As filed with the Securities and Exchange Commission on December 12, 2000
Registration No. 333-37904
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 3931 51-0397012
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Address and telephone number of principal executive offices and principal
place of business)
Richard Duffy, President
38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Name, address and telephone number of agent for service)
With copies to: Scott Rapfogel, Esq., Levine & Rapfogel
621 Clove Road, Staten Island, NY 10310
(718) 981-8485
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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CALCULATION OF REGISTRATION FEE
=================================================================================================================
Proposed Proposed Amount
Amount Maximum Maximum of
to be Offering Price Aggregate Registration
Title of Each Class of Securities To Be Registered Registered Per Security(1) Offering Price(1) Fee
-------------------------------------------------- ------------------------------------------------------------
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Common Stock, $.001 par value 1,000,000 $1.00 $1,000,000 $ 303
-------------------------------------------------- ------------------------------------------------------------
Common Stock, $.001 par value 3,302,910(2) $1.00 $3,302,910 $1,001
-------------------------------------------------- ------------------------------------------------------------
TOTAL 4,302,910 $1.00 $4,302,910 $1,304
=================================================================================================================
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Represents shares to be offered by Selling Stockholders.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
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(ii)
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CROSS REFERENCE SHEET
Cross Reference Sheet Showing Location in Prospectus of
Information Required by Items of the Form Pursuant to Rule 404(a)
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Form SB-2 Item No. and Heading Prospectus Caption
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1. Front of Registration Statement and Outside
Front Cover of Prospectus......................... Facing Page of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................. Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and
Risk Factors .................................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of
Prospectus; Risk Factors;
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Prospectus Summary; Plan of
Distribution; Selling Stockholders
8. Plan of Distribution................................. Outside Front Cover Page of
Prospectus; Prospectus Summary;
Plan of Distribution; Selling
Stockholders
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters
and Control Persons.............................. Management
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(iii)
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11. Security Ownership of Certain Beneficial
Owners and Management............................ Principal Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for Securities Act Liabilities Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities
15. Organization with Last Five Years.................... Business; Certain Transactions
16. Description of Business.............................. Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............................. Plan of Operation
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters.............................. Outside Front Cover Page of
Prospectus; Prospectus Summary;
Risk Factors; Market for Common
Equity and Related Stockholder
Matters; Description of Securities;
Plan of Distribution
21. Executive Compensation............................... Executive Compensation; Certain
Transactions;
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... Not Applicable
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(iv)
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED DECEMBER 12, 2000.
4,302,910 Shares of Common Stock
Guitron International Inc.
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<CAPTION>
Per
Shares Offered by Guitron International Inc. Share Total
<S> <C> <C> <C>
Public Offering Price This is our initial public offering. We
Minimum Offering $1.00 $ 250,000* are offering a minimum of 250,000
Maximum Offering $1.00 $1,000,000* shares and a maximum of 1,000,000
Proceeds to Guitron International Inc. shares at an offering price of $1.00 per
Minimum Offering $1.00 $ 250,000* share. These shares are being offered
Maximum Offering $1.00 $1,000,000* by our officers in a self underwriting
commencing on the date of this
prospectus. To invest in this offering,
* These figures do not reflect the deduction of you must purchase a minimum of 500
offering expenses estimated to be an aggregate shares. If we do not sell 250,000 or
of $40,000. Offering expenses include, but are more shares within the 30 day offering
not limited to, filing fees, printing expenses, period, which may be extended by us
legal and accounting fees and miscellaneous up to an additional 15 days, your
expenses. investment will be promptly returned to
you without interest and without any
deduction. Until we receive at least the
minimum offering proceeds, all funds will
be held in a non-interest bearing
escrow account.
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Shares Offered by Selling Stockholders Per
Share Total
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Offering Price $1.00** $3,302,910** Our shareholders are offering an
Proceeds to Guitron International Inc. $ 0 $ 0 additional 3,302,910 shares. These
shares will be offered for sale by our
shareholders, from time to time, at
** Estimated. prevailing market prices or in negotiated
transactions. We will not receive any
proceeds from any sales made by our
shareholders.
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No public market presently exists for our common stock. We intend to list
our shares on the OTC Bulletin Board under the symbol " ".
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is December 12, 2000
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................3
Selected Financial Information.................................................8
Where You Can Get More Information............................................10
Forward Looking Statements....................................................10
Risk Factors..................................................................11
Risks Related to Our Business................................................11
Risks Related to Our Financial Condition.....................................15
Risks Related to This Offering...............................................17
Pro Forma Financial Information...............................................23
Use of Proceeds...............................................................23
Market for Our Common Stock and Related Stockholder Matters...................24
Dilution......................................................................24
Capitalization................................................................26
Dividend Policy...............................................................26
Plan of Operation.............................................................27
Business......................................................................29
Management....................................................................41
Executive Compensation........................................................45
Certain Transactions..........................................................47
Principal Stockholders........................................................50
Selling Stockholders..........................................................51
Description of Securities.....................................................54
Plan of Distribution..........................................................57
Shares Eligible for Future Sale...............................................60
Disclosure of Commission Portion on Indemnification for Securities Act
Liabilities..................................................................61
Legal Matters.................................................................61
Experts.......................................................................61
Additional Information........................................................61
Financial Statements..........................................................64
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PROSPECTUS SUMMARY
This summary highlights important information about our business and about
this offering. Since its a summary, it doesn't contain all the information you
should consider before investing in our common stock. Accordingly, to understand
this offering fully, you should carefully read the entire prospectus, including
the risk factors and the financial statements. In this prospectus, unless the
context requires otherwise, "we" and "us" refer to Guitron International Inc. If
not otherwise indicated, all information in this prospectus assumes our
acquisition of The Guitron Corporation, a Canadian corporation, has already
taken place, although this acquisition will not be effected until the sale of
the minimum offering amount has been achieved. See "Business Acquisition of The
Guitron Corporation"
Our Business
We are a development stage company formed for the sole purpose of
acquiring The Guitron Corporation, a Canadian corporation formed on August 20,
1997. Our principal executive offices are located at 38 Place Du Commerce, Suite
230, Nun's Island, Montreal, Quebec, Canada H3E 1T8. Our telephone number at
that address is (514) 766-9778. Since our inception, we have conducted no
business other than that related to our formation and initial organization. Our
acquisition of The Guitron Corporation will take place upon the completion of
the sale of the minimum offering amount within the offering period and prior to
the release from escrow of the proceeds from that sale. The Guitron Corporation
presently has, and at the time of the acquisition of The Guitron Corporation
will have, 2,218,226 shares and 454,800 stock options issued and outstanding. In
accordance with the acquisition:
o Each of the 2,218,226 outstanding shares of The Guitron Corporation will
be exchanged for 3.25 common shares of our Company; This will result in
the issuance of a total of 7,209,235 shares of our common stock.
o The exercise rights under all stock options of The Guitron Corporation
will be changed to provide that, for each share of The Guitron Corporation
purchasable under the option, the option holder will be able to purchase
3.25 common shares of our Company. This will result in there being a total
of 1,478,100 of our common shares subject to future issuance pursuant to
the exercise of presently outstanding stock options of The Guitron
Corporation. More detailed information respecting this acquisition can be
found in the "Business" section of this prospectus under the heading
"Acquisition of The Guitron Corporation"
In the event we don't sell at least 250,000 shares within the offering
period, including any extensions thereof, the acquisition of The Guitron
Corporation will not be consummated, this offering will be cancelled and all
subscription proceeds will be promptly returned to you from escrow without
interest or deduction. It is assumed herein and throughout this prospectus
however, that we will sell at least 250,000 shares within the offering period.
This being the case, it is further assumed throughout this prospectus, when
context requires, that the acquisition has
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already taken place and that our existence dates back to August 20, 1997, the
date of incorporation of The Guitron Corporation.
We were formed to develop, manufacture and sell a unique musical
instrument known as the Guitron. The Guitron represents a new development
respecting one of the world's oldest and most popular musical instruments, the
guitar. Guitrons are easy play instruments which look and sound like traditional
guitars but are different in that they rely on our patent pending technological
features for their playing and their sound. This technology preserves the
pleasurable function of strumming the instrument but removes many of the
complexities of learning to play the guitar that are related to learning the
complicated fingerboard positions necessary to produce a chord. Consequently,
the instrument learning process is dramatically simplified when compared to the
traditional guitar. Most of our activities to date have been devoted to
organizational activities, raising capital, conducting product research and
development, filing patent and trademark applications respecting the Guitron,
developing relationships with parts suppliers, developing a marketing plan, and
entering into contractual relationships with sales and marketing organizations.
Operating Results
We have had no operating revenues and have financed all of our operations
from loans, Canadian government grants, research and development tax credits,
and sales of our capital stock to affiliated parties and private investors. More
detailed information respecting these sources of financing can be found in the
"Business" and "Certain Transactions" sections of this prospectus. Funds
received from these sources enabled us to complete initial development of the
first production models of the Guitron in March 2000. Since that time, we have
engaged in additional research and development for the purpose of further
refining the instrument and simplifying the manufacturing process.
As at July 31, 2000 we had expended approximately $952,148 on research and
development of the Guitron and had incurred losses of approximately $1,899,558.
These losses can be expected to continue until we achieve commercial acceptance
of the Guitron and effectively manage all aspects of our anticipated growth. No
assurance can be given that we will be successful in these endeavors. We have
limited liquidity and capital resources and are dependent upon the proceeds of
this offering to increase product inventory levels and marketing capabilities.
The report of our independent accountants included within our audited financial
statements contains a qualification respecting our ability to continue as a
growing concern. More detailed information respecting our operating results can
be found in our "Plan of Operation".
4
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Growth Strategy
Our business objective is to be a leading, branded manufacturer of high
quality musical instruments including, but not limited to, the Guitron. At the
present time, however, we have no musical products under development other than
the Guitron. The key elements of our strategy to accomplish our objectives
include the following:
o Create a Reputation as a Manufacturer of High Quality Musical
Instruments.
o Establish Strong Brand Name Recognition. We intend to establish
brand name recognition through aggressive public relations and mass
market advertising.
o Establish a Broad Customer Base. Through aggressive mass marketing
advertising, and product quality and reliability, we intend to raise
consumer awareness of the Guitron and other products we may develop
in the future.
o Offer New Products and Services
o Develop and Maintain Strategic Relationships with Hardware and
Software Contractors and Parts Suppliers
o Maintain and Improve Technological Focus and Expertise.
The Offering
Common Stock Offered By The Company... We are offering up to 1,000,000 shares
of our common stock at a price of $1.00
per share. In order to complete the
offering we must sell a minimum of
250,000 shares within the offering
period.
Proposed Symbol and Trading Market.... "__________" on the OTC Bulletin Board
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Escrow Agent.......................... Continental Stock Transfer and Trust
Company is acting as escrow agent for
the purpose of receiving and disbursing
to us the proceeds from this offering
Offering Period and Terms of
Subscription, Sale and Escrow........ All subscription payments, which are
irrevocable, will be deposited in a non-
interest bearing account by the escrow
agent. This offering will close on or
before 30 days from the date of this
prospectus (which period may be extended
for up to an additional 15 days at our
discretion). Unless at least 250,000
shares are sold within the offering
period, this offering will be withdrawn
and the proceeds will be returned to you
without interest or deduction. If
250,000 shares are sold within the
offering period, the remaining 750,000
shares will be offered for sale until
the offering period ends or an earlier
time that we deem appropriate. The
escrow agent will not release the
escrowed funds to us unless, before the
end of the offering period, we have
received subscriptions for at least
250,000 shares; and thereafter (a) the
acquisition of The Guitron Corporation
has been approved, adopted and
completed, and (b) all other conditions
to the acquisition of The Guitron
Corporation have been satisfied.
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Subscription Procedures............... To purchase our common stock you should
make your money order, certified, bank
or cashier's check payable to
"Continental Stock Transfer & Trust
Company - Escrow Agent for Guitron
International Inc." You must also
provide us with a completed subscription
agreement.
Risk Factors.......................... The shares offered hereby involve a high
degree of risk. You should carefully
review the entire prospectus and
particularly, the section entitled "Risk
Factors" beginning on page 11.
Common Stock Offered By Selling
Stockholders......................... 3,302,910 shares of common stock
including 340,600 shares underlying
outstanding stock options.
Common Stock to be Outstanding After
this Offering........................ 10,058,535 shares (minimum)(1)
10,808,535 shares (maximum)(1)
Use of Proceeds....................... We intend to use the net proceeds from
this offering for sales and marketing
expenses, to purchase product inventory,
and for general corporate purposes. See
"Use of Proceeds."
-----
(1) Does not take into account the exercise of any outstanding stock options
of The Guitron Corporation subsequent to the date of this prospectus.
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SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information regarding
the Company and its predecessor, Guitron Canada, for the years ended July 31,
2000 and July 31, 1999 and for the period from inception (August 20, 1997), to
July 31, 2000. All of this information was derived from our audited financial
statements appearing elsewhere in this prospectus. You should read this selected
financial information in conjunction with our plan of operation, financial
statements and related notes to the financial statements, each appearing
elsewhere in this prospectus. See "Pro Forma Financial Information". Please
don't assume that the results below indicate results we'll achieve in the
future.
Effective upon the sale of at least 250,000 shares within the offering
period and certain other conditions, The Guitron Corporation will be acquired by
us. The principal reason for the acquisition is to take advantage of the laws of
the State of Delaware. Unless otherwise indicated, all information included in
this prospectus has been adjusted, in advance, to reflect the post acquisition
capitalization of our Company. See "Business - Acquisition of The Guitron
Corporation".
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<CAPTION>
Income Statement Data: Cumulative Period From
August 20, 1997
Year Ended Year Ended (date of inception)
July 31,1999 July 31, 2000 to July 31, 2000
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<S> <C> <C> <C>
Revenues 0 0 0
Net Income (Loss) $ (321,095) $(1,268,403) $(1,899,558)
Net Income (Loss) Per Share $ (.22) $ (.17) $ (.54)
Weighted Average Number
of Shares Outstanding 1,487,970 7,356,707 3,469,949
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Balance Sheet Data: July 31, 2000 July 31, 2000
July 31, 1999 July 31, 2000 As Adjusted (Minimum) As Adjusted (Maximum)
------------- ------------- --------------------- ---------------------
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Current Assets $ 86,002 $ 156,888 $ 366,888 $1,116,888
Total Assets $ 100,658 $ 185,714 $ 395,714 $1,145,714
Current Liabilities $ 174,711 $ 227,867 $ 227,867 $ 227,867
Total Liabilities $ 357,955 $ 703,461 $ 703,461 $ 703,461
Stockholders' Equity $(257,297) $(517,747) $(307,747) $ 442,253
(Deficit)
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WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, with a copy of any
information incorporated by reference in this prospectus. If you want more
information, write or call us at:
Guitron International Inc.
38 Place du Commerce, Suite 230
Nuns' Island, Montreal, Quebec
Canada H3E IT8
Telephone: (514) 766-9778
Fax: (514) 766-6614
Our fiscal year ends on July 31. We intend to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports. In addition, we intend to become a reporting company and file annual,
quarterly, and current reports, or other information with the SEC as required by
the Securities Exchange Act of 1934. You may read and copy any reports,
statements or other information we file at the SEC's public reference room in
Washington D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public through the SEC Internet site at
http\\www.sec.gov.
FORWARD LOOKING STATEMENTS
This prospectus contains statements which represent our expectations or
beliefs for the future. Forward looking statements include statements about the
future of the music products industry, statements about our future business
plans and strategies, and most other statements that are not historical in
nature. In this prospectus forward looking statements are generally identified
by the words "believe", "expect", "anticipate", "estimate", "project", "intend",
and similar expressions. These statements by their nature involve substantial
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those expressed in,
contemplated by or underlying any forward-looking statements. Statements in this
prospectus, including without limitation those contained in the sections
entitled "Risk Factors", "Plan of Operation", "Business", and in the Notes to
our Financial Statements, describe factors, among others, that could contribute
to or cause such differences.
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RISK FACTORS
The securities offered by this prospectus are speculative and involve a
high degree of risk. Accordingly, you should carefully consider the following
factors before making a decision to invest.
Risks Related To Our
--------------------
Business
--------
Since We Commenced Operations, We Have
Devoted Virtually All Of Our Efforts To
Developing Our Principal Product.
Accordingly, We Have No Real Operating
History. This Makes an Evaluation Of Our
Business Difficult.
Since we started operations in August 1997, we have devoted almost all of our
efforts to developing the Guitron and very little time and expense to marketing
and sales. In March 2000, we completed a research and development program
involving the development and testing of the first basic models of the Guitron.
Since the completion of this research and development program, we have engaged
in additional research and development for the purpose of further refining the
Guitron and simplifying the manufacturing process. During the second phase of
research and development we focused on developing mechanical tools to be used in
the manufacturing process and designing and developing molded parts to
facilitate the assembly process. This second phase of research and development
was completed in November 2000. Our present intention is to commence a product
launch of the Guitron during the first quarter of 2001. Since we have made no
sales of Guitrons, however, our products have no history of customer acceptance
and use. This means that we have no performance history on which you can
evaluate our future performance. We are at an early stage in our development and
it is possible that our products may not sell in the volumes or at the prices
that we anticipate. If that occurs, we would receive less than the projected
income from sales of our products and our profitability would suffer. Before
investing, you should carefully evaluate the risks, uncertainties, expenses, and
difficulties frequently encountered by early stage companies.
We Need To Initiate Or Expand Our
Manufacturing, Marketing And Sales
Operations. These Activities Will Strain
Our Resources, and Failure to
Effectively Manage The Implementation
and Growth of Our Business
We will have to commence or significantly expand our manufacturing, marketing
and sales operations in order to successfully implement our business strategy.
This will involve the establishment of manufacturing and marketing
infrastructures and the development of efficient delivery systems. Because we
have only recently completed the development of the Guitron and have not yet
commenced commercial operations, these infrastructures and systems are not yet
fully in place. If we are successful in
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Could Disrupt Our Operations And Prevent
Us From Generating The Revenues We
Expect.
commencing commercial operations, we may then experience rapid growth, requiring
us to manage multiple relationships with various wholesalers and retailers of
our products, vendors of supplies and raw materials, and other third parties.
The implementation of operations and the subsequent expansion of such operations
which may follow can be expected to strain our management, operational,
financial, and technological resources. If we fail to manage our growth in a
manner that minimizes these strains on our resources it could disrupt our
operations and ultimately prevent us from generating the revenues we expect. The
successful implementation and growth of our business will also depend on our
ability to attract and retain qualified employees and consultants, particularly
marketing and sales personnel. If we fail to manage our growth successfully, our
business will suffer.
The Guitron May Be Unable To Achieve Or
Maintain Broad Market Acceptance, Which
Would Cause Our Anticipated Future
Revenue Growth And Profitability To
Suffer.
We have not yet commenced sales and marketing of the Guitron, which is our only
product. We have no potential sources of revenues other than from anticipated
sales of the Guitron and certain proposed accessory products. Consequently, we
are entirely dependent on the successful introduction and commercial acceptance
of the Guitron. There can be no assurance, however, that such market acceptance
will be achieved. We have not conducted any formal market studies regarding the
probable market acceptance of the Guitron and we therefore have no basis for
predicting the potential demand for this new musical instrument. Accordingly, we
cannot give any assurance that sufficient market penetration can be achieved so
that we can operate profitably. If the Guitron is not accepted, or if its
acceptance develops more slowly than expected, our business, results of
operations, and financial condition will be materially and adversely affected.
See "Business - Sales and Marketing".
We Have Not Yet Obtained Any Patents.
Therefore We May Not Be Able To Protect
Our Technology And We May Infringe On
The Proprietary Rights Of Others
The success of our proposed business will depend in part upon our ability to
protect our proprietary Guitron technology. Accordingly, we have filed patent
applications seeking U.S. Canadian and international patent protection. (see
"Business - Patents and Trademarks"). While we expect that patents will be
granted in response to these applications, we are unable to give any assurance
that this will in fact be the case or how long the patent review process will
take. Moreover, even if our patents are granted, there can be no assurance that
they will provide meaningful protection or significant competitive advantages
over competing products or that
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we will have the resources to defend them by bringing patent infringement or
other proprietary rights actions. Furthermore, there can be no assurance that
other companies or individuals will not independently develop similar products
or duplicate our products. If we are unable to safeguard our technology, our
business, operating results and financial condition could be materially harmed.
We believe that our Guitron technology does not infringe on the proprietary
rights of others. However, there can be no assurance that our technology does
not and will not infringe on any other technology presently unknown to us or
that, in the future, any third parties will not claim that our use of certain
technologies violates a patent. Third parties may also claim that we have
misappropriated their technology or otherwise infringed on their proprietary
rights. At present, we are not aware of any claims of this type. Any claims of
infringement, with or without merit, could be time-consuming to defend, result
in costly litigation, divert management attention, require us to enter into
expensive royalty or licensing arrangements or prevent us from using important
technologies or methods. These eventualities, together or alone, could damage
our business and financial condition.
If We Are Unable To Compete Effectively
With Traditional Acoustic And Electric
Guitars and Other Similar Instruments,
We Will Not Be Able To Generate Revenues
Or Profits.
Our ability to generate revenues and operate profitably will be directly related
to our ability to compete effectively with our competitors. Although we believe
that the Guitron is a unique musical instrument with distinct advantages over
conventional acoustic or electric guitars, we will face competition from guitar
manufacturers, virtually all of whom are larger than we are, and have
substantially more assets and resources than we have. Our future success will
depend, to a significant extent, on a number of factors, including the public's
acceptance of the Guitron and our ability to successfully develop and exploit
such acceptance. Even if the Guitron is accepted by the public, we cannot assure
that the Guitron will not later be rendered obsolete by new competing guitar
type technologies or that we will have sufficient resources to make the
necessary investments or be able to develop and market new products required to
maintain our competitive position. We intend to meet competition through
marketing, advertising, and educational campaigns aimed at acquainting the
public with what we believe are the Guitron's unique advantages over
conventional guitars, by continuing to develop and refine our technological
innovations, and by developing user support systems which will provide
assistance to Guitron owners, helping them to learn to play the Guitron and to
enhance their playing skills, from beginner to
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expert levels. We can give no assurance that this strategy will succeed, or that
we will be able to overcome the competitive disadvantages we face as a small
company with limited capital and without a history of successfully developing
and marketing musical instruments, technology, devices or products. In addition
to existing manufacturers of conventional guitars, we anticipate that numerous
potential competitors with high levels of technical and financial resources are,
like us, constantly searching for market niches and specialty products in the
musical instrument industry. We cannot assure that we will be able to compete
successfully against current or future competitors, or that competitive
pressures faced by us will not materially and adversely affect our financial
condition, cash flows, and operating results. See "Business--Competition."
We Will Face Certain Risks By Engaging
In Foreign Operations And International
Trade.
We intend to assemble all Guitrons at our production facilities in Montreal,
Canada. In addition, Quebec and other areas in Canada are among the initial
markets which we intend to target for the Guitron. While there can be no
assurances that we will be successful in marketing the Guitron or that any
anticipated international sales will take place, to the extent that we engage in
international sales and operations, we will be subject to various risks
associated with international operations. These include, but are not limited to,
changes in tariff rates and possible instability of political climate or
economic environment. In addition, fluctuations in currency exchange rates will
affect any payments to or by us made or valued in non-U.S. currencies, all of
which will be subject to independent fluctuating exchange rates with the U.S.
dollar which may have an adverse affect on our revenues or asset values in terms
of the U.S. dollar. To a lesser extent social, political and economic conditions
may cause changes in U.S. or Canadian laws and regulations relating to foreign
investment and trade. Accordingly, we cannot assure you that changes in social,
political or economic conditions will not have a substantial adverse effect on
our business. See "Business"
We Have Entered, And In The Future We
May Continue To Enter, Into Transactions
With Related Parties; All Such
Transactions May Involve
Since our inception, we have on several occasions entered into transactions with
our officers, directors, principal shareholders and other affiliated parties
including those transactions discussed in the "Certain Transactions" section of
this prospectus. While all such transactions may involve inherent conflicts of
interest, we believe that in every case, they were made on terms as fair as
those
14
<PAGE>
Inherent Conflicts Of Interest
obtainable from independent third parties. However, no assurance can be given
that this was, in fact, the case. We have adopted a policy which, among other
things, requires all material transactions with affiliated parties to be
approved by a majority of the directors who do not have an interest in the
transaction.
Our Future Success Is Dependent On The
Performance And Continued Service Of Our
President, Other Officers And Other Key
Employees And Our Ability To Attract And
Retain Skilled Personnel.
Our performance and future operating results are substantially dependent on the
continued service and performance of Richard Duffy, our president and chief
executive officer. To the extent that Mr. Duffy's services become unavailable,
our business or prospects may be adversely affected. Mr. Duffy has a fixed term
employment agreement with us. His contract is scheduled to expire on December 5,
2002. Should we be required to do so, we do not know whether we would be able to
employ an equally qualified person to replace Mr. Duffy. We do not currently
maintain "key man" insurance for any of our executive officers or other key
employees and do not intend to obtain this type of insurance following the
completion of this offering. If we are successful in implementing and developing
our business, we will require additional managerial and technical personnel.
Competition for highly-qualified personnel is intense, and we cannot assure that
we can retain our key employees or that we will be able to attract or retain
highly-qualified technical and managerial personnel in the future. The loss of
the services of any of our senior management or other key employees and our
inability to attract and retain the necessary technical and managerial personnel
could have a material adverse effect on our financial condition, operating
results, and cash flows. See "Management-Employment Agreements".
Risks Related To Our
Financial Condition
We May Need Additional Financing Which
May Not Be Available And, If Available,
Might Only Be Available On Unfavorable
Terms
The offering under this Prospectus can close on the sale of the minimum of
250,000 shares, which would yield approximately $210,000 in net proceeds. If we
close on the sale of the maximum of 1,000,000 shares, we will receive
approximately $960,000 in net proceeds. While we believe that the receipt of the
maximum amount of proceeds should be sufficient for the next twelve months,
presently unanticipated occurrences and expenses may make it necessary for us to
continue to raise funds through further equity or debt financings until such
time, if ever, as we are able to operate profitably. Should we close the
offering prior to receiving the maximum proceeds there is a substantial
likelihood that we will
15
<PAGE>
require additional funding during the next twelve months. In the event that we
do require such additional outside funding, there is no assurance that we will
be able to obtain it on terms beneficial to us, if at all. Should that occur, we
might be prevented from commencing commercial operations or, if we have begun
commercial operations, we might have to curtail or cease them. See "Plan of
Operation".
We Expect A Substantial Increase In
Expenses And May Not Achieve Significant
Profitability, Which May Cause Our Stock
Price To Fall.
Because of our early stage of development, we expect to continue to incur
operating losses and to have a negative cash flow unless and until we are able
to generate substantial revenues and reach profitability. We expect that during
the next twelve months, as we try to launch the Guitron and related products,
our operating expenses will be increasing, especially in the areas of sales and
marketing and brand promotion. We anticipate that we will have to incur
substantial costs and expenses related to:
o hiring personnel, additional executive and administrative personnel, and
additional product development personnel;
o continued development of the Guitron and the development of proposed
accessory products; and
o advertising, marketing, and promotional activities.
The extent of our losses in the future will depend on our ability to commence
commercial operations and generate revenues on a profitable basis. To do so, we
will have to develop and implement successful manufacturing and sales and
marketing programs for the Guitron. Although we expect to initiate or expand
sales, manufacturing, and marketing operations during the first quarter of 2001,
no assurance can be given that we will be able to achieve this objective or
that, if this objective is achieved, that we will ever be profitable. Our
ability to achieve profitability and to sustain it will depend on our ability to
generate and sustain substantial revenues while maintaining reasonable expense
levels. Although we intend to increase our spending on the activities listed
above, these efforts may not result in the generation of sufficient revenues.
We Have A Negative Net Worth, Have
Incurred Losses From Inception, And
Expect
We were organized in August 1997 and have never generated any revenues from
operations. Instead we have been dependent on debt and equity funding from
lenders and investors to allow us to
16
<PAGE>
to Continue To Incur Losses In The
Future. This Could Drive The Price Of
Our Stock Down.
conduct developmental operations. We have therefore incurred losses from
inception. As of July 31, 2000, we had an accumulated deficit of $1,899,558 and
we anticipate that we will continue to incur net losses for the foreseeable
future unless and until we are able to establish profitable business operations.
As at July 31, 2000, we had total current assets of $156,888 and total current
liabilities of $227,867 or a negative working capital of approximately $70,979.
If we fail to establish profitable operations and continue to incur losses, the
price of our common stock could be expected to fall.
We Received An Opinion From Our
Accountants As Of November 21, 2000
Which Raises Doubt About Our Ability to
Continue After Such Date as a Going
Concern.
Our audited financial statements for the year ended July 31, 2000, which are
included in this prospectus, indicate that there was substantial doubt as of
November 21, 2000 about our ability to continue as a going concern due to our
need to generate cash from operations and obtain additional financing. In
addition to the very real risk to our ability to successfully launch our
business operations, which our accountants have thus expressed, this type of
"going concern" qualification in our accountant's report can have a negative
effect on the price of our stock. If we fail to manage our growth in a manner
that minimizes these strains on our resources it could disrupt our operations
and ultimately prevent us from generating the revenues we expect.
Risks Related To This
Offering
Our Management Will Have Substantial
Discretion Over The Use of Proceeds 0f
This 0ffering and May Not Apply Them
Effectively
A substantial portion of the proceeds of this offering will be applied to our
working capital. Moreover, management may apply the proceeds of this offering
for purposes other than those specified in "Use of Proceeds" in order to
accommodate changing circumstances. Therefore, our management will have great
flexibility in applying the net proceeds of this offering and may apply the
proceeds in ways with which you do not agree. The failure of our management to
apply these funds effectively could materially harm our business. See "Use of
Proceeds".
We Have Arbitrarily Determined The
Public Offering Price Of The Shares.
Such Price May Not Accurately Reflect
the Present Value of These
We have arbitrarily set the public offering price of the common stock being sold
under this prospectus. The price does not bear any relationship to our assets,
book value, earnings or net worth and it is not an indication of actual value.
Investors should be aware of the risk of judging the real or potential market
value of
17
<PAGE>
Shares. The Future Market Price Of The
Shares May Be Lower Than The Public
Offering Price.
the common stock by comparison to this initial public offering price. See
"Description of Securities".
There Has Been No Prior Public Market
For Our Common Stock. Unless Such Market
Develops, You May Not Be Able To Sell
Your Shares And Even If Such Market
Should Develop, Our Stock Price May
Decline After This Offering.
Prior to this offering, there has been no public market for our common stock and
our common stock is not presently listed for trading on any recognized exchange
or market. While we expect that, following the completion of this offering, our
common stock will be traded in the over-the- counter market and quoted on the
OTC Bulletin Board, an active trading market may not develop or be maintained.
Failure to develop or maintain an active trading market could negatively affect
the price of our shares and even make it impossible for you to sell your shares
or recover any part of your investment in us. Even if a market for our common
stock does develop, the market price of the common stock following this offering
may be highly volatile. In addition to the uncertainties relating to our future
operating performance and the potential profitability of our operations, factors
such as variations in our interim financial results, comments by securities
analysts, announcements of technological innovations or new products by us or
our potential competitors, changing market conditions, developments concerning
our proprietary rights, or various, as yet unpredictable factors, many of which
are beyond our control, may have a negative effect on the market price of our
common stock.
We Are Not, And May Never Be, Eligible
For NASDAQ Or Any National Stock
Exchange.
We are not presently, and it is likely that for the foreseeable future we will
not be, eligible for inclusion in NASDAQ or for listing on any United States
national stock exchange. To be eligible to be included in NASDAQ, a company is
required to have not less than $4,000,000 in net tangible assets, a public float
with a market value of not less than $5,000,000, and a minimum bid of price of
$4.00 per share. At the present time, we are unable to state when, if ever, we
will meet the Nasdaq application standards. Unless we are able to increase our
net worth and market valuation substantially, either through the accumulation of
surplus out of earned income or successful capital raising financing activities,
we will never be able to meet the eligibility requirements of NASDAQ.
18
<PAGE>
The Public Offering Price Is Higher Than
the Per Share Value Of Our Net Assets
And Is Also Higher Than The Price Paid
By Our Founders And Prior Investors.
Therefore, If You Purchase Any Of The
Shares, You Will Suffer An Immediate And
Substantial Dilution Of Your Investment.
The public offering price of our shares is higher than the prices paid by our
founders and prior investors and exceeds the per share value of our net tangible
assets. Therefore, if you purchase shares in this offering, you will experience
immediate and substantial dilution of approximately $1.0306 per share in your
investment if the minimum offering is sold and approximately $.9591 per share if
the maximum offering is sold. You may also suffer additional substantial
dilution in the future from the exercise of presently outstanding stock options
and from the sale of additional shares of common stock or other securities, if
the need for additional financing forces us to make such sales. See "Dilution".
Rights To Acquire Shares Of Common Stock
Will Result In Dilution To Other Holders
Of Common Stock.
Outstanding stock options could adversely affect the terms on which we can
obtain additional financing, and the holders of these options can be expected to
exercise these securities at a time when, in all likelihood, we would be able to
obtain additional capital by offering shares of common stock on terms more
favorable to us than those provided by the exercise of these options. Holders of
the options will have the opportunity to profit from an increase in the market
price of our common stock, with resulting dilution in the interests of the
holders of our common stock. Assuming the sale of all 1,000,000 shares offered,
upon the completion of this offering, there will be issued and outstanding
10,808,535 shares of common stock. In addition, as of December 4, 2000, we have
outstanding the following stock options:
Stock options held by our directors, officers, employees, affiliates and
consultants to purchase an aggregate of 1,218,750 shares of common stock,
each with an exercise price of $.21 per share.
Stock options held by unaffiliated third parties to purchase an aggregate
of 259,350 shares of common stock with exercise prices ranging from
approximately $.16 to $.21 per share.
Sales of Shares Eligible For Future Sale
Could Depress
We presently have issued and outstanding 9,808,535 shares of our common stock
and options to purchase an additional 1,478,100 shares at exercise prices
ranging from approximately $.16 to $.21
19
<PAGE>
The Market Price Of Our Common Stock
per share. 2,962,310 of these 9,808,535 shares, plus an additional 340,600
shares underlying outstanding options, will be freely tradeable following the
completion of this public offering (see "Selling Shareholders"). The balance of
6,846,225 presently issued and outstanding shares are restricted from immediate
resale but may be sold into the market in the future. Should a market for our
common stock develop, we are unable to predict the effect that resales made by
selling shareholders pursuant to this prospectus, or by other shareholders under
Rule 144, may have on the then prevailing market price of our common stock. It
is likely, however, that market sales of large amounts of these or other shares
after this offering, or the potential for those sales even if they do not
actually occur, will have the effect of depressing the market price of our
common stock. In addition, if our future financing needs require us to issue
additional shares of common stock or securities convertible into common stock,
the supply of common stock available for resale could be increased which could
stimulate trading activity and cause the market price of our common stock to
drop significantly, even if our business is doing well. See "Description of
Securities -- Shares Eligible for Future Sale."
Our Board of Directors Can Issue
Additional Shares Of Our Common Stock
Without The Consent Of Any Of Our
Shareholders; Substantial Future Stock
Issuances Could Result In The Dilution
Of Your Voting Power And Of Earnings Per
Share Which Could Decrease The Value Of
Your Shares
Our Certificate of Incorporation authorizes the issuance of 20,000,000 shares of
Common Stock. Upon the sale of all of the shares of Common Stock offered hereby
approximately 9,191,465 of our authorized common shares will remain unissued.
Approximately 1,478,100 of such shares will be reserved for issuance pursuant to
the exercise of presently outstanding options. Our board of directors has the
power to issue any or all of the remaining 7,713,365 authorized common shares
for general corporate purposes, without shareholder approval. While we presently
have no commitments, contracts or intentions to issue any additional common
shares except as otherwise disclosed in this prospectus, potential investors
should be aware that any such stock issuances may result in a reduction of the
book value or market price of the outstanding common shares. If we issue any
additional common shares, such issuance will reduce the proportionate ownership
and voting power of each other common shareholder. See "Description of
Securities".
All Subscriptions Will Be Held In Escrow
Until We
Under the terms of this offering, we are offering a minimum of 250,000 shares,
and if the minimum amount of shares being offered
20
<PAGE>
Sell At Least The Minimum Number Of
Shares; If We Fail To Do So, We Will
Have To Withdraw The Offering And
Subscribers Will Have Lost The Use Of
Their Money For A Period of Up To 45
Days
are sold the remaining 750,000 shares will be offered until all of the shares
are sold, the offering period ends, or the offering is terminated by us
whichever first occurs. No commitment currently exists by anyone to purchase all
or any part of the shares offered hereby. Consequently, there is no assurance
that the minimum number of shares being offered will be sold. Subscribers' funds
may be escrowed for as long as 45 days and then returned without interest in the
event the minimum number of shares are not sold within the 30 day offering
period, and the possible 15 day extension period. Subscribers will not have the
use of any funds paid for the purchase of our shares during the subscription
period. In the event we are unable to sell the minimum number of shares within
the offering period, the offering will be withdrawn and we will refund all
subscription payments without interest.
Our Common Stock Is A "Penny Stock," And
Compliance With Requirements For Dealing
In Penny Stocks May Make It Difficult
For Holders Of Our Common Stock To
Resell Their Shares.
If a public market develops for our common stock, it will be in what is known as
the over-the-counter market and, trading of our stock will be quoted in the
Over-the-Counter Bulletin Board of the NASD. At least for the foreseeable
future, our common stock will be deemed to be a "penny stock" as that term is
defined in Rule 3a51-1 under the Securities Exchange Act of 1934. Rule 15g-2
under the Exchange Act requires broker/dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain from these inventors a manually signed and dated written
acknowledgement of receipt of the document before effecting a transaction in a
penny stock for the investor's account. Compliance with these requirements may
make it more difficult for holders of our common stock to resell their shares to
third parties or otherwise, which could have a material adverse effect on the
liquidity and market price of our common stock (see "Description of Securities -
Penny Stock Rules").
Penny stocks are stocks:
o with a price of less than $5.00 per share; or
o that are not traded on NASDAQ or a national securities exchange;
Penny stock are also stocks which are issued by companies with:
21
<PAGE>
o net tangible assets of less than:
$2.0 million (if the issuer has been in continuous operation
for at least three years); or
$5.0 million (if in continuous operation for less than three
years); or
o average revenue of less than $6.0 million for the last three years.
Management Will Continue To Control Us
After the Public Offering And Their
Interests May Be Different From And
Conflict With Yours
The interests of management could conflict with the interests of our other
stockholders. After this offering, our officers and directors will beneficially
own, directly or through members of their immediate families, approximately 55%
of our outstanding common stock. Accordingly, if they act together, they will
have the power to approve corporate transactions and control the election of all
of our directors and other issues for which the approval of our shareholders is
required. This concentration of ownership may also delay, deter or prevent a
change in control of our company and may make some transactions more difficult
or impossible to complete without the support of these stockholders. As a
result, if you purchase shares of our common stock in this offering, you may
have no effective voice in our management. See "Principal Stockholders" and
"Certain Transactions".
Our Majority Shareholders Will Be Able
To Take Shareholder Actions Without
Giving Prior Notice To Any Other
Shareholders; You May Therefore Be
Unable To Take Preemptive Measures That
You Believe Are Necessary To Protect
Your Investment In The Company.
None of our securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "34 Act"). We will not be required to
register under the "34 Act" unless and until at the end of any fiscal year we
have 500 or more shareholders of record and have total assets in excess of
$10,000,000. At present, we have no plans to register any of our securities
under the "34 Act" unless and until we are required to do so. As a result, we
are not, and after the public offering, we will not be, subject to the Proxy
Rules of Section 14 of the "34 Act". We will therefore be able to take
shareholder actions in conformance with Section 228 of the Delaware General
Corporation Act, which permits us to take any action which is required to, or
may, be taken at an annual or special meeting of the shareholders, without prior
notice and without a vote of all of our shareholders. Instead of a vote,
22
<PAGE>
shareholder actions can be authorized by the written consents to such actions,
signed by the holders of the number of shares which would have been required to
be voted in favor of such action at a duly called shareholders meeting. We are
not required to give prior notice to all shareholders of actions taken pursuant
to the written consents of the majority shareholders. Our obligations are
limited to giving such notice promptly after the action has been taken.
PRO FORMA FINANCIAL INFORMATION
We were formed on December 6, 1999 for the specific purpose of acting as a
holding company for The Guitron Corporation, which we will acquire and operate
as a wholly owned subsidiary. Following the sale of at least 250,000 shares and
prior to the release of sale proceeds from escrow, we will effect the
acquisition of The Guitron Corporation in accordance with the terms described
under "Business - Acquisition of The Guitron Corporation". All of our activities
to date have related to our formation, this offering and our future effectuation
of the acquisition. All operations to date respecting the development of the
Guitron have been and all future operations respecting further development,
marketing and sale of the Guitron and related products will be conducted through
The Guitron Corporation. Based upon the foregoing, the audited financial
statements contained herein for the two years ended July 31, 2000 treat The
Guitron Corporation as our predecessor and give effect to the acquisition as of
July 31, 2000. Accordingly, and as a consequence of our relationship with The
Guitron Corporation, no pro forma financial information is required.
USE OF PROCEEDS
The Selling Shareholders are selling their shares covered by this
prospectus for their own accounts. Accordingly, we will not receive any proceeds
from the resale of their shares. We will however, receive proceeds from the sale
of shares made on behalf of the Company by our officers. The net proceeds to us
from the offering, after deducting offering related expenses, is estimated to be
approximately $ 210,000 if the minimum number of 250,000 shares offered are sold
and $960,000 if all 1,000,000 shares offered are sold. We intend to use the net
proceeds from the offering in the approximate amounts shown below for the
purposes listed, in order of priority:
Approximate Amount
------------------
Percent Percent
of of
Anticipated Use At minimum Total At maximum Total
--------------- ---------- ----- ---------- -----
Product Inventory $ 50,000 23.8% $150,000 15.6%
Sales and
Marketing Expenses $125,000 59.5% $300,000 31.3%
Working Capital(1) $ 35,000 16.7% $510,000 53.1%
TOTAL $210,000 100% $960,000 100%
23
<PAGE>
(1) In the minimum offering situation, approximately $35,000 will be used as
working capital and applied to general corporate purposes including, but
not limited to, rent and salaries. In the maximum offering situation,
approximately $510,000 will be used as working capital and applied to
general corporate purposes including, but not limited to, rent, salaries,
and research and development expenses.
None of the expenditures described above constitute a firm commitment by us.
Projected expenditures are estimates or approximations only. Future events,
including changes in the economic climate or in our planned business operations,
including the success or lack of success of our intended business activities,
could make shifts in the allocation of funds necessary or desirable. Any shifts
of this nature will be at the discretion of our board of directors.
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Before this offering, there has been no public market for our common stock
and there can be no assurance that a public market for our common stock will
develop after this offering. We anticipate that upon completion of this offering
our common stock will be traded on the OTC Bulletin Board.
Giving present effect to our acquisition of The Guitron Corporation, we
would have 9,808,535 shares of common stock issued and outstanding held by
approximately 55 persons. An additional 1,478,100 shares of common stock would
be subject to issuance upon exercise of outstanding stock options. 3,302,910
shares, including 340,600 shares underlying outstanding options will be freely
tradeable by Selling Stockholders in connection with this offering.
Neither we nor The Guitron Corporation have ever paid dividends on our
respective common stocks. There are no restrictions that limit our ability to
pay dividends on our common stock or that are likely to do so in the future.
Despite the foregoing, for the foreseeable future, it is anticipated that any
earnings which may be generated from our operations will be used to finance our
growth and that cash dividends will not be paid to stockholders.
DILUTION
The following discussion assumes that we acquired The Guitron Corporation
on July 31, 2000. It does not assume the exercise of then outstanding options of
The Guitron Corporation, the exercise of which would result in further dilution
to investors in this offering. The following discussion also assumes that the
net proceeds to us will be $210,000 if the minimum number of shares offered are
sold and will be $960,000 if the maximum number of shares offered are sold.
At July 31, 2000, we had a net tangible book value of $(517,747) or
$(.0528) per share. Net tangible book value per share represents the amount of
our total tangible assets, minus total
24
<PAGE>
liabilities, divided by the 9,808,535 shares then outstanding. After giving
effect to the sale of the minimum number of Shares offered hereby (250,000
Shares), the pro forma net tangible book value at July 31, 2000 would have been
$(.0306) per share, representing an immediate increase of $.0222 per share to
present stockholders and an immediate dilution of $1.0306 per share to the
public stockholders from the public offering price. After giving effect to the
sale of the maximum number of Shares offered hereby (1,000,000 Shares), the pro
forma net tangible book value at July 31, 2000 would have been $.0409 per share,
representing an immediate increase of $.0937 per share to present stockholders
from the public offering and an immediate dilution of $.9591 per share to the
public stockholders from the public offering price. "Dilution" per share
represents the difference between the public offering price and the net tangible
book value per share after the Offering.
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the minimum number of
Shares offered hereby (250,000 Shares) are sold.
Assumed public offering price $1.00
Net tangible book value per share before Offering $(.0528)
Increase attributable to public stockholders $ .0222
Pro forma net tangible book value after Offering $(.0306)
Dilution to public stockholders $1.0306
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the maximum number of
Shares offered hereby (1,000,000 Shares) are sold.
Assumed public offering price $1.00
Net tangible book value per share before Offering $(.0461)
Increase attributable to public stockholders $ .0937
Pro forma net tangible book value after Offering $ .0409
Dilution to public stockholders $ .9591
The following table illustrates the difference between the present
stockholders and the new stockholders with respect to the number of shares
purchased from us on the sale of both the maximum and minimum number of shares
offered, the total cash consideration paid and the average price per share,
assuming an initial public offering price of $1.00 per common share and before
the deduction of offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Present stockholders 9,808,535 97.51%(minimum) $ 991,758 79.87%(minimum) $.101
90.75%(maximum) 49.79%(maximum)
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
New stockholders 250,000 2.49% $ 250,000 20.13% $ 1.00
(minimum offering)
New stockholders
(maximum offering) 1,000,000 9.25% $1,000,000 50.21% $ 1.00
TOTAL (MINIMUM) 10,058,535 100% $1,241,758 100% $.1235
TOTAL (MAXIMUM) 10,808,535 100% $1,991,758 100% $.1843
</TABLE>
CAPITALIZATION
The following table sets forth, as of July 31, 2000, (a) the
capitalization of our Company giving present effect to the acquisition of The
Guitron Corporation, and (b) the capitalization of our Company on an as adjusted
basis to give effect to the sale of the minimum and maximum number of shares
offered after deducting estimated expenses of the offering.
<TABLE>
<CAPTION>
July 31, 2000
-------------
AS ADJUSTED
-----------
MINIMUM MAXIMUM
------- -------
<S> <C> <C> <C>
Long-term debt, including current portion $ 66,980 $ 66,980 $ 66,980
Stockholders' equity
Common stock, $.001 par value;
20,000,000 shares authorized,
9,808,535 shares outstanding,
10,058,535 shares outstanding
(as adjusted minimum), 10,808,535
shares outstanding (as adjusted
maximum) $ 9,809 $ 10,059 $ 10,809
Additional paid-in capital $ 1,361,148 $ 1,570,898 $ 2,320,148
Accumulated deficit $(1,899,558) $(1,899,558) $(1,899,558)
Unrealized gain on foreign exchange $ 10,854 $ 10,854 $ 10,854
Total stockholders' equity $ (517,747) $ (307,747) $ 442,253
</TABLE>
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors
26
<PAGE>
and will be contingent on future earnings, if any, our financial condition,
capital requirements, general business conditions and other factors as our board
of directors deem relevant.
PLAN OF OPERATION
The following discussion of our plan of operation for the next twelve
months should be read together with, and is qualified in its entirety by, the
more detailed information, including the summary financial information and our
financial statements and the notes thereto included elsewhere in this
prospectus. Our plan of operation for the next twelve months involves:
o implementing our sales and marketing plans to create sales and
distribution channels for the Guitron;
o commencing sales of the Guitron, which is expected to occur during
the first quarter of 2001;
o continuing our investment in research and development respecting the
Guitron; and
o developing other applications for the Guitron technology.
The component parts of the Guitron will be manufactured for us by third
parties and assembled at our Montreal, Canada office. In our present space, we
estimate that we have the capacity to assemble approximately 10,000 Guitrons per
month. In addition, should product demand necessitate assembly of a greater
number of Guitrons we anticipate that we can lease additional space in the same
building that would allow us to double our present assembly capacity to
approximately 20,000 Guitrons per month. Should even greater product demand
exist, we expect that we would move our operations to a larger facility in the
Montreal, Canada area, which we believe would be available to us from several
sources at rates that, on a square footage basis, are competitive with our
present monthly rental rate. The assembly of Guitrons does not require skilled
labor. The level of demand for Guitrons will dictate the number of additional
employees, if any, we will need to hire for assembly purposes.
We have not yet achieved operating revenues and do not expect to achieve
revenues until we commence Guitron sales. Our activities to date have been
principally devoted to raising capital, developing marketing plans, identifying
and entering into relationships with marketing organizations and parts
suppliers, and completing development of the Guitron. As of July 31, 2000 we had
a working capital deficit of $70,979, and had expended approximately $952,148 on
research and development activities since inception.
Employee levels are expected to increase in connection with the
commencement of sales activities and are expected to be directly related to
product demand. Despite the foregoing, all of our marketing and sales personnel
requirements will be outsourced. (See "Business-Sales and Marketing") The
receipt of the maximum offering proceeds together with expected revenues
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from operations should be sufficient to satisfy our cash requirements during the
next twelve months, but no assurance can be given that this will prove to be the
case. Our cash requirements over that period will be directly related to our
sales and marketing efforts, the number of geographic markets we attempt to
enter during such period, our research and development requirements, and the
overall speed at which we advance our operations. There can be no assurance
given that if we are required to seek additional financing that it will be
available to us, or if available that we can obtain this financing on reasonable
terms.
The receipt of the minimum offering proceeds together with expected
revenues from operations may be insufficient to satisfy our cash requirements
during the next twelve months. Should this prove to be the case we would have to
seek additional financing, the availability and terms of which may be
unfavorable to us. See "Risks Related To Our Financial Condition - We May Need
Additional Financing Which May Not Be Available And, If Available, Might Only Be
Available On Unfavorable Terms". In addition, the receipt of less than the
maximum proceeds may cause us to finance our inventory purchases and curtail our
intended advertising campaigns.
Full scale marketing efforts will be undertaken in the first quarter of
2001. Complete packages of the three instruments have been provided to our
marketing consultants for their presentations to prospective customers. These
packages include not only the instruments but also manuals, song books, a
demonstration CD, packaging and point of sale material. Based on discussions and
feedback to the marketers, our primary area of focus will be with the home
shopping networks. During the first quarter of 2001, we will attempt to
negotiate a contract for the sale of the instruments on one or more of these
networks, although no assurance can be given that this will prove to be the
case.
During the latter part of the first quarter of 2001 and leading into the
second quarter, individual national and international retailers will be visited
and provided with marketing packages. Marketing efforts will be concentrated on
securing orders for delivery in May and June and the fall of 2001 but once
again, we can offer no assurances that we will be able to enter into agreements
with these retailers, or if entered into, that they will prove to be profitable.
During the second and third quarters of 2001, our marketing efforts will
be directed to expanding our existing marketing channels and to exploring other
areas of revenue including licensing to and manufacture for other name brands.
In the first quarter of 2001 we will also attempt to enter into a
distribution service contract that will provide us with distribution and service
centers throughout North America. No assurance can be given however that this
will prove to be the case. During the last quarter of 2001 we will attempt to
negotiate additional distribution and service contracts covering other parts of
the world.
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BUSINESS
Overview
We are a development stage company which is poised to launch a unique
musical instrument known as the Guitron. The Guitron represents a new
development respecting one of the world's oldest and most popular musical
instruments, the guitar. It preserves the natural beauty of the guitar while
simplifying the playing. The Guitron closely resembles and possesses the
characteristics of a traditional guitar. It looks like a guitar and maintains
the pleasurable function of strumming while eliminating certain of the
complexities of the traditional guitar including the need to learn the
complicated fingerboard positions necessary to produce a chord. We believe that
this is the primary reason that many first time guitar purchasers abandon their
instruments within the first three months of use. They are not prepared to
invest the time and energy required by the traditional guitar to attain a
reasonable level of skill. By contrast, to produce a chord on a Guitron requires
only one finger. The Guitron has a simplified grid system that allows the player
to easily find desired chords by following letters on the neck of the Guitron
and depressing the string that corresponds to the chord family desired,
producing a perfect chord when the strings are plucked. Hundreds of chords are
available, always in tune and in perfect pitch. The Guitron is battery operated
and contains a patent pending speakerless system, together with a unique
combination of software and hardware. The Guitron relies on its electrical
components for its sound. The sounds generated by the Guitron are pre-programmed
into the instruments memory. Plucking or striking the strings of the instrument
releases these sounds, which are not affected by string tension.
Ubaldo Fasano, the inventor of the Guitron, had tried as a young man, to
learn and play the guitar. Failing to do so, his interests turned to
synthesizers. Subsequently, he became a pioneer in the programming of these
complex and innovative instruments. The knowledge he gained in manipulating and
shaping musical sounds played a decisive role in the creation of the Guitron.
Through perseverance and determination he continued to experiment with devices
that would equip him to play guitar. He decided to put his knowledge of shaping
and creating sounds for synthesizers towards developing a series of experiments
in search of an electronic solution to his guitar learning problem.
Approximately twenty years later, in May 1997,combining new electronic modules,
printed circuits and sophisticated microprocessors, he completed development of
the first prototype of the Guitron. A second generation prototype was completed
in February 1999. Mr. Fasano passed away in April 1999 after a long illness but
his vision lives on. Since that time, a third generation prototype was developed
and we continue to seek ways to further improve product quality and reliability.
There are three basic models of the Guitron, including an electronic, acoustic,
and children's model. Basic development of these models was completed in March
2000. Since that time, we have devoted our resources to further refining the
instrument and simplifying the manufacturing process.
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Acquisition of The Guitron Corporation
We were incorporated on December 6, 1999 for the specific purpose of
acquiring The Guitron Corporation, an affiliated corporation which was formed on
August 20, 1997. This acquisition is scheduled to take place following our sale
of at least 250,000 shares. If we are unable to sell 250,000 or more shares
within the offering period, including any extensions thereof, the acquisition
will not be consummated and the offering will be cancelled.
In connection with the acquisition:
o each of the issued and outstanding shares of The Guitron Corporation
at the time of the acquisition will be exchanged for 3.25 shares of
our common stock; and
o each of the issued and outstanding stock options of The Guitron
Corporation will become exercisable for 3.25 shares of our common
stock.
As a consequence of the foregoing:
o 2,218,226 outstanding shares of The Guitron Corporation, which
shares will represent all of the issued and outstanding shares of
The Guitron Corporation, will be exchanged for 7,209,235 shares of
our common stock; and
o 454,800 stock options of The Guitron Corporation, which options will
represent all of the issued and outstanding stock options of The
Guitron Corporation, will become exercisable for an aggregate of
1,478,100 shares of our common stock. Additionally, the
post-acquisition per share option exercise price will be reduced by
dividing the per share exercise price in effect before the
acquisition by 3.25 such that following the acquisition, each option
holder will be able to exercise each of his, her, or its options for
3.25 shares of our common stock at the same price it would have cost
to exercise the option to purchase one share of The Guitron
Corporation before the acquisition. Following the effectuation of
the acquisition, The Guitron Corporation will become a wholly owned
subsidiary of our Company.
Industry Background
In 1977, the United States music products and sound industry reported
annual retail sales of approximately $1.9 billion. Ten years later, in 1987, it
reported sales of approximately $3.4 billion. By 1998, the industry was
reporting record breaking sales of approximately $6.51 billion, more than
tripling its sales figure twenty years earlier. We believe that this growth is
primarily attributable to the growing value placed by most Americans on musical
pursuits and the vibrant United States economy. For purposes of this discussion,
and throughout this prospectus, all United
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States industry unit and dollar volume figures represent shipments by
manufacturers and distributors to United States retailers at an estimated retail
value. Estimates of unit sales, and retail values are based on data presented by
the National Association of Music Merchants in their 1997, 1998 or 1999
statistical review of the U.S. Music Products Industry. This data was provided
to the National Association of Music Merchants by the Music Trades Magazine
which obtained the data from a variety of sources including, but not limited to,
the United States Department of Commerce, industry associations, and corporate
financial records. The United States guitar market experienced annual sales of
approximately 1.1 million guitars in each of 1995, 1996, 1997 and 1998
representing dollar sales of approximately $696,000,000; $706,000,000;
$711,000,000 and $695,000,000 respectively. These numbers do not take into
account the very large secondary or used market sales figures. These statistics
indicate the vast potential of the markets in which the Guitron is expected to
compete. No assurances can be given however, that demand for guitars will
increase or remain consistent in the future or that we will prove successful in
obtaining a portion of the future revenues which will be expended on guitar
purchases.
In 1997, the National Association of Music Merchants commissioned the
Gallup Organization to conduct a national survey of amateur music participation
in the United States. Certain highlights of the survey's results show that:
o Approximately 25% of the United States population over the age of
twelve currently play musical instruments,
o Most current players first learned to play a musical instrument at
school;
o Approximately 43% of all households own at least one musical
instrument.
o Pianos and guitars are the most popular instruments (33% and 18%
respectively) of all instruments played;
o The guitar is most likely to be played by persons in the 18-49 age
group.
o Males are more likely than females to play the guitar.
Based upon United States guitar sales figures for the past several years,
it is our belief that guitar sales will remain steady over the foreseeable
future, although no assurance can be given that this will prove to be the case.
For the past few years keyboard manufacturers have been concentrating on making
their product more user-friendly in order to penetrate a wider market and have
been extremely successful. Guitar manufacturers have not followed this trend. We
believe that beginners of all ages will be attracted to the immediate results
offered by the Guitron. We further believe that the Guitron will appeal to
players of all genders, ages and skill levels, although no assurance can be
given that this will prove to be the case. Based upon the results
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of the Gallup Study, however, our primary marketing strategy will be directed to
school age players and to males in the 18-49 age group.
Products and Services
Products
In March 2000, we completed initial development of three models of the
Guitron, the acoustic Guitron, the electric Guitron and the children's Guitron.
From April 2000 through November 2000 we further refined the Guitron and
simplified the manufacturing and assembly process. These refinements included
cosmetic improvements to the instruments, rearrangement of functional chord
positions, reconfiguration of chord sounds, and changes relating to hardware
placement and fastenings. Simplification of the manufacturing and assembly
process included design work on various molds which also resulted in a more
durable product. We expect to commence marketing and selling the Guitron during
the first quarter of 2001, although no assurance can be given that this will
prove to be the case. All Guitron models contain the following features:
o Simplified Left-Hand Movement - In response to our conclusion that
the intricate fingering positions are the primary reason why many
guitar purchasers give it up in frustration and why many others
never purchase a guitar in the first place we have identified and
simplified the complex left-handed functions of the traditional
guitar. The Guitron solves the problem by replacing the complex left
hand fingering positions with a one finger movement.
o Chord Locator by Grid System - All Guitron models are equipped with
a simple and visible grid system that identifies chords. An
alpha-numeric display indicates the specific chord played.
o Single and Double Switch Chording Function - All Guitron models
contain a switching chord function feature which allows a person to
play in excess of 1000 chords if desired.
o Low Tension Strings - Depressing strings on the traditional guitar
can cause pain when the strings bite into the fingers and can leave
deep ridges in the skin. All Guitron models feature strings that are
low tension, made of nylon, easy to depress, and cause no injury to
the fingers.
o Excellent Sound Quality - Along with an interface and a
microprocessor, a simple playback mechanism produces quality sound
through a proprietary speakerless technology. The sound is generated
by the Guitron's sound board.
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o Computer Interactive - All Guitron models have full computer
interface capability. Each is equipped with the standard midi-in and
midi-out connections allowing for the interaction of the instrument
with personal home computers. This feature is expected to prove to
be a valuable tool for professional music writers and composers.
Proposed Accessory Items
In addition to the Guitron, we intend to offer consumers related accessory
items including, but not limited to, guitar straps, picks, cases, headphones,
amplifiers and stands. All of these items will be manufactured for us, in
accordance with our specifications, by product manufacturers located in
Southeast Asia. There are several manufacturers available to us for each of
these items and we do not anticipate any problems with respect to product
quality or cost. We intend to carry a relatively small inventory of these
accessory items, at any given time, since the delivery time for orders given by
us to such manufacturers is expected to be short.
Services
We will market the Guitron as a high quality, sophisticated, musical
instrument. Consistent with this marketing plan, we will provide our customers
with a product warranty, product satisfaction guarantee and related support
regarding the use and enjoyment of such product. We will warrant the Guitron to
be free from defects in material and workmanship and will provide each purchaser
of a Guitron with a one year warranty on parts and labor, except for the
Guitron's rechargeable batteries which will carry a 90-day warranty. During the
effective warranty period, we will remedy any product defects. Parts may be
replaced under the warranty, at our election, with new or comparable
remanufactured parts. The warranty will not extend however, to any Guitron which
has been subjected to usage for which the product was not designed, which has
been damaged as the result of shipping, or which has been altered or repaired in
a way that affects product performance or reliability. To further insure
customer satisfaction, we will also provide each customer with a ten day money
back guarantee, excluding shipping and handling.
Patents and Trademarks
We have filed two provisional patent applications with the United States
Patent and Trademark office. The first of these patents was filed on February 2,
1999 and titled "electronic stringed musical instrument". This patent
application relates to both the sound technology utilized in the Guitron and the
related fingering system for producing chords. On February 2, 2000 we filed a
replacement application which reflected technological advances made by us since
the
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initial filing date. The second patent application was filed on August 5, 1999
and titled "guitar headstock". This patent application relates to the physical
design of the Guitron. On February 2, 2000 we also filed applications titled
"electronic stringed musical instrument" for Canadian and international patents.
Although we expect that patents will be granted in response to these
applications, we are unable to give any assurance that this will in fact be the
case. In addition to the protection to be offered to us upon the allowance of
our patent applications, we also rely on trade secrets proprietary know-how and
technological innovation with respect to the development of the Guitron.
In April 1998 we filed an application with the United States Patent and
Trademark Office seeking trademark registration for the mark "Guitron"
indicating our intention to use the mark in connection with the musical
instrument referred to in this prospectus as the Guitron. In October 1999 we
received a Notice of Allowance with respect to this application.
We have entered into confidentiality and invention assignment agreements
with our employees and consultants which limit access to, and disclosure or use
of, the Guitron technology. There can be no assurance, however, that the steps
taken by us to deter misappropriation or third party development of our
technology or processes will be adequate, that others will not independently
develop a similar technology or processes, or that secrecy will not be breached.
In addition, although we believe that our technology has been independently
developed and does not infringe on the proprietary rights of others, there can
be no assurance that our technology does not and will not so infringe or that
third parties will not assert infringement claims against us in the future. We
believe that the steps we have taken will provide some degree of protection and
that the issuance of patents pursuant to our applications will materially
improve this protection. However, no assurance can be given that this will be
the case.
Sales and Marketing
We intend to commence market introduction of our three Guitron models; the
electric Guitron, acoustic Guitron and children's Guitron during the first
quarter of 2001. Our initial test markets will be Quebec, Canada and the
Northeastern United States followed in or about the fourth quarter of 2001 by
the remainder of the United States. By the end of 2002 we intend to be marketing
the Guitron on a worldwide basis. No assurances can be given however, that we
will achieve our geographic marketing goals within the time frame indicated, or
that this will ever be achieved. During the second quarter of 2001, we intend to
introduce Guitron accessories including guitar straps, cases, amplifiers,
headphones, picks, and foot and music stands. Our long term marketing objective
is to create full consumer awareness of the Guitron, the accessory items, and
the other products that we may develop in the future. Our medium term marketing
objective is to introduce new lines of Guitrons in or before 2004. These new
lines are expected to be the result of our continuing dedication to research and
development and our ability to respond to consumer feedback.
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To limit our fixed expenses by decreasing our employee requirements, to
enable us to expedite the implementation of our sales and marketing plans and
strategies, and to position us to take advantage of the services of professional
sales and marketing organizations, we have decided to rely on outsourcing for
our sales and marketing needs. Accordingly, we have entered into marketing
agreements with Marvin Chankowsky and Jean Pilote to develop, coordinate and
implement marketing strategies for the Guitron and the proposed accessory items.
Jean Pilote, an experienced marketer of products and services, will coordinate
our marketing for the Quebec and Eastern Canada regions, while Marvin
Chankowsky, directly or through MBC Marketing Ltd., a leading Canadian sales
promotion agency under the control of Mr. Chankowsky, will coordinate our
marketing for the United States and subsequently other countries and
territories.
The Marketing Agreement between The Guitron Corporation and Jean Pilote
was entered into on September 1, 1999. It has a two year term that commenced on
September 1, 1999 and provides for Mr. Pilote to devise, develop and implement a
marketing plan with respect to sales of Guitrons in the Province of Quebec,
Eastern Canada and any other geographic areas that are mutually agreed to by the
parties. In consideration of these services, the Pilote Marketing Agreement
provides for the reimbursement of all approved out of pocket expenses incurred
by Mr. Pilote and his affiliates in connection with the performance of the
contract, the issuance to Mr. Pilote of 1,000 shares of The Guitron Corporation
(3,250 shares of Guitron International Inc., on a post acquisition basis) which
issuance was made on December 7, 1999; and additional compensation, as described
below, which is based upon Guitron sales that are directly related to the
marketing efforts of Mr. Pilote and his affiliates, within the applicable sales
territory during the term of the Pilote Market Agreement.
This additional compensation consists of the following:
(a) the right to receive 1,000 shares of The Guitron Corporation (up to
a maximum of 9,000 shares) which will be 3,250 shares of Guitron
International Inc. on a post acquisition basis (up to a maximum of
29,250 shares) for every Cdn $100,000 (approximately US $67,250) in
net receipts realized by us from sales of Guitrons in the applicable
sales territory during the term of the Pilote Marketing Agreement
where the sales are directly related to the marketing efforts of Mr.
Pilote and his affiliates;
(b) during the stock earn out period described in (a) above, the right
to receive a sales commission equal to 3% of the net receipts
realized by us from sales of Guitrons in the applicable sales
territory during the term of the Pilote Marketing Agreement that are
directly attributable to the marketing efforts of Mr. Pilote and his
affiliates; and
(c) subsequent to the stock earn out period described in (a) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of
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Guitrons in the applicable sales territory during the term of the Pilote
Marketing Agreement that are directly attributable to the marketing
efforts of Mr. Pilote and his affiliates.
The Chankowsky Marketing and Consulting Agreement between The Guitron
Corporation and Marvin Chankowsky was entered into as of September 29, 1999. It
has a thirty month term that is expected to commence on or about January 1,
2001. The Marketing and Consulting Agreement provides for Mr. Chankowsky to
devise, develop and implement a marketing plan with respect to the sale of
Guitrons in North America and those other geographic areas that are mutually
agreed to between the parties. In consideration of the Chankowsky Marketing
Agreement, The Guitron Corporation issued 10,000 shares of its stock to Mr.
Chankowsky on December 7, 1999. Mr. Chankowsky will be entitled to further
compensation, as described below, based upon Guitron sales within the applicable
sales territory that are directly attributable to the marketing efforts of Mr.
Chankowsky and his affiliates during the term of the agreement. The stock
compensation component of this further compensation will result in additional
dilution to investors in this offering. We have agreed to use our best efforts
to register the stock to be issued to Mr. Chankowsky under the Marketing and
Consulting Agreement.
This additional compensation consists of the following:
(a) the right to receive 10,000 shares of The Guitron Corporation (up to
a maximum of 264,000 shares) which will be 32,500 shares of Guitron
International Inc. on a post acquisition basis (up to a maximum of
858,000 shares) for every Cdn $100,000 (approximately US$67,250) in
net receipts realized by us from sales of Guitrons in the applicable
sales territory during the term of the Marketing and Consulting
Agreement where the sales are directly related to the marketing
efforts of Mr. Chankowsky and his affiliates;
(b) during the stock earn out period described in (a) above, the right
to receive a sales commission equal to 2% of the net receipts
realized by us from sales of Guitrons in the applicable sales
territory during the term of the Marketing and Consulting Agreement
that are directly attributable to the marketing efforts of Mr.
Chankowsky and his affiliates; and
(c) subsequent to the stock earn out period described in (a) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of Guitrons in the applicable sales
territory during the term of the Marketing and Consulting Agreement
that are directly attributable to the marketing efforts of Mr.
Chankowsky and his affiliates.
The Quebec and Eastern Canada marketing strategy will primarily involve a
direct marketing approach that will utilize various media including, but not
limited to, newspapers,
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magazines, radio and television advertisements as well as infomercials. This
marketing strategy will also utilize the talents and name recognition, in the
Quebec and other french speaking regions of Canada, of our Canadian
spokesperson, Jean Pierre Ferland. Mr. Ferland is a French-Canadian artist,
singer and songwriter who has built an extensive reputation with his audiences.
Other direct marketing approaches intended to be utilized by us include
the following:
o establishment of a toll free information number which will provide
interested parties with detailed information respecting the Guitron;
o sponsorships of music promotion programs within educational
institutions, that will be geared towards 12 to 25 year old music
students as well as aspiring musicians, and that will support music
competitions, concerts and music clubs involving, among other
musical instruments, the Guitron;
o product promotion by arranging for Guitron use by performing artists
at concerts, cafes, cabarets, television shows and other high
profile venues; and
o creation of an internet web site that will promote the Guitron by
among other things, providing a product demonstration.
The North American marketing strategy will involve a dual approach
utilizing both direct marketing, similar to the direct marketing strategies to
be utilized with respect to our Canadian marketing, and distribution through
large retailers.
Supplies and Suppliers
The primary components of the Guitron include electronics, hardware,
software, and guitar bodies. These components will be manufactured for us by
third parties. We will assemble Guitrons at our Montreal, Canada office. We also
intend to sell related accessories manufactured for us by third parties such as
speakers, amplifiers, stands, straps, footrests and cases. Suppliers of
component materials and accessories will be chosen based on quality, service and
price.
The price of raw materials for the manufacture of Guitrons is expected to
remain stable in the near term. Increases that may occur are expected to be
small, although no assurance can be given that this will prove to be the case.
Each category of raw materials has several competing suppliers. We do not intend
to be dependent upon any one supplier for each of the raw materials that we will
purchase. We expect all required raw materials to be readily available in
sufficient quantities and to be of required quality. In the extreme situation,
however, were any required raw materials not to be generally available, it would
have a material adverse effect on our operations.
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Seasonal Aspects
We do not expect to experience seasonal variations in our operating
results.
Research and Development
Although the basic design and development of the Guitron was brought to
completion during March 2000, we continue to refine and enhance our Guitron
technology and related manufacturing processes. Except as otherwise disclosed in
this prospectus, all of our research and development activities are company
sponsored. To date, all of these activities have related to the development of
the Guitron. During the fiscal years ended July 31, 2000, July 31, 1999 and July
31, 1998 we spent approximately $430,073, $303,674 and $218,401, respectively,
on research and development activities.
Customers
We do not expect any single customer to account for a significant portion
of our revenues. Accordingly we will not be dependent upon any single customer
to achieve our business goals.
Competition
We know of no guitar-like related devices, apparatus or equipment,
utilizing electronic or other technology, which is identical or comparable to
the Guitron technology, presently being sold or used anywhere in the world.
Further, we are not aware of any competing patents relating to this technology.
However, the Guitron may reasonably be expected to compete with related or
similar guitar, or guitar-like, instruments, apparatus or devices. Moreover,
prospective competitors which may enter the field may include established
manufacturers of musical or electronic audio instruments and equipment, all of
which will be considerably larger than we are in total assets and resources.
This could enable them to bring their own technologies and instruments to
advanced stages of development and marketing with more speed and efficiency than
we have been, or will be, able to apply to the development and marketing of the
Guitron. There can be no assurance that the Guitron will successfully compete
with conventional guitars and existing electronic guitar-like instruments or
with any improved or new technology instrument which may be developed in the
future.
Canadian Government and Government Sponsored Financial Assistance
The governments of Canada and Quebec have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage these activities, the Government of
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Canada, on a national basis, and the Government of Quebec, on a provincial
basis, support private research and development initiatives through the
provision of research tax incentives to businesses and individuals. These tax
incentives take the form of deductions and tax credits with respect to eligible
research and development expenditures of Canadian corporations. Certain tax
credits are called "refundable" because to the extent that the amount of the tax
credit exceeds the taxes payable, they are paid over or "refunded" to the
taxpayer. Thus, such credits function effectively as monetary grants. To qualify
for such tax credits, research and development activities must comprise
investigation or systematic technological or scientific research conducted
through pure or applied research, undertaken to advance science and develop new
processes, materials, products or devices or to enhance, even slightly, existing
processes, materials, products, or devices. Approximately $138,993, $232,810 and
$238,200 of the research and development expenditures made by The Guitron
Corporation during the fiscal years ended July 31, 1998, July 31, 1999, and July
31, 2000 respectively, qualified for such tax credits. In consideration of such
expenditures, we received approximately $23,993 and $73,155 in tax credits for
the fiscal years ended July 31, 1998, and July 31, 1999, and have a tax credit
receivable of $119,764 against our eligible expenditures made during the fiscal
year ended July 31, 2000.
The Guitron Corporation has also received financial assistance by way of
loans and grants from Quebec governmental agencies for export market
development. The terms and conditions of the government and government sponsored
loans and grants obtained by The Guitron Corporation include the following:
Loan From Canada Economic Development for Quebec Regions ("CEDQR") CEDQR's
Program for the Development of Quebec's IDEA Program provides loans in amount of
up to 50% of approved expenditures made by the borrower for the purpose of
identifying and developing export markets for Canadian products. Under this
program, The Guitron Corporation has obtained a loan, as follows:
On April 22, 1998, The Guitron Corporation qualified for a loan, in an
amount equal to 50% of approved expenditures, up to a maximum loan amount of
approximately $68,624 for market development activities in the United States
respecting the sale of Guitrons. In connection with the foregoing, during the
year ended December 31, 1998, CEDQR granted The Guitron Corporation loans in the
aggregate amount of approximately $68,624. The loan does not require us to pay
interest on the outstanding loan balance unless we are delinquent with respect
to an installment payment. The CEDQR Loan is repayable as follows:
(a) approximately $6,862 of the loan is due and payable on January 31,
2001;
(b) approximately $13,724 of the loan is due and payable on January 31,
2002;
(c) approximately $20,586 of the loan is due and payable or January 31,
2003; and
(d) approximately $27,448 of the loan is due and payable on January 31,
2004.
39
<PAGE>
Loan From Business Development Bank of Canada On April 23, 1998 The
Business Development Bank of Canada made a loan of approximately $19,999 to The
Guitron Corporation for the principal purpose of helping to finance market
development activities. The loan was made repayable in 60 monthly installments
with payment due on the 23rd day of each month commencing February 23, 1999. The
loan required the payment of interest on the outstanding principal loan balance
at the rate of 10.5% per annum. The loan was secured by a life insurance policy
in favor of the bank on Ubaldo Fasano in the amount of the loan. Following the
death of Mr. Fasano in April 1999, the life insurance proceeds were utilized by
the bank to pay off the remaining loan balance.
Government Regulation
There are no special or unusual governmental laws or regulations that can
be expected to materially impact on the operation of our business.
Personnel
As of December 4, 2000 we had six employees including two executive
officers, two administrative employees, one product technician, and our Director
of Production and Quality Control. Our Director of Research, Engineering and
Manufacturing works for us on an independent contractor basis. We plan to add
additional employees as required for the expanded operation of our business
including those required for Guitron assembly. We consider our relationship with
our employees to be satisfactory. Our work force in non-unionized.
Legal Proceedings
No material legal proceedings are pending to which we or any of our
property is subject, and to our knowledge there are no threatened legal
proceedings.
Facilities.
Our headquarters are currently located in a leased facility located at 38
Place du Commerce on Nun's Island, Montreal, Quebec, Canada, consisting of a
total of approximately 3,800 square feet of space. Our current lease expires on
March 31, 2001. Prior to termination, we intend to extend the term of the lease.
The current monthly rent due under the lease is approximately $3,455 plus our
proportionate share of all water taxes, business taxes, and other similar taxes
and rates which may be levied or imposed upon the premises. We utilize the space
for general administrative, storage, and manufacturing and assembly purposes. We
believe this space is sufficient to handle our present and immediate future
needs including additional production staff
40
<PAGE>
and equipment. Further, in the event the lease is terminated, for any reason,
space sufficient to handle our then present and expected future needs is
available from several alternative sources at comparable rental rates.
MANAGEMENT
Directors, Officers, Key Employees and Consultants.
The following table provides certain information, as of December 4, 2000,
with respect to our directors, executive officers and key employees and
consultants. Following the acquisition of The Guitron Corporation these persons
will continue to serve in these positions. With the exception of Michael Ash,
all of our directors, executive officers and key employees and consultants
currently hold similar positions with The Guitron Corporation. As elsewhere in
this prospectus, where context requires, it is assumed that the acquisition of
The Guitron Corporation has already taken place and that our history dates back
to the August 20, 1997 formation of The Guitron Corporation.
NAME AGE POSITION
---- --- --------
Richard F. Duffy 53 President, Chief
Executive Officer
and Chairman
Michael D. A. Ash 50 Secretary, Treasurer
and Director
France B. Fasano 56 Director
Edward Santelli 65 Director
David L. Rosentzveig 49 Director
Paul D. Okulov 41 Director of Research,
Engineering and
Manufacturing
Jean Pierre Paradis 43 Director of Production
and Quality Control
41
<PAGE>
The following is a brief account of the business experience of each of our
directors, executive officers, key employees and consultants during the past
five years or more.
Richard F. Duffy has been our president, chief executive officer and
chairman of our board of directors since August 1998. Prior to that date
however, he performed various services for us including, but not limited to,
coordinating of our initial research and development activities, identifying
parts suppliers, assisting us with certain financing activities and helping us
to develop a marketing strategy. Mr. Duffy has an extensive background in the
areas of finance and administration. From 1968 until 1991 Mr. Duffy worked in
the securities industry with various investment firms including Merrill Lynch,
Greenshields and Walwyn. In 1991 he left the securities trade to pursue
opportunities in direct corporate management. From 1991 until 1997 Mr. Duffy
managed international companies in Thailand; Toronto, Canada; Australia and
Germany before returning to his roots in Montreal, Canada where he formed his
own financial consulting firm, Financial Initiatives, Inc. Mr. Duffy presently
serves as president of Financial Initiatives Inc. Mr. Duffy is past president of
the Canadian Investment Dealers Association (Atlantic). He has also been a
post-secondary lecturer in business and finance and has been a director of
various companies and charitable organizations. Mr. Duffy has a degree in
Business Administration from the University of Prince Edward Island.
Michael D. A. Ash has been our secretary, treasurer and a director since
December 6, 1999. Mr. Ash has more than twenty five years of business
experience. He has been a Chartered Accountant since 1972. Mr. Ash received a
Bachelor's Degree in Business Administration from Bishop's University in Quebec,
Canada in 1970 where he graduated Magna Cum Laude and received an MBA from
Harvard Business School in 1975. Most of Mr. Ash's business career has been
spent with the Government of Canada, first with the Office of the Comptroller
General in Ottawa and for the eighteen year period ending in January 1999 with a
federal regional economic and industrial development agency in Montreal, Canada.
There he gained wide ranging exposure to many companies and industrial sectors,
ranging from developmental companies to major multi-national corporations. For
ten years during this time, Mr. Ash was also a part time lecturer in accounting
at Concordia University in Montreal. From February 11, 1999 to the present Mr.
Ash has served, as the secretary, treasurer and chief financial officer for The
Tirex Corporation, a development stage public company headquartered in Montreal.
Mr. Ash is also a founding partner and principal shareholder of Ashbyrne
Investments, Inc., a business and financial consulting firm which was formed in
July 1999 and is the president, founder and sole shareholder of Ashbyrne
Consultants Inc., a business and financial consulting firm which was formed in
July 1999.
France B. Fasano has been a director of our Company since April 1999 and
has served as the secretary and treasurer of The Guitron Corporation since
August 1997. Since 1997 she
42
<PAGE>
has also been an officer and director of Productions Polyart International,
Inc., a corporation which she controls.
Edward Santelli has been a director of our Company since June 1999. Mr.
Santelli has extensive business experience in the construction industry. From
1994 to the present he has co-owned Pyramid Snow Services, a Canadian company
engaged in the business of snow removal. From 1982 until 1994 he was employed as
the president of Dorval Paving Co., a road contractor which he owned. From 1957
until 1982 he was employed in various capacities by Beaver Asphalt Paving Co.,
Ltd., a road contractor.
David L. Rosentzveig has been a director of our Company since June 1999.
He has been a practicing attorney since June 1976 with the law firm of
Mendelsohn, Rosentzveig & Schacter. He is currently a partner in such firm,
which serves as counsel to The Guitron Corporation.
Paul D. Okulov has been our director of research, engineering and
manufacturing since December 1998. Mr. Okulov is primarily responsible for the
supervision of our research and development and manufacturing operations as well
as our engineering requirements. Mr. Okulov has extensive experience in the
areas of engineering consulting with an emphasis on problem solving, cost
reduction and innovations in the mechanical, electro-mechanical and civil
engineering fields. He is a member of the American Society of Mechanical
Engineers. Mr. Okulov's work has resulted in numerous inventions 13 of which
have been patented and even more of which are expected to be patented in the
future. Mr. Okulov's professional experience has included idea conception,
design development, and prototype building and testing. He has also assumed
responsibility for related research, patenting, manufacturing set-ups and
management. From 1977 until 1992 he worked in various capacities at the Moscow
Institute of Civil Engineering, Department of Design of Metal Structures
including several teaching and consulting positions. From 1992 until 1993 he was
employed as a scientific consultant at Browning Thermal Systems, Inc. in
Enfield, New Hampshire. From 1993 until 1997 he was employed as a Research and
Development Product Manager and thereafter as a Director of Engineering at
Biosig Instruments Inc. in Quebec, Canada. From 1992 until 1998 he also worked
as a consultant to the automotive and metal works, thermal spray and aircraft
industries in the areas of product design and patenting. From September 1, 1998
to the present Mr. Okulov has worked for Innovative Products Resources Ltd., an
engineering, consulting, and research and development company which he owns and
controls. In 1988 Mr. Okulov received B.S.C. and M.S. degrees in Civil
Engineering from the Moscow Institute of Civil Engineering. In 1982 he received
a Master's degree in Patent Procedures and Patent Law from the High State Patent
Courses in Moscow. In 1985 he received a Ph.D in Mechanical Engineering from the
Moscow Institute of Civil Engineering.
Jean Pierre Paradis has been our director of production and quality
control since March 6, 1999. Mr. Paradis has extensive experience in the field
of electronics, electronics testing and electronics repair. He is responsible
for the oversight of our daily production requirements, staff, and product
quality. Mr. Paradis is an accomplished guitarist, bass guitarist and key
boarder. From January 1990 until March 1999 he worked as an electronics engineer
for Efkay Musical
43
<PAGE>
Instruments in Quebec, Canada where he was in charge of the repair department.
His duties included the repair and modification of musical instruments and
technical consultation. From March 1988 until December 1989 he was employed as a
Senior Electronics Engineer and Video and Audio Instructor at Atlantique
E'lectroniqe in Montreal, Canada where his duties included repairing,
calibrating and modifying various audio and video devices and training the
company's technicians. From June 1979 until June 1987 he worked in other musical
instrument repair, modification, programming and teaching capacities for various
employers in Quebec Canada.
DIRECTORS.
Our directors receive no cash compensation for their services as board
members and are not reimbursed for expenses incurred in connection with
attending board meetings. However, during each of the fiscal years ended July
31, 2000 and July 31, 1999 we granted and issued to each of our directors, other
than Michael Ash, stock options to purchase 81,250 shares of our common stock at
any time during the period ending five years from the date of grant at an
exercise price of Cdn $.3077 (approximately US $.21) per share. See "Certain
Transactions". All directors hold office until the next annual meeting of the
stockholders and until their successors have been duly elected and qualified.
Executive officers are elected by and serve at the discretion of the board of
directors. There are no family relationships among any of our directors or
executive officers. We have adopted a policy requiring that all material
affiliated transactions, including, but not limited to loans, contractual
arrangements and any forgiveness of loans, be approved by a majority of our
independent directors who do not have an interest in the transaction and who had
access, at our expense, to our independent legal counsel.
Limitation On Directors' Liabilities
Our Certificate of Incorporation limits, to the maximum extent permitted
under Delaware law, the personal liability of our directors and officers for
monetary damages for breach of their fiduciary duties as directors and officers,
except in certain circumstances involving certain wrongful acts, such as a
breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Section 145 of the Delaware General Corporation Law, as amended, (the
"DGCL") permits us to indemnify our officers, directors or employees against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement in connection with legal proceedings if the officer, director or
employee acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to our best interests. The DGCL also permits us to provide
indemnification with respect to any criminal act or proceeding, where our
officers, directors or employees had no reasonable cause to believe their
conduct was unlawful.
We will not indemnify our directors and officers (a) for any breach of
loyalty to us or our stockholders; (b) if a director or officer does not act in
good faith; (c) for acts involving intentional misconduct; (d) for acts or
omissions falling under Section 174 of the DGCL; or (e)
44
<PAGE>
for any transaction for which the director or officer derives an improper
benefit. We will indemnify our directors and officers for expenses related to
indemnifiable events, and will pay for these expenses in advance. Our obligation
to indemnify and to provide advances for expenses are subject to the approval of
a review process with a reviewer to be determined by the Board. The rights of
our directors and officers will not exclude any rights to indemnification
otherwise available under law or under our Certificate of Incorporation.
EXECUTIVE COMPENSATION.
The following table assumes the acquisition of The Guitron Corporation has
been effected and sets forth information concerning the total compensation paid
or accrued by us during the three fiscal years ended July 31, 2000 to our chief
executive officer. No executive officer received annual compensation in excess
of $100,000 in any of these fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Fiscal Year Ended Other Annual Options/ Restricted LTIP All Other
Principal Position July 31, Salary Bonus Compensation SAR's Stock Awards Payouts Compensation
------------------ -------- ------ ----- ------------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Duffy 2000 $65,323 0 $52,928(1) 81,250 0 0 0
Chief Executive Officer
1999 0 0 $32,036(2) 81,250 0 0 0
1998 0 0 $28,800(3) 0 0(4) 0 0
</TABLE>
(1) Represents approximately $1,415 in health benefits provided to Mr. Duffy,
approximately $30,195 in consulting fes paid to Mr. Duffy, and
approximately $21,318 in consulting fees paid to Financial Initiatives
Inc., a financial consulting firm owned by Mr. Duffy's wife, and in which
Mr. Duffy is an executive officer. See "Certain Transactions"
(2) Represents approximately $28,800 in consulting fees paid to Financial
Initiatives Inc., a financial consulting firm owned by Mr. Duffy's wife,
and in which Mr. Duffy is an executive officer. See "Certain Transactions"
(3) Excludes 1,284,290 shares issued on March 15, 1998 to Joan Callaghan, the
wife of Richard Duffy.
45
<PAGE>
Stock Option Plans; Stock Option/Stock Appreciation Right Grants; Aggregate
Stock Option/Stock Appreciation Right Exercises and Fiscal Year End Stock
Option/Stock Appreciation Right Values; Report on Repricing of Stock
Options/Stock Appreciation Rights.
From our inception on August 20, 1997 through July 31, 2000 we did not
adopt any stock option plans. During the same period we did not grant or issue
any stock appreciation rights. We did however during the fiscal year ended July
31, 2000, grant and issue an aggregate of 160,000 stock options each of which is
exercisable for the purchase of 3.25 shares of our common stock. All of these
options entitle the holders thereof to purchase shares of our common stock at an
exercise price of Cdn $.3077 (approximately US $.21) per share. 25,000 of these
options exercisable for the purchase of 81,250 shares of our common stock were
issued to the named executive. During the fiscal year ended July 31, 1999, we
granted and issued an aggregate of 294,800 stock options, each of which is
exercisable for the purchase of 3.25 shares of our common stock. 19,800 of these
options entitle the holder thereof to purchase an aggregate of 64,350 shares of
our common stock at an exercise price of Cdn $.2308 (approximately US $.16) per
share. 275,000 of these options entitle the holders thereof to purchase an
aggregate of 893,750 shares of our common stock at an exercise price of Cdn
$.3077 (approximately US $.21) per share. 25,000 of these latter options
exercisable for the purchase of 81,250 shares of our common stock were issued to
the named executive. During such period there were no exercises of any of our
stock options and no adjustments or amendments to the exercise price of such
options.
Long Term Incentive Plan Awards
We have not made any long-term incentive plan awards since our inception.
Pension Plans
We do not presently provide pension plans for any of our officers or
directors.
Employment Agreements
During the two fiscal years ended July 31, 1999 we did not have employment
agreements with any of our executive officers and paid no cash salary to any of
our executive officers. On December 6, 1999 we entered into an Executive
Agreement with Richard Duffy, under which Mr. Duffy is employed as our president
and chief executive officer. The agreement is for a three year term ending
December 5, 2002 and provides for salary compensation at the annual rate of
46
<PAGE>
$100,000. The Executive Agreement provides for the payment of bonuses at the
sole discretion of our board of directors based upon an evaluation of Mr.
Duffy's performance, with payment of any such bonuses to be reviewed annually.
The Executive Agreement also provides for the participation by Mr. Duffy in any
pension plan, profit-sharing plan, life insurance, hospitalization or surgical
program, or insurance program hereafter adopted by us (there are no programs in
effect at the present time), reimbursement of business related expenses, the
non-disclosure of information which we deem to be confidential to us,
non-competition by Mr. Duffy with us for the one-year period following
termination of his employment with us (except for termination other than for
cause or a termination upon a change in control) and for various other terms and
conditions of employment.
The Executive Agreement also includes severance provisions which provide,
among other things, for severance compensation to be paid to Mr. Duffy in the
event that Mr. Duffy's employment is terminated by us other than for cause, or
by Mr. Duffy for "good reason", as that term is defined in the Executive
Agreement, or pursuant to a "change in control" of the Company. Where
applicable, the Executive Agreement provides for severance compensation in an
amount equal to 200% of the amount of the executive's annual base salary at the
time of termination.
The Executive Agreement further provides that, as compensation, and in
lieu of payment in cash of salary, due thereunder, we may, if agreed to by Mr.
Duffy, issue unregistered shares of our common stock, valued at a discounted
percentage of the average of the bid and ask prices of our stock, as traded in
the over-the-counter market and quoted in the OTC Bulletin Board, during part or
all of the period in which the salary was earned under the Executive Agreement.
CERTAIN TRANSACTIONS
On December 6, 1999 we entered into a three year employment agreement with
Richard F. Duffy, our president and chief executive officer. The agreement
provides for an initial annual base salary of $100,000. See
"Management-Executive Compensation - Employment Agreements".
On each of June 25, 1999 and November 30, 1999 The Guitron Corporation
granted 25,000 stock options to each of its directors, Richard F. Duffy, France
B. Fasano, Edward Santelli and David L. Rosentzveig in connection with their
services as directors of The Guitron Corporation during the fiscal years ended
July 31, 1999 and July 31, 2000. Each option is exercisable to purchase one
share of common stock of The Guitron Corporation at any time during the five
year period commencing on the date of grant at an exercise price of Cdn $1.00
per share. None of these options have been exercised to date. Pursuant to our
acquisition of The Guitron Corporation, each option will become exercisable to
purchase 3.25 shares of Guitron International Inc. at an exercise price of Cdn
$.3077 (approximately US $.21) per share.
During the period November 10, 1997 through the present, we have
periodically received loans from Productions Polyart International, Inc., a
corporation, controlled by France B. Fasano, a director and principal
shareholder of our Company. As at July 31, 2000 and December 6, 2000 there was
an outstanding principal loan balance due to Productions Polyart International,
Inc. of
47
<PAGE>
approximately $80,699 and $79,355, respectively. Interest at the rate of 6% per
annum is payable on all outstanding loan balances. All principal and interest
due on the loan is payable in full no later than July 31, 2001.
On December 6, 1999 we entered into a two year Consulting Agreement with
Ashbyrne Consultants Inc., a Canadian corporation owned by Michael D.A. Ash, an
officer and director of our Company. The agreement provides for Ashbyrne
Consultants Inc. to provide us with various services, including but not limited
to, corporate planning; evaluation of business strategies; financial advice and
planning; and corporate management assistance. Pursuant to such agreement, Mr.
Ash is currently employed as our secretary, treasurer and chief financial
officer on a non-salaried basis. In consideration of the Consulting Agreement,
on January 3, 2000 we issued 500,000 shares of our common stock to Michael D.A.
Ash and 1,500,000 shares of our common stock to Ashbyrne 2000 Limited, a
corporation controlled by Mr. Ash.
On September 1, 1997 and March 15, 1998, respectively, The Guitron
Corporation sold 1,000,000 and 395,166 founders' shares, to Ubaldo Fasano and
Joan Callaghan, the wife of Richard Duffy, at a price of $.00001 and $.001 per
share, respectively.
As of January 15, 1999, The Guitron Corporation issued 25,000 options to
Judit Fellegi, the wife of David Rosentzveig, one of our directors. Each option
is exercisable to purchase one share of stock of The Guitron Corporation at any
time during the five year period ending January 14, 2004 at an exercise price of
Cdn $1.00 (approximately US $.6725) per share. Pursuant to our acquisition of
The Guitron Corporation, each option will become exercisable to purchase 3.25
shares of Guitron International Inc. at an exercise price of Cdn. $.3077
(approximately US $.21) per share.
On May 17, 1999 The Guitron Corporation sold 6,000 shares, to Judit
Fellegi, the wife of David L. Rosentzveig, one of our directors, at the price of
Cdn $.90 (approximately US $.61) per share.
On December 7, 1999 The Guitron Corporation sold 27,300 shares to Loryta
Investments Ltd., a corporation beneficially owned by the family of Michael D.A.
Ash, at a price of Cdn $1.00 (approximately US $.6725) per share.
On December 7, 1999 and January 3, 2000 The Guitron Corporation sold 7,000
and 8,850 shares, respectively to Ashbyrne Investments Inc., a corporation in
which Michael D.A. Ash is the principal shareholder, at a price of Cdn $1.00
(approximately US $.6725) per share.
On October 15, 1998 and December 7, 1999 The Guitron Corporation sold
10,000 and 5,000 shares, respectively, to Tersan Consultants Inc., a Canadian
corporation owned by Edward Santelli, one of our directors, at a price of Cdn
$1.00 (approximately US $.6725) per share.
48
<PAGE>
As of January 6, 1999 The Guitron Corporation issued 100,000 options to
Paul D. Okulov, each to purchase one share of stock of The Guitron Corporation
at any time during the five year period ending January 5, 2004 at an exercise
price of Cdn $1.00 (approximately US$.6725) per share. On May 19, 1999 The
Guitron Corporation issued 25,000 options to Paul D. Okulov, each to purchase
one share of stock of The Guitron Corporation at any time during the five year
period ending May 18, 2004 at an exercise price of Cdn $1.00 (approximately US
$.6725) per share. Pursuant to our acquisition of The Guitron Corporation, each
option will become exercisable to purchase 3.25 shares of Guitron International
Inc. at an exercise price of Cdn. $.3077 (approximately US $.21) per share.
During the fiscal years ended July 31, 1998, July 31, 1999, and July 31,
2000 The Guitron Corporation paid financial and management consulting fees in
the amounts of Cdn. $41,800 (approximately US $28,800), Cdn. $45,656
(approximately US $31,457), and Cdn $31,700 (approximately US$21,318)
respectively, to Financial Initiatives Inc., a financial consulting firm in
which Richard Duffy, our president, is an executive officer. Financial
Initiatives, Inc. is owned by Mr. Duffy's wife, Joan Callaghan. During the
fiscal year ended July 31, 2000 The Guitron Corporation also paid consulting
fees directly to Mr. Duffy in the amount of Cdn $44,900 (approximately US
$30,195).
From December 1998 through January 31, 2000, Paul D. Okulov, our Director
of Research, Engineering and Manufacturing worked for us, on an independent
contractor basis, under an oral agreement that provided for payment to Mr.
Okulov or his designee at the rate of Cdn $100 (approximately US $67) per hour.
In accordance with the agreement, in lieu of cash payments, on April 15, 1999
and January 3, 2000 The Guitron Corporation issued 80,000 and 100,000 shares of
its common stock, respectively, to Mr. Okulov or Innovative Products Resources
Inc., a corporation by owned Mr. Okulov. For purposes of amounts invoiced by Mr.
Okulov under the agreement, these shares were valued at Cdn $1.00 per share. The
foregoing agreement between Mr. Okulov and The Guitron Corporation was
terminated by mutual consent effective January 31, 2000.
On January 31, 2000 The Guitron Corporation entered into a two year
contract, effective as of February 1, 2000, with Innovative Products Resources
Ltd., a corporation owned by Paul Okulov. In accordance with the contract,
Innovative Products Resources Ltd. will manage, direct, supervise and coordinate
both our continuing research and development activities respecting the Guitron
and our manufacturing operations. Innovative Products Resources Ltd. will also
provide assistance with regard to (a) the preparation of any and all patent and
trademark applications that we may seek to file; (b) the preparation of budgets
and work schedules; and (c) the supervision of certain of our personnel. In
consideration of the foregoing, the agreement provides for monthly payments to
Innovative Products Resources Ltd. of Cdn. $10,000 (approximately US $6,725)
together with related Canadian provincial sales taxes and goods and services
taxes. The agreement also provides for the payment of bonuses to Innovative
Products Resources Ltd. at the discretion of management, which bonuses, if any,
may be paid in cash or stock.
49
<PAGE>
Since our inception Richard Duffy, France B. Fasano and Ashbyrne 2000
Limited have periodically made loans to us for use as working capital. At July
31, 2000 and December 6, 2000, respectively, the approximate principal balance
owed by us on these loans was $82,044 and $147,022 to Richard Duffy, $135,289
and $135,289 to France B. Fasano, and $117,278 and $117,278 to Ashbyrne 2000
Limited.
PRINCIPAL STOCKHOLDERS
The following table provides certain information with respect to the
beneficial ownership of our common stock known by us as of December 4, 2000,
after giving effect to the acquisition of The Guitron Corporation, by (a) each
person or entity known by us to be the beneficial owner of more than 5% of our
common stock, (b) each of our directors, (c) each of our executive officers; and
(d) all of our named directors and executive officers as a group. The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on December 4, 2000 and all shares of our common stock issuable to the holder in
the event of exercise of outstanding options owned by that person at December 4,
2000 which are exercisable within 60 days of December 4, 2000. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse. Amounts shown assume the
maximum number of shares being offered are all sold.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------ --------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering (8) Offering (9)
------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Paul D. Okulov(1)(2) 991,250 892,125 8.78% 7.26%
365 10th Avenue
Lachine, Quebec, Canada
H8S 3E4
Joan Callaghan(14) 1,284,290 1,155,861 11.38% 9.41%
1660 Stravinski Street
Brossard, Quebec, Canada
J4X 2J4
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 13.29% 10.99%
1 Place du Commerce, Suite 235
Montreal, Quebec
H3G 1A2
Richard F. Duffy(1)(3) 1,446,790 1,318,361 12.82% 10.73%
1660 Stravinski Street
Brossard, Quebec, Canada
J4X 2J4
Michael D.A. Ash(1)(4) 2,140,238 1,926,215 18.96% 15.68%
310 Montee Sabourin
St. Bruno, Quebec, Canada
J3V 4P6
France B. Fasano(1)(5) 3,412,500 3,087,500 30.23% 25.13%
450 de la Noue
Nuns' Island, Verdun, Quebec, Canada
H3E 1S1
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Edward Santelli(1)(6) 211,250 206,375 1.87% 1.68%
850 Lakeshore Road
Dorval, Quebec, Canada
H9S 5T9
David L. Rosentzveig(1)(7) 263,250 253,175 2.33% 2.06%
523 Argyle
Westmount, Quebec, Canada
H3Y 3B8
All directors and executive
officers as a group (5 persons) 7,474,028 6,791,626 66.22% 55.28%
</TABLE>
See Footnotes following Selling Stockholders' Table
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
beneficial ownership of our common stock known by us as of December 4, 2000, by
each Selling Shareholder, after giving effect to our acquisition of The Guitron
Corporation. The percentages in the table have been calculated on the basis of
treating as outstanding for a particular person, all shares of our common stock
outstanding on December 4, 2000 and all shares of our common stock issuable to
the holder in the event of exercise of outstanding options owned by that person
at December 4, 2000 which are exercisable within 60 days of December 4, 2000.
Except as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of our common stock owned by them,
except to the extent such power may be shared with a spouse. Amounts shown
assume the maximum number of shares being offered are all sold. The shares being
offered by the Selling Stockholders are being registered to permit public
secondary trading, and the stockholders may, commencing after the completion and
closing of the offering being made by us, offer all or part of their registered
shares for resale from time to time. However, the Selling Stockholders are under
no obligation to sell all or any portion of their shares. The table below
assumes that all shares offered by the Selling Stockholders will be sold.
See "Plan of Distribution".
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<TABLE>
<CAPTION>
Shares of
Common Stock Number of Shares
Beneficially Owned Being Sold Percentage Ownership
------------------ ---------------- --------------------
Name of Before After Before After
Beneficial Owner Offering Offering Offering(8) Offering(9)
---------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alain Breault 19,500 0 19,500 (23) 0
Andreas Gaitanis 48,750 0 48,750 (23) 0
Ashbyrne Investments Inc.(10) 51,513 46,362 5,151 (23) (23)
Bartholomew Investments Ltd.(11) 128,700 0 128,700 1.14% 0
Carl Ravinsky(12) 247,000 0 247,000 2.19% 0
C.C.J. Investments Ltd. 19,500 0 19,500 (23) 0
Chris Sarena 16,250 0 16,250 (23) 0
Diane Desjardins-Ferland 1,625 0 1,625 (23) 0
Earl S. Cohen 19,500 0 19,500 (23) 0
Edward C. Mungenast 16,900 0 16,900 (23) 0
Elias Kawkab 32,500 0 32,500 (23) 0
France B. Fasano (5) 3,412,500 3,087,500 325,000 30.23% 25.13%
Fotini Gassios 32,500 0 32,500 (23) 0
Frank Zylberberg 19,500 0 19,500 (23) 0
Gabriel Ricciardelli 16,900 0 16,900 (23) 0
George Anthony Nelson 3,250 0 3,250 (23) 0
George Condax 32,500 0 32,500 (23) 0
George Gaitanis 16,250 0 16,250 (23) 0
Helen Nicolopoulos 438,750 0 438,750 4% 0
Ibrahim Geha 16,250 0 16,250 (23) 0
Jean Pierre Ferland 32,500 0 32,500 (23) 0
Jean Pierre Paradis(13) 110,500 0 110,500 1.01% 0
Jean Pilote 3,250 0 3,250 (23) 0
Jeremiah O. Spitzberg 16,900 0 16,900 (23) 0
Joan Callaghan(14) 1,284,290 1,155,861 128,429 11.38% 9.41%
Joelle Mamane 19,500 0 19,500 (23) 0
John Amaral 32,500 0 32,500 (23) 0
Judit Fellegi(15) 100,750 90,675 10,075 (23) (23)
Jules Brossard 19,500 0 19,500 (23) 0
Kosta Alichos 19,500 0 19,500 (23) 0
Tersan Consultants(16) 48,750 43,875 4,875 (23) (23)
Loryta Investments Ltd.(17) 88,725 79,853 8,872 (23) (23)
3517942 Canada Inc. 32,500 0 32,500 (23) 0
Marc Ian Leiter 19,500 0 19,500 (23) 0
Martin Desrosiers 19,500 0 19,500 (23) 0
Martine Lauziere(18) 39,000 0 39,000 (23) 0
Marvin Chankowsky 32,500 0 32,500 (23) 0
Michael Garonce 19,500 0 19,500 (23) 0
Michael Rosentzveig 19,500 0 19,500 (23) 0
Patricia Havtiov 32,500 0 32,500 (23) 0
Patrick Riga 16,250 0 16,250 (23) 0
Paul D. Okulov(2) 991,250 892,125 99,125 8.78% 7.26%
Raymond Boucher 3,250 0 3,250 (23) 0
Barbara Green Mariano 16,250 0 16,250 (23) 0
Richard Ferland 12,058 0 12,058 (23) 0
Sandra Abitan 19,500 0 19,500 (23) 0
Shirley Rosentzveig 39,000 0 39,000 (23) 0
Stan Kolethras 16,250 0 16,250 (23) 0
Vijay Kachru 22,750 0 22,750 (23) 0
Zax Management Ltd. 19,500 0 19,500 (23) 0
3535843 Canada Inc.(19) 462,475 299,975 162,500 4.1% 2.44%
Michael D.A. Ash(20) 500,000 450,000 50,000 4.43% 3.66%
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 150,000 13.29% 10.99%
Frances Katz Levine(22) 299,650 0 299,650 2.65% 0
Scott Rapfogel(22) 299,650 0 299,650 2.65% 0
</TABLE>
(1) The business address of the beneficial owner is c/o Guitron International
Inc., 38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec,
Canada H3E1T8
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(2) Includes (a) 552,500 shares owned by IPR Innovative Products Resources,
Inc., a company owned by Mr. Okulov; and (b) 406,250 shares issuable to
Mr. Okulov upon the exercise of stock options at an exercise price of Cdn.
$.3077 (approximately US $.21) per share.
(3) Includes (a) 1,284,290 shares owned by Mr. Duffy's wife, Joan Callaghan;
and (b) 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.21) per share. See
"Certain Transactions"
(4) Includes (a) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Mr. Ash is a principal shareholder; (b) 51,513 shares
owned by Ashbyrne Investments Inc., a corporation in which Mr. Ash is a
principal shareholder; and (c) 88,725 shares owned by Loryta Investments
Inc., a corporation which is beneficially owned by the family of Mr. Ash.
See "Certain Transactions"
(5) Includes 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.21) per share. See
"Certain Transactions"
(6) Includes (a) 48,750 shares owned by Tersan Consultants Inc., a Canadian
corporation owned by Mr. Santelli; and (b) an additional 162,500 shares
issuable upon the exercise of stock options at an exercise price of Cdn.
$.3077 (approximately US $.21) per share. See "Certain Transactions"
(7) Includes 19,500 shares and an additional 81,250 shares issuable upon the
exercise of stock options at an exercise price of Cdn $.3077
(approximately US $.21 per share) owned by Mr. Rosentzveig's wife, Judit
Fellegi. Excludes (a) 462,475 shares owned by 3535843 Canada Inc., a
Canadian corporation, in which Mr. Rosentzveig is a minority shareholder
with ownership of less than 10% of such corporation's issued and
outstanding shares; and (b) an additional 162,500 shares issuable upon the
exercise of stock options at an exercise price of Cdn. $.3077
(approximately US $.21) per share. See "Certain Transactions"
(8) Based upon 11,286,635 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(9) Based upon 12,286,635 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(10) Excludes (i) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Michael D.A. Ash, a principal shareholder of Ashbyrne
Investments Inc is a principal shareholder; (ii) 500,000 shares owned
directly by Michael D.A. Ash; and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation which is beneficially owned by the family
of Mr. Ash. See "Certain Transactions".
(11) Includes 64,350 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.2308 (approximately US $.16) per share.
(12) Includes 195,000 shares issuable to Mr. Ravinsky upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.21)
per share.
(13) Includes 48,750 shares issuable to Mr. Paradis upon the exercise of stock
options at an exercise price of Cdn $.3077 (approximately US $.21) per
share.
(14) Ms. Callaghan is the wife of Richard F. Duffy, our president and chief
executive officer. Excludes 162,500 shares issuable upon the exercise of
stock options owned by Richard F. Duffy, each of which is exercisable at a
price of Cdn. $.3077 (approximately US $.21) per share. See "Certain
Transactions"
(15) Ms. Fellegi is the wife of David L. Rosentzveig, one of our directors.
Includes 81,250 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.3077 (approximately US $.21) per share. Excludes
(i)
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<PAGE>
162,500 shares issuable upon the exercise of stock options owned by David
L. Rosentzveig, each of which is exercisable at a price of Cdn. $.3077
(approximately US $.21) per share; and (ii) 462,475 shares owned by
3535843 Canada Inc., a Canadian corporation in which Mr. Rosentzveig is a
minority shareholder, with ownership of less than 10% of such
corporation's issued and outstanding shares. See "Certain Transactions"
(16) Tersan Consultants Inc. is a corporation owned by Mr. Santelli, one of our
directors. Excludes 162,500 shares issuable upon the exercise of stock
options owned by Edward Santelli, each of which is exercisable at a price
of Cdn. $.3077 (approximately US $.21) per share. See "Certain
Transactions"
(17) Loryta Investments Ltd. is a corporation, beneficially owned by the family
of Michael D.A. Ash. Excludes (a) 500,000 shares owned directly by Mr.
Ash; (b) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation in
which Mr. Ash is a principal shareholder; and (c) 51,513 shares owned
directly by Ashbyrne Investments Inc., a corporation in which Mr. Ash is a
principal shareholder. See "Certain Transactions"
(18) Includes 32,500 shares issuable to Martine Lauziere upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.21)
per share.
(19) 3535843 Canada Inc. is a Canadian corporation, one of the shareholders of
which is David L. Rosentzveig, one of our directors. Mr. Rosentzveig owns
less than 10% of the outstanding stock of such corporation.
(20) Excludes (a) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation
in which Mr. Ash is a principal shareholder; (b) 51,513 shares owned by
Ashbyrne Investments Inc., a corporation in which Mr. Ash is a principal
shareholder; and (c) 88,725 shares owned by Loryta Investments Inc., a
corporation beneficially owned by the family of Michael Ash. See "Certain
Transactions".
(21) Excludes (a) 51,513 shares owned by Ashbyrne Investments Inc., a
corporation in which Michael Ash, the principal shareholder of Ashbyrne
2000 Limited is a principal shareholder; (b) 500,000 shares owned directly
by Michael Ash, and (c) 88,725 shares owned by Loryta Investments Inc., a
corporation beneficially owned by the family of Mr. Ash.
(22) These shares were issued in consideration of legal services including, but
not limited to, general corporate work and the preparation of this
prospectus and related documents.
(23) Less than 1%
DESCRIPTION OF SECURITIES
General
Under our Articles of Incorporation, we are authorized to issue 20,000,000
shares of Common Stock, $.001 par value per share. At December 4, 2000, we had
issued and outstanding 2,599,300 shares of Common Stock. Assuming the
acquisition of The Guitron Corporation had taken place on July 31, 2000, and
further assuming that all presently outstanding options of The Guitron
Corporation were exercised by the holders thereof immediately prior to such
acquisition, there would be 11,286,635 shares of our common stock issued and
outstanding as at such date.
54
<PAGE>
Common Stock
The holders of shares of Common Stock are entitled to dividends when and
as declared by our Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
common shareholders. Holders of Common Stock have one non-cumulative vote for
each share held. There are no pre-emptive, conversion or redemption privileges,
nor sinking fund provisions, with respect to our Common Stock. All of our
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable.
Outstanding Stock Options
Giving present effect to the acquisition of The Guitron Corporation, there
are currently outstanding 454,800 stock options, each to purchase 3.25 shares of
our common stock. Accordingly, the exercise of all of these outstanding options
would result in the issuance of an aggregate of 1,478,100 shares of our common
stock. 19,800 of these options were granted on March 31, 1999 and are
exercisable at any time through and including January 31, 2001 at an exercise
price of Cdn. $.2308 (approximately US $.16) per share. 435,000 of these options
are exercisable at an exercise price of Cdn $.3077 (approximately US $.21) per
share. 25,000 of the latter options were granted as of January 15, 1999 and may
be exercised at any time during the 5 year period ending January 14, 2004.
50,000 of the latter options were granted on May 19, 1999 and may be exercised
at any time during the five year period ending May 18, 2004. 100,000 of the
latter options were granted on June 25, 1999 and may be exercised at any time
during the five year period ending June 24, 2004. 60,000 of the latter options
were granted on October 25, 1999 and may be exercised at any time during the two
and one half year period ending April 24, 2002. 100,000 of the latter options
were granted on November 30, 1999 and may be exercised at any time during the
five year period ending November 29, 2004. 100,000 of the latter options were
granted as of January 6, 1999 and may be exercised at any time during the 5 year
period ending January 5, 2004.
Penny Stock Rules
At the present time, there is no public market for our stock. However, it
is expected that upon the successful completion and closing of this public
offering, our common stock will be traded in the over-the-counter market and
that trading activity will be reported on the OTC Electronic Bulletin Board.
The United States Securities and Exchange Commission "Securities
Enforcement and Penny Stock Reform Act of 1990" requires special disclosure
relating to the trading of any stock defined as a "penny stock". Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share and is not listed on The Nasdaq Small
Cap Stock Market or a major stock exchange. These regulations subject all
broker-dealer transactions involving such securities to special "Penny Stock
Rules". Following the
55
<PAGE>
completion of this offering the commencement of trading of our common stock, and
the foreseeable future thereafter, the market price of our common stock is
expected to be substantially less than $5 per share. Accordingly, should anyone
wish to sell any of our shares through a broker-dealer, such sale will be
subject to the Penny Stock Rules. These Rules will affect the ability of
broker-dealers to sell our shares (and will therefore also affect the ability of
purchasers in this offering to re-sell their shares in the secondary market, if
such a market should ever develop.)
The Penny Stock Rules impose special sales practice requirements on
broker-dealers who sell shares defined as a "penny stock" to persons other than
their established customers or "Accredited Investors." Among other things, the
Penny Stock Rules require that a broker-dealer make a special suitability
determination respecting the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. In addition, the Penny Stock
Rules require that a broker-dealer deliver, prior to any transaction, a
disclosure schedule prepared in accordance with the requirements of the
Commission relating to the penny stock market. Disclosure also has to be made
about commissions payable to both the broker-dealer and the registered
representative and the current quotations for the securities. Finally, monthly
statements have to be sent to any holder of such penny stocks disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the rule may affect the ability of
broker-dealers to sell our shares and may affect the ability of holders to sell
our shares in the secondary market. Accordingly, for so long as the Penny Stock
Rules are applicable to our common stock, it may be difficult to trade such
stock because compliance with the Penny Stock Rules can delay or preclude
certain trading transactions. This could have an adverse effect on the liquidity
and price of our common stock.
Delaware Anti-Takeover Law
We are not presently subject to Section 203 of the DGCL and will not
become subject to Section 203 in the future unless, among other things, our
common stock is (i) listed on a national securities exchange; (ii) authorized
for quotation on the NASDAQ Stock Market; or (iii) held of record by more than
2,000 stockholders. If Section 203 should become applicable to us in the future,
it could prohibit or delay a merger, takeover or other change in control of our
Company and therefore could discourage attempts to acquire us. Section 203
restricts certain transactions between a corporation organized under Delaware
law and any person holding 15% or more of the corporation's outstanding voting
stock, together with the affiliates or associates of such person (an "Interested
Stockholder"). Section 203 prevents, for a period of three years following the
date that a person became an Interested Stockholder, the following types of
transactions between the corporation and the Interested Stockholder (unless
certain conditions, described below, are met): (a) mergers or consolidations,
(b) sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of any
stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate' share of the stock of any
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<PAGE>
class or series of the corporation which is owned by the Interested Stockholder
and (e) receipt of the Interested Stockholder of the benefit (except
proportionately as a stockholder) of loans, advances, guarantees, pledges or
other financial benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or
the transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the time such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employees stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock not owned by the
Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed, and
a majority of certain continuing directors of the corporation have approved, a
transaction with a party who is not an Interested Stockholder (or who becomes
such with approval of the board of directors) if the proposed transaction
involves (a) certain mergers or consolidations involving the corporation, (b) a
sale or other transfer of over 50% of the aggregate assets of the corporation,
or (c) a tender or exchange offer for 50% or more of the outstanding voting
stock of the corporation.
Transfer Agent
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 will act as the Transfer Agent for our common stock.
PLAN OF DISTRIBUTION
Shares Offered and Sold by Us
A minimum of 250,000 and a maximum of 1,000,000 shares will be offered and
sold by us through our officers. No selling discounts, commissions or other form
of remuneration will be paid by us in connection with this offering. We will
however, reimburse our officers for any out of pocket expenses incurred by them.
We must sell a minimum of 250,000 shares within the offering period to complete
the offering. The shares are being offered by us subject to prior sale, to
acceptance of an offer to purchase, to approval of certain legal matters by our
counsel and to certain other conditions. We reserve the right to withdraw or
cancel such offers and to reject orders in whole or in part. The offering period
will commence on the date of this prospectus and end no later than 30 days
thereafter unless extended by us, in our sole and absolute discretion, up to an
additional 15 days. If at least 250,000 shares are sold within the offering
period, the remaining 750,000 shares will be offered until they are all sold,
until the offering
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<PAGE>
period expires, or until the offering is terminated by us. You will not be
entitled to a return of your subscription funds during the offering period.
The proceeds received by us from the sale of our shares will be placed in
escrow with Continental Stock Transfer and Trust Company, our escrow agent, no
later than noon of the next business day following receipt. In the event that we
do not sell 250,000 or more shares within the offering period, including all
extensions thereof, this offering will be withdrawn and all funds will be
promptly returned to you without interest or deduction. Upon the sale of at
least 250,000 shares by us hereby, and the consummation of our acquisition of
The Guitron Corporation, we have the right, but not the obligation, to withdraw
funds from the escrow account pursuant to a closing or series of closings, upon
the completion of each of which, subscribers whose funds have been withdrawn
from escrow will become shareholders of ours. We may however, in our sole and
absolute discretion, defer such closing or closings until the sale of all
1,000,000 shares offered by us hereby, expiration of the offering period or such
earlier time as we deem appropriate. In all events, trading of our common stock
will not commence until after the offering of shares by us has been completed.
The price at which the shares are being offered by us has been established
without independent appraisal by management and has no relationship to our book
value per share, earnings, or other generally accepted measurements of value. Up
to 10% of the shares offered and sold by us in the offering may be purchased by
present shareholders of The Guitron Corporation or Guitron International Inc.,
including officers and directors of these corporations.
How to Subscribe for Shares Being Offered and Sold By Us
If you desire to subscribe for shares offered by us in this offering, you
must complete a subscription agreement and pay the entire subscription amount by
money order, certified, bank or cashier's check, upon subscribing. You must
deliver the subscription agreement directly to us. Checks and money orders must
be made payable to "Continental Stock Transfer and Trust Company, Escrow Agent
for Guitron International Inc." To invest in this offering you must purchase a
minimum of 500 shares.
By signing the subscription agreement you are making a binding offer to
buy shares. The subscription agreement also constitutes your agreement to
indemnify us against liabilities incurred because of any misstatements and
omissions you make in the subscription agreement. All subscriptions are subject
to acceptance by us.
Shares Offered and Sold by the Selling Stockholders
The shares offered by the Selling Stockholders may be sold or distributed
from time to time by the Selling Stockholders or by pledgees, donees or
transferees of, or successors in interest to, the Selling Stockholders directly
to one or more purchasers, including pledgees, or through brokers, dealers or
underwriters who may act solely as agents or may acquire shares as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing
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<PAGE>
market prices, at negotiated prices or at fixed prices, which may be changed. We
will pay the expenses incurred to register the shares being offered by the
Selling Stockholders for resale, but the Selling Stockholders will pay any
underwriting discounts and brokerage commissions associated with these sales.
The commission or discount which may be received by any member of the National
Association of Securities Dealers, Inc. in connection with these sales will not
be greater than 8%.
The distribution of the shares may be effected in one or more of the
following methods:
o ordinary brokers transactions, which may include long or short
sales,
o purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this
prospectus,
o "at the market" to or through market makers or into an existing
market for the common stock,
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents, or
o any combination of the foregoing, or by any other legally available
means.
In addition, the Selling Stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of shares of common stock in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Such compensation as to a particular broker-dealer may be in excess of
customary commissions. The Selling Stockholders and any broker-dealers acting in
connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commission received by them and any profit realized by them on the resale of
shares as principals may be deemed underwriting compensation under the
Securities Act. No Selling Stockholder can presently estimate the amount of such
compensation.
Each Selling Stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Stockholders
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and other persons participating in a distribution of securities. Furthermore,
under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus. There can be no assurance that the Selling
Stockholders will sell any or all of the shares of common stock offered by them
hereunder.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming the sale of the maximum offering amount, upon consummation of our
acquisition of The Guitron Corporation and the offering, we will have 10,808,535
shares of common stock issued and outstanding. Of these shares, the 1,000,000
shares sold in the offering together with all shares sold in this offering by
our shareholders will be freely tradeable without restriction or further
registration under the Securities Act, except for any of such shares purchased
by an "affiliate" of ours as defined in SEC Rule 144 which will be subject to
the resale limitations under Rule 144.
In general, under Rule 144, a person or persons whose shares are required
to be aggregated, who has beneficially owned shares of common stock for a period
of one year, including a person who may be deemed an "affiliate", is entitled to
sell, within any three-month period, a number of shares not exceeding 1% of the
total number of outstanding shares of such class. A person who is not an
"affiliate" of ours and who has beneficially owned shares for at least two years
is entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Under Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, such issuer.
If a public market develops for our common stock, we are unable to predict
the effect that sales made under Rule 144 or other sales may have on the then
prevailing market price of our common stock. None of our presently outstanding
shares of Common Stock will become eligible for sale under Rule 144 prior to
January 3, 2001. Thereafter, at various times through the first anniversary date
of our acquisition of The Guitron Corporation, all shares of our common stock
will become eligible for sale pursuant to Rule 144.
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DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons pursuant to Section 145 of the Delaware General
Corporation Law, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission this type of indemnification is against
public policy and is, therefore, unenforceable. See "Management - Directors -
Limitation on Directors Liability".
LEGAL MATTERS
Levine & Rapfogel, Esqs., 621 Clove Road, Staten Island, New York 10310
will render an opinion as our counsel, that the shares offered hereby by our
officers, when issued and sold, will be legally issued, fully paid and
nonassessable. Frances Katz Levine and Scott E. Rapfogel, attorneys with Levine
& Rapfogel, each own 299,650 shares of our common stock.
EXPERTS
The financial statements included in this prospectus, and elsewhere in the
registration statement as of July 31, 2000, and July 31, 1999 and from August
20, 1997 (date of inception), to July 31, 2000, have been audited by Pinkham &
Pinkham, P.C., independent auditors, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The report of Pinkham & Pinkham, P.C. covering the two years ended July
31, 2000 contains an explanatory paragraph that states that we have incurred
losses since inception and have limited liquidity and capital resources, which
raises substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of reported assets amounts or the amounts and
classification of liabilities that might result from the outcome of that
uncertainly.
ADDITIONAL INFORMATION
We have filed with the principal office of the Securities and Exchange
Commission in Washington, D.C., a registration statement on Form SB-2 relating
to the shares offered in this prospectus. This prospectus does not contain all
of the information included in the registration statement and the exhibits
thereto, to which reference is now made. Each statement made in this prospectus
concerning a document filed as an exhibit to the registration statement is not
necessarily complete and is qualified in its entirety by reference to such
exhibit for a complete statement of its provisions. You may inspect the
registration statement and its exhibits without charge, or obtain a copy of all
or any portion thereof, at prescribed rates, at the public reference
61
<PAGE>
facilities of the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. See "Where You Can Get
More Information".
We are not currently a reporting company under the Securities Exchange Act
of 1934, and therefore we have not filed any reports with the Securities and
Exchange Commission. Upon completion of this offering we intend to file reports
with the Securities and Exchange Commission under the Securities Exchange Act of
1934, and to furnish to our security holders annual reports containing audited
financial statements reported on by our independent auditors.
62
<PAGE>
GUITRON INTERNATIONAL INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors Report F1
Balance Sheets as of July 31, 2000 and July 31, 1999 F2
Statements of Operations for the years ended
July 31, 2000 and July 31, 1999; and for the period
August 20, 1997 (Date of Inception) to July 31, 2000 F3
Statements of Stockholders' Equity (Deficit) for the years
ended July 31, 1998, July 31, 1999 and July 31, 2000 F4
Statements of Cash Flows for the years ended July 31, 2000
and July 31, 1999; and for the period August 20, 1997
(Date of Inception) to July 31, 2000; F5
Notes to Financial Statements F7
63
<PAGE>
Pinkham & Pinkham, P.C.
Certified Public Accountants
This is the report Pinkham & Pinkham, PC, CPA's will issue on the accompanying
financial statements of Guitron International, Inc., subject to the finalization
and completion of the restructuring scheme in respect of the businesses to be
injected into the company as described in Note 1 to the accompanying financial
statements. If the restructuring scheme is modified or not completed, there
would be significant changes to the report.
Report of Independent Public Accountants
Board of Directors
Guitron International, Inc.
We have audited the accompanying balance sheets of Guitron International, Inc.
(a development stage company) as of July 31, 2000 and 1999 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended July 31, 2000 and 1999, and for the cumulative period from August 20,
1997, (date of inception) to July 31, 2000. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guitron International, Inc. (a
development stage company) at July 31, 2000 and 1999, and the results of their
operations, and their cash flows for the year ended July 31, 2000 and 1999, and
for the cumulative period from August 20, 1997, (date of inception) to July 31,
2000, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company is
still in the development stage and it cannot be determined at this time that the
technology acquired will be developed to a productive stage. In 2000 and 1999,
the Company experienced net losses and had limited liquidity and capital
resources. The Company's uncertainty as to its productivity and its ability to
raise sufficient capital, raise doubt about the entity's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Pinkham & Pinkham, P.C.
Pinkham & Pinkham, P.C.
Certified Public Accountants
November 21, 2000
Cranford, New Jersey
-F1-
64
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheet
July 31,
<TABLE>
<CAPTION>
Assets
------
2000 1999
----------- -----------
<S> <C> <C>
Current assets
Cash $ 4,351 $ --
Sales tax receivable 24,284 15,547
R&D Investment tax credit receivable 119,764 70,455
Inventory 8,489 --
----------- -----------
156,888 86,002
Property and equipment, at cost, net of accumulated
depreciation and amortization 24,972 13,415
Other assets
Security deposits 3,854 1,241
----------- -----------
$ 185,714 $ 100,658
=========== ===========
Liability and Stockholders' Equity (Deficit)
-------------------------------------------
Current liabilities
Notes payable - bank $ -- $ 80,133
Current portion of long-term debt 6,698 6,985
Accounts payable and accrued expenses 221,169 87,593
----------- -----------
227,867 174,711
----------- -----------
Other liabilities
Long term debt (net of current portion) 60,282 85,301
Loans from affiliated companies 80,700 94,426
Loan from officers 334,612 3,517
----------- -----------
475,594 183,244
----------- -----------
Stockholders' equity (deficit)
Common stock-20,000,000 shares authorized,
9,808,535 shares issued and outstanding 9,809 190,952
Additional paid-in-capital 1,361,148 172,264
Deficit accumulated during the development stage (1,899,558) (631,155)
Unrealized gain on foreign exchange 10,854 10,642
----------- -----------
(517,747) (257,297)
----------- -----------
$ 185,714 $ 100,658
=========== ===========
</TABLE>
See notes to financial statements
-F2-
65
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative
Period from
August 20,
1997
Year Year (Date of
Ended Ended Inception) to
July 31, July 31, July 31,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operations
General and administrative 818,982 18,690 925,440
Depreciation and amortization 5,242 3,524 9,634
Research and development 430,073 303,674 952,148
----------- ----------- -----------
Total expense 1,254,297 325,888 1,887,222
----------- ----------- -----------
Loss before other income and expenses (1,254,297) (325,888) (1,887,222)
Other expenses
Interest expense (14,106) (13,491) (30,620)
----------- ----------- -----------
Net loss (1,268,403) (339,379) (1,917,842)
Extraordinary item - early extinguishments
of debt -- 18,284 18,284
----------- ----------- -----------
Net loss and Comprehensive loss $(1,268,403) $ (321,095) $(1,899,558)
=========== =========== ===========
Net loss and Comprehensive
loss per common share $ (.17) $ (.22) $ (.55)
=========== =========== ===========
Weighted average shares of common
stock outstanding 7,356,707 1,487,970 3,469,949
=========== =========== ===========
</TABLE>
See notes to financial statements
-F3-
66
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Development Foreign
Shares Amount Capital Stage Exchange Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 1,409,166 $ 277 $ -- $ -- $ -- $ 277
Stock issued for services 21,500 4,308 -- -- -- 4,308
Government grants -- -- 76,080 -- -- 76,080
Unrealized gain on foreign
exchange -- -- -- -- 11,979 11,979
Net loss for year -- -- -- (310,060) -- (310,060)
----------- ----------- ----------- ----------- ----------- -----------
Balance at July 31, 1998 1,430,666 4,585 76,080 (310,060) 11,979 (217,416)
Issuance of common stock 201,000 127,007 -- -- -- 127,007
Stock issued for services 89,455 59,360 -- -- -- 59,360
Government grants -- -- 96,184 -- -- 96,184
Unrealized loss on foreign
exchange -- -- -- -- (1,337) (1,337)
Net loss and
Comprehensive loss for year -- -- -- (321,095) -- (321,095)
----------- ----------- ----------- ----------- ----------- -----------
Balance at July 31, 1999 1,721,121 190,952 172,264 (631,155) 10,642 (257,297)
Issuance of common stock 246,550 165,804 -- -- -- 165,804
Stock issued for services 2,849,855 172,554 548,452 -- -- 721,006
Government grants -- -- 120,931 -- -- 120,931
Unrealized gain on foreign
exchange -- -- -- -- 212 212
Merger of Guitron Canada 4,991,009 (519,501) 519,501 -- -- --
Net loss and
Comprehensive loss for year -- -- -- (1,268,403) -- (1,268,403)
----------- ----------- ----------- ----------- ----------- -----------
Balance at July 31, 2000 9,808,535 $ 9,809 $ 1,361,148 $(1,899,558) $ 10,854 $ (517,747)
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
-F4-
67
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
August 20,
Year Year 1997
Ended Ended (Date of
July 31, July 31, Inception) to
2000 1999 July 31, 2000
------------ ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss and comprehensive loss $(1,268,403) $ (321,095) $(1,899,558)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,242 3,524 9,634
Stock issued in exchange for services 721,006 59,360 784,674
Unrealized gain (loss) on foreign exchange 212 (1,337) 10,854
Early extinguishments of debt (18,284) (18,284)
Change in assets and liabilities:
Increase in:
Sales tax receivable (8,737) (3,151) (24,284)
R&D investment tax credit receivable (49,309) (47,238) (119,764)
Inventory (8,489) (8,489)
(Decrease) increase in:
Accounts payable and accrued expenses 133,576 (20,658) 221,169
----------- ----------- -----------
Net cash used in operating activities (474,902) (348,879) (1,044,048)
----------- ----------- -----------
Cash flow from investing activities:
Purchase of property and equipment (16,799) (11,316) (34,606)
Increase in security deposits (2,613) (3,854)
----------- ----------- -----------
Net cash used in investing activities (19,412) (11,316) (38,460)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable -- 13,712 80,133
Proceeds from long-term debt -- 53,505 115,566
Payments on long-term debt (105,438) (23,280) (128,718)
Loan from affiliated companies -- 71,266 94,426
Payments to affiliated companies (13,727) -- (13,727)
Loans from directors 331,095 3,517 334,612
Proceeds from issuance of common stock 165,804 127,007 293,088
Proceeds from grants 120,931 96,184 293,195
Proceeds from insurance company -- 18,284 18,284
----------- ----------- -----------
Net cash provided by financing activities 498,665 360,195 1,086,859
----------- ----------- -----------
Net increase in cash and cash equivalents 4,351 -- 4,351
Cash and cash equivalents - beginning
of year -- -- --
----------- ----------- -----------
Cash and cash equivalents - end of year $ 4,351 $ -- $ 4,351
=========== =========== ===========
</TABLE>
See notes to financial statements
-F5-
68
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows (continued)
Supplemental Disclosure of Non-Cash Activities:
During the Year ended July 31, 2000, stock was issued in exchange for services
performed and expenses in the amount of $721,006.
Supplemental Disclosure of Cash Flow Information:
Interest paid $14,106 $10,595 $30,620
------- ======= =======
Income taxes paid $ 0 $ 0 $ 0
======= ======= =======
See notes to financial statements
-F6-
69
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies
Nature of Business
Guitron International, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on December 6, 1999 for the specific purpose
of acquiring Guitron Canada , which was formed on August 20, 1997. Guitron
Canada was formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products. As of July 31,
2000 the Company's financial statements reflect the operations of Guitron
Canada as well as the equity activity of Guitron International, Inc. as if
the reorganization had been consummated.
Reorganization of Guitron Canada
Guitron International, Inc. will acquire Guitron Canada upon the
completion of the sale of the minimum amount within the offering period
and prior to the release from escrow of the proceeds from such sales.
As of July 31, 2000 and at the time of the acquisition, the following
securities are and will be issued and outstanding in Guitron Canada: (i)
not more than 2,218,226 Guitron Canada shares and (ii) Guitron Canada
Stock Options to purchase not more 454,800 Guitron Canada shares. Pursuant
to the acquisition:
(a) All of the outstanding Guitron Canada shares will be exchanged for
3.25 common shares of the Company. This will result in the issuance
of a total of 7,209,235 shares of the common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each one Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of the Company; this will result in
there being a total of 1,478,100 of the Company's common shares
subject to future issuance pursuant to the exercise of presently
outstanding Guitron Canada Stock Options.
For accounting purposes the Company recorded the reorganization as a
pooling of interests and not as a purchase.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, receivables, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of
such instruments.
The fair values of the Company's debt instruments are based on the amount
of future cash flows associated with each instrument discounted using the
Company's borrowing rate. At July 31, 2000, the carrying value of all
financial instruments was not materially different from fair value.
Development Stage
At July 31, 2000 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
-F7-
70
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Receivables
Management believes that all receivables as of July 31, 2000 were fully
collectible; therefore, no allowances for doubtful accounts were recorded.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
accelerated method over the estimated useful lives of three to five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation
and amortization of assets sold or retired are eliminated from the
accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of 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
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Adoption of Statement of Accounting Standard No. 123
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value
compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and APB 25
is immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting
earnings per share (EPS) and supersedes Accounting Principles Board
Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
-F8-
71
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1-Summary of Accounting Policies (continued)
Adoption of Statement of Accounting Standard No. 128(continued)
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to
stock options and warrants outstanding during the period.
For the Year ended July 31, 2000, primary loss per share was the same as
basic loss per share and fully diluted loss per share was the same as
diluted loss per share. A net loss was reported in 2000, and accordingly,
in those years the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding options and
warrants to purchase shares of the Company's common stock, because to do
so would have been anti-dilutive. Stock options for the purchase of
1,478,100 shares were not included in loss per share calculations, because
to do so would have been anti-dilutive.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Revenue Recognition
Revenue is recognized when the product is shipped to the customer.
Income Taxes
The Company has net operating loss carryovers of approximately $1,900,000
as of July 31, 2000, expiring in the year 2015. However, based upon
present Internal Revenue regulations governing the utilization of net
operating loss carryovers where the corporation has issued substantial
additional stock, most of this loss carryover may not be available to the
Company.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, effective July 1998. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant
to SFAS No. 109. Accordingly, no deferred tax asset is reflected in these
financial statements.
The Company has research and development investment tax credits receivable
from Canada and Quebec amounting to $119,764 at July 31, 2000.
Note 2-Going Concern
As shown in the accompanying financial statements, the Company incurred a
cumulative net loss of approximately, $1,900,000 as of July 31, 2000. In
addition, the Company has a negative working capital of approximately
$71,000 and a stockholders' deficit of approximately, $518,000.
-F9-
72
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 2-Going Concern(continued)
The Company, which is in the development stage, is currently in the
process of formulating a plan to effect a public offering, the proceeds of
which would be used for working capital, capital acquisitions and sales
and marketing expenses. The ability of the Company to continue as a going
concern is dependent on the success of the plan. The financial statements
do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
Note 3-Property and Equipment
As of July 31, 2000 property and equipment consisted of the following:
Samples $10,189
Furniture, fixtures and equipment 7,129
Leasehold improvements 2,063
Computer 15,225
-------
34,606
Less accumulated depreciation and amortization 9,634
-------
$24,972
=======
Depreciation and amortization expense charged to operations was $5,242 for
the twelve months ended July 31, 2000.
Note 4-Notes Payable
The Company has available a Cdn $180,000 (approximately US$119,443) line
of credit which bears interest at 25%. At July 31, 2000 there was $0.00
outstanding against this line of credit. The note is collateralized by
virtually all of the assets of the company.
Note 5-Long-Term Debt
Loans payable under the Program for the Development of Quebec SME's based
on 50% of approved eligible costs for the preparation of market
development studies in certain regions. Loans are unsecured and
non-interest bearing. (If the Company defaults the loans become interest
bearing). Loan payable over four years commencing
January 2001, due January 2004 $66,980
Current portion 6,698
-------
$60,282
Minimum principal repayments of each of the next four
years as follows:
2001 $ 6,698
2002 13,396
2003 20,094
2004 26,792
-------
$66,980
=======
-F10-
73
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 6-Related Party Transactions
The Company entered into an employment agreement with the executive
officer on December 6, 1999 that provides for an annual salary of $100,000
a year plus benefits. The employment agreement calls for a term of three
years. In addition to the employment services, the officer agrees not to
compete with the Company for a year following the termination of
employment. If the officer is terminated other than for cause or for "good
reason", the terminated officer will be paid twice the amount of their
base salary for twelve months.
Note 7-Common Stock
During the twelve months ended July 31, 2000 the Company issued common
stock to individuals in exchange for services performed totaling $721,006.
The dollar amounts assigned to such transactions have been recorded at the
fair value of the services received, because the fair value of the
services received was more evident than the fair value of the stock
surrendered.
Note 8-Stock Option
The Company has stock options outstanding to purchase 1,478,100 shares of
common stock which expire at various dates through November 2004. The
exercise price ranges from $.16 to $.21 with the weighted average exercise
price equal to .21.
Compensatory Common Stock Options
<TABLE>
<CAPTION>
Compensation
Cost
For the Year Ended
Number of Shares July 30, 2000
---------------- -------------
<S> <C> <C>
Stock options granted during the year
ended July 31, 1999 958,100 --
Stock options granted during the year
ended July 31, 2000 520,000 --
Stock options exercised during the years
ended July 31, 1999 and July 31, 2000 -- --
--------- -------
Balance at July 31, 2000 1,478,100 --
</TABLE>
Note 9-Government Assistance
The Company receives financial assistance from Revenue Canada and Revenue
Quebec in the form of scientific research tax credit. During the Year
ended July 31, 2000 the company received or has receivables of
approximately $120,931 which have been recorded as additional paid in
capital.
Note 10-Commitments
The Company leases office space on a month-to-month basis with a monthly
rent of $3,455 plus a proportionate share of all water, taxes, business
taxes, and other similar taxes and rates, which may be levied or imposed
upon the premises. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
Rental expense for the twelve months ended July 31, 2000 amounted to
$24,497.
-F11-
74
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 10-Commitments (continued)
The Company entered into two marketing agreements as follows:
1.) Effective September 1, 1999 through October 31, 2001 for every
$100,000 of net receipts the individual will receive 1,000
shares of common stock.
2.) Effective January 1, 2001 through June 30, 2003 for every
$100,000 of net receipts the individual will receive 10,000
shares of common stock, with a maximum of 264,000 shares.
Note 11-Loan from Officers
The loan from officers is non-interest bearing and has no specific terms
of repayment.
Note 12-Loans from Affiliated Companies
These loans represent advances from a company that is controlled by a
director and principal shareholder of the Company. Interest is computed at
6% per annum. All principal and interest is due no later than July 31,
2001.
Note 13-Extraordinary Item
The Company realized an extraordinary item from the early extinguishment
of a long-term debt. The Company had purchased life insurance on a
director of the Company in an amount equal to the outstanding balance of a
bank note. Upon his death the insurance policy's proceeds of $18,284 were
used to pay off the loan.
-F12-
75
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus in connection
with the offer made hereby. If given or made, such information or representation
must not be relied upon as having been authorized by us. This Prospectus does
not constitute an offer to any person in any jurisdiction in which such an offer
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4,302,910 Shares
GUITRON
INTERNATIONAL INC.
----------
PROSPECTUS
----------
December 12, 2000
--------------------------------------------------------------------------------
Until _________,2000 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
76
<PAGE>
GUITRON INTERNATIONAL INC.
PART II
Item 24. Indemnification of Directors and Officers
Our certificate of incorporation limits the liability of our directors and
officers to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
(i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of our Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The effect of the foregoing is to require us to indemnify our officers and
directors for any claim arising against our directors and officers in their
official capacities if such person acted in good faith and in a manner that he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES MAY BE PERMITTED TO OUR
DIRECTORS, OFFICERS AND CONTROLLING PERSONS PURSUANT TO THE FOREGOING
PROVISIONS, OR OTHERWISE, WE HAVE BEEN ADVISED THAT IN THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION THIS TYPE OF INDEMNIFICATION IS AGAINST
PUBLIC POLICY AND IS, THEREFORE, UNENFORCEABLE.
Corporate Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are not presently subject to the provisions of Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (we did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at
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<PAGE>
the commencement of the transaction (excluding voting stock owned by directors
who are also officers or held in employee benefit plans in which the employees
do not have a confidential right to render or vote stock held by the plan) or,
(iv) the business combination was approved by the Board of Directors of the
corporation and ratified by two-thirds of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of the majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who, together with affiliates and
associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. If it should become applicable to us in the
future, Section 203 could prohibit or delay a merger, takeover or other change
in control of our company and therefore could discourage attempts to acquire us.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses in connection with
the issuance and distribution of the securities being registered.
SEC Registration Fee .................................. $ 1,304
NASD Filing Fee........................................ $ 930
Blue Sky Filing Fees................................... $ 2,000
Printing and Engraving Expenses ....................... $13,000
Legal Fees and Expenses ............................... $ 0(1)
Accounting Fees and Expenses .......................... $15,000
Transfer Agent's Fees and Expenses .................... $ 2,000
Escrow Agent's Fees and Expenses....................... $ 2,500
Miscellaneous Expenses ................................ $ 3,266
-------
TOTAL ESTIMATED EXPENSES ............................ $40,000
All such expenses will be borne by us.
(1) Legal fees and expenses related to this offering have been paid by the
issuance of shares of our common stock. The parties receiving such shares also
received additional shares in connection with providing us with legal services
involving general corporate work.
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Item 26. Recent Sales of Unregistered Securities
On January 3, 2000, in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, we issued an
aggregate of 2,599,300 shares of our common stock to Michael D.A. Ash (500,000
shares), Ashbyrne 2000 Limited (1,500,000 shares), Frances Katz Levine (299,650
shares) and Scott Rapfogel (299,650 shares). All of the foregoing persons are
sophisticated investors, are familiar with our business activities and were
given full and complete access to any corporate information requested by them
and did in fact review extensive corporate information.
The shares issued to Michael D.A. Ash and Ashbyrne 2000 Limited were
issued in connection with consulting services. The shares issued to Frances Katz
Levine and Scott Rapfogel were issued in connection with legal services.
Pursuant to our acquisition of The Guitron Corporation which will take
place following the sale of the minimum offering amount, all of the 2,218,226
then issued and outstanding shares of The Guitron Corporation will each be
exchanged for 3.25 shares of our common stock. These shares of The Guitron
Corporation are held by an aggregate of 51 persons who acquired them during the
period September 1, 1997 through June 15, 2000 at prices ranging from
approximately $.00001 per share to approximately $.67 per share. 46 of such
issuances by The Guitron Corporation were made to Canadian or other foreign
residents and were not subject to US securities laws. 5 of such issuances by The
Guitron Corporation were made to US residents in reliance on Section 4(2) of the
Securities Act of 1933, as amended. Pursuant to the acquisition, all issued and
outstanding stock options of The Guitron Corporation will be exercisable to
purchase 3.25 shares of our common stock. The Guitron Corporation options are
held by 10 persons who acquired them during the period January 6, 1999 through
November 30, 1999. All of such options were issued to Canadian and other foreign
residents and therefore were not subject to U.S. securities laws.
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Item 27. Exhibits
EXHIBIT NO. ITEM
---------- ----
2.1 Form of Agreement and Plan of Reorganization among The Guitron
Corporation, a Canadian corporation, Guitron International Inc., and
the shareholders of The Guitron Corporation
2.2 Form of Shareholder's Power of Attorney*
2.3 Form of Shareholders Letter of Transmittal and
Custody Agreement*
3.1 Certificate of Incorporation of Guitron International Inc.
filed December 6, 1999*
3.2 Certificate of Incorporation of The Guitron Corporation
filed August 20, 1997.*
3.3 By-Laws of Guitron International Inc.*
4.1 Specimen Common Stock Certificate**
4.2 Form of Subscription Agreement
5.1 Opinion and Consent of Counsel
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy*
10.2 Marketing and Consulting Agreement dated September 29, 1999 between
The Guitron Corporation and Marvin Chankowsky
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote*
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc.*
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<PAGE>
10.5 Form of Escrow Agreement between the Company and Continental
Stock Transfer & Trust Company*
10.6 Loan Agreement dated as of July 30, 1999 between The Guitron
Corporation and Productions Polyart International Inc.*
10.7 Service Agreement dated January 31, 2000 between The Guitron
Corporation and Innovative Products Resources Ltd.*
21 Subsidiaries - We presently have no subsidiaries. Following the receipt
of the minimum offering proceeds we will acquire The Guitron
Corporation, making such corporation a wholly owned subsidiary of ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified public
accountants
27 Financial Data Schedule (filed by EDGAR)
* Previously filed
** To be filed by amendment
Item 28. Undertakings.
(a) Rule 415 Offering.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
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<PAGE>
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred or paid by a director, officer or controlling person of the
issuer in the successful defense of any action, suit or proceedings) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such court.
(c) Rule 430A
The undersigned issuer will:
(1) For determining any liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
file by the small business issuer under rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as at the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Montreal, Canada on December 8, 2000.
GUITRON INTERNATIONAL INC.
By: /s/ Richard F. Duffy
---------------------
Richard F. Duffy, President, Chief Executive
Officer and Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 has been signed by the following persons in
their respective capacities with Guitron International Inc. and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard F. Duffy President, Chief Executive Officer
--------------------- and Chairman of the Board of Directors December 8, 2000
Richard F. Duffy
/s/ Michael D.A. Ash Treasurer, Chief Financial and
-------------------- Accounting Officer and Director December 8, 2000
Michael D.A. Ash
Majority of the Board of Directors
/s/ Richard F. Duffy Director
--------------------
Richard F. Duffy December 8, 2000
/s/ Michael D.A. Ash Director
--------------------
Michael D.A. Ash December 8, 2000
/s/ France B. Fasano Director
--------------------
France B. Fasano December 8, 2000
/s/ Edward Santelli Director
-------------------
Edward Santelli December 8, 2000
/s/ David L. Rosentzveig Director
------------------------
David L. Rosentzveig December 8, 2000
</TABLE>
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
PRE-EFFECTIVE
AMENDMENT NO.2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
EXHIBITS
84
<PAGE>
GUITRON INTERNATIONAL INC.
EXHIBIT INDEX
EXHIBIT NO. ITEM PAGE
----------- ---- ----
2.1 Form of Agreement and Plan of Reorganization among
The Guitron Corporation, a Canadian corporation, Guitron
International Inc., and the shareholders of
The Guitron Corporation 87
2.2 Form of Shareholder's Power of Attorney*
2.3 Form of Shareholders Letter of Transmittal and
Custody Agreement*
3.1 Certificate of Incorporation of Guitron International Inc.
filed December 6, 1999*
3.2 Certificate of Incorporation of The Guitron Corporation
filed August 20, 1997*
3.3 By-Laws of Guitron International Inc.*
4.1 Specimen Common Stock Certificate**
4.2 Form of Subscription Agreement 93
5.1 Opinion and Consent of Counsel 97
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy*
10.2 Marketing and Consulting Agreement dated September 29, 1999
between The Guitron Corporation and Marvin Chankowsky 99
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote*
85
<PAGE>
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc.*
10.5 Form of Escrow Agreement between the Company and Continental
Stock Transfer & Trust Company*
10.6 Loan Agreement dated as of July 30, 1999 between The Guitron
Corporation and Productions Polyart International Inc.*
10.7 Service Agreement dated January 31, 2000 between The Guitron
Corporation and Innovative Products Resources Ltd.*
21 Subsidiaries - We presently have no subsidiaries. Following the
receipt of the minimum offering proceeds we will acquire
The Guitron Corporation, making such corporation a wholly owned
subsidiary of ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified public
accountants 108
27 Financial Data Schedule (filed by EDGAR)
* Previously filed
** To be filed by amendment
86
