securities Act and setting forth appropriate restrictions on their transfer or
sale.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. Descriptions
3.1 Articles of Incorporation of the Company, including amendments
(incorporated by reference to the Company's Form 10-SB filed May 24, 2004)
3.2 Articles of Incorporation of the Company, including amendments
(incorporated by reference to the Company's Amended Form 10-SB filed
January 11, 2005)
3.3 Bylaws of the Company (incorporated by reference to the Company's
Form 10-SB filed May 24, 2004 )
4.1 Form of Warrant to be issued hereunder
5.1 Opinion of Redgrave & Rosenthal LLP with respect to legality
of Common Stock (to be supplied by amendment)
II-2
10.1 Asset Purchase Agreement dated January 12, 2004, between the Registrant
and American Capital holdings, Inc. (incorporated by reference to the
Company's Form 10-SB filed May 24, 2004)
10.2 Letter Agreement dated December 30, 2003, between the Registrant and
Spaulding Ventures, LLC (incorporated by reference to the Company's Form
10-SB filed May 24, 2004)
10.3 IS Direct acquisition agreement (incorporated by reference to the
Company's Amended Form 10-SB filed January 11, 2005)
10.4 Universe Life acquisition agreement (incorporated by reference to the
Company's Amended Form 10-SB filed January 11, 2005)
10.5 Lease Agreement between Gemini Property Management, LLC and the Company
dated January 23, 2004. (incorporated by reference to the Company's
Amended Form 10-SB filed January 11, 2005)
10.6 Form of Outstanding Warrants (incorporated by reference to the Company's
Amended Form 10-SB filed January 11, 2005)
21.1 Subsidiaries of the Registrant (incorporated by reference to the Company's
Amended Form 10-SB filed January 11, 2005)
23.1 Consent of Redgrave & Rosenthal LLP (included in Exhibit 5.1)
23.2 Consent of Wieseneck, Andres & Company, P.A.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") 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, 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 and will be governed by the final adjudication of such issue.
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 the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
an increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
II-3
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the 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.
SIGNATURES
Pursuant to 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 duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Palm Beach Gardens, State of Florida, on January 18, 2005.
AMERICAN CAPITAL HOLDINGS, INC.
By: /s/ Barney A. Richmond
-------------------------
Barney A. Richmond
Chief Executive Officer
By: /s/ Richard C. Turner
-------------------------
Richard C. Turner
Chief Financial Officer
II-4
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated below.
Signature Title Date
Chairman of the Board, President,
Chief Executive Officer
/s/ Barney A. Richmond (Principal Executive Officer) January 18, 2005
-----------------------
Barney A. Richmond
Director, Chief Financial Officer
/s/ Richard C. Turner (Principal Accounting and Financial
----------------------- Officer) January 18, 2005
Richard C. Turner
/s/ Norman E. Taplin Director January 18, 2005
----------------------
Norman E. Taplin
/s/ Michael Camilleri Director January 18, 2005
----------------------
Michael Camilleri
II-5