AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2005.
REGISTRATION NO. 333-122127
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
to
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
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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. [ ]
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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 (1)
--------------- --------------- ----------------- ------------- ------------
Common Stock
offered hereby 40,000,000 $ 5.00 200,000,000 $ 23,540.00
------------
Total Registration Fees $ 23,540.00
(1) 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 April 28, 2005
$200,000,000
AMERICAN CAPITAL HOLDINGS, INC.
40,000,000 Shares of Common Stock
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We are offering up to Forty Million (40,000,000) 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.
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The shares will be marketed and sold through our officers and directors and
through registered broker/ dealers, on a "best efforts" basis. This offering
will expire two years from the date of this prospectus. This offering is not
contingent upon any minimum number of shares being sold, and there is no minimum
purchase amount. All proceeds from sales of the shares will be placed in our
general treasury as sales are made. Currently, there is no public trading
market for the shares, or of our common stock. Once we are operational, we
intend to apply for listing of our Common Stock on the American Stock Exchange.
See "Plan of Operation - Public Trading Market."
Investing in our Common Stock involves risks that are described in the "Risk
Factors" section beginning on page 8 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)
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Maximum Offering $200,000,000 $ 10,000,000 $190,000,000
===============================================================================
(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.
(2) Before deducting estimated offering expenses of $170,000.
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 "the Company" refer to
American Capital Holdings, Inc. and, where applicable, our existing and intended
insurance subsidiaries, Universe Life Insurance Company ("Universe Life"), IS
Direct Agency, Inc. ("IS Direct") and Cosmopolitan Life Insurance Company
("Cosmopolitan Life").
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The Company
American Capital Holdings, Inc. is a holding company which owns five
proprietary financial products, and 100% of an insurance company called IS
Direct Agency, Inc. The Company has entered into contracts to purchase two (2)
insurance companies, Cosmopolitan Life and Universe Life, which are planned to
be subsidiaries of the Company. The funds to purchase Cosmopolitan Life are
currently held in escrow, pending Form A (change of ownership control)
regulatory approval by the Arkansas Department of Insurance. Upon receipt of the
expected approval by the Arkansas Department of Insurance, the Company plans to
license Cosmopolitan Life in forty-eight (48) additional states. The other
pending acquisition, Universe Life Insurance Company, requires regulatory
approval as well. The Company plans to commence the regulatory approval process
for Universe in August, 2005. The proprietary 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)"). GPACS(TM) are insurance related products designed to provide
balance sheet funding options for currently 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. When and if these products are utilized, compliance
with federal and state securities and/or insurance laws will be required. Our
Chairman, Barnard 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 the
Company.
To date, we have been participating exclusively in activities associated with
the start-up of the Company, including structuring the Company, acquiring
assets, negotiating the acquisition of the insurance subsidiaries needed to sell
our products, obtaining the required state licenses for our intended insurance
subsidiaries, and formulating our marketing strategies. We have not yet
commenced operations, and therefore have had no significant revenues since
inception. Upon completion of our pending acquisitions of Universe Life and
Cosmopolitan Life, the Company plans to use the proceeds of this offering to
expand operations in additional states. Until that time, we will use the
services of third-party insurance carriers in connection with any sales of our
products. We have not yet realized revenues from sale of our products, and have
incurred a net loss of $4,638,264 since inception, of which $3,023,199 is
related to asset write-downs. We expect our acquisitions of Cosmopolitan Life to
be completed by May 31, 2005 and our acquisition of Universe Life to be
completed by August, 2005. The proceeds of this offering are designated for
additional expansion capitalization of those subsidiaries. We intend to begin
sales of our products as soon as possible, but do not expect significant net
revenues until after our acquisition of Cosmopolitan Life is complete. We
expect to begin generating revenues from operations by the end of our fourth
quarter, upon closing of our acquisition of Cosmopolitan Life.
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
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intend to continue to follow a policy of retaining earnings in order to finance
the development of our business.
The GPACS(TM) and some of our other products use insurance as a part of their
structure. The insurance contracts will be written through several licensed
insurance carriers, including our insurance subsidiaries. Our insurance
subsidiaries will also sell traditional insurance products, such as life,
health, and dental policies, and annuities.
IS Direct is a wholly-owned subsidiary of the Company, and is a licensed
insurance agency through which we will sell our products. IS Direct is
currently licensed in forty-three (43) 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 Cosmopolitan Life and other licensed
insurance carriers.
The Company has a contract to purchase Universe Life, which is planned
as another wholly-owned subsidiary of the Company, pending regulatory approval
of the change in control by the Insurance Commissioner of the State of Idaho.
The contract stipulates a purchase price of $100,000 in exchange for 100%
ownership. Universe Life will be acquired through receivership with no existing
operations, but the process for reinstatement is in progress. Universe Life is
a life, health, and annuities insurance carrier, which is currently licensed to
operate in twenty-three (23) states. Universe Life 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. We expect Universe Life to be domiciled in the State of South Carolina,
with its principal offices in Charleston. After acquisition, we may merge
Universe Life and Cosmopolitan Life in order to jointly utilize each company's
capital surplus resources and/or licenses.
On October 30, 2004, we entered into an agreement to purchase one-hundred (100%)
percent of the voting shares of Cosmopolitan Life. We expect to close our
acquisition of Cosmopolitan Life by May 31, 2005, upon regulatory approval by
the Arkansas Department of Insurance. Cosmopolitan Life is a stipulated premium
insurer chartered in 1931 in the State of Arkansas. A "stipulated premium
insurer" is one issuing policies or certificates promising money or other
benefits to a policyholder upon his or her disability or, upon his or her
decease, to his or her legal representatives or beneficiaries designated by him
or her, which money or benefit is derived from stipulated premiums collected in
advance from those policyholders and from interest and other accumulations.
Since 1998, Cosmopolitan Life 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. After acquisition, we may merge
Cosmopolitan Life and Universe Life, which would allow Universe Life to operate
on Cosmopolitan Life's asset base, and would give Cosmopolitan Life the ability
to operate in twenty-three additional states.
We intend to use some of the insurance products of our subsidiaries as part of a
plan to reduce currently unfunded government and private sector pension plan
liabilities, addressing the needs of governmental and private sector businesses
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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.
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.
The Offering
Issuer: American Capital Holdings, Inc.
Securities Offered: 40,000,000 shares of our common stock
Offering Price: Five ($5.00) Dollars per share of common stock
Offering Period: The offering will commence upon effective date of
this registration statement, and we expect the
offering to continue from time to time until all
40,000,000 shares are sold, unless we terminate the
offering sooner at our discretion.
Method of Purchase: In order to purchase shares, 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. If for any reason your
subscription is not accepted, we will return to
you the full purchase price.
Use of Proceeds: Initially, we expect to use most of the proceeds to
provide additional capital and surplus to our
existing subsidiary, IS Direct, and to Cosmopolitan
Life, upon receipt of the pending State of Arkansas
Form A regulatory approval. We will use
the proceeds to expand operations into an additional
forty-eight (48) states. A portion of the proceeds
will also be used to carry our operating expenses
until revenues from operation are sufficient to do
so. Additional proceeds will be available for
additional acquisitions of businesses related and
complementary to that of our existing subsidiaries.
None of the proceeds will be used to acquire Universe
Life or Cosmopolitan Life. 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.
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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.
See"Plan of Operation - Public Trading Market."
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 Nine-Months ended
May 31,2004 February 28, 2005
Net Sales 0 123
Total Operating Expenses 486,526 928,521
Net Other Expenses 160,746 26,318
Net Other Comprehensive Loss 512,997 2,510,202
Net Loss 1,164,221 3,474,046
Net Loss Per Common Share .18 .22
Weighted Average Shares Outstanding 6,551,685 15,723,903
Balance Sheet Data:
May 31, 2004 February 28, 2005
(unaudited)
Total Current Assets 3,239,008 693,496
Total Assets 14,455,329 12,164,825
Total Liabilities 931,485 1,335,027
Total Stockholders' Equity 13,523,844 10,829,798
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.
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LACK OF OPERATING HISTORY. To date, we have been participating exclusively in
activities associated with the start-up of the Company, including structuring
the Company, acquiring assets, negotiating the acquisition of the insurance
subsidiaries needed to sell our products, obtaining the required licenses for
our intended insurance subsidiaries, and formulating our marketing strategies.
We have not yet commenced operations, and thusly have had no significant
revenues since inception. Until our pending acquisitions of Universe Life and
Cosmopolitan Life are completed, and until they are capitalized sufficiently to
obtain the insurance licenses needed to underwrite our products, we will use the
services of third-party insurance carriers in connection with any sales of our
products, which will reduce our net revenues. We have not yet realized revenues
from sale of our products, and have incurred a net loss of $4,638,264 since
inception, of which $3,023,199 are asset write-downs.
We expect our acquisition of Cosmopolitan Life to be completed by May 31, 2005,
and some of the proceeds of this offering are designated for additional
expansion capitalization of those subsidiaries. We intend to begin sales of our
products within 60 days, regardless of the status of this offering, but do not
expect significant net revenues until after our acquisitions Cosmopolitan Life
is complete.
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.
WE WILL FACE INTENSE COMPETITION. We are and will continue to be only one
participant in the business of selling life insurance backed financial products
in response to the Governmental Accounting Standards Board ("GASB") Statement
45, which generally requires state and local governmental employers to account
for and report the annual cost of Other Post Employment Benefits ("OPEB") and
the outstanding obligations and commitments related to OPEB in essentially the
same manner as currently required pension for obligations. Although we have
applied for a patent on our product addressing Statement 45, we will face
competition from companies who may offer a similar product 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.
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SOME OF OUR DIRECTORS MAY BE SUBJECT TO CONFLICTS OF INTEREST. Because some of
our directors are in the business of providing services to the insurance
industry, they could encounter conflicts of interest from time to time between
the interests of the Company and the interests of their clients. Douglas
Sizemore provides consulting services to various insurance companies. Norman E.
Taplin is an attorney specializing in insurance regulatory matters. Michael
Camilleri owns an actuarial firm which provides services to various insurance
entities. Resulting conflicts of interest will be resolved through exercise of
such judgment as is consistent with the fiduciary duties of management to the
Company.
NO PUBLIC MARKET CURRENTLY EXISTS. There is currently no public market for the
Company's common stock. Although we intend to apply for listing of our Common
Stock on the American Stock Exchange, there can be no assurance that we will be
successful in doing so, 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 WILL REQUIRE ADDITIONAL CAPITAL. We have not yet begun sales of our
products, and will therefore require additional capital to sustain us until
sales begin and we are able to receive revenues from those sales. We may also
require additional capital in the future to sustain growth and achieve favorable
ratings. The required capital 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 subsidiary and the relationship between the statutory
capital and surplus of our life subsidiary 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 subsidiary
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 subsidiary
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.
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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 subsidiary 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 subsidiary 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
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.
OUR COMMON STOCK IS CURRENTLY CLASSIFIED AS "PENNY STOCK" AND IS NOT A SUITABLE
INVESTMENT FOR ALL INVESTORS. Our common stock is a penny stock and is not a
suitable investment for all investors. Generally, a penny stock is a security
that (i) is priced under five dollars, (ii) is not traded on a national stock
exchange or on NASDAQ (as opposed to the Over the Counter Bulletin Board or the
"pink sheets"), and (iii) is issued by a company that has less than $5 million
in net tangible assets and has been in business less than three years. Because
our common stock is not yet publicly traded, and we have less than $5,000,000 of
net tangible assets, our common stock is currently classified as "penny stock."
While we intend to apply for listing on the American Stock Exchange, there can
be no assurance that we will be successful. If our common stock does not become
listed on the American Stock Exchange, or on another exchange or the NASDAQ, or
if our common stock does not trade at or above $5.00 per share, or if we do not
maintain at least $5,000,000 of net tangible assets, our common stock will
continue to be classified as a penny stock. Penny stocks are subject to
Securities and Exchange Commission rules that impose special sales practice
requirements upon broker-dealers that sell such securities to persons other than
established customers or accredited investors. Consequently, the rule may
affect the ability of purchasers of our common stock to buy or sell in any
market that may develop. In addition, the Securities and Exchange Commission
has adopted a number of rules to regulate "penny stocks". These rules may
further affect the ability of owners of our common stock to sell their shares in
any market that may develop for them. Potential investors should be aware that,
according to the Securities and Exchange Commission Release No. 34-29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include:
* control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
* manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases;
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* "boiler room" practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
* excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
* the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor losses.
We advise you to consult with 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 $1.50 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 14.
CENTRALIZED CONTROL. 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 are estimated to be
approximately $190,000,000, before deducting estimated offering expenses of
$170,000. The primary purpose of this offering is to increase the capital and
surplus of our life subsidiary 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 will be approximately
$190,000,000 before deducting estimated offering expenses of $170,000. We expect
to initially use the majority of the proceeds to provide capital surplus to our
subsidiaries, including our existing subsidiary, IS Direct, and the two life
insurance subsidiaries we are in the process of acquiring, Universe Life and
Cosmopolitan Life. A portion of the proceeds will also be used to carry our
operating expenses until revenues from operation are sufficient to do so.
Additional proceeds will be available for additional acquisitions of businesses
related, and complimentary, to that of our existing subsidiaries. The capital
surplus provided to our subsidiaries will be used by them to meet regulatory
requirements pertaining to the amount of reserves required in order to
underwrite various insurance products. The reserves will be invested in various
institutional grade securities as allowed by applicable state and federal
insurance regulations. Until we have completed our acquisitions of Universe
Life and Cosmopolitan Life, the amounts designated for additional capitalization
of those subsidiaries will be held in the accounts of the Company and may be
invested in short term securities, such as United States Treasury securities,
bank certificate of deposit, or bank overnight repurchase funds. None of the
proceeds will be used to acquire Universe Life or Cosmopolitan Life, since the
purchase price for those acquisitions is our common stock.
This offering is not contingent upon any minimum number of common stock shares
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.
We plan to sell the common stock and warrants offered hereby over a period of up
to two years, as funds are needed for the purposes described above. There can be
no assurance that all of the shares offered hereby will be sold. The table
below shows our estimated application of the proceeds of this offering if a
total of 10,000,000, 20,000,000 or 40,000,000 shares are actually sold.
13
Shares Sold 10,000,000 20,000,000 40,000,000
Gross Proceeds $50,000,000 $100,000,000 $200,000,000
Use of Proceeds
Brokers' Fees $2,500,000 $5,000,000 $10,000,000
Offering Expenses 170,000 170,000 170,000
Additional Capital-Universe 5,000,000 5,000,000 5,000,000
Addt'l Capital-Cosmopolitan 20,000,000 20,000,000 20,000,000
General & Administrative 30,000 30,000 30,000
Growth & Acquisitions 22,300,000 69,800,000 164,800,000
Total Use of Proceeds $50,000,000 $100,000,000 $200,000,000
CAPITALIZATION
The following table sets forth our capitalization, as of February 28, 2005, and
as adjusted to reflect the sale of 10,000,000, 20,000,000 and 40,000,000 of the
common shares and warrants hereby. The table below should be read in conjunction
with our consolidated financial statements, related notes and other financial
information included elsewhere in this prospectus.
ACTUAL AS OF AS ADJUSTED, SHARES SOLD
FEBRUARY 28, 2005 10,000,000 20,000,000 40,000,000
Current Liabilities
Accounts Payable $ 43,675 $ 43,675 $ 43,675 $ 43,675
Accrued Expenses 21,422 21,422 21,422 21,422
Loan Payable
Related Parties 234,953 234,953 234,953 234,953
Current Portion of Notes
and Loans Payable 1,034,977 1,034,977 1,034,977 1,034,977
---------- ---------- --------- ---------
Total Current Liabilities 1,335,027 1,335,027 1,335,027 1,335,027
---------- ---------- --------- ---------
Total Liabilities 1,335,027 1,335,027 1,335,027 1,335,027
---------- ---------- --------- ---------
Stockholders' Equity
Common Stock $.0001 par
value, 100 million
shares authorized,
15,723,903 shares issued
and outstanding,
2,080,000 unissued 1,780 2,780 3,780 5,780
Paid-in-Capital 15,466,285 65,465,285 115,464,285 215,462,285
Accumulated Deficit (1,615,068) (1,615,068) (1,615,068) (1,615,068)
Accumulated
Comprehensive Loss (3,023,199) (3,023,199) (3,023,199) (3,023,199)
----------- ------------ ----------- ------------
Total Stockholders' Equity 10,829,798 60,829,798 110,829,798 210,829,798
----------- ------------ ------------ ------------
TOTAL CAPITALIZATION $ 12,164,825 $ 62,164,825 $112,164,825 $212,164,045
=========== ============ ============ ============
14
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 February 28, 2005 was approximately
$2,591,789 or $.15 per share of common stock, including 2,080,000 shares
subscribed and paid for as of that date, but not yet issued. After giving
effect to the sale of all 40,000,000 shares in this offering, and after
deducting estimated offering expenses, our net tangible book value as of
February 28, 2005, would have been $194,421,789 or $3.33 per share. This
represents an immediate increase in net tangible book value of $3.18 per share
to the existing shareholders and an immediate dilution of $1.67 per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution, assuming 10,000,000, 20,000,000 and 40,000,000 shares
are sold in this offering:
10,000,000 20,000,000 40,000,000
shares sold shares sold shares sold
Offering price per share $ 5.00 $ 5.00 $ 5.00
Net tangible book value
per share before
this offering $ .15 $ .15 $ .15
Pro forma increase in
net tangible book value
per share attributable
to new investors $ 1.65 $ 2.43 $ 3.18
Pro forma net tangible
book value per share
after this offering $ 1.80 $ 2.58 $ 3.33
Dilution per share
to new investors $ 3.20 $ 2.42 $ 1.67
The following table summarizes, as of February 28, 2005, 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 17,803,903 40,000,000
Total Consideration $ 15,468,065 $ 200,000,000
Average Price Per Share $ .87 $ 5.00
15
PLAN OF OPERATION
Overview
American Capital Holdings, Inc., ("the Company") is a holding company which owns
five (5) proprietary financial products, and either owns or is the process of
acquiring three subsidiary insurance companies, Cosmopolitan Life Insurance
Company, IS Direct Agency, Inc., and Universe Life Insurance Company. The
proprietary 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
insurance related products designed to reduce currently 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. When and if these products are utilized, when
applicable, they will require separate SEC registration statements and/or
insurance product approvals in the states in which the products are utilized.
Our Chairman, Barnard 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 the
Company.
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, including our insurance subsidiaries. Our insurance
subsidiaries will also sell traditional insurance products, such as life,
health, and dental policies, and annuities.
IS Direct is a wholly-owned subsidiary of the Company, and is a licensed
insurance agency through which we will sell our products. IS Direct is
currently licensed in forty-three (43) 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, we also plan to use IS Direct to sell additional
products of other licensed insurance carriers.
We have an agreement to purchase Universe Life, which is planned as another
wholly-owned subsidiary of the Company, pending regulatory approval of the
change in control by the Insurance Commissioner of the State of Idaho. Universe
Life is a life, health and annuities insurance carrier, which is currently
licensed to operate in twenty-three (23) states. Universe Life 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. We expect Universe Life to be domiciled in the State of
South Carolina,with its principal offices in Charleston. We may merge Universe
and Cosmopolitan Life, after the acquisitions have closed, as means of jointly
utilizing each company's capital surplus resources and/or licenses.
16
On October 30, 2004, we entered into an agreement to purchase one-hundred (100%)
percent of the voting shares of Cosmopolitan Life. We expect to close our
acquisition of Cosmopolitan Life in May 2005, upon regulatory approval by the
Arkansas Department of Insurance. Cosmopolitan Life is a stipulated premium
insurer chartered in 1931 in the State of Arkansas. Since 1998, Cosmopolitan
Life 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. The funds for the purchase of Cosmopolitan have been
placed in escrow pending regulatory approval.
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. Our 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.' In
March 2003, the Company changed its name to USA SportsNet, Inc., and in December
2003 changed its name to American Capital Holdings, Inc.
eCom incorporated in the State of Florida on June 14, 1994 as US Amateur Sports,
Inc., but on December 17, 1998, eCom's directors voted to change the name from
US Amateur Sports, Inc. to eCom eCom.com, Inc. in the belief that the proposed
name more accurately reflected the nature of the core business--electronic
commerce. At a Special Meeting of Shareholders held on January 25, 1999, the
shareholders approved an amendment to Articles of Incorporation of US Amateur
Sports Company in order to adopt the new name. At that time, a current report
on Form 8-K was filed with the Securities and Exchange Commission, and the name
change became effective on January 27, 1999.
Throughout these transactions and restructurings, and as the market's
infatuation with dot-coms began to wane, eCom began to lose market
capitalization. From the historical high share price of $21.50 in April 1999,
shares saw a rapid decline to a low of $.01 in February 2003. eCom concluded
that it did not have the financial resources necessary to develop all ten of its
business units collectively, so in an effort to preserve and restore shareholder
value, eCom decided to spin off the ten subsidiaries into independent companies.
The rationale behind this move was that each independent company would be better
suited to obtain their own funding, and to develop and execute their distinct
business plans. eCom would then be able to develop and streamline its business
plan as well. This belief was based in part on eCom's experience with potential
business partners who sought involvement with only one operating segment of
eCom's multi-faceted business.
On December 1, 2003, eCom's Board of Directors approved the spin-off, and USA
SportsNet, Inc. emerged as an independent company, and subsequently changed its
name to American Capital Holdings, Inc.("the Company"), in anticipation of
making a certain acquisition. After the spin-off, the Company was presented
with an opportunity to acquire certain assets of a company then known as
American Capital Holdings, Inc., now known and referred to as ACHI. On January
17
12, 2004, the Company entered into an Asset Purchase Agreement with ACHI whereby
the Company agreed to acquire certain assets, and assume certain liabilities, of
ACHI in return for 95% of the total stock ownership of the Company. In order to
accomplish this transaction, the Company effected a 20-to-1 reverse stock split,
which reduced its outstanding shares to 2,497,756 shares, and agreed to issue
ACHI 49,995,112 shares. ACHI agreed to accept the issuance of 13,561,804 at
closing, and assigned the right to receive these shares to its principle,
Barnard A. Richmond, who is 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 financing.
The assets acquired from ACHI consist primarily of approximately $10.8 million
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"). The
liabilities assumed consisted of $1,005,000 of convertible notes given by ACHI
to various investors. See our balance sheet included in the Financial
Statements section of this prospectus. See our balance sheet included in the
Financial Statements section of this prospectus.
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 ("Spaulding") to
complete the acquisition of the investment interests in the ten developing
companies noted above. The Company also issued 216,209 warrants, at an exercise
price of $6.00 per share, to the shareholders of Spaulding as part of the
acquisition.
The ten developing companies in which the Company has acquired an investment
interest are as follows:
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.
The Company is divesting its interests in the developing companies, except for
its interest in IS Direct. To date, the Company has sold its interests in
SmartPill Holding Corporation and eSmokes, Inc. The company has acquired 100% of
the assets of IS Direct in order to facilitate its current plan of operation.
Business Strategy
Our primary business is insurance and related financial products. In addition
to traditional offerings such as life insurance, health insurance, and
annuities, we will offer financial strategies which utilize insurance as a part
of their structure.
18
American Capital Holdings, Inc. owns the patent and the trademarks for five
proprietary products:
GPICS(tm) -- Guaranteed Principle Insured Convertible Securities
ETIPS(tm) -- Energy Tax Incentive Preferred Securities
ETICS(tm) -- Equipment Tax Incentive Convertible Securities
GPACS(tm) -- Guaranteed Pension Accounting Contract Solutions
GPACS(tm) -- Government Pension Accounting Contract Solutions
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
for those obligations on the balance sheet is offset by an asset. We intend to
use the insurance products of our subsidiaries to reduce currently unfunded
government and private sector pension plan liability, addressing the needs of
governmental and private sector businesses regarding unfunded pension
liabilities and other post-employment benefit ("OPEB") liabilities. By
purchasing whole and term life insurance products for a pool of employees, with
the employer as the beneficiary, and utilizing the tax benefits of mandatory
participation in a tax-qualified retirement plan, an employer can realize
various financial benefits. The product provides a systematic investing
capability to enhance the profitability of the organization via investment
income, and improved treatment of tax obligations via qualified plans which
exempt OPEB income from FICA tax. The restructuring of the balance sheet in
such a manner can generate favorable financial implications such as improved
borrowing scenarios, reduction in the cost of insurance coverage, and increases
in the value of outstanding or newly-issued bonds. We intend to collect premiums
and commissions on the insurance products sold as a part of the structured
product, and also collect a consulting fee for the product itself. Until our
pending acquisitions of Universe Life and Cosmopolitan Life are completed, and
they are capitalized sufficiently to obtain the insurance licenses needed to
underwrite our products, we will use the services of third-party insurance
carriers in connection with any sales of our products.
American Capital Holdings, Inc. plans to utilize the existing sales and
marketing divisions of both IS Direct Agency, Inc. and Cosmopolitan Life
Insurance Company to target the municipalities and school boards in the states
in which the subsidiaries are licensed to sell our financial products.
Our GPICS(TM), ETIPS(TM) and ETICS(TM) products are 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. When and if these products
19
are utilized, compliance with federal and state securities and/or insurance laws
will be required. If and when utilized, we expect the sale of these products to
generate consulting revenue from the strategic planning provided by the Company.
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 Life and Cosmopolitan Life, 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. We expect to be able to support operating
expenses with operating revenues beginning in our fourth quarter, upon closing
of our acquisition of Cosmopolitan Life.
IS Direct
American Capital Holdings, Inc. purchased IS Direct for 800,000 shares of the
common stock of American Capital Holdings. The acquisition was completed May
20, 2004. Included in this acquisition are the assets listed below:
IS Direct Term Quick Website IS Direct Agency Name
Insurance Licenses Software
Business Process Methods Trademarks
Customers Prospective Customers
Vendor Relationships Insurance Carrier Relationships
Broker Relationships
IS Direct is an insurance agency which currently sells primarily term and whole
life insurance products. However, upon the completion of our proposed
acquisition of Universe Life, a life, health, and annuities carrier, the scope
of products available for sale by IS Direct is expected to broaden. 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
eventually be underwritten by Universe Life.
Universe Life
Universe Life is a life insurance company which we expect to use to underwrite
the insurance policies required by our GPACS products. We have an agreement to
purchase Universe Life, which is planned as another wholly-owned subsidiary of
the Company, pending regulatory approval of the change in control by the
Insurance Commissioner of the State of Idaho. The agreement stipulates a
purchase price of $100,000 in exchange for 100% ownership. There are no
contingencies to closing other than regulatory approval. Universe Life will be
acquired through receivership with no existing operations, but the process for
reinstatement is in progress and should be completed within 120 days.
Universe Life is a life, health and annuities insurance carrier, which is
currently licensed to operate in twenty-three (23) states. Universe Life will
be initiating the application process to become licensed in all remaining
20
states, and expects to obtain the necessary licenses to operate in all fifty
(50) states in the near future. We expect Universe Life to be domiciled in the
State of South Carolina, with its principal offices in Charleston. We
anticipate merging Universe and Cosmopolitan Life in the near future as means of
jointly utilizing each company's capital surplus resources and/or licenses.
Our application for approval of our acquisition of Universe Life has been filed
with the Insurance Commissioner of the State of Idaho. We expect to receive
regulatory approval for our purchase of Universe Life by August, 2005.
Cosmopolitan Life
On October 30, 2004, we entered into an agreement to purchase 100% percent of
the voting shares, and approximately 83% of the non-voting shares, of
Cosmopolitan Life, representing approximately 96% of the total ownership of
Cosmopolitan Life. The purchase price is $500,000, plus a loan to Cosmopolitan
Life in the form of a surplus note in the amount of $250,000. The surplus note
bears interest at 5% per annum, and is repayable only with the consent of the
applicable insurance commissioners, which will not be granted until Cosmopolitan
Life is deemed by them to have sufficient capital without the surplus note. We
expect to close our acquisition of Cosmopolitan Life by May 31, 2005, upon
regulatory approval by the Arkansas Department of Insurance. Upon closing, we
intend to contribute additional capital to Cosmopolitan Life, from the amount
raised pursuant to this offering, in order to provide capital for expansion and
additional licensing.
Cosmopolitan Life is a stipulated premium insurer chartered in 1931 in the State
of Arkansas. A "stipulated premium insurer" is one issuing policies or
certificates promising money or other benefits to a policyholder upon his or her
disability or, upon his or her decease, to his or her legal representatives or
beneficiaries designated by him or her, which money or benefit is derived from
stipulated premiums collected in advance from those policyholders and from
interest and other accumulations. Since 1998, Cosmopolitan Life 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.
Until 1998, Cosmopolitan Life 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 Life 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 Life 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 Life introduced a new product, Employers
Choice Health Plan, referred to as ECHP. Recently, most of Cosmopolitan Life's
revenues have been realized from re-insurance assumed, while its dental product
has been a small but profitable segment for the company. Cosmopolitan Life 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.
21
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 existing and intended life subsidiaries are subject to periodic examinations
by state regulatory authorities. The payment of dividends or the distributions,
including surplus note payments, by our existing and intended 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.
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
22
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.
Public Trading Market.
Once we have completed our pending acquisitions, commenced sales of our
products, and are able to meet the qualitative and quantitative requirements of
the American Stock Exchange, we intend to apply for listing of our Common Stock
on the American Stock Exchange ("AMEX"). The AMEX has various standards to be
met in order for a stock to be listed on the exchange. These standards include
requirements that a majority of the company's directors be independent, that the
company have an audit committee of at least three independent directors, that
the audit committee have a formal written charter, and that the company adopt a
code of ethics applicable to directors, officers and employees. In order to
meet these standards, we need to replace Richard Turner, who as our Chief
Financial Officer is not an independent director, on our audit committee. Since
one of the audit committee members must be financially sophisticated, we are
exploring whether one of our other two audit committee members meet this
standard, whether another of our current independent directors would meet this
standard, or whether we need to search for an additional independent director to
meet this standard. In addition, while we have drafted a code of ethics and
presented it for review by our Board of Directors, it has not yet been adopted
and will be considered at our next Board of Directors meeting.
In addition to the above standards, to be listed for trading on the AMEX a
company's stock must meet one of various sets of criteria regarding volume and
public distribution. The set of criteria we believe we can meet requires
shareholders' equity of at least $4 million, a market capitalization of at least
$50 Million, a publicly held (non-insider) market value of at lease $15 million,
a public distribution of at least 1 million shares, and at least 400
shareholders. We do not currently meet the criteria for total market
capitalization and publicly held market value. Whether we meet these criteria
will be determined by the trading price of our common stock after this offering.
Properties
The Company does not own any real property. The Company leases its headquarters
from a non-affiliated third party. The space consists of approximately 1,231
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 $3,478 per month, including sales tax.
23
Legal Proceedings
We are not a party to any legal proceedings, except for an Involuntary
Bankruptcy Petition filed by the Company, as one of three (3) petitioning
creditors, against eCom that is currently pending in the Federal District Court
in Broward County, Florida. We are a creditor of eCom and various former
subsidiaries of eCom which were spun off from eCom. We have initiated the
bankruptcy proceedings as means to reorganize eCom and their former
subsidiaries. We expect the bankruptcy filing to allow us to reorganize and/or
divest our interests in eCom and its former subsidiaries in order to allow them
to pursue profitable strategies as a means of restoring lost shareholder value.
Employees
The Company currently has seven full time employees.
MANAGEMENT
The following individuals are our executive officers and the members of our
board of directors. Each of our directors, other than Mr. Richmond and Mr.
Turner, are independent. 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.
Name Age Positions Held
---------------------- ---- ------------------------------
Barnard A. Richmond 53 Chairman/President/Secretary/
Director
Richard C. Turner 45 Treasurer/Chief Financial
Officer/Director
Matthew Salmon 47 Director
Barry M. Goldwater, Jr. 66 Director
Douglas Sizemore 74 Director
Norman E. Taplin 55 Director
Michael Camilleri 51 Director
24
Barnard 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 Board 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
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
25
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,
from 1969 to 1983, 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
August 2001, Mr. Salmon has been President of Upstream Consulting LLC, a Public
Affairs consulting company. From 1995 through 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 with Norman E. Taplin and Associates, 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.
Compensation of Directors
Matthew 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 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
services. Additionally, the Company has agreed to pay each independent director
$7,500 per quarter for their respective services.
Board Committees
We have an audit committee, whose members are Richard C. Turner, Michael
Camilleri, and Douglas Sizemore. 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. Our Board of Directors has not yet
established any other committees, but is considering whether to form various
committees, including Compensation, Disclosure and Acquisitions Committees.
26
Indemnification of Directors and Officers
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.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or earned for services
rendered to the Company in all capacities during the years ended May 31, 2004,
2003 and 2002, by our chief executive officer. No other executive officer
received total annual salary, bonus and other compensation in excess of $100,000
in those periods. We do not have employment contracts with any of our executive
officers.
Annual Compensation
Other
Annual
Compen-
Name And Principal Position Year Salary ($) Bonus ($) sation ($)
------------------------------ ------ --------- --------- ---------
David Panaia, President(1) 2004 0 0 0
2003 0 0 0
2002 0 0 0
Barnard A. Richmond, 2004 0 0 0
President(2) 2003 0 0 0
2002 0 0 0
Richard C. Turner, 2004 $5,000 0 0
Treasurer(3) 2003 0 0 0
2002 0 0 0
27
(1) David Panaia served as President until his resignation on January 12, 2004,
and has since deceased.
(2) Barnard A. Richmond was appointed President on January 12, 2004 and receives
no compensation from the Company.
(3) Richard C. Turner was appointed Treasurer on June 1, 2001.
Currently, Richard C. Turner, our Chief Executive Officer, is 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Barnard A. Richmond, our President and a director, as well as other of our
officers and directors, have lent us money from time to time in order to fund
our operations. The total amount we owed to our officers and directors as of
February 28, 2005 was $194,799, of which $187,555 was owed to a Barnard A.
Richmond affiliate, and $17,244 was owed to Richard Turner.
We are acquiring ownership of Universe Life from a company of which Michael
Camilleri, one of our directors, is President. We believe the terms of this
transaction are at least as favorable as could have been negotiated with
independent parties.
PRINCIPAL SHAREHOLDERS
As of February 28, 2005, there were a total of 15,723,903 shares of the
Company's stock outstanding, plus 2,080,000 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, which will be
registered in separate SEC registration statements. 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
----------------------- ----------------- --------------
Barnard 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
28
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
Sacramento, 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.
(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 February 28, 2005, 15,723,903
shares of our Common Stock were issued and outstanding, and an additional
2,080,000 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.
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.
29
Convertible Notes. As of February 28, 2005, we had outstanding $494,950 of
convertible notes, representing amounts we have borrowed. The notes pay
interest at 10% per annum, payable quarterly, and are currently due. We have
been extending the notes from quarter to quarter by making regular quarterly
payments of interest. The notes can be converted to shares of our common stock,
at the option of the holder, at a conversion price equal to 80% of the average
closing price of our common stock for the preceding five consecutive trading
days, with a minimum conversion price of $1.00. The holder of a $500,000
convertible note has agreed to convert the note to common stock. By agreement,
the shares of common stock at conversion will not be issued until the effective
date of this offering.
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
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.
Securities and Exchange Commission registration fee $ 23,540
Accounting fees and expenses 50,000
Blue Sky fees and expenses 10,000
Legal fees and expenses 65,000
Printing expenses 15,000
Miscellaneous 6,460
-------------
TOTAL $ 170,000
30
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
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
31
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.
32
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, 2003 and 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, 2003 and 2004 . . F-6
Notes to Consolidated Financial Statements . . . . . . F-8
F-1
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 years ended
May 31, 2004 and 2003. 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 above 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 years ended May 31, 2004
and 2003, 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
------------
Total Current Assets 275,830
------------
Property and Equipment, net 43,472
------------
Other Assets
Marketable Securities 5,896,196
Intangible Assets, net 27,649
Goodwill 8,209,071
Security Deposit 3,110
------------
Total Other Assets 14,136,026
------------
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 STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 2004 and 2003
2004 2003
_____________ ____________
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) $ 0
============ ============
Basic and Diluted
Net Loss Per Common Share $ (.18) $ .00
============ ============
Weighted Average Shares Outstanding 6,551,685 5
============ ============
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 YEARS ENDED MAY 31, 2004 and 2003
2004 2003
---------- ----------
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 and 2002 0 0
_______________ _____________
Cash and Cash Equivalents at
End of Period, May 31, 2004 and 2003 $ 22,614 $ 0
=============== =============
See accompanying summary of accounting policies and notes to financial
statements.
F-6
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2004 and 2003
2004 2003
-------------- -----------
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, Barnard 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 are 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 are recorded at cost and 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 cost
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:
Cost 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 Cost Method Securities at Cost 2,704,500
Available-for-Sale method of accounting
Air Media Now, Inc. 2,933,018
eCom eCom.com Inc. 258,678
-----------
Total Available-for-Sale securities 3,191,696
-----------
Total Investment Securities $ 5,896,196
===========
Cost 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 E - INVESTMENTS (CONTINUED)
On February 29, 2004, American Capital Holdings, Inc. purchased certain assets
from ACHI, Inc. One of the assets that ACHI, Inc. owned, and that was acquired
by American Capital Holdings, Inc., was 53,910,922 common shares of Air Media
Now, Inc. The only assets recorded on the books of Air Media Now, Inc. at date
of acquisition were the rights to use certain Intellectual Property that had
been developed by the company plus 500,000 common shares of eCom eCom.com, Inc.
Management determined that the rights to use the intellectual property had no
value at the date of consolidation. Management determined that the fair value
of the common stock of Air Media Now, Inc., which is traded on the pink sheets,
was $2,933,018 at May 31, 2004 and, therefore, recognized the ownership of this
common stock as a marketable security and available for sale. The loss in value
of $(536,604) Air Media Now stock is recognized as a comprehensive loss in the
current period and as an Accumulated Comprehensive Loss in stockholders' equity.
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
Intangible assets consist of website and software development costs for IS
Direct, and fees related to applications for patents and trademarks.
See accompanying independent accountants' audit report.
F-13
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE I - OTHER ASSETS
Other assets consist primarily of security deposits on the lease of office
facilities and marketable securities.
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.
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
==========
See accompanying independent accountants' audit report.
F-14
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE K - PROMISSORY NOTES (CONTINUED)
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.
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
=============
See accompanying independent accountants' audit report.
F-15
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
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.
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
See accompanying independent accountants' audit report.
F-16
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE O - STOCKHOLDERS' EQUITY (CONTINUED)
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
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.
See accompanying independent accountants' audit report.
F-17
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
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.
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.
See accompanying independent accountants' audit report.
F-18
AMERICAN CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED MAY 31, 2004
NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
End of May 31, 2004 Financials
American Capital Holdings, Inc. February 28, 2005
INDEX
PAGE NO.
PART F/S FINANCIAL STATEMENTS
Independent Accountants' Report . . . . . . . . . . . . . . . F-20
Consolidated Balance Sheet
February 28, 2005 . . . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statement of Operations
Nine Months Ended February 28, 2005 and February 29, 2004. . F-22
Consolidated Statement of Operations
Three Months Ended February 28, 2005 and February 29, 2004.. F-23
Consolidated Statement of Changes in Shareholders' Equity
from June 1, 2003 Through February 28, 2005 . . . . . . . . F-24
Consolidated Statement of Cash Flows
for the Nine Months Ended February 28, 2005 and 2004 . . . 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 February 28, 2005, and the related consolidated statements
of operations, for the three-month periods and the nine month periods ended
February 28, 2005 and 2004, the consolidated statement of changes in
stockholders' equity from June 1, 2003 through February 28, 2005, and the
consolidated statement of cash flows for the nine month periods ended February
28, 2005 and February 29, 2004, 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
April 22, 2005
F-20
AMERICAN CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2005
ASSETS
Current Assets
Cash and Cash Equivalents $ 34,487
Accounts Receivable 23,709
Notes Receivable 409,650
Loans Receivable Related Parties (net) 158,618
Prepaid Expenses 66,432
Other Current Assets 600
------------
Total Current Assets 693,496
------------
Property and Equipment, net 24,219
------------
Other Assets
Available for Sale Securities 3,205,991
Intangible Assets, net 28,938
Goodwill 8,209,071
Security Deposit 3,110
------------
Total Other Assets 11,447,110
------------
TOTAL ASSETS $ 12,164,825
============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 43,675
Accrued Expenses 21,422
Loan Payable Related Parties 234,953
Current Portion of Notes
and Loans Payable 1,034,977
------------
Total Current Liabilities 1,335,027
------------
Total Liabilities 1,335,027
------------
Stockholders' Equity
Common Stock $.0001 par value, 100 million
shares authorized, 15,723,903 shares issued
and outstanding, 2,080,000 unissued 1,780
Paid-in-Capital 15,466,285
Accumulated Deficit (1,615,068)
Accumulated Comprehensive Loss (3,023,199)
------------
Total Stockholders' Equity 10,829,798
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 12,164,825
============
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 NINE MONTHS ENDED
FEBRUARY 28, 2005 AND 2004
FEBRUARY 28, 2005 FEBRUARY 29, 2004
Revenues
Net Sales $ 123 $ -
Cost of Sales (9,128) -
------------ ------------
Gross Profit (9,005) -
------------ ------------
Operating Expenses
General and Administrative 913,164 3,474
Sales and Marketing 15,357 -
Amortization - -
------------ ------------
Total Operating Expenses 928,521 3,474
------------ ------------
Loss from Operations (937,526) (3,474)
------------ ------------
Other Income (Expense)
Interest Income 9,564 -
Interest Expense (36,513) -
Loss on Disposition
of Marketable Securities (343,364) -
Recovery of Bad Debt 343,995
------------ ------------
Net Other Expenses (26,318) -
------------ ------------
Net Loss Before Other Comprehensive Losses (963,844) -
Other Comprehensive Income / (Loss)
Unrealized Holding Loss During Period (2,510,202) -
------------ ------------
Total Comprehensive Loss (2,510,202) -
------------ ------------
Net Loss $ (3,474,046) $ (3,474)
============ ============
Basic and Diluted
Net Loss Per Common Share $ (.22) $ (.00)
============ ============
Weighted Average Shares Outstanding 15,723,903 3,494,205
============ ============
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
FEBRUARY 28, 2005 AND 2004
FEBRUARY 28, 2005 FEBRUARY 29, 2004
Revenues
Net Sales $ - $ -
Cost of Sales (1,049) -
------------ ------------
Gross Profit (1,049) -
------------ ------------
Operating Expenses
General and Administrative 424,780 3,474
Sales and Marketing - -
Amortization - -
------------ ------------
Total Operating Expenses 424,780 3,474
------------ ------------
Loss from Operations (425,829) (3,474)
------------ ------------
Other Income (Expense)
Interest Income 4,622 -
Interest Expense (11,854) -
Loss on Disposition
of Marketable Securities (295,000) -
Recovery of Bad Debt 343,995 -
------------ ------------
Net Other Income 43,763 -
------------ ------------
Net Loss Before Other Comprehensive Losses (384,066) (3,474)
Other Comprehensive Income / (Loss)
Unrealized Holding Loss During Period (636,208) -
------------ ------------
Total Comprehensive Loss (636,208) -
------------ ------------
Net Loss $ (1,020,274) $ (3,474)
============ ============
Basic and Diluted
Net Loss Per Common Share $ (.06) $ (.00)
============ ============
Weighted Average Shares Outstanding 15,723,903 10,482,604
============ ============
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 FEBRUARY 28, 2005
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 780,000
shares of Common
Stock - unissued - 78 779,922 - - 780,000
Accumulated other
Comprehensive Loss - - - - (2510,202) (2,510,202)
Net Operating Loss - - - (963,844) - (963,844)
---------- ------ ----------- ---------- ---------- -----------
Bal. 02/28/05 15,723,903 $1,780 $15,466,285$(1615,068)$(3023,199)$10,829,798
========== ====== =========== ========== ========= ============
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 NINE MONTHS ENDED FEBRUARY 28, 2005 AND 2004
FEBRUARY 28, 2005 FEBRUARY 29, 2004
Cash Flows From Operating Activities
Cash received from customers $ 123 $ -
Cash paid to suppliers of goods
and services (906,807) (4,378)
Income Taxes Paid - -
Interest Paid (25,479) -
Interest Received 773 -
_______________ _______________
Net Cash Flows Used in
Operating Activities (931,390) (4,378)
_______________ _______________
Cash Flows From Investing Activities
Purchase of Equipment (9,490) -
Deposit Made on Insurance Carrier in Escrow (250,000) -
Sale of Marketable Securities 871,636 -
Purchase of Marketable Securities (377,348) -
Purchase of Promissory Notes (11,906)
Payment of Security Deposit - (2,535)
_______________ _______________
Net Cash Flows Provided By
(Used In) Investing Activities 222,892 (2,535)
_______________ _______________
Cash Flows From Financing Activities
Loans from Related Companies 1,005,205 6,913
Loans to Related Companies (1,264,834) -
Proceeds from Sale of Stock 1,030,000 -
Payments on Notes Payable (50,000) -
_______________ _______________
Net Cash Flows Provided By
Financing Activities 720,371 6,913
_______________ _______________
Net Increase / (Decrease) in Cash 11,873 0
Cash and Cash Equivalents at
Beginning of Period, June 1, 2004 and 2003 22,614 0
_______________ _______________
Cash and Cash Equivalents at
End of Period, February 28, 2005 and 2004 $ 34,487 $ 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 NINE MONTHS ENDED FEBRUARY 28, 2005 AND 2004
Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities
FEBRUARY 28, 2005 FEBRUARY 29, 2004
Net Income (Loss) $ (3,474,046) $ (3,474)
Cash was increased by:
Increase in accrued expenses
Other Comprehensive Income 2,510,202 -
Valuation Loss
Amortization - -
Depreciation 9,128 -
Decrease in Prepaid Expenses 20,765 -
Increase in Accounts Payable 15,869 -
Increase in Accrued Expenses 10,401 96
Cash was decreased by
Increase in Prepaid Expenses - (1,000)
Increase in Account Receivable (23,709) -
_______________ _______________
Net Cash Flows Used in
Operating Activities $ (931,390) $ (4,378)
=============== ===============
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE A - DESCRIPTION OF BUSINESS
American Capital Holdings, Inc. ("American Capital Holdings") is a Florida
Corporation whose primary business consists of insurance and proprietary
financial products designed to utilize tax incentives, and mitigate the impact
of balance sheet liabilities. 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.
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 are 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 and Cash Equivalents
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
quarterly. At year end, the amount expensed as bad debt will be evaluated and
compared to prior years to establish an allowance for the year to come.
Depreciation
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the related assets. Depreciation is computed using
the straight-line method.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
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 of an asset 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 or market value.
NOTE C - NOTES RECEIVABLE
Notes Receivable at February 28, 2005 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. $117,924
A 4% non-collateralized note due on demand. Included in
The balance is $2,490 of accrued interest receivable. 27,737
Nine 8% promissory notes purchased from holders of notes
with Air Media Now, Inc. 11,906
A 5% non-collateralized surplus note that Cosmopolitan Life has the
right to repay, provided Cosmopolitan Life has sufficient capital
to operate as a stipulated premiums life insurance company.
Included in the balance is $2,083 of accrued interest. 252,083
----------
Total Notes Receivable $409,650
==========
Management has made a determination that all of the notes receivable are
collectable and therefore, has not established an allowance for doubtful
accounts.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
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 February 28, 2005 are as follows:
A Super Deal.com, Inc $ 10,150
Swap and Shop.net Corp. 7,150
A Classified Ad, Inc. 10,150
AAB National Company 31,050
Pro Card Corporation 13,150
USAS Digital, Inc. 7,150
eSecureSoft Company 8,150
eCom eCom.com Inc. 65,039
MyZipSoft, Inc. 5,500
USA Performance Products 150
American Environmental, Inc. 979
---------
Total $ 158,618
=========
NOTE E - INVESTMENTS
The Company accounts for its common stock investments using the equity
method for investments in 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 common stock investments 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.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE E - INVESTMENTS (CONTINUED)
On February 28, 2005, 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
Efficien, Inc. 287,000
Metroflex, Inc. 900,000
MyZipSoft, Inc. 670,199
-----------
Total Equity Method Securities at Cost 2,504,699
Available-for-Sale method of accounting
eCom eCom.com Inc. 81,355
Air Media Now, Inc. 619,937
-----------
Total Available-for-Sale securities 701,292
-----------
Total Investment Securities $ 3,205,991
===========
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, and is not publicly traded. As of February 28, 2005,
@Visory, LLC had investments in the following companies: Appraisal.com;
SmartPill Diagnostcs; Efficien; Liquid Matrix; Saturn Internet Reservations;
StudentVoice; Synacor; and Yipee, 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 owned 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 common
shares for the cost of $45,000, which resulted in a loss of $55,000.
Efficien, Inc. is a Delaware Corporation. The Company owns 500,000 common
shares of Efficien, Inc. The Company's investment amounts to 11.9% of the
outstanding common shares of Efficien, Inc. Efficien, Inc. 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.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE E - INVESTMENTS (CONTINUED)
SmartPill Diagnostics, Inc. is a Delaware Corporation. The Company owned
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, Inc. 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 such 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 of $6,635.60. On
June 30, 2004 the Company purchased 175,909 shares for $345,000. On February
25, 2005, the Company sold its remaining 175,909 shares of SmartPill
Diagnostics, Inc. for $50,000.
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/PINK: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 February 28, 2005 was $254,869. On February 28, 2005 the
market value based on a closing bid price of 0.05 per share was $81,355. The
difference in cost versus market value is recorded as a deficit in Accumulated
Other Comprehensive Income of $173,514.
Air Media Now!, Inc. is a Florida Corporation and trades on the OTC/PINK:AMNW.
American Capital Holdings, Inc. owns 53,660,374 common shares of Air Media Now.
The Company's investment amounts to approximately 90% of the outstanding shares
of Air Media Now. The cost for this investment as of February 28, 2005 was
$3,469,622. On February 28, 2005 the market value based on a closing bid price
of .01 per share was $619,937. The difference in cost versus market value is
recorded as a deficit in Accumulated Other Comprehensive Income of $2,849,685.
On February 29, 2004, a stockholder of the Company contributed 53,660,374 shares
of Air Media Now!, Inc. to the Company as additional paid in capital. The only
asset of Air Media Now, Inc. is the right to certain intellectual property.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE F - PROPERTY AND EQUIPMENT
Equipment is stated at cost less depreciation. As of February 28, 2005,
equipment consisted of computer hardware, software, and office furniture and
equipment. Depreciation expense of $1,049 has been recorded for the quarter
ending February 28, 2005. Accumulated depreciation at February 28, 2005 is
$1,224.
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
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 an infinite useful life are recorded at their fair value and are not
amortized. Management reviews all intangible assets for impairment annually.
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 February 28, 2005 consisted of:
Four interest bearing, non-collateralized loans. The
loans have various maturities throughout 2004. $ 444,950
----------
Total Notes Payable 444,950
Less Current Portion (444,950)
----------
Net Long-term Debt $ 0
==========
The short-term notes payable mature as follows:
February 28, 2005 $ 444,950
==========
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE J - PROMISSORY NOTES - (CONTINUED)
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 acquisition of Spaulding Ventures, LLC ("Spaulding"); each
unit of Spaulding entitled the owner to one warrant with an exercise price of
$6.00 each.
The following is a summary of warrants through February 28, 2005:
Outstanding warrants at the beginning of the year $ 1,621,209
Warrants issued 0
Warrants expired 0
Warrants exercised 0
------------
Warrants outstanding at February 28, 2005 $ 1,621,209
============
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company leases approximately 1,231 feet office facilities in Palm Beach
Gardens, Florida under an operating lease of $3,478 per month which expires on
January 31, 2006. ISDA leases approximately 200 square feet of office
facilities in Buffalo, NY under a month to month agreement of $425.00 per month.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE L - COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Future minimum lease payments including sales tax as of February 28, 2005 are:
Fiscal Years ending:
May 31, 2005 $ 10,433
May 31, 2006 27,822
--------
Total Minimum Lease Payments $ 38,255
Rent expense for the nine month period ending February 28, 2005 was $32,601
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 February 28, 2005 totals
approximately $1,959,498. These carry-forwards will be available to
offset future taxable income, and begin to expire 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
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 1-for-
20 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.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE N STOCKHOLDERS' EQUITY - (CONTINUED)
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
nine-months ended February 28, 2005 does not include shares from potentially
dilutive securities as the assumption of conversion or exercise of these would
have an anti-dilutive 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:
February 28, 2005
-----------------
Loss carry-forward for tax purposes $ 1,959,498
=================
Deferred tax asset (34%) 666,229
Valuation allowance (666,229)
-----------------
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 February 28, 2005 was approximately
$1,959,000. These carry-forwards will be available to offset future
taxable income, and 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.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE P - RELATED PARTY TRANSACTIONS
The Company has receivables due from nine related company entities.
eCom eCom.com, Inc. owes $65,039 for services paid to the Company's transfer
agent and accountant. Freedom 4 Wireless, Inc. owed the Company $670,199 for
working capital and inventory purchased by ACHI, and for contributions made
between March 2004 and June 2004. On February 1, 2005, this investment was
converted into 47,457,356 shares of MyZipSoft, Inc. common stock. Additional
advances were made to MyZipSoft after February 1, 2005, resulting in a balance
due from MyZipSoft of $5,500. Additional advances of $10,000 were made into
each of the following seven spin-offs 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 $158,618 on February 28, 2005. The Company has received loans from
various Officers and Directors. As of February 28, 2005, the company owes
$187,555 to Barney Richmond and $17,244 to Richard Turner.
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; depreciation and
accretion expense will be higher in the later years of an asset's 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
assets. An impairment loss is recognized if the carrying amount of a long-
lived asset 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 the 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.
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
NINE MONTHS ENDED FEBRUARY 28, 2005
NOTE Q - RECENT ACCOUNTING PRONOUNCEMENTS(CONTINUED)
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.
NOTE R - PRO FORMA FINANCIAL STATEMENTS OF PENDING ACQUISITION
The Company has deposited funds in escrow for the purchase of Cosmopolitan Life
Insurance Company, pending approval by the State of Arkansas Insurance
Commissioner. The pro forma financial statements as of December 31, 2004 are
stated below.
See accompanying summary of accounting policies, notes to financial
statements and independent accountants' review report.
F-37
AMERICAN CAPITAL HOLDINGS, INC. AND COSMOPOLITAN LIFE INSURANCE COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS DECEMBER 31, 2004
Current Assets
Cash and Cash Equivalents $ 1,962,164
Accounts Receivable 220,262
Notes Receivable 405,353
Loans Receivable Related Parties 134,984
Prepaid Expenses 84,376
Other Current Assets 16,567
------------
Total Current Assets 2,823,706
------------
Property and Equipment, net 52,839
------------
Other Assets
Total Marketable Securities at Cost 2,277,126
Deferred Tax Asset 292,907
Intangible Assets, net 1,268,812
Goodwill 8,209,071
Security Deposit 33,490
------------
Total Other Assets 12,081,406
------------
TOTAL ASSETS $ 14,957,951
============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 58,289
Accrued Expenses 19,347
Other Current Liabilities 1,496,365
Shareholder Loans 221,056
Notes Payable 789,977
------------
Total Current Liabilities 2,585,034
------------
Other Liabilities
Prepaid Premiums, Reserves, and Deposits 163,458
Total Other Liabilities 163,458
------------
Total Liabilities 2,748,492
------------
Stockholders' Equity
Common Stock $.0001 par value, 100 million
shares authorized, 39,955,112 shares issued
and outstanding 1,778
Paid-in-Capital 15,778,142
Treasury Stock 8,317
Accumulated Deficit -3,578,778
------------
Total Stockholders' Equity 12,209,459
------------
TOTAL LIABILITIES & STOCHHOLDERS' EQUITY $ 14,957,951
============
F-38
AMERICAN CAPITAL HOLDINGS, INC. AND COSMOPOLITAN LIFE INSURANCE COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the 12 Months Ending
December 31, 2004
Premiums and Other Revenues
Premiums and Annuity Considerations 5,838,791
Net Investment Income 24,157
Net realized gains on investments
and other 354,264
----------
Total premiums and other revenues 6,217,212
----------
Benefts and Other Expenses
Policyholder Benefits 6,591,409
General expenses 1,105,179
Underwriting, acquisition, and insurance
expenses 234,323
Sales and Marketing 28,748
Interest Expense 51,842
Depreciation and amortization 12,148
----------
Total benefits and expenses 8,023,650
----------
Loss before income taxes (1,806,438)
Income taxes -
Current -
Deferred (85,191)
----------
Total Income Taxes (85,191)
----------
Other Comprehensive Loss (2,386,991)
----------
Net Loss (4,108,238)
============
Basic and Diluted
Net Loss Per Common Share $ (.26)
============
Weighted Average Shares Outstanding 15,723,903
============
End of February 28, 2005 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.
F-39
TABLE OF CONTENTS
Page
Prospectus Summary 4
Risk Factors 8 40,000,000 shares
Forward-Looking Statements 13 Common Stock
Use of Proceeds 13
Capitalization 14
Dilution 14
Plan of Operation 16 AMERICAN CAPITAL HOLDINGS, INC.
Management 24
Executive Compensation 27 PROSPECTUS
Certain Relationships and
Related Transactions 28
Principal Shareholders 28
Description of Securities 29 April 28, 2005
Plan of Distribution 30
Where You Can Find More Information 31
Legal Matters 32
Experts 32
Financial Statements 33 / 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.
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.
72
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 $ 23,540
Accounting fees and expenses 50,000
Blue Sky fees and expenses 10,000
Legal fees and expenses 65,000
Printing expenses 15,000
Miscellaneous 6,460
--------------
TOTAL $ 170,000
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)
5.1 Form of Opinion of Redgrave & Rosenthal LLP with respect to legality
of the Common Stock to be issued pursuant hereto (filed herewith)
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)
II-1
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)
10.7 Agreement to acquire Cosmopolitan Life. (filed herewith)
10.8 Audited Financial Statements of Cosmopolitan Life Insurance Company.
(incorporated by reference to the Company's Amended 10-QSB/A filed
April 28, 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. (filed herewith)
23.3 Independent Accountant's Awareness Letter from Wieseneck, Andres &
Company, P.A. (filed herewith)
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,
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;
II-2
(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 Amendment No. 2 to 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 April 28, 2005.
AMERICAN CAPITAL HOLDINGS, INC.
By: /s/ Barnard A. Richmond
-------------------------
Barnard A. Richmond
Chief Executive Officer
By: /s/ Richard C. Turner
-------------------------
Richard C. Turner
Chief Financial Officer
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.
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Signature Title Date
Chairman of the Board, President,
Chief Executive Officer
/s/ Barnard A. Richmond (Principal Executive Officer) April 28, 2005
-----------------------
Barnard A. Richmond
Director, Chief Financial Officer
/s/ Richard C. Turner (Principal Accounting and Financial
----------------------- Officer) April 28, 2005
Richard C. Turner
/s/ Norman E. Taplin Director April 28, 2005
----------------------
Norman E. Taplin
/s/ Michael Camilleri Director April 28, 2005
----------------------
Michael Camilleri
II-4