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 March 31, 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 South 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 10,996,096
Class Number of shares outstanding at May 20, 2000
This document is comprised of 11 pages.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements *
Condensed consolidated balance sheet - March 31, 2000 (Unaudited) .. 3
Condensed consolidated statements of operations -
Three and nine months ended March 31, 2000 and 1999 .............. 4
Condensed consolidated statements of cash flows -
Three and nine months ended March 31, 2000 and 1999 .............. 5
Notes to condensed consolidated financial statements (Unaudited) ... 6
Item 2. Management's disscussion and analysis ..................... 9
PART II - OTHER INFORMATION ........................................ 11
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 ......................................................... 12
* The accompanying financial statements are not covered by an Independent
Certified Public Accountant's report.
2
<PAGE>
Part I. Item 1. Financial Information
<TABLE>
<CAPTION>
OTC AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2000
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents .................................................................... $ 329,972
Accounts receivable .......................................................................... 93,151
Due from related party ....................................................................... 172,596
Preferred stock issuance costs, net .......................................................... 17,740
Prepaid expenses ............................................................................. 33,217
Prepaid interest ............................................................................. 18,750
-----------
TOTAL CURRENT ASSETS 665,426
PROPERTY AND EQUIPMENT, NET .................................................................... 220,346
INTANGIBLE ASSETS, NET ......................................................................... 4,375,393
DEPOSITS ....................................................................................... 3,877
-----------
$ 5,265,042
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ............................................................................. $ 62,662
Accrued expenses ............................................................................. 8,412
Unearned revenue ............................................................................. 25,392
Current portion of capital leases payable .................................................... 20,968
Note payable ................................................................................. 1,105,000
Interest payable ............................................................................. 28,374
Due to related party (Note B) ................................................................ 176,517
-----------
TOTAL CURRENT LIABILITIES 1,427,325
CAPITAL LEASES ................................................................................. 59,877
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 $2,079,119 accrued accretion ................................ 4,579,119
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;
10,900,096 shares issued and outstanding ..................................................... 1,090
Additional paid in capital ................................................................... 2,549,368
Accumulated deficit........................................................................... (3,351,737)
-----------
TOTAL SHAREHOLDERS' DEFICIT (801,279)
-----------
$ 5,265,042
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
OTC AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUE
<S> <C> <C> <C> <C>
Dial-up, net ..................................... $ 112,399 $ -- $ 112,399 $ --
COSTS AND EXPENSES
Cost of dial-up revenue .......................... 33,636 -- 33,636 --
General and administrative ....................... 116,974 7,563 223,690 34,224
Depreciation and amortization .................... 153,967 -- 196,539 --
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS .... (192,178) 7,563 (341,466) 34,224
NON-OPERATING INCOME (EXPENSE)
Interest expense ................................. (628,876) -- (2,139,476) --
Interest income .................................. 1,776 -- 38,802 --
Realized gain on investments ..................... -- -- 3,062 --
----------- ----------- ----------- -----------
NET LOSS BEFORE TAXES .... (819,278) (7,563) (2,439,078) (34,224)
INCOME TAXES ....................................... -- -- -- --
----------- ----------- ----------- -----------
NET LOSS .... $ (819,278) $ (7,563) $(2,439,078) $ (34,224)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE:
Basic and diluted ................................ $ (0.08) $ (0.29)
=========== ===========
SHARES USED FOR COMPUTING NET LOSS PER COMMON SHARE:
Basic and diluted ................................ 10,033,428* 8,544,540*
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
* Restated for 4:1 stock split effective March 1, 2000.
4
<PAGE>
<TABLE>
<CAPTION>
OTC AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
NET CASH (USED IN)
OPERATING ACTIVITIES $ (3,293) $ (34,224)
----------- -----------
(3,293) (34,224)
INVESTING ACTIVITIES
Cash paid in acquisition of subsidiary, net of $19,535 received ..................... (1,878,519) --
NET CASH (USED IN) ----------- -----------
INVESTING ACTIVITIES (1,878,519) --
----------- -----------
FINANCING ACTIVITIES
Third party expenses paid by shareholder on behalf
of the company, recorded as additional-paid-in-capital ............................ -- 34,224
Proceeds from issuance of preferred stock ........................................... -- --
Costs paid to issue manditorily redeemable
preferred stock ................................................................... -- --
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES -- 34,224
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................................... (1,881,812) --
Cash and cash equivalents, beginning .................................................. 2,211,784 --
----------- -----------
Cash and cash equivalents, ending ..................................................... $ 329,972 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................................................ $ 339,369 $ --
=========== ===========
Cash paid for income taxes ............................................................ $ -- $ --
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in satisfaction of amounts due to shareholder ............................ $ 40,000 $ 16,468
Stock issued related to acquisition of subsidiary ..................................... $ 1,965,000 $ --
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
OTC AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
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. On February 29, 2000 the Company acquired 100% of the
outstanding common stock of NGP Holdings Ltd., n/k/a Xtelegent Web Solutions,
Inc. ("NGP"), a company incorporated on October 28, 1999 to purchase an on-going
business formerly known as A-Z Net.com, now known as e.Nvizion Web Solutions,
Ltd. Upon acquiring NGP, the company exited the development stage and commenced
operations.
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 December 31, 1999 the Company satisfied this obligation by issuing 650,000
shares of the Company's restricted common stock to the officer. The issuance of
the stock was valued at the amount of the liability and for previous expenses
that had been credited to paid in capital, for a total of $40,000. On the date
of the issuance, the Company's common stock had a market value of $.02 per
share.
During the nine months ended March 31, 2000 the officer paid an additional
$16,846 in expenses on behalf of the Company and loaned the Company $10,000
which the officer anticipates reimbursement. Therefore, the Company has recorded
a payable due to the officer at March 31, 2000 for $26,846.
The Company's subsidiary, NGP made certain advances to an affiliate totaling
$172,596. The same affiliate paid certain expenses of NGP during the nine months
ended March 31, 2000 of which $149,671 of the liability due to the affiliate was
acquired by the Company. The $149,671 is included in the accompanying
consolidated condensed statements as due to related party.
Note C: 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 and nine months ended March 31, 2000
resulting in a deferred tax asset, which was fully allowed for, therefore the
net benefit and expense result in $0 income taxes.
6
<PAGE>
OTC AMERICA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
Note D: Acquisition of NGP Holdings, Ltd.
The following unaudited pro forma condensed consolidated statement of operations
gives effect to the acquisition of NGP as if it had occurred at the beginning of
the period presented. The unaudited pro forma condensed consolidated statement
of operations are not necessarily indicative of results of operations had the
acquisition occurred at the beginning of the periods presented nor of results to
be expected in the future.
The pro forma adjustments and the resulting pro forma consolidated condensed
financial statements have been prepared based upon available information and
certain assumptions and estimates deemed appropriate by the Company. A final
determination of required purchase accounting adjustments and the allocation of
the purchase price to the assets acquired based upon their respective fair
values has not yet been made for the acquisition.
The pro forma consolidated financial statements and notes thereto should be read
in conjunction with the audited financial statements of NGP as filed in the
Company's form 8-K in May 2000.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended March 31, 2000 (Unaudited)
Pro forma
OTC NGP Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues ................................................ $ 112,399 $ 451,675 -- $ 564,074
Operating expenses ...................................... (453,865) (699,312) (599,170) (1,752,347)
(Loss) income from operations ........................... (341,466) (247,637) (599,170) (1,188,273)
Interest expense ........................................ (2,139,476) (54,254) -- (2,193,730)
Interest income ......................................... 38,802 -- -- 38,802
Realized gain on investments ............................ 3,062 -- -- 3,062
Net (loss) income ....................................... (2,439,078) (301,891) (599,170) (3,340,139)
Net (loss) income per share - basic and diluted.......... $ (.29) $ (12.08) $ (.34)
Basic and diluted shares outstanding .................... 8,544,540 25,000 1,300,000 9,844,540
</TABLE>
Pro forma adjustments
The adjustment of $599,170 is the additional pro forma amortization of the
excess of the purchase the Company paid over the fair value of the assets
received. The excess was allocated to the customer list and valued at
$2,696,267. The customer list will be amortized over 36 months. As reported in
the Company's form 8-K, filed on or about May 15, 2000, the excess allocated to
the customer list was $2,385,204. The variance of $311,063 is due to the
purchase price as previously reported of $3,490,947 was adjusted to $3,848,054
($1,898,054 in cash paid directly to NGP shareholders or to creditors of NGP and
$1,950,000 of common stock of the Company).
The pro forma information shown for NGP is for the period July 1, 1999 through
February 29, 2000 as the results of operations for the month ended March 31,
2000 was consolidated with the results of operations for the Company. The
unaudited pro forma condensed consolidated financial information does not show
any adjustments for a change in the income tax benefit as the total pro forma
consolidated benefit for income taxes would be offset by any valuation allowance
due to any deferred tax asset derived from net operating losses. The valuation
allowance offsets the net deferred tax asset for which there is no assurance of
recovery.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended March 31, 1999 (Unaudited)
Pro forma
OTC NGP Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues ................................................ $ -- $ 371,842 -- $ 317,842
Operating expenses ...................................... (34,224) (631,211) (1,157,074) (1,822,509)
(Loss) income from operations ........................... (34,224) (313,369) (1,157,074) (1,504,667)
Interest expense ........................................ -- (12,826) -- (12,826)
Interest income ......................................... -- -- -- --
Realized gain on investments ............................ -- -- -- --
Net (loss) income ....................................... (34,224) (326,195) (1,157,074) (1,517,493)
Net (loss) income per share - basic and diluted.......... $ (0.01) $ (13.05) $ (.26)
Basic and diluted shares outstanding .................... 4,641,192 25,000 1,300,000 5,941,192
</TABLE>
7
<PAGE>
Pro forma adjustments
The adjustment of $674,066 is the additional pro forma amortization of the
excess of the purchase the Company paid over the fair value of the assets
received. The excess was allocated to the customer list and valued at
$2,696,267. The customer list will be amortized over 36 months. Further, an
adjustment of $483,008 represents the amortization of goodwill recorded as a
result of NGP's acquisition of A-Z Net.com
The pro forma information shown for NGP is for the period August 3, 1998
(inception) through March 31, 1999. The unaudited pro forma condensed
consolidated financial information does not show any adjustments for a change in
the income tax benefit as the total pro forma consolidated benefit for income
taxes would be offset by any valuation allowance due to any deferred tax asset
derived from net operating losses. The valuation allowance offsets the net
deferred tax asset for which there is no assurance of recovery.
Note E: Shareholders Equity
On March 1, 2000 the board of directors approved a 4:1 forward stock split. The
condensed consolidated financial statements have been retroactive restated to
give rise to the forward split.
Note F: Subsequent Event
On April 24, 2000 the Company completed the acquisition of AyrNet.net a
division of Belmont Colvin, Inc. AryNet is a development stage, Linux-based,
wireless broadband internet service provider. The Company issued 85,000
restricted shares of its common stock for certain assets of AyrNet.net.
Part I. Item 2. Management's Discussion and Analysis
OTC AMERICA, INC.
LIQUIDITY AND CAPITAL RESOURCES
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 condensed financial statements as a deferred charge
titled preferred stock issuance costs, net of $74,501 of accumulated
amortization. The costs are amortized over thirteen months which approximates
the period prior to mandatory redemption. For the nine months ended March 31,
2000, the Company recorded $63,858 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 $2,079,119 was recorded at March 31, 2000. Accretion expense of
$1,790,657 was charged to interest expense during the nine months ended March
31, 2000. Dividend payments, totaling $337,500 have accordingly been charged to
interest expense during the nine months ended March 31, 2000.
At March 31, 2000 the Company has losses and negative cash flows from
operations. The Company's business plan for fiscal year 2000 is to continue
making acquisitions of operating companies with sufficient cash flow to support
the service of the preferred stock and to redeem the preferred stock. There is
no assurance that future acquisition candidates will be found or if found, would
generate sufficient cash flows. In addition, the holders of the preferred stock
have agreed to convert their holdings into 2,000,000 restricted shares of the
Company's common stock. The company's ability to achieve the foregoing elements
of it's business plan, 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.
8
<PAGE>
Part I. Item 2. Management's Discussion and Analysis, continued
OTC AMERICA, INC.
RESULTS OF OPERATIONS
No operations were conducted during the period July 1, 1999 through February 29,
2000. Any expenses incurred during that period 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. Additional expenses were incurred in the search
for and the consummation of the acquisition of NGP. In light of the fact that
the Company was essentially inactive through February 29, 2000, period-to-period
comparisons of financial results are not meaningful. Nevertheless, the following
information is provided.
Revenue
The Company's revenues for the nine months ended March 31, 2000 were $112,399,
compared to no revenue for the same period in 1999. Essentially all of this
revenue was derived from internet services provided by NGP to dial-up customers.
In comparing nine months ended March 31, 2000, pro forma consolidated revenue to
nine months ended March 31, 1999 pro forma consolidated revenue, increased
$246,232, which was primarily due to the acquisition of NGP's dial-up customers.
Cost of Revenue
The Company's cost of revenues for the nine months ended March 31, 2000 was
$33,636, compared to none for the same period in 1999. Cost of revenues are the
cost of telephone lines used in providing internet access to NGP's dial-up
customers.
Other Operating Expenses
General and administrative expenses for the nine months ended March 31, 2000
were $223,690 compared to $34,224 for the same period in 1999. The increase of
$189,466 was primarily due to the Company's acquisition of NGP.
In comparing nine months ended March 21, 2000 pro forma consolidated operating
expenses to nine months ended March 31, 1999 pro forma consolidated operating
expenses, there was a decrease of $70,162 which was primarily due to
non-recurring start-up costs for NGP during the period ended March 31, 1999.
Included in the pro forma consolidated operating expenses are charges for
amortization of goodwill and the amortization of the customer list. See notes to
the pro forma condensed consolidated statements of operations for the nine
months ended March 31, 1999.
The Company incurred depreciation and amortization expenses of $196,539 for the
nine months ended March 31, 2000 as compared to none for the same period in
1999. This increase was due to the amortization of preferred stock issuance
costs and the amortization of goodwill and a customer list obtained in the
acquisition of NGP.
9
<PAGE>
PART II - OTHER INFORMATION
Items 1 Through 4 - No response required.
Item 5 Other Information.
On April 24, 2000 the Company completed the acquisition of AyrNet.net a
division of Belmont Colvin, Inc. AryNet is a development stage, Linux-based,
wireless broadband internet service provider. The Company issued 85,000
restricted shares of its common stock for certain assets of AyrNet.net.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27* Financial Data Schedule.
(b) Reports on Form 8-K were filed on:
The Company filed a Current Report on Form 8-K on March 15, 2000 to
report the completion of the acquisition of Xtelegent Web Solutions, Inc.
10
<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 and nine months ended March 31, 2000
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: May 19, 2000 BY:
----------------- -----------------------------
Randy Phillips
President
11
