UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 000-28303
INVESTAMERICA, INC.
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(Name of small business issuer in its charter)
NEVADA 87-0400797
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(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer Identification No.)
1776 PARK AVENUE, #4
PARK CITY, UTAH
U.S.A. 84060
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(Address of principal (Zip Code)
executive offices)
Former Name: N/A
Issuer's telephone number (435) 615-8801
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001
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(Title of class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,293,690
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days (see definition of affiliate in Rule
12b-2 of the Exchange Act.)
24,425,410 Common Stock @ $0.53(1) = $12,945,467
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(1) The closing bid price on December 31, 2000
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
31,354,160 Common Stock, with a par value of $.001 outstanding as of December
31, 2000
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
Documents Incorporated by Reference: See List of Exhibits
<PAGE>
INVESTAMERICA, INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PAGE
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PART I 3
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 18
ITEM 3. LEGAL PROCEEDINGS. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
PART II 20
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 20
ITEM 6. MANAGEMENT'S PLAN OF OPERATION. 22
ITEM 7. FINANCIAL STATEMENTS 25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 50
PART III 50
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT . 50
ITEM 10. EXECUTIVE COMPENSATION 54
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 59
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 62
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K 64
SIGNATURES 66
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Certain statements included or incorporated by reference in this annual
report constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "1933 Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended, including, without limitation,
statements containing the words "anticipates," "believes," "intends,"
"estimates," "expects," "projects" and words of similar import. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the markets in which we operate or will
operate; demographic change; existing government regulations and changes in, or
the failure to comply with, government regulations; competition; the loss of any
significant number of customers; changes in business strategy or development
plans; technological developments; the ability to attract and retain qualified
personnel; our ability to access markets, design effective fiber optic routes,
contract for cable, facilities and equipment, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions; and other factors
referenced in this annual report. Certain of these factors are discussed in
more detail elsewhere in this annual report including, without limitation, under
Item 1, "Description of Business", and Item 6, "Management's Plan of Operation".
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We
disclaim any obligation to update any such factors or publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles. In this annual report, unless otherwise specified, all dollar
amounts are expressed in United States dollars. All references to "CDN$" refer
to Canadian dollars and all "common shares" refer to common shares in our
capital stock.
Business Development, Organization and Acquisition Activities
We were incorporated in Utah on October 20, 1983 under the name "Technology
Research, Inc.". On December 18, 1986, we changed our corporate domicile to
Nevada by merging with a Nevada corporation created solely for that purpose. At
the same time, we changed our corporate name to "Balboa Investments, Inc.". On
December 29, 1992, we changed our corporate name to "Progressive Polymerics
International, Inc." and acquired all of the issued and outstanding common stock
of Progressive Polymerics, Inc. On April 17, 1997, we acquired 100% of the
issued and outstanding capital stock of InvestAmerica, Inc. On May 14, 1997, we
merged InvestAmerica, Inc. (which was our wholly-owned subsidiary) into
Progressive Polymerics International, Inc. and changed the name of the survivor
corporation to InvestAmerica, Inc.
Optica Communications International Inc., our wholly owned subsidiary, is a
private corporation that was incorporated on April 27, 1998 under the name
"Oakbay Trading Limited" in the Territory of the British Virgin Islands as a
British Virgin Islands International Business Company. It changed its name from
"Oakbay Trading Limited" to "Optica Communications International Inc." on March
9, 2000. Optica Communications International Inc. has two wholly owned
subsidiaries, Optica Communications Inc., a company incorporated in the Province
of British Columbia, Canada, on September 21, 1999, and Optica Communications,
Inc., a company incorporated in the State of Nevada on November 24, 1999.
Optica Communications International Inc. and its subsidiaries, both of which are
private corporations, are collectively referred to in this annual report as
"Optica".
Zed Data Systems Corp., our subsidiary, is a private corporation that was
incorporated in the Province of British Columbia, Canada, on July 29, 1980 under
the name "Zed Data Leasing Corp.". On November 24, 1988, Zed Data Leasing Corp.
amalgamated with Tokamak Leasing Corp. and changed the name of the survivor
corporation to its present name, Zed Data Systems Corp. ("Zed"). Zed has one
wholly owned subsidiary, Tokamak Leasing Corp.
<PAGE>
Acquisition of Optica Communications International Inc.
On March 15, 2000, we acquired all of the issued and outstanding shares of
Optica in exchange for 450,000 shares of our Series A Convertible Preferred
Stock (the "Series A Preferred Stock"). Each one of the 450,000 shares of
Series A Preferred Stock is convertible at any time, at the option of the
holder, into 185 shares of our common stock. Therefore, if all of the Series A
Preferred Stock are converted, we will issue an aggregate of 83,250,000 shares
of our common stock. In addition, each share of Series A Preferred Stock has
185 votes (an aggregate of 83,250,000 votes for all of the outstanding Series A
Preferred Stock), and votes together with our common stock as though they were a
single class of stock. Based on the 31,354,160 shares of our common stock that
were issued and outstanding on December 31, 2000, the holders of our Series A
Preferred Stock are currently entitled to approximately 73% of the vote on any
matter to be decided by our shareholders and, upon conversion of their Series A
Preferred Stock, they would own approximately 73% of our outstanding common
stock (without giving effect to any currently outstanding options). Optica and
its subsidiaries operate as a start-up group of companies which intend to
provide optical wavelength and multimedia bandwidth services, including
internet, voice and data communications, video and scanning media.
Acquisition of Zed Data Systems Corp.
On July 7, 2000, we acquired 100% of the issued and outstanding common
shares of Zed from a group owned, directly and indirectly, by Douglas Smith, our
President, Chairman and one of our directors. Mr. Smith is also the President
and a founder of Zed. Zed is in the business of providing data communications
and network systems solutions, including network design, installation,
commissioning, security and maintenance.
The acquisition of Zed consisted of a share purchase and a share exchange.
In the share purchase, we paid an aggregate of $5,000,000 for approximately 77%
of the issued and outstanding common shares of Zed (the "Zed Common Stock"). We
paid this $5,000,000 by way of three promissory notes (one to Smith Shelf
Company Number Fifteen Limited in the amount of $3,930,635; one to Ewing
Consulting Corp. in the amount of $703,275 and one to Douglas Smith in the
amount of $366,090). These promissory notes, as amended, bear interest at 12%
per year and are payable in 6 equal monthly instalments of $715,000, commencing
February 28, 2001, followed by one final instalment of $710,000 on August 31,
2001. These promissory notes are secured by a security interest in all of our
assets, including our shares of Zed Common Stock.
At the time of the share purchase, Smith Shelf Company Limited ("Smith
Shelf"), a corporation owned solely by Douglas Smith, owned the balance of the
Zed Common Stock (equal to approximately 23% of the amount of Zed Common Stock
that had been issued and was outstanding prior to our acquisition of Zed). In
the share exchange, Smith Shelf exchanged all of its Zed Common Stock for 50,000
shares of Class D Zed Preferred Stock (the "Zed Preferred Stock"). These 50,000
shares of Zed Preferred Stock are exchangeable, at the option of the holder at
any time and from time-to-time, for an aggregate of 50,000 shares of our Series
B Preferred Stock. As of December 31, 2000, none of the shares of Zed Preferred
Stock have been exchanged for any of our Series B Preferred Stock. If and when
issued, each share of our Series B Preferred Stock will be entitled to 300 votes
(an aggregate of 15,000,000 votes if and when all of the Series B Preferred
Stock is issued), and is entitled to vote together with our common stock as
though they were a single class of stock. If and when issued, each share of our
Series B Preferred Stock will be convertible, at any time at the option of the
holder, into 300 shares of our common stock. Therefore, if all of the Zed
Preferred Stock is exchanged for our Series B Preferred Stock, and all of that
Series B Stock is subsequently converted into our common stock, we will issue an
aggregate of 15,000,000 shares of common stock.
Based upon the 31,354,160 shares of our common stock that are issued and
outstanding as of December 31, 2000, and giving effect to the conversion of all
of the outstanding Series A Preferred Stock into 83,250,000 shares of common
stock, the holders of our Series B Preferred Stock would be entitled to
approximately 12% of the vote on any matter to be decided by our shareholders
and, upon conversion of their Series B Preferred Stock, would own approximately
12% of our outstanding common stock (without giving effect to any currently
outstanding options). At such time, the holders of our Series A Preferred Stock
would be entitled to approximately 64% of the vote on any matter to be decided
by our shareholders.
<PAGE>
From the date of our incorporation through the date we acquired our Optica
subsidiary, we were a development stage company without any principal activities
or active operations. When we acquired Optica, we became involved with a
start-up group of companies which intend to provide optical wavelength and
multimedia bandwidth services, including internet, voice and data
communications, video and scanning media. When we acquired Zed, we become
involved in the business of providing data communications and network systems
solutions, including network design, installation, commissioning, security and
maintenance. These businesses are described more particularly in the following
paragraphs.
The Optical Wavelength and Multimedia Bandwidth Services Business - Our Fiber
Optic Network
Fiber optics technology uses beams of light to transport streams of
information (voice and data) through thin filaments of glass from one location
to another location. A fiber optic cable consists of a bundle of glass threads,
each of which is capable of transmitting messages modulated onto light waves. A
fiber optic network consists of fiber optic cable, hardware (primarily switches
and servers) and software. "Dark" fiber is cable that has been equipped with
minimal network hardware that can only be put to limited use.
Because fiber optic technology depends on the modulation of light over thin
strands of glass, it enjoys a number of benefits over tradition metal
communications lines, including the following:
- fiber optic cables have a much greater bandwidth than metal cables, which
means that fiber optic cables can carry more data;
- fiber optic cable are less susceptible than metal cables to
electromagnetic and other interference;
- fiber optic cables are much thinner and lighter than metal wires;
- fiber optic cables allow data to be transmitted digitally (the natural
form for computer data) rather than analogically; and
- fiber optic cables use less power and have lower overall operating costs.
The main disadvantage of fiber optics is that the cables are expensive to
install and are more fragile than metal wire and are more difficult to split.
The transmission capability of a fiber optic network is measured by optical
carrier levels or the amount of voice conversations that the network can
transmit at the same time over the same cable. For example, fiber optic cable
is capable of carrying approximately 130,000 simultaneous voice conversations.
On December 15, 2000, Optica signed a non-binding letter of intent with a
major optical equipment manufacturer and is proceeding with negotiations to
finalize the terms of a supply agreement for the purchase of approximately
$675,000,000 worth of fiber optic network hardware and related services over the
next two years. The agreement is non-exclusive and allows Optica to continue
negotiations with other vendors at Optica's discretion. Optica plans to
purchase approximately $250,000,000 worth of this network hardware during the
fiscal year ending September 30, 2001. During this same period, Optica intends
to acquire a network of new, "dark" fiber optic cable consisting of 2 fibers
across 20,000 route miles. Optica anticipates that it will pay approximately
$50,000,000 for this fiber optic cable (approximately $25,000,000 of which will
be paid during the fiscal year ending September 30, 2001). The resulting
network of fiber optic cable and hardware will represent the first phase of a
planned multi-phase deployment of an extensive international fiber optic
network. This first phase (referred to as the "Stage One Network") will be
located entirely in North America. Optica plans to use the Stage One Network to
serve the 50 largest North American cities (measured by population or importance
of business activity).
Principal Products
Optica's principal products will include products consisting of various
telecommunication services (ie. Internet, multimedia, data and voice) which will
be sold primarily to other carriers of telecommunication services. The
principal products will be bundles of services that will include national
carrier networks, optical indefeasible rights of use ("IRU"s), internet protocol
("IP") and asynchronous transfer mode ("ATM") services, as well as value-added
services such as unified messaging voice over internet protocol ("VoIP"), fax
over internet protocol ("FoIP")
<PAGE>
and tunneling. Tunneling involves the establishment of a direct "pipe" between
two locations, whereas normally internet traffic proceeds in a totally
unpredictable manner so that even portions of the same message can take
different routes.
Optica plans to offer five national carrier networks on the Stage One
Network. The national carrier networks will include POPs (the Point Of Presence
where an IXC terminates an end-user's long distance lines just before those
lines are connected to the end-user's local telephone company's lines), a dense
ware division multiplexing ("DWDM") optical layer, an IP and/or ATM service
layer, fiber and equipment maintenance and Network Operations Center services.
An IRU, or Indefeasible Right-of-Use, is an agreement for the use of dark
fiber strands. Optica plans to offer optical IRUs on a regional or national
basis to carriers that do not require a national carrier network.
IP (Internet Protocol) and ATM (Asynchronous Transfer Mode) are information
transfer standards that are part of a general class of packet technologies that
relay traffic by way of an address contained within the header or cell. The
system neither knows nor cares what information is in the cells. It can be
voice, audio, ASCII text, etc. ATM format can be used by many different
systems, including local area networks, to deliver traffic at varying rates of
speed while permitting a mix of voice, data and video. Our products and service
offering will depend on the needs of our customers. Flexibility is inherent in
our system.
Voice over IP (VoIP) converts voice transmissions to packets of data which
are then transported over an IP network such as the Internet.
Market Opportunity
Our fiber optic network will be designed to provide our customers with
secure, independent transmission facilities and sufficient capacity on a local,
regional, national or international basis to accommodate their increasing demand
and plans for expansion. We anticipate that growth in the high-bandwidth
telecommunications industry will continue due to a number of factors, which
include:
- Innovations and advances in transmission technology. Technological
innovations continue to increase the capacity and speed of advanced fiber optic
networks while decreasing the cost of transmission allowing for continued growth
in Internet usage and increases in the number of network users. This increased
capacity and speed has resulted in the development of bandwidth-intensive
applications. Improvements in "last mile" technology, such as DSL, cable modems
and fixed and third-generation ("3G") wireless access are contributing to the
significant increase in the number of subscribers using such applications. In
addition, the anticipated proliferation of wireless Internet and data
technologies and devices such as 3G broadband technology are also expected to
contribute to increases in demand for bandwidth.
- Increasing demand for high-bandwidth applications, largely driven by the
increase in Internet traffic. There has been and will continue to be a
significant growth in demand for Internet, local loop data, video services and
long distance. The increase in computer power and usage, as well as the
continued demand for and development of faster Internet connection speeds, are
driving significant increases in communications use for Internet and data
services.
- Deregulation of the telecommunications industry, which has resulted in a
proliferation of service providers. The telecommunications industry continues
to experience liberalization on a global basis. Our high-bandwidth platform
allows both new entrants to compete in this market and existing service
providers to expand into new markets.
Optica's Customers
We intend to focus on providing our services to telecommunications service
providers, internet service providers, application service providers and storage
service. Typical targeted customers include a broad range of companies, such
as:
<PAGE>
- long distance companies;
- incumbent local exchange carriers ("ILECs") who offer primarily dial tone
and other telecommunication services, and include all of the regional Bell
operating companies such as South West Bell, Pacific Bell and NYNEX;
- competitive local exchange carriers ("ILECs") who offer alternative dial
tone and other services using the incumbent carriers' facilities and provide
highly competitive plain old telephone service;
- multi-service operators;
- local multipoint distribution service providers;
- data oriented local exchange carriers ("DLECs") who specialize in
providing data oriented services;
- internet service providers ("ISPs")who specialize in connecting users to
the internet; and
- inter-exchange carriers ("IXCs") who offer long distance services and
companies like AT&T, MCI Worldcom and Sprint.
Customers typically buy or lease fiber optic capacity with which they
develop their own communications networks or satisfy a need for redundant
capacity. The network provides such customers with a low-cost alternative to
building their own infrastructure or purchasing metered services from
communications carriers. Our customers can buy or lease fiber optic capacity on
a segmented basis or along our entire network.
Suppliers
The principal components of our network are fiber optic cable and hardware.
Fiber optic cable suppliers generally require three to six months lead time for
large orders. Although we have identified several suppliers of fiber optic
cable and hardware, we have not entered into any binding agreements for the
supply of such materials. On December 15, 2000, Optica signed a non-binding
letter of intent with a major fiber optical equipment manufacturer and is
proceeding with negotiations to finalize the terms of a supply agreement for the
purchase of $675,000,000 worth of fiber optic network hardware over the next two
years.
Competition
The telecommunications industry is highly competitive. It is going through
a period of rapid technological evolution marked by increasing fiber, wireless
and satellite transmission capacity, new technologies and the introduction of
new products and services. Recent technological advances enable substantial
increases in the transmission capacity of both new and existing fiber optic
cable and networks. Optica's Stage One Network will be built with the latest
grade of fiber optic cable and the latest and most stable switching and
transmission technology. As a new operator, Optica's ability to implement the
latest technologies should give it an advantage over many of its competitors,
even those that deployed their fiber optic networks as little as one year ago.
The Stage One Network will utilize state-of-the-art technologies based on
dense wave division multiplexing optics and packet-switched routing. This
approach greatly reduces the complexity and number of component systems that
previously were required to deliver voice and data services over fiber optic
cable. Dense wave division multiplexing allows for increased network capacity
through the transmission of multiple waves of light over a single fiber optic
strand.
There are currently several communications companies with fiber optic
networks and colocation facilities in North America, Europe, South America and
Asia. In North America, these include companies such as Level 3 Communications,
Inc., Qwest and Williams Communications Group, IncIn Europe, these include
companies such as MCI WorldCom, Global Crossing Ltd., Global TeleSystems Europe
B.V., Viatel Inc., KPNQwest N.V., Colt Telecom Group plc, Energis plc and
Carrier 1 International S.A. In South America, these companies include IMPSAT
Corporation and Telemar.
<PAGE>
Once Optica has completed its planned acquisition of the Stage One Network,
it will both compete with and sell to the four principal facilities-based long
distance fiber optic networks (AT&T, Sprint, Qwest and MCI WorldCom). In
addition, it will compete with Global Crossing, GTE, Broadwing, Level 3
Communications and Williams Communications, each of which may have a fiber
network similar in potential operating capability to Optica's proposed Stage One
Network.
We believe that other companies are planning networks that, if constructed,
could employ advanced technology similar to the technology that we intend to use
on our network. These competitors, as well as traditional carriers, including
AT&T, MCI WorldCom and Sprint, may compete directly with us for customers.
Regulation
We are part of an industry that is highly regulated by federal, state and
local governments whose actions are often subject to regulatory, judicial, or
legislative modification. In addition, to the extent that any bandwidth
capacity and lit fiber offerings are treated as private carriage,
telecommunications services or competitive local exchange carrier offerings in
the United States, additional federal and state regulation would apply to those
offerings. Accordingly, there can be no assurance that regulations, current or
future, will not have a material adverse effect on us.
Federal
U.S. Federal regulation has a significant impact on the telecommunications
industry. Federal regulations have undergone major changes in the last four
years as the result of the enactment of the Telecommunications Act of 1996 (the
"1996 Act") on February 8, 1996. The 1996 Act is the most comprehensive reform
of the U.S. telecommunications law since the Communications Act was enacted in
1934. For example, the 1996 Act imposes a number of interconnection and access
requirements on telecommunications carriers and on all local exchange carriers
("LECs"), including ILECs and CLECs. The different ways we intend to offer
fiber optic supported services could trigger four alternative types of
regulatory requirements: (1) private carrier services, (2) telecommunications
services or common carriage and (3) CLEC offerings. The law establishing these
alternative regulatory requirements is often unclear, so it is impossible to
predict in many instances how the Federal Communications Commission ("FCC") will
classify our services. Regulations associated with each type of offering are
described below.
Private Carrier Services
If some of our offerings are treated as a communications service, they
could be viewed as a private carrier offering. Private carrier offerings
typically entail the offering of telecommunications, but are provided to a
limited class of users on the basis of individually negotiated terms and
conditions that do not meet the definition of a telecommunications service under
the 1996 Act. If our services are treated as private carriage, they are
generally unregulated by the FCC, but would be subject to universal service
payments based on the gross revenues from end users. Private carriers may also
be subject to access charges if interconnected to LECs.
Telecommunications Services
Some of our services, such as the provision of bandwidth capacity and lit
fiber, may be treated as telecommunications services by the FCC. If some of our
services are treated as telecommunications services a significant number of
federal regulatory requirements will be applicable to those services.
The law essentially defines telecommunications carriers to include entities
offering telecommunications services for a fee directly to the public or to
classes of users so as to be effectively available directly to the public,
regardless of the facilities used. "Telecommunications" is defined as the
transmission, between or among points specified by the user, of information of
the user's choosing, without change in the form or content of the information as
sent and received. For the reasons stated above, we believe that we are not a
telecommunications carrier. The FCC has ruled that the term "telecommunications
carrier" is the same as the definition of common carrier and, therefore, a
company providing fiber facilities on an individualized and selective basis, as
we propose, is probably
<PAGE>
not a telecommunications carrier. A decision to this effect has been appealed
to federal court. A decision on this appeal reversing or remanding the FCC's
conclusion could require that our services be treated as common carriage. Some
railroad, power and telecommunications associations--none of which are
affiliated with us-have petitioned the FCC to clarify the status of fiber
providers in this regard. The FCC's pending court remand, described above,
might also address the application of these requirements to us. If the FCC
decides that these companies are telecommunications carriers, we would be
subject to some regulatory requirements which may impose substantial
administrative and other burdens on us.
If the FCC finds some of our services to be a telecommunications service,
we may be regulated as a non-dominant common carrier. The FCC imposes
regulations on common carriers such as the regional bell operating companies
("RBOCs") that have some degree of market power ("dominant carriers"). The FCC
imposes less regulation on common carriers without market power ("non-dominant
carriers"). Under the FCC's rules, we would be a non-dominant carrier and as
such do not need authorization to provide domestic services and can file tariffs
on one day's notice. The FCC requires common carriers to obtain an
authorization to construct and operate telecommunication facilities and to
provide or resell telecommunications services between the United States and
international points.
General Obligations of All Telecommunications Carriers.
To the extent that any of our offerings are treated as telecommunications
services, we would be subject to a number of general regulations at the federal
level that apply to all telecommunications carriers, including the obligation
not to charge unreasonable rates or engage in unreasonable practices, the
obligation to not unreasonably discriminate in our service offerings, the need
to tariff our services, the potential obligation to allow resale of our services
in certain circumstances and the fact that third parties may file complaints
against us at the FCC for violations of the Communications Act of 1934 or the
FCC's regulations. Certain statistical reporting requirements may also apply.
In addition, FCC rules require that telecommunications carriers contribute to
universal service support mechanisms, the Telecommunications Relay Service Fund,
the number portability fund and the North American Number Plan Administrator
Fund.
Interconnection Obligations of All Telecommunications Carriers
All telecommunications carriers have the basic duty to interconnect, either
directly or indirectly, with the facilities of other telecommunications
carriers. This is the minimum level of interconnection required and is
generally viewed to impose only minimal requirements as compared with the
interconnection obligations imposed on ILECs and CLECs described in the next
section. All telecommunications carriers must also ensure that they do not
install network features, functions or capabilities that do not comply with
guidelines and standards established by the FCC to implement requirements to
ensure accessibility for individuals with disabilities and to regulations
designed to promote interconnectivity of networks. These regulations could be
burdensome or expensive and could adversely affect us. The FCC adopted
regulations recently that clarify these statutory requirements.
Tariffs and Pricing Requirements.
In October 1996, the FCC adopted an order in which it eliminated the
requirements that non-dominant interstate interexchange carriers maintain
tariffs on file with the FCC for domestic interstate services. The order does
not apply to the switched and special access services of the RBOCs or other
LECs. The FCC order was issued pursuant to authority granted to the FCC in the
1996 Act to "forbear" from regulating any telecommunications services provider
under particular circumstances. After a nine-month transition period,
relationships between interstate carriers and their customers would be set by
contract. At that point, long distance companies would be prohibited from filing
tariffs with the FCC for interstate, domestic, interexchange services. Carriers
have the option to immediately cease filing tariffs. Several parties filed
notices for reconsideration of the FCC order and other parties have appealed the
decision. The United States Court of Appeals for the District of Columbia
Circuit has recently upheld that decision, but further appeals challenging the
FCC's order may be filed. A requirement to file tariffs could lead to
regulation of our offerings at the federal level, although the FCC's regulation
of non-dominant carriers' tariff filings has been minimal as of May 31, 2000.
Competitive access providers do not have to file tariffs for their exchange
access services, but may if they choose to do so.
<PAGE>
As a result of the FCC order, telecommunications carriers are no longer
able to rely on the filing of tariffs with the FCC as a means of providing
notice to customers of prices, terms and conditions on which they offer their
interstate services. The FCC has required that by January 31, 2001 non-dominant
IXCs post their rates, terms and conditions for all their interstate, domestic
services on their Internet web sites if they have one. The obligation to provide
non-discriminatory, just and reasonable prices remains unchanged under the
Communications Act of 1934. Tariffs also allowed a carrier to limit its
liability to its customers, with service interruptions. With the elimination of
tariffs, we may become subject to liability risks that we would have been able
to limit through tariff filings, and there can be no assurance that potential
liabilities will not have a material adverse effect on our results of operations
and financial condition. In addition, we must obtain prior FCC authorization
for installation and operation of international facilities and the provision
(including resale) of international long distance services.
With limited exceptions, the current policy of the FCC for most interstate
access services dictates that ILECs charge all customers the same price for the
same service. Thus, the ILECs generally cannot lower prices to some customers
without also lowering charges for the same service to all similarly situated
customers in the same geographic area, including those whose telecommunications
requirements would not justify the use of the lower prices. The FCC in 1999,
however, modified this constraint on the ILECs when they face specified levels
of competition, which permits them to offer special rate packages to some
customers, as it has done in few cases, and other forms of rate flexibility.
The rules contemplate an increasing level of flexibility on a city-by-city basis
as competitors have facilities in place to compete for local exchange services
in those markets. Once such facilities attain 50% coverage the rules contemplate
only minimal regulation of carrier access offerings.
Customer Proprietary Network Information
In February 1998, the FCC adopted rules implementing Section 222 of the
Communications Act of 1934, which governs the use of customer proprietary
network information by telecommunications carriers. Customer proprietary
network information generally includes any information regarding a subscriber's
use of a telecommunications service, where it is obtained by a carrier solely by
virtue of the carrier- customer relationship. Customer proprietary network
information does not include a subscriber's name, telephone number and address,
if that information is published or accepted for publication in any directory
format. Under the FCC's rules, a carrier may only use a customer's proprietary
network information to market a service that is "necessary to, or used in," the
provision of a service that the carrier already provides to the customer, unless
it receives the customer's prior oral or written consent to use that information
to market other services. The Court of Appeals for the Tenth Circuit recently
invalidated the FCC's rules with respect to how a carrier must obtain customer
authorization for the use of customer proprietary network information. The FCC
is expected to further challenge this court decision. In addition, the FCC
recently relaxed a number of the requirements it originally adopted, which gives
some flexibility to carriers on how to comply with these rules. These rules,
either as adopted or as modified, may impede our ability to effectively market
integrated packages of services and to expand existing customers' use of our
services.
Universal Service
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new subsidies for telecommunications and certain information
services provided to qualifying schools and libraries and for services provided
to rural health care providers. The FCC also expanded or revised the federal
subsidies for local exchange telephony services provided to low-income consumers
and consumers in high-cost areas. Providers of interstate telecommunications
services, as well as certain other entities, such as private carriers offering
excess capacity to end user customers, must pay for these programs. Our share of
these federal subsidy funds would be calculated based on end-user revenues. The
schools and libraries and rural health care support mechanisms are assessed
against interstate, international and intrastate end-user revenues. Currently,
the FCC is calculating assessments based on the prior year's revenues and has
recently increased the size of the schools and libraries fund by 50 percent.
Since we do not currently have any revenues, we are unable to quantify the
amount of subsidy payments that we may be required to make or the effect that
these required payments will have on our financial condition. In the May 8th
order, the FCC also announced that it would revise its rules for subsidizing
service provided to consumers in high-cost areas. The FCC has recently adopted
the cost model which it will use to determine the subsidies needed for high-cost
areas. The FCC also established the mechanism effective January 1, 2000 to
determine the level of high cost support non-rural carriers will receive. This
decision is expected to increase the fund by only a modest amount. In addition,
the Court of Appeals for the Fifth
<PAGE>
Circuit recently affirmed the FCC's universal service program in large part,
except that contributions must be based entirely on interstate and international
services of interstate carriers (except for carriers providing predominately
international services). This decision could substantially affect the level of
contributions depending on the jurisdictional nature of the services provided by
a carrier. Several petitions for administrative reconsideration of the original
FCC order are pending.
Competitive Local Exchange Carriers Offerings
It is unclear whether we would be viewed as a CLEC with respect to the
provision of some of our services. A CLEC is defined as a provider of telephone
exchange service, which is an interconnected service of the character ordinarily
furnished by a single exchange, covered by the local exchange charge, or
comparable service provided through a system of switches, transmission
equipment, or other facilities, or combination thereof, by which a subscriber
can originate and terminate a telecommunications service. The full parameters
of what carriers are classified as a CLEC have never been fully defined by the
FCC. We do not intend to operate as a CLEC. However, the FCC may disagree with
this position. If we are classified as a CLEC, we would be required to comply
with the regulatory obligations that are applicable to CLECs.
State
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
entity from providing any interstate or intrastate telecommunications service.
In addition, under current FCC policies, any dedicated transmission service or
facility that is used more than 10% of the time for interstate or foreign
communication is generally subject to FCC jurisdiction rather than state
regulation.
Despite these prohibitions and limitations, telecommunications services are
subject to various state regulations. Among other things, the states may:
- require the certification of telecommunication service provider;
- regulate the rates of intrastate offerings and the terms and conditions of
both intrastate and certain interstate service offerings; and
- adopt regulations necessary to preserve universal service, ensure the
continued quality of communications services, safeguard the rights of consumers
and protect public safety and welfare. Accordingly, state involvement in
telecommunications services may be substantial.
In addition, state law may not recognize "private carriage" and, therefore, even
if certain of our offerings are treated as "private carriage" at the federal
level, they may be regulated as telecommunications or common carrier services at
the state level.
Intrastate telecommunications services (including local exchange services)
are regulated primarily by the state public utility commissions. Optica must
obtain and maintain certificates of authority from regulatory bodies in most
states in which it will offer intrastate services. In most states, Optica will
also be required to file and obtain prior regulatory approval of tariffs for
intrastate services. State regulatory authorities can condition, modify,
terminate or revoke certificates of authority for failure to comply with state
law or the rules, regulations and policies of the state regulatory authorities.
State regulatory authorities also may impose fines and other penalties for
violations.
Local Regulation
In addition to federal and state laws, local governments exercise legal
authority that may affect our business. For example, some local governments
retain the ability to license public ROW, subject, however, to the federal
limitation that local authorities may not prohibit entities from entering the
telecommunications market. Compliance with local requirements may delay and
increase the costs of our use of public ROW. Accordingly, these requirements
could impose substantial burdens on us.
<PAGE>
The Data Communications and Network Systems Solutions Business
Zed is a Vancouver, B.C. based value-added reseller of communications
network equipment and services including network design, installation,
commissioning, security and ongoing network maintenance. Zed resells and leases
new and used equipment made by major manufacturers such as Cisco, Marconi, and
Motorola. Zed has been providing these services for over twenty years to
private and public sector customers in North America.
Zed maintains a central office and warehouse facility in Burnaby British
Columbia, Canada from which it provides products and services to existing and
new customers throughout North America. The range of vendors, products and
services changes from time to time to meet the constant evolution in technology
and customer requirements.
Due to the inherent nature of communications, the need for communications
networks is not specific to any industry sector. Thus, Zed's customers are not
industry specific and include telecommunication companies, financial
institutions, natural resource companies, educational institutions, high
technology corporations, trading houses and other customers with current and
future local and wide area communication requirements.
Zed's product offerings include routers, bridges, wireless bridges, access
servers, IP telephones, digital and analog gateways, terminal servers,
multiplexors, terminal adaptors, modems, frame relays, ISDN, voice over IP,
voice over frame, wireless ethernet and other products.
Zed provides its customers with many options when buying equipment. Zed
provides new and used data communication products which customers can purchase,
rent or lease. Zed also has a trade-in program for this equipment. Zed
provides customers with the option to purchase a maintenance contract with any
equipment purchased, rented or leased. By allowing customers to lease or rent
data communications equipment Zed allows these customers to preserve cash flow,
evaluate a new technology or to meet temporary requirements. Zed can provide
customers with month-to-month rentals and custom financial packages to allow
customers maximum flexibility. By providing customers with the option to lease
or rent equipment, Zed also offers the following advantages:
- Budget Considerations. Unlike purchases, which usually come out of
capital spending, rentals typically come out of an operating budget. This
distinction allows customers flexibility in budgeting and obtaining spending
approval.
- Temporary need for equipment. A business with irregular sales patterns
and seasonal demands (e.g. tax preparers) may find that short-term rentals make
more sense than purchasing equipment which is not used all the time.
- Evaluating different solutions. Often there are several alternative ways
to design a network. Renting equipment gives a customer a low cost way to
evaluate several possible solutions without making a large commitment to
expensive equipment.
- Technology is changing rapidly. Telecommunication services are becoming
more diverse and complex every day. Customers may be considering ISDN, Frame
Relay, ATM for the future but do not want to lock their organization into a
solution today. Customers can rent the equipment needed today while studying
other longer term solutions.
- Rent to own. Customers can accrue a portion of the rental cost towards a
purchase of any equipment they rent.
Zed's services and support offerings include: network design, network
planning, network management, network benchmarking, network optimization,
project management, visual network management, network security, installation,
maintenance, support, help desk support, carrier selection in addition to other
related services.
Zed's service and support solutions provide project managers and engineers
to help the customer assess its current environment and develop a networking
technology plan to meet a customer's strategic business goals. As a Cisco
Premier Certified Partner, Zed offers a customized network solution. Zed can
help configure and support a network with the unique ability to grow in stages,
as a customer's business grows.
<PAGE>
Zed' maintenance programs offers the following:
- Depot Maintenance. If a customer's equipment fails, Zed will replace it
from local inventory and will preconfigure the replacement equipment. Zed will
also provide telephone technical support to get the replacement equipment
installed and operating.
- On-Site Maintenance. Zed can dispatch a technician to the customer's site
to repair, replace, configure and install replacement equipment. The Zed
technician will then test and confirm that the equipment is operational.
- Customer Maintenance. Zed offers customer maintenance to fit a customer's
specific needs, which includes spare on-site equipment, 24 hour - 7 day per week
support and full documentation.
- Service by the Hour. Zed offers a technical staffing service designed to
cover a customer's employee vacations, special project or any unforeseen
situations. Zed offers aggressive pricing in increments to fit the customer's
needs, by the hour, day or in blocks of technical time.
Zed also offers network security solutions. The explosion of the Internet
and the affordability of high-speed connections have made the use of email and
e-commerce a necessity for most businesses. Unfortunately, with that explosion
of the use of the Internet, businesses are facing security problems with their
computer networks and the confidential and proprietary information stored and
transmitted over those computer networks. Zed provides custom solutions to
address those security concerns.
Zed's security solutions provide needs analysis, project design,
implementation, review or general assistance designed to address a customer's
particular security concerns.
Omnigon International Ltd.
By subscription agreement, dated January 21, 2000, we agreed to purchase
833,333 shares of Class C Preferred Stock at $6 per share for an aggregate
purchase price of $5,000,000 of Omnigon International Ltd., a British Virgin
Island international business company. The Class C Preferred Stock is
convertible at any time into common stock of Omnigon on a 1-for-1 basis. In
consideration, we paid cash of $4,000,000 and issued a promissory note, dated
April 10, 2000, for $1,000,000, due June 9, 2000. Prior to September 30, 2000,
at our request, Omnigon returned and cancelled the promissory note, leaving us
as the owner of 666,667 shares of Class C Preferred Stock with a cost base of
$4,000,000. Omnigon is a private development stage company operating in the
communications industry.
We invested in Omnigon because of the potential synergies between our two
companies.
Employees
General management, financial and other corporate support services are
provided by a group of employees of InvestAmerica. These persons provide
certain key services to our subsidiaries.
As of September 30, 2000, we employed four persons as follows: two
full-time employees, one part-time employee and one part-time consultants.
Optica employed a staff of six persons, consisting of four full-time employees,
one full-time consultant and one part-time consultant. Zed employed a staff of
fourteen persons, consisting of nine full-time employees and five part-time
employees.
None of these employees are part of a union or are covered by a collective
bargaining agreement.
Risk Factors
An investment in our common stock involves a number of very significant
risks. You should carefully consider the following risks and uncertainties in
addition to other information in this annual report in evaluating InvestAmerica
and our businesses before purchasing shares of our common stock. Our business,
operating results
<PAGE>
and financial condition could be seriously harmed due to any of the following
risks. The trading price of the shares of our common stock could decline due to
any of these risks, and you could lose all or part of your investment.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE WHETHER WE CAN
OPERATE PROFITABLY.
Before we acquired Zed, we had no revenues or earnings. We do not
currently have any significant assets or financial resources. Our prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the very early stages of development, especially in the new and
rapidly evolving field of fiber optic technology. There can be no assurance
that we will be able to address any of these challenges.
SINCE WE HAVE A HISTORY OF NET LOSSES AND A LACK OF ESTABLISHED REVENUE, WE
EXPECT TO INCUR NET LOSSES IN THE FUTURE.
Our consolidated financial statements reflect that we have not generated
any significant revenues and have incurred significant net losses, including a
net loss of $4,840,861 for the year ended September 30, 2000. As of September
30, 2000, we had an accumulated deficit of $4,845,420. We expect to have
continuing net losses and negative cash flows for the foreseeable future. The
size of these net losses will depend, in part, on the commencement of and the
rate of growth in our revenues.
Despite the revenues generated by Zed, with our entrance into the
competitive fiber optics business, we have significantly increased our operating
expenses and we expect that our operating expenses will significantly increase
in the future. To the extent that any such expenses are not timely followed by
increased revenues, our business, results of operations, financial condition and
prospects would be materially adversely affected. These circumstances raise
substantial doubt about our ability to continue as a going concern as described
in an explanatory paragraph to our independent accountants' opinion on the
September 30, 2000 financial statements.
IF WE DO NOT RAISE ADDITIONAL FUNDS FROM THIRD PARTY SOURCES OR BEGIN TO EARN
REVENUES, THEN WE MAY BE UNABLE TO CONTINUE OPERATING.
Recurring operating losses and the significant working capital needs
predicted for our fiber optic business will require that we obtain additional
operating capital before we have established our fiber optic business can
generate significant revenue. The continuation of our businesses is dependent
upon the successful execution of our business plan. We will not have any
products to sell from our fiber optic business until July 2001 at the earliest,
and we are relying on third parties (mostly suppliers) to meet that target date.
While we are expending our best efforts to meet our financing needs, there
can be no assurance that we will be successful in raising capital from third
parties or generating sufficient funds for operations and continued development.
We are planning to raise a substantial portion of the capital needed for our
fiber optic business through vendor financing from our suppliers, with whom we
have not yet contracted. In the event that we are unable to negotiate
acceptable terms with our suppliers, we may not have adequate financial
resources to continue our business.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF OUR COMPETITORS MAY BE MORE
SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS.
The market for fiber optic products is highly competitive and we expect
that competition will continue to intensify. Negative competitive developments
could prevent our business from being successful. All of our potential
competitors have longer operating histories than our Optica subsidiary does, as
well as significantly greater financial, technical, sales and marketing
resources. As a result, our competitors are able to devote greater resources to
the development, promotion, sale and support of their products.
In particular, we will face significant competition from Global Crossing,
GTE, Broadwing, Level 3 Communications and Williams Communications. To a less
significant extent, we will face competition from
<PAGE>
AT&T, Sprint, QWest and MCI Worldcom. All of these potential competitors have
greater name and brand recognition than we do.
ZED'S DEPENDENCE UPON KEY CUSTOMERS MAY AFFECT ITS FUTURE REVENUES AND PROSPECTS
Zed is dependent upon a limited number of customers for a substantial
portion of its revenues. The loss of any of these customers would have a
material, significant adverse impact upon Zed's continued operations, revenues
and prospects for profits, but would not significantly impact our working
capital, liquidity or long term prospects. One of Zed's customers accounted for
79% of their revenues and 25% of their accounts receivable for the period from
July 7, 2000 to September 30, 2000. Although Zed expects to expand its customer
base, there can be no assurance that it will be successful and, if the customer
base is expanded, that Zed will be able to retain its existing customers.
Furthermore, an unexpected decline in sales to this one customer could have a
material adverse affect upon Zed and its continued operations. In addition,
there are no firm contracts governing Zed's relationship with any of its
customers. Accordingly, such business relationships could be terminated or
curtailed at any time. The lack of firm contracts between Zed and its customers
could have a material adverse impact on Zed's revenue.
WE WILL RELY HEAVILY ON REVENUES DERIVED FROM A SMALL NUMBER OF CUSTOMERS, WHICH
MAY PROVE TO BE AN INEFFECTIVE MEANS OF RAISING REVENUES.
We expect to generate the majority of our fiber optic business revenues
from a very small number of significant customers. Our ability to continue to
generate substantial revenue will depend upon these customers and our revenue
may decline if any of these potential customers were to cancel, reduce or delay
purchases of our fiber optic network products or if they were to demand
significant price concessions.
FAILURE TO EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS COULD HARM OUR FUTURE
BUSINESS RESULTS AND MAY STRAIN OUR MANAGERIAL, FINANCIAL AND OPERATIONAL
RESOURCES.
As our Optica subsidiary proceeds with the development of its proposed
Stage One Network, we expect that it may experience significant and rapid
growth. It will need to add staff to market its products, manage operations,
handle sales and marketing and perform finance and accounting functions. This
growth is likely to place a significant strain on our managerial, financial and
operational resources. The failure to develop and implement effective systems,
or to hire and retain sufficient personnel for the performance of all of the
functions necessary to effectively service and manage our potential business, or
the failure to manage growth effectively, could have a material adverse effect
on our business and financial condition.
A LOSS OF ANY KEY PERSONNEL COULD IMPAIR OUR ABILITY TO SUCCEED.
In part, our future success depends on the continued service of our key
management personnel, particularly: Douglas Smith, Ernst Gemassmer and Rick
Connole at InvestAmerica, and Lyle Kerr, Neil Weiler, Jim Duncan and Mark Nomura
at Optica. The loss of their services, or the services of other key employees,
could impair our ability to grow our business.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to attract, assimilate or retain other highly
qualified employees in the future. In the past we have experienced from time to
time, difficulty hiring and retaining highly skilled employees with appropriate
qualifications. We expect this difficulty to continue in the future.
WE ARE UNCERTAIN WE CAN OBTAIN THE CAPITAL TO GROW OUR BUSINESS.
To fully realize our business objectives and potential, we will require
significant additional financing. The fiber optics networking business is very
capital intensive. Our current operating plan calls for the expenditure of over
one billion dollars in the next few years. For the year ending September 30,
2001, Optica plans to spend approximately $275 million for capital assets, $250
million of which we plan to raise through vendor financing. In
<PAGE>
addition, we will need to raise another $94 million for debt repayment of $5
million, for working capital and to establish an appropriate base of working
capital for our operations. We may be unable to obtain some or all of this
required financing, or we may not be able to acquire it on terms favorable to
us. If adequate funds are not available on acceptable terms, we may be unable
to:
- fund our expansion;
- successfully promote our products and services;
- develop or enhance our products and services;
- respond to competitive pressures; or
- take advantage of acquisition opportunities.
Additional financing may be debt, equity or a combination of debt and
equity. If we raise additional funds through the issuance of equity securities,
our stockholders may experience dilution of their ownership interest and the
newly issued securities may have rights superior to those of the common stock.
If we raise additional funds by issuing debt, we may be subject to limitations
on our operations, including limitations on the payment of dividends.
OUR INABILITY TO ADAPT TO EVOLVING TECHNOLOGIES AND CUSTOMER DEMANDS MAY IMPEDE
OUR FUTURE GROWTH.
To be successful, we must adapt to rapidly changing fiber optic
technologies and customer demands. To that end, we will continually need to
enhance our products and services and introduce new services to address our
customers' changing needs. If we need to modify our services or infrastructure
to adapt to changes, we could incur substantial additional development or
acquisition costs. If we cannot adapt to these changes, or do not sufficiently
increase the features and functionality of our products and services, our
customers may switch to the product and service offerings of our competitors or
potential competitors.
IF OUR SYSTEMS DO NOT PERFORM AS EXPECTED, OUR POTENTIAL REVENUES MAY BE
SIGNIFICANTLY REDUCED.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in our responsiveness could
result in a loss of customers, damage to our reputation and substantial costs.
SINCE ONE OF OUR OFFICERS AND DIRECTORS INDIRECTLY OWNS THE RIGHT TO ACQUIRE A
SIGNIFICANT PERCENTAGE OF OUR SHARES, THEY MAY BE ABLE TO SIGNIFICANTLY
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of September 30, 2000, our current executive officers, directors and
their affiliates beneficially own (or control via proxy) in the aggregate
2,012,000 of our shares or approximately 6.46% of our current issued and
outstanding common stock. However, these executive officers, directors and
affiliates control 54.5% of the vote through the ownership of our Series B
Preferred Stock if the ZED Preferred Shares are exchanged (excluding option that
could be exercised). These stockholders will be able to exercise control over
all matters requiring approval by our stockholders, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing an
acquisition or change in control of our company, which could significantly
reduce our stock price.
SINCE THE MARKET FOR STOCKS OF TECHNOLOGY COMPANIES HAS EXPERIENCED EXTREME
PRICE FLUCTUATIONS, OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS.
The market for the stocks of technology-related companies has experienced
extreme price and volume fluctuations. The market price of our common stock may
be volatile and may decline. In the past, securities class action litigation has
often been initiated against companies following periods of volatility in the
market price of their
<PAGE>
securities. If initiated against us, regardless of the outcome, litigation could
result in substantial costs and a diversion of our management's attention and
resources.
IF HOLDERS OF OUR CONVERTIBLE PREFERRED STOCKS CONVERT, OUR COMMON STOCK MAY BE
DILUTED AND SALES OF THE SHARES MAY REDUCE OUR STOCK PRICE.
The existence of convertible preferred stocks may make it more difficult
for us to raise capital when necessary and may depress the market price of our
common stock in any market that may develop for such securities. Future sales
of a substantial number of our common shares in the public market could reduce
the market price of the stock. It could also impair our ability to raise
additional capital by selling more of our common stock.
SINCE OUR SHARES ARE SUBJECT TO SIGNIFICANT PRICE AND VOLUME FLUCTUATIONS,
STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
Our common stock is quoted on the OTC Bulletin Board and is thinly traded.
In the past, our trading price has fluctuated widely, depending on many factors
that may have little to do with our operations or business prospectus. In
addition, the OTC Bulletin Board is not an exchange and, because trading of the
securities on the OTC Bulletin Board is often more sporadic than the trading of
securities listed on an exchange of the Nasdaq Stock Market, Inc., you may have
difficulty reselling any of the shares you purchase from the selling
stockholders.
TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS
WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
The U.S. Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
(as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
"accredited investors." The term "accredited investor" refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standard risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid
and offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of, our common stock.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our certificate of incorporation and bylaws as well as
provisions of applicable Nevada law may discourage, delay or prevent a merger or
other change of control that a stockholder may consider favourable. Our board
of directors has the authority to issue up to 200,000,000 shares of common stock
and to determine the price and terms, including preferences and voting rights,
of those shares without stockholder approval. As of December 31, 2000, we have
issued the following (or are required to issue additional shares of common stock
as the result of our receipt of conversion notices form the holders of the
convertible preferred stock so that our capitalization is as follows): (1)
10,600,000 stock options to purchase common stock, (2) 170,957 warrants to
purchase common stock, (3) 83,250,000 shares of common stock are issuable upon
conversion of preferred stock,
<PAGE>
and (4) an additional 15,000,000 shares of common stock are issuable upon
conversion of preferred stock after the exchange of Zed Preferred Stock for our
Series B Preferred Stock. The issuance of additional shares of common stock
could, among other things, have the following effect:
- delay, defer or prevent an acquisition or a change in control of our
company;
- discourage bids for our common stock at a premium over the market price;
or
- reduce the market price of, and the voting and other rights of the holders
of, our common stock.
Furthermore, we are subject to Nevada laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our Certificate of Incorporation and By-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have not paid dividends on our common stock or preferred stock and do
not expect to do so in the foreseeable future.
ITEM 2. DESCRIPTION OF PROPERTY
We currently lease office space at the following two locations:
- For InvestAmerica, Inc. we lease approximately 1,000 square feet of office
space located at 2078 Prospector Avenue, Park City, Utah, U.S.A. 84060, on a
month to month basis for an all-inclusive gross annual rent of approximately
$25,000; and
- For Optica and Zed, we lease approximately 6,436 square feet of office
space located at #148 - 4664 Lougheed Highway, Burnaby, British Columbia, under
a five year lease which expires on July 31, 2004 for annual rent of
approximately $43,488, plus our proportionate share of operating expenses.
We believe that our space is adequate for our immediate needs. These
premises are used for office space and as the facility for our computer
equipment, and we believe that they are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
We are a party to two lawsuits involving Daniel Tepper, a California
resident licensed to practice law in the State of New York.
Factual Background
In the mid-1990s, the corporate predecessor to InvestAmerica, Progressive
Polymerics International, Inc. was negotiating a merger with Fidelity Holdings,
Inc. ("Fidelity"). When the negotiations collapsed, litigation ensued. The
litigation was resolved in a settlement agreement pursuant to which Fidelity
transferred approximately 160,000 shares of its common stock (the "Fidelity
Stock") to Progressive.
During the late 1990's, Daniel Tepper filed a number of lawsuits against
Progressive. Progressive ultimately settled these lawsuits for, among other
things, a $120,000 promissory note and a consulting agreement for legal and
business services. The promissory note was secured by a pledge of the Fidelity
Stock.
<PAGE>
The First Nevada Lawsuit
On February 8, 1999, Daniel Tepper filed an action (Case Number A399177)
against InvestAmerica in Clark County, Nevada District Court (the "First Nevada
Lawsuit") asking the Court to award money damages and to declare that he, Mr.
Tepper, was InvestAmerica's sole officer and director. In this action, Mr.
Tepper alleged that he was the majority shareholder of InvestAmerica (when, in
fact, he was only a minority shareholder). InvestAmerica was unaware of this
action and, on April 5, 1999, the Court entered a default judgment (the "Nevada
Default Judgment") declaring that Mr. Tepper was the sole officer and director
of InvestAmerica.
The California Action
In May, 1999, Daniel Tepper obtained another default judgment (the
"California Default Judgment") against InvestAmerica in a lawsuit (the
"California Action") in the Superior Court of the State of California for the
County of Los Angeles. The California Default Judgment ordered InvestAmerica to
pay Mr. Tepper $7,289,755.50.
The Nevada Action
On or about July 16, 1999, Mr. Tepper commenced a lawsuit (Case Number
A405933) against InvestAmerica (the "Nevada Action") in Clark County, Nevada
District Court, asking the Court to domesticate the California Default Judgment
in Nevada.
On or about July 21, 1999, an attorney named Douglas H. Clark filed an
Answer in the Nevada Action on behalf of InvestAmerica. It is alleged by
InvestAmerica in pleadings filed in the Nevada Action that Mr. Clark represented
Mr. Tepper when he obtained the California Default Judgment. On July 26, 1999,
Mr. Tepper's attorney in the Nevada Action and Mr. Clark, the attorney
purporting to represent InvestAmerica in the Nevada Action, filed a joint motion
asking the Court to review and approve a proposed settlement agreement between
them. On July 27, 1999, the Court approved, and Mr. Tepper and InvestAmerica
entered into, an Agreement (the "Settlement Agreement") pursuant to which
InvestAmerica agreed: (i) to issue additional stock to Mr. Tepper sufficient so
that he would own 95% of the then issued and outstanding common shares of our
company; (ii) that Mr. Tepper had exclusive ownership of the Fidelity Shares;
(iii) to assign to Mr. Tepper all royalties due to InvestAmerica from Fidelity
arising out of a Patent Sale and Purchase Agreement between InvestAmerica and
Fidelity (the proceeds of which would be used to "liquidate" the California
Judgment); and (iv) that Mr. Tepper was InvestAmerica's sole director and its
Chief Executive Officer. In return, Mr. Tepper agreed not to levy on the
California Default Judgment but only for so long as InvestAmerica did not
default under the Settlement Agreement. It should be noted that Mr. Clark, the
attorney who InvestAmerica alleges represented Mr. Tepper in the California
Action and (purportedly) represented InvestAmerica in the Nevada Action, signed
the Settlement Agreement as President of InvestAmerica.
InvestAmerica was unaware of the First Nevada Lawsuit, the California
Action, the Nevada Action, and the default judgments entered in the first two
and the Settlement Agreement entered into in the last, until well after the
Settlement Agreement was entered into and approved by the Nevada District Court.
Upon learning of these matters, InvestAmerica entered into a settlement
agreement (the "Second Settlement Agreement") with Mr. Tepper dated December 11,
1999. In the Second Settlement Agreement, Mr. Tepper agreed to relinquish all
of his claims against InvestAmerica (including those arising out of the
California Action, the First Nevada Lawsuit and the Settlement Agreement) in
exchange for the issuance of 4,740,000 shares of our common stock (the
"Settlement Stock") and InvestAmerica's release of any claim to the Fidelity
Stock. The Second Settlement Agreement also required that Mr. Clark resign from
his claimed positions of officer, director and general counsel for
InvestAmerica.
InvestAmerica issued the Settlement Stock but Mr. Tepper has not performed
any of his obligations under the Second Settlement Agreement. On May 5, 2000,
Mr. Tepper asked the Court in the Nevada Action to require InvestAmerica to
exchange the Settlement Stock, which bears a restrictive legend, for an
equivalent number of common shares of our common stock without any restrictive
legend. Mr. Tepper purported to serve notice of this motion on InvestAmerica by
sending a copy of the motion to Mr. Clark. The Court heard Mr. Tepper's motion
in a hearing held June 5, 2000, in which Mr. Clark represented to the Court that
he was the attorney for InvestAmerica. Mr. Tepper's motion was granted and the
Court issued its order (the "June 5 Order") requiring InvestAmerica to exchange
the Settlement Stock for an equivalent number of unrestricted shares of our
common stock.
<PAGE>
InvestAmerica learned of the June proceedings in the latter part of June,
2000, and retained an attorney to represent it in an effort to get the June 5
Order set aside. On September 12, 2000, InvestAmerica's attorney filed a motion
to set aside the June 5 Order on the basis that InvestAmerica had no knowledge
of the June proceedings and that the June 5 Order was obtained improperly. A
hearing was held on this motion on October 16, 2000, at which the Court
continued the matter to December 18, 2000 to give the parties time to get a
ruling as to who actually represents InvestAmerica. The December 18, 2000
hearing has been adjourned to January 16, 2001. On January 16, 2000, the Court
will hear the parties' arguments concerning who actually represents
InvestAmerica.
At the January 16, 2000 hearing, InvestAmerica will ask the Court to
disqualify Mr. Clark from representing InvestAmerica and will ask the Court to
set aside the June 5, 2000 order which it alleges were improperly obtained by
Mr. Tepper.
The U.S. District Court Action
In a lawsuit commenced by Mr. Tepper against Fidelity in the United States
District Court for the District of Nevada, InvestAmerica is a defendant because
it has asserted an ownership interest in the Fidelity Stock. The position taken
by InvestAmerica is based on Mr. Tepper's claims that the Second Settlement
Agreement does not apply to or bind him. Essentially, InvestAmerica's position
is that if the Second Settlement Agreement is a nullity, as Mr. Tepper would
have the Court believe, then InvestAmerica has not agreed to relinquish its
rightful claim to the Fidelity Stock.
Other than as disclosed above, InvestAmerica is not aware of or
contemplating any other pending legal proceeding, nor is it at aware of any
proceeding that a governmental authority is contemplating.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the year
ended September 30, 2000.
As at September 30, 2000, the Company had 50,000,000 shares of common stock
authorized for issuance, of which 31,017,622 shares were issued and outstanding.
Based on the number of shares of common stock that are issuable upon conversion
of the Series A Preferred Stock and Series B Preferred Stock, we did not have a
sufficient number of authorized common shares available. Our board of directors
approved an amendment to our Articles of Incorporation to increase the number of
authorized common stock from 50,000,000 shares to 200,000,000 shares, and such
amendment was approved by our stockholders at a Special Meeting of Shareholders
held on October 27, 2000. The amendment to our Articles of Incorporation was
filed on November 29, 2000, and accordingly as at December 31, 2000, we had an
authorized share capital of 200,000,000 common stock, of which 31,354,160 shares
are issued and outstanding.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of our common stock are quoted in the United States on the
National Association of Securities Dealers Inc.'s Over-the-Counter Bulletin
Board (the "OTCBB") under the symbol "INVT". The following table sets forth the
range of high and low bid quotations for our common stock for each of the
quarters of the fiscal years ended September 30, 2000 and September 30, 1999,
and for the quarter ended December 31, 2000. Our common stock began quotation
on the OTCBB under the symbol "INVT" on May 27, 1997. Prior to May 27, 1997,
there was no public market for our securities. The quotations represent
inter-dealer prices without retail markup, mark down or commission and may not
necessarily represent actual transactions.
High Low
---- ---
Quarter ended December 31, 1998 $0.09 $0.02
Quarter ended March 31, 1999 $0.05 $0.02
Quarter ended June 30, 1999 $0.07 $0.013
<PAGE>
Quarter ended September 30, 1999 $0.25 $0.02
Quarter ended December 31, 1999 $3.188 $0.07
Quarter ended March 31, 2000 $11.875 $3.188
Quarter ended June 30, 2000 $7.00 $1.156
Quarter ended September 30, 2000 $2.125 $0.688
Quarter ended December 31, 2000 $1.25 $0.38
Our shares of common stock are also listed on the Frankfurt Stock Exchange
under the symbol "IVK". Our common stock began trading on the Frankfurt Stock
Exchange on May 16, 2000. The following table sets forth the high and low share
prices for the period indicated below:
High Low
---- ---
Period from May 16, 2000 to June 30, 2000 3.65 1.65
Quarter ended September 30, 2000 2.25 0.75
Quarter ended December 31, 2000 1.35 0.50
On December 31, 2000, the closing bid price as quoted by the OTCBB for our
common stock was $0.53 and there were 31,354,160 common shares issued and
outstanding. Shares of our common stock are issued in registered form. Olde
Monmouth Stock Transfer (77 Memorial Parkway, Atlantic Highlands, New Jersey
07716 (telephone: (732) 872-2727, facsimile (732) 872-2728) is the registrar and
transfer agent for shares of our common stock. As of December 31, 2000, there
were approximately 2,000 holders of record of our common stock. This number of
stockholders does not include stockholders who hold our securities in street
name.
We have not issued any cash dividends since our inception, and we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Although there are no restrictions on our ability to pay dividends, the
payment of dividends, if any, rests within the discretion of our Board of
Directors and will depend upon, among other things, our earnings, capital
requirements and financial condition, as well as other relevant factors.
Recent Sales of Unregistered Securities
Quarter ended December 31, 1999
On November 1, 1999, we issued an aggregate of 5,000,000 common shares
(4,500,000 at $0.03 per share and 500,000 at $0.025 per share) to two investors
in a transaction private in nature, relying on the exemption from registration
in an "offshore transaction" pursuant to Regulation S promulgated under the 1933
Act and/or Section 4(6) and Rule 504 of Regulation D promulgated under the 1933
Act.
On November 24, 1999, we granted an aggregate of 6,150,000 options to
purchase shares of our common stock to 1 employee, 1 consultant and 4 directors
and officers. The options were granted at an exercise price of $1.20 per share,
are exercisable until November 24, 2004 and were granted to the employee,
consultant and officers and directors in a transaction private in nature, in
reliance on Section 4(2) and/or Rule 506 of Regulation D or in an "offshore
transaction" pursuant to Regulation S promulgated under the 1933 Act.
On December 7, 1999, we issued an aggregate of 3,000,000 common shares, at
a price of $0.5566 per share, to 28 investors in a transaction private in
nature, relying on the exemption from registration under Section 4(2) and/or
Rule 506 of Regulation D promulgated under the 1933 Act.
On December 11, 1999, we issued an aggregate of 4,740,000 common shares, to
Daniel Tepper in settlement of outstanding litigation, relying on the exemption
from registration under Section 4(2) and/or Rule 506 of Regulation D promulgated
under the 1933 Act.
<PAGE>
On December 21, 1999, we issued an aggregate of 8,148,555 common shares to
12 investors in a transaction private in nature, relying on Section 4(2) and/or
Rule 506 of Regulation D or in an "offshore transaction" pursuant to Regulation
S promulgated under the 1933 Act.
Quarter ended March 31, 2000
On February 8, 2000, we granted an aggregate of 3,000,000 options to
purchase shares of our common stock to 3 employees. The options were granted at
an exercise price of $5.25 per share, are exercisable until February 8, 2005 and
were granted to the employees in a transaction private in nature, in reliance on
Section 4(2) and/or Rule 506 of Regulation D or in an "offshore transaction"
pursuant to Regulation S promulgated under the 1933 Act.
On March 27, 2000, we issued an aggregate of 300,000 common shares, at a
price of $5.25 per share, to 3 of our employees, Neil Wieler, Lyle Kerr and Jim
Duncan, relying on the exemption from registration under Section 4(2) and/or
Rule 506 of Regulation D or in an "offshore transaction" pursuant to Regulation
S promulgated under the 1933 Act, in consideration of past services rendered by
these officers.
On March 29, 2000, we issued an aggregate of 194,919 common shares, at a
price of $3.59 per share, to two investors in a transaction private in nature,
relying on the exemption from registration under Section 4(2) and/or Rule 506 of
Regulation D or in an "offshore transaction" pursuant to Regulation S
promulgated under the 1933 Act.
On April 6, 2000, we granted an aggregate of 735,000 options to purchase
shares of our common stock to 1 employee and 1 consultant. The options were
granted at an exercise price of $5.94 per share, are exercisable until April 6,
2005 and were granted to the employee and the consultant in a transaction
private in nature, in reliance on Section 4(2) and/or Rule 506 of Regulation D
or in an "offshore transaction" pursuant to Regulation S promulgated under the
1933 Act.
Quarter ended June 30, 2000
We did not issue any common shares from treasury during the quarter ended
June 30, 2000.
On July 21, 2000, we granted an aggregate of 715,000 options to purchase
shares of our common stock to 14 employees. The options were granted at an
exercise price of $1.41 per share, are exercisable until July 21, 2005 and were
granted to the employees and the consultant in a transaction private in nature,
in reliance on Section 4(2) and/or Rule 506 of Regulation D or in an "offshore
transaction" pursuant to Regulation S promulgated under the 1933 Act.
Quarter ended September 30, 2000
We did not issue any common shares from treasury during the quarter ended
September 30, 2000.
ITEM 6. MANAGEMENT'S PLAN OF OPERATION.
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this Annual Report.
The following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this Annual Report, particularly in the section entitled
"Risk Factors".
General
We were incorporated in Utah on October 20, 1983. On December 18, 1986, we
changed our corporate domicile to Nevada by merging with a Nevada corporation
created solely for that purpose. On December 29, 1992, we changed our corporate
name to "Progressive Polymerics International, Inc." and acquired all of the
issued and outstanding common stock of Progressive Polymerics, Inc. On April
17, 1997, we acquired 100% of the issued and
<PAGE>
outstanding capital stock of InvestAmerica, Inc. On May 14, 1997, we merged
InvestAmerica, Inc. (which was our wholly-owned subsidiary) into Progressive
Polymerics International, Inc. and changed the name of the survivor corporation
to InvestAmerica, Inc.
On March 15, 2000, we acquired 100% of the issued and outstanding shares of
Optica by way of a share exchange reorganization. See Item 1 - "Description of
Business" for more details on this acquisition. Since incorporation, Optica has
been in the business of developing a fiber optic network over which it intends
to provide optical wavelength and multimedia bandwidth services, including
internet, voice and data communications, video and steaming media.
On July 7, 2000, we acquired 100% of the issued and outstanding common
shares of Zed by way of a purchase of shares and a share exchange
reorganization. In the share purchase, we paid an aggregate of $5,000,000 for
approximately 77% of the issued and outstanding common shares of Zed. We
acquired the balance of the common shares by causing Zed to issue 50,000 shares
of Class D Preferred Stock of Zed. One shareholder owns these shares of
preferred stock, which are exchangeable for an aggregate of 50,000 shares of our
Series B Preferred Stock. See Item 1 - "Description of Business" for more
details on this acquisition. Since incorporation, Zed has been in the business
of providing data communications and network systems solutions, including
network design, installation, commissioning, security and maintenance.
We will continue operating both of these business in the next twelve
months.
Plan of Operation
For Optica, our primary objectives in the next 12 months will be to:
- purchase up to 20,000 route miles of fiber optic cable, linking over fifty
major metropolitan areas in North America;
- arrange for the purchase, installation and maintenance of the hardware
necessary to activate and operate the fiber optic network;
- engineer the fiber optic network for maximum flexibility and quality; and
- implement, activate and test selected routes of our fiber optic network.
For Zed, our primary objectives in the next 12 months will be to:
- increase sales to past and current customers; and
- identify and sell to new customers; and
- adjust product and service offerings to meet customer needs and demands.
We anticipate we will be able to complete the plan of operations if we can
raise a significant amount of additional financing. Our actual expenditures and
business plan may significantly differ from those anticipated in our plan of
operations. We may decide not to pursue our plan of operations or we may modify
our plan of operations depending on the amount of financing that we are able to
raise. We do not currently have any arrangement in place for any debt or equity
financing which would enable us to satisfy the cash requirements required by our
plan of operations.
We anticipate incurring further operating losses in the foreseeable future.
We base this expectation in part on the assumption that we will incur
substantial operating and capital expenses in completing our plan of operations.
Our future financial results are also uncertain due to a number of factors, many
of which are outside of our control. These factors include, but are not limited
to, the following:
- willingness of external investors to advance significant capital to us to
finance our purchases of fiber optic hardware and cable and to implement our
business plan and plan of operations;
- general economic conditions, government regulations and increased industry
competition;
<PAGE>
- uncertainty regarding whether our suppliers will be able to provide us
with the required fiber optic hardware and cable in a timely fashion;
- whether our fiber optic network can be successfully deployed;
- whether there will be a market for our optical bandwidth services once the
development of our fiber optic network is completed; and
- whether demand for our optical bandwidth services will be adequate to
support economically viable continued operations.
Due to our lack of operating history, there exists substantial doubt about
our ability to continue as a going concern as described in our independent
accountant's report on, and the notes to, the consolidated financial statements
for the year ended September 30, 2000.
Cash Requirements
We will require a minimum of approximately $286 million over the period
ending September 30, 2001 in order to accomplish our goals. The cash
requirements are based on our estimates for operational costs for the period
ending September 30, 2001.
For Optica, we estimate that approximately $250 million is required for
the purchase of fiber optic network hardware, $25,000,000 for the purchase of up
to 20,000 route miles of fiber optic cable, $4.5 million is required to
implement and test the fiber optic network, to hire project management staff, to
implement our planned sales and marketing program and for other operating
expenses.
For Zed, we estimate that approximately $200,000 is required for debt
repayment, $300,000 is required to implement our planned sales and marketing
program and $500,000 will be required for acquisition or expansion.
The balance of $5.5 million will be required to repay debt of $5 million
and to support general corporate expenses, including the purchase of computer
hardware and software, office furniture and equipment, other information
technology equipment, expenses in connection with the engaging of both senior
and intermediate management personnel and other general operating expenses.
We believe we have sufficient funds to pay for ongoing operating costs and
capital expenditures through January 31, 2001. We intend to obtain the balance
of the cash requirements through the sale of our equity securities, proceeds
received from the exercise of outstanding warrants and stock options or by
obtaining further debt financing.
Future Research, Development and Operations
The purchase of fiber optic network equipment and fiber optic cable will
represent the first phase of a planned multi-phase deployment of an extensive
international fiber optic network. This first phase which we call the "Stage
One Network" will be located entirely in North America. Optica plans to use the
Stage One Network to serve the 50 largest North American cities (measured by
population).
We intend to purchase the fiber optic network hardware and up to 20,000
miles of fiber optic cable by June 30, 2001. Although we have identified
several suppliers of fiber optic cable and hardware, we have not entered into
any binding arrangements for the supply of such materials. On December 15,
2000, Optica signed a non-binding letter of intent with a major fiber optical
equipment manufacturer and is proceeding with negotiations to finalize the terms
of a supply agreement for the purchase of approximately $675,000,000 worth of
fiber optic network hardware over the next two years. We anticipate
implementing, activating and testing selected routes of our fiber optic network
in November, 2001 with the full fiber optic network being deployed by the end of
the fourth quarter of the year ended September 30, 2001 as warranted by sales
and customer demand. We anticipate commencing the provision of optical
bandwidth services by September 30, 2001. We will be required to hire 6 project
management staff in connection with the development of our fiber optic network
and we anticipate hiring some of those personnel by June 30, 2001. Finally, we
anticipate implementing our planned sales and marketing program by June 30,
2001.
<PAGE>
With respect to Zed, we intend to hire additional persons in sales and to
conduct a telemarketing program in an effort to increase our sales to past and
current customers. The additional sales and marketing personnel will also focus
on identifying and contacting new customers. We will also continue to monitor
and adjust our product and service offerings to keep pace with new technology
and ever changing customer demand.
Marketing
In order to increase Zed's sales volume, we plan to do the following:
- hire a seasoned sales director;
- hire additional sales staff;
- negotiate with current and additional hardware vendors; and
- operate a telemarketing program.
For Optica, we expect that our primary customers for our optical bandwidth
services will include competitive local exchange carriers, data oriented local
exchange carriers, internet service providers, inter-exchange carriers and
incumbent local exchange carriers. In order to compete in the existing markets
for our products and generate consumer awareness, we will be required to
undertake a very aggressive advertising and marketing campaign. This will
require us to place advertisements in several key trade magazine and publication
as well as exhibiting our software products at the major tradeshows held
throughout the year.
Personnel
As of September 30, 2000, we had 18 (21 with consultants) permanent
employees with 12 in the area of corporate administration, 6 in technology and
service and 3 in sales. In the next 12 months, we plan to expand our total
number of permanent employees in these same departments to approximately 70 with
5 additional part-time employees.
Purchase or Sale of Equipment
Other than the purchases planned by Optica for fiber optic network hardware
and fiber optic cable, we do not anticipate that we will expend any significant
amount on equipment for our present or future operations.
ITEM 7. FINANCIAL STATEMENTS
Our consolidated financial statements are stated in United States dollars
and are prepared in accordance with accounting principles generally accepted in
the United States.
The consolidated financial statements are attached hereto and are found
immediately following the text of this Annual Report. The Independent Auditors'
Report of January 12, 2001, on the consolidated audited financial statements for
the fiscal years ended September 30, 2000 and 1999 is included herein
immediately preceding the audited financial statements.
The Company's Consolidated Audited Financial Statements include:
Independent Auditors' Report, dated January 12, 2001
Consolidated Balance Sheets at September 30, 2000 and 1999
Consolidated Statements of Operations for the years ended September 30,
2000 and 1999.
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the
cumulative period from October 1, 1998 to September 30, 2000.
<PAGE>
Consolidated Statements of Cash Flows for the years ended September 30,
2000 and 1999.
Summary of Significant Accounting Policies.
Notes to the Consolidated Financial Statements.
<PAGE>
Auditors' Report and Consolidated Financial Statements of
INVESTAMERICA, INC.
September 30, 2000 and 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
InvestAmerica, Inc.
We have audited the accompanying consolidated balance sheets of InvestAmerica,
Inc. as at September 30, 2000 and 1999 and the consolidated statements of
operations and stockholders' equity and cash flows for the years ended September
30, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
InvestAmerica, Inc. as at September 30, 2000 and 1999 and the results of its
operations and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring net
losses since inception and, as of September 30, 2000, has negative working
capital which raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty
/s/ Deloitte & Touche
Vancouver, Canada
January 12, 2001
<PAGE>
<TABLE>
<CAPTION>
INVESTAMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
September 30,
-------------------------
ASSETS 2000 1999
--------------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 70,533 $ -
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 404,971 3,738
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,547 -
--------------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 490,051 3,738
Long-term investment . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 -
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . 126,374 -
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,742,949 -
--------------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,359,374 $ 3,738
--------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . $ 588,057 $ 4,627
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,039,755 -
Due to related party . . . . . . . . . . . . . . . . . . . . . . . . 2,268,345 -
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 9,896,157 4,627
--------------- --------
Continuing operations (Note 1)
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Preferred stock, undesignated, par value $.001, authorized shares -
5,000,000 at September 30, 2000 and none at September 30, 1999; no
shares issued and outstanding .. . . . . . . . . . . . . . . . . . . - -
Series A convertible preferred stock, par value $.001, authorized,
issued and outstanding shares - 450,000 at September 31, 2000 and
none at September 30, 1999 . . . . . . . . . . . . . . . . . . . . . 450 -
Series B convertible preferred stock, par value $.001, authorized,
issued and outstanding - none at September 30, 2000 and none
at September 30, 1999. . . . . . . . . . . . . . . . . . . . . . . . - -
Equity conversion right. . . . . . . . . . . . . . . . . . . . . . . 22,218,750 -
Common stock $.001 par value, authorized shares - 50,000,000 at
September 30, 2000 and at September 30, 1999; issued and
outstanding shares - 31,017,622 and 9,859,148 at September 30,
2000 and September 30, 1999 respectively. . . . . . . . . . . . . 31,017 3,670
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 6,078,607 -
Deferred share-based compensation. . . . . . . . . . . . . . . . . . (3,020,187)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . (4,845,420) (4,559)
--------------- --------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . 20,463,217 (889)
Total liabilities and stockholders' equity (deficit) . . . . . . . . $ 30,359,374 $ 3,738
--------------- --------
See Accompanying Notes to these Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
INVESTAMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS)
Years ended
September 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,293,690 $ -
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 890,939 -
------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,751 -
Operating expenses:
Selling, general and administrative (including amortization of
deferred compensation expense of $740,543 and share-based
compensation expense of $1,575,000) . . . . . 3,625,652 4,559
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . 1,354,892 -
------------ ------------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . 4,980,544 4,559
------------ ------------
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . (4,577,793) (4,559)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (263,068) -
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (4,840,861) (4,559)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Loss for the period. . . . . . . . . . . . . . . . . . . . . . . . $(4,840,861) $ (4,559)
============ ============
Loss per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.05) (0.00)
Weighted average number of shares used to calculate
loss per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,744,920 83,254,000
See Accompanying Notes to these Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTAMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(EXPRESSED IN UNITED STATES DOLLARS)
Convertible Equity Additional Deferred
Preferred Stock Conversion Common Stock Paid-in share-based
Shares Amount Right Shares Amount Capital compensation
------- ------- ----------- ----------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1998
(InvestAmerica) . . . . . . . . . . . . . - $ - $ - 9,859,148 $ 9,859 $ 1,777,180 $
Net loss. . . . . . . . . . . . . . . . . - - - - - - -
------- ------- ----------- ----------- -------- ------------ --------------
Balance, September 30, 1999 . . . . . . . - - - 9,859,148 9,859 1,777,180 -
-
Shares issued on settlement of lawsuit. . - - - 4,740,000 4,740 7,368,154 -
Shares issued for cash. . . . . . . . . . - - - 16,148,555 16,148 699,059 -
Cancelled shares. . . . . . . . . . . . . - - - (225,000) (225) (5,975) -
Net income. . . . . . . . . . . . . . . . - - - - - - -
------- ------- ----------- ----------- -------- ------------ --------------
Balance, March 15, 2000 . . . . . . . . . - - - 30,522,703 30,522 9,838,418 -
Adjustment for reverse. . . . . . . . . . -
acquisition on March 15, 2000 . . . . . . - - - - - (9,865,270) -
------- -------
- - - 30,522,703 30,522 (26,852) -
------- ------- ----------- ----------- -------- ------------ --------------
Issued on acquisition of. . . . . . . . . -
Optica (Note 3) . . . . . . . . . . . . . 450,000 450 - - - 70,184 -
Value of equity conversion right issued . -
upon acquisition of Zed (Note 3). . . . . - - 22,218,750 - - - -
Compensation expense. . . . . . . . . . . - - - 300,000 300 1,574,700 -
Issued for cash . . . . . . . . . . . . . - - - 194,919 195 699,845 -
Deferred share-based compensation . . . . - - - - - 3,760,730 (3,760,730)
Amortization of share-based compensation. - - - - - - 740,543
Net loss. . . . . . . . . . . . . . . . . - - - - - - -
------- ------- ----------- ----------- -------- ------------ --------------
Balance, September 30, 2000 . . . . . . . 450,000 $ 450 $22,218,750 31,017,622 $31,017 $ 6,078,607 $ (3,020,187)
------- ------- ----------- ----------- -------- ------------ --------------
Total
Accumulated Stockholders
Deficit Equity (Deficit)
------------- -----------------
<S> <C> <C>
Balance, October 1, 1998
(InvestAmerica) . . . . . . . . . . . . . $ (3,005,878) $ (1,218,839)
Net loss. . . . . . . . . . . . . . . . . (7,248,213) (7,248,213)
------------- -----------------
Balance, September 30, 1999 . . . . . . . (10,254,091) (8,467,052)
Shares issued on settlement of lawsuit. . - 7,372,894
Shares issued for cash. . . . . . . . . . - 715,207
Cancelled shares. . . . . . . . . . . . . - (6,200)
Net income. . . . . . . . . . . . . . . . 455,785 455,785
------------- -----------------
Balance, March 15, 2000 . . . . . . . . . (9,798,306) 70,634
Adjustment for reverse
acquisition on March 15, 2000 . . . . . . 9,793,747 (71,523)
(4,559) (889)
------------- -----------------
Issued on acquisition of
Optica (Note 3) . . . . . . . . . . . . . - 70,634
Value of equity conversion right issued
upon acquisition of Zed (Note 3). . . . . - 22,218,750
Compensation expense. . . . . . . . . . . - 1,575,000
Issued for cash . . . . . . . . . . . . . - 700,040
Deferred share-based compensation . . . . - -
Amortization of share-based compensation. - 740,543
Net loss. . . . . . . . . . . . . . . . . (4,840,861) (4,840,861)
-------------
Balance, September 30, 2000 . . . . . . . $ (4,845,420) $ 20,463,217
------------- -----------------
</TABLE>
See Accompanying Notes to these Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
INVESTAMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
Years ended
September 30,
----------------------
2000 1999
------------ --------
<S> <C> <C>
Cash flows from operating activities:
Net loss for the period . . . . . . . . . . . . . . . . . $(4,840,861) $(4,559)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of goodwill. . . . . . . . . . . . . . . . . 1,354,892 -
Amortization of deferred share-based compensation . . . . 740,543 -
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 14,369 -
Compensation expense. . . . . . . . . . . . . . . . . . . 1,575,000 -
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . 4,354,048 (3,738)
Inventories . . . . . . . . . . . . . . . . . . . . . . . 691,236 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . (1,384,423) 4,627
------------ --------
Net cash provided by (used in) operating activities . . . 2,504,804 (3,670)
------------ --------
Cash flows from investing activities:
Purchase of Optica, net of cash acquired of $409,066. . . 409,066 -
Purchase of property and equipment. . . . . . . . . . . . (15,841) -
Purchase of long-term investment. . . . . . . . . . . . . (4,000,000) -
Purchase of Zed, net of cash acquired of $41,031. . . . . (4,958,969) -
Net cash used in investing activities . . . . . . . . . . (8,565,744) -
------------ --------
Cash flows from financing activities
Proceeds from issuance of notes payable. . . . . . . . . 3,163,088 -
Proceeds from shareholder loan. . . . . . . . . . . . . . 2,268,345 -
Proceeds from issuance of common shares . . . . . . . . . 700,040
Net cash provided by financing activities . . . . . . . . 6,131,473 -
------------ --------
Net increase in cash. . . . . . . . . . . . . . . . . . . 70,533 (3,670)
Cash and cash equivalents, beginning of period. . . . . . - -
------------ --------
Cash and cash equivalents, end of period. . . . . . . . . $ 70,533 $(3,670)
============ ========
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING DISCLOSURE
Acquisition of Optica by issuance of Class A Convertible
Preferred Stock. . . . . . . . . . . . . . . . . . . . $ 70,634 $ -
Acquisition of Zed by issuance of equity conversion right 22,218,750 -
------------ --------
$22,289,384 $ -
============ ========
</TABLE>
See Accompanying Notes to these Consolidated Financial Statements.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
1. CONTINUING OPERATIONS
The financial statements of InvestAmerica, Inc. ("InvestAmerica") have been
prepared in accordance with accounting principles generally accepted in the
United States (U.S.). InvestAmerica is a public company listed on the NASDAQ
OTC Bulletin Board.
The Company, through its subsidiary, Zed Data Systems Corp.,
provides public and private sector end users with data communication solutions
across North America. These services primarily include system design and
installation.
The Company was considered a development stage company in prior years and for
part of the current year. As a development stage company, the principal
activities of the company included developing business plans and raising capital
financing. The Company's operations effectively began in the last quarter of
fiscal 2000 when it acquired Zed Data Systems Corp., an operating company that
is a value added reseller of data communications equipment.
The accompanying consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At September 30,
2000, the Company had negative working capital of $9,406,106. For the year
ended September 30, 2000, the Company incurred a net loss of $4,840,861, had
significant sales concentration (see Note 2), and is reliant on current and
future stockholders' financial support to assist in meeting cash flow needs.
Management has evaluated the Company's alternatives to enable it to pay its
liabilities as they become due and payable in the current year, reduce operating
losses and obtain additional or new financing in order to advance its business
plan. Alternatives being considered by management include, among others,
obtaining financing from new lenders, obtaining vendor financing, and issuance
of additional equity. The Company believes these measures will provide
liquidity for it to continue as a going concern throughout fiscal 2001, however,
management can provide no assurance with regard thereto. These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern for a reasonable period of
time.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States
and include the accounts of the Company and its subsidiaries. All
inter-company accounts and transactions have been eliminated.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of consolidated financial statements in conformity with
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 consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Estimates are used for, but not limited to, the
accounting for doubtful accounts, carrying value of long-term investments,
depreciation and amortization, taxes and contingencies. Actual results may
differ from those estimates.
Revenue Recognition
The Company generates revenue primarily from the sale of data communications
equipment. Revenue is recognized where persuasive evidence of an arrangement
exists, delivery and installation is complete, the fee is fixed or determinable
and collection is probable. If uncertainty exists about customer acceptance,
revenue is deferred until acceptance occurs.
Cash and Cash Equivalents
Cash consists of current account balances with major US and Canadian financial
institutions with terms of less than 90 days.
Long-Term Investment
As at September 30, 2000, InvestAmerica's long-term investment consists solely
of an investment in preferred shares accounted for under the cost method.
Fair Value of Financial Instruments
At September 30, 2000 and 1999, the Company has the following financial
instruments: cash and cash equivalents, accounts receivable, available-for-sale
investments, accounts payable and accrued liabilities and notes payable. The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities and notes payable approximates their fair value
based on their liquidity and/or short-term nature.
Inventories
Inventories, consisting entirely of finished goods, are valued at the lower of
laid-down cost or net realizable value and are accounted for using the specific
cost method. Management performs periodic assessments to determine the
existence of obsolete, slow moving and non-salable inventories, and records
necessary provisions to reduce such inventories to net realizable value.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. The
carrying value of property and equipment is reviewed periodically for any
impairment in value. Depreciation of property and equipment is provided using
the following rates and methods:
Computer hardware 30% declining balance
Computer software 2 years straight line
Office furniture and equipment 20% declining balance
Goodwill
Goodwill is carried at cost less accumulated amortization and is amortized on a
straight line basis over the economic lives of the respective assets, generally
five years.
Impairment of Long-Lived Assets
The Company makes periodic reviews for the impairment of long-lived assets,
including goodwill, whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Under Statement of
Financial Accounting Standard ("SFAS") No. 121, an impairment loss would be
recognized when estimates of undiscounted future cash flows expected to result
from the use of an asset and its eventual disposition are less than its carrying
amount. No such impairment losses have been identified by the Company for the
periods ended September 30, 2000 and 1999.
Concentration of Credit Risk and Economic Dependence
Financial instruments that potentially subject the Company to a concentration of
credit risk consist principally of cash, short-term investments and accounts
receivable. Cash is custodied with high-quality financial institutions and
short term investments are made in investment grade securities to mitigate
exposure to credit risk. The Company had revenues from one customer during the
year ended September 30, 2000 that accounted for 79% of equipment sales and 25%
of trade accounts receivable as at September 30, 2000.
Foreign Currency Translation
The functional currency of the Company and its subsidiaries is the US dollar.
Assets and liabilities denominated in other than the US dollars are translated
using the exchange rates prevailing at the balance sheet date. Revenues and
expenses are translated using average exchange rates prevailing during the
period. Gains and losses on foreign currency transactions and translation are
recorded in the statements of operations.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
The Company expenses advertising costs as they are incurred. Advertising
expense is included in selling, general and administrative operating expenses
and amounts to $25,900 and $Nil in the years ended September 30, 2000 and 1999,
respectively.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. This statement provides for a liability approach
under which deferred income taxes are provided based on currently enacted tax
laws and rates. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amounts expected to be realized.
Segmented Information
Currently, the Company is principally engaged in providing data communications
solutions within North America. Accordingly, the Company considers itself to be
in a single industry and geographic segment. All of the Company's long lived
assets are owned by its wholly-owned subsidiary, Zed Data Systems Corp. which
operates exclusively in North America. The Company allocates revenue based on
the location of the customer, all of which are located in North America.
Stock-Based Compensation
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has accounted for employee stock options in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and has made the pro forma disclosures required by SFAS 123 in Note
13. Deferred compensation charges arise from those situations where options are
granted at an exercise price lower than the fair value of the underlying common
shares. These amounts are amortized as charges to operations over the vesting
periods of the individual stock options.
Loss Per Common Share
Basic earnings per share is computed by dividing the net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. For purposes of this calculation, since Series A Preferred
Stock and the Series B Preferred Stock issuable under the equity conversion
right are convertible into common shares, they have been considered common share
equivalents and reflected accordingly.
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company has no comprehensive income items, other than the net
loss in any of the periods presented.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The FASB subsequently issued SFAS No. 137 which delayed the
required effective date for adoption of SFAS No. 133 to fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 as amended by SFAS No.
137 in the first quarter of fiscal year 2001. The Company does not expect that
adoption of this standard will have a material effect on its consolidated
financial position or results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"), Accounting
for Certain Transactions Involving Stock Compensation. Effective July 1, 2000
with respect to certain provisions applicable to new awards, exchanges of awards
in a business combination, modifications to outstanding awards, and changes in
grantee status that occur on or after that date. FIN 44 addresses practice
issues related to the application of APB Opinion No. 25, Accounting for Stock
Issued to Employees. The application of FIN 44 did not have a material impact
on the Company's consolidated financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. The SAB provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Although SAB No. 101 does not change any of the existing
rules on revenue recognition, it draws upon existing rules and explains how the
SEC staff applies those rules, by analogy, to other transactions that existing
rules do not specifically address. SAB No. 101, as amended by SAB No. 101B,
becomes effective for the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. Company management believes that the adoption of SAB No. 101
does not have a significant effect on its consolidated results of operations and
financial position.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
3. BUSINESS ACQUISITIONS
Optica Communications International Inc.
Effective March 15, 2000, the Company acquired 100% of the issued and
outstanding common stock of Optica Communications International Inc., a British
Virgin Islands corporation ("Optica") and sole shareholder of Optica
Communications Inc., a British Columbia corporation, and Optica Communications
Inc., a Nevada incorporated company, both of which are start-up companies. The
shares of Optica were acquired in consideration for 450,000 shares of the
Company's Series A Convertible Preferred Stock, par value $0.001 per share
("Series A Preferred Stock"). Each Series A Preferred Stock is convertible into
185 shares of common stock and has 185 votes per Series A Preferred Stock. An
aggregate 83,250,000 shares of common stock are issuable upon conversion of all
of the Series A Preferred Stock. If converted, the holders of the Series A
Preferred Stock would own approximately 73% of the Company's outstanding common
stock based on the 30,522,703 common stock outstanding at the date of this
transaction. As the shareholders of Optica have the ability to control the
Company subsequent to the business combination, Optica was identified as the
acquirer in the business combination and the transaction has been accounted for
as a reverse acquisition under the purchase method of accounting. However, no
goodwill has been recorded as the Company was a non-operating public shell
corporation prior to March 15, 2000. Optica was incorporated on April 27, 1998.
Optica was dormant until the year ended September 30, 1999.
The purchase price of $70,634 represents the net tangible assets of the Company.
The total consideration was allocated based on estimated fair values of the
Company's assets and liabilities on the acquisition date as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents. . . . $ 409,066
Other assets . . . . . . . . . . 4,020,575
$ 4,429,641
------------
Less:
Current liabilities. . . . . . . $ (526,241)
Other liabilities. . . . . . . . (3,832,766)
$(4,359,007)
------------
Net identifiable assets acquired $ 70,634
============
</TABLE>
Zed Data Systems Corp.
Effective July 7, 2000, the Company acquired all of the issued and outstanding
common shares of Zed Data Systems Corp., a British Columbia, Canada corporation
("Zed") for the payment of a $5,000,000 promissory note and has agreed to
exchange 50,000 Class D Preferred shares of Zed for 50,000 Series B Preferred
shares of the Company at the option of the vendor. The Series B Preferred
shares are convertible into 15,000,000 common shares of the Company. This
conversion right has been valued at $22,218,750 and has been recorded as
Additional Paid-in Capital.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
3. BUSINESS ACQUISITIONS (CONTINUED)
Zed Data Systems Corp. (Continued)
Zed is a value added reseller of data communications equipment. This
acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Zed are included in the consolidated
statement of loss since the acquisition date, and the related assets and
liabilities were recorded based upon their respective fair values at the date of
acquisition. The total consideration was allocated based on estimated fair
values on the acquisition date as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets . . . . . . . . . $ 1,481,520
Other assets . . . . . . . . . . 124,902
------------
1,606,422
Less: Current liabilities . . . (1,485,513)
------------
Net identifiable assets acquired 120,909
Goodwill . . . . . . . . . . . . 27,097,841
------------
Purchase price . . . . . . . . . $27,218,750
============
</TABLE>
In connection with finalizing the purchase price allocation of this transaction,
the Company is currently evaluating the fair value of the assets acquired and
liabilities assumed. Using this information, the Company will make a final
allocation of the purchase price. Accordingly, the purchase accounting
information is preliminary.
Pro Forma Information
The following table presents the unaudited pro forma results of operations for
informational purposes, assuming InvestAmerica had acquired Zed Data and Optica
at the beginning of the 1999 fiscal year.
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------
2000 1999
------------ -------------
(unaudited)
<S> <C> <C>
Net revenues. . . . . $ 7,191,599 $ 1,888,956
Net Loss. . . . . . . $(6,265,018) $(12,890,013)
Basic loss per share. (0.06) (0.15)
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of goodwill. The information may not necessarily be
indicative of the future combined results of operations of InvestAmerica, Optica
and Zed.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
--------- ------
<S> <C> <C>
Trade accounts receivable . . . $451,082 $ -
Note receivable . . . . . . . . 9,462 -
Income taxes receivable . . . . 17,958 -
Other accounts receivable . . . 7,446 3,738
Allowance for doubtful accounts (80,977) -
--------- ------
Accounts receivable . . . . . . $404,971 $3,738
========= ======
</TABLE>
The note receivable does not bear interest and is unsecured.
5. LONG-TERM INVESTMENT
Pursuant to a subscription agreement between the Company and Omnigon
International Ltd. ("Omnigon"), a British Virgin Island International business
company, dated January 21, 2000, the Company agreed to purchase 833,333 shares
of Omnigon Class C Preferred Stock at US$6 per share for an aggregate purchase
price of $5,000,000. The Class C Preferred Stock is convertible at any time
into Common Stock of Omnigon on a 1-for-1 basis. In consideration, the Company
paid cash of $4,000,000 and issued a note payable dated April 10, 2000 for
$1,000,000 due June 9, 2000. Prior to September 30, 2000, at the request of the
Company, Omnigon returned and cancelled the note, leaving InvestAmerica owner of
666,667 shares of Class C Preferred Stock. Upon conversion into common shares,
the Company's interest in Omnigon is less than 5%. Omnigon is a private
development stage company and currently has no revenues operating in the
communications industry. As Omnigon is not a publicly traded company and
currently has no revenues, it is impracticable to determine the fair market
value of its shares. Management has the ability to and intends to hold these
shares for a period greater than one year.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
September 30,
2000
--------
<S> <C>
Cost:
Computer hardware. . . . . . . $101,309
Computer software. . . . . . . 8,668
Office furniture and equipment 28,168
$138,145
--------
Less accumulated depreciation:
Computer hardware. . . . . . . 8,181
Computer software. . . . . . . 2,032
Office furniture and equipment 1,558
--------
11,771
--------
Property and equipment, net. . $126,374
========
</TABLE>
7. GOODWILL
<TABLE>
<CAPTION>
September 30,
2000
------------
<S> <C>
Goodwill. . . . . . . . . . . . $27,097,841
Less: Accumulated amortization (1,354,892)
------------
Goodwill, net . . . . . . . . . $25,742,949
============
</TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities were as follows:
<TABLE>
<CAPTION>
September 30,
-----------------
2000 1999
-------- ------
<S> <C> <C>
Trade accounts payable. . . . . . . . . . . . . . . . $185,542 $4,627
Accrued compensation. . . . . . . . . . . . . . . . . 79,403 -
Accrued interest due to related parties (see Note 15) 323,112 -
-------- ------
Accounts payable and accrued liabilities. . . . . . . $588,057 $4,627
======== ======
</TABLE>
9. NOTES PAYABLE
<TABLE>
<CAPTION>
September 30,
2000
----------
<S> <C>
Smith Shelf Company Number 15 Ltd $3,930,635
Ewing Consulting Corp . . . . . . 703,275
Due to shareholder/director . . . 366,090
----------
5,000,000
Due to shareholder and director . 2,000,000
Global Futures Corporation. . . . 39,755
----------
Notes payable . . . . . . . . . . $7,039,755
==========
</TABLE>
The notes payable to Smith Shelf Company Number 15 Ltd. and Ewing Consulting
Corp., both related parties of the Company with a shareholder and director in
common, and the amount due to shareholder/director arose pursuant to the
purchase of Zed Data Systems Corp. (see Note 3). The notes are payable in 6
equal monthly installments, each such installment aggregating $715,000
commencing February 28, 2001, followed by one final installment aggregating
$710,000 on August 31, 2001. The notes bear interest at 12% per annum and are
secured by a security interest in the Company's assets including
shares of Zed common stock.
The note payable to a shareholder and director consists of a $2,000,000 note
bearing interest at 12% per annum, is unsecured and has no fixed repayment
terms.
The note payable to Global Futures Corporation, a related party of the Company
with a director in common, bears interest at 10% per annum, has no fixed
repayments terms, is unsecured and is due on demand.
10. DUE TO RELATED PARTY
In addition to the $2,000,000 note payable described above, an amount is due to
a shareholder and director of the Company in respect of expenses incurred by the
individual on behalf of InvestAmerica. The amount bears no fixed repayment
terms, does not bear interest and is unsecured.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities under operating leases. Future minimum
operating lease payments for the years ending September 30 are due as follows:
2001 $ 65,748
2002 66,190
2003 66,190
2004 55,160
------------
$ 253,288
============
Rent expense totaled approximately $20,959 for the year ended September 30, 2000
and $Nil for the year ended September 30, 1999.
Contingency
During fiscal 1999, a shareholder of the Company (the "Shareholder") obtained
two default judgments against the Company, one of which was for the payment of
money. The Shareholder alleges that the Company settled the matters addressed
in these two default judgments in a settlement agreement (the "First Settlement
Agreement") whereby the Company agreed to (i) issue common shares to the
Shareholder such that he would then own 95% of the total amount of issued and
outstanding common shares; (ii) deem the Shareholder the rightful owner of
certain common shares issued by Fidelity Holdings, Inc.(the "Fidelity Shares")
and certain royalties owed by a third party (the "Royalties"); and (iii)
recognize the Shareholder as the Company's sole director and Chief Executive
Officer.
The Company claims that the First Settlement Agreement was obtained without
management's knowledge Upon becoming aware of the First Settlement Agreement,
the Company entered into a second settlement agreement (the "Second Settlement
Agreement") with the Shareholder in which the Shareholder relinquished his
claims to the matters established in the First Settlement Agreement in exchange
for (i) 4,740,000 common shares of the Company (the "Settlement Shares"); and
(ii) the Company's agreement that the Shareholder is the rightful owner of the
Fidelity Shares and the Royalties. The financial statements have been presented
to reflect the Second Settlement Agreement.
Subsequent to the date of the Second Settlement Agreement, the Company issued
the Settlement Shares. The certificate evidencing the Settlement Shares had a
restrictive legend on it. The Shareholder arranged for the Court to require the
Company to re-issue the Settlement Shares without any restrictive legend. The
Company alleges that it did not receive notice of the hearing on this matter and
that the Court's order with respect to it was obtained improperly.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Contingency (continued)
The Shareholder has also sued Fidelity Holdings, Inc. in a separate action in
United States District Court, in which ownership of the Fidelity Shares is an
issue. The Shareholder takes the position in this action that the Second
Settlement Agreement does not bind him. The Company has entered an appearance
in this action to assert that if the Second Settlement Agreement does not apply
to the Shareholder, then the Company asserts ownership to the Fidelity Shares.
Management is uncertain as to the resolution of this matter at this time.
12. SHAREHOLDERS' EQUITY (DEFICIT)
(a) Series A Preferred Stock
Series A Preferred Stock carry rights to receive cumulative dividends, are
voting and are convertible into 185 shares of Common Stock at the option of the
holder at any time, subject to adjustment under certain circumstances. The
Company requires the affirmative consent of two-thirds of the Series A Preferred
Stockholders prior to liquidation, selling principle assets, merging or
consolidated the Company, declaring dividends, or making changes in the
authorized capital stock of the Company or issuing additional preferred shares.
The Company may, at its option, require all Series A Preferred Stockholders to
convert their shares of Series A Preferred Stock into shares of Common Stock at
any time on or after the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933 of the United States, as amended, resulting in at least
$50 million of gross proceeds to the Company, or the closing by the Company of a
merger or reorganization pursuant to which the Company is not the entity
surviving such merger or reorganization. In the event of a liquidation,
dissolution or winding up of the Company, Series A Preferred Stockholders will
be entitled to an amount equal to $0.10 per share, before payment has been made
to Series B Preferred Stockholders. The Company issued 450,000 Series A
Preferred Stock during the year (See Note 3).
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
12. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(b) Series B Preferred Stock
Series B Preferred Stock carry rights to receive cumulative dividends, are
voting and are convertible into 300 shares of Common Stock at the option of the
holder at any time, subject to adjustment under certain circumstances. The
Company requires the affirmative consent of two-thirds of the Series B Preferred
Stockholders prior to liquidation, selling principle assets, merging or
consolidated the Company, declaring dividends, or making changes in the
authorized capital stock of the Company or issuing additional preferred shares.
The Company may, at its option, require all Series B Preferred Stockholders to
convert their shares of Series B Preferred Stock into shares of Common Stock at
any time on or after the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933 of the United States, as amended, resulting in at least
$50 million of gross proceeds to the Company, or the closing by the Company of a
merger or reorganization pursuant to which the Company is not the entity
surviving such merger or reorganization. In the event of a liquidation,
dissolution or winding up of the Company, Series B Preferred Stockholders will
be entitled to an amount equal to $0.10 per share, after payment has been made
to Series A Preferred Stockholders. The Company designated and reserved for
issuance 50,000 Series B Preferred Stock during the year ended September 30,
2000 (See Note 3).
(c) Share Purchase Warrants
As part of stock financing, the Company has issued 170,957 share purchase
warrants pursuant to which the holder is given the right to purchase 170,957
common shares at prices ranging from $0.30 to $1.25 per share. The right to
exercise these warrants vests immediately and are exercisable for one year from
the date of issuance.
(d) Equity Conversion Right
In consideration for the acquisition of Zed (see Note 3), the Company granted
the right to exchange 50,000 Class D preferred shares of Zed for 50,000 Series B
preferred shares of InvestAmerica at the option of the vendor. The conversion
right has been valued at $22,218,750, the value attributable to the shares as at
the date of acquisition.
13. STOCK BASED COMPENSATION
Employee Stock Option Plan
Under the terms of the Incentive Stock Option Plan, the Board of Directors may
grant incentive and non-qualified stock options to employees, officers,
directors, independent consultants and contractors of InvestAmerica and its
subsidiaries. Generally, the Company grants stock options with exercise prices
equal to the quoted market value of the common share on the date of grant, as
determined by the Board of Directors. Options generally vest over a two to four
year period, but the Board of Directors may provide for different vesting
schedules in particular cases. Option terms cannot exceed five years from the
date of grant.
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
13. STOCK BASED COMPENSATION (CONTINUED)
Employee Stock Option Plan (Continued)
A summary of stock option activity and information concerning currently
outstanding and exercisable options is as follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Options Number of Average
Available Common Exercise
for Grant Shares Price
------------ ---------- ------
<S> <C> <C> <C>
Balance, September 30, 1999 - - -
Options authorized. . . . . 20,000,000 - -
Options granted . . . . . . (10,600,000) 10,600,000 2.69
------------ ---------- ------
Balance, September 30, 2000 9,400,000 10,600,000 $ 2.69
============ ========== ======
</TABLE>
The following tables summarize information concerning outstanding and
exercisable options at September 30, 2000:
<TABLE>
<CAPTION>
Options Exercisable
--------------------
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
per Share Outstanding (in years) per Share Exercisable per Share
---------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.20. . . 6,150,000 4.2 $ 1.20 2,460,000 $ 1.20
$ 1.41. . . 715,000 4.8 $ 1.41 39,722 $ 1.41
$ 5.25. . . 3,000,000 4.4 $ 5.25 840,000 $ 5.25
$ 5.94. . . 735,000 4.6 $ 5.94 147,000 $ 5.94
----------- ---------- ----------- ---------- ------------
$ 1.20-5.94 10,600,000 $ 2.69 3,486,722 $ 2.38
========== ========== ============ =========== ============
</TABLE>
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
13. STOCK BASED COMPENSATION (CONTINUED)
Share-Based Compensation
The Company issued 300,000 common shares to employees during the year. The fair
value of these shares, $1,575,000, has been charged to income as compensation
expense and included in selling, general and administrative costs during the
year.
Under APB Opinion No. 25, because the exercise price of the Company's stock
options granted to employees generally equals the fair value of the underlying
stock on the date of grant, no compensation expense is recognized. Deferred
compensation expense of $3,760,730 was recorded during 2000 for those options
granted to consultants. The deferred compensation is being amortized over the
vesting period of the underlying options. Amortization of the deferred
share-based compensation balance of $3,020,187 at September 30, 2000 will be
$1,788,456, $1,200,121 and $31,001 during the fiscal years ending September 30,
2001, 2002 and 2003, respectively. An alternative method of accounting for
stock options is SFAS No. 123, Accounting for Stock-Based Compensation. Under
SFAS No. 123, employee stock options are valued at the grant date using the
Black-Scholes valuation model and the resultant compensation cost is recognized
ratably over the vesting period. Had compensation cost for the Company's share
option plan been determined based on the Black-Scholes value at the grant dates
for awards as prescribed by SFAS No. 123, pro forma net loss and net loss per
share would have been as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
2000 1999
------------ --------
<S> <C> <C>
Net income (loss)
As reported. . . . . . . . . . . . . . . . $(4,840,861) $(4,559)
SFAS No. 123 pro forma . . . . . . . . . . $(8,793,157) $(4,559)
Basic and diluted earnings (loss) per share
As reported. . . . . . . . . . . . . . . . $ (0.05) $ (0.00)
SFAS No. 123 pro forma . . . . . . . . . . $ (0.09) $ (0.00)
</TABLE>
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
13. STOCK BASED COMPENSATION (CONTINUED)
Share-Based Compensation (Continued)
Compensation expense recognized in providing pro forma disclosures may not be
representative of the effects on pro forma earnings for future years since SFAS
No. 123 applies only to options granted after 1996. The weighted average
Black-Scholes option pricing model value of options granted under the share
option plan during the year ended September 30, 2000 was $1.03 per share. The
fair value for these options was estimated at the date of grant using the
following weighted average assumptions:
<TABLE>
<CAPTION>
September 30,
-----------------
2000 1999
---------- -----
<S> <C> <C>
Assumptions
Volatility factor of expected
market price of the Company's shares. . . . . . . . . 203% 0.0%
Dividend yield. . . . . . . . . . . . . . . . . . . . . 0.0% 0.0%
Weighted average expected life of stock options (years) 5.0 years N/A
Risk free interest rate . . . . . . . . . . . . . . . . 7.0% N/A
</TABLE>
14. INCOME TAXES
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income tax
reporting purposes. Significant components of the Company's deferred tax assets
and liabilities as of September 30, 2000 are as follows:
<TABLE>
<CAPTION>
September 30,
-------------------
2000 1999
------------ -----
<S> <C> <C>
Deferred income tax assets
Net operating tax loss carry-forwards. . . . . . . $ 1,599,811 $ -
Book and tax base differences on assets. . . . . . 7,050 -
------------ -----
Total deferred income tax assets . . . . . . . . . 1,606,861 -
Total deferred income tax liabilities. . . . . . . - -
Valuation allowance for deferred income tax assets (1,606,861) -
------------ -----
Net deferred income tax assets . . . . . . . . . . $ - $ -
============ =====
</TABLE>
<PAGE>
INVESTAMERICA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
14. INCOME TAXES (CONTINUED)
Due to the uncertainty surrounding the realization of the deferred income tax
assets in future income tax returns, the Company has a recognized 100% valuation
allowance against its deferred income tax assets.
As of September 30, 2000, the Company has tax loss carry-forwards of
approximately $4,424,108 available to reduce future years' income for tax
purposes. These carry-forward losses expire in 2006.
15. RELATED PARTY TRANSACTIONS
The Company made interest payments to Ewing Consulting Corp. ("Ewing") of $211
and principal repayments in respect of notes and loans payable to Ewing of
$27,483. The Company has a note payable to Ewing with principle balance of
$703,275 with accrued interest thereon of $20,116 outstanding at year end. The
Company paid $6,770 in management fees to Ewing during the year.
The Company has a note payable to Smith Shelf Company Number 15 Ltd. with a
principal balance of $3,930,635 with accrued interest thereon of $112,427
outstanding at year end.
The Company has a note payable to one of its major shareholders and director
with a principal balance of $366,090 with accrued interest thereon of $10,471
outstanding at year end.
The Company has a note payable to another major shareholder and director with a
principal balance of $2,000,000 with accrued interest thereon of $200,214
outstanding at year end. The Company owes the same shareholder $2,268,345 at
year end.
The Company paid a director $6,000 for consulting services during the year.
16. SUBSEQUENT EVENTS
The Board of Directors of the Company approved an amendment to the Company's
Articles of Incorporation to increase the number of authorized common stock from
50,000,000 shares to 200,000,000 shares, and such amendment was approved by the
stockholders of the Company at a Special Meeting of Shareholders held on October
27, 2000. The amendment to the Company's Articles of Incorporation was filed on
November 29, 2000, and accordingly as at December 15, 2000, the Company has an
authorized share capital of 200,000,000 common stock.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In December, 2000, we decided to engage new auditors as our independent
accountants to audit our financial statements. Our Board of Directors approved
the change of accountants to Deloitte & Touche, LLP on December 28, 2000.
During our two most recent fiscal years, and any subsequent interim periods
preceding the change in accountants, there were no disagreements with Braverman
& Company, Certified Public Accountants, on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope procedure. The
report on the financial statements prepared by Braverman & Company, Certified
Public Accountants, for either of the last two years did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principals. The decision to change
accountants was based on the determination by our Board of Directors that such a
step was necessary before proceeding with our reapplication for a Nasdaq
SmallCap market listing.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
All of our directors serve until the next annual general meeting of
stockholders and until their successors are elected and qualified, or until the
earlier of death, retirement, resignation or removal. Subject to any applicable
employment agreement, our executive officers serve at the discretion of the
Board of Directors, and are appointed to serve until the first Board of
Directors meeting following the annual meeting of stockholders.
Our directors, executive officers and other significant employees, their
ages, positions held and duration as such, are as follows:
<TABLE>
<CAPTION>
DATE FIRST
NAME POSITION HELD WITH THE COMPANY AGE ELECTED OR APPOINTED
--------------------------------- --------------------------------------- --------------------------- --------------------
<S> <C> <C> <C>
Douglas Smith President, Chief Executive Officer Appointed to all offices
and Chairman of the Board of Directors 45 October 21, 1999
--------------------------------- --------------------------------------- --------------------------- --------------------
Brian Kitts Secretary, Treasurer and Director 45 Director since October 11,
1997. President, Secretary
and Treasurer since
October 11, 1999
--------------------------------- --------------------------------------- --------------------------- --------------------
Ernst H. Gemassmer Executive Vice President and Director 59 Director since November
24, 1999. Executive
Vice President since
January 2, 2001
--------------------------------- --------------------------------------- --------------------------- --------------------
Fred F. Fierling Director 45 November 24, 1999
--------------------------------- --------------------------------------- --------------------------- --------------------
Rickart A. Connole Vice President, Business Development 56 July 24, 2000
--------------------------------- --------------------------------------- --------------------------- --------------------
Neil Wieler Director of Technology (Optica) 52 March 6, 2000
--------------------------------- --------------------------------------- --------------------------- --------------------
<PAGE>
Merlin D. Mott Systems Engineer and Manager of 28 January 2, 1996
Technical Services (Zed)
--------------------------------- --------------------------------------- --------------------------- --------------------
Shoni Bernard Secretary of Zed 42 December 15, 1998
--------------------------------- --------------------------------------- --------------------------- --------------------
</TABLE>
The following is a brief account of the business experience during at least
the past five years of each director, executive officer and key employee,
indicating the principal occupation during that period, and the name and
principal business of the organization in which such occupation and employment
were carried out.
Douglas Smith - President, Chief Executive Officer and Chairman of the Board of
Directors
Doug Smith is our President, CEO, director and Chairman of our Board of
Directors and a co-founder (1980) of Zed. He is also CEO and President of
Pacific Bancorp Inc. (June 1993 to present), a venture capital and merchant
banking company. He is a member of the Law Society of British Columbia.
He obtained a Bachelor of Arts (Honors) in Economics from the University of
Calgary and a Bachelor of Laws from the University of British Columbia.
Brian A. Kitts - Secretary, Treasurer and Director
Brian A. Kitts is our Secretary, Treasurer and a director. He was our
President until we acquired all the issued and outstanding shares of Optica.
Mr. Kitts was a consultant for various clients and manufacturers from 1995 to
1999. Mr. Kitts founded and was the President of Beechwood Design in 1983, a
private company specializing in store fixture design and manufacturing. He
built Beechwood Design from 4 employees and $300,000 in revenue in 1983 to 140
employees and $7,000,000 in revenues in 1995, at which time he sold the company.
He acquired an interest in our company in December of 1997.
Mr. Kitts is currently an industry consultant for various clients and
manufacturers. He obtained his Architectural Design degree in 1975.
Ernst H. Gemassmer - Executive Vice-President and Director
Ernst Gemassmer was formerly Vice President and general manager of Fujitsu
Software, a large software company. From 1994 to 1997, Mr. Gemassmer was
president of Navtech International, a division of Navigation Technologies Inc.
From 1991 to 1998, Mr. Gemassmer was Senior Vice President of Novell Inc. and
from 1984 to 1987 he was the Vice President International of Micom Systems, a
company involved in data communication products. He has also held various other
positions and has acted as a consultant with other high tech companies including
Adaptec Inc., Tektronix and A. B. Dick.
Mr. Gemassmer holds a Bachelor of Science Degree in Chemistry from the
University of Pittsburgh, a Masters Degree in Economics from the Fletcher School
of Law and Diplomacy (Tufts University), and a Masters of Business
Administration from INSEAD in Fontainebleau, France.
On January 4, 2001, an event subsequent to the fiscal year ended September
30, 2000, we announced the appointment of Mr. Gemassmer as our Executive Vice
President.
<PAGE>
Fred F. Fierling - Director
Fred Fierling is President of Microplex Systems Ltd., a privately held
manufacturer of networking equipment. Mr. Fierling co-founded Microplex in 1978
and has assumed a wide variety of roles as that company grew to its present
size. In 1989, he designed the A100, an integrated circuit that formed the
basis of a line of local area networking equipment and resulted in Microplex's
entry into the local area-networking field. He subsequently oversaw the
development of the industry's first low cost TCP/IP based print server.
Rickart A. Connole - Vice President, Business Development
Mr. Connole is our Vice President for Business Development. He is
responsible for business development activities including fund raising, business
plan development, strategic relationships and corporate development. Mr.
Connole has over thirty years of experience in business development, venture
capital, finance, accounting, corporate administration and computer systems.
Before joining our company, he acted as the chief financial officer for a number
of start-up and expanding companies. He obtained his Bachelor of Science Degree
and his Masters of Business Administration from Syracuse University and is
licensed as a Certified Public Accountant in New York.
Neil Weiler - Director of Technology (Optica Communications International Inc.)
Mr. Weiler is the Director of Technology Development for Optica. He has
executive management experience complemented by a strong technical background.
He began his career in large corporate network design, then progressed to senior
account management with Sprint Canada, 3Com Corporation and Marconi
Communications (formerly FORE Systems).
Merlin D. Mott - Systems Engineer and Manager of Technical Services (Zed Data
Systems Corp.)
Mr. Mott is a Systems Engineer and Manager of Technical Services for Zed.
He is qualified as a Cisco Certified Network Associate and Cisco Certified
Design Associate, and has experience in local area network and wide area network
integration, planning and implementation. Mr. Mott has a strong technical
background, and began his career in hardware and software support and
maintenance with Kroll Computer Systems Inc. in 1995.
Shoni Bernard - Secretary (Zed Data Systems Corp.)
Shoni Bernard is a practising lawyer at Smith & Company in Burnaby, British
Columbia. Ms. Bernard was called to the British Columbia Bar in 1983 and has
been in private practice since that date. Her primary practice areas are
residential real estate, corporate law and commercial law. Ms. Bernard has a
Bachelor of Social Sciences and a Bachelor of Laws from the University of
Ottawa.
Family Relationships
There are no family relationships among directors, executive officers, or
persons nominated or chosen by the Company to become directors or executive
officers.
Involvement in Certain Legal Proceedings
During the last five years, none of our directors, executive officers or
control persons have been:
- a party to a bankruptcy proceeding by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
- convicted in a criminal proceeding or is subject to a pending criminal
proceeding;
- subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; or
<PAGE>
- found by a court of competent jurisdiction (in a civil action), the SEC or
the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.
Compliance with Section 16(a) of the Securities Act
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's Common Shares to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of Common
Shares and other equity securities of the Company, on Form 3, 4 and 5
respectively. Executive officers, directors and greater than 10% shareholders
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file.
To the best of our knowledge, all executive officers, directors and greater
than 10% shareholders filed the required reports in a timely manner, with the
exception of the following:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF TRANSACTIONS NOT FAILURE TO FILE
NAME LATE REPORTS REPORTED ON A TIMELY BASIS REQUESTED FORMS
------------------------ ------------- --------------------------- ----------------
<S> <C> <C> <C>
Doug Smith . . . . . . . Nil 1(1) 1(1)
------------- --------------------------- ----------------
Brian Kitts. . . . . . . Nil Nil Nil
------------- --------------------------- ----------------
Fred Fierling. . . . . . 1(2) Nil Nil
------------- --------------------------- ----------------
Ernst Gemassmer. . . . . 1(2) Nil Nil
------------- --------------------------- ----------------
Crystsal Marriott S.A. . Nil 1(1) 1(1)
------------- --------------------------- ----------------
Russells Systems Limited Nil 1(1) 1(1)
------------- --------------------------- ----------------
Virgil Securities S.A. . Nil 1(1) 1(1)
------------- --------------------------- ----------------
Winjoy Services Centre
Limited. . . . . . . . . Nil 1(1) 1(1)
------------------------ ------------- --------------------------- ----------------
<FN>
(1) The named officer, director or greater than 10% shareholder, as applicable,
did not file a Form 3 - Initial Statement of Beneficial Ownership. However, the named
officer, director or greater than 10% shareholder subsequently filed a Form 5 - Annual
Statement of Changes in Beneficial Ownership.
(2) The named directors filed late a Form 3 - Initial Statement of Beneficial
Ownership.
</TABLE>
Meetings and Committees of the Board of Directors
During the fiscal year ended September 30, 2000, the Board of Directors
held seven (7) meetings. All of the directors serving on the Board of Directors
at the time of each of those meetings attended the meetings. Most of the Board
of Directors' actions are conducted by written consent resolution after the
directors have discussed the proposed action.
For the fiscal year ended September 30, 2000, the only standing committees
of the Board of Directors were the audit committee and compensation committee.
The audit committee is comprised of Fred Fierling, Ernst Gemassmer and Brian
Kitts. The compensation committee is comprised of Fred Fierling and Ernst
Gemassmer. There were no meetings of the audit committee or the compensation
committee during the fiscal year ended September 30, 2000.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Employment Agreements
Lyle Kerr
On February 8, 2000, our subsidiary Optica entered into an employment
agreement with Lyle Kerr, pursuant to which Mr. Kerr is currently employed as
General Manager of Optica. The agreement continues until it is otherwise
terminated. The agreement may be terminated with or without cause by either
party. If Optica terminates the agreement without cause, Mr. Kerr is entitled
to payment of a separation allowance equivalent to one year's base salary,
currently CDN $120,000 (approximately $80,000). If the agreement is terminated
for cause, Mr. Kerr is not entitled to a separation allowance. Mr. Kerr's
annual salary is currently CDN $120,000 (approximately $80,000). The agreement
also provided for a signing bonus of 100,000 shares of our common stock, which
vested over 10 weeks in the amount of 10,000 per week, options to purchase up to
an aggregate of 1,000,000 shares of our common stock at a price of $5.25 per
share for 5 years, such options vesting in the amount of 40,000 per month for 25
months, and various other benefits.
Neil Wieler
On February 8, 2000, our subsidiary Optica entered into an employment
agreement with Neil Wieler, pursuant to which Mr. Wieler is currently employed
as Director of Technology Development for Optica. The agreement continues until
it is otherwise terminated. The agreement may be terminated with or without
cause by either party. If Optica terminates the agreement without cause, Mr.
Wieler is entitled to payment of a separation allowance equivalent to one year's
base salary, currently CDN $120,000 (approximately $80,000). If the agreement
is terminated for cause, Mr. Wieler is not entitled to a separation allowance.
Mr. Wieler's annual salary pursuant to the agreement is currently CDN $120,000
(approximately $80,000). The agreement also provided for a signing bonus of
100,000 shares of our common stock, which vested over 10 weeks in the amount of
10,000 per week, options to purchase up to an aggregate of 1,000,000 shares of
our common stock at a price of $5.25 per share for 5 years, such options vesting
in the amount of 40,000 per month for 25 months, and various other benefits.
Jim Duncan
On February 8, 2000, our subsidiary Optica entered into an employment
agreement with Jim Duncan, pursuant to which Mr. Duncan is currently employed as
Director of Sales and Marketing for Optica. The agreement continues until it is
otherwise terminated. The agreement may be terminated with or without cause by
either party. If Optica terminates the agreement without cause, Mr. Duncan is
entitled to payment of a separation allowance equivalent to one year's base
salary currently CDN $120,000 (approximately $80,000). If the agreement is
terminated for cause, Mr. Duncan is not entitled to a separation allowance. Mr.
Duncan's annual salary pursuant to the agreement is currently CDN $120,000
(approximately $80,000). The agreement also provided for a signing bonus of
100,000 shares of our common stock, which vested over 10 weeks in the amount of
10,000 per week, options to purchase up to an aggregate of 1,000,000 shares of
our common stock at a price of $5.25 per share for 5 years, such options vesting
in the amount of 40,000 per month for 25 months, and various other benefits.
Rick Connole
On July 20, 2000, we entered into an employment agreement with Rick
Connole, pursuant to which Mr. Connole is currently employed as an independent
contractor in the position of Vice President of Business Development. The
agreement continues for a 3 year term effective July 24, 2000. The agreement
may be terminated with or without cause by either party with 30 days' written
notice to the other party. Mr. Connole will be paid a commission on any
financing concluded by us of which Mr. Connole is demonstrably the cause at a
rate ranging from 5% of the amount financed where we are not required to pay a
commission to any third party, to 2% of the amount financed where we are
required to pay a commission to a third party. The commission is payable, at
our option, in shares of our common stock. In addition, if Mr. Connole is
required to perform certain services other than corporate finance, he will be
paid at the rate of $100 per hour ($1,000 per day maximum), plus approved travel
and other expenses. The agreement also provides for options to purchase up to
an aggregate of 100,000 shares of our
<PAGE>
common stock at a price of $1.41 per share for 3 years, such options vesting in
equal monthly increments over 36 months.
Mark Nomura
On September 8, 2000, our subsidiary Optica entered into an employment
agreement with Mark Nomura, pursuant to which Mr. Nomura is currently employed
as Director of Technology - Customer Connectivity, effective September 29, 2000.
Mr. Nomura's annual salary pursuant to the agreement is currently CDN $120,000
(approximately $80,000). The agreement also provides for options to purchase up
to an aggregate of 120,000 shares of our common stock at a price of $0.66 per
share, such options vesting in equal monthly increments over 24 months, and
various other benefits, which options we are yet to issue.
Consultants
We have entered into an oral agreement with Doug Thomas pursuant to which
Mr. Thomas provides investor relation services. We pay Mr. Thomas CDN$3,000 per
month (approximately $2,000) for these services.
We have also entered into an oral agreement with Eric Turcotte pursuant to
which he provides us with financial consulting services. We pay Mr. Turcotte
CDN$125 (approximately $83) per hour for these services.
Summary of Compensation of Executive Officers
The following table summarizes the compensation we paid for the fiscal
years ended September 30, 2000, September 30, 1999 and September 30, 1998 to the
Chief Executive Officer, the other four most highly compensated executive
officers, and up to two additional individuals for whom disclosure would be
required but for the fact that the individuals were not serving as an executive
officer at the end of September 30, 2000, who received a total annual salary
(including bonus) in excess of $100,000.
<TABLE>
<CAPTION>
LONG TERM PAY-
ANNUAL COMPENSATION COMPENSATION(1) OUTS
--------------------------------------------------------------------------------------------------------------------------------
SECURITIES
OTHER UNDER RESTRICTED
ANNUAL OPTIONS/ SHARES OR LTIP
NAME AND PRINCIPAL COMPEN- SAR'S RESTRICTED PAY-
POSITION YEAR SALARY BONUS SATION(4) GRANTED SHARE UNITS OUTS
------------------- ---------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas Smith 2000 $ Nil N/A N/A 2,800,000(7) N/A N/A
President, 1999 $ Nil N/A N/A N/A N/A N/A
CEO and Director 1998 $ N/A N/A N/A N/A N/A N/A
Lyle Kerr 2000 $80,000(2) $525,000(4) N/A 1,000,000(8) N/A N/A
General Manager of 1999 N/A N/A N/A N/A N/A N/A
Optica 1998 N/A N/A N/A N/A N/A N/A
Neil Wieler
Director of 2000 $80,000(2) $525,000(5) N/A 1,000,000(9) N/A N/A
Technology 1999 N/A N/A N/A N/A N/A N/A
Development for 1998 N/A N/A N/A N/A N/A N/A
Optica
Jim Duncan 2000 $ 80,000(2) $525,000(6) N/A 1,000,000(10) N/A N/A
Director of Sales and 1999 N/A N/A N/A N/A N/A N/A
Marketing for Optica. 1998 N/A N/A N/A N/A N/A N/A
<S> <C> <C> <C> <C> <C>
NAME AND ALL OTHER
PRINCIPAL COMPENSATION
POSITION -------------
Douglas Smith $N/A
President, N/A
CEO and Director N/A
Lyle Kerr $8,000(11)
General Manager of N/A
Optica N/A
Neil Wieler
Director of
Technology $8,000(11)
Development for N/A
Optica N/A
Jim Duncan $8,000(11)
Director of Sales and N/A
Marketing for Optica N/A
<PAGE>
<FN>
(1) Other than as indicated below, the Company has not granted any restricted shares or restricted share units, stock
appreciation rights or long term incentive plan payouts to the Chief Executive Officer, other executive officers and directors
during the fiscal years indicated.
(2) The salary amounts are paid in Canadian dollars ($120,000 per year) and are stated in approximate US dollar amounts.
(3) The value of perquisites and other personal benefits, securities and property for the Chief Executive Officer and other
executive officers and directors that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus,
are not reported herein.
(4) Lyle Kerr received a signing bonus of 100,000 shares of common stock valued at $525,000 in connection with the execution
of his employment agreement.
(5) Neil Wieler received a signing bonus of 100,000 shares of common stock valued at $525,000 in connection with the
execution of his employment agreement.
(6) Jim Duncan received a signing bonus of 100,000 shares of common stock valued at $525,000 in connection with the
execution of his employment agreement.
(7) Doug Smith was granted options to purchase up to 2,800,000 shares of our common stock at the exercise price of $1.20 per
share on November 24, 1999. The options expire 5 years from the date of grant and vest monthly over 25 months.
(8) Lyle Kerr was granted options to purchase up to 1,000,000 shares of our common stock at the exercise price of $5.25 per
share on February 8, 2000. The options vest monthly over 25 months and expire February 7, 2005.
(9) Neil Wieler was granted options to purchase up to 1,000,000 shares of our common stock at the exercise price of $5.25
per share on February 8, 2000. The options vest monthly over 25 months and expire February 7, 2005.
(10) Jim Duncan was granted options to purchase up to 1,000,000 shares of our common stock at the exercise price of $5.25
per share on February 8, 2000. The options vest monthly over 25 months and expire February 7, 2005.
(11) This $8,000 is paid as a car allowance.
</TABLE>
Option Grants in Fiscal 2000
We established the 1999 Stock Option Plan (the "1999 Plan") to serve as a
vehicle to attract, motivate and retain the services of key employees,
consultants, executive officers, officers, directors and outside directors to
encourage stock ownership by eligible participants. The 1999 Plan is
administered by our Board of Directors and/or by a duly appointed committee of
our Board of Directors. The 1999 Plan provides for the grant of options to
purchase up to 20,000,000 shares of our common stock. The options may be
comprised of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and non-incentive stock options. The
per share option exercise price shall be determined by our Board of Directors.
The exercise price for each incentive stock option shall be not less than 100%
of the fair market value of the common stock on the date the option is granted.
The exercise price for each incentive stock option granted to a participant who,
at the time of the grant, owns stock possessing more than 10% of the total
combined voting power of all classes of our stock, shall be not less than at
least 110% of the fair market value of the common stock on the date the option
is granted. Options granted under the 1999 Plan shall be exercisable only for
so long as the participant has the same relationship as an employee, consultant,
executive officer, director or outside director as the participant had when the
option was granted, but in any event not longer than 5 years after the date the
option is granted. The Board may from time to time suspend, terminate or amend
the 1999 Plan.
On November 24, 1999, our Board of Directors approved the grant of options
to 1 employee, 1 consultant and 4 directors and officers to purchase up to an
aggregate of 6,150,000 shares of our common stock at the exercise price of $1.20
per share (the market price on the date of grant) for a 5 year term, vesting
monthly over 25 months. On February 8, 2000, our Board of Directors approved
the grant of options to 3 employees to purchase up to an aggregate of 3,000,000
shares of our common stock at the exercise price of $5.25 per share (the market
price on the date of grant) for a 5 year term, vesting monthly over 25 months.
On April 6, 2000, our Board of Directors approved the grant of options to 1
employee and 1 consultant to purchase up to an aggregate of 735,000 shares of
our common stock at the exercise price of $5.94 per share (the market price on
the date of grant) for a 5 year term, of which 10,000 options vested on April 6,
2000, and 725,000 options vest monthly over 25 months. On July 21, 2000, our
Board of Directors approved the grant of options to 14 employees to purchase up
to an aggregate of 715,000 shares of our common stock at the exercise price of
$1.41 per share (the market price on the date of grant) for a 5 year term, of
which 620,000 options vest over a period of 5 years as to 25% in 12 months with
the balance at 1/36 each month, and 100,000 options vest over 3 years at 1/36
per month. On December 7, 2000, our Board of Directors approved the grant of
options to 5 employees and 1 consultant to purchase up to an aggregate of
1,755,000
<PAGE>
shares of our common stock at the exercise price of $0.66 per share (the market
price on the date of grant) for a 5 year term, vesting monthly over 24 months.
At December 31, 2000, none of the options have been exercised.
There were no grants of stock options or stock appreciation rights made
during the fiscal year ended September 30, 2000 to our executive officers and
directors except as set out below:
<TABLE>
<CAPTION>
OPTIONS GRANTED IN THE CURRENT YEAR
(through September 30, 2000)
NUMBER OF SHARES % OF TOTAL MARKET
OF COMMON STOCK OPTIONS GRANTED EXERCISE PRICE
UNDERLYING OPTIONS TO EMPLOYEES OR BASE PRICE ON DATE EXPIRATION
NAME GRANTED IN 2000 IN 2000(1) ($/SHARE) OF GRANT DATE
---------------------- ------------------- ---------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Doug Smith,
President, CEO and . . November 23,
director . . . . . . . 2,800,000 26% $ 1.20 $ 1.20 2004
------------------- ---------------- --------------- --------- ----------
Brian Kitts,
Secretary, Treasurer . November 23,
and director . . . . . 1,750,000(2) 17% $ 1.20 $ 1.20 2004
------------------- ---------------- --------------- --------- ----------
Fred Fierling, . . . . November 23,
director . . . . . . . 725,000 6.84% $ 1.20 $ 1.20 2004
------------------- ---------------- --------------- --------- ----------
Ernst Gemassmer,
Executive Vice . . . . November 24,
President and director 725,000(3) 6.84% $ 1.20 $ 1.20 2004
------------------- ---------------- --------------- --------- ----------
Lyle Kerr,
General Manager of . . February 7,
Optica . . . . . . . . 1,000,000(3) 10.6% $ 5.25 $ 5.25 2005
------------------- ---------------- --------------- --------- ----------
Neil Wieler,
Director of
Technology
Development for. . . . February 7,
Optica . . . . . . . . 1,000,000(3) 10.6% $ 5.25 $ 5.25 2005
------------------- ---------------- --------------- --------- ----------
Jim Duncan,
Director of Sales and
Manufacturing for. . . February 7,
Optica . . . . . . . . 1,000,000(3) 10.6% $ 5.25 $ 5.25 2005
---------------------- ------------------- ---------------- --------------- --------- ----------
<FN>
(1) The total number of options to purchase shares of our common stock granted to employees,
directors, officers and consultants to September 30, 2000 was 10,600,000 options.
(2) On December 7, 2000 (a subsequent event to the year ended September 30, 2000), we granted
options to purchase up to 5,000,000 shares of our common stock at the exercise price of $0.66 per
share. The options expire in 5 years. Mr. Kitts received 3,500,000 options, James Duncan received
500,000 options, Lyle Kerr received 500,000 options and Neil Wieler received 500,000 options.
(3) On January 2, 2001 (a subsequent event to the year ended September 30, 2000), Mr. Gemassmer
was granted options to purchase up to 350,000 shares of our common stock at the exercise price of
$0.50 per share. The options expire in 5 years and vest over a period of 24 months.
</TABLE>
<PAGE>
For the fiscal year ended September 30, 2000, no stock options or SAR's
were exercised by our executive officers.
Director Compensation
We did not pay director's fees or other cash compensation for services
rendered as a director in the year ended September 30, 2000.
We have no formal plan for compensating our directors for their service in
their capacity as directors although such directors are expected to receive in
the future options to purchase shares of common stock as awarded by our Board of
Directors or (as to future options) a compensation committee which may be
established in the future. Directors are entitled to reimbursement for
reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of our Board of Directors. The Board of Directors may
award special remuneration to any director undertaking any special services on
our behalf other than services ordinarily required of a director. Other than
indicated below, no director received and/or accrued any compensation for his or
her services as a director, including committee participation and/or special
assignments.
There are no arrangements or plans in which we provide pension, retirement
or similar benefits for directors or executive officers, except that our
directors and executive officers may receive stock options at the discretion of
the Board of Directors and pursuant to the 1999 Stock Option Plan. Other than
agreements discussed above, we do not have any material bonus or profit sharing
plans pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options and bonuses may be
granted at the discretion of our Board of Directors.
Changes In Control
Acquisition of Optica Communications International Inc.
On March 15, 2000, we acquired all of the issued and outstanding shares of
Optica in exchange for 450,000 shares of our Series A Convertible Preferred
Stock.
Each share of the 450,000 Series A Preferred Stock that was issued to
former stockholders of Optica pursuant to the acquisition is convertible into
185 shares of our common stock. The conversion right is exercisable at any time
following the closing of the acquisition of Optica, and may be exercised in
respect of all or part of the Series A Preferred Stock. A stockholder of the
Series A Preferred Stock seeking to exercise the right of conversion shall
deliver a written notice of exercise to us indicating the number of shares of
Series A Preferred Stock to be converted, together with duly endorsed stock
certificates representing the Series A Preferred Stock. Within ten (10) days of
the deliver of the notice and surrender of the Series A Preferred Stock
certificates, we are required to issue share certificates representing our
common stock to the exercising stockholder. No fractional shares will be issued
pursuant to an exercise of the conversion right, and fractional common stock
that would otherwise be issuable shall be rounded upward or downward to the
nearest whole share.
An aggregate of 83,250,000 shares of our common stock is issuable upon the
conversion of the 450,000 shares of Series A Preferred Stock. In addition, each
share of Series A Preferred Stock has 185 votes (an aggregate of 83,250,000
votes for all of the outstanding Series A Preferred Stock), voting together,
except as provided by law, with the holders of our common stock as a single
class of stock at each meeting of our stockholders. Based on the 31,354,160
shares of our common stock issued and outstanding as of December 31, 2000, the
holders of our Series A Preferred Stock upon conversion would own approximately
73% of our outstanding common stock (without giving effect to any currently
outstanding options). Therefore, the issuance of the Series A Preferred Stock
resulted in a change in control of our company.
The former stockholders of Optica now have voting control over our company.
These stockholders include: Russells Systems Limited, Crystsal Marriott S.A.,
Winjoy Services Centre Limited, and Virgil Securities S.A. Douglas Smith, one
of our directors and officers, is one of the beneficiaries of a trust that is
the sole stockholder of Virgil Securities S.A.
<PAGE>
The former stockholders of Optica are entitled to designate up to four of
our directors for so long as they collectively own or have the right to acquire
at least 50% of the issued and outstanding shares of our common stock. The
terms of the acquisition agreement provided that Brian Kitts will remain as one
of our directors for at least one year from March 15, 2000, the date of the
closing of the transaction. Ernst Gemassmer and Fred Fierling, both designees
of the Optica shareholders, were appointed to our Board of Directors on November
24, 1999.
Acquisition of Zed Data Systems Corp.
On July 7, 2000, we acquired Zed from a group which was owned, directly and
indirectly, by Douglas Smith, one of our directors and officers. Mr. Smith is
also the President and a founder of Zed. The acquisition of Zed consisted of a
share purchase agreement and a share exchange agreement.
Pursuant to the share exchange, Smith Shelf Company Limited, a corporation
solely owned by Douglas Smith, one of our directors and officers, exchanged its
approximate 23% interest in the common stock of Zed for 50,000 shares of Zed
Preferred Stock. The 50,000 shares of Zed Preferred Stock are exchangeable, at
the option of the holder at any time and from time-to-time, for an aggregate of
50,000 shares of our Series B Preferred Stock. As of December 31, 2000, none of
the shares of Zed Preferred Stock have been exchanged for any of our Series B
Preferred Stock. When issued, each shares of our Series B Preferred Stock will
be entitled to 300 votes (an aggregate of 15,000,000 votes if and when all of
the outstanding Series B Preferred Stock is issued and outstanding), and will be
voted together with our common stock as though they were a single class of
stock. When issued, each share of our Series B Preferred Stock will be
convertible, at any time at the option of the holder, into 300 shares of our
common stock. Therefore, upon exchange of all of the Zed Preferred Stock for
our Series B Preferred Stock, and the subsequent conversion of all of our Series
B Preferred Stock into our common stock, we will issue an aggregate of
15,000,000 shares of our common stock to Smith Shelf Company Limited (or its
permitted successor).
Based upon the 31,354,160 shares of our common stock issued and outstanding
as of December 31, 2000, and giving effect to the conversion of our outstanding
Series A Preferred Stock into 83,250,000 shares of our common stock, the holders
of our Series B Preferred Stock upon conversion would own approximately 12% of
our outstanding common stock (without giving effect to any currently outstanding
options), and would be entitled to approximately 12% of the vote on any matter
to be decided by our stockholders. At such time, the holders of our Series A
Preferred Stock would be entitled to approximately 64% of the vote on any matter
to be decided by our shareholders.
Pursuant to the Share Purchase, we acquired the remaining approximately 77%
of the issued and outstanding shares of the common stock of Zed in consideration
for three promissory notes in the aggregate principal amount of $5,000,000 (one
to Smith Shelf Company Number Fifteen Limited in the amount of $3,930,635; one
to Ewing Consulting Corp. in the amount of $703,275 and one to Douglas Smith in
the amount of $366,090). The promissory notes, as amended, bear interest at 12%
per year and are payable in 6 equal monthly instalments of $715,000, commencing
February 28, 2001, followed by one final instalment of $710,000 on August 31,
2001. The promissory notes are secured by a pledge of the shares of the common
stock of Zed we acquired, and by a security interest in all of our present and
after acquired assets. We intend to use proceeds from a private offering of
equity or debt to pay the promissory notes.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Principal Stockholders
The following table sets forth, as of December 31, 2000, certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by each of our current directors and executive officers. As noted in
the footnotes to the table, pro forma effect is given to the conversion in full
of the Series A Preferred Stock at the rate of 185 shares of our common stock
for each share of Series A Preferred Stock as well as to the exchange of Zed
Preferred Stock or our Series B Preferred Stock, and to the conversion in full
of the Series B Preferred Stock at the rate of 300 shares of our common stock
for each share of Series B Preferred Stock.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENTAGE OF CLASS(1)
------------------------------------------ ----------------------- ----------------------
<S> <C> <C>
Russells Systems Limited(2)
Suite 61, Grosvenor Close
Shirley Street
Nassau, New Providence, Bahamas. . . . . . 54,040,165 53%
----------------------- ----------------------
Crystsal Marriott S.A.(3)
Suite 61, Grosvenor Close
Shirley Street
Nassau, New Providence, Bahamas. . . . . . 7,604,980 7%
----------------------- ----------------------
Winjoy Services Centre Limited(4)
Suite 61, Grosvenor Close
Shirley Street
Nassau, New Providence, Bahamas. . . . . . 7,604,980 7%
----------------------- ----------------------
Virgil Securities S.A.(5)
Suite 61, Grosvenor Close
Shirley Street
Nassau, New Providence, Bahamas. . . . . . 10,499,860 10%
----------------------- ----------------------
Montreau Investments Ltd.(6)
P.O. Box 1062
One Capital Place
Georgetown, Grand Cayman BWI . . . . . . . 3,500,015 3%
----------------------- ----------------------
Douglas Smith,(7)
Chairman, President(CEO) and director
5104 - 120 Avenue
Edmonton, Alberta, Canada
T5W 1K9. . . . . . . . . . . . . . . . . . 16,680,000 16%
----------------------- ----------------------
Brian Kitts,(8)
Secretary, Treasurer and director
1776 Park Avenue, Unit 4
Park City, Utah 84060 . . . . . . . . . . 3,062,500 3%
----------------------- ----------------------
Ernst Gemassmer(9)
435 Loreto Street
Mountain View
California 94041. . . . . . . . . . . . . 435,000 Nil
----------------------- ----------------------
Fred Fierling(10)
2946 Waterford Place
Coquitlam, British Columbia, Canada
V6E 2S0. . . . . . . . . . . . . . . . . . 435,000 Nil
----------------------- ----------------------
Daniel Tepper(11)
1350 East Flamingo Road, #52
Las Vegas, Nevada 89119 . . . . . . . . . 4,916,250 5%
----------------------- ----------------------
Rickart A. Connole(12)
Vice President, Business Development
84 Elgin Road, P.O. 1136
Pocasset, MA 02559 . . . . . . . . . . . . 41,670 Nil
----------------------- ----------------------
<PAGE>
Shoni Bernard(13)
Secretary of Zed
c/o 148 - 4664 Lougheed Hwy
Burnaby, British Columbia, Canada
V6C 5T5. . . . . . . . . . . . . . . . . . 60,000 Nil
----------------------- ----------------------
Neil Wieler (14)
Director of Technology (Optica)
11430 - 75B Avenue
Delta, British Columbia, Canada. . . . . . 480,000 Nil
----------------------- ----------------------
Merlin D. Mott
Systems Engineer and Manager of Technical
Services (Zed)
1717 Harversley Avenue
Coquitlam, British Columbia, Canada
V3J 1V8. . . . . . . . . . . . . . . . . . Nil Nil
----------------------- ----------------------
DIRECTORS AND OFFICERS AS A GROUP(15). . . 20,714,170 20%
========================================== ======================= ======================
<FN>
(1) Based on 31,354,160 shares of common stock issued and outstanding as of December
31, 2000 and assuming all preferred stock and stock options are exercised. Except as
otherwise indicated, we believe that the beneficial owners of the common stock listed
above, based on information furnished by such owners, have sole investment and voting power
with respect to such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of common stock
subject to options or warrants currently exercisable, or exercisable within 60 days, are
deemed outstanding for purposes of computing the percentage ownership of the person holding
such option or warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. With respect to 5% shareholders, the information
for the above table was derived from a registered shareholders list as provided by the
transfer agent on December 19, 2000.
(2) Comprised of 54,040,165 common shares issuable upon conversion of 292,109 shares of
Series A Preferred Stock, which are immediately convertible. Russells Systems Limited is a
Bahamas company whose sole stockholder is a trust.
(3) Comprised of 7,604,980 common shares issuable upon conversion of 41,108 shares of
Series A Preferred Stock, which are immediately convertible. Crystsal Marriott S.A. is a
Bahamas company whose sole stockholder is a trust.
(4) Comprised of 7,604,980 common shares issuable upon conversion of 41,108 shares of
Series A Preferred Stock, which are immediately convertible. Winjoy Services Centre
Limited is a Bahamas company whose sole stockholder is a trust.
(5) Comprised of 10,499,860 common shares issuable upon conversion of 56,756 shares of
Series A Preferred Stock. Virgil Securities S.A. is a Bahamas company whose sole
stockholder is a trust. Douglas Smith, President, CEO, Chairman and a director of the
Company, is a beneficiary of the trust but Mr. Smith is not a trustee, does not have the
right to vote the shares or dispose of the shares, or to terminate the trust. Mr. Smith
disclaims beneficial ownership of the shares.
(6) Comprised of 3,500,015 common shares issuable upon conversion of 18,919 shares of
Series A Preferred Stock, which are immediately convertible. Montreau Investments Ltd. is
a Grand Cayman company whose sole stockholder is a trust.
(7) Comprised of 15,000,000 common shares issuable upon the conversion of 50,000 shares
of Series B Preferred Stock, which are immediately convertible, that are issuable to Mr.
Smith (through an affiliate) in exchange for preferred stock of Zed held by an affiliate of
Mr. Smith. See "Changes in Control: The Acquisition of Zed Data Systems Corp.". Also
includes 1,680,000 common shares that Mr. Smith may acquire pursuant to stock options that
are currently exercisable or exercisable within 60 days. Mr. Smith was granted options to
purchase an aggregate of 2,800,000 common shares, which vest at the rate of 112,000 shares
per month commencing December 24, 1999. Does not include shares owned by Virgil Securities
S.A., beneficial ownership of which is disclaimed by Mr. Smith. See footnote 5 above.
(8) Includes 1,050,000 common shares that Mr. Kitts may acquire pursuant to stock
options that are currently exercisable or exercisable within 60 days. Mr. Kitts was
granted options to purchase an aggregate of 1,750,000 common shares, which vest at the rate
of 70,000 shares per month commencing December 24, 1999.
<PAGE>
(9) Includes 435,000 common shares that Mr. Gemassmer may acquire pursuant to stock
options that are currently exercisable or exercisable within 60 days. Mr. Gemassmer was
granted options to purchase an aggregate of 725,000 common shares, which vest at the rate
of 29,000 shares per month commencing December 24, 1999
(10) Includes 435,000 common shares that Mr. Fierling may acquire pursuant to stock
options that are currently exercisable or exercisable within 60 days. Mr. Fierling was
granted options to purchase an aggregate of 725,000 common shares, which vest at the rate
of 29,000 shares per month commencing December 24, 1999.
(11) Based solely on information set forth in the Company's records that has not been
verified by Mr. Tepper. Under the terms of a Settlement Agreement and Release between Mr.
Tepper, Mr. Kitts and the Company, Mr. Tepper is obligated to vote all of his shares of
common stock for management nominees to the Company's Board of Directors and on all other
matters in the same proportion as the votes cast by the stockholders of the Company.
(12) Includes 41,670 common shares that Rickart A. Connole may acquire pursuant to
stock options that are currently exercisable or exercisable within 60 days. Mr. Connole
was granted options to purchase 100,000 common shares, which vest at the rate of 2,778
shares per month commencing December 24, 1999.
(13) Includes 60,000 common shares that Shoni Bernard may acquire pursuant to stock
options that are currently exercisable or exercisable within 60 days. Mr. Bernard was
granted options to purchase 100,000 common shares which vest at the rate of 4,000 shares
per month commencing December 24, 1999.
(14) Includes 480,000 common shares that Neil Wieler may acquire pursuant to stock
options that are currently exercisable or exercisable within 60 days. Mr. Wieler was
granted options to purchase 1,000,000 common shares which vest at the rate of 40,000 shares
per month commencing March 8, 2000.
(15) Includes 3,701,670 common shares that directors and officers may acquire pursuant
to stock options that are currently exercisable or exercisable within 60 days. Also
includes 15,000,000 common shares that are issuable upon the conversion of 50,000 shares of
Series B Preferred Stock. Does not include shares owned by Virgil Securities S.A.,
beneficial ownership of which is disclaimed by Mr. Smith. See footnote 5 above.
</TABLE>
Except for common stock issuable upon the conversion of Series A Preferred
Stock pursuant to the acquisition of Optica and upon the conversion of Series B
Preferred Stock pursuant to the acquisition of Zed, we are unaware of any
contract or other arrangement the operation of which may, at a date subsequent
to this Annual Report, result in a change of control of our company. Shares
issuable upon conversion of Series A Preferred Stock and Series B Preferred
Stock are determined in relation to then current trading prices of our common
stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise indicated below, and in compensation agreements
discussed above under "Item 10 - Executive Compensation", we have not been a
party to any transaction, proposed transaction, or series of transactions during
the year ended September 30, 2000 in which the amount involved exceeds $60,000,
and in which, to its knowledge, any of our directors, officers, 5% beneficial
security holder, or any member of the immediate family of such persons has had
or will have a direct or indirect material interest.
The Acquisition of Optica Communications International Inc.
On March 15, 2000, we acquired all of the issued and outstanding shares of
Optica in exchange for 450,000 shares of our Series A Convertible Preferred
Stock. Each share of the 450,000 Series A Preferred Stock that was issued to
the former stockholders of Optica pursuant to the acquisition agreement is
currently convertible into 185 shares of our common stock. Accordingly, an
aggregate of 83,250,000 shares of our common stock is issuable upon the
conversion of the 450,000 shares of our Series A Preferred Stock. In addition,
each share of Series A Preferred Stock is currently entitled to 185 votes (an
aggregate of 83,250,000 votes for all of the outstanding Series A Preferred
Stock), voting together, except as provided by law, with the holders of our
common stock as a single class at each meeting of stockholders of our company.
Based on the 31,354,160 shares of our common stock issued and outstanding as of
December 31, 2000, the holders of our Series A Preferred Stock upon conversion
would own approximately 73% of our outstanding common stock (without giving
effect to any currently outstanding options). Therefore, the issuance of the
Series A Preferred Stock resulted in a change in control of our company.
The former stockholders of Optica now have voting control of our company.
These stockholders include: Russells Systems Limited, Crystsal Marriott S.A.,
Winjoy Services Centre Limited, and Virgil Securities S.A.
<PAGE>
Douglas Smith, one of our directors and officers, is one of the beneficiaries of
a trust that is the sole stockholder of Virgil Securities S.A, but Mr. Smith is
not a trustee, does not have the right to vote the shares or dispose of the
shares, or to terminate the trust. Mr. Smith disclaims beneficial ownership of
the shares of Series A Preferred Stock.
The Acquisition of Zed Data Systems Corp.
On July 7, 2000, we acquired Zed from a group which was owned, directly and
indirectly, by Douglas Smith, one of our directors and officers. Mr. Smith is
also the President and a founder of Zed. The Zed acquisition consisted of a
share purchase agreement and a share exchange agreement.
In the share exchange, Smith Shelf Company Limited, a corporation solely
owned by Douglas Smith, one of our directors and officers, exchanged its
approximate 23% interest in the common stock of Zed for 50,000 shares of Zed
Preferred Stock. The 50,000 shares of Zed Preferred Stock are exchangeable, at
the option of the holder at any time and from time-to-time, for an aggregate of
50,000 shares of our Series B Preferred Stock. As of December 15, 2000, none of
the shares of Zed Preferred Stock has been exchanged for any of our Series B
Preferred Stock. When issued, each share of our Series B Preferred Stock will
be convertible into 300 shares of our common stock and will be entitled to 300
votes (an aggregate of 15,000,000 votes when all of the outstanding Series B
Preferred Stock is issued and outstanding), and will be voted together with our
common stock as though they were a single class of stock. Therefore, upon
exchange of all of the Zed Preferred Stock for our Series B Preferred Stock, and
the subsequent conversion of all of our Series B Preferred Stock into our common
stock, we will issue an aggregate of 15,000,000 shares of common stock to Smith
Shelf Company Limited (or its permitted successor).
Based upon the 31,354,160 shares of our common stock that are issued and
outstanding as of December 31, 2000, and giving effect to the conversion of all
of the Company's outstanding Series A Preferred Stock into 83,250,000 shares of
common stock, the holders of our Series B Preferred Stock would be entitled to
approximately 12% of the vote on any matter to be decided by our shareholders
and, upon conversion of their Series B Preferred Stock, would own approximately
12% of our outstanding common stock (without giving effect to any currently
outstanding options).
In the share purchase, we acquired the approximately 77% remaining issued
and outstanding shares of the common stock of Zed in consideration for three
promissory notes in the aggregate principal amount of $5,000,000, one to Smith
Shelf Company Number 15 Limited in the amount of $3,930,635, one to Ewing
Consulting Corp. in the amount of $703,275, and one to Douglas Smith in the
amount of $366,090. The promissory notes, as amended, bear interest at 12% per
year and are payable in 6 equal monthly instalments of $715,000, commencing
February 28, 2001, followed by one final instalment of $710,000 on August 31,
2001. The promissory notes are secured by a pledge of the shares of common
stock of Zed acquired by us, and by a security interest in all of our present
and after acquired assets. As at the fiscal year ended September 30, 2000, the
promissory note payable to Smith Shelf Company Number 15 Limited has a principle
balance of $3,930,635 with accrued interest thereon of $112,427, and the
promissory note payable to Ewing Consulting Corp. has a principal balance of
$703,275 with accrued interest thereon of $20,116.
Payments to Ewing Consulting Corporation
We made interest payments of $211 and principal repayments in respect of
promissory notes and loans payable to Ewing Consulting Corporation, a
corporation related to us by a shareholder and director in common, with the
principal balance of $703,275. We also paid $6,770 in management fees to Ewing
Consulting Corporation during the fiscal year ended September 30, 2000.
Promissory Notes Payable to Shareholders and Directors
We have a promissory note payable to Doug Smith, our President, Chairman
and one of our directors, with a principal balance of $366,090 with accrued
interest thereon of $10,471 outstanding as of the fiscal year ended September
30, 2000.
<PAGE>
We also have a promissory note payable to Brian Kitts, one of our
directors, with a principal balance of $2,000,000 with accrued interest thereon
of $200,214 outstanding as of the fiscal year ended September 30, 2000. We owe
$2,268,345 as at the year ended September 30, 2000.
Consulting Fees Paid to a Director
We paid $6,000 to Ernst Gemassmer, one of our directors, for consulting
services rendered in the fiscal year ended September 30, 2000 pursuant to an
oral consulting agreement between Mr. Gemassmer and our company.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Financial Statements:
Independent Auditor's Report, dated January 12, 2001.
Consolidated Balance Sheet as at September 30, 2000 and 1999.
Consolidated Statements of Operations for the years ended September 30,
2000 and 1999.
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the
cumulative period from October 1, 1998 to September 30, 2000.
Consolidated Statements of Cash Flows for the years ended September 30,
2000 and 1999.
Summary of Significant Accounting Policies.
Notes to the Consolidated Financial Statements.
Exhibits: Incorporated by reference to the Exhibit Index at the end of
this report.
(b) Reports on Form 8-K
On February 15, 2000, we filed a report on Form 8-K reflecting restated
audited financial statements for the three years ended September 30, 1999, 1998
and 1997.
On March 31, 2000, we filed a report on Form 8-K in connection with the
acquisition agreement with Optica, dated March 15, 2000 and with an effective
date of November 24, 2000, and the resulting change of control of our company.
For details on the acquisition of Optica, see Item 1 - "Description of
Business".
On April 17, 2000, we filed an amended report on Form 8-K/A in connection
with the Form 8-K filed on March 31, 2000. The amended Form 8-K/A corrected
certain details regarding the agreement to acquire Optica.
On June 6, 2000, we filed a second amended report on Form 8-K/A in
connection with the Form 8-K filed on March 31, 2000 and the Form 8-K/A filed
April 17, 2000. The second amended Form 8-K/A contained the audited
Consolidated Financial Statements of Optica for the year ended September 30,
1999, Consolidated Financial Statements of Optica for the three months ended
December 31, 1999, and unaudited Pro Forma Consolidated Financial Information
for the year ended September 31, 1999 and the three months ended December 31,
1999.
On July 24, 2000, we filed a report on Form 8-K in connection with the
acquisition of all of the issued and outstanding shares of common stock of Zed
pursuant to a share exchange agreement and a share purchase agreement. All of
the issued and outstanding shares of common stock of Zed were owned, directly or
<PAGE>
indirectly, by Douglas Smith, one of our directors and officers. For details on
the acquisition of Zed, see Item 1 - "Description of Business".
On September 25, 2000, we filed a report on Form 8-K, which should have
been filed as an amended Form 8-K/A to the report on Form 8-K filed July 24,
2000 regarding our acquisition of Zed. The September 25, 2000 Form 8-K
contained the unaudited Pro Forma Combined Financial Statements of our company
and Zed.
On September 27, 2000, we filed an amended report on Form 8-K/A in
connection with the Form 8-K filed on September 25, 2000 regarding our
acquisition of Zed. The amended Form 8-K/A contained the audited consolidated
balance sheets, consolidated statement of operations, shareholders' equity and
cash flows for Zed, and the unaudited Pro Forma Combined Balance Sheet and
Combined Statement of Income of our company and Zed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 16, 2001.
INVESTAMERICA, INC.
By: /s/ Douglas Smith
Douglas Smith
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Douglas Smith January 16, 2001
Douglas Smith
Chairman, President and
Chief Executive Officer
/s/ Brian Kitts January 16, 2001
Brian Kitts
Secretary, Director
/s/ Ernst Gemassmer January 16, 2001
Ernst Gemassmer
Director
/s/ Fred Fierling January 16, 2001
Fred Fierling
Director
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
----- ------------------------
Exhibits Required by Item 601 of Regulation S-B
(3) Articles of Incorporation and By-laws
3.1 Articles of Incorporation of our company (incorporated by reference
from our Form 10-SB Registration Statement, filed November 30,
1999).
3.2 Bylaws of our company (incorporated by reference from our Form
10-SB Registration Statement, filed November 30, 1999).
3.3 Amended Articles of Incorporation of our company (incorporated by
reference from our Form 10-SB Registration Statement, filed November
30, 1999).
(10) Material Contracts
10.1 Acquisition Agreement, dated as of November 22, 1999 and
consummated March 15, 2000, among our company and Optica
(incorporated by reference from our Form 8-K Current Report, filed
March 31, 1999, as amended by Form 8-K/A-1 Current Report, filed
April 17, 2000, and as further amended by Form 8-K/A-2 Current
Report, filed June 5, 2000).
10.2 Share Exchange Agreement, dated as of July 5, 2000, among our
company, Zed Data Systems Corp. and Smith Shelf Company Limited
(incorporated by reference from our Form 8-K Current Report, filed
July 24, 2000, as amended by Form 8-K Current Report, filed
September 25, 2000, and as further amended by Form 8-K/A filed
September 27, 2000).
10.3 Share Purchase Agreement, dated as of July 5, 2000, among our
company, Zed Data Systems Corp. and the shareholders of Zed Data
Systems Corp. named therein (incorporated by reference from our
Form 8-K Current Report, filed July 24, 2000, as amended by Form
8-K Current Report, filed September 25, 2000, and as further
amended by Form 8-K/A filed September 27, 2000).
10.4 1999 Stock Option Plan of our company, as amended (incorporated by
reference from our Form S-8 Registration Statement, filed March
15, 2000).
10.5 Employment Agreement, dated February 8, 2000, between our
subsidiary, Optica., and James Duncan (incorporated by reference
from our Form S-8 Registration Statement, filed March 15, 2000).
10.6 Employment Agreement, dated February 8, 2000, between our
subsidiary, Optica, and Lyle Kerr (incorporated by reference from
our Form S-8 Registration Statement, filed March 15, 2000).
10.7 Employment Agreement, dated February 8, 2000, between our
subsidiary, Optica, and Neil Weiler (incorporated by reference
from our Form S-8 Registration Statement, filed March 15, 2000).
10.8 Employment Agreement, dated July 20, 2000, between our company and
Rick Connole.
10.9 Employment Agreement, dated September 8, 2000, between our
subsidiary, Optica, and Mark Nomura.
