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, 1999 Commission file number: 0-15992
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
OTC AMERICA, INC.
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(Name of small business issuer in its charter)
COLORADO
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(State or Other Jurisdiction of Incorporation or Organization)
84-1031311
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(I.R.S. Employer Identification No.)
600 17th Street, Suite 950S, Denver, Colorado 80202
- --------------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number: (303) 260-6482
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 (419,864
shares of $.0001 par value Common Stock) was $8397.28 as of October 8, 1999. The
stock price for computation purposes was $.02, based on the closing sale price
for the Registrant's Common Stock on NASD Bulletin Board on October 8,1999. 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, October 5, 1999, was 1,500,024 shares. All share
amounts presented herein reflect the 1 share for 100 shares reverse stock split
on all outstanding shares of the Company's common stock effective October 27,
1998.
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OTC AMERICA, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
Page
PART I .....................................................................1
Item 1. DESCRIPTION OF BUSINESS.....................................1
Item 2. DESCRIPTION OF PROPERTY.....................................5
Item 3. LEGAL PROCEEDINGS...........................................5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........5
PART II .....................................................................5
Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................5
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION ......................................6
Item 7. FINANCIAL STATEMENTS........................................6
Item 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...............................6
PART III .....................................................................6
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.......................................6
Item 10. EXECUTIVE COMPENSATION.............................7
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.........................................7
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....8
Item 13. EXHIBITS AND REPORTS ON FORM 8-K...................8
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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 factors set forth 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 600 17th Street, Suite 950S
Denver, Colorado 80202. Its phone number is (303) 260-6482.
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 a Letter Agreement dated November
11, 1997, 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. At present Phillips is the sole director and
officer of the registrant.
(b) Narrative Description of the Business
General
The Company's 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.
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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 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 merger transaction
between the Registrant and a company that possesses less than ideal financial
characteristics could have a material adverse effect on the price of
Registrant's Common Stock. There is no assurance, however, that Registrant will
not consummate a merger with a financially challenged or troubled company.
Plan of Acquisition
To identify its most suitable candidate, Registrant plans to continue to
follow a systematic approach. First, management plans to identify any number of
preliminary prospects that may be brought to the attention of management through
present associations. Management will evaluate the prospects using broad
criteria to determine whether or not the prospects are in an industry and/or
geographic location that appears promising and to determine whether 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. This preliminary evaluation is not
expected to be an in-depth analysis of the target company's operations, although
Registrant will 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. Management anticipates that its
systematic approach to evaluation will entail a broad review of the business of
target companies and should allow management to eliminate a large percentage of
preliminary prospects from further consideration.
Registrant expects that negotiations with target company management will
focus on the percentage of the Company, as computed following a merger or
acquisition, that 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.
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Current management would not control the surviving company following such a
dilution and would not be in a position to demand an active participation in the
management of the surviving company, nor would management 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 acquired business.
Because the nature of the transaction and the needs of the candidate will
dictate the legal requirements of the transaction, management cannot at this
time commit as to whether a shareholder will have the right to vote to complete
the merger or acquisition. If a shareholder vote is required, it will be subject
to Proxy Rules promulgated by the SEC. Management has fully complied with SEC
rules in the past and intends 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 Registrant's acquisition of a private business,
Registrant may not obtain an independent appraisal of the value of the acquired
business. Failure to do so by Registrant could result in over valuation or other
related errors which could then 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 a market for shares.
Registrant is authorized to issue 20,000,000 Preferred Shares and
150,000,000 Common Shares. On October 5, 1999 Registrant had outstanding
2,500,000 shares of its Series A Preferred Stock and 1,500,024 Common Shares. On
October 27, 1998 the Registrant effected a 1 for 100 reverse split of the
outstanding common shares, resulting in total shares outstanding of 1,500,000.
After the reverse split, management believes that the Registrant will have
adequate authorized shares to issue for services or to acquire a private
business. In addition, at such time as the Company considers a proposal to
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 that 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
available to Registrant and Registrant's affiliate are limited and therefore
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 that 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 Registrant obtaining a controlling interest in any merger or
acquisition target company. Accordingly, Registrant may be required to
discontinue any prospective merger or acquisition of any company in which a
controlling interest will not be obtained.
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The Registrant could also be required to register under the Investment
Company Act of 1940 if the Registrant comes within the definition of an
Investment Company contained in the Act as a result of 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 that Registrant acquires in exchange for its Common Stock
will be "restricted securities" within the meaning of the Securities Act of 1933
(the "l933 Act"). If Registrant elected to resell such securities, the 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
reselling acquired securities, if such a sale were necessary, Registrant would
be required to comply with the provisions of the 1933 Act.
Registrant intends to structure a merger or acquisition in a manner that
will minimize federal and state tax consequences to Registrant and the target
company. In the course of any merger or acquisition Registrant will focus a
substantial amount of attention on federal and state tax consequences to both
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
if the company acquires at least 80% of the combined voting power of shares of
all classes of the target company's stock in exchange for voting stock.
While 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 could have a substantial adverse effect on Registrant.
Further, there can be no assurance that Registrant will be able to structure a
merger or acquisition to minimize federal and state taxes which could have a
substantial adverse effect on the Registrant.
There can also be no assurance that federal and state tax laws will not be
amended in the foreseeable future to preclude Registrant from availing itself of
the tax-free treatment presently afforded business entities engaged in mergers
and acquisitions.
As of the date of this report 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.
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(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.
Item 2. DESCRIPTION OF PROPERTY
The Company's business office is located at 600 17th Street, Suite 950S, Denver,
Colorado 80202.
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 fourth quarter of 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 NASD OTC Bulletin Board.
The following table sets forth the high and low bid prices of the Common Stock
during the two years ended June 30, 1999 on the NASD OTC Bulletin Board. The
prices reflect interdealer quotations, without retail mark-up, mark-down or
commissions, and may not represent prices at which actual transactions occurred.
Bid
-------------
Quarter Ended High Low
- ------------- ---- -----
June 30, 1997 ................................. .03 .01
September 30, 1997 ............................ .03 .01
December 30, 1997 ............................. .00 .0025
March 31, 1998 ................................ .00 .0025
June 30, 1998 ................................. .00 .0025
September 30, 1998 ............................ .03 .01
December 31, 1998 ............................. .02 .02
March 31, 1999 ................................ .02 .02
June 30, 1999 ................................. .02 .02
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(b) Approximate Number of Holders of Common Stock. The number of holders of
record of the Company's Common Stock at October 5, 1999, was approximately 487.
(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.
(d) Recent Sales of Unregistered Securities. On May 11, 1999, the Company
issued to a sole sophisticated investor 2,500,000 shares of the Company's Series
A Preferred Stock with a stated value of $1.00 per share at a purchase price of
$1.00 per share. The Series A Preferred Stock is subject to mandatory redemption
by the Company on the date that is 13 months from the date of issuance of the
Series A Preferred Stock for a mandatory redemption amount equal to two times
the stated value of the Series A Preferred Stock. The Series A Preferred Stock
is also subject to optional redemption at any time up to the mandatory
redemption date for a amount equal to two times the state value of the Series A
Preferred Stock. Until the mandatory redemption date, each holder of Series A
Preferred Stock shall be entitled to dividends at the rate of 18% per year of
the stated value of the holder's shares. The dividends must be paid monthly
commencing 30 days after the date of issuance of the Series A Preferred Stock.
In addition, each holder of the Series A Preferred Stock is entitled to
dividends at the rate of 9% per year of the stated value of the shares for a
period of two years following the mandatory redemption date regardless of
whether the Company redeems the stock. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of the Series A Preferred Stock are entitled to receive a liquidation
preference equal to two times the stated value of their shares of Series A
Preferred Stock. A consolidation or merger of the Company with or into any other
corporation or corporations or a sale of all or substantially all of the assets
of the Company shall be deemed a liquidation, dissolution or winding up is more
than 50% of the surviving entity is not owned by persons who were holders of the
Company's common stock immediately prior to such merger, consolidation or sale.
In such event, the Series A Preferred Stock liquidation preference may be paid
by any entity surviving the event of liquidation. The Series A Preferred Stock
was issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Company reentered the development stage on July 1, 1997. The
Company's plan of operation for the next twelve months is to focus on acquiring
an operating business entity. The sole officer and director of the Company will
continue to seek candidates for merger or acquisition and anticipates
consummating a transaction in the foreseeable future.
The Company currently expects to be able to satisfy its cash requirements
for the next twelve months. On May 11, 1999 the Company raised approximately
$2,500,000 through the issuance of 2,500,0000 shares of the Company's Series A
Preferred Stock at a purchase price of $1.00 per share as described under "Item
5. Recent Sales of Unregistered Securities." The Company currently has no
operations or cash flows to support the service or redemption of the Series A
Preferred Stock. As described in the notes to the financial statements included
in this report. These factors create an uncertainty about the ability of the
Company to continue as a going concern. As described in note G to the financial
statements, Management anticipates utilizing additional equity financing and
short-term working capital advances from its sole director in its acquisition
efforts.
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-11 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.
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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
- -------------- --- ------------------------- ------------------
Randy Phillips 33 President, CEO and
sole officer and director October 31, 1997
The Director serves until the next annual meeting of shareholders, and
until his successor is 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, of which he is currently the sole
owner and manager.
Item 10. EXECUTIVE COMPENSATION
No officers or directors have been compensated during the fiscal year ended
June 30, 1999. 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, 1998.
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 October 5, 1999 of the Company's common stock by any person who is known
by the Company to be the beneficial owner of more than five percent (5%) of the
Company's voting securities, and by each Director of the Registrant, and by
officers and Directors of the Registrant as a group. As of October 5, 1999 there
were 1,500,024 common shares issued and outstanding.
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.
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Title of Name and Address Number of Shares Percent of Class
Class
- ------------ ---------------- ---------------- ----------------
Common Stock Randy Phillips 1,080,160 72%
600 17th Street
Suite 950S
Denver, CO 80202
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. After 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 Registrant'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.
On September 22, 1998, with the consent of the sole director, the
Company was authorized to issue 101,310,706 of its restricted common shares to
its sole officer and director. The shares were issued to Mr. Philips in October,
1998, thereby giving him approximately 72% ownership of the outstanding common
stock of the Company. The shares were issued to compensate Mr. Phillips for
third-party administrative expenses paid by him on behalf of the Company and for
consulting services provided by him to the Company.
For the year ended June 30, 1999, Mr. Phillips has paid approximately
$34,224 in legal, accounting and transfer agent fees on behalf of the Company.
Mr. Phillips has provided certain consulting, office space and
administrative services to the Company totaling $7,100 as of June 30, 1999.
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 are furnished as part of this report:
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Item 601
Exhibit No. Description
3 Articles of Incorporation (Incorporated herein by reference to the 6/30/97
10-KSB filed August 26, 1998 with the Securities and Exchange Commission)
3.1 Articles of Amendment to the Articles of Incorporation of OTC America, Inc.
(filed herewith)
10. Preferred Stock Purchase Agreement dated May 11, 1999 between the Company
and Dixon Family Charitable Remainder Trust (filed herewith)
27. Financial Data Schedule (filed herewith)
Reports on Form 8-K
(b) Reports on Form 8-K filed during the fourth quarter of 1998 - None.
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OTC AMERICA, INC.
(A Development Stage Company)
Page
Independent auditors' report........................................ F-2
Balance sheet as of June 30, 1999................................... F-3
Statements of operations, for the years ended June 30, 1999
and 1998 and for the period July 1, 1997 (inception)
through June 30, 1999............................................... F-4
Statement of shareholders' deficit, as of June 30, 1996
and and for the period July 1, 1997 (inception) through
June 30, 1999....................................................... F-5
Statement of cash flows, for the years ended June 30, 1999
and 1998 and for the period July 1, 1997 (inception)
through June 30, 1999............................................... F-6
Notes to financial statements....................................... F-7
<PAGE>
To the Board of Directors and Shareholders
OTC America, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of OTC America, Inc. (a
development stage company) as of June 30, 1999 and the related statements of
operations, shareholders' deficit and cash flows for the years ended June 30,
1999 and 1998 and for the period July 1, 1997 (inception) through June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 OTC America, Inc. as of June
30, 1999 and the results of its operations and cash flows for the years ended
June 30, 1999 and 1998 and for the period July 1, 1997 (inception) through June
30, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company issued $2,500,000 of eighteen percent redeemable
preferred stock that is redeemable for $5,000,000 at the option of the holder
within thirteen months of date of issuance. The Company has no operations or
cash flows to support the service of the preferred stock or to redeem the
preferred stock. These factors as discussed in Note G to the financial
statements raise a substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regard to those matters are
also described in Note G. The Company's ability to achieve its plans with regard
to those matters, is uncertain. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
October 11, 1999
F-2
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 2,211,784
Marketable securities (Note C).............................. 144,685
Preferred stock issuance costs, net (Note G)................ 81,598
Prepaid interest............................................ 18,750
-----------
TOTAL CURRENT ASSETS 2,456,817
===========
DEPOSITS...................................................... 1,444
-----------
$ 2,458,261
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued expenses............................................ $ 3,000
Due to related party (Note B)............................... 21,823
-----------
TOTAL CURRENT LIABILITIES 24,823
-----------
REDEEMABLE PREFERRED STOCK (Note G)
Series A preferred stock, no par value, 2,500,000 shares
authorized; 2,500,000 ($1.00 stated value), shares
issued and outstanding recorded at fair value,
includes $288,462 accrued accretion......................... 2,788,462
-----------
SHAREHOLDERS' DEFICIT (Note E)
Preferred stock, no par value, 17,500,000 shares authorized;
-0-shares issued and outstanding.......................... -
Common stock, $.0001 par value; 150,000,000 shares authorized;
1,498,000 shares issued and outstanding .................. 150
Additional paid in capital.................................. 557,485
Accumulated deficit, ($420,346 accumulated during development
stage)...................................................... (912,659)
-----------
TOTAL SHAREHOLDERS' DEFICIT (355,024)
-----------
$ 2,458,261
===========
See accompanying notes to the financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
OTC AMERICA, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
July 1, 1997
For the Years Ended June 30, (inception)
---------------------------- Through
1999 1998 June 30, 1999
--------- --------- -------------
<S> <C> <C> <C>
COSTS AND EXPENSES
Related party (Note B)............................................ $ 7,100 $ 11,168 $ 18,268
Amortization...................................................... 10,643 - 10,643
General and administrative........................................ 56,318 14,630 70,948
-------- --------- ---------
TOTAL COSTS AND EXPENSES 74,061 25,798 99,859
-------- --------- ---------
NON-OPERATING INCOME (EXPENSE)
Interest expense.................................................. (344,712) - (344,712)
Interest income................................................... 19,853 - 19,853
Unrealized gain on investments (Note C)........................... 4,372 - 4,372
-------- --------- ---------
NET LOSS BEFORE INCOME TAXES (394,548) (25,798) (420,346)
INCOME TAXES (NOTE D).............................................. - - -
-------- --------- ---------
NET LOSS $(394,548) $ (25,798) $ (420,346)
======== ========= =========
NET LOSS PER COMMON SHARE:
Basic and diluted................................................. $ (0.32) $ (0.05)
======== =========
SHARES USED FOR COMPUTING NET LOSS PER COMMON SHARE:
Basic and diluted................................................. 1,244,723 484,893
======== =========
See accompanying notes to the financial statements
F-4
<PAGE>
<CAPTION>
OTC AMERICA, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' DEFICIT
As of June 30, 1996 and from July 1, 1997 (Inception) through June 30, 1999
Preferred Stock Common Stock Additional Total
------------------- ------------------- Paid-in Accumulated Shareholders'
Shares Amount Shares Amount Capital Deficit Deficit
-------- -------- -------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996*...................... - $ - 484,893 $ 49 $ 486,747 $ (487,809) $ (1,013)
Net loss for the year ended June 30, 1997..... - - - - - (4,504) (4,504)
-------- -------- -------- -------- ---------- ----------- ----------
BALANCE, June 30, 1997 484,893 49 486,747 (492,313) (5,517)
Balance, July 1, 1997 inception of development
stage activities............................. - - 484,893 49 486,747 (492,313) (5,517)
Third party adminstrative costs paid by
shareholder (Note B)......................... - - - - 20,148 - 20,148
Net loss for the year ended June 30, 1998..... - - - - - (25,798) (25,798)
-------- -------- -------- -------- ---------- ----------- ----------
BALANCE, June 30, 1998 - - 484,893 49 506,895 (518,111) (11,167)
Third party adminstrative costs paid by
shareholder (Note B)......................... - - - - 34,224 - 34,224
Shares issued in exchange for payment of
expenses and consulting, at cost of services
and expenses (Note B)........................ - - 1,013,107 101 16,366 - 16,467
Net loss for the year ended June 30, 1999..... - - - - - (394,548) (394,548)
-------- -------- -------- -------- ---------- ----------- ----------
BALANCE, June 30, 1999 - $ - 1,498,000 $ 150 $ 557,485 $ (912,659) $ (355,024)
======== ======== ========= ======== ========== =========== ==========
*Common shares retroactively restated for 100:1 reverse split. (See Note E)
See accompanying notes to the financial statements
F-5
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
July 1, 1997
For the Years Ended June 30, (inception)
----------------------------- Through
1999 1998 June 30, 1999
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................................... $ (394,548) $ (25,798) $ (420,346)
Non-cash transactions:
Amortization expense.......................................... 10,643 - 10,643
Unrealized gain on marketable securities...................... (4,372) - (4,372)
Accretion of preferred stock (Note G)......................... 288,462 - 288,462
Purchase of marketable securities, classified as trading....... (144,685) - (144,685)
Changes in current liabilities................................. 14,301 5,650 19,951
------------ ----------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES (230,199) (20,148) (250,347)
------------ ----------- -----------
INVESTING ACTIVITIES
NET CASH PROVIDED BY
INVESTING ACTIVITIES - - -
------------ ----------- -----------
FINANCING ACTIVITIES
Third party expenses paid by shareholder on behalf
of the Company, recorded as additional-paid-in capital (Note B) 64,224 20,148 54,372
Proceeds from issuance of preferred stock (Note G)............. 2,500,000 - 2,500,000
Costs paid to issue manditorily redeemable preferred stock (Not (92,241) - (92,241)
------------ ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,441,983 20,148 2,462,131
------------ ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................... 2,211,784 - 2,211,784
Cash and cash equivalents, beginning............................ - - -
------------ ----------- -----------
Cash and cash equivalents, ending............................... $ 2,211,784 $ - $ 2,211,784
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................................... $ 75,000 $ - $ 75,000
============ =========== ===========
Cash paid for income taxes...................................... $ - $ - $ -
============ =========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in satisfaction amounts due to shareholder (Note B) $ 16,467 $ - $ 16,467
============ =========== ===========
</TABLE>
See accompanying notes to the financial statements
F-6
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note A: Nature of organization and summary of significant accounting policies
Nature of organization:
OTC America, Inc. (the "Company") was incorporated in 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. Effective July 1, 1997, the Company reentered
the development stage in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 7. Currently, the Company is a "shell corporation" and its
principal activities since July 1, 1997 have been organizational matters. The
purpose of the Company is to evaluate, structure and complete a merger with or
acquisition of, an operating company.
On October 3, 1997, the Company filed amended 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 no par value.
On November 11, 1997, a shareholder, after obtaining approximately 13.8 percent
of the Company's outstanding $.0001 par value common stock, was appointed sole
board member and officer of the Company.
Summary of significant accounting policies:
Basis of presentation
The accompany financial statements have been presented in accordance with SFAS
No. 7, "Accounting and Reporting by Development Stage Enterprises."
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior-year amounts have been reclassified for comparative purposes to
conform to the current-year presentation.
F-7
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note A: Nature of organization and summary of significant accounting policies,
continued
Summary of significant accounting policies, continued:
Cash and cash equivalents
The Company considers all short-term, highly liquid investments with an original
maturity date of three months or less to be cash equivalents. Cash at June 30,
1999 was held in an account in the name of the sole officer and majority
shareholder on behalf of the Company. - See Note F- Concentration of credit
risk.
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.
Fair value of financial instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts payable, and
other accrued liabilities approximate fair value due to the short-term maturity
of the instruments.
Marketable securities
Marketable securities consist of various equity securities and are stated at
current market value. All equity securities are considered "trading" securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Accordingly,
unrealized gains and losses on equity securities are reflected in the
accompanying statements of operations.
F-8
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note A: Nature of organization and summary of significant accounting policies,
continued
Summary of significant accounting policies, continued:
Loss per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" (SFAS 128). The Company adopted SFAS 128 for the
two year period ended June 30, 1999. Under SFAS 128, net loss per share-basic
excludes dilution and is determined by dividing loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. Net loss per share-diluted reflects the potential dilution that
could occur if securities and other contracts to issue common stock were
exercised or converted into common stock. As of June 30, 1999, there were no
outstanding options, securities or contracts to issue or convert to common
stock.
Recently issued accounting pronouncements
The Company has adopted the following new accounting pronouncements for the year
ended June 30, 1999. There was no material effect on the financial statements
presented from the adoption of the new pronouncements.
SFAS No. 130, "Reporting Comprehensive Income," requires the reporting and
display of total comprehensive income and its components in a full set of
general-purpose financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is based on the "management" approach for reporting segments. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosure about the Company's products, the geographic areas in which it earns
revenue and holds long-lived assets, and its major customers.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits," which requires additional disclosures about pension and other
post-retirement benefit plans, but does not change the measurement or
recognition of those plans.
F-9
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note A: Nature of organization and summary of significant accounting policies,
continued
Summary of significant accounting policies, continued:
Recently issued accounting pronouncements, continued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP requires that
entities capitalize certain internal-use software costs once certain criteria
are met.
SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 provides,
among other things, guidance on the reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to be
expensed as incurred.
The Company will continue to review these new accounting pronouncements over
time, in particular SFAS 131 and SOP 98-1, to determine if any additional
disclosures are necessary based on evolving circumstances.
Note B: Related party transactions
During the years ended June 30, 1999 and 1998, an individual who is the sole
officer and director of the Company, provided consulting, office space and
administrative services to the Company valued at $7,100 and $11,168,
respectively. These amounts are included in the financial statements as costs
and expenses, related party.
On September 22, 1998, the Company was authorized to issue 1,013,107 (after
effect of the 100 for 1 reverse stock split) of its restricted common shares as
payment for a total of $16,468 (of the cumulative $18,268 for the two years
ended June 30, 1999) in related party expenses due to the president. The
remaining $1,800 along with a $1,444 lease deposit, paid by the president, is
included in the accompanying financial statements as due to related party. The
issuance of the restricted common stock gives the sole officer and director
approximately 72% ownership of the outstanding common stock of the Company.
The Company incurred certain legal, accounting, transfer agent fees and general
and administrative costs during the years ended June 30, 1999 and 1998 totaling
$34,224 and $20,148, respectively, which were paid on behalf of the Company by
the same individual mentioned above. The total of these transactions, $54,372,
has been reported in the financial statements as additional-paid-in capital.
Additional third party expenses totaling $18,579 have been paid by the sole
officer during the fourth quarter of the Company's fiscal year-end. As of June
30, 1999 they have been included in the financial statements as due to related
party as the sole officer anticipates reimbursement from the Company.
F-10
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note C: Marketable securities
Marketable securities consisted of the following at June 30, 1999:
Market
Cost Value
--------- ----------
Equity securities......................$ 140,312 $ 144,685
========= ==========
Following is a summary of investment earnings recognized in income during the
year ended June 30, 1999:
Trading securities:
Realized gains.................... $ -
Realized losses................... -
--------
Realized gains (losses), net -
--------
Unrealized gains.................. $ 4,372
Unrealized losses................. 4,372
--------
Unrealized gains (losses), net 4,372
--------
GAIN (LOSS) ON
TRADING SECURITIES, NET $ 4,372
========
Note D: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows:
June 30,
--------------------------------
1999 1998
-------------- -------------
U.S. statutory federal rate................ 34.53% 15.00%
State income tax rate,
net of federal benefit................... 3.27% 4.25%
Net operating loss for which no tax
benefit is currently available........... (37.80) (19.25%)
-------------- -------------
- % -%
============== =============
F-11
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note D: Income taxes, continued
Deferred taxes consisted of the following:
June 30,
--------------------------------------
1999 1998
------------------ ---------------
Deferred tax assets,
Net operating loss................. $ 149,158 $ 4,966
Valuation allowance................... (149,158) (4,966)
------------------ ---------------
Net deferred taxes.............. $ -0- $ -0-
================== ===============
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 years ended
June 30, 1999 and 1998 totaled $149,158 and $4,966, respectively which
approximates the current tax benefit for each period. The net operating loss
carryforward expires through the year 2018. The valuation allowance will be
evaluated at the end of each year, considering positive and negative evidence
about whether the deferred tax 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 assets is no longer impaired and the allowance is no
longer required.
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.
Note E: Shareholders' deficit
Preferred Stock
The Company is authorized to issue twenty million shares of no par value
preferred stock, which may be issued in series with such designations,
preferences, stated values, rights, qualifications or limitations as determined
by the Board of Directors.
Common Stock
Management and the board of directors received shareholder approval for a one
for one hundred share reverse stock split, on October 27, 1998, resulting in
149,800,000 outstanding shares being converted to 1,498,000 shares. The
accompanying financial statements have been retroactively restated to give
effect to the reverse split.
The Company is authorized to issue an additional 2,000 (after effect of the 100
for 1 reverse stock split) shares of its restricted common stock to an unrelated
party in exchange for $200. Those shares were not issued as of June 30, 1999.
F-12
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note F: Concentration of credit risk
The Company maintains cash and cash equivalents with one major financial
institution. Cash equivalents include investments in money market securities.
The investments are not insured by the U.S. Federal Deposit Insurance
Corporation ("FDIC"); however, the Company has not experienced any losses in
such accounts and management of the Company believes it is not exposed to any
significant credit risk to cash or cash equivalents.
Note G: Redeemable preferred stock
On May 11, 1999 the Company issued 2,500,000 shares of its Series A Preferred
Stock for $2,500,000. The preferred stock is mandatorily redeemable, at the
option of the holder, thirteen months after the date the stock was issued. The
stock has a stated value of $1.00 per share and is redeemable at $2.00 per share
or $5,000,000. Dividends, at the rate of eighteen percent per year of the stated
value of the stock, are payable monthly from the date of issuance commencing
thirty days after issuance. The holder of the preferred stock is entitled to
dividends at the rate of nine percent per year of the stated value of the
preferred stock for a period of two years after the mandatory redemption date,
regardless of whether the Company redeems the stock in accordance with the
mandatory redemption provisions. In the event of any liquidation, the holder of
the preferred stock is entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the holders
of the Company's common stock, two times the stated value of the preferred stock
plus all unpaid dividends.
The Company incurred approximately $92,241 in various transaction fees and costs
as in connection with the issuance of the preferred stock. The $92,241 has been
recorded in the accompanying financial statements as a deferred charge titled
preferred stock issuance costs, net of $10,643 of accumulated amortization. The
costs are amortized over thirteen months which approximates the period prior to
mandatory redemption. For the year ended June 30, 1999, the Company recorded
$10,643 in amortization expense.
Due to the mandatory redemption provisions of the preferred stock, the Company
has recorded the preferred stock outside of the equity section. Accumulated
accretion of $288,462 was recorded at June 30, 1999. The accretion expense was
charged to interest expense during the year ended June 30, 1999. All dividend
payments have accordingly been charged to interest expense during the year ended
June 30, 1999.
F-13
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note G: Redeemable preferred stock, continued
The planned use of proceeds from the issuance of the preferred stock was to
acquire an operating company. The acquisition was not consummated, and the
Company is now seeking other potential merger or acquisition candidates.
At June 30, 1999, the Company has no operations or cash flows. The Company's
business plan for fiscal year 2000 is to acquire an operating company with
sufficient cash flow to support the service of the preferred stock and to redeem
the preferred stock. There is no assurance that a merger candidate will be found
or if found, would generate sufficient cash flows. In addition, the Company
plans to issue equity capital to meet the mandatory redemption requirements of
the preferred stock. The Company's ability to achieve the foregoing elements of
its business plan, which may (or will) be necessary to service the dividend
requirements and to permit the redemption of the preferred stock is uncertain.
Those conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Note H: Year 2000 Compliance
The Year 2000 issue ("Y2K") is the result of computer programs written using two
digits rather than four to define the applicable year. Any computer and
telecommunications programs that have date sensitive software may recognize a
date using "00" as the year 1900 instead of 2000. This could result in system
failure or miscalculations causing disruptions in operations, including the
ability to process transactions, send invoices, or engage in similar normal
business activities. As of June 30, 1999, the Company did not have any computer
equipment.
The Company cannot determine the extent to which the Company is vulnerable to
third parties' failure to remediate their own Y2K problems. As a result, there
can be no guarantee that the systems of other companies on which the Company's
business relies will be timely converted, or that failure to convert by another
company would have a material adverse affect on the Company. In view of the
foregoing, there can be no assurance that the Y2K issue will not have a material
adverse effect on the Company's business.
F-14
<PAGE>
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: October 13, 1999
------------------
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: October 13, 1999
------------------
Randy Phillips
President
21
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF OTC AMERICA, INC.
FIRST: The name of the corporation is OTC America, Inc.
SECOND: The Board of Directors of the corporation duly adopted on May 11,
1999 the designations, preferences, limitations, and relative rights of the
Series A Preferred Stock of the corporation and the amendment to the
corporation's Articles of Incorporation set forth herein concerning the Series A
Preferred Stock.
THIRD: Article FOURTH of the corporation's Articles of Incorporation shall
be amended to include a new Section (f) to read in its entirety as follows:
(f) Series A Preferred Stock.
(1) Designation of Series A Preferred Stock. 2,500,000 shares of the
preferred stock of the corporation shall be designated as Series A Preferred
Stock, stated value $1 (the "Stated Value").
(2) Optional Redemption. The corporation shall have the right until the
Mandatory Redemption Date (as defined herein), exercisable on not less than five
(5) business days prior written notice to the holders of the Series A Preferred
Stock to redeem all or any portion of the outstanding shares of Series A
Preferred Stock in accordance with this Article FOURTH, Section (f)(2). Any
notice that the corporation is exercising its optional redemption right (the
"Optional Redemption Right") hereunder shall be delivered to the holders of
Series A Preferred Stock at their registered addresses appearing on the books
and records of the corporation and shall state (i) that the corporation is
exercising its right to redeem all or any potion of the outstanding shares of
Series A Preferred Stock and (ii) the date of redemption. On the date fixed for
redemption (the "Optional Redemption Date"), the corporation shall make payment
of the Optional Redemption Amount (as defined herein) to or upon the order of
the holders as specified by the holders in writing to the corporation at least
one (1) business day prior to the Optional Redemption Date, or if such notice is
not received by the corporation in the time permitted the corporation shall make
payment of the Optional Redemption Amount to or upon the order of the holders as
specified on the books and records of the corporation. If the corporation
exercises its Optional Redemption Right under this Section, the corporation
shall make payment to the holders of an amount in cash (the "Optional Redemption
Amount") equal to the Mandatory Redemption Amount as defined below.
(3) Mandatory Redemption. On the date that is thirteen (13) months after
the date on which the Preferred Stock Purchase Agreement between the corporation
and Dixon Family Charitable Remainder Trust was concluded and the Series A
Preferred Stock is issued (the "Mandatory Redemption Date") the corporation
shall purchase each holder's shares of Series A Preferred Stock for an amount
per share equal to two (2) times the Stated Value of the Series A Preferred
Stock (the "Mandatory Redemption Amount"). On the Mandatory Redemption Date, the
corporation shall make payment of the Mandatory Redemption Amount to or upon the
order of the holders as specified by the holders in writing to the corporation
at least one (1) business day prior to the Mandatory Redemption Date, or if such
notice is not received by the corporation in the time permitted the corporation
shall make payment of the Mandatory Redemption Amount to or upon the order of
the holders as specified on the books and records of the corporation.
1
<PAGE>
(4) Dividends.
(i) Each holder of the Series A Preferred Stock shall be entitled to
dividends at the rate of 18% per year of the Stated Value of the holder's Series
A Preferred Stock from the date the Series A Preferred Stock is issued until the
Mandatory Redemption Date regardless of whether the corporation exercises its
Optional Redemption Right. Such dividend shall be paid monthly commencing thirty
(30) days after issuance of the Series A Preferred Stock and on the same date
each month thereafter (the "Dividend Payment Date").
(ii) Each holder of the Series A Preferred Stock shall also be entitled to
dividends at the rate of 9% per year of the Stated Value of the holder's Series
A Preferred Stock for a period of two (2) years after the Mandatory Redemption
Date regardless of whether the corporation redeems the Series A Preferred Stock
in accordance with the mandatory redemption provisions of Article FOURTH,
Section (f)(3). Such dividend shall be paid monthly on the Dividend Payment Date
for said two (2) year period.
(iii) If any distributions payable on any share of the Series A Preferred
Stock shall not be paid for any reason, the right of the holders of such shares
of Series A Preferred Stock to receive payment of such distribution shall not
lapse or terminate, but each such unpaid distribution (the "Unpaid
Distribution") shall accumulate and shall be paid without interest to such
holders, when and as authorized by the Board of Directors of the corporation. No
distribution shall be declared or paid or any other distribution declared,
ordered or made upon the corporation's common stock, or upon any other series or
class of preferred stock nor shall any sums be set aside for or applied to the
purchase or redemption of any shares of the corporation's common stock, unless
and until all Unpaid Distributions payable on all shares of Series A Preferred
Stock shall have been fully paid or a distribution shall have been declared and
a sum sufficient for full payment of the Unpaid Distributions set apart
therefor.
(5) Liquidation Preference.
(i) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the corporation to the holders of the
corporation's common stock by reason of their ownership thereof, two (2) times
the Stated Value of their respective shares of Series A Preferred Stock plus all
unpaid dividends to which their respective shares of Series A Preferred Stock
are entitled before and after the Mandatory Redemption Date and no more (the
"Series A Preferred Liquidation Preference").
2
<PAGE>
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series A Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the shares then held by them.
(ii) A consolidation or merger of the corporation with or into any other
corporation or corporations or a sale of all or substantially all of the assets
of the corporation shall be deemed a liquidation, dissolution or winding up
within the meaning of this Section if more than fifty percent (50%) of the
surviving entity is not owned by persons who were holders of common stock or
securities convertible into common stock of the corporation immediately prior to
such merger, consolidation or sale. In such event, the Series A Preferred
Liquidation Preference may be paid in cash by any entity surviving such
liquidation event.
(6) No Voting Rights. The holder of each share of the Series A Preferred
Stock shall not be entitled to vote for any matter brought before the holders of
the corporation's common stock.
(7) Denial of Preemptive Rights. No holder of any shares of Series A
Preferred Stock shall have any preemptive or preferential right to acquire any
shares or securities of the corporation, including shares or securities held in
the treasury of the corporation.
(8) Amendment. The designation, rights, limitations and preferences set
forth herein may be amended by a vote of the holders of the Series A Preferred
Stock holding certificates representing not less than a majority of the
outstanding Series A Preferred Stock at a special meeting called for the purpose
of approving such an amendment or by the unanimous consent of such holders in
writing.
(9) Notices. Any notice, communication, request, reply, or advice,
hereinafter severally and collectively called "notice," provided or permitted to
be given under this Article 4 Section (f), made or accepted by either party to
the other must be in writing and may be given by personal delivery or U.S. mail,
or confirmed telefax. If given by mail, such notice must be sent by registered
or certified mail, postage prepaid, mailed to the party addressed as follows: if
to the corporation, to the principal office of the corporation, and, if to a
stockholder, to the address of such stockholder as it appears in the books of
the corporation, and shall be effective only if and when received by the party
to be notified.
OTC AMERICA, INC.
3
<PAGE>
By: /S/ Randy L. Phillips
----------------------------
Randy L. Phillips, President
4
<PAGE>
<PAGE>
PREFERRED STOCK
PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement (this "Agreement") is entered
into this 11th day of May 1999 between OTC America, Inc., a Colorado corporation
(the "Company"), and Dixon Family Charitable Remainder Trust (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of 2,500,000
shares of its Series A Preferred Stock (the "Shares") to the Purchaser;
WHEREAS, the Purchaser desires to purchase the Shares, and the Company
desires to issue and sell the Shares to the Purchaser, on the terms and
conditions set forth herein; and
WHEREAS, the Company plans to use the proceeds it receives under this
Agreement to acquire Retech International, Inc., a Colorado based company with
patented enzyme technology to create fish meal and other potential products.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
AGREEMENT TO SELL AND PURCHASE
Subject to the terms and conditions hereof, at the Closing (as
hereinafter defined) the Company hereby agrees to issue and sell to the
Purchaser 2,500,000 shares of the Company's Series A Preferred Stock at a
purchase price of $1.00 per share of Series A Preferred Stock.
ARTICLE 2
CLOSING AND DELIVERY
Section 2.1 Closing. The closing under this Agreement (the "Closing") shall take
place at 10:00 a.m. local time on the 11th day of May 1999, at the offices of
Ballard Spahr Andrews & Ingersoll, LLP, 1225 17th Street, Denver, Colorado
80202, or at such other time or place as the Company and the Purchaser may
mutually agree (the "Closing Date").
Section 2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing the
number of Shares to be purchased at the Closing by the Purchaser in
consideration of payment of the purchase price therefor by certified check or
wire transfer made payable to the order of OTC America, Inc. less any amount
required to be paid by Purchaser as an early termination penalty required as a
result of engaging in this transaction as of the Closing Date. Such early
termination penalty shall not exceed $100,000.00.
1
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the Closing Date as follows:
(1) Organization and Standing of the Company. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Colorado. It has all requisite corporate power and
authority to carry on its business as now being conducted, to enter into this
Agreement and to carry out and perform the terms and provisions of this
Agreement.
(2) Authorized Series A Preferred Stock. The Company is duly
and lawfully authorized by its Articles of Incorporation, as amended, to issue
2,500,000 shares of Series A Preferred Stock, of which no shares are issued and
outstanding. All Shares to be issued pursuant to this Agreement to the Purchaser
shall be duly authorized by all other necessary corporate action, validly
issued, fully paid, nonassessable, issued in compliance with state and federal
securities laws and upon compliance with the exemptions promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and will be issued
with a restrictive legend.
(3) The Company's Authority. The execution, delivery, and
performance of this Agreement shall have been duly authorized by all requisite
corporate action. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms (except as limited by
bankruptcy, insolvency, or other laws affecting the enforcement of creditors'
rights). The execution, delivery and performance of this Agreement will not
conflict with any provision of the Articles of Incorporation and any amendments
thereto, Bylaws and any amendments thereto, minutes or share certificates of the
Company, or of any contract to which the Company is a party or otherwise bound.
(4) Financial Reports. The Company has furnished to the
Purchaser its Annual Report for the year ended June 30, 1998 and its Quarterly
Reports for the quarters ended September 30, 1998 and December 31, 1998
(collectively, the "Financial Reports"). All of Financial Reports present fairly
the financial position of the Company as of the respective periods therein
specified.
(5) Absence of Certain Changes or Events. Since December 31,
1998, there has not been any material adverse change in, or event or condition
materially and adversely affecting, the condition (financial or otherwise),
properties, assets, liabilities or, to the knowledge of the Company, the
business or prospects of the Company.
(6) Brokers or Finders. All negotiations on the part of the
Company relative to this Agreement and the transactions contemplated hereby have
been carried on by the Company without the intervention of any person or as the
result of any act of the Company in such manner as to give rise to any valid
claim for a brokerage commission, finder's fee, or other like payment.
2
<PAGE>
Section 3.2 Representations and Warranties by Purchaser. The Purchaser
represents and warrants to the Company as of the Closing Date as follows:
(1) Investment Representations. Purchaser understands that the
Shares have not been registered under the Securities Act. Purchaser also
understands that the Shares are being sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act. Purchaser represents and
warrants that it is acquiring the Shares with investment intent and not with the
intent of further distribution. Purchaser further understands that the following
restrictive legend will be on the certificates for all Shares received as a
result of this Agreement:
The Shares represented by the certificate have not been registered
under the Securities Act of 1933 ("the Act") and are "restricted
securities" as that term is defined in Rule 144 under the Act. The
Shares may not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement under the Act or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company.
(2) Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment. Accordingly, the Shares represent an illiquid
investment. Purchaser also understands that circumstances such as a lack of any
market for the Shares may be such that the Purchaser cannot transfer all or any
portion of the Shares in the amounts or at the times the Purchaser might
propose.
(3) Acquisition for Own Account. Purchaser is acquiring the
Shares for the Purchaser's own account.
(4) Purchaser Can Protect Its Interest. Purchaser represents
that by reason of its business or financial experience, Purchaser has the
capacity to protect its own interests in connection with the transactions
contemplated in this Agreement. Further, Purchaser is aware of no publication or
any advertisement in connection with the transactions contemplated in the
Agreement.
(5) Company Information. Purchaser has received and had a full
opportunity to review the Company's Financial Reports and has had an opportunity
to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity to
review the Company's operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company and its
management regarding the terms and conditions of this investment and Purchaser
desires no additional information with respect to the Company and this
investment.
(6) State of Organization. Purchaser is a trust formed under
the laws of Colorado.
3
<PAGE>
(7) Brokers or Finders. All negotiations on the part of the
Purchaser relative to this Agreement and the transactions contemplated hereby
have been carried on by the Purchaser without the intervention of any person or
as the result of any act of the Purchaser in such manner as to give rise to any
valid claim for a brokerage commission, finder's fee, or other like payment.
ARTICLE 4WARRANTIES
All statements of fact contained herein, any certificate or schedule
delivered by or on behalf of the Company or the Purchaser pursuant to the terms
hereof, shall be deemed representations and warranties made by the Company and
the Purchaser, respectively, to each other under this Agreement. The
representations and warranties of the parties shall survive the Closing for a
period of one year.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Amendment. This Agreement may be amended in any manner as may be
determined in the judgment of the Board of Directors of the Company and the
Purchaser to be necessary, desirable, or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purpose and
intent of this Agreement, subject to the provision herein that any amendment
shall be ineffective unless in writing and executed by the parties hereto.
Section 5.2 Counterparts and Facsimile Signatures. In order to facilitate the
execution of this Agreement, the same may be executed in any number of
counterparts and signature pages may be delivered by telefax.
Section 5.3 No Third Party Beneficiary. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereby
and their respective successors, assigns, heirs, executors, administrators, or
personal representatives, any rights or remedies under or by reason of this
Agreement.
Section 5.4 Entire Agreement. This Agreement and the other documents delivered
pursuant hereby constitute the full and entire understanding and agreement
between the parties with regard to the subject hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants or agreements except as specifically set forth herein. All prior
agreements and understandings are superseded by this Agreement.
Section 5.5 Governing Law. This Agreement shall be governed by the laws of the
State of Colorado.
Section 5.6 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
4
<PAGE>
Section 5.7 Notices. Any notice, communication, request, reply, or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made or accepted by either party to the other
must be in writing and may be given by personal delivery or U.S. mail, or
confirmed telefax. If given by mail, such notice must be sent by registered or
certified mail, postage prepaid, mailed to the party at the respective address
set forth below, and shall be effective only if and when received by the party
to be notified. For purposes of notice, the addresses of the parties shall,
until changed as hereinafter provided, be as follows:
(1) If to the Company:
OTC America, Inc.
Attention: Randy L. Phillips
600 Seventeenth St., Suite 950 South
Denver, Colorado 80202
Telefax: (303) 260-6486
with copies to:
Ballard Spahr Andrews & Ingersoll, LLP
Attention: Roger V. Davidson, Esq.
1225 17th Street, Suite 200
Denver, Colorado 80202
Telefax: (303) 296-3956
(2) If to the Purchaser:
Robert C. Dixon
Attention: _____________________
P.O. Box 100
Palmer Lake, CO 80133
Telefax: (719) 481-6708
or at such other address or telefax number as any party may have advised the
other in writing.
Section 5.8 Attorney Fees. If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorney fees from the other party or parties, which fees shall be in addition
to any other relief which may be awarded.
Section 5.9 Indemnification by the Company. The Company agrees to indemnify and
hold the Purchaser harmless against any loss, liability, damage or expense
(including reasonable attorney fees and costs) which the Purchaser may suffer,
sustain or become subject to as a result of or in connection with the breach by
the Company of any representation, warranty, covenant or agreements of the
Company contained in this Agreement. Notwithstanding the foregoing Purchaser
shall not be entitled to make a claim against the Company, or be indemnified by
the Company, with respect to any representation or warranty of the Company
contained in this Agreement if Purchaser has been advised in writing, or
otherwise has actual knowledge prior to the Closing of the inaccuracy,
non-performance, non-fulfilment or breach which is the basis for such claim and
the Purchaser completes the transactions contemplated in this Agreement
notwithstanding such inaccuracies, non-performance, non-fulfilment or breach.
5
<PAGE>
Section 5.10 Indemnification by the Purchaser. The Purchaser agrees to indemnify
and hold the Company harmless against any loss, liability, damage or expense
(including reasonable attorney fees and costs) which the Company may suffer,
sustain or become subject to as a result of or in connection with the breach by
the Purchaser of any representation, warranty, covenant or agreements of such
Purchaser contained in this Agreement. Notwithstanding the foregoing, the
Company shall not be entitled to make a claim against the Purchaser, or be
indemnified by the Purchaser, with respect to any representation or warranty of
the Purchaser contained in this Agreement if the Company has been advised in
writing, or otherwise has actual knowledge prior to the Closing of the
inaccuracy, non-performance, non-fulfilment or breach which is the basis for
such claim and the Company completes the transactions contemplated in this
Agreement notwithstanding such inaccuracies, non-performance, non-fulfilment or
breach.
IN WITNESS WHEREOF, this Agreement is hereby duly executed by each
party hereto as of the date first written above.
COMPANY:
OTC AMERICA, INC.,
a Colorado corporation
By:/S/ Randy L. Phillips
-------------------------------
Randy L. Phillips, President
PURCHASER:
DIXON FAMILY CHARITABLE
REMAINDER TRUST
By:/S/ Robert C. Dixon
------------------------
Robert Dixon, Trustee
6
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EX 27 for OTC America
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