As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. ____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 3931 51-0397012
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Address and telephone number of principal executive offices and
principal place of business)
Richard Duffy, President
38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Name, address and telephone number of agent for service)
With copies to: Scott Rapfogel, Esq., Levine & Rapfogel
621 Clove Road, Staten Island, NY 10310
(718) 981-8485
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /___
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /___
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /___
CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Proposed Amount
Amount Maximum Maximum of
to be Offering Price Aggregate Registration
Title of Each Class of Securities To Be Registered Registered Per Security(1) Offering Price(1) Fee
- -------------------------------------------------- ---------------------------------------------------------------
Common Stock, $.001 par value 1,000,000 $1.00 $ 1,000,000 $ 303
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 3,302,910(2) $1.00 $ 3,302,910 $1,001
- --------------------------------------------------------------------------------------------------------------------
TOTAL 4,302,910 $1.00 $ 4,302,910 $1,304
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====================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee.
(2) Represents shares to be offered by Selling Stockholders.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
- --------------------------------------------------------------------------------
(ii)
CROSS REFERENCE SHEET
Cross Reference Sheet Showing Location in Prospectus of
Information Required by Items of the Form Pursuant to Rule 404(a)
Form SB-2 Item No. and Heading Prospectus Caption
------------------------------ ------------------
1. Front of Registration Statement and Outside
Front Cover of Prospectus............................... Facing Page of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information and
Risk Factors ........................................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price........................... Outside Front Cover Page of
Prospectus; Risk Factors;
6. Dilution.................................................. Dilution
7. Selling Security Holders.................................. Prospectus Summary; Plan of Distribution;
Selling Stockholders
8. Plan of Distribution...................................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Plan of Distribution;
Selling Stockholders
9. Legal Proceedings........................................... Business
10. Directors, Executive Officers, Promoters
and Control Persons......................................... Management
(iii)
11. Security Ownership of Certain Beneficial
Owners and Management................................... Principal Stockholders
12. Description of Securities................................. Description of Securities
13. Interest of Named Experts and Counsel..................... Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for Securities Act Liabilities ...... Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities
15. Organization with Last Five Years......................... Business; Certain Transactions
16. Description of Business................................... Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation.................................... Plan of Operation
18. Description of Property................................... Business
19. Certain Relationships and Related Transactions............ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters..................................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Market for Common Equity and Related Stockholder
Matters; Description of Securities;
Plan of Distribution
21. Executive Compensation.................................... Executive Compensation; Certain Transactions;
22. Financial Statements...................................... Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. Not Applicable
(iv)
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
PROSPECTUS SUBJECT TO COMPLETION: DATED MAY 26, 2000
- ----------
GUITRON INTERNATIONAL INC.
4,302,910 SHARES COMMON STOCK
This is the initial public offering of Guitron International Inc. (the
"Company", we", or "us"). We are offering for sale a minimum of 250,000 shares
and a maximum of 1,000,000 shares of our common stock, $0.001 par value (the
"Primary Shares") on a "best efforts" basis, subject to various conditions. We
may reject all or part of any order for such shares. All funds received from
sales of Primary Shares will be deposited in an escrow account and will not be
released unless certain conditions have been met. If a minimum of 250,000 shares
are not sold by us within 30 days from the date of the prospectus (which period
may be extended by us up to an additional 15 days), the escrow agent will
promptly return all funds without interest or deduction. Prior to this offering,
there has been no public market for our common stock and there can be no
assurances that such a market will be developed or, if developed, that it will
be sustained following the completion of this offering. The public offering
price for our common stock does not necessarily bear any direct relationship to
our assets, book value or any other established criteria of value and was
arbitrarily determined by us. See "Risk Factor No. 7". We expect that if this
public offering is completed, our stock will be traded in the over-the-counter
market and quoted on the OTC Electronic Bulletin Board. See "Plan of
Distribution".
An additional 3,302,910 shares of our common stock (the "Selling
Stockholders Shares") will be offered for sale by certain of our stockholders
(the "Selling Stockholders"). Selling Stockholders may be expected to sell their
shares at prevailing market prices or in negotiated transactions. We will not
receive any proceeds from any sales by the Selling Stockholders. The costs,
expenses and fees incurred in connection with the registration of the Primary
Shares and the Selling Stockholders Shares will be paid by the Company. The
Selling Stockholders and any broker-dealer acting in connection with the sale of
any of the Primary or the Selling Stockholder Shares may be deemed to be
underwriters for purposes of the federal securities laws. See "Plan of
Distribution" and "Selling Stockholders"
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. WE URGE YOU TO READ THE RISK FACTORS BEGINNING
ON PAGE 10, ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
====================================================================================================
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) Company (2)(3)
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Per Share $ 1.00 $ 0.10 $ 0.90
Total Minimum (250,000 Primary Shares) $ 250,000 $ 25,000 $ 225,000
Total Maximum (1,000,000 Primary Shares) $1,000,000 $100,000 $ 900,000
Total Selling Stockholders $3,302,910 $ 0 $ 0
===================================================================================================
(See Notes on Following Page)
The date of this Prospectus is May 26, 2000
1
Notes to Spread Table
(1) The Primary Shares will be offered on behalf of the Company by certain of
our officers who have limited or no experience in the sale of securities.
No selling discounts or commissions will be paid to such officers,
although their out-of-pocket expenses will be reimbursed by the Company.
We have not made arrangements with a specific broker-dealer to act as an
underwriter in connection with this offering. However, we may pay selected
dealers ("Selected Dealers") who are members of the National Association
of Securities Dealers, Inc., and certain foreign dealers, a commission
equal to 10% of the public offering price of the Primary Shares sold by
these dealers. We will agree to indemnify any Selected Dealer against
civil liabilities under the Securities Act of 1933, as amended, See "Plan
of Distribution".
(2) The figures indicated assume that a 10% commission is paid on all Primary
Shares sold. To the extent that Primary Shares are sold by officers of the
Company however, no commissions will be paid and the proceeds to us will
be increased. The figures, however, do not reflect the deduction of
offering expenses estimated to be an aggregate of $40,000, which include
but are not limited to filing fees, printing expenses, legal and
accounting fees and other miscellaneous expenses.
(3) The first 250,000 Primary Shares will be offered by the Company on a "best
efforts-all or none" basis. The balance of the Primary Shares will be
offered on a "best efforts" basis. The proceeds from the sale of the
Primary Shares will be promptly deposited into a non-interest bearing
escrow account with Continental Stock Transfer & Trust Company (the
"Escrow Agent"). Funds will be deposited no later than noon of the next
business day following receipt. In the event that 250,000 or more Primary
Shares are not sold within 30 days after the date of this Prospectus
(which period may be extended up to an additional 15 days by us), this
offering will be withdrawn and all funds will be returned promptly to
subscribers by the Escrow Agent without deduction therefrom or interest
thereon. If at least 250,000 Primary Shares are sold, the remaining
750,000 Primary Shares will be offered until all of the Primary Shares
offered are sold, until expiration of the offering period or until the
offering is terminated by us, whichever occurs first. Subscribers will not
be entitled to a return of funds subscribed during the offering period.
Upon the sale of the minimum number of Primary Shares offered hereby, and
the consummation of our acquisition of The Guitron Corporation, a Canadian
corporation, we have the right, but not the obligation, to withdraw funds
from the escrow account pursuant to a closing or series of closings, upon
the completion of each of which, subscribers whose funds have been
withdrawn from escrow will become shareholders of the Company. We may
however, in our sole and absolute discretion, defer such closing or
closings until the sale of the maximum number of Primary Shares offered
hereby, expiration of the offering period or such earlier time as we deem
appropriate. See "Plan of Distribution". In all events, trading of our
common stock will not commence until after the offering has been
completed.
(4) We and participating broker dealers, if any, will not be involved in any
distribution of the shares owned by Selling Stockholders. The Selling
Stockholders will receive the entire proceeds from the sale of their
shares, less any commissions paid to other dealers for executing such
orders.
The Primary Shares are being offered by us subject to prior sale, to
acceptance of an offer to purchase, to approval of certain legal matters by
counsel and to certain other conditions. We reserve the right to withdraw or
cancel such offer and to reject orders in whole or in part.
We intend to furnish our shareholders with annual reports containing
audited financial statements and a report thereon by our independent certified
public accountants. In addition, we may furnish unaudited quarterly or other
interim reports to our shareholders as we deem appropriate.
2
Subscribers purchasing the Primary Shares should make bank, cashier's or
certified checks payable to "Continental Stock Transfer & Trust Company - Escrow
Agent for Guitron International Inc." See "Plan of Distribution".
We, as issuer, have undertaken to make post-effective amendments to the
Registration Statement to which the Prospectus relates and to reflect therein
any facts or events arising after the date hereof which represent a fundamental
or material change in the information set forth herein or in said Registration
Statement. Any such amendments, which relate to this prospectus will be
disseminated to our stockholders after the required filings with the Securities
and Exchange Commission have been made.
This prospectus contains certain "forward-looking statements" which
represent our expectations or beliefs. The words "believe", "expect",
"anticipate", "estimate", "project", "intend", and similar expressions identify
forward-looking statements that may include, but not be limited to, future
results of operations, growth plans, integration of new operations, financing
needs, industry trends, consumer demand and levels of competition. These
statements by their nature involve substantial risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from those expressed in, contemplated by or underlying any
such forward-looking statements. Statements in this prospectus, including
without limitation those contained in the sections entitled "Risk Factors",
"Plan of Operation", "Business", and in the Notes to our Financial Statements,
describe factors, among others, that could contribute to or cause such
differences.
Currency
- --------
Absent any reference to "Canadian", "Cdn", or any other variant thereof,
all dollar amounts shown throughout this document are in United States dollars.
Whenever any dollar amount has been translated from Canadian dollars into United
States dollars, the exchange rate used was one Canadian dollar (Cdn $1.00) for
every United States sixty eight and nine tenths cents (US $0.689). This was the
approximate Canada Spot Exchange Rate in effect on January 31, 2000 as published
by the U.S. Federal Reserve.
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all the information that is important to you. To understand this
offering fully, you should read carefully the entire prospectus, including the
risk factors and the financial statements. In this prospectus, unless the
context requires otherwise, "we" and "us" refer to Guitron International Inc.
Unless otherwise indicated, all information in this prospectus assumes our
acquisition of The Guitron Corporation, a Canadian corporation, has already
taken place, notwithstanding that such acquisition will not be effected until
the sale of the minimum offering amount has been achieved. (See "Business -
Acquisition of Guitron Canada")
3
Our Business
We are a development stage company formed for the sole purpose of
acquiring The Guitron Corporation, a Canadian corporation ("Guitron Canada"). To
date, we have conducted no business other than that related to our formation and
initial organization. Our acquisition of Guitron Canada will take place upon the
completion of the sale of the minimum offering amount within the offering period
and prior to the release from escrow of the proceeds from such sale. (See
"Business - Acquisition of Guitron Canada") At the present time and at the time
of the acquisition, the following securities are and will be issued and
outstanding in Guitron Canada: (i) not more than 2,125,926 Guitron Canada
shares; and (ii) Guitron Canada stock options ("Guitron Canada Stock Options")
to purchase not more 454,800 Guitron Canada shares (see "Description of
Securities - Outstanding Options"). Pursuant to the acquisition:
(a) All of the 2,125,926 outstanding Guitron Canada shares will be
exchanged for 3.25 common shares of our Company; This will result in
the issuance of a total of 6,909,260 shares of our common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of our Company; this will result in
there being a total of 1,478,100 of our common shares subject to
future issuance pursuant to the exercise of presently outstanding
Guitron Canada Stock Options. (See "Business - Acquisition of
Guitron Canada)
In the event the minimum offering amount is not sold within the offering
period, including any extensions thereof, the acquisition will not be
consummated, this offering will be cancelled and all subscription proceeds will
be promptly returned to subscribers from escrow without interest or deduction.
Consequently, it is assumed herein and elsewhere when context requires, that the
acquisition has already taken place and that our existence dates back to August
20, 1997, the date of incorporation of Guitron Canada.
We were formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products. The GUITRON
represents a dramatic development respecting one of the world's oldest and most
popular musical instruments, the guitar. The first production models of the
GUITRON, development of which was completed in March 2000, are expected to be
made available for sale to the public during the second quarter of 2000.
GUITRONS are easy play instruments which look and sound like traditional guitars
but are different in that they rely on our patent pending technological features
for their playing and their sound. This technology preserves the pleasurable
function of strumming the instrument but removes many of the complexities of
learning to play the guitar that are related to learning the complicated
fingerboard positions necessary to produce a chord. Consequently, the instrument
learning process is dramatically simplified when compared to the traditional
guitar. Most of our activities to date have been devoted to organizational
activities, raising capital, conducting product
4
research and development, filing patent and trademark applications respecting
the GUITRON, developing relationships with parts suppliers, developing a
marketing plan, and entering into contractual relationships with sales and
marketing organizations. As of the date hereof, we have had no operating
revenues and have financed all of our operations from loans, Canadian government
grants, research and development tax credits, and sales of capital stock to
affiliated parties and private investors. (See "Business" and "Certain
Transactions")
Corporate Information
We are a Delaware corporation. Our executive offices are located at 38
Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8.
Our telephone number is (514) 766-9778.
The Offering
Common Stock Offered By The Company ................. We are offering up to
1,000,000 shares of our
common stock at a price
of $1.00 per share. The
first 250,000 shares
are being offered on a
"best efforts-all
-or-none" basis. The
remaining 750,000
shares are being
offered on a "best
efforts" basis.
Common Stock Offered By Selling Stockholders. 3,302,910 shares of
common stock including
340,600 shares
underlying outstanding
stock options.
Common Stock to be Outstanding After this
Offering ........................................... 9,758,560 shares
(minimum)(1)
10,508,560 Shares
(maximum)(1)
Use of Proceeds ................................ We intend to use the
net proceeds from this
offering for sales and
marketing expenses, to
purchase product
inventory, and for
general corporate
purposes. See "Use of
Proceeds."
- -----
(1) Does not take into account the exercise of any outstanding stock
options of Guitron Canada subsequent to the date of this prospectus.
5
Escrow Agent Continental Stock
Transfer and Trust
Company is acting as
escrow agent for the
purpose of receiving
and disbursing to us
the proceeds from this
offering
Offering Period and Terms of
Subscription, Sale and Escrow Pending the sale of the
minimum offering amount
of 250,000 shares, all
subscription payments,
which are irrevocable,
will be deposited in a
non- interest bearing
account by the escrow
agent. This offering
will close on or before
30 days from the date
of this prospectus
(which period may be
extended for up to an
additional 15 days at
our discretion). Unless
at least the minimum
offering amount of
250,000 shares are sold
within the offering
period, this offering
will be withdrawn and
the proceeds will be
returned to subscribers
without interest or
deduction. If the
minimum offering amount
of 250,000 shares are
sold within the
offering period, the
remaining 750,000
shares will be offered
for sale until the
offering period ends or
such earlier time that
we deem appropriate.
The escrow agent will
not release the
escrowed funds to us
unless, before the end
of the offering period,
we have received
subscriptions for the
minimum offering amount
of 250,000 shares; and
thereafter (1) the
acquisition of
6
Guitron Canada has been
approved, adopted and
completed, and (2) all
other conditions to the
acquisition of Guitron
Canada have been
satisfied.
Subscription Procedures Subscribers purchasing
our common stock should
make checks payable to
"Continental Stock
Transfer & Trust
Company - Escrow Agent
for Guitron
International Inc." All
subscribers must
provide a completed
subscription agreement
along with their
payment.
Risk Factors ....................................... The shares offered
hereby involve a high
degree of risk.
Potential investors
should carefully review
the entire prospectus
and particularly, the
section entitled "Risk
Factors" beginning on
page 10.
7
SUMMARY FINANCIAL INFORMATION
The following table sets forth summarized financial information regarding
the Company and Guitron Canada, on a pro forma basis, for the years ended July
31, 1999 and July 31, 1998, for the six month period ended January 31, 2000 and
for the period from inception (August 20, 1997), to July 31, 1999. All of such
information, other than the information respecting the six month period ended
January 31, 2000, was derived from our audited financial statements appearing
elsewhere in this prospectus. The financial information for the six months ended
January 31, 2000, was derived from our unaudited financial statements appearing
elsewhere in this prospectus. In the opinion of management the financial
information for the six months ended January 31, 2000, contains all adjustments,
consisting only of normal recurring accruals necessary for the fair presentation
of the results of operations and financial position for such period. You should
read this summary financial information in conjunction with our plan of
operation, financial statements and related notes to the financial statements,
each appearing elsewhere in this prospectus.
Effective upon the sale of the minimum offering amount within the offering
period and certain other conditions, Guitron Canada will be acquired by us. The
principal reason for the acquisition is to take advantage of the laws of the
State of Delaware. Unless otherwise indicated, all information included in this
prospectus has been adjusted, in advance, to reflect the post acquisition
capitalization of our Company. (See "Business - Acquisition of Guitron Canada").
8
Income Statement Data: Cumulative Period From
August 20, 1997
Year Ended (date of inception) Six Months Ended
July 31,1999 to July 31, 1999 January 31, 1999
------------ ---------------- ----------------
Revenues 0 0 0
Net Income (Loss) $ (321,095) $ (631,155) $ (850,755)
Net Income (Loss) Per Share $ (.22) $ (.48) $ (.14)
Weighted Average Number
of Shares Outstanding 1,487,970 1,318,590 6,272,148
Balance Sheet Data: January 31, 2000
July 31, 1998 July 31, 1999 January 31, 2000 As Adjusted (1)
------------- ------------- ---------------- ----------------
Current Assets $ 35,613 $ 86,002 $ 125,826 $ 985,826
Total Assets $ 42,477 $ 100,658 $ 151,684 $1,011,684
Current Liabilities $ 197,887 $ 174,711 $ 186,566 $ 186,566
Total Liabilities $ 259,893 $ 357,955 $ 509,481 $ 509,481
Stockholders' Equity $(217,416) $(257,297) $(357,797) $ 502,203
(Deficit)
(1) As adjusted to reflect the sale of all 1,000,000 of the Primary Shares
offered hereby.
9
RISK FACTORS
The shares offered in this prospectus are highly speculative in nature and
involve a high degree of risk. You should consider very carefully certain risks
and speculative factors inherent in and affecting our business prior to the
purchase of any of our shares offered to you in this prospectus, as well as all
of the other matters set forth elsewhere in this prospectus. As elsewhere in
this prospectus, where context requires, the discussion under this "Risk
Factors" section assumes that the acquisition of Guitron Canada by us, to be
effected upon the sale of the minimum numbers of shares offered hereby during
the offering period, has already taken place and consequently, that our
existence dates back to the August 20, 1997 formation of Guitron Canada.
1. We Have No Material Operating History For You to Judge Our Prospects.
Since our inception, we have had no commercial business operations or earnings
from operations and we have very limited assets or financial resources. To date,
we have devoted all our efforts to various organizational activities, product
research and development, planning marketing strategies, and developing
relationships with suppliers. Moreover, because we are in the development stage,
we cannot predict with any certainty the future success or failure of our
proposed operations or even whether we will ever be able to generate net income
or successfully expand our operations in the future. As a result, we have no
operating history for you to analyze in order to make an informed judgment as to
the merits of an investment in us. As a new enterprise, it is likely that we
will remain subject to risks and occurrences which we are unable to predict with
any degree of certainty, and for which we may be unable to fully prepare. The
likelihood of our success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered by companies in
their early stages of development, particularly companies introducing new and
unproven products. To address these risks we must, among other things, develop
and implement effective manufacturing and marketing programs for each of our
three models of the GUITRON (the acoustic, electric and children's models), and
attract, retain and motivate qualified personnel. There can be no assurance that
we will be successful in addressing such risks, and any failure to do so could
have a material adverse effect on our business, results of operations and
financial condition. Any investment which you may make in us should be
considered a high risk investment in an unseasoned start-up company with the
possibility of the loss of the entire investment.
2. We Have Negative Working Capital and We May Not Receive Sufficient
Proceeds; We May Be Unable To Raise Additional Capital in the Future, Which
Would Adversely Affect Your Investment. Giving effect to the acquisition of
Guitron Canada, as at January 31, 2000, we had total current assets of $125,826
and total current liabilities of $186,566 or a negative working capital of
approximately $60,740. To date, we have been primarily dependent on debt and
equity funding from lenders and investors to allow us to conduct developmental
operations, and we may require additional funding in the future. The offering
under this Prospectus can close on the sale of the minimum of 250,000 shares,
which would yield approximately $185,000 in net proceeds. If we close on the
sale of the maximum of 1,000,000 shares, we will receive approximately $860,000
in net proceeds. While we believe that the receipt of the maximum
10
amount of proceeds may be sufficient for the next twelve months, presently
unanticipated occurrences and expenses may make it necessary for us to continue
to raise funds through further equity or debt financings until such time, if
ever, as we are able to operate profitably. Should we close the offering prior
to receiving the maximum proceeds there is an increased likelihood that we will
require additional funding during the next twelve months. In the event that we
do require such additional outside funding, there is no assurance that we will
be able to obtain it on terms beneficial to us, if at all. Should that occur, we
might be prevented from commencing commercial operations or, if we have begun
commercial operations, we might have to curtail or cease them (see "Plan of
Operation").
3. We Have Had Losses and Anticipate That This Will Continue in the
Foreseeable Future; Going Concern Qualification. As of January 31, 2000, we had
an accumulated deficit of $1,481,910, and we anticipate that we will continue to
incur net losses for the foreseeable future pending our establishment of
profitable business operations. Moreover, we expect that during the next twelve
months, as we try to launch our products, our operating expenses will be
increasing, especially in the areas of sales and marketing and brand promotion.
The extent of our losses in the future will depend on our ability to commence
commercial operations and generate revenues on a profitable basis. To do so, we
will have to develop and implement successful manufacturing and sales and
marketing programs for the GUITRON. Although we expect to initiate manufacturing
and marketing operations during the second quarter of calendar 2000, no
assurance can be given that we will be able to achieve this objective or that,
if this objective is achieved, that we will ever be profitable.
Our independent accountants, in their report regarding our financial
statements for the fiscal year ended July 31, 1999, stated that since we have a
history of losses since inception and limited liquidity and capital resources
doubt existed as to our ability to continue as a going concern (see "Financial
Statements").
4. We Will Need To Implement Commercial Business Operations and Manage Our
Growth Successfully. To achieve profitability, we will need to successfully
establish manufacturing and marketing infrastructures and develop systems to
ensure high levels of product delivery and satisfaction. If we are able to
successfully commence our proposed commercial business operations, we may
experience rapid growth, requiring us to manage multiple relationships with
various wholesalers and retailers of our products, vendors of supplies and raw
materials, and other third parties. This could place significant burdens on our
management and on our operational, financial, and other resources. In such event
our current and planned personnel levels, and financial and operating procedures
and controls, might not be adequate to support our operations. In any event,
there can be no assurance that we will achieve revenue growth sufficient to
offset anticipated increases in costs, nor can there be any assurance that we
will be successful in overcoming problems associated with unforeseen costs and
competition, technical problems associated with new products and technology, and
other risks which all business ventures face and which could be especially acute
for a new company attempting to establish and expand its business. There can be
no assurance that our systems, procedures or controls will be adequate to
support our operations or that our management will be able to
11
manage any growth effectively. Thus, in the face of rapid growth, if it occurs,
we will need to expand our management, manufacturing, and marketing
capabilities, develop and implement effective operational and financial systems
and controls, and attract, train, motivate, retain and supervise an expanding
staff. Should we fail to manage our growth in a successful and efficient manner
and at a pace consistent with such growth, it could have a material adverse
effect on our business and results of operations.
5. We Will Have Broad Discretion in How We Will Use The Proceeds From This
Public Offering. We may apply the proceeds of this offering for purposes other
than those specified in "Use of Proceeds" in order to accommodate changing
circumstances. Moreover, a substantial portion of the proceeds of this offering
will be applied to our working capital. Accordingly, our management will have
broad discretion as to the application of the proceeds of this offering (see
"Use of Proceeds").
6. We Cannot Guarantee That There Will Be Market Acceptance of the
GUITRON; We Have Not Conducted Any Formal Market Research Respecting Potential
Demand for the GUITRON. We have not yet commenced sales and marketing of the
GUITRON, which is our only product. We have no potential sources of revenues
other than from anticipated sales of the GUITRON and related support products.
Consequently, we are entirely dependent on the successful introduction and
commercial acceptance of the GUITRON. There can be no assurance, however, that
such market acceptance will be achieved. We have not conducted any formal market
studies regarding the probable market acceptance of the GUITRON and we therefore
have no basis for predicting the potential demand for this new musical
instrument. Accordingly, we cannot give any assurance that sufficient market
penetration can be achieved so that we can operate profitably. Failure to
achieve sufficient market acceptance of the GUITRON will have a material adverse
effect on our business, financial condition and results of operations. (see
"Business - Sales and Marketing").
7. We Have Arbitrarily Determined The Public Offering Price; You May Not
Be Able To Sell Your Shares Unless a Public Market Develops For Our Stock; If a
Public Market Develops, It May Be Very Unstable and Volatile; We Are Not
Eligible For Inclusion In NASDAQ. Prior to this offering, there has been no
public market for our securities. The initial public offering price of the
shares was arbitrarily determined by us and is not related to our assets, book
value, results of operations, or any other established criteria of value. While
we expect that, following the successful completion of this offering, our common
stock will be traded in the over the counter market and quoted on the OTC
Bulletin Board, we cannot be certain that a public trading market for our common
stock will develop after this offering. Failure to develop or maintain an active
trading market could negatively affect the price of our shares and even make it
impossible for you to sell your shares or recover any part of your investment in
us.
Even if a market for our common stock does develop, the market price of
the common stock following this offering may be highly volatile. In addition to
the uncertainties relating to our future operating performance and the potential
profitability of our operations, factors such as variations in our interim
financial results, comments by securities analysts, announcements of
12
technological innovations or new products by us or our potential competitors,
changing market conditions, developments concerning our proprietary rights, or
various, as yet unpredictable factors, many of which are beyond our control, may
have a negative effect on the market price of our common stock.
We are not presently, and it is likely that for the foreseeable future we
will not be, eligible for inclusion in NASDAQ or for listing on any United
States national stock exchange. To be eligible to be included in NASDAQ, a
company is required to have not less than $4,000,000 in net tangible assets, a
public float with a market value of not less than $5,000,000, and a minimum bid
of price of $4.00 per share. At the present time, we are unable to state when,
if ever, we will meet the Nasdaq application standards. Unless we are able to
increase our net worth and market valuation substantially, either through the
accumulation of surplus out of earned income or successful capital raising
financing activities, we will never be able to meet the eligibility requirements
of NASDAQ.
8. We Are Heavily Dependent On Our Proprietary Technology. The success of
our proposed business will depend in part upon our ability to protect our
proprietary GUITRON technology. On February 2, 1999 and August 5, 1999, we filed
applications with the U.S. Patent and Trademark Office for patents to protect
the technology used in and physical design of the GUITRON. On February 2, 2000,
a U.S. patent application reflecting subsequent technological advances was filed
to replace the application of a year earlier. On February 2, 2000 we also filed
applications for Canadian and international patents. While we expect that
patents will be granted in response to these applications, we are unable to give
any assurance that this will in fact be the case or how long the patent review
process will take. (See "Business-Patents and Trademarks") Until now, we have
relied on trade secrets, proprietary know-how and technological innovation to
protect our developing technology and the designs and specifications for the
GUITRON. We have entered into confidentiality and invention assignment
agreements with all of our employees and consultants in order to limit access
to, and disclosure or use of, our proprietary GUITRON technology. There can be
no assurance, however, that the steps taken by us to deter misappropriation or
third party development of our technology and/or processes will be adequate,
that others will not independently develop similar technology and/or processes,
or that secrecy will not be breached. We believe that our GUITRON technology
does not infringe on the proprietary rights of others. There can, however, be no
assurance that our technology does not and will not infringe on any other
technology presently unknown to us or that any third parties will not assert
infringement claims against us in the future. Moreover, even if our patents are
granted, there can be no assurance that they will provide meaningful protection
or significant competitive advantages over competing products or that we will
have the resources to defend them by bringing patent infringement or other
proprietary rights actions. Furthermore, there can be no assurance that other
companies or individuals will not independently develop similar products or
duplicate our products.
9. Competition From Guitar Manufacturers. Although we believe that the
GUITRON is a unique musical instrument with distinct advantages over
conventional acoustic or electric guitars, we will face competition from guitar
manufacturers, virtually all of whom are larger than
13
us, and have substantially more assets and resources than we have. We intend to
meet such competition through marketing, advertising, and educational campaigns
aimed at acquainting the public with the GUITRON's unique advantages over
conventional guitars, by continuing to develop and refine our technological
innovations, and by developing user support systems which will provide
assistance to GUITRON owners, helping them to learn to play the GUITRON and to
enhance their playing skills, from beginner to expert levels. We can give no
assurance that this strategy will succeed, or that we will be able to overcome
the competitive disadvantages we face as a small company with limited capital
and without a history of successfully developing and marketing musical
instruments, technology, devices or products. In addition to existing
manufacturers of conventional guitars, we anticipate that numerous potential
competitors with high levels of technical and financial resources are, like the
Company, constantly searching for market niches and specialty products in the
musical instrument industry. (see Business - Competition").
10. Investors In This Public Offering Will Suffer An Immediate and
Substantial Dilution of Their Investment Because The Public Offering Price is
Higher Than the Per Share Value Of Our Net Assets; The Public Offering Price is
Also Higher Than The Price Paid By Our Founders and Prior Investors. The public
offering price of our shares is higher than the prices paid by our founders and
prior investors and will exceed the post Guitron Canada acquisition per share
value of our net tangible assets. Consequently, the purchasers of shares sold in
this offering will experience immediate and substantial dilution of
approximately $1.02 per share in their investment if the minimum offering is
sold and approximately $.91 per share in their investment if the maximum
offering is sold. The foregoing does not take into account the additional
substantial dilution that will result from the exercise of presently outstanding
stock options. Further, additional issuances or sales of our common stock or
other securities may involve additional substantial dilution to the interests of
our then existing stockholders. See "Dilution" and "Business - Sales and
Marketing".
11. Sales of Shares Eligible For Future Sale Could Depress The Market
Price Of Our Common Stock; Dilution of Common Stock From Exercise of Options.
Giving effect to the acquisition of Guitron Canada, we presently have issued and
outstanding 9,508,560 shares of our common stock and options to purchase an
additional 1,478,100 shares at exercise prices ranging from Cdn $.2308
(approximately US $.159) to Cdn $.3077 (approximately US $.212) per share. Of
these, 3,302,910 shares, including 340,600 shares underlying outstanding
options, are included in the Registration Statement of which this Prospectus is
a part and will be freely tradeable following the completion of this public
offering. Further sales of these shares could depress the market price of our
common stock in any market which may develop in the near future. The balance of
6,546,250 shares of our currently issued and outstanding common stock are
unregistered securities and are therefore restricted from resale other than by
way of registration, a transaction complying with the provisions of Rule 144,
adopted under the Securities Act of 1933, as amended, or some other exemption
from registration. Rule 144 provides, among other matters, that if certain
information concerning the operating and financial affairs of the Company is
publicly available, persons holding restricted securities for a period of one
year thereafter may sell in each subsequent three month period up to that number
of such shares equal to 1% of our
14
outstanding common stock. Shares purchasable under outstanding options, will be
eligible for sale under Rule 144, one year from the dates such options are
exercised and fully paid for. Future sales of these shares under Rule 144 could
depress the market price of our common stock in any market which may develop in
the near future.
In addition, the exercise prices of all outstanding options to purchase
shares of our common stock is less than the public offering price of $1.00 per
share. Accordingly, the investments made by purchasers in the public offering
will be diluted by the exercise of such options (see "Dilution" and "Description
of Securities").
12. Our Present Shareholders Will Continue to Control Us After the Public
Offering; Our Majority Shareholders Will Be Able to Take Shareholder Actions
Without Giving Prior Notice to Any Other Shareholders. The Common Stock offered
hereby will represent a minority of our voting stock after its issuance. Since
each common share is entitled to one vote which in non-cumulative, investors in
the offering will have no effective voting voice in our management which will
continue to be controlled by our current shareholders. At the time of our
acquisition of Guitron Canada, and prior to the issuance of any shares in this
offering, our shareholders will own an aggregate of 9,508,560 shares of Common
Stock. (see "Principal Stockholders" and "Certain Transactions".)
None of our securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "34 Act"). We will not be required to
register under the "34 Act" unless and until at the end of any fiscal year we
have 500 or more shareholders of record and have total assets in excess of
$10,000,000. At present, we have no plans to register any of our securities
under the "34 Act" unless and until we are required to do so. As a result, we
are not, and after the public offering, we will not be, subject to the Proxy
Rules of Section 14 of the "34 Act". We will therefore be able to take
shareholder actions in conformance with Section 228 of the Delaware General
Corporation Act, which permits us to take any action which is required to, or
may, be taken at an annual or special meeting of the shareholders, without prior
notice and without a vote of all of our shareholders. Instead of a vote,
shareholder actions can be authorized by the written consents to such actions,
signed by the holders of the number of shares which would have been required to
be voted in favor of such action at a duly called shareholders meeting. We are
required to give notice to all shareholders of the actions taken pursuant to the
written consents of the majority shareholders, promptly after the action has
been taken.
13. Our Board of Directors Can Issue Up to 8,013,340 Additional Shares of
Common Stock Without the Consent of Any of Our Shareholders. Our Certificate of
Incorporation authorizes the issuance of 20,000,000 shares of Common Stock. Upon
the sale of all of the shares of Common Stock offered hereby approximately
9,491,440 of our authorized common shares will remain unissued. Approximately
1,478,100 of such shares will be reserved for issuance pursuant to the exercise
of presently outstanding options. Our board of directors has the power to issue
any or all of the remaining 8,013,340 authorized common shares for general
15
corporate purposes, without shareholder approval. While we presently have no
commitments, contracts or intentions to issue any additional common shares
except as otherwise disclosed in this prospectus, potential investors should be
aware that any such stock issuances may result in a reduction of the book value
or market price of the outstanding common shares. If we issue any additional
common shares, such issuance will reduce the proportionate ownership and voting
power of each other common shareholder (see "Description of Securities").
14. We Will Face Certain Risks by Engaging in International Operations. We
intend to assemble all Guitrons at our production facilities in Montreal. In
addition, Quebec and other areas in Canada are among the initial markets which
we intend to target for the GUITRON. While there can be no assurances that we
will be successful in marketing the GUITRON or that any anticipated
international sales will take place, to the extent that we engage in
international sales and/or operations, we will be subject to various risks
associated with international operations. These include, but are not limited to,
changes in tariff rates, possible instability of political climate or economic
environment, and fluctuations in currency exchange rates. The latter will affect
any payments to or by us made or valued in non-U.S. currencies, all of which
will be subject to independent fluctuating exchange rates with the U.S. dollar
which may have an adverse affect on our revenues or asset values in terms of the
U.S. dollar.
15. We Have Entered, and in the Future We May Continue to Enter, Into
Transactions With Related Parties. Since our inception, we have on several
occasions entered into transactions with our officers, directors, principal
shareholders and other affiliated parties including those transactions discussed
in the "Certain Transactions" section of this prospectus. We believe that all
such transactions were made on terms as fair as those obtainable from
independent third parties, were independent third parties able and willing to
enter into similar transactions with us. However, no assurance can be given that
this was, in fact, the case. We have adopted a policy which, among other things,
requires all material transactions with affiliated parties to be approved by a
majority of the directors who do not have an interest in the transaction.
16. We are Dependent on the Services of our President. Our ability to
successfully conduct our business affairs is dependent upon the capabilities of
our president and chief executive officer, Richard Duffy. Mr. Duffy has a fixed
term employment agreement with us. His contract is scheduled to expire on
December 5, 2002. If we are unable to retain the services of Mr. Duffy, our
operations could be adversely affected. We do not presently carry any "key man"
insurance on Mr. Duffy or any other employee and we have no plans to obtain such
insurance following the completion of this offering. (see "Management --
Directors and Executive Officers").
17. If A Public Market is Established For Our Common Stock, The "Penny
Stock Rules" Will Apply to Broker-Dealer Sales of Such Stock. As discussed
above, at the present time, there is no public market for our stock. However, it
is expected that upon the successful completion and closing of this public
offering, our common stock will be traded in the over-the-counter
16
market and we will endeavor to have trading activity reported on the OTC
Electronic Bulletin Board.
The United States Securities and Exchange Commission "Securities
Enforcement and Penny Stock Reform Act of 1990" requires special disclosure
relating to the trading of any stock defined as a "penny stock". Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share and is not listed on The Nasdaq
SmallCap Stock Market or a major stock exchange. These regulations subject all
broker-dealer transactions involving such securities to special "Penny Stock
Rules". Following the completion of this offering the commencement of trading of
our common stock, and the foreseeable future thereafter, the market price of our
common stock is expected to be substantially less than $5 per share.
Accordingly, should anyone wish to sell any of our shares through a
broker-dealer, such sale will be subject to the Penny Stock Rules. These Rules
will affect the ability of broker-dealers to sell our shares (and will therefore
also affect the ability of purchasers in this offering to re-sell their shares
in the secondary market, if such a market should ever develop.)
The Penny Stock Rules impose special sales practice requirements on
broker-dealers who sell shares defined as a "penny stock" to persons other than
their established customers or "Accredited Investors." Among other things, the
Penny Stock Rules require that a broker-dealer make a special suitability
determination respecting the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. In addition, the Penny Stock
Rules require that a broker-dealer deliver, prior to any transaction, a
disclosure schedule prepared in accordance with the requirements of the
Commission relating to the penny stock market. Disclosure also has to be made
about commissions payable to both the broker-dealer and the registered
representative and the current quotations for the securities. Finally, monthly
statements have to be sent to any holder of such penny stocks disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Accordingly, for so long as the Penny Stock
Rules are applicable to our common stock, it may be difficult to trade such
stock because compliance with the Penny Stock Rules can delay and/or preclude
certain trading transactions. This could have an adverse effect on the liquidity
and/or price of our common stock.
18. No Dividends and None Anticipated. We have not paid any dividends, nor
do we contemplate or anticipate paying any dividends upon our common stock in
the foreseeable future. Any earnings which may be generated from our operations
will be used to finance our growth.
19. Best Efforts Nature of Offering - We shall use our best efforts to
sell the shares of our common stock. However, there is no present commitment by
any person to purchase any of the shares offered. Consequently, we cannot assure
you that any of the shares will be sold. See "Plan of Distribution." In
reviewing the information set forth under the heading "Plan of Distribution,"
potential purchasers of our common stock should note that there is a minimum
sale requirement and that the offering will not close unless the minimum is
subscribed for and our acquisition of Guitron Canada has been consummated. If we
are unable to sell the minimum
17
number of shares of our common stock offered, we will refund your subscription
payments to you without interest or deduction. To the extent the minimum is sold
but the maximum is not, our ability to implement our initiatives may be
diminished.
20. Escrow of Investors' Funds - Under the terms of this offering, we are
offering 250,000 shares on a "best efforts - all or none" basis, and if the
minimum amount of shares are sold the remaining 750,000 shares will be offered
on a "best efforts" basis until all of the shares are sold, the offering period
ends, or the offering is terminated by us whichever first occurs. No commitment
currently exists by anyone to purchase all or any part of the shares offered
hereby. Consequently, there is no assurance that the minimum number of shares
being offered will be sold. Subscribers' funds may be escrowed for as long as 45
days and then returned without interest thereon in the event the minimum number
of shares are not sold within the 30 day offering period, and the possible 15
day extension period. Investors will not have the use of any funds paid for the
purchase of our shares during he subscription period. In the event we are unable
to sell the minimum number of shares within the offering period, the offering
will be withdrawn.
USE OF PROCEEDS
The net proceeds to us from the offering, after deducting sales
commissions and offering related expenses, is estimated to be approximately $
185,000 if the minimum number of 250,000 shares offered are sold and $860,000 if
all 1,000,000 shares offered are sold. To the extent that shares are sold by our
officers, no sales commissions will be paid and the net proceeds to us will be
increased proportionately. Such proceeds, if any, will be used as additional
working capital. We intend to use the net proceeds from the offering in the
approximate amounts shown below for the purposes listed, in order of priority:
Approximate Amount
----------------------------
Percent Percent
of of
Anticipated Use At minimum Total At maximum Total
- --------------- ---------- ----- ---------- -----
Product Inventory $ 50,000 27% $150,000 17.4%
Sales and
Marketing Expenses $125,000 67.6% $300,000 34.9%
Working Capital(1) $ 10,000 5.4% $410,000 47.7%
TOTAL $185,000 100% $860,000 100%
(1) In the minimum offering situation, approximately $10,000 will be used as
working capital and applied to general corporate purposes including, but
not limited to, rent and salaries. In the maximum offering situation
approximately $410,000 will be used as working capital and applied to
general corporate purposes including, but not limited to, rent, salaries,
and research and development expenses.
18
None of the expenditures described above constitute a firm commitment by us.
Projected expenditures are estimates or approximations only. Future events,
including changes in the economic climate or in our planned business operations,
including the success of lack or success of our intended business activities,
could make shifts in the allocation of funds necessary or desirable. Any such
shifts will be at the discretion of our board of directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this offering, there has been no public market for our common
stock and there can be no assurance that a public market for our common stock
will develop after this offering. We anticipate that upon completion of this
offering our common stock will be traded on the OTC Bulletin Board.
Giving present effect to our acquisition of Guitron Canada we would have
9,508,560 shares of common stock issued and outstanding held by approximately 55
persons. An additional 1,478,100 shares of common stock would be subject to
issuance upon exercise of outstanding stock options. 3,302,910 shares, including
340,600 shares underlying outstanding options will be freely tradeable by
Selling Stockholders after the completion of this offering.
Neither we nor Guitron Canada have ever paid dividends on our respective
common stocks. There are no restrictions that limit our ability to pay dividends
on our common stock or that are likely to do so in the future. Notwithstanding
the foregoing, for the foreseeable future, it is anticipated that any earnings
which may be generated from our operations will be used to finance our growth
and that cash dividends will not be paid to stockholders (see "Risk Factors"
- -"No Dividends and None Anticipated").
DILUTION
The following discussion assumes that we acquired Guitron Canada on
January 31, 2000. It does not assume the exercise of then outstanding options of
Guitron Canada, the exercise of which would result in further dilution to
investors in this offering. The following discussion also assumes that the net
proceeds to us will be $185,000 if the minimum number of shares offered are sold
and will be $860,000 if the maximum number of shares offered are sold.
At January 31, 2000, we had a net tangible book value of $(357,797) or
$(.0376) per share. Net tangible book value per share represents the amount of
our total tangible assets, minus total liabilities, divided by the 9,508,560
shares then outstanding. After giving effect to the sale of the minimum number
of Shares offered hereby (250,000 Shares), the pro forma net tangible book value
at January 31, 2000 would have been $(.0177) per share, representing an
immediate increase of $.0199 per share to present stockholders and an immediate
dilution of $1.0177 per share to the public stockholders from the public
offering price. After giving effect to the maximum number of Shares offered
hereby (1,000,000 Shares), the pro forma net tangible book value at January 31,
2000 would have been $.0478 per share, representing an immediate increase of
$.0854 per share to present stockholders from the public offering and an
immediate dilution of $.9146 per share to the public stockholders from the
public offering price. "Dilution" per
19
share represents the difference between the public offering price and the net
tangible book value per share after the Offering.
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the minimum number of
Shares offered hereby (250,000 Shares) are sold.
Assumed public offering price $ 1.00
Net tangible book value per share before Offering $(.0376)
Increase attributable to public stockholders $ .0199
Pro forma net tangible book value after Offering $(.0177)
Dilution to public stockholders $1.0177
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the maximum number of
Shares offered hereby (1,000,000 Shares) are sold.
Assumed public offering price $ 1.00
Net tangible book value per share before Offering $(.0376)
Increase attributable to public stockholders $.0854
Pro forma net tangible book value after Offering $.0478
Dilution to public stockholders $.9146
The following table sets forth the difference between the present
stockholders and the new stockholders with respect to the number of shares
purchased from us on the sale of both the maximum and minimum number of Shares
offered, the total cash consideration paid and the average price per share,
assuming an initial public offering price of $1.00 per common share and before
the deduction of selling discounts and commissions and offering expenses payable
by us.
Shares Purchased Total Consideration
--------------------------- ------------------------------------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- ---------
Present stockholders 9,508,560 97.44%(minimum) $ 928,163 78.78%(minimum) $.097
90.48%(maximum) 48.14%(maximum)
New stockholders 250,000 2.56% $ 250,000 21.22% $1.00
(minimum offering)
20
Shares Purchased Total Consideration
--------------------------- ------------------------------------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- ---------
New stockholders 1,000,000 9.52% $1,000,000 51.86% $1.00
(maximum offering)
TOTAL (MINIMUM) 9,758,560 100% $1,178,163 100% $.1207
TOTAL (MAXIMUM) 10,508,560 100% $1,928,163 100% $.1835
CAPITALIZATION
The following table sets forth, as of January 31, 2000, (i) the
capitalization of our Company on a pro forma basis as if the acquisition of
Guitron Canada had occurred at that date, and (ii) the capitalization of our
Company on a pro forma as adjusted basis to give effect to the sale of the
minimum and maximum number of shares offered after deducting brokers'
commissions and the other estimated expenses of the offering.
January 31, 2000
----------------
PRO FORMA AS ADJUSTED
---------------------
PRO FORMA MINIMUM MAXIMUM
Long-term debt, including current portion $ 68,609 $68,609 $68,609
Stockholders' equity
Common stock, $.001 par value;
20,000,000 shares authorized,
9,508,560 shares outstanding
(pro forma), 9,758,560 shares
outstanding (pro forma
as adjusted minimum), 10,508,560
shares outstanding (pro forma as
adjusted maximum) $ 9,509 $ 9,759 $ 10,509
Additional paid-in capital $ 1,096,387 $ 1,281,137 $ 1,955,387
Accumulated deficit $(1,481,910) $(1,481,910) $(1,481,910)
Unrealized gain on foreign exchange $ 18,217 $ 18,217 $ 18,217
Total stockholders' equity $ (357,797) $ (172,797) $ 502,203
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors and will be contingent on future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors as our board of directors deem relevant.
21
PLAN OF OPERATION
The following discussion of our plan of operation for the next twelve
months should be read in conjunction with, and is qualified in its entirety by,
the more detailed information, including the summary financial information and
our financial statements and the notes thereto included elsewhere in this
prospectus. Our plan of operation for the next twelve months involves (i)
implementing our sales and marketing plans to create sales and distribution
channels for the GUITRON; (ii) commencing sales of the GUITRON, which is
expected to occur during the second quarter of 2000; (iii) continuing our
investment in research and development respecting the GUITRON; and (iv)
developing other applications for the GUITRON technology.
The component parts of the GUITRON will be manufactured for us by third
parties and assembled at our Montreal, Canada office. In our present space, we
estimate that we have the capacity to assemble approximately 10,000 GUITRONS per
month. In addition, should product demand necessitate assembly of a greater
number of GUITRONS we anticipate that we can lease additional space in the same
building that would allow us to double our present assembly capacity to
approximately 20,000 GUITRONS per month. Should even greater product demand
exist, we expect that we would move our operations to a larger facility in the
Montreal, Canada area, which we believe would be available to us from several
sources at rates that, on a square footage basis, are competitive with our
present monthly rental rate. The assembly of GUITRONS does not require skilled
labor. The level of demand for GUITRONS will dictate the number of additional
employees, if any, we will need to hire for assembly purposes.
We have not yet achieved operating revenues and do not expect to achieve
revenues until we commence GUITRON sales. Our activities to date have been
principally devoted to raising capital, developing marketing plans, identifying
and entering into relationships with marketing organizations and parts
suppliers, and completing development of the GUITRON. As of January 31, 2000 we
had a working capital deficit of $60,740, and had expended approximately
$731,000 on research and development activities.
Employee levels are expected to increase in conjunction with the
commencement of sales activities and are expected to be directly related to
product demand. Notwithstanding the foregoing, all of our marketing and sales
personnel requirements will be outsourced. (See "Business-Sales and Marketing")
The receipt of the maximum offering proceeds together with expected revenues
from operations may be sufficient to satisfy our cash requirements during the
next twelve months, but no assurance can be given that this will prove to be the
case. Our cash requirements over such period will be directly related to our
sales and marketing efforts, the number of geographic markets we attempt to
enter during such period, our research and development requirements, and the
overall speed at which we advance our operations. There can
22
be no assurance given that if we are required to seek additional financing that
it will be available to us, or if available that we can obtain such financing on
reasonable terms. (see "Risk Factor #2...., We May Be Unable to Raise Additional
Capital In The Future, Which Would Adversely Affect Your Investment")
BUSINESS
The following discussion of our business contains forward-looking
statements which involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
Overview
We are a development stage company which is poised to launch a unique
musical instrument known as the GUITRON. The GUITRON represents what we believe
is a dramatic development respecting one of the world's oldest and most popular
musical instruments, the guitar. It preserves the natural beauty of the guitar
while simplifying the playing. The GUITRON closely resembles and possesses the
characteristics of a traditional guitar. It looks like a guitar and maintains
the pleasurable function of strumming while eliminating certain of the
complexities of the traditional guitar including the need to learn the
complicated fingerboard positions necessary to produce a chord. According to the
National Association of Music Merchants ("NAMM"), this is the primary reason
that approximately 90% of first time guitar purchasers abandon their instruments
within the first three months of use. They are not prepared to invest the time
and energy required by the traditional guitar to attain a reasonable level of
skill. By contrast, to produce a chord on a GUITRON requires only one finger.
The GUITRON has a simplified grid system that allows the player to easily find
desired chords by following letters on the neck of the GUITRON and depressing
the string that corresponds to the chord family desired, producing a perfect
chord when the strings are plucked. Hundreds of chords are available, always in
tune and in perfect pitch. The GUITRON is battery operated and contains a patent
pending speakerless system which, together with its unique combination of
software and hardware, represents what we believe is a technological
breakthrough in the music field.
Ubaldo Fasano, the inventor of the GUITRON, had tried as a young man, to
learn and play the guitar. Failing to do so, his interests turned to
synthesizers. Subsequently, he became a pioneer in the programming of these
complex and innovative instruments. The knowledge he gained in manipulating and
shaping musical sounds played a decisive role in the creation of the GUITRON.
Through perseverance and determination he continued to experiment with devices
that would equip him to play guitar. He decided to put his knowledge of shaping
and creating sounds for synthesizers towards developing a series of experiments
in search of an electronic solution to his guitar learning problem.
Approximately, twenty years later, in May 1997,combining new electronic modules,
printed circuits and sophisticated microprocessors, he completed development of
the first prototype of the GUITRON. A second generation prototype
23
was completed in February 1999. Mr. Fasano passed away in April 1999 after a
long illness but his vision lives on. Since such time, a third generation
prototype was developed and we continue to seek ways to further improve product
quality and reliability. There are three basic models of the GUITRON,
development of which was completed in March 2000, including an electronic,
acoustic, and children's model.
Acquisition of Guitron Canada
We were incorporated on December 6, 1999 for the specific purpose of
acquiring Guitron Canada which was formed on August 20, 1997. This acquisition
is scheduled to take place following our sale of the minimum offering amount. In
the event the minimum offering amount is not sold within the offering period,
including any extensions thereof, the acquisition will not be consummated and
the offering will be cancelled.
In connection with the acquisition (i) each of the issued and outstanding
shares of Guitron Canada at the time of the acquisition will be exchanged for
3.25 shares of our common stock; and (ii) each of the issued and outstanding
stock options of Guitron Canada will become exercisable for 3.25 shares of our
common stock. Pursuant to the foregoing (i) 2,125,926 outstanding shares of
Guitron Canada, which shares will represent all of the issued and outstanding
shares of Guitron Canada, will be exchanged for 6,909,260 shares of our common
stock; and (ii) the 454,800 stock options of Guitron Canada will become
exercisable for an aggregate of 1,478,100 shares of our common stock.
Additionally, the post-acquisition per share option exercise price will be
reduced by dividing the per share exercise price in effect prior to the
acquisition by 3.25 such that following the acquisition, each option holder will
be able to exercise each of his, her, or its options for 3.25 shares of our
common stock at the same price it would have cost to exercise the option to
purchase one share of Guitron Canada prior to the acquisition. Following the
effectuation of the acquisition, Guitron Canada will become a wholly owned
subsidiary of our Company.
Industry Background
In 1977, the United States ("US") music products industry reported annual
retail sales of approximately $1.9 billion. Ten years later, in 1987, it
reported sales of approximately $3.4 billion. By 1998, the industry was
reporting record breaking sales of approximately $6.51 billion, more than
tripling its sales figure twenty years earlier. This growth is primarily
attributable to the growing value placed by most Americans on musical pursuits,
the shift in purchases of higher priced items, and the vibrant US economy. For
purposes of this discussion, and throughout this document, all US industry unit
and dollar volume figures represent shipments by manufacturers and distributors
to US retailers at an estimated retail value. Estimates of unit sales, and
retail values are based on data prepared by NAMM from a variety of sources
including, but not limited to, the US Department of Commerce, industry
associations, and corporate financial records. The U.S. guitar market
experienced annual sales of approximately 1.1 million guitars in each of 1995,
24
1996, 1997 and 1998 representing dollar sales of approximately $696,000,000;
$706,000,000; $711,000,000 and $695,000,000 respectively. These numbers do not
take into account the very large secondary or used market sales figures. These
statistics indicate the vast potential of the markets in which the GUITRON is
expected to compete.
In 1997, NAMM commissioned The Gallop Organization to conduct a national
survey of amateur music participation in the US. (the "Gallop Study") The
highlights of the Gallop Study show that approximately 25% of the US population
over the age of twelve currently play musical instruments. The study further
shows that:
(i) Approximately 53% of the population over the age of twelve have
previously played or are currently playing musical instruments;
(ii) Approximately 43% of all households own at least one musical
instrument.
(iii) Pianos and guitars are the most popular instruments (33% and 18%
respectively) of all instruments played;
(iv) Nearly one in five former players of musical instruments said they
would play again if they had more time;
(v) Approximately 84% of respondents agreed that playing a musical
instrument is fun and approximately 88% agreed that music is an
important part of life;
(vi) Respondents overwhelmingly agreed that music participation develops
a child's creativity when it is a part of a well rounded education.
They also expressed the belief that all schools should offer
instrumental music as part of the regular curriculum and communities
should provide financial support for music in the schools.
(vii) The guitar is most likely to be played by persons in the 18-49 age
group.
(viii) Males are more likely than females to play the guitar.
(ix) Respondents indicate that a barrier to playing a musical instrument,
especially the guitar, is learning how to play the instrument.
The popularity of music and musical instruments appears to be timeless.
Sales of classical, jazz, blues and other types of music are on the increase
with significant growth in the pop segment. The most popular instrument in pop
music is the guitar. Based upon the foregoing, it is our belief that guitar
sales will remain strong over the foreseeable future. For the past few years
keyboard manufacturers have been concentrating on making their product more
user-friendly in order to penetrate a wider market and have been extremely
successful. Guitar
25
manufacturers have not followed this trend. It is our belief that this presents
us with a great opportunity to successfully introduce the GUITRON to the
marketplace, although no assurances can be given that this will prove to be the
case. We believe that beginners of all ages will be attracted to the immediate
results offered by the GUITRON. We further believe that the market for the
GUITRON will have global appeal to male, female, young and not-so-young, the
beginner and the master player although no assurance can be given that this will
prove to be the case. Notwithstanding the foregoing, based upon the results of
the Gallop Study, our primary marketing strategy will be directed to school age
players and to males in the 18-49 age group.
Growth Strategy
Our business objective is to be a leading, branded manufacturer of high
quality musical instruments including, but not limited to, the GUITRON. The key
elements of our strategy to accomplish these objectives include the following:
(a) Create a Reputation as a Manufacturer of High Quality Musical
Instruments.
(b) Establish Strong Brand Name Recognition. We intend to establish
brand name recognition through aggressive public relations and mass
market advertising.
(c) Establish a Broad Customer Base. Through aggressive mass marketing
advertising, and product quality and reliability, we intend to raise
consumer awareness of the GUITRON and other products we may develop
in the future.
(d) Offer New Products and Services
(e) Develop and Maintain Strategic Relationships with Hardware and
Software Contractors and Parts Suppliers
(f) Maintain and Improve Technological Focus and Expertise.
Products and Services
Products
IN March 2000, we completed development of three models of the GUITRON,
the acoustic GUITRON, the electric GUITRON and the children's GUITRON. We expect
to commence marketing and selling each of these GUITRON models during the second
quarter of 2000, although no assurance can be given that this will prove to be
the case. All GUITRON models contain the following features:
26
(i) Simplified Left-Hand Movement - In response to our conclusion that
the intricate fingering positions are the primary reason why many
guitar purchasers give it up in frustration and why many others
never purchase a guitar in the first place we have identified and
simplified the complex left-handed functions of the traditional
guitar. The GUITRON solves the problem by replacing the complex left
hand fingering positions with a one finger movement.
(ii) Chord Locator by Grid System - All GUITRON models are equipped with
a simple and visible grid system that identifies chords. An
alpha-numeric display indicates the specific chord played.
(iii) Single and Double Switch Chording Function - All GUITRON models
contain a switching chord function feature which allows a person to
play in excess of 1000 chords if desired.
(iv) Low Tension Strings - Depressing strings on the traditional guitar
can cause pain when the strings bite into the fingers and can leave
deep ridges in the skin. All GUITRON models feature strings that are
low tension, made of nylon, easy to depress, and cause no injury to
the fingers.
(v) Excellent Sound Quality - Along with an interface and a
microprocessor, a simple playback mechanism produces quality sound
through a proprietary speakerless technology. The sound is generated
by the GUITRON's sound board.
(vi) Computer Interactive - All GUITRON models have full computer
interface capability. Each is equipped with the standard midi-in and
midi-out connections allowing for the interaction of the instrument
with personal home computers. This feature is expected to prove to
be a valuable tool for professional music writers and composers.
Accessory Items
- ---------------
In addition to the GUITRON, we intend to offer consumers related accessory
items including, but not limited to, guitar straps, picks, cases, headphones,
amplifiers and stands. All of these items will be manufactured for us, in
accordance with our specifications, by product manufacturers located in
Southeast Asia. There are several manufacturers available to us for each of
these items and we do not anticipate any problems with respect to product
quality or cost. We intend to carry a relatively small inventory of these
accessory items, at any given time, since the delivery time for orders given by
us to such manufacturers is expected to be short.
27
Services
We will market the GUITRON as a high quality, sophisticated, musical
instrument. Consistent therewith, we will provide our customers with a product
warranty, product satisfaction guarantee and related support regarding the use
and enjoyment of such product. We will warrant the GUITRON to be free from
defects in material and workmanship and will provide each customer thereof with
a one year warranty on parts and labor, except for the GUITRON's rechargeable
batteries which will carry a 90-day warranty. During the effective warranty
period, we will remedy any product defects. Parts may be replaced under the
warranty, at our election, with new or comparable remanufactured parts. The
warranty will not extend however, to any GUITRON which has been subjected to
usage for which the product was not designed, which has been damaged as the
result of shipping, or which has been altered or repaired in a way that affects
product performance or reliability. To further insure customer satisfaction, we
will also provide each customer with a ten day money back guarantee, excluding
shipping and handling.
Patents and Trademarks
We have filed two provisional patent applications with the U.S. Patent and
Trademark office. The first of these patents was filed on February 2, 1999 and
titled "electronic stringed musical instrument". This patent application related
to both the sound technology utilized in the GUITRON and the related fingering
system for producing chords. On February 2, 2000 we filed a replacement
application which reflected technological advances made by us since the initial
filing date. The second patent application was filed on August 5, 1999 and
titled "guitar headstock". This patent application relates to the physical
design of the GUITRON. On February 2, 2000 we also filed applications titled
"electronic stringed musical instrument" for Canadian and international patents.
While we expect that patents will be granted in response to these applications,
we are unable to give any assurance that this will in fact be the case. In
addition to the protection to be offered to us upon the allowance of our patent
applications, we also rely on trade secrets proprietary know-how and
technological innovation with respect to the development of the GUITRON.
In April 1998 we filed an application with the U.S. Patent and Trademark
Office seeking trademark registration for the mark "Guitron" indicating our
intention to use the mark in connection with the musical instrument referred to
herein as the GUITRON. In October 1999 we received a Notice of Allowance with
respect to such application.
We have entered into confidentiality and invention assignment agreements
with our employees and consultants which limit access to, and disclosure or use
of, the GUITRON technology. There can be no assurance, however, that the steps
taken by us to deter misappropriation or third party development of our
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes, or that secrecy will not be
breached. In addition, although we believe that our technology has been
independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that our technology does not and will not so
infringe or that third parties will not
28
assert infringement claims against us in the future. We believe that the steps
we have taken to date will provide some degree of protection and that the
issuance of patents pursuant to our applications will materially improve this
protection. However, no assurance can be given that this will be the case.
Sales and Marketing
We intend to commence market introduction of our three GUITRON models; the
electric GUITRON, acoustic GUITRON and children's GUITRON in the second quarter
of 2000. Our initial test markets will be Quebec, Canada and the Northeastern
United States followed in or about the fourth quarter of 2000 by the remainder
of the United States. By the end of 2002 we intend to be marketing the GUITRON
on a worldwide basis. During the second quarter of 2000, we intend to introduce
GUITRON accessories including guitar straps, cases, amplifiers, headphones,
picks, and foot and music stands. Our long term marketing objective is to create
full consumer awareness of the GUITRON, the accessory items, and such other
products that we may develop in the future. Our medium term marketing objective
is to introduce new lines of GUITRONS in or before 2004. These new lines are
expected to be the result of our continuing dedication to research and
development and our ability to respond to consumer feedback.
To limit our fixed expenses by decreasing our employee requirements, to
enable us to expedite the implementation of our sales and marketing plans and
strategies, and to position us to take advantage of the services of professional
sales and marketing organizations, we have decided to rely on outsourcing for
our sales and marketing needs. Accordingly, we have entered into marketing
agreements with Marvin Chankowsky (the "Chankowsky Marketing and Consulting
Agreement") and Jean Pilote (the "Pilote Marketing Agreement") to develop,
coordinate and implement marketing strategies for the GUITRON and the accessory
items. Jean Pilote, an experienced marketer of products and services, will
coordinate our marketing for the Quebec and Eastern Canada regions, while Marvin
Chankowsky, directly or through MBC Marketing Ltd., a leading Canadian sales
promotion agency under the control of Mr. Chankowsky, with offices in Toronto,
Canada, Montreal Canada, and affiliated offices in New York, Los Angeles and
Atlanta, the United Kingdom and Australia, will coordinate our marketing for the
United States and subsequently other countries and territories.
The Pilote Marketing Agreement between Guitron Canada and Jean Pilote was
entered into on September 1, 1999. It has a two year term that commenced on
September 1, 1999 and provides for Mr. Pilote to devise, develop and implement a
marketing plan with respect to sales of GUITRONS in the Province of Quebec,
Eastern Canada and such other geographic areas that shall be mutually agreed to
by the parties (collectively the "Sales Territory"). In consideration of such
services, the Pilote Marketing Agreement provides for the reimbursement of all
approved out of pocket expenses incurred by Mr. Pilote and his affiliates in
connection with the performance of the contract, the issuance to Mr. Pilote of
1,000 shares of Guitron Canada (3,250 shares of Guitron International Inc., on a
post acquisition basis) which issuance was made on December 7, 1999; and
additional compensation, as described below, which is based upon
29
GUITRON sales that are directly related to the marketing efforts of Mr. Pilote
and his affiliates within the Sales Territory during the term of the Pilote
Market Agreement.
This additional compensation consists of the following:
(i) the right to receive 1,000 shares of Guitron Canada (up to a maximum
of 9,000 shares) which will be 3,250 shares of Guitron International
Inc. on a post acquisition basis (up to a maximum of 29,250 shares)
for every Cdn $100,000 (approximately US $68,900) in net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement where such sales are
directly related to the marketing efforts of Mr. Pilote and his
affiliates;
(ii) during the stock earn out period described in (i) above, the right
to receive a sales commission equal to 3% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Pilote and his
affiliates; and
(iii) subsequent to the stock earn out period described in (i) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Pilote and his
affiliates.
The Chankowsky Marketing and Consulting Agreement between Guitron Canada
and Marvin Chankowsky was entered into as of September 29, 1999. It has a thirty
month term that will commence in or about May 2000. The Chankowsky Marketing
Agreement provides for Mr. Chankowsky to devise, develop and implement a
marketing plan with respect to the sale of GUITRONS in North America and such
other geographic areas that shall be mutually agreed to between the parties
(collectively the "Sales Territory"). In consideration of the Chankowsky
Marketing Agreement Guitron Canada issued 10,000 shares of its stock to Mr.
Chankowsky on December 7, 1999. Mr. Chankowsky will be entitled to further
compensation, as described below based upon GUITRON sales within the Sales
Territory that are directly attributable to the marketing efforts of Mr.
Chankowsky and his affiliates, during the term of the agreement. The stock
compensation component of such further compensation will result in additional
dilution to investors in this offering. We have agreed to use our best efforts
to register the stock to be issued to Mr. Chankowsky pursuant to the Marketing
and Consulting Agreement.
30
This additional compensation consists of the following:
(i) the right to receive 10,000 shares of Guitron Canada (up to a
maximum of 264,000 shares) which will be 32,500 shares of Guitron
International Inc. on a post acquisition basis (up to a maximum of
858,000 shares) for every Cdn $100,000 (approximately US$68,900) in
net receipts realized by us from sales of GUITRONS in the Sales
Territory during the term of the Chankowsky Marketing Agreement
where such sales are directly related to the marketing efforts of
Mr. Chankowsky and his affiliates;
(ii) during the stock earn out period described in (i) above, the right
to receive a sales commission equal to 2% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Chankowsky Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Chankowsky and his
affiliates; and
(iii) subsequent to the stock earn out period described in (i) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Chankowsky Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Chankowsky and his
affiliates.
The Quebec and Eastern Canada marketing strategy will primarily involve a
direct marketing approach that will utilize various media including, but not
limited to, newspapers, magazines, radio and television advertisements as well
as infomercials. This marketing strategy will also utilize the talents and name
recognition, in the Quebec and other french speaking regions of Canada, of our
Canadian spokesperson, Jean Pierre Ferland. Mr. Ferland is a French-Canadian
artist, singer and songwriter who has built an extensive reputation with his
audiences.
Other direct marketing approaches intended to be utilized include (i)
establishment of a toll free information number which will provide interested
parties with detailed information respecting the GUITRON; (ii) sponsorships of
music promotion programs within educational institutions, that will be geared
towards 12 to 25 year old music students as well as aspiring musicians, and that
will support music competitions, concerts and music clubs involving, among other
musical instruments, the GUITRON; (iii) product promotion by arranging for
GUITRON use by performing artists at concerts, cafes, cabarets, television shows
and other high profile venues; and (iv) creation of an internet web site that
will promote the GUITRON by among other things, providing a product
demonstration.
The North American marketing strategy will involve a dual approach
utilizing both direct marketing, similar to the direct marketing strategies to
be utilized with respect to our Canadian marketing, and distribution through
large retailers.
31
Supplies and Suppliers
The primary components of the GUITRON include electronics, hardware,
software, and guitar bodies. These components will be manufactured for us by
third parties. We will assemble GUITRONS at our Montreal, Canada office. We also
intend to sell related accessories manufactured for us by third parties such as
speakers, amplifiers, stands, straps, footrests and cases. Suppliers of
component materials and accessories will be chosen based on quality, service and
price.
The price of raw materials for the manufacture of GUITRONS is expected to
remain stable in the near term. Increases that may occur are expected to be
small, although no assurance can be given that this will prove to be the case.
Each category of raw materials has several competing suppliers. We do not intend
to be dependent upon any one supplier for each of the raw materials that we will
purchase. We expect all required raw materials to be readily available in
sufficient quantities and to be of required quality. In the extreme situation,
however, were any required raw materials not to be generally available, it would
have a material adverse effect on our operations.
Seasonal Aspects
We do not expect to experience seasonal variations in our operating
results.
Research and Development
Except as otherwise disclosed herein, all of our research and development
activities are company sponsored. To date all of such activities have related to
the development of the GUITRON. During the fiscal year ending July 31,2000 we
anticipate spending approximately Cdn $400,000 (approximately US $275,600) on
research and development, approximately Cdn $307,146 (approximately US $209,282,
based upon the average conversion rate in effect for the first six months of
fiscal 2000, which was approximately $.681) of which had been spent as of
January 31, 2000. During the fiscal years ended July 31, 1999 and July 31, 1998
we spent approximately Cdn $459,140 (approximately US$303,674, based upon the
average conversion rate in effect for fiscal 1999, which was approximately
$.661) and Cdn $313,089 (approximately US $218,401, based upon the average
conversion rate in effect for fiscal 1998, which was approximately $.698)
respectively, on research and development activities.
Although the basic design and development of the GUITRON was brought to
completion during March 2000, we intend to continue to seek and refine and
enhance our GUITRON technology. We also intend to endeavor to develop new
products.
32
Customers
We do not expect any single customer to account for a significant portion
of our revenues. Accordingly we will not be dependent upon any single customer
to achieve our business goals.
Competition
We know of no guitar-like related devices, apparatus or equipment,
utilizing electronic or other technology, which is identical or comparable to
the GUITRON technology, presently being sold or used anywhere in the world. Nor
are we aware of any competing patents relating to such technology. However, the
GUITRON may reasonably be expected to compete with related or similar guitar, or
guitar-like, instruments, apparatus or devices. Moreover prospective competitors
which may enter the field may include established manufacturers of musical or
electronic audio instruments and equipment, all of which will be considerably
larger than we are in total assets and resources. This could enable them to
bring their own technologies and instruments to advanced stages of development
and marketing with more speed and efficiency than we have been, or will be, able
to apply to the development and marketing of the GUITRON. There can be no
assurance that the GUITRON will successfully compete with conventional guitars
and existing electronic guitar-like instruments or with any improved or new
technology instrument which may be developed in the future.
Canadian Government and Government Sponsored Financial Assistance
The governments of Canada and Quebec have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of research tax incentives to
businesses and individuals. These tax incentives take the form of deductions and
tax credits with respect to eligible research and development expenditures of
Canadian corporations. Certain tax credits are called "refundable" because of
the extent that the amount of the tax credit exceeds the taxes payable, they are
paid over or "refunded" to the taxpayer. Thus, such credits function effectively
as monetary grants. To qualify for such tax credits, research and development
activities must comprise investigation or systematic technological or scientific
research conducted through pure or applied research, undertaken to advance
science and develop new processes, materials, products or devices or to enhance,
even slightly, existing processes, materials, products, or devices. Cdn $201,732
(approximately US $138,993) and Cdn $337,895 (approximately US $232,810) of the
research and development expenditures made by Guitron Canada during the fiscal
years ended July 31, 1998 and July 31, 1999, respectively, qualified for such
tax credits. In consideration of such expenditures, we received Cdn $34,823
(approximately US $23,993) and Cdn $106,176 (approximately US $73,155) in tax
credits for the fiscal years ended July 31, 1998 and July 31, 1999 respectively.
33
Guitron Canada has also received financial assistance by way of loans and
grants from Quebec governmental agencies for export market development. The
terms and conditions of the government and government sponsored loans and grants
obtained by Guitron Canada include the following:
(a) Loan From Canada Economic Development for Quebec Regions ("CEDQR")
CEDQR's Program for the Development of Quebec's IDEA Program provides loans in
amount of up to 50% of approved expenditures made by the borrower for the
purpose of identifying and developing export markets for Canadian products.
Under this program, Guitron Canada has obtained a loan, as follows:
On April 22, 1998, Guitron Canada qualified for a loan, in an amount equal
to 50% of approved expenditures, up to a maximum loan amount of $99,600 Canadian
(approximately $68,624 U.S.) for market development activities in the U.S.
respecting the sale of GUITRONS. In connection with the foregoing, during the
year ended December 31, 1998, CEDQR granted Guitron Canada loans in the
aggregate amount of Cdn $99,600 (the "Loan Amount"). The loan does not require
us to pay interest on the outstanding loan balance unless we are delinquent with
respect to an installment payment. The CEDQR Loan is repayable as follows: (i)
Cdn $9,960 of the Loan Amount is due and payable on January 31, 2001; (ii) Cdn
$19,920 of the Loan Amount is due and payable on January 31, 2002; (iii) Cdn
$29,880 of the Loan Amount is due and payable or January 31, 2003; and (iv) Cdn
$39,840 of the Loan Amount is due and payable on January 31, 2004.
(b) Loan From Business Development Bank of Canada On April 23, 1998 The
Business Development Bank of Canada ("BDBC") made a loan of $29,026 Canadian
(approximately $19,999 US) to Guitron Canada for the principal purpose of
helping to finance market development activities. The loan was made repayable in
60 monthly installments with payment due on the 23rd day of each month
commencing February 23, 1999. The loan required the payment of interest on the
outstanding principal loan balance at the rate of 10.5% per annum. The loan was
secured by a life insurance policy in favor of BDBC on Ubaldo Fasano in the
amount of the loan. Following the death of Mr. Fasano in April 1999, the life
insurance proceeds were utilized by BDBC to pay off the remaining loan balance.
Government Regulation
There are no special or unusual governmental laws or regulations that can
be expected to materially impact on the operation of our business.
34
Personnel
As of April 3, 2000 we had five employees including two executive
officers, two administrative employees, and our Director of Production and
Quality Control. Our Director of Research, Engineering and Manufacturing works
for us on an independent contractor basis. (See "Management"). We plan to add
additional employees as required for the expanded operation of our business
including those required for GUITRON assembly. We consider our relationship with
our employees to be satisfactory. Our work force in non-unionized.
Legal Proceedings
No material legal proceedings are pending to which we or any of our
property is subject, nor to our knowledge are any such legal proceedings
threatened.
Facilities.
Our headquarters are currently located in a leased facility located at 38
Place du Commerce on Nun's Island, Montreal, Quebec, Canada, consisting of
approximately 1,500 square feet of space, which is under a month to month lease.
The monthly rent due under the lease is Cdn $1,875 (approximately US $1,292),
plus our proportionate share of all water taxes, business taxes, and other
similar taxes and rates which may be levied or imposed upon the premises.
Approximately 500 square feet of such space is utilized for general
administrative purposes while the balance of approximately 1,000 square feet of
such space is or will be utilized for manufacturing and assembly purposes. We
believe such space is sufficient to handle our present and immediate future
needs including additional production staff and equipment. Further, in the event
the lease is terminated, for any reason, space sufficient to handle our then
present and expected future needs is available from several sources at
comparable rental rates.
MANAGEMENT
Directors, Officers, Key Employees and Consultants.
The following table sets forth certain information, as of April 3, 2000,
with respect to our directors, executive officers and key employees and
consultants. Following the acquisition of Guitron Canada these persons will
continue to serve in these positions. With the exception of
35
Michael Ash, all of such directors, executive officers and key employees and
consultants currently hold similar positions with Guitron Canada. As elsewhere
in this prospectus, where context requires, it is assumed that the acquisition
of Guitron Canada has already taken place and that our history dates back to the
August 20, 1997 formation of Guitron Canada.
NAME AGE POSITION
- ---- --- --------
Richard F. Duffy 53 President, Chief
Executive Officer
and Chairman
Michael D. A. Ash 50 Secretary, Treasurer
and Director
France B. Fasano 56 Director
Edward Santelli 65 Director
David L. Rosentzveig 49 Director
Paul D. Okulov 41 Director of Research,
Engineering and
Manufacturing
Jean Pierre Paradis 43 Director of Production
and Quality Control
The following is a brief account of the business experience of each of our
directors, executive officers, key employees and consultants during the past
five years or more.
Richard F. Duffy has been our president, chief executive officer and
chairman of our board of directors since August 1998. Prior to such date
however, he performed various services for us including, but not limited to,
coordinating of our initial research and development activities, identifying
parts suppliers, assisting us with certain financing activities and helping us
to develop a marketing strategy. Mr. Duffy has an extensive background in the
areas of finance and administration. From 1968 until 1991 Mr. Duffy worked in
the securities industry with various investment firms including Merrill Lynch,
Greenshields and Walwyn. In 1991 he left the securities trade to pursue
opportunities in direct corporate management. From 1991 until 1997 Mr. Duffy
managed international companies in Thailand; Toronto, Canada; Australia and
36
Germany before returning to his roots in Montreal, Canada where he formed his
own financial consulting firm, Financial Initiatives, Inc. Mr. Duffy presently
serves as president of Financial Initiatives Inc. Mr. Duffy is past president of
the Canadian Investment Dealers Association (Atlantic). He has also been a
post-secondary lecturer in business and finance and has been a director of
various companies and charitable organizations. Mr. Duffy has a degree in
Business Administration from the University of Prince Edward Island.
Michael D. A. Ash has been our secretary, treasurer and a director since
December 6, 1999. Mr. Ash has more than twenty five years of business
experience. He has been a Chartered Accountant since 1972. Mr. Ash received a
Bachelor's Degree in Business Administration from Bishop's University in Quebec,
Canada in 1970 where he graduated Magna Cum Laude and received an MBA from
Harvard Business School in 1975. Most of Mr. Ash's business career has been
spent with the Government of Canada, first with the Office of the Comptroller
General in Ottawa and for the eighteen year period ending in January 1999 with a
federal regional economic and industrial development agency in Montreal, Canada.
Thereat he gained wide ranging exposure to many companies and industrial
sectors, ranging from developmental companies to major multi-national
corporations. For ten years during this time, Mr. Ash was also a part time
lecturer in accounting at Concordia University in Montreal. From February 11,
1999 to the present Mr. Ash has served, as the secretary, treasurer and chief
financial officer for The Tirex Corporation, a development stage public company
headquartered in Montreal. Mr. Ash is also a founding partner and principal
shareholder of Ashbyrne Investments, Inc., a business and financial consulting
firm which was formed in July 1999 and is the president, founder and sole
shareholder of Ashbyrne Consultants Inc., a business and financial consulting
firm which was formed in July 1999.
France B. Fasano has been a director of our Company since April 1999 and
has served as the secretary and treasurer of Guitron Canada since August 1997.
Since 1997 she has also been an officer and director of Productions Polyart
International, Inc., a corporation which she controls.
Edward Santelli has been a director of our Company since June 1999. Mr.
Santelli has extensive business experience in the construction industry. From
1994 to the present he has co-owned Pyramid Snow Services, a Canadian company
engaged in the business of snow removal. From 1982 until 1994 he was employed as
the president of Dorval Paving Co., a road contractor which he owned. From 1957
until 1982 he was employed in various capacities by Beaver Asphalt Paving Co.,
Ltd., a road contractor.
David L. Rosentzveig has been a director of our Company since June 1999.
He has been a practicing attorney since June 1976 with the law firm of
Mendelsohn, Rosentzveig & Schacter. He is currently a partner in such firm,
which serves as counsel to Guitron Canada.
Paul D. Okulov has been our director of research, engineering and
manufacturing since December 1998. Mr. Okulov is primarily responsible for the
supervision of our research and development and manufacturing operations as well
as our engineering requirements. Mr. Okulov
37
has extensive experience in the areas of engineering consulting with an emphasis
on problem solving, cost reduction and innovations in the mechanical,
electro-mechanical and civil engineering fields. He is a member of the American
Society of Mechanical Engineers. Mr. Okulov's work has resulted in numerous
inventions 13 of which have been patented and even more of which are expected to
be patented in the future. Mr. Okulov's professional experience has included
idea conception, design development, and prototype building and testing. He has
also assumed responsibility for related research, patenting, manufacturing
set-ups and management. From 1977 until 1992 he worked in various capacities at
the Moscow Institute of Civil Engineering, Department of Design of Metal
Structures including several teaching and consulting positions. From 1992 until
1993 he was employed as a scientific consultant at Browning Thermal Systems,
Inc. in Enfield, New Hampshire. From 1993 until 1997 he was employed as a
Research and Development Product Manager and thereafter as a Director of
Engineering at Biosig Instruments Inc. in Quebec, Canada. From 1992 until 1998
he also worked as a consultant to the automotive and metal works, thermal spray
and aircraft industries in the areas of product design and patenting. From
September 1, 1998 to the present Mr. Okulov has worked for Innovative Products
Resources Ltd., an engineering, consulting, and research and development company
which he owns and controls. In 1988 Mr. Okulov received B.S.C. and M.S. degrees
in Civil Engineering from the Moscow Institute of Civil Engineering. In 1982 he
received a Master's degree in Patent Procedures and Patent Law from the High
State Patent Courses in Moscow. In 1985 he received a Ph.D in Mechanical
Engineering from the Moscow Institute of Civil Engineering.
Jean Pierre Paradis has been our director of production and quality
control since March 6, 1999. Mr. Paradis has extensive experience in the field
of electronics, electronics testing and electronics repair. He is responsible
for the oversight of our daily production requirements, staff, and product
quality. Mr. Paradis is an accomplished guitarist, bass guitarist and key
boarder. From January 1990 until March 1999 he worked as an electronics engineer
for Efkay Musical Instruments in Quebec, Canada where he was in charge of the
repair department. His duties included the repair and modification of musical
instruments and technical consultation. From March 1988 until December 1989 he
was employed as a Senior Electronics Engineer and Video and Audio Instructor at
Atlantique E'lectroniqe in Montreal, Canada where his duties included repairing,
calibrating and modifying various audio and video devices and training the
company's technicians. From June 1979 until June 1987 he worked in other musical
instrument repair, modification, programming and teaching capacities for various
employers in Quebec Canada.
DIRECTORS.
Our directors receive no cash compensation for their services as board
members or committee members and are not reimbursed for expenses incurred in
connection with attending board and committee meetings. However, during both the
fiscal year ended July 31, 1999 and during the present fiscal year we have
granted and issued to each of our directors, other than Michael Ash, stock
options to purchase an aggregate of 81,250 shares of our common stock at any
time during the period ending five years from the date of grant at an exercise
price of Cdn $.3077 (approximately US $.212) per share. See "Certain
Transactions". All directors hold office until
38
the next annual meeting of the stockholders and until their successors have been
duly elected and qualified. Executive officers are elected by and serve at the
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers. We have adopted a policy requiring
that all material affiliated transactions, including, but not limited to loans,
contractual arrangements and any forgiveness of loans, be approved by a majority
of our independent directors who do not have an interest in the transaction and
who had access, at our expense, to our independent legal counsel.
Limitation On Directors' Liabilities
Our Certificate of Incorporation limits, to the maximum extent permitted
under Delaware law, the personal liability of directors and officers for
monetary damages for breach of their fiduciary duties as directors and officers,
except in certain circumstances involving certain wrongful acts, such as a
breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
us to indemnify our officers, directors or employees against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement in connection
with legal proceedings if the officer, director or employee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to our
best interests, and, with respect to any criminal act or proceeding, he or she
had no reasonable cause to believe his or her conduct was unlawful.
Indemnification is not permitted as to any matter as to which the person is
adjudged to be liable unless, and only to the extent that, the court in which
such action or lawsuit was brought upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Individuals who successfully defend such an action are
entitled to indemnification against expenses reasonably incurred in connection
therewith.
We will not indemnify a director or officer for any breach of loyalty to
us or our stockholders, or if the director or officer does not act in good faith
or for acts involving intentional misconduct, or for acts or omissions falling
under Section 174 of the DGCL, or for any transaction for which the director or
officer derives an improper benefit. We agree to indemnify for expenses related
to indemnifiable events, and to pay for these expenses in advance. Our
obligation to indemnify and to provide advances for expenses are subject to the
approval of a review process with a reviewer to be determined by the Board. The
rights of directors and officers will not exclude any rights to indemnification
otherwise available under law or under our Certificate of Incorporation.
EXECUTIVE COMPENSATION.
The following table assumes the acquisition of Guitron Canada has been
effected and sets forth information concerning the total compensation paid or
accrued by us during the two fiscal
39
years ended July 31, 1999 to our chief executive officer. No executive officer
received annual compensation in excess of $100,000 in either of such fiscal
years.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Fiscal Year Ended Other Annual Options/Restricted LTIP All Other
Principal Position July 31, Salary Bonus Compensation SAR's Stock Awards Payouts Compensation
- ------------------ -------- ------ ----- ------------ ----- ------------ ------- ------------
Richard Duffy 1999 0 0 32,036(1) 81,250 0 0 0
Chief Executive Officer
1998 0 0 28,800(2) 0 0(3) 0 0
(1) Represents approximately Cdn $840 (approximately US $579) in health
benefits provided to Mr. Duffy and Cdn $45,656 (approximately US $31,457)
in consulting fees paid to Financial Initiatives Inc., a financial
consulting firm owned by Mr. Duffy's wife, and in which Mr. Duffy is an
executive officer. (See "Certain Transactions")
(2) Represents approximately Cdn $41,800 (approximately US $28,800) in
consulting fees paid to Financial Initiatives Inc., a financial consulting
firm owned by Mr. Duffy's wife, and in which Mr. Duffy is an executive
officer. (See "Certain Transactions")
(3) Excludes 1,284,290 shares issued on March 15, 1998 to Joan Callaghan, the
wife of Richard Duffy.
STOCK OPTION PLANS; STOCK OPTION/STOCK APPRECIATION RIGHT GRANTS; AGGREGATE
STOCK OPTION/STOCK APPRECIATION RIGHT EXERCISES AND FISCAL YEAR END STOCK
OPTION/STOCK APPRECIATION RIGHT VALUES; REPORT ON REPRICING OF STOCK
OPTIONS/STOCK APPRECIATION RIGHTS.
From our inception on August 20, 1997 through July 31, 1999 we did not
adopt any stock option plans. During the same period we did not grant or issue
any stock appreciation rights ("SARs"). We did however, during the fiscal year
ended July 31, 1999, grant and issue an aggregate of 294,800 stock options, each
of which is exercisable for the purchase of 3.25 shares of our common stock.
19,800 of these options entitle the holder thereof to purchase an aggregate of
64,350 shares of our common stock at an exercise price of Cdn $.2308
(approximately US $.159) per share. 275,000 of these options entitle the holders
thereof to purchase an aggregate of 893,750 shares of our common stock at an
exercise price of Cdn $.3077 (approximately US $.212) per share. 25,000 of these
latter options exercisable for the purchase of 81,250 shares of our common stock
were issued to the named executive. During such period there were no
40
exercises of any of our stock options and no adjustments or amendments to the
exercise price of such options.
Long Term Incentive Plan Awards
We have not made any long-term incentive plan awards since our inception.
Pension Plans
We do not presently provide pension plans for any of our officers or
directors.
Employment Agreements
During the two fiscal years ended July 31, 1999 we did not have employment
agreements with any of our executive officers and paid no cash salary to any of
such executive officers. On December 6, 1999 we entered into an executive
agreement with Richard Duffy (the "Executive Agreement"), pursuant to which Mr.
Duffy is employed as our president and chief executive officer. The agreement is
for a three year term ending December 5, 2002 and provides for salary
compensation at the annual rate of $100,000. The Executive Agreement provides
for the payment of bonuses at the sole discretion of our board of directors
based upon an evaluation of Mr. Duffy's performance, with payment of any such
bonuses to be reviewed annually. The Executive Agreement also provides for the
participation by Mr. Duffy in any pension plan, profit-sharing plan, life
insurance, hospitalization or surgical program, or insurance program hereafter
adopted by us (there are no such programs in effect at the present time),
reimbursement of business related expenses, the non-disclosure of information
which we deem to be confidential to us, non-competition by Mr. Duffy with us for
the one-year period following termination of his employment with us (except for
termination other than for cause or a termination upon a change in control) and
for various other terms and conditions of employment.
The Executive Agreement also includes severance provisions which provide,
among other things, for severance compensation to be paid to Mr. Duffy in the
event that Mr. Duffy's employment is terminated by us other than for cause, or
by Mr. Duffy for "good reason", as that term is defined in the Executive
Agreement, or pursuant to a "change in control" of the Company. Where
applicable, the Executive Agreement provides for severance compensation in an
amount equal to 200% of the amount of the executive's annual base salary at the
time of termination.
The Executive Agreement further provides that, as compensation, and in
lieu of payment in cash of salary, due thereunder, we may, if agreed to by Mr.
Duffy, issue unregistered shares of our common stock, valued at a discounted
percentage of the average of the bid and ask prices
41
of our stock, as traded in the over-the-counter market and quoted in the OTC
Bulletin Board, during part or all of the period in which the salary was earned
under the Executive Agreement.
CERTAIN TRANSACTIONS
On December 6, 1999 we entered into a three year employment agreement with
Richard F. Duffy, our president and chief executive officer. The agreement
provides for an initial annual base salary of $100,000. (See
"Management-Executive Compensation Employment Agreements").
On each of June 25, 1999 and November 30, 1999 Guitron Canada granted
25,000 stock options to each of its directors, Richard F. Duffy, France B.
Fasano, Edward Santelli and David L. Rosentzveig in connection with their
services as directors of Guitron Canada during the fiscal year ended July 31,
1999 and the current fiscal year. Each option is exercisable to purchase one
share of common stock of Guitron Canada at any time during the five year period
commencing on the date of grant at an exercise price of Cdn $1.00 per share.
None of these options have been exercised to date. Pursuant to our acquisition
of Guitron Canada, each option will become exercisable to purchase 3.25 shares
of Guitron International Inc. at an exercise price of Cdn $.3077 (approximately
US $.212) per share.
During the period November 10, 1997 through January 31, 2000, we have
periodically received loans from Productions Polyart International, Inc.
("PPII"), a corporation, controlled by France B. Fasano, a director and
principal shareholder of our Company. As at January 31, 2000 there was an
outstanding principal loan balance due to PPII of approximately $199,198.
Interest at the rate of 6% per annum is payable on all outstanding loan
balances. All principal and interest due on the loan is payable in full no later
than July 31, 2001.
On December 6, 1999 we entered into a two year consulting agreement (the
"Consulting Agreement") with Ashbyrne Consultants Inc. ("ACI"), a Canadian
corporation owned by Michael D.A. Ash, an officer and director of our Company.
The agreement provides for ACI to provide us with various services, including
but not limited to, (i) corporate planning; (ii) evaluation of business
strategies; (iii) financial advice and planning; and (iv) corporate management
assistance. Pursuant to such agreement, Mr. Ash is currently employed as our
secretary, treasurer and chief financial officer on a non-salaried basis. In
consideration of the Consulting Agreement, on January 3, 2000 we issued 500,000
shares of our common stock to Michael D.A. Ash and 1,500,000 shares of our
common stock to Ashbyrne 2000 Limited.
On September 1, 1997 and March 15, 1998, respectively, Guitron Canada sold
1,000,000 and 395,166 founders' shares (the "Guitron Canada Founders' Shares"),
to Ubaldo Fasano and Joan Callaghan, the wife of Richard Duffy, at a price of
$.00001 and $.001 per share, respectively.
42
On January 15, 1999, Guitron Canada issued 25,000 options to Judit
Fellegi, the wife of David Rosentzveig, one of our directors. Each option is
exercisable to purchase one share of stock of Guitron Canada at any time during
the five year period ending January 14, 2004 at an exercise price of Cdn $1.00
(approximately US $.689) per share. Pursuant to our acquisition of Guitron
Canada, each option will become exercisable to purchase 3.25 shares of Guitron
International Inc. at an exercise price of Cdn. $.3077 (approximately US $.212)
per share.
On May 17, 1999 Guitron Canada sold 6,000 shares, to Judit Fellegi, the
wife of David L. Rosentzveig, one of our directors, at the price of Cdn $.90
(approximately US $.62) per share.
On December 7, 1999 Guitron Canada sold 27,300 shares to Loryta
Investments Ltd., a corporation beneficially owned by the family of Michael D.A.
Ash, at a price of Cdn $1.00 (approximately US $.689) per share.
On December 7, 1999 and January 3, 2000 Guitron Canada sold 7,000 and
8,850 shares, respectively to Ashbyrne Investments Inc., a corporation in which
Michael D.A. Ash is the principal shareholder, at a price of Cdn $1.00
(approximately US $.689) per share.
On October 15, 1998 and December 7, 1999 Guitron Canada sold 10,000 and
5,000 shares, respectively, to Tersan Consultants Inc., a Canadian corporation
owned by Edward Santelli, one of our directors, at a price of Cdn $1.00
(approximately US $.689) per share.
On April 15, 1999 Guitron Canada issued 100,000 options to Paul D. Okulov,
each to purchase one share of stock of Guitron Canada at any time during the
five year period ending April 14, 2004 at an exercise price of Cdn $1.00
(approximately US$.689) per share. On May 19, 1999 Guitron Canada issued 25,000
options to Paul D. Okulov, each to purchase one share of stock of Guitron Canada
at any time during the five year period ending May 18, 2004 at an exercise price
of Cdn $1.00 (approximately US $.689) per share. Pursuant to our acquisition of
Guitron Canada, each option will become exercisable to purchase 3.25 shares of
Guitron International Inc. at an exercise price of Cdn. $.3077 (approximately US
$.212) per share.
Since the formation of Guitron Canada on August 20, 1997 the law firm of
Mendelsohn, Rosentzveig & Schacter ("Mendelsohn") has acted as its corporate
counsel. David L. Rosentzveig, one of our directors, is a partner in Mendelsohn.
To date, Guitron Canada has paid legal fees to Mendelsohn by issuing, on
December 7, 1999, an aggregate of 50,000 shares of stock to 3535843 Canada Inc.,
a Canadian corporation owned by the partners of Mendelsohn.
During the fiscal years ended July 30, 1998 and July 30, 1999 Guitron
Canada paid financial and management consulting fees in the amounts of Cdn.
$41,800 (approximately US $28,800) and Cdn. $45,656 (approximately US $31,457)
respectively, to Financial Initiatives Inc., a financial consulting firm in
which Richard Duffy, our president, is an executive officer. Financial
Initiatives, Inc. is owned by Mr. Duffy's wife, Joan Callaghan.
43
From December 1998 through January 31, 2000, Paul D. Okulov, our Director
of Research, Engineering and Manufacturing worked for us, on an independent
contractor basis, pursuant to an oral agreement that provided for payment to Mr.
Okulov at the rate of Cdn $100 (approximately US $69) per hour. Pursuant to the
foregoing, in lieu of cash payments, on April 15, 1999 and January 3, 2000
Guitron Canada issued 80,000 and 100,000 shares of its common stock,
respectively, to Mr. Okulov. For purposes of amounts invoiced by Mr. Okulov
pursuant to said agreement, these shares were valued at Cdn $1.00 per share. The
foregoing agreement between Mr. Okulov and Guitron Canada was terminated by
mutual consent effective January 31, 2000.
On January 31, 2000 Guitron Canada entered into a two year contract,
effective as of February 1, 2000, with Innovative Products Resources Ltd.,
("IPR") a corporation owned by Paul Okulov. Pursuant thereto, IPR will manage,
direct, supervise and coordinate both our continuing research and development
activities respecting the GUITRON and our manufacturing operations. IPR will
also provide assistance with regard to (i) the preparation of any and all patent
and trademark applications that we may seek to file; (ii) the preparation of
budgets and work schedules; and (iii) the supervision of certain of our
personnel. In consideration of the foregoing, the agreement provides for monthly
payments to IPR of Cdn. $10,000 (approximately US $6,890) together with related
Canadian provincial sales taxes and goods and services taxes. The agreement also
provides for the payment of bonuses to IPR at the discretion of management,
which bonuses, if any, may be paid in cash or stock.
In January 2000, Richard Duffy and France B. Fasano made interest free
loans to us in the amounts of Cdn $25,000 (approximately US $17,225) and Cdn
$55,000 (approximately US $37,895) respectively.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock known by us as of April 3, 2000, after
giving effect to the acquisition of Guitron Canada, by (i) each person or entity
known by us to be the beneficial owner of more than 5% of our common stock, (ii)
each of our directors, (iii) each of our executive officers; and (iv) all of our
named directors and executive officers as a group. The percentages in the table
have been calculated on the basis of treating as outstanding for a particular
person, all shares of our common stock outstanding on such date and all shares
of our common stock issuable to such holder in the event of exercise of
outstanding options owned by such person at said date which are exercisable
within 60 days of such date. Except as otherwise indicated, the persons listed
below have sole voting and investment power with respect to all shares of our
common stock owned by them, except to the extent such power may be shared with a
spouse. Amounts shown assume the maximum number of shares being offered are all
sold.
44
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering (8) Offering (9)
---------------- -------- -------- ------------ ------------
Paul D. Okulov(1)(2) 991,250 892,125 9.02% 7.44%
Joan Callaghan(14) 1,284,290 1,155,861 11.69% 9.64%
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 13.65% 11.26%
Richard F. Duffy(1)(3) 1,446,790 1,318,361 13.17% 11 %
Michael D.A. Ash(1)(4) 2,140,238 1,926,215 19.48% 16.07%
France B. Fasano(1)(5) 3,412,500 3,087,500 31.06% 25.76%
Edward Santelli(1)(6) 211,250 206,375 1.92% 1.72%
David L. Rosentzveig(1)(7) 263,250 253,175 2.4 % 2.11%
All directors and executive
officers as a group (5 persons) 7,474,028 6,791,626 68.03% 56.66%
See Footnotes following Selling Stockholders' Table
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock known by us as of April 3, 2000, by
each Selling Shareholder, after giving effect to our acquisition Guitron Canada.
The percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options owned by such person at said date which
are exercisable within 60 days of such date. Except as otherwise indicated, the
persons listed below have sole voting and investment power with respect to all
shares of our common stock owned by them, except to the extent such power may be
shared with a spouse. Amounts shown assume the maximum number of shares being
offered are all sold. The shares being offered by the Selling Stockholders are
being registered to permit public secondary trading, and the stockholders may,
commencing after the completion and closing of the primary offering by us, offer
all or part of their registered shares for resale from time to time. However,
such Selling Stockholders are under no obligation to sell all or any portion of
such shares. The table below assumes that all shares offered hereby by the
Selling Stockholders shall be sold. See "Plan of Distribution".
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering(8) Offering(9)
---------------- -------- -------- ----------- -----------
Alain Breault 19,500 0 (23) 0
Andreas Gaitanis 48,750 0 (23) 0
Ashbyrne Investments Inc.(10) 51,513 46,362 (23) (23)
Bartholomew Investments Ltd.(11) 128,700 0 1.17% 0
45
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering (8) Offering (9)
---------------- -------- -------- ------------ ------------
Carl Ravinsky(12) 247,000 0 2.25% 0
C.C.J. Investments Ltd. 19,500 0 (23) 0
Chris Sarena 16,250 0 (23) 0
Diane Desjardins-Ferland 1,625 0 (23) 0
Earl S. Cohen 19,500 0 (23) 0
Edward C. Mungenast 16,900 0 (23) 0
Elias Kawkab 32,500 0 (23) 0
France B. Fasano(5) 3,412,500 3,087,500 31.06% 25.76%
Fotini Gassios 32,500 0 (23) 0
Frank Zylberberg 19,500 0 (23) 0
Gabriel Ricciardelli 16,900 0 (23) 0
George Anthony Nelson 3,250 0 (23) 0
George Condax 32,500 0 (23) 0
George Gaitanis 16,250 0 (23) 0
Helen Nicolopoulos 438,750 0 4% 0
Ibrahim Geha 16,250 0 (23) 0
Jean Pierre Ferland 32,500 0 (23) 0
Jean Pierre Paradis(13) 110,500 0 1.01% 0
Jean Pilote 3,250 0 (23) 0
Jeremiah O. Spitzberg 16,900 0 (23) 0
Joan Callaghan(14) 1,284,290 1,155,861 11.69% 9.64%
Joelle Mamane 19,500 0 (23) 0
John Amaral 32,500 0 (23) 0
Judit Fellegi(15) 100,750 90,675 (23) (23)
Jules Brossard 19,500 0 (23) 0
Kosta Alichos 19,500 0 (23) 0
Tersan Consultants(16) 48,750 43,875 (23) (23)
Loryta Investments Ltd.(17) 88,725 79,853 (23) (23)
3517942 Canada Inc. 32,500 0 (23) 0
Marc Ian Leiter 19,500 0 (23) 0
Martin Desrosiers 19,500 0 (23) 0
Martine Lauziere(18) 39,000 0 (23) 0
Marvin Chankowsky 32,500 0 (23) 0
Michael Garonce 19,500 0 (23) 0
Michael Rosentzveig 19,500 0 (23) 0
Patricia Havtiov 32,500 0 (23) 0
Patrick Riga 16,250 0 (23) 0
Paul D. Okulov(2) 991,250 892,125 9.02% 7.44%
Raymond Boucher 3,250 0 (23) 0
Barbara Green Mariano 16,250 0 (23) 0
Richard Ferland 12,058 0 (23) 0
Sandra Abitan 19,500 0 (23) 0
Shirley Rosentzveig 39,000 0 (23) 0
Stan Kolethras 16,250 0 (23) 0
Vijay Kachru 22,750 0 (23) 0
Zax Management Ltd. 19,500 0 (23) 0
3535843 Canada Inc.(19) 162,500 0 1.48% 0
Michael D.A. Ash(20) 500,000 450,000 4.55% 3.75%
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 13.65% 11.26%
Frances Katz Levine(22) 299,650 0 2.73% 0
Scott Rapfogel(22) 299,650 0 2.73% 0
(1) The address of the beneficial owner is c/o Guitron International Inc., 38
Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada
H3E1T8
(2) Includes 406,250 shares issuable to Mr. Okulov upon the exercise of stock
options at an exercise price of Cdn. $.3077 (approximately US $.212) per
share.
(3) Includes (i) 1,284,290 shares owned by Mr. Duffy's wife, Joan Callaghan;
and (ii) 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.212) per share. See
"Certain Transactions"
46
(4) Includes (i) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Mr. Ash is a principal shareholder; (ii) 51,513
shares owned by Ashbyrne Investments Inc., a corporation in which Mr. Ash
is a principal shareholder; and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation which is beneficially owned by the family
of Mr. Ash. See "Certain Transactions"
(5) Includes 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.212) per share. See
"Certain Transactions"
(6) Includes (i) 48,750 shares owned by Tersan Consultants Inc., a Canadian
corporation owned by Mr. Santelli; and (ii) an additional 162,500 shares
issuable upon the exercise of stock options at an exercise price of Cdn.
$.3077 (approximately US $.212) per share. See "Certain Transactions"
(7) Includes 19,500 shares and an additional 81,250 shares issuable upon the
exercise of stock options at an exercise price of Cdn $.3077
(approximately US $.212 per share) owned by Mr. Rosentzveig's wife, Judit
Fellegi. Excludes (i) 162,500 shares owned by 3535843 Canada Inc., a
Canadian corporation, in which Mr. Rosentzveig is a minority shareholder
with ownership of less than 10% of such corporation's issued and
outstanding shares; and (ii) an additional 162,500 shares issuable upon
the exercise of stock options at an exercise price of Cdn. $.3077
(approximately US $.212) per share. See "Certain Transactions"
(8) Based upon 10,986,660 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(9) Based upon 11,986,660 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(10) Excludes (i) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Michael D.A. Ash, a principal shareholder of Ashbyrne
Investments Inc is a principal shareholder; (ii) 500,000 shares owned
directly by Michael D.A. Ash; and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation which is beneficially owned by the family
of Mr. Ash. See "Certain Transactions".
(11) Includes 64,350 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.2308 (approximately US $.159) per share.
(12) Includes 195,000 shares issuable to Mr. Ravinsky upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.212)
per share.
(13) Includes 48,750 shares issuable to Mr. Paradis upon the exercise of stock
options at an exercise price of Cdn $.3077 (approximately US $.212) per
share.
(14) Ms. Callaghan is the wife of Richard F. Duffy, our president and chief
executive officer. Excludes 162,500 shares issuable upon the exercise of
stock options owned by Richard F. Duffy, each of which is exercisable at a
price of Cdn. $.3077 (approximately US $.212) per share. See "Certain
Transactions"
(15) Ms. Fellegi is the wife of David L. Rosentzveig, one of our directors.
Includes 81,250 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.3077 (approximately US $.212) per share. Excludes
(i) 162,500 shares issuable upon the exercise of stock options owned by
David L. Rosentzveig, each of which is exercisable at a price of Cdn.
$.3077 (approximately US $.212) per share; and (ii) 162,500 shares owned
by 3535843 Canada Inc., a Canadian corporation in which Mr. Rosentzveig is
a minority shareholder, with ownership of less than 10% of such
corporation's issued and outstanding shares. See "Certain Transactions"
47
(16) Tersan Consultants Inc. is a corporation owned by Mr. Santelli, one of our
directors. Excludes 162,500 shares issuable upon the exercise of stock
options owned by Edward Santelli, each of which is exercisable at a price
of Cdn. $.3077 (approximately US $.212) per share. See "Certain
Transactions"
(17) Loryta Investments Ltd. is a corporation, beneficially owned by the family
of Michael D.A. Ash. Excludes (i) 500,000 shares owned directly by Mr.
Ash; (ii) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation in
which Mr. Ash is a principal shareholder; and (iii) 51,513 shares owned
directly by Ashbyrne Investments Inc., a corporation in which Mr. Ash is a
principal shareholder. See "Certain Transactions"
(18) Includes 32,500 shares issuable to Martine Lauziere upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.212)
per share.
(19) 3535843 Canada Inc. is a Canadian corporation, one of the shareholders of
which is David L. Rosentzveig, one of our directors. Mr. Rosentzveig owns
less than 10% of the outstanding stock of such corporation.
(20) Excludes (i) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation
in which Mr. Ash is a principal shareholder; (ii) 51,513 shares owned by
Ashbyrne Investments Inc., a corporation in which Mr. Ash is a principal
shareholder; and (iii) 88,725 shares owned by Loryta Investments Inc., a
corporation beneficially owned by the family of Michael Ash. See "Certain
Transactions".
(21) Excludes (i) 51,513 shares owned by Ashbyrne Investments Inc., a
corporation in which Michael Ash, the principal shareholder of Ashbyrne
2000 Limited is a principal shareholder; (ii) 500,000 shares owned
directly by Michael Ash, and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation beneficially owned by the family of Mr.
Ash.
(22) These shares were issued in consideration of legal services including, but
not limited to, general corporate work and the preparation of this
prospectus and related documents.
(23) Less than 1%
DESCRIPTION OF SECURITIES
General
Pursuant to our Articles of Incorporation, we are authorized to issue
20,000,000 shares of Common Stock, $.001 par value per share. At April 3, 2000,
we had issued and outstanding 2,599,300 shares of Common Stock. Assuming the
acquisition of Guitron Canada had taken place on April 3, 2000, and further
assuming that all presently outstanding options of Guitron Canada were exercised
by the holders thereof immediately prior to such acquisition there would be
10,986,660 shares of our common stock issued and outstanding as at such date.
Common Stock
The holders of shares of Common Stock are entitled to dividends when and
as declared by our Board of Directors from funds legally available therefore
and, upon liquidation, are
48
entitled to share pro rata in any distribution to common shareholders. Holders
of Common Stock have one non-cumulative vote for each share held. There are no
pre-emptive, conversion or redemption privileges, nor sinking fund provisions,
with respect to our Common Stock. All of our outstanding shares of Common Stock
are validly issued, fully paid and non-assessable.
Outstanding Stock Options
Giving present effect to the acquisition of Guitron Canada, there are
currently outstanding 454,800 stock options, each to purchase 3.25 shares of our
common stock. Accordingly, the exercise of all of these outstanding options
would result in the issuance of an aggregate of 1,478,100 shares of our common
stock. 19,800 of these options were granted on March 31, 1999 and are
exercisable at any time through and including September 30, 2000 at an exercise
price of Cdn. $.2308 (approximately US $.159) per share. 435,000 of these
options are exercisable at an exercise price of Cdn $.3077 (approximately US
$.212) per share. 25,000 of the latter options were granted on January 15, 1999
and may be exercised at any time during the 5 year period ending January 14,
2004. 50,000 of the latter options were granted on May 19, 1999 and may be
exercised at any time during the five year period ending May 18, 2004. 100,000
of the latter options were granted on June 25, 1999 and may be exercised at any
time during the five year period ending June 24, 2004. 60,000 of the latter
options were granted on October 25, 1999 and may be exercised at any time during
the two and one half year period ending April 24, 2002. 100,000 of the latter
options were granted on November 30, 1999 and may be exercised at any time
during the five year period ending November 29, 2004. 100,000 of the latter
options were granted on April 15, 1999 and may be exercised at any time during
the 5 year period ending April 14, 2004.
Delaware Anti-Takeover Law
We are not presently subject to Section 203 of the DGCL ("Section 203")
and will not become subject to Section 203 in the future unless, among other
things, our common stock is (i) listed on a national securities exchange; (ii)
authorized for quotation on the NASDAQ Stock Market; or (iii) held of record by
more than 2,000 stockholders. If Section 203 should become applicable to us in
the future, it could prohibit or delay a merger, takeover or other change in
control of our Company and therefore could discourage attempts to acquire us.
Section 203 restricts certain transactions between a corporation organized under
Delaware law and any person holding 15% or more of the corporation's outstanding
voting stock, together with the affiliates or associates of such person (an
"Interested Stockholder"). Section 203 prevents, for a period of three years
following the date that a person became an Interested Stockholder, the following
types of transactions between the corporation and the Interested Stockholder
(unless certain conditions, described below, are met): (a) mergers or
consolidations, (b) sales, leases, exchanges or other transfers of 10% or more
of the aggregate assets of the corporation, (c) issuances or transfers by the
corporation of any stock of the corporation which would have the effect of
increasing the
49
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate' share of the stock of any class or series of the corporation
which is owned by the Interested Stockholder and (e) receipt of the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
corporation.
The three-year ban does not apply if either the proposed transaction or
the transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the time such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employees stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock not owned by the
Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed, and
a majority of certain continuing directors of the corporation have approved, a
transaction with a party who is not an Interested Stockholder (or who becomes
such with approval of the board of directors) if the proposed transaction
involves (a) certain mergers or consolidations involving the corporation, (b) a
sale or other transfer of over 50% of the aggregate assets of the corporation,
or (c) a tender or exchange offer for 50% or more of the outstanding voting
stock of the corporation.
Transfer Agent
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 will act as the Transfer Agent for our common stock.
PLAN OF DISTRIBUTION
Shares Sold by Us
The Primary Shares may be offered and sold by us through our officers. To
the extent that these shares are sold by our officers, no selling discounts,
commissions or other form of remuneration will be paid in connection with the
offering. We may however, utilize the services of NASD registered broker-dealers
and/or foreign broker-dealers with respect to such offers and sales. To the
extent we do so, we will pay a commission equal to 10% of the public offering
price of the Primary Shares sold by such broker-dealers. The price at which the
shares are offered has been established without independent appraisal by
management and has no relationship to the book value per share, our earnings, or
other generally accepted measurements of value. Up to 10% of the shares offered
and sold by us in the offering may be purchased by
50
present shareholders of Guitron Canada and/or Guitron International Inc.,
including officers and directors of such corporations.
Shares Sold by the Selling Shareholders
The shares offered by the Selling Stockholders may be sold or distributed
from time to time by the Selling Stockholders or by pledgees, donees or
transferees of, or successors in interest to, the Selling Stockholders directly
to one or more purchasers, including pledgees, or through brokers, dealers or
underwriters who may act solely as agents or may acquire shares as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices, which may be
changed.
The distribution of the shares may be effected in one or more of the
following methods:
(i) ordinary brokers transactions, which may include long or short
sales,
(ii) purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this
prospectus,
(iii) "at the market" to or through market makers or into an existing
market for the common stock,
(iv) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents, or
(v) any combination of the foregoing, or by any other legally available
means.
In addition, the Selling Stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of shares of common stock in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Such compensation as to a particular broker-dealer may be in excess of
customary commissions. The Selling Stockholders and any broker-dealers acting in
connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commission received by them and any profit realized by them on the resale of
shares as principals may be deemed underwriting compensation under the
Securities Act. No Selling Stockholder can presently estimate the amount of such
compensation.
51
Each Selling Stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Stockholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus. There can be no assurance that the Selling
Stockholders will sell any or all of the shares of common stock offered by them
hereunder.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming the sale of the maximum offering amount, upon consummation of the
Guitron Canada acquisition and the offering, we will have 10,508,560 shares of
common stock issued and outstanding. Of these shares, the 1,000,000 Primary
Shares sold in the offering together with all shares of Selling Stockholders
stock sold in the offering commencing after the completion of the offering will
be freely tradeable without restrictions or further registration under the
Securities Act, except for any of such shares purchased by an "affiliate" of
ours as defined in Rule 144 under the Securities Act ("Rule 144"), which will be
subject to the resale limitations under Rule 144.
In general, under Rule 144, a person or persons whose shares are required
to be aggregated who has beneficially owned shares of common stock for a period
of one year, including a person who may be deemed an "affiliate", is entitled to
sell, within any three-month period, a number of shares not exceeding 1% of the
total number of outstanding shares of such class. A person who is not an
"affiliate" of ours and who has beneficially owned shares for at least two years
is entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Under Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, such issuer.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Section 145 of the Delaware General Corporation Law, as amended,
authorizes us to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably
52
incurred in connection with any action, suit or proceedings, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being one of our directors or officers if it is determined that the
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions. Article 9 of our certificate of incorporation
provides for the indemnification of directors and officers to the fullest extent
permitted by Delaware law.
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable.
LEGAL MATTERS
Levine & Rapfogel, Esqs., 621 Clove Road, Staten Island, New York 10310
will render an opinion as our counsel, that the Primary Shares offered hereby,
when issued and sold, will be legally issued, fully paid and nonassessable.
Frances Katz Levine and Scott E. Rapfogel, attorneys with Levine & Rapfogel,
each own 299,650 shares of our common stock.
EXPERTS
The financial statements included in this prospectus, and elsewhere in the
registration statement as of July 31, 1999, and July 31, 1998 and from August
20, 1997 (date of inception), to July 31, 1999, have been audited by Pinkham &
Pinkham, P.C., independent auditors, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The report of Pinkham & Pinkham, P.C. covering the two years ended July
31, 1999 contains an explanatory paragraph that states that we have incurred
losses since inception and have limited liquidity and capital resources, which
raises substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of reported assets amounts or the amounts and
classification of liabilities that might result from the outcome of that
uncertainly.
ADDITIONAL INFORMATION
With respect to the shares offered in this prospectus, we have filed with
the principal office of the Securities and Exchange Commission in Washington,
D.C., a registration statement on
53
Form SB-2. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits thereto, to which reference hereby
is made. Each statement made in this prospectus concerning a document filed as
an exhibit to the registration statement is not necessarily complete and is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. Any interested party may inspect the registration statement
and its exhibits without charge, or obtain a copy of all or any portion thereof,
at prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Information on the Operation of the Public Reference
Room can be obtained by calling the Commission at 1-800-SEC-0330. The
registration statement and exhibits may also be inspected at the Commission's
regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New
York, New York 10048, or the Commissions website located at www.sec.gov.
We are not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore we have not filed any reports with the Securities and
Exchange Commission. Upon completion of this offering we intend to file reports
with the Securities and Exchange Commission under the Securities Act of 1933,
and to furnish to our security holders annual reports containing audited
financial statements reported on by our independent auditors.
54
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report F2
Balance Sheets as of July 31, 1999 and July 31, 1998 F3
Statements of Operations for the year ended July 31, 1999;
for the period August 20, 1997 (Date of Inception) to July 31, 1998;
and for the period August 20, 1997 (Date of Inception) to July 31, 1999 F4
Statements of Stockholders' Equity (Deficit) for the years
ended July 31, 1998 and July 31, 1999 F5
Statements of Cash Flows for the year ended July 31, 1999;
for the period August 20, 1997 (Date of Inception) to July 31, 1998;
and for the period August 20, 1997 (Date of Inception) to July 31, 1999 F6
Notes to Financial Statements F8
Accountants Compilation Report F14
Balance Sheet as of January 31, 2000 (unaudited) F15
Statements of Operations for the six months ended
January 31, 2000 (unaudited) and for the period
August 20, 1997 (Date of Inception) to January 31, 2000 (unaudited) F16
Statements of Stockholders' Equity (Deficit) for the years ended
July 31, 1998 and July 31, 1999 and for the six months ended
January 31, 2000 (unaudited) F17
Statements of Cash Flows for the six months ended
January 31, 2000 (unaudited) and for the period August 20, 1997
(Date of Inception) to January 31, 2000 (unaudited) F18
Notes to Financial Statements F20
-F1-
55
Pinkham & Pinkham, P.C.
Certified Public Accountants
This is the report Pinkham & Pinkham, PC, CPA's will issue on the accompanying
financial statements of Guitron International, Inc., subject to the finalization
and completion of the restructuring scheme in respect of the businesses to be
injected into the company as described in Note 1 to the accompanying financial
statements. If the restructuring scheme is modified or not completed, there
would be significant changes to the report.
Report of Independent Public Accountants
Board of Directors
Guitron International, Inc.
We have audited the accompanying balance sheets of Guitron International, Inc.
(a development stage company) as of July 31, 1999 and 1998 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended July 31, 1999, for the period August 20, 1997 (date of inception) to
July 31, 1998 and for the cumulative period from August 20, 1997, (date of
inception) to July 31, 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 Guitron International, Inc. (a
development stage company) at July 31, 1999 and 1998, and the results of their
operations, and their cash flows for the year ended July 31, 1999, for the
period August 20, 1997 (date of inception) to July 31, 1998 and for the
cumulative period from August 20, 1997, (date of inception) to July 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company is
still in the development stage and it cannot be determined at this time that the
technology acquired will be developed to a productive stage. In 1999 and 1998,
the Company experienced net losses and had limited liquidity and capital
resources. The Company's uncertainty as to its productivity and its ability to
raise sufficient capital, raise doubt about the entity's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/S/ Pinkham & Pinkham, P.C.
Pinkham & Pinkham, P.C.
Certified Public Accountants
March 27, 2000
Cranford, New Jersey
-F2-
56
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheets
July 31,
Assets
1999 1998
--------- ---------
Current assets
Sales tax receivable $ 15,547 $ 12,396
R&D Investment tax credit receivable 70,455 23,217
--------- ---------
86,002 35,613
Property and equipment, at cost, net of accumulated
depreciation and amortization 13,415 5,623
Other assets
Security deposits 1,241 1,241
--------- ---------
$ 100,658 $ 42,477
========= =========
Liability and Stockholders' Equity (Deficit)
Current liabilities
Notes payable - bank $ 80,133 $ 66,421
Current portion of long-term debt 6,985 23,215
Accounts payable and accrued expenses 87,593 108,251
--------- ---------
174,711 197,887
--------- ---------
Other liabilities
Long term debt (net of current portion) 85,301 38,846
Loans from affiliated companies 94,426 23,160
Loan from officers 3,517 --
--------- ---------
183,244 62,006
--------- ---------
Stockholders' equity (deficit)
Common stock 190,952 4,585
Additional paid-in-capital 172,264 76,080
Deficit accumulated during the development stage (631,155) (310,060)
Unrealized gain on foreign exchange 10,642 11,979
--------- ---------
(257,297) (217,416)
--------- ---------
$ 100,658 $ 42,477
========= =========
See Notes to Financial Statements
-F3-
57
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
Cumulative
Period from
August 20, August 20,
Year 1997 1997
Ended Date of (Date of
July, 31 Inception) to Inception) to
1999 July 31, 1998 July 31, 1999
----------- ------------- -------------
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operations
General and administrative 18,690 87,768 106,458
Depreciation and amortization 3,524 868 4,392
Research and development 303,674 218,401 522,075
----------- ----------- -----------
Total expense 325,888 307,037 632,925
----------- ----------- -----------
Loss before other income and expenses (325,888) (307,037) (632,925)
-----------
Other expense
Interest expense (13,491) (3,023) (16,514)
----------- ----------- -----------
Net loss before extraordinary item (339,379) (310,060) (649,439)
Extraordinary item - early extinguishment
of debt 18,284 -- 18,284
----------- ----------- -----------
Comprehensive loss $ (321,095) $ (310,060) $ (631,155)
=========== =========== ===========
Net loss per common share $ (.22) (.27) $ (.48)
=========== =========== ===========
Weighted average shares of common
stock outstanding 1,487,970 1,139,203 1,318,590
=========== =========== ===========
See Notes to Financial Statements
-F4-
58
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Development Foreign
Shares Amount Capital Stage Exchange Total
--------- ---------- ---------- ---------- ---------- ----------
Issuance of common stock 1,409,166 $ 277 $ -- $ -- $ -- $ 277
Stock issued for services 21,500 4,308 -- -- -- 4,308
Government grants -- -- 76,080 -- -- 76,080
Unrealized gain on foreign
exchange -- -- -- -- 11,979 11,979
Net loss for year -- -- -- (310,060) -- (310,060)
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1998 1,430,666 4,585 76,080 (310,060) 11,979 (217,416)
Issuance of common stock 201,000 127,007 -- -- -- 127,007
Stock issued for services 89,455 59,360 -- -- -- 59,360
Government grants -- -- 96,184 -- -- 96,184
Unrealized loss on foreign
exchange -- -- -- -- (1,337) (1,337)
Net loss for year -- -- -- (321,095) -- (321,095)
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1999 1,721,121 $ 190,952 $ 172,264 $ (631,155) $ 10,642 $ (257,297)
========== ========== ========== ========== ========== ==========
See Notes to Financial Statements
-F5-
59
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
Cumulative
Period from
August 20, August 20,
Year 1997 1997
Ended (Date of (Date of
July 31, Inception) to Inception) to
1999 1998 July 31, 1999
---------- ------------- -------------
Cash flows from operating activities:
Net loss $(321,095) $(310,060) (631,155)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,524 868 4,392
Stock issued in exchange for services 59,360 4,308 63,668
Unrealized (loss) gain on foreign exchange (1,337) 11,979 10,642
Early extinguishments of debt (18,284) -- (18,284)
Change in assets and liabilities:
Increase in:
Sales tax receivable (3,151) (12,396) (15,547)
R&D investment tax credit receivable (47,238) (23,217) (70,455)
(Decrease) increase in:
Accounts payable and accrued expenses (20,658) 108,251 87,593
--------- --------- ---------
Net cash used in operating activities (348,879) (220,267) (569,146)
--------- --------- ---------
Cash flow from investing activities:
Purchase of property and equipment (11,316) (6,491) (17,807)
Increase in security deposits -- (1,241) (1,241)
--------- --------- ---------
Net cash used in investing activities (11,316) (7,732) (19,048)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable 13,712 66,421 80,133
Proceeds from long-term debt 53,505 62,061 115,566
Payments on long-term debt (23,280) -- (23,280)
Loan from affiliated companies 71,266 23,160 94,426
Loans from directors 3,517 -- 3,517
Proceeds from issuance of common stock 127,007 277 127,284
Proceeds from grants 96,184 76,080 172,264
Proceeds from insurance company 18,284 -- 18,284
--------- --------- ---------
Net cash provided by financing activities 360,195 227,999 588,194
--------- --------- ---------
Net increase in cash and cash equivalents -- -- --
Cash and cash equivalents - beginning
of year -- -- --
--------- --------- ---------
Cash and cash equivalents - end of year $ -- $ -- $ --
========= ========= =========
See Notes to Financial Statements
-F6-
60
GUITRON INTERNATIONAL, INC.
A Development Stage Company
Statements of Cash Flows
Supplemental Disclosure of Non-Cash Activities:
In 1999 and 1998 stock was issued in exchange for services performed and
expenses in the amount of $59,360 and $4,308, respectively.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 13,491 $ 3,023 $ 16,514
======== ======= ========
Income taxes paid $ -- $ -- $ --
======== ======= ========
See Notes to Financial Statements
-F7-
61
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies
Nature of Business
Guitron International, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on December 6, 1999 for the specific purpose
of acquiring Guitron Canada, which was formed on August 20, 1997. Guitron
Canada was formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products.
Merger of Guitron Canada
Guitron International, Inc. will acquire Guitron Canada upon the
completion of the sale of the minimum amount within the offering period
and prior to the release from escrow of the proceeds from such sales.
As of January 31, 2000 and at the time of the acquisition, the following
securities are and will be issued and outstanding in Guitron Canada: (i)
not more than 2,125,926 Guitron Canada shares and (ii) Guitron Canada
Stock Options to purchase not more 454,800 Guitron Canada shares. Pursuant
to the acquisition:
(a) All of the outstanding Guitron Canada shares will be exchanged for
3.25 common shares of the Company. This will result in the issuance
of a total of 6,909,260 shares of our common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each one Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of the Company; this will result in
there being a total of 1,478,100 of the Company's common shares
subject to future issuance pursuant to the exercise of presently
outstanding Guitron Canada Stock Options.
For accounting purposes the Company recorded the merger as a pooling of
interests and not as a purchase.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include receivables, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity of such
instruments.
The fair values of the Company's debt instruments are based on the amount
of future cash flows associated with each instrument discounted using the
Company's borrowing rate. At July 31, 1999 and 1998, respectively, the
carrying value of all financial instruments was not materially different
from fair value.
Development Stage
At July 31, 1999 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Receivables
Management believes that all receivables as of July 31, 1999 and 1998 were
fully collectible; therefore, no allowances for doubtful accounts were
recorded.
-F8-
62
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
accelerated method over the estimated useful lives of three to five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation
and amortization of assets sold or retired are eliminated from the
accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Adoption of Statement of Accounting Standard No. 123
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value
compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and APB 25
is immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting
earnings per share (EPS) and supersedes Accounting Principles Board
Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to
stock options and warrants outstanding during the period.
-F9-
63
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Adoption of Statement of Accounting Standard No. 128 (continued)
For the years ended July 31, 1999 and 1998, primary loss per share was the
same as basic loss per share and fully diluted loss per share was the same
as diluted loss per share. A net loss was reported in 1999 and 1998, and
accordingly, in those years the denominator was equal to the weighted
average outstanding shares with no consideration for outstanding options
and warrants to purchase shares of the Company's common stock, because to
do so would have been anti-dilutive. Stock options for the purchase of
1,478,100 shares at July 31, 1999 were not included in loss per share
calculations, because to do so would have been anti-dilutive.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Revenue Recognition
Revenue is recognized when the product is shipped to the customer.
Income Taxes
The Company has net operating loss carryovers of approximately $600,000 as
of July 31, 1999, expiring in the year 2013. However, based upon present
Internal Revenue regulations governing the utilization of net operating
loss carryovers where the corporation has issued substantial additional
stock, most of this loss carryover may not be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, effective July 1998. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant
to SFAS No. 109. Accordingly, no deferred tax asset is reflected in these
financial statements.
The Company has research and development investment tax credits receivable
from Canada and Quebec amounting to $70,455 and $23,217 at July 31, 1999
and 1998, respectively.
Note 2 -Going Concern
As shown in the accompanying financial statements, the Company incurred a
cumulative net loss of approximately, $631,000 as of July 31, 1999. In
addition, the Company has a negative working capital of approximately
$89,000 and a stockholders' deficit of approximately, $257,000.
The Company, which is in the development stage, is currently in the
process of formulating a plan to effect a public offering, the proceeds of
which would be used for working capital, capital acquisitions and sales
and marketing expenses. The ability of the Company to continue as a going
concern is dependent on the success of the plan. The financial statements
do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
-F10-
64
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3 -Property and Equipment
As of July 31 property and equipment consisted of the following:
1999 1998
------- -------
Samples $10,054 $ --
Furniture, fixtures and equipment 4,325 3,415
Leasehold improvements 1,743 1,741
Computer 1,685 1,335
------- -------
17,807 6,491
Less accumulated depreciation and amortization 4,392 868
------- -------
$13,415 $ 5,623
======= =======
Depreciation and amortization expense charged to operations was $3,524 and
$868 for the years ended July 31, 1999 and 1998, respectively.
Note 4 -Notes Payable
The Company has available a Cdn $180,000 (approximately US$119,443) line
of credit which bears interest at 25%. At July 31, 1999 and 1998 there was
$80,133 and $66,421, respectively, outstanding against this line of
credit. The note is collateralized by virtually all of the assets of the
company.
Note 5 -Long-Term Debt
1999 1998
------- -------
Term loan payable, due in monthly installments of $582
plus interest at prime plus 2%, due April 2003 $26,194 $33,086
Loans payable under the Program for the Development
of Quebec SME's based on 50% of approved eligible
costs for the preparation of market development studies
in certain regions. Loans are unsecured and non-interest
bearing. (If the Company defaults the loans become
interest bearing).
Loan payable over five years commencing
January 2001 due January 2004 66,092 12,725
Loan payable from The Business Development Bank of
Canada to finance market development activities. Loan
Is due in 60 monthly installment including interest at 10.5% -- 16,250
------- -------
92,286 62,061
Current portion 6,985 23,215
------- -------
$85,301 $38,846
======= =======
-F11-
65
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 -Long-Term Debt (continued)
Minimum principal repayments of each of the next five
years as follows:
2000 $ 6,985
2001 13,594
2002 20,203
2003 25,067
2004 26,437
--------
$ 92,286
========
Note 6 -Related Party Transactions
The Company entered into an employment agreement with the executive
officer on December 6, 1999 that provides for an annual salary of $100,000
a year plus benefits. The employment agreement calls for a term of three
years. In addition to the employment services, the officer agrees not to
compete with the Company for a year following the termination of
employment. If the officer is terminated other than for cause or for "good
reason", the terminated officer will be paid twice the amount of their
base salary for twelve months.
Note 7 -Common Stock
During the years ended July 31, 1999 and 1998, the Company issued common
stock to individuals in exchange for services performed totaling $59,360
and $4,308, respectively. The dollar amounts assigned to such transactions
have been recorded at the fair value of the services received, because the
fair value of the services received was more evident than the fair value
of the stock surrendered.
Note 8 -Stock Options
The Company has stock options outstanding to purchase 1,478,100 shares of
common stock which expire at various dates through November 2004. The
exercise price ranges from $.16 to $.21.
Note 9 -Government Assistance
The Company receives financial assistance from Revenue Canada and Revenue
Quebec in the form of scientific research tax credit. During the year
ended July 31, 1999 and 1998 the company received or has receivables of
approximately $96,000 and $76,000, respectively, which have been recorded
as additional paid in capital.
Note 10 -Commitments
The Company leases office space on a month-to-month basis with a monthly
rent of $1,292 plus a proportionate share of all water, taxes, business
taxes, and other similar taxes and rates, which may be levied or imposed
upon the premises. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
Rental expense for the year ended July 31, 1999 and 1998 amounted to
$15,518 and $4,120, respectively.
Note 11 -Loan from Officers
The loan from officers is non-interest bearing and has no specific terms
of repayment
-F12-
66
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 12 -Loans from Affiliated Companies
These loans represent advances from a company that is controlled by a
director and principal shareholder of the Company. Interest is computed at
6% per annum. All principal and interest is due no later than July 31,
2001.
Note 13 -Capital Stock
The capital stock structure for Guitron Canada is as follows:
Authorized:
(Unlimited as to capital contribution and the number of shares without par
value)
Common shares
Class "A" non-voting, participating shares
Class "B" 8% non-cumulative, voting, non-
participating shares, redeemable
at their paid-in value
Class "C" 10% non cumulative, non-voting
non-participating shares, redeemable
at their paid-in value
Class "D" $0.50 per share, non
cumulative, non-voting,
non-participating shares,
redeemable at $100 per share.
Class "E" 9% non cumulative, non-voting
non-participating shares, redeemable
and retractable at their paid-in value
Class "F" 1% monthly non cumulative, non-voting
non-participating shares, redeemable
and retractable at their paid-in value
1999 1998
---- ----
Issued: 1,721,121 1,430,666
Note 14 -Extraordinary Item
The extraordinary item results from the early extinguisment of a long-term
debt. The proceeds from a life insurance policy, which had been used to
secure the balance of the loan, was used to pay off a note payable. The
life insurance policy had been secured by the bank on a director of the
Company.
-F13-
67
[Letterhead of Pinkham & Pinkham, P.C.]
Certified Public Accountants
Accountants' Compilation Report
We have compiled the accompanying balance sheet of Guitron International, Inc.
as of January 31, 2000 and the related statements of operations and retained
earnings, and cash flows and supplemental information for the six months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/S/ Pinkham & Pinkham, P.C.
----------------------------
Pinkham & Pinkham, P.C.
Certified Public Accountants
March 27, 2000
Cranford, New Jersey
-F14-
68
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheet
January 31, 2000
(Unaudited)
Assets
Current assets
Sales tax receivable $ 18,245
R&D Investment tax credit receivable 107,581
-----------
125,826
Property and equipment, at cost, net of accumulated
depreciation and amortization 24,617
Other assets
Security deposits 1,241
-----------
$ 151,684
===========
Liability and Stockholders' Equity
Current liabilities
Notes payable - bank $ 12,040
Current portion of long-term debt --
Accounts payable and accrued expenses 174,526
-----------
186,566
-----------
Other liabilities
Long term debt (net of current portion) 68,609
Loans from affiliated companies 199,198
Loan from officers 55,108
-----------
322,915
-----------
Stockholders' equity
Common stock authorized 20,000,000 shares
issued and outstanding 9,508,560 9,509
Additional paid-in-capital 1,096,387
Deficit accumulated during the development stage (1,481,910)
Unrealized gain on foreign exchange 18,217
-----------
(357,797)
-----------
$ 151,684
===========
See accompanying notes to financial statements
and accountants' compilation report
-F15-
69
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Cumulative
Period from
August 20,
1997
Six Months (Date of
Ended Inception) to
January 31, January 31,
2000 2000
----------- -----------
Revenue $ -- $ --
----------- -----------
Operations
General and administrative 627,560 734,018
Depreciation and amortization 3,318 7,710
Research and development 209,282 731,357
----------- -----------
Total expense 840,160 1,473,085
----------- -----------
Loss before other income and expenses (840,160) (1,473,085)
Other expenses
Interest expense (10,595) (27,109)
----------- -----------
Net loss (850,755) (1,500,194)
Extraordinary item - early extinguishments
of debt -- 18,284
----------- -----------
Comprehensive loss $ (850,755) $(1,481,910)
=========== ===========
Net loss per common share $ (.14) $ (.32)
=========== ===========
Weighted average shares of common
stock outstanding 6,272,148 4,694,320
=========== ===========
See accompanying notes to financial statements
and accountants' compilation report
-F16-
70
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
(Unaudited)
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Development Foreign
Shares Amount Capital Stage Exchange Total
--------- --------- ----------- ------------ ---------- ----------
Issuance of common stock 1,409,166 $ 277 $ -- $ -- $ -- $ 277
Stock issued for services 21,500 4,308 -- -- -- 4,308
Government grants -- -- 76,080 -- -- 76,080
Unrealized gain on foreign
exchange -- -- -- -- 11,979 11,979
Net loss for year -- -- -- (310,060) -- (310,060)
--------- --------- ----------- ------------ -------- ----------
Balance at July 31, 1998 1,430,666 4,585 76,080 (310,060) 11,979 (217,416)
Issuance of common stock 201,000 127,007 -- -- -- 127,007
Stock issued for services 89,455 59,360 -- -- -- 59,360
Government grants -- -- 96,184 -- -- 96,184
Unrealized loss on foreign
exchange -- -- -- -- (1,337) (1,337)
Net loss for year -- -- -- (321,095) -- (321,095)
--------- --------- ----------- ------------ -------- ----------
Balance at July 31, 1999 1,721,121 190,952 172,264 (631,155) 10,642 (257,297)
Issuance of common stock 315,745 96,210 -- -- -- 96,210
Stock issued for services 2,688,360 63,949 548,452 -- -- 612,401
Government grants -- -- 34,069 -- -- 34,069
Unrealized gain on foreign
exchange -- -- -- -- 7,575 7,575
Merger of Guitron Canada 4,783,334 (341,602) 341,602 -- -- --
Net loss for period -- -- -- (850,755) -- (850,755)
--------- --------- ----------- ------------ -------- ----------
Balance at January 31, 2000 9,508,560 $ 9,509 $ 1,096,387 $ (1,481,910) $ 18,217 $ (357,797)
========= ========= =========== ============ ======== ==========
See accompanying notes to financial statements
and accountants' compilation report
-F17-
71
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Cumulative
Period from
August 20,
1997
Six Months (Date of
Ended Inception to
January 31, January 31,
2000 2000
------------ -----------
Cash flows from operating activities:
Net loss $ (850,755) $(1,481,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,318 7,710
Stock issued in exchange for services 612,401 676,069
Unrealized gain on foreign exchange 7,575 18,217
Early extinguishments of debt -- (18,284)
Change in assets and liabilities:
Increase in :
Sales tax receivable (2,698) (18,245)
R&D investment tax credit receivable (37,126) (107,581)
Increase in :
Accounts payable and accrued expenses 86,933 174,526
----------- -----------
Net cash used in operating activities (180,352) (749,498)
----------- -----------
Cash flow from investing activities:
Purchase of property and equipment (14,520) (32,327)
Increase in security deposits -- (1,241)
----------- -----------
Net cash used in investing activities (14,520) (33,568)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable -- 80,133
Payments on notes payable (68,093) (68,093)
Proceeds from long-term debt -- 115,566
Payments on long-term debt (23,677) (46,957)
Loan from affiliated companies 104,772 199,198
Loans from directors 51,591 55,108
Proceeds from issuance of common stock 96,210 223,494
Proceeds from grants 34,069 206,333
Proceeds from insurance company -- 18,284
----------- -----------
Net cash provided by financing activities 194,872 783,066
----------- -----------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents - beginning
of year -- --
Cash and cash equivalents - end of year $ -- $ --
=========== ===========
See accompanying notes to financial statements
and accountants' compilation report
-F18-
72
GUITRON INTERNATIONAL, INC.
A Development Stage Company
Statements of Cash Flows
(Unaudited)
Supplemental Disclosure of Non-Cash Activities:
During the six months ended January 31, 2000, stock was issued in exchange for
services performed and expenses in the amount of $644,646.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 10,595 $ 27,109
========== ==========
Income taxes paid $ -- $ --
========== ==========
See accompanying notes to financial statements
and accountants' compilation report
-F19-
73
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies
Nature of Business
Guitron International, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on December 6, 1999 for the specific purpose
of acquiring Guitron Canada , which was formed on August 20, 1997. Guitron
Canada was formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products.
Merger of Guitron Canada
Guitron International, Inc. will acquire Guitron Canada upon the
completion of the sale of the minimum amount within the offering period
and prior to the release from escrow of the proceeds from such sales.
As of January 31, 2000 and at the time of the acquisition, the following
securities are and will be issued and outstanding in Guitron Canada: (i)
not more than 2,125,926 Guitron Canada shares and (ii) Guitron Canada
Stock Options to purchase not more 454,800 Guitron Canada shares. Pursuant
to the acquisition:
(a) All of the outstanding Guitron Canada shares will be exchanged for
3.25 common shares of the Company. This will result in the issuance
of a total of 6,909,260 shares of the common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each one Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of the Company; this will result in
there being a total of 1,478,100 of the Company's common shares
subject to future issuance pursuant to the exercise of presently
outstanding Guitron Canada Stock Options.
For accounting purposes the Company recorded the merger as a pooling of
interests and not as a purchase.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, receivables, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of
such instruments.
The fair values of the Company's debt instruments are based on the amount
of future cash flows associated with each instrument discounted using the
Company's borrowing rate. At January 31, 2000, the carrying value of all
financial instruments was not materially different from fair value.
Development Stage
At January 31, 2000 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Receivables
Management believes that all receivables as of January 31, 2000 were fully
collectible; therefore, no allowances for doubtful accounts were recorded.
-F20-
74
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
accelerated method over the estimated useful lives of three to five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation
and amortization of assets sold or retired are eliminated from the
accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Adoption of Statement of Accounting Standard No. 123
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value
compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and APB 25
is immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting
earnings per share (EPS) and supersedes Accounting Principles Board
Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to
stock options and warrants outstanding during the period.
-F21-
75
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Adoption of Statement of Accounting Standard No. 128 (continued) For the
six months ended January 31, 2000, primary loss per share was the same
as basic loss per share and fully diluted loss per share was the same as
diluted loss per share. A net loss was reported in 2000, and
accordingly, in those years the denominator was equal to the weighted
average outstanding shares with no consideration for outstanding options
and warrants to purchase shares of the Company's common stock, because
to do so would have been anti-dilutive. Stock options for the purchase
of 1,478,100 shares were not included in loss per share calculations,
because to do so would have been anti-dilutive.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Revenue Recognition
Revenue is recognized when the product is shipped to the customer.
Income Taxes
The Company has net operating loss carryovers of approximately
$1,490,000 as of January 31, 2000, expiring in the year 2014. However,
based upon present Internal Revenue regulations governing the
utilization of net operating loss carryovers where the corporation has
issued substantial additional stock, most of this loss carryover may not
be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1998. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits
receivable from Canada and Quebec amounting to $107,581 at January 31,
2000.
Note 2 -Going Concern
As shown in the accompanying financial statements, the Company incurred
a cumulative net loss of approximately, $1,490,000 as of January 31,
2000. In addition, the Company has a negative working capital of
approximately $61,000 and a stockholders' deficit of approximately,
$358,000.
The Company, which is in the development stage, is currently in the
process of formulating a plan to effect a public offering, the proceeds
of which would be used for working capital, capital acquisitions and
sales and marketing expenses. The ability of the Company to continue as
a going concern is dependent on the success of the plan. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
-F22-
76
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3- Property and Equipment
As of January 31, 2000 property and equipment consisted of the
following:
Samples $ 10,054
Furniture, fixtures and equipment 4,325
Leasehold improvements 1,743
Computer 16,205
--------
32,327
Less accumulated depreciation and amortization 7,710
--------
$ 24,617
========
Depreciation and amortization expense charged to operations was $3,318
for the six months ended January 31, 2000.
Note 4- Notes Payable
The Company has available a Cdn $180,000 (approximately US$119,443) line
of credit which bears interest at 25%. At January 31, 2000 there was
$12,040 outstanding against this line of credit. The note is
collateralized by virtually all of the assets of the company.
Note 5- Long-Term Debt
Loans payable under the Program for the
Development of Quebec SME's based on 50%
of approved eligible costs for the
preparation of market development studies
in certain regions. Loans are unsecured
and non-interest bearing. (If the Company
defaults the loans become interest
bearing).
Loan payable over five years
commencing January 2001, due January 2004 $ 68,609
Current portion --
--------
$ 68,609
========
Minimum principal repayments of each of the next five
years as follows:
2000 $ --
2001 6,861
2002 13,722
2003 20,583
2004 27,443
--------
$ 68,609
========
Note 6- Related Party Transactions
The Company entered into an employment agreement with the executive
officer on December 6, 1999 that provides for an annual salary of
$100,000 a year plus benefits. The employment agreement calls for a term
of three years. In addition to the employment services, the officer
agrees not to compete with the Company for a year following the
termination of employment. If the officer is terminated other than for
cause or for "good reason", the terminated officer will be paid twice
the amount of their base salary for twelve months.
-F23-
77
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 7- Common Stock
During the six months ended January 31, 2000 the Company issued common
stock to individuals in exchange for services performed totaling
$612,400. The dollar amounts assigned to such transactions have been
recorded at the fair value of the services received, because the fair
value of the services received was more evident than the fair value of
the stock surrendered.
Note 8- Stock Option
The Company has stock options outstanding to purchase 1,478,100 shares
of common stock which expire at various dates through November 2004. The
exercise price ranges from $.16 to $.21.
Note 9- Government Assistance
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During the
six months ended January 31, 2000 the company received or has
receivables of approximately $34,000 which have been recorded as
additional paid in capital.
Note 10- Commitments
The Company leases office space on a month-to-month basis with a monthly
rent of $1,292 plus a proportionate share of all water, taxes, business
taxes, and other similar taxes and rates, which may be levied or imposed
upon the premises. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
Rental expense for the six months ended January 31, 2000 amounted to
$11,498.
Note 11- Loan from Officers
The loan from officers is non-interest bearing and has no specific
terms of repayment
Note 12- Loans from Affiliated Companies
These loans represent advances from a company that is controlled by a
director and principal shareholder of the Company. Interest is computed
at 6% per annum. All principal and interest is due no later than July
31, 2001.
Note 13- Extraordinary Item
The extraordinary item results from the early extinguishments of a
long-term debt. The proceeds from a life insurance policy, which had
been used to secure the balance of the loan, was used to pay off a note
payable from the payment by the proceeds of a life insurance policy,
which had been secured by the bank on a director of the Company.
-F24-
78
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus in connection
with the offer made hereby. If given or made, such information or representation
must not be relied upon as having been authorized by us. This Prospectus does
not constitute an offer to any person in any jurisdiction in which such an offer
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
- ---------------------------------------------------- 4,302,910 Shares
TABLE OF CONTENTS Page
Prospectus Summary................... 3 GUITRON INTERNATIONAL
Summary Financial Information........ 8 INC.
Risk Factors ........................ 10
Use of Proceeds...................... 18
Market for Common Equity and
Related Stockholder Matters ......... 19
Dilution............................. 19
Capitalization....................... 21
Dividend Policy...................... 21
Plan of Operation.................... 22
Business............................. 23
Management........................... 35
Certain Transactions................. 42
Principal Stockholders .............. 44 ------------
Selling Stockholders................. 45
Description of Securities............ 48 PROSPECTUS
Plan of Distribution................. 50
Shares Eligible for Future Sale...... 52 ------------
Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities...................... 52
Legal matters........................ 53
Experts.............................. 53 May 26, 2000
Additional Information............... 53
Financial Statements................. 55
- ----------------------------------------------------
Until _____,2000 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
79
GUITRON INTERNATIONAL INC.
PART II
Item 24. Indemnification of Directors and Officers
Our certificate of incorporation limits the liability of our directors and
officers to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
(i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of our Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The effect of the foregoing is to require us to indemnify our officers and
directors for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES MAY BE PERMITTED TO OUR
DIRECTORS, OFFICERS AND CONTROLLING PERSONS PURSUANT TO THE FOREGOING
PROVISIONS, OR OTHERWISE, WE HAVE BEEN ADVISED THAT IN THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY
AND IS, THEREFORE, UNENFORCEABLE.
Corporate Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are not presently subject to the provisions of Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (we did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
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corporation outstanding at the commencement of the transaction (excluding voting
stock owned by directors who are also officers or held in employee benefit plans
in which the employees do not have a confidential right to render or vote stock
held by the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. If it should become
applicable to us in the future, Section 203 could prohibit or delay a merger,
takeover or other change in control of our company and therefore could
discourage attempts to acquire us.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered, other than selling
discounts and commissions.
SEC Registration Fee ........................................... $ 1,304
NASD Filing Fee................................................. $ 930
Blue Sky Filing Fees............................................ $ 2,000
Printing and Engraving Expenses ................................ $13,000
Legal Fees and Expenses ........................................ $ 0(1)
Accounting Fees and Expenses ................................... $15,000
Transfer Agent's Fees and Expenses ............................. $ 2,000
Escrow Agent's Fees and Expenses................................ $ 2,500
Miscellaneous Expenses ......................................... $ 3,266
-------
TOTAL ESTIMATED EXPENSES ..................................... $40,000
All such expenses will be borne by us.
(1) Legal fees and expenses related to this offering have been paid by the
issuance of shares of our common stock. The parties receiving such shares
also received additional shares in connection with providing us with legal
services involving general corporate work.
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Item 26. Recent Sales of Unregistered Securities
On January 3, 2000, in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, we issued an
aggregate of 2,599,300 shares of our common stock to Michael D.A. Ash (500,000
shares), Ashbyrne 2000 Limited (1,500,000 shares), Frances Katz Levine (299,650
shares) and Scott Rapfogel (299,650 shares). All of the foregoing persons are
sophisticated investors, are familiar with our business activities and were
given full and complete access to any corporate information requested by them
and did in fact review extensive corporate information.
The shares issued to Michael D.A. Ash and Ashbyrne 2000 Limited were
issued in connection with consulting services. The shares issued to Frances Katz
Levine and Scott Rapfogel were issued in connection with legal services.
Pursuant to our acquisition of Guitron Canada which will take place
following the sale of the minimum offering amount, all of the 2,125,926 then
issued and outstanding shares of Guitron Canada will each be exchanged for 3.25
shares of our common stock. Such Guitron Canada shares are held by an aggregate
of 51 persons who acquired them during the period September 1, 1997 through
January 3, 2000 at prices ranging from approximately $.00001 per share to
approximately $.689 per share. 46 of such issuances by Guitron Canada were made
to Canadian or other foreign residents and were not subject to US securities
laws. 5 of such issuances by Guitron Canada were made to US residents in
reliance on Section 4(2) of the Securities Act of 1933, as amended. Pursuant to
the acquisition, all issued and outstanding stock options of Guitron Canada will
be exercisable to purchase 3.25 shares of our common stock. The Guitron Canada
options are held by 10 persons who acquired them during the period January 15,
1999 through January 3, 2000. All of such options were issued to Canadian and
other foreign residents and therefore were not subject to U.S. securities laws.
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Item 27. Exhibits
EXHIBIT NO. ITEM
- ----------- ----
2.1 Form of Agreement and Plan of Reorganization among The Guitron
Corporation, a Canadian corporation, Guitron International Inc., and
the shareholders of The Guitron Corporation
2.2 Form of Shareholder's Power of Attorney
2.3 Form of Shareholders Letter of Transmittal and Custody Agreement
3.1 Certificate of Incorporation of Guitron International Inc. filed
December 6, 1999
3.2 Certificate of Incorporation of The Guitron Corporation filed August
20, 1997.
3.3 By-Laws of Guitron International Inc.
4.1 Specimen Common Stock Certificate*
5.1 Opinion and Consent of Counsel*
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy
10.2 Marketing and Consulting Agreement dated September 29, 1999 between
The Guitron Corporation and Marvin Chankowsky
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc.
10.5 Form of Escrow Agreement between the Company and Continental Stock
Transfer & Trust Company
10.6 Loan Agreement dated as of July 30, 1999 between The Guitron
Corporation and Productions Polyart International Inc.
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83
10.7 Service Agreement dated January 31, 2000 between The Guitron
Corporation and Innovative Products Resources Ltd.
21 Subsidiaries - We presently have no subsidiaries. Following the
receipt of the minimum offering proceeds we will acquire The Guitron
Corporation, making such corporation a wholly owned subsidiary of
ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified public
accountants
27 Financial Data Schedule (filed by EDGAR)
* To be filed by amendment
Item 28. Undertakings.
(a) Rule 415 Offering.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred or paid by a director, officer or controlling person of the
issuer in the successful defense of any action, suit or proceedings)
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84
is asserted by such director, officer or controlling person in connection with
the securities being registered, the issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such court.
(c) Rule 430A
The undersigned issuer will:
(1) For determining any liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
file by the small business issuer under rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as at the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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85
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Montreal, Canada on May 23, 2000.
GUITRON INTERNATIONAL INC.
By: /s/ Richard F. Duffy
------------------------------------------
Richard F. Duffy, President, Chief Executive
Officer and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 has been signed by the following persons in
their respective capacities with Guitron International Inc. and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard F. Duffy President, Chief Executive Officer
- -------------------- and Chairman of the Board of Directors May 23, 2000
Richard F. Duffy
/s/ Michael D.A. Ash Treasurer, Chief Financial and
- -------------------- Accounting Officer and Director May 23, 2000
Michael D.A. Ash
Majority of the Board of Directors
/s/ Richard F. Duffy Director
- --------------------
Richard F. Duffy May 23, 2000
/s/ Michael D.A. Ash Director
- --------------------
Michael D.A. Ash May 23, 2000
/s/ France B. Fasano Director
- --------------------
France B. Fasano May 23, 2000
/s/ Edward Santelli Director
- -------------------
Edward Santelli May 23, 2000
/s/ David L. Rosentzveig Director
- ------------------------
David L. Rosentzveig May 23, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
EXHIBITS
87
GUITRON INTERNATIONAL INC.
EXHIBIT INDEX
EXHIBIT NO. ITEM PAGE
2.1 Form of Agreement and Plan of Reorganization among The
Guitron Corporation, a Canadian corporation, Guitron
International Inc., and the shareholders of The Guitron
Corporation 90
2.2 Form of Shareholder's Power of Attorney 95
2.3 Form of Shareholders Letter of Transmittal and Custody
Agreement 105
3.1 Certificate of Incorporation of Guitron International Inc.
filed December 6, 1999 108
3.2 Certificate of Incorporation of The Guitron Corporation
filed August 20, 1997. 112
3.3 By-Laws of Guitron International Inc. 120
4.1 Specimen Common Stock Certificate*
5.1 Opinion and Consent of Counsel*
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy 130
10.2 Marketing and Consulting Agreement dated September 29, 1999
between The Guitron Corporation and Marvin Chankowsky 141
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote 149
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc. 157
88
10.5 Form of Escrow Agreement between the Company and
Continental Stock Transfer & Trust Company 163
10.6 Loan Agreement dated as of July 30, 1999 between The
Guitron Corporation and Productions Polyart International
Inc. 172
10.7 Service Agreement dated January 31, 2000 between The
Guitron Corporation and Innovative Products Resources Ltd. 174
21 Subsidiaries - We presently have no subsidiaries. Following
the receipt of the minimum offering proceeds we will
acquire The Guitron Corporation, making such corporation a
wholly owned subsidiary of ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified
public accountants 176
27 Financial Data Schedule (filed by EDGAR)
* To be filed by amendment
89