UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission File Number 0-15992
------------------ -------
OTC AMERICA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1031311
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 17TH Street, Suite 950 Denver, Colorado 80202
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(303) 260-6482
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.0001 par value 1,500,024
- ------------------------------- -------------------------------
Class Number of shares outstanding at
November 19, 1999
- --------------------------------------------------------------------------------
This document is comprised of 10 pages.
<PAGE>
FORM 10-QSB
1ST QUARTER
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements *
Condensed balance sheet - September 30, 1999 (Unaudited).............................. 3
Condensed statements of operations - Three months ended September 30, 1999
and 1998, and July 1, 1997 (inception)
through September 30, 1999 (Unaudited)............................................. 4
Condensed statements of cash flows - Three months ended September 30, 1999
and 1998, and July 1, 1997 (inception)
through September 30, 1999 (Unaudited) ............................................ 5
Notes to condensed financial statements (Unaudited)................................... 6
Item 2. Plan of operation............................................................ 7
PART II - OTHER INFORMATION................................................................ 8
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters To A Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures ........................................................................... 9
</TABLE>
* The accompanying financial statements are not covered by an Independent
Certified Public Accountant's report.
2
<PAGE>
Part I. Item 1. Financial information
OTC AMERICA, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents..................................................................... $ 2,069,817
Advances to acquisition candidate (Note C).................................................... 187,938
Preferred stock issuance costs, net .......................................................... 60,312
Prepaid interest.............................................................................. 18,750
-----------
TOTAL CURRENT ASSETS .................. 2,336,817
DEPOSITS.................................................................................................... 1,444
-----------
$ 2,338,261
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued expenses.............................................................................. $ 8,214
Due to related party (Note B)................................................................. 32,599
-----------
TOTAL CURRENT LIABILITIES .................. 40,813
-----------
REDEEMABLE PREFERRED STOCK
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 $1,069,005 accrued accretion............................... 3,569,005
-----------
SHAREHOLDERS' DEFICIT
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, ($1,336,879 accumulated during development stage)........................ (1,829,192)
-----------
TOTAL SHAREHOLDERS' DEFICIT ... (1,271,557)
-----------
$ 2,338,261
===========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three Months ended July 1, 1997
September 30, (inception)
---------------------------- Through
1999 1998 September 30, 1999
-------- --------- ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
General and administrative............................ $ 26,080 $ 11,201 $ 98,828
Related party (Note B)................................ - 5,300 16,468
Amortization.......................................... 21,286 - 31,929
--------- --------- ------------
TOTAL COSTS AND EXPENSES 47,366 16,501 147,225
--------- --------- ------------
NON-OPERATING INCOME (EXPENSE)
Interest expense...................................... (893,043) - (1,237,755)
Interest income....................................... 20,814 - 40,667
Realized gain on investments ......................... 3,062 - 7,434
--------- --------- ------------
NET LOSS BEFORE INCOME TAXES (916,533) (16,501) (1,336,879)
INCOME TAXES (NOTE D)............................................... - - -
--------- --------- ------------
NET LOSS $(916,533) $ (16,501) $ (1,336,879)
========= ========= ============
NET LOSS PER COMMON SHARE:
Basic and diluted..................................... $ (0.61) $ (0.03)
========= =========
SHARES USED FOR COMPUTING NET LOSS PER COMMON SHARE:
Basic and diluted................................. 1,498,000 484,893
========= =========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
OTC AMERICA, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(inception)
For the three Months ended July 1, 1997
September 30, (inception)
---------------------------- Through
1999 1998 September 30, 1999
-------- --------- ------------------
<S> <C> <C> <C>
NET CASH (USED IN)
OPERATING ACTIVITIES $ (141,967) $ (11,201) $ (392,314)
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....... - 11,201 54,372
Proceeds from issuance of preferred stock...................... - - 2,500,000
Costs paid to issue manditorily redeemable
preferred stock.............................................. - - (92,241)
NET CASH PROVIDED BY
FINANCING ACTIVITIES - 11,201 2,462,131
NET CHANGE IN CASH AND CASH EQUIVALENTS........................... (141,967) - 2,069,817
Cash and cash equivalents, beginning.............................. 2,211,784 - -
Cash and cash equivalents, ending................................. $2,069,817 $ - $ 2,069,817
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................ $ 112,500 $ - $ 187,500
Cash paid for income taxes........................................ $ - $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in satisfaction amounts due to shareholder........... $ - $ - $ 16,467
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
OTC AMERICA, INC.
A Development Stage Company
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
Note A: Basis of presentation
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its annual 10-KSB report dated June
30, 1999 and should be read in conjunction with the notes thereto. The Company
entered the development stage in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 7 on July 1, 1997 and its purpose is to
evaluate, structure and complete a merger with, or acquisition of, a privately
owned corporation.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim period presented have been made. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the year.
Interim financial data presented herein are unaudited.
Note B: Related party transactions
At June 30, 1999 the Company owed the officer of the Company $21,823 for certain
expenses paid by the officer on behalf of the Company. During the three months
ended September 30, 1999, the officer paid an additional $10,776 in expenses on
behalf of the Company, which resulted in a net due to the officer at September
30, 1999 of $32,599.
During the three months ended September 30, 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 $5,300. This amount is included
in the financial statements as costs and expenses, related party.
The Company incurred certain legal, accounting, transfer agent fees and general
and administrative costs during the three months ended September 30, 1998
totaling $11,201 which were paid on behalf of the Company by the same individual
mentioned above. The $11,201 has been reported in the financial statements as
additional-paid-in capital.
Note C: Advances to acquisition candidate
During the three months ended September 30, 1999 the Company advanced $187,938
to an acquisition candidate. If the acquisition is closed, the Company will
record the $187,938 as part of the purchase price. In the event the acquisition
does not close, the Company will charge any amounts that are not recovered to
operations.
Note D: Income taxes
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The Company incurred
net operating losses during the three months ended September 30, 1999 resulting
in a deferred tax asset, which was fully allowed for, therefore the net benefit
and expense result in $0 income taxes.
6
<PAGE>
Part I. Item 2. Plan of operation
OTC AMERICA, INC.
A Development Stage Company
PLAN OF OPERATION
The plan of the Registrant'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 near
future. The Registrant has identified one potential acquisition to whom $187,938
has been advanced as partial consideration for the purchase. At September 30,
1999 the Registrant had $2,069,817 with which to acquire an operating entity,
however no acquisitions have been consummated.
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.
RESULTS OF OPERATIONS
No operations were conducted during the most recent quarter. Since February
1989, the Company has been an inactive shell company. 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, and
costs associated with the search for possible merger candidates. The Registrant
advanced $187,938 to an operating company that the Registrant is contemplating
acquiring.
The Registrant reentered the development stage on July 1, 1997, commensurate
with the change of control which occurred November 11, 1997. There were no
significant activities between July 1, 1997 and November 11, 1997 which would
precipitate the effective date of reentering the development stage as of
November 11, 1997 versus July 1, 1997 the beginning of the Registrant's fiscal
year.
FINANCIAL CONDITION
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 $31,929 of accumulated amortization. The
costs are amortized over thirteen months which approximates the period prior to
mandatory redemption. For the three months ended September 30, 1999, the Company
recorded $21,286 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 $1,069,005 was recorded at September 30, 1999. Accretion expense of
$780,543 was charged to interest expense during the three months ended September
30, 1999. Dividend payments, totaling $112,500 have accordingly been charged to
interest expense during the three months ended September 30, 1999.
7
<PAGE>
Part I. Item 2. Plan of operation
OTC AMERICA, INC.
A Development Stage Company
FINANCIAL CONDITION CONTINUED
At September 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.
PART II - OTHER INFORMATION
Items 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27* Financial Data Schedule.
(b) Reports on Form 8-K were filed on:
None
8
<PAGE>
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three months ended September 30, 1999 have
been included.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OTC AMERICA, INC.
-------------------
(Registrant)
DATE: November 19, 1999 BY: /s/ Randy Phillips
-------------------
Randy Phillips
President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OTC AMERICA,
INC. UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE RELATED STATEMENT
OF INCOME FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<CIK> 0000803265
<NAME> OTC AMERICA, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,069,817
<SECURITIES> 0
<RECEIVABLES> 187,938
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,336,817
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,338,261
<CURRENT-LIABILITIES> 40,813
<BONDS> 0
3,569,005
0
<COMMON> 150
<OTHER-SE> (1,271,707)
<TOTAL-LIABILITY-AND-EQUITY> 2,338,261
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 47,366
<OTHER-EXPENSES> (23,876)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893,043
<INCOME-PRETAX> (916,533)
<INCOME-TAX> 0
<INCOME-CONTINUING> (916,533)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (916,533)
<EPS-BASIC> (.61)
<EPS-DILUTED> (.61)
</TABLE>
