U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1997 Commission file number: 0-15992
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
OTC AMERICA, INC.
(Name of small business issuer in its charter)
COLORADO
(State or Other Jurisdiction of Incorporation or Organization)
84-1031311
(I.R.S. Employer Identification No.)
1582 South Parker Road, Suite 203 Denver, Colorado 80231
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number: (303) 750-3111
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment. [ ]
State issuer's revenues for its most recent fiscal year: $-0-
The aggregate market value of the voting stock held by non-affiliates
(41,784,157 shares of $.0001 par value Common Stock) was $1,253,525 as of June
30, 1997. The stock price for computation purposes was $.03, based on the
closing sale price for the Registrant's Common Stock on NASDAQ Bulletin Board
on June 30, 1997. This value is not intended to be a representation as to the
value or worth of the Registrant's shares of Common Stock. The number of
shares of non-affiliates of the Registrant has been calculated by subtracting
shares held by persons affiliated with the Registrant from outstanding shares.
The number of shares outstanding of the Registrant's Common Stock as of the
latest practicable date, June 30, 1997, was 48,489,294 shares.<PAGE>
OTC AMERICA, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
Page
PART I
Item 1. DESCRIPTION OF BUSINESS 3
Item 2. DESCRIPTION OF PROPERTIES 7
Item 3. LEGAL PROCEEDINGS 7
Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDER 7
PART II
Item 5. MARKET FOR THE COMPANY'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 7
Item 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION 8
Item 7. FINANCIAL STATEMENTS 8
Item 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 8
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
- COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT 9
Item 10. EXECUTIVE COMPENSATION 10
Item 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT 10
Item 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 11
Item 13. EXHIBITS AND REPORTS ON FORM 8-K 12
<PAGE>
PART I
The matters addressed in this report on Form 10-KSB, with the exception
of the historical information presented, contain forward-looking statements
involving risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the heading
"Certain Factors That May Affect Future Results" in the Business section (Item
1) and elsewhere in this report.
Item 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
OTC America, Inc. (the "Company" or the "Registrant"), is a Colorado
corporation. The principal business address is 1582 South Parker Road, Suite
203 Denver, Colorado 80231. Its phone number is (303) 750-3111.
The Company was originally incorporated under the laws of the State of
Colorado on June 13, 1986 for the primary purpose of providing management and
business consulting services to start-up and development stage entities. In
November, 1987, the Company acquired used printing equipment and started a
printing business under the name American Printing. In February 1989, the
Company discontinued all operations, recorded a net gain on disposal of those
operations totaling $18,371, and became an inactive shell company. The
Company has had no operations since 1989.
On November 11, 1997, the Company's sole director acquired 6,705,137 of
the Company's common shares, approximately 13.8% of the Company's outstanding
shares from its former director. In connection with the Letter Agreement, L.
Thomas Tarantelli ("Tarantelli") appointed Randy Phillips ("Phillips") as a
director and Chief Executive Officer of the Company and resigned as a director
and officer. As of November 11, 1997, Phillips is the sole director and
officer of the registrant.
(b) Narrative Description of the Business
General
The Company current operations consist solely of seeking merger
candidates.
Present Business
Registrant believes that the management of a suitable target company
entering a merger transaction with registrant will benefit by eliminating
certain costs and uncertainties which registrant believes are associated with
conducting an Initial Public Offering through an underwriter.
Management believes the Registrant will offer owners of potential merger
or acquisition candidates the opportunity to acquire a controlling interest in
a public company at substantially less cost than is required to conduct an
initial public offering. The target company may, however, incur significant
post merger registration costs in the event target company shareholders wish
to offer a portion of their shares for subsequent sale in a secondary public
offering.
Registrant also believes target company shareholders may benefit in
obtaining a greater ownership percentage in the Registrant remaining after a
merger or acquisition than may be the case in the event a target company
offered its shares directly for sale to the public. Nevertheless, Management
of the Registrant has not conducted market research and is not aware of
statistical data which would support the perceived benefits of a merger or
acquisition transaction for target company shareholders.
Further, while target company shareholders will receive "restricted
securities" in any merger or acquisition transaction, those restricted
securities will represent, if a trading market again develops for the
Registrant's Common Stock, ownership in a "publicly traded" as opposed to a
"privately held" company. Registrant believes that shares in a publicly
traded company can carry an increased value, are more liquid and are in some
instances may be accepted by sellers as payment for additional assets or
businesses that Registrant may wish to acquire.
Plan of Operation
Management contemplates that the Registrant will seek to merge with or
acquire a target company with either assets or earnings, or both, and that
preliminary evaluations undertaken by an affiliate of the Registrant may
assist in identifying possible target companies. The Registrant has not
established a specific level of earnings or assets below which Registrant
would not consider a merger or acquisition with a target company. Moreover,
management may identify a target company which has in the past, is now, or
which may in the future generate losses or experience balance sheet weakness.
A material adverse effect on the price of the Registrant's Common Stock could
result from a merger transaction between the Registrant and a company that
possesses less than ideal financial characteristics; however, there is no
assurance that Registrant will not consummate a merger with a financially
challenged or troubled company.
Plan of Acquisition
Registrant plans to continue to follow a systematic approach to identify
its most suitable candidate. First management plans to identify any number of
preliminary prospects which may be brought to the attention of management
through present associations. Management will apply certain of its broad
criteria to the prospects to determine whether or not the prospects are in an
industry and/or geographic location that appears promising and whether or not
the prospects themselves have potential at their location within their own
industry. During this initial screening process, management will ask and
receive answers to questions framed to provide appropriate threshold
information, depending upon the nature of the prospect's business. Such
evaluation is not expected to be an in-depth analysis of the target company's
operations, although it will encompass a look at most, if not all, of the same
areas to be examined once one or more target companies are selected for in-
depth review. For instance, at this stage, management may look at a
prospect's unaudited balance sheet. Once a prospect is selected for an in-
depth review, management may review the prospect's audited financial
statements, if any. Nevertheless, management anticipates this evaluation will
entail a broad overview of the business of the target company and should allow
a large percentage of preliminary prospects to be eliminated from further
consideration.
Negotiations with target company management will be expected to focus on
the percentage of the Company, as computed following a merger or acquisition,
which target company shareholders would receive for their share holdings in
the target company. Depending upon, among other things, the target company's
assets and liabilities, the Registrant's shareholders will in all likelihood
hold a substantially smaller ownership interest in the Registrant following
any merger or acquisition. The percentage ownership of Registrant's existing
shareholders may be subject to very significant reduction in the event the
Registrant acquires a target company with substantial assets. Any merger or
acquisition effected by the Registrant can be expected to have a large
dilutive effect on the percentage of shares held by the Registrant's
shareholders.
Current management would clearly not control the surviving company
following such a dilution and would not be in a position to demand an active
participation and therefore would not participate unless invited to do so.
Management of Registrant does not intend to force an active participation in
the affairs of the acquired company. Management will evaluate any opportunity
offered such that the merger may be completed. Management will, in all
likelihood, be requested to relinquish any voting control it may exercise
prior to a merger to the present management of the business which is acquired.
Management cannot commit at this time as to whether a shareholder will
have the right to vote to complete the merger or acquisition as the nature of
the transaction, and the needs of the candidate will dictate the legal
requirement of the transaction. If a shareholder vote is required, it will be
subject to Proxy Rules promulgated by the SEC. Management has in the past
fully complied with SEC rules and it is the present intention of management to
do so in the future. Management will make all reports, if any, filed with
federal and state authorities available to its shareholders upon reasonable
request.
In connection with the acquisition by Registrant of a private business,
Registrant may not obtain an independent appraisal of the value of the
acquired business. Such omission by Registrant could result in over valuation
or other related errors which then could adversely effect the quantity and
terms of any shares issued and/or other consideration paid by Registrant for
the private business. It is possible that an existing shareholder's future
share value would be adversely effected by factors including but not limited
to excess dilution, and lack of market for shares.
Registrant is authorized to issue 20,000,000 Preferred Shares and
150,000,000 Common Shares. On July 31, 1998 Registrant had outstanding no
Preferred Shares and 48,489,294 Common Shares. Management believes that
Registrant has adequate authorized shares which the directors may consider for
issuance for services or to acquire a private business. At such time as the
Company considers a proposal to a acquire a private business, it will be able
to make available a large percentage of the Company for control by the owners
of the private company acquired.
Management may use its shares as compensation for services rendered to it
by its management, directors, insiders, affiliates or others.
Competition
The Registrant is and will remain an insignificant participant among the
firms which engage in mergers with and acquisitions of privately financed
entities. There are many established venture capital and financial concerns
which have significantly greater financial and personnel resources and
technical expertise than the Registrant. The combined financial resources and
management availability of Registrant and Registrant's affiliate are limited
and therefore the Registrant may experience certain competitive disadvantages
compared to Registrant's competitors. There is no assurance that such
disadvantages, if experienced, will not prevent or substantially delay
Registrant in achieving a merger or acquisition.
Regulation and Taxation
The Registrant could be subject to regulation under the Investment
Company Act of 1940 in the event the Registrant obtains and continues to hold
a minority interest in a number of entities. However, management intends to
seek at most one or two mergers or acquisitions and management's plan of
operation is based upon the Registrant obtaining a controlling interest in any
merger or acquisition target company and, accordingly, the Registrant may be
required to discontinue any prospective merger or acquisition of any company
in-which a controlling interest will not be obtained.
The Registrant could be required to register under the Investment Company
Act of 1940 in the event the Registrant comes within the definition of an
Investment Company contained in the Act due to its assets consisting
principally of share holdings held in a number of subsidiaries. Management
intends to seek at most one or two mergers or acquisitions, which transactions
will result in Registrant holding only majority interest in subsidiaries.
Any securities which Registrant acquires in exchange for its Common Stock
will be "restricted securities" within the meaning of the Securities Act of 1
933 (the "l 933 Act"). If the Registrant elected to resell such securities,
such sale could not proceed unless a registration statement had been declared
effective by the Securities and Exchange Commission or an exemption from
registration was available. Section 4(2) of the 1933 Act, which exempts sales
of securities not involving any public offering, would in all likelihood be
available since it is likely that any such sale would be a block sale to a
private investor to raise additional capital. Although management's plan of
operation does not contemplate resale of securities acquired, in the event
such a sale were necessary, the Registrant would be required to comply with
the provisions of the 1933 Act.
The Registrant intends to structure a merger or acquisition in such a
manner as to minimize federal and state tax consequences to the Registrant and
the target company. In the course of any merger or acquisition the Registrant
may undertake, a substantial amount of attention will be focused upon federal
and state tax consequences to both the Registrant and the 'Target" company.
Presently, under the provisions of federal and various state tax laws, a
qualified reorganization between business entities will generally result in
tax-free treatment to the parties of the reorganization. This generally
requires the company to acquire at least 80% of the combined voting power of
shares of all classes of stock in exchange for voting stock.
While the Registrant expects to undertake any merger or acquisition so as
to minimize federal and state tax consequences to both the Registrant and the
target company, there is no assurance that such business combination will meet
the statutory requirements of a reorganization or that the parties will obtain
the intended tax-free treatment upon a transfer of stock or assets. A non
qualifying reorganization could result in the imposition of both federal and
state taxes which may have a substantial adverse effect on the Registrant.
Further, there is no assurance of the minimization of federal and state taxes
which may have a substantial adverse effect on the Registrant.
Further, there is no assurance federal and state tax laws may not be
amended in the foreseeable future to preclude the Registrant, as well as
others, from availing itself of the tax-free treatment presently afforded
business entities engaged in mergers and acquisitions.
As of this date no arrangements for merger or acquisition have been made.
(c) Employees
The Company does not have any employees.
(d) Proprietary Information
The Company has no proprietary information.
(e) Government Regulation
The Company is not subject to any material governmental regulation or
approvals.
(f) Research and Development
The Company has not spent any amount in research and development
activities.
(g) Environmental Compliance
At the present time, the Company is not subject to any material costs for
compliance with any environmental laws.
(h) Subsequent Event
On November 11, 1997, Wathne Pierce & Associates ("Wathne Pierce")
completed a Letter Agreement confirming the terms and conditions of an
option whereby Randy Phillips ("Phillips") would acquire in exchange for
$150,000, the 6,705,137 shares of common stock previously owned by Tarantelli.
In connection with the Letter Agreement, Tarantelli appointed Phillips as
a director and Chief Executive Officer of the Company and resigned as a
director and officer. As of November 11, 1997, Phillips is the sole director
and officer of the registrant.
Item 2. DESCRIPTION OF PROPERTY
For the year ended June 30, 1997, the Company's business office was
located at 1 Vineyard Hill, Fairport, New York 14450.
As of November 11, 1997, the Company's business office was moved to 1582
South Parker Road, Suite 203, Denver, Colorado 80231, for which it pays no
rent. The offices are leased by the Company's sole officer and director,
Randy Phillips.
Item 3. LEGAL PROCEEDINGS
No legal proceedings of a material nature to which the Company is a party
were pending during the reporting period, and the Company knows of no legal
proceedings of a material nature, pending or threatened, or judgments
entered against any director or officer of the Company in his capacity as
such.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders
through solicitation of proxies or otherwise during the fiscal year covered by
this report.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Principal Market or Markets. The Company's stock is traded on
the over-the-counter market, and is presently quoted on the NASDAQ OTC
Bulletin Board. The following table sets forth the high and low bid prices of
the Common Stock during the six months ended June 30, 1997 on the NASDAQ OTC
Bulletin Board. Management has not been able to determine prices prior to
1997. The prices are believed to be representative interdealer quotations,
without detail mark-up, mark-down or commissions, and may not represent prices
at which actual transactions occurred.
<TABLE>
<CAPTION>
Bid
Quarter Ended High Low
<S> <C> <C>
September 30, 1995 - -
December 30, 1995 - -
March 31, 1996 - -
June 30, 1996 - -
September 30, 1996 - -
December 31, 1996 - -
March 31, 1997 .03 .01
June 30, 1997 .03 .01
</TABLE>
(b) Approximate Number of Holders of Common Stock. The number of
holders of record of the Company's Common Stock at June 30, 1997, was
approximately 498.
(c) Dividends. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends on the common stock were paid by the Company during the periods
reported herein nor does the Company anticipate paying dividends in the
foreseeable future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following summarizes the Company's results of operations and
financial conditions, and should be read in conjunction with the financial
statements:
(a) Liquidity and Capital Resources
As of the end of the reporting period, the Company had no cash or cash
equivalents. There was no significant change in working capital during this
fiscal year. Management feels that the working capital position of the
Company may improve with the acquisition or merger with an operating company.
(b) Results of Operations
No operations were conducted during the two years ended June 30, 1997 and
since 1989 the Company has been inactive. Any expenses incurred since 1989
have been related to legal, accounting and stock transfer agent fees in order
to provide stock transfer services to current shareholders and to comply with
reporting as required by the Securities Exchange Act of 1934.
(c) Plan of Operation
The plan of the Company's management, for the next twelve months, is to
focus on acquiring an operating entity. The sole officer and director has
been seeking possible merger candidates and expects to consummate a
transaction in the foreseeable future. Management anticipates utilizing
additional equity financing and short-term working capital advances in its
acquisition endeavors.
Item 7. FINANCIAL STATEMENTS
The report of the independent auditors on the financial statements
appears at Page F-2 and the financial statements and their accompanying
footnotes appear at Pages F-3 through F-10 hereof. These financial statements
and related financial information required to be filed hereunder are
incorporated herein by reference.
Item 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company did not have any disagreements on accounting and financial
disclosures with its present accounting firm during the reporting period.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) Directors and Executive Officers. The names and ages of the
Directors and executive officers of the Company are as follows:
Name Age Position Since
L. Thomas Tarantelli President, CEO and
sole officer and director December 17, 1990 **
Randy Phillips President, CEO and
sole officer and director November 11, 1997
** Tarantelli resigned concurrent with the appointment of Phillips.
The Directors serve until the next annual meeting of shareholders, and
until their successors are elected and qualified.
The following sets forth information concerning the principal occupations
and business experience of the current sole Officer and Director of the
Company:
Randy Phillips
From 1992 to 1994, Mr. Phillips served as Director of Trading for an offshore
hedge fund. In 1994 Mr. Phillips started his own private investment firm,
specializing in mergers and acquisitions, which he is currently the sole owner
and manager.
(b) Section 16(a) Beneficial Ownership Reporting Compliance. L.
Thomas Tarantelli, failed to timely file Forms 3 with the
Securities Exchange Commission, as required by Section 16(a).
The Company is aware of no other delinquent filings.
Item 10. EXECUTIVE COMPENSATION
No officers or directors have been compensated during the fiscal year
ended June 30, 1997. The Company has no retirement, pension, profit sharing,
insurance or other similar programs.
The Company has agreed to reimburse its president for his expenses and
intends to reward him on a performance basis at such time as the acquisition
of an operating company or business is completed. It is likely both the
reimbursement and performance award will be in the form of stock grants.
No Directors fees were paid during the year ended June 30, 1997.
Stock Option Plan
Effective July 1, 1986, the Company adopted an Incentive Stock
Option Plan ("the Plan") and reserved a total of 5,000,000 common shares for
issuance pursuant to the Plan. The Plan, designed as an incentive for key
employees, is administered by the Board of Directors, which, in its sole
discretion, selects optionees and determines the number of shares subject to
each option. The Plan provides that no option may be granted at an exercise
price less than the fair market value of the common shares on the date of
grant. Fair market value is determined by calculation of an average of the
highest and lowest sale prices of the common shares, as reported by a
reporting service the Board may select. The Board is also empowered to
determine fair market value in such other manner as is deemed equitable for
purposes of the Plan. Unless the Board determines otherwise, options granted
under the Plan will expire five years from the date of grant and may not be
exercised during the initial one-year period from date of grant. Thereafter,
options may be exercised in whole or in part, depending on the terms of the
particular option. To date, no options have been granted under the Plan.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The registrant's securities are recorded on the books of its transfer
agent in registered form. A substantial portion of the shares are, however,
registered in the name of intermediaries such as brokerage houses and clearing
houses on behalf of their respective clients. Management does not have
knowledge of the beneficial owners thereof.
The following table sets forth information regarding beneficial ownership
as of June 30, 1997 of the Company's common stock by any person who is known
by the Company to be the beneficial owner of more than five (5%) percent of
the Company's voting securities, and by each Director of the Registrant, and
by officers and Directors of the Registrant as a group. Although authorized
for Preferred Shares, the Company has issued only Common Stock. As of June
30, 1997 there were 48,489,294 common shares issued and outstanding. On
November 11, 1997 L. Thomas Tarantelli, the companies former sole director
sold all of his shares to the Company's sole current officer and director,
Randy Phillips.
All ownership is beneficial and on record and all beneficial owners
listed below have sole voting and investment power with respect to the shares
shown, unless otherwise indicated.
Name and Address Number of Shares Percentage of Class
Randy Phillips 6,705,137 13.8%
1582 S. Parker Road, Ste. 203
Denver, CO 80231
All Officers and Directors
as a Group (1 person) 6,705,137 13.8%
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Change in Management Control of Company
On June 11, 1997, the Company's sole officer and director, L. Thomas
Tarantelli ("Tarantelli"), entered into an agreement ("option contract") with
Downeast SonRise, Inc. ("Downeast"), giving Downeast the option to purchase
Mr. Tarantelli's 6,705,137 shares of the registrant's common stock. On
September 26, 1997 Downeast sold the option contract to Wathne Pierce &
Associates, Inc. ("Wathne"), for $1. Once obtaining the option contract from
Downeast, Wathne sold the option contract to Mr. Randy Phillips for $100,000.
On October 31, 1997 Tarantelli appointed Phillips as a director and Chief
Executive Officer of the Company and resigned as a director and officer. On
November 11, 1997 Mr. Phillips acquired the 6,705,137 shares, representing
13.8% of the Registrants's outstanding common stock, from Mr. Tarantelli for
$50,000. As of October 31, 1997, Mr. Phillips is the sole director and
officer of the registrant.
During the last fiscal year, the Company's business office was located at
1 Vineyard Hill. Fairport, New York 14450, the office of L. Thomas Tarantelli,
its former President, for which it paid no rent. During the period Mr.
Tarantelli was president, he paid on behalf of the Company certain legal,
accounting and stock transfer agent fees.
After November 11, 1997, the offices were relocated to its present
location, which is a facility leased by the Company's current President, Randy
Phillips. Since becoming President, Mr. Phillips has paid approximately
$6,800 in legal, accounting and transfer agent fees on behalf of the Company.
Other than those mentioned above, there have been no related party
transactions, or any other transactions or relationships required to be
disclosed pursuant to Item 404 of Regulation S-B.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following financial information is filed as part of this report:
1) Financial Statements
2) Schedules
3) Exhibits. The following exhibits required by Item 601 to be
filed herewith are incorporated by reference to previously filed
documents:
Item 601
Exhibit NO. Description
10.A Articles of Incorporation
* Previously filed with the Securities and Exchange Commission.
Reports on Form 8-K
(b) Reports on Form 8-K filed during the fourth quarter of 1997
- None.
Reference is made to the Company's current reports on Form 8-K:
Date Item Disclosed
11/11/97 Changes in Control of Registrant.
OTC AMERICA, INC.
Index to Financial Statements
Page
Independent Auditors' Report F-2
Balance Sheet, June 30, 1997 F-3
Statement of Operations, for the years ended
June 30, 1996 and 1997 F-4
Statement of Shareholders' Equity, for the years ended
June 30, 1996 and 1997 F-5
Statement of Cash Flows, for the years ended
June 30, 1996 and 1997 F-6
Summary of Significant Accounting Policies F-7
Notes to Financial Statements F-8
F-1
To the Board of Directors and Shareholders
OTC America, Inc.
Independent Auditors' Report
We have audited the balance sheet of OTC America, Inc. as of June 30, 1997 and
the related statements of operations, shareholders' equity and cash flows for
the years ended June 30, 1996 and 1997. 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 misstatements. 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 OTC America, Inc., as of June
30, 1997, and the results of its operations and its cash flows for the years
ended June 30, 1996 and 1997 in conformity with generally accepted accounting
principles,
Cordovano and Harvey, P.C.
Denver, Colorado
February 14, 1998
F-2
OTC AMERICA, INC.
Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
TOTAL ASSETS $ -
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $3,018
Accrued liabilities 2,500
___________
TOTAL LIABILITIES $5,518
___________
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 20,000,000
shares authorized, -0- issued and
outstanding -
Common stock, $.0001 par value, 150,000,000
shares authorized, 48,489,294 issued and
outstanding 4,849
Additional paid-in capital 481,946
Retained deficit (492,313)
_____________
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (5,518)
_____________
$ -
=============
</TABLE>
See accompanying summary of significant accounting policies and
notes to financial statements.
F-3
OTC AMERICA, INC.
<TABLE>
<CAPTION>
Statements of Operations
Years Ended
June 30,
1997 1996
<S> <C> <C>
COSTS AND EXPENSES
General and administrative $4,504 $349
LOSS BEFORE INCOME TAXES (4,504) (349)
_________ _________
INCOME TAXES (Note B)
Current tax benefit 676 52
Deferred tax valuation allowance (676) (52)
_________ _________
NET LOSS $(4,504) $ (349)
========== =========
NET LOSS PER SHARE $ ( * ) $ ( * )
========== =========
WEIGHTED AVERAGE NUMBER OF SHARES 48,489,294 48,489,294
============= ===============
* Less than $.01 loss per share.
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-4
OTC AMERICA, INC.
<TABLE>
<CAPTION>
Statement of Shareholders' Equity
July 1, 1995 through June 30, 1997
Common Stock Additional
Paid-in Retained
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE,
July 1, 1995 48,489,294 $4,849 $481,946 $(487,460) $(665)
Net loss for
the year ended
June 30, 1996 - - - (349) (349)
___________ _______ __________ __________ _________
BALANCE,
June 30, 1996 48,489,294 4,849 481,946 (487,809) (1,014)
Net loss for
the year ended
June 30, 1997 - - - (4,504) (4,504)
___________ _______ ___________ __________ _________
BALANCE,
June 30, 1997 48,489,294 $4,849 $481,946 $(492,313) $(5,518)
=========== ======= =========== ========== =========
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-5
OTC AMERICA, INC.
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended
June 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,504) $(349)
Changes in current liabilities 4,504 349
__________ _________
NET CASH PROVIDED BY
OPERATING ACTIVITIES - -
__________ __________
INVESTING ACTIVITIES
NET CASH PROVIDED BY
INVESTING ACTIVITIES - -
__________ __________
FINANCING ACTIVITIES
NET CASH PROVIDED BY
FINANCING ACTIVITIES - -
__________ __________
NET INCREASE (DECREASE)
IN CASH AND EQUIVALENTS - -
__________ __________
Cash and equivalents
at beginning of period - -
____________ __________
CASH AND EQUIVALENTS AT
END OF PERIOD $ - $ -
============ ==========
SUPPLEMENTARY DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ - $ -
Income taxes $ - $ -
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-6
OTC AMERICA, INC.
Summary of Significant Accounting Policies
June 30,1997
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash equivalents
For the purpose of the statement of cash flows, the company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes.
F-7
OTC AMERICA, INC.
Notes to Financial Statements
June 30, 1997
Note A: Nature of Organization
OTC America, Inc. (the "Company") was incorporated under the laws of the State
of Colorado on June 13, 1986. During the year ended June 30, 1988, the
Company commenced operations in the financial services, public relations and
printing businesses. During the year ended June 30, 1989, the Company
discontinued all operations and became an inactive shell company.
Note B: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the
effective tax rate follows for the years ended June 30, 1997 and 1996:
<TABLE>
June 30,
1997 1996
<S> <C> <C>
U.S. federal statutory rate 34.0% 34.0%
State income tax rate 5.0% 5.0%
Net operating loss for which no tax benefit
is currently available (39.0%) (39.0%)
________ _________
-% -%
======== =========
</TABLE>
At June 30, 1997 and 1996 deferred taxes consisted of the following:
<TABLE>
<CAPTION>
June 30,
1997 1996
<S> <C> <C>
Deferred tax assets,
net operating loss carryforward $156,219 $155,543
Valuation allowance (156,219) (155,543)
___________ __________
Net deferred taxes $ - $ -
</TABLE>
The valuation allowance offsets the net deferred tax asset for which there is
no assurance of recovery. The change in the valuation allowance for the year
ended June 30, 1997 totaled $676. Net operating loss carryforwards begin to
expire in 2002.
F-8
OTC AMERICA, INC.
Notes to Financial Statements
June 30, 1997
Note B: Income taxes continued
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At
that time, the allowance will either be increased or reduced; reduction could
result in the complete elimination of the allowance if positive evidence
indicates that the value of the deferred tax asset is no longer impaired and
the allowance is no longer required.
The utilization of the net operating loss carryforwards is dependent upon the
ability of the Company to generate sufficient taxable income during the
carryforward period. In addition, utilization of these carryforwards is
limited due to ownership changes as defined in the Internal Revenue Code.
Note C: Shareholders' Equity
Common stock warrants - As of June 30, 1988 the Company had outstanding two
classes of warrants. The 11,382,370 class A warrants expired February 17,
1989 and the 11,554,720 class B warrants expired February 17, 1990.
Retained deficit During the year ended June 30, 1989 the Company
discontinued all of its operations. A net gain on disposal of operations
totaling $18,371 was recorded in shareholders' equity.
Note D: New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SFAS NO. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles Board
Opinion No. 15, Earnings Per Share. SFAS No. 128 requires dual presentation
of basic and diluted earnings per share. Basic earnings per share, which
excludes the impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share, which utilizes the average market price
per share as opposed to the greater of the average market price per share or
ending market price per share when applying the treasury stock method in
determining common stock equivalents, replaces fully-diluted earnings per
share. SFAS No. 128 is effective for the Company in 1997. However the
Company has a simple capital structure for the periods presented and therefore
there is no affect on the earnings per share presented due to the Company's
adoption of SFAS 128.
F-9
OTC AMERICA, INC.
Notes to Financial Statements
June 30, 1997
Note E: Subsequent Events
Reincorporation - On October 3, 1997, the Company filed new articles of
incorporation with the State of Colorado, at which time the Company changed
the par value of its 20,000,000 shares of authorized preferred stock from $.01
to $-0-.
Change in Control - On November 11, 1997, a shareholder after obtaining
approximately 13.8% of the Company's outstanding $.0001 par value common stock
was appointed sole board member and officer of the Company.
F-10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant): OTC AMERICA, INC.
By: /s/ Randy Phillips Date: August 26, 1998
Randy Phillips
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
By: /s/ Randy Phillips Date: August 26, 1998
Randy Phillips
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 5,518
<BONDS> 0
0
0
<COMMON> 4,849
<OTHER-SE> (10,367)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,504)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,504)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,504)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Exhibit 10.A
ARTICLES OF INCORPORATION
OF
OTC America, Inc.
The undersigned, who if a natural person, is more than eighteen
years of age, hereby establishes a corporation pursuant to the Statutes of
Colorado and adopts the following Articles of Incorporation:
FIRST: The name of the corporation is OTC America, Inc.
SECOND: The corporation shall have perpetual existence.
THIRD: (a) Purposes. The nature, objects and purposes of
the business to be transacted shall be as follows:
(i) To engage in all aspects of providing
marketing, public relations and support services to public companies and
companies conducting public offerings.
(ii) To purchase, improve, develop, subdivide,
lease, exchange, sell, dispose of, mortgage, pledge and otherwise deal in and
turn to account, real estate or any interest therein; to purchase, lease,
alter, remodel, build, construct, erect, occupy and manage buildings and
improvements of every kind and character whatever; and to finance the
purchase, improvement, development and construction of land, buildings or
other improvements to real estate or any interest therein.
(iii) To transact all lawful business for which
corporations may be incorporated pursuant to the Colorado Business Corporation
Act.
(b) Powers. In furtherance of the foregoing
purposes, the corporation shall have and may exercise all of the rights,
powers and privileges now or thereafter conferred upon corporations organized
under the laws of Colorado. In addition, it may do everything necessary,
suitable or proper for the accomplishment of any of its corporation purposes.
FOURTH: (a) The aggregate number of shares which the
corporation shall have authority to issue is 150,000,000 shares of common
stock having $.0001 par value per share. The shares of this class of common
stock shall have unlimited voting rights and shall constitute the sole voting
group of the corporation, except to the extent any additional voting group or
groups may hereafter be established in accordance with the Colorado Business
Corporation Act.
(b) The corporation may also issue up to 20,000,000
shares of non-voting preferred stock having no par value. The preferred stock
of the corporation shall be issued in one or more series as may be determined
from time to time by the Board of Directors. In establishing a series, the
Board of Directors shall give to it a distinctive designation so as to
distinguish it from the shares of all other series and classes, shall fix the
number of shares in such series, and the preferences, rights and restrictions
thereof. All shares in a series shall be alike. Each series may vary in the
following respects: (1) the rate of the dividend; (2) the price at the terms
and conditions on which shares shall be redeemed; (3) the amount payable upon
shares in the event of involuntary liquidation; (4) the amount payable upon
shares in the event of voluntary liquidation; (5) sinking fund provisions for
the redemption of shares; (6) the terms and conditions on which shares may be
converted if the shares of any series are issued with the privilege of
conversion; and (7) voting powers.
(c) Each shareholder of record shall have one vote
for each share of stock standing in his name on the books of the corporation
and entitled to vote, except that in the election of directors, each
shareholder shall have as many votes for each share held by him as there are
directors to be elected and for whose election the shareholder has the right
to vote. Cumulative voting shall not be permitted in the election of
directors or otherwise.
(d) At all meetings of shareholders, one-third of the
shares of a voting group entitled to vote at such meeting, represented in
person or by proxy, shall constitute a quorum of that voting group.
(e) No shareholder of the corporation shall have any
preemptive or other right to subscribe for any additional unissued or treasury
shares of stock or for other securities of any class, or for rights, warrants
or options to purchase stock, or for scrip, or for securities of any kind
convertible into stock or carrying stock purchase warrants or privileges.
FIFTH: The number of directors of the corporation shall be fixed by
the bylaws. One director shall constitute the initial board of directors.
The names and addresses of the initial director is as follows:
L. Thomas Tarantelli 1 Vineyard Hill
Fairport, NY 14450
SIXTH: The address of the initial registered office of the
corporation is 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. The
name of its initial registered agent at such address is Roger V. Davidson.
The corporation may conduct part or all of its business in any other part of
Colorado, of the United States or of the world. It may hold, purchase,
mortgage, lease and convey real and personal property in any of such places.
SEVENTH: The address of the initial principal office of the
corporation is 1 Vineyard Hill, Fairport, New York 14450.
EIGHTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation, and the
same are in furtherance of and not in limitation or exclusion of the powers
conferred by law.
(a) Conflicting Interest Transactions. As used in
this paragraph, "conflicting interest transaction" means any of the following:
(i) a loan or other assistance by the corporation to a director of the
corporation or to an entity in which a director of the corporation is a
director or officer or has a financial interest; (ii) a guaranty by the
corporation of an obligation of a director of the corporation or of an
obligation of an entity in which a director of the corporation is a director
or officer or has a financial interest; or (iii) a contract or transaction
between the corporation and a director of the corporation or between the
corporation and an entity in which a director of the corporation is a director
or officer or has a financial interest. No conflicting interest transaction
shall be void or voidable, be enjoined, be set aside or give rise to an award
of damages or other sanctions in a proceeding by a shareholder or by or in the
right of the corporation, solely because the conflicting interest transaction
involves a director of the corporation or an entity in which a director of the
corporation is a director or officer or has a financial interest, or solely
because the director is present at or participates in the meeting of the
corporation's board of directors or of the committee of the board of directors
which authorizes, approves or ratifies a conflicting interest transaction, or
solely because the director's vote is counted for such purpose if: (A) the
material facts as to the director's relationship or interest and as to the
conflicting interest transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in good
faith authorizes, approves or ratifies the conflicting interest transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors are less than a quorum; or (B) the material facts
as to the director's relationship or interest and as to the conflicting
interest transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the conflicting interest transaction is specifically
authorized, approved or ratified in good faith by a vote of the shareholders;
or (C) a conflicting interest transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the board of directors, a
committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes, approves or ratifies the
conflicting interest transaction.
(b) Loans and Guaranties for the Benefit of
Directors. Neither the board of directors nor any committee thereof shall
authorize a loan by the corporation to a director of the corporation or to an
entity in which a director of the corporation is a director or officer or has
a financial interest, or a guaranty by the corporation of an obligation of a
director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest, until at least ten days after written notice of the proposed
authorization of the loan or guaranty has been given to the shareholders who
would be entitled to vote thereon if the issue of the loan or guaranty were
submitted to a vote of the shareholders. The requirements of this paragraph
(b) are in addition to, and not in substitution for, the provisions of
paragraph (a) of Article EIGHTH.
(c) Indemnification. The corporation shall
indemnify, to the maximum extent permitted by law, any person who is or was a
director, officer, agent, fiduciary or employee of the corporation against any
claim, liability or expense arising against or incurred by such person made
party to a proceeding because he is or was a director, officer, agent,
fiduciary or employee of the corporation or because he is or was serving
another entity as a director, officer, partner, trustee, employee, fiduciary
or agent at the corporation's request. The corporation shall further have the
authority to the maximum extent permitted by law to purchase and maintain
insurance providing such indemnification.
(d) Limitation on Director's Liability. No director
of this corporation shall have any personal liability for monetary damages to
the corporation or its shareholders for breach of his fiduciary duty as a
director, except that this provision shall not eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for: (i) any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
voting for or assenting to a distribution in violation of Colorado Revised
Statutes Section 7-106-401 or these Articles of Incorporation if it is
established that the director did not perform his duties in compliance with
Colorado Revised Statutes Section 7-108-401, provided that the personal
liability of a director in this circumstance shall be limited to the amount of
the distribution which exceeds what could have been distributed without
violation of Colorado Revised Statutes Section 7-106-401 or these Articles of
Incorporation; or (iv) any transaction from which the director directly or
indirectly derives an improper personal benefit. Nothing contained herein
will be construed to deprive any director of his right to all defenses
ordinarily available to a director nor will anything herein be construed to
deprive any director of any right he may have for contribution from any other
director or other person.
(e) Negation of Equitable Interests in Shares or
Rights. Unless a person is recognized as a shareholder through procedures
established by the corporation pursuant to Colorado Revised Statutes
Section 7-107-204 or any similar law, the corporation shall be entitled to
treat the registered holder of any shares of the corporation as the owner
thereof for all purposes permitted by the Colorado Business Corporation Act
including without limitation all rights deriving from such shares, and the
corporation shall not be bound to recognize any equitable or other claim to or
interest in such shares or rights deriving from such shares on the part of any
other person, including without limitation a purchaser, assignee or transferee
of such shares, unless and until such other person becomes the registered
holder of such shares or is recognized as such, whether or not the corporation
shall have either actual or constructive notice of the claimed interest of
such other person. By way of example and not of limitation, until such other
person has become the registered holder of such shares or is recognized
pursuant to Colorado Revised Statutes Section 7-107-204 or any similar
applicable law, he shall not be entitled: (i) to receive notice of the
meetings of the shareholders; (ii) to vote at such meetings; (iii) to examine
a list of the shareholders; (iv) to be paid dividends or other distributions
payable to shareholders; or (v) to own, enjoy and exercise any other rights
deriving from such shares against the corporation. Nothing contained herein
will be construed to deprive any beneficial shareholder, as defined in
Colorado Revised Statutes Section 7-113-101(1), of any right he may have
pursuant to Article 113 of the Colorado Business Corporation Act or any
subsequent law.
NINTH: The name and address of the incorporator is:
Nicole A. Elias 1700 Lincoln St., Suite 1800
Denver, CO 80203
DATED the 3rd day of October, 1997.
/s/ Nicole A. Elias
______________________________________
Nicole A. Elias, Incorporator
Roger V. Davidson hereby consents to the appointment as the initial
registered agent for the corporation.
/s/ Roger V. Davidson
_____________________________________
Roger V. Davidson
Initial Registered Agent
