UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CEDAR MOUNTAIN DISTRIBUTORS, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 42249 91-2015441
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(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
1236 EAST FRONTIER LANE, OLATHE, KANSAS 66062 (913) 782-3068
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(Address and Telephone Number of Principal Executive Offices)
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(Address of Principal Place of Business or Intended Principal Place of Business)
JAMES R. SMITH
1236 EAST FRONTIER LANE, OLATHE, KANSAS 66062
(913) 782-3068
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(Name, Address and Telephone Number of Agent for Service)
Approximate date of commencement of proposed sale to the public: Effective date
of this registration statement
If this Form is filed to register additional securities for an offering 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(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 of the earlier effective registration statement for the
same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
CALCULATION OF REGISTRATION FEE
- ------------------------------------- ------------------- -------------------- ------------------- -------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES DOLLAR AMOUNT OFFERING PRICE PER AGGREGATE AMOUNT OF
TO BE REGISTERED TO BE REGISTERED UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------------- ------------------- -------------------- ------------------- -------------------
Common Stock par value $.001 $200,000 $1.00 $200,000 $50.00
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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 thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
FOR THE INITIAL PUBLIC OFFERING FOR SALE OF
200,000 SHARES OF COMMON STOCK
OF
CEDAR MOUNTAIN DISTRIBUTORS, INC.
PER SHARE TOTAL
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Initial Offering Price to
the Public: $1.00 $200,000 The offering being presented in this
Prospectus (the "Offering") is being conducted
on a direct participation basis without the
assistance of an underwriter. There is no
Offering Expenses: $0.25 $49,500 minimum number of shares we must sell and no
minimum investment required of an investor. A
trust, escrow or similar account will not be
established pending the sale of the shares and
any proceeds from this Offering will become
immediately available for our use.
Net Proceeds: $0.75 $150,500
This Offering will terminate six months from the date of this Prospectus unless
all shares offered hereby are sold prior to that date.
INVESTING IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 9, 2001
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TABLE OF CONTENTS
PAGE
----
PART I..................................................................................................... 3
Summary of Offering........................................................................................ 3
The Offering............................................................................................... 4
Risk Factors............................................................................................... 4
Forward Looking Statements................................................................................. 7
Use of Proceeds............................................................................................ 7
Dividend Policy............................................................................................ 9
Dilution................................................................................................... 9
Business................................................................................................... 10
Management................................................................................................. 14
Executive Compensation..................................................................................... 15
Principal Stockholders..................................................................................... 15
Certain Transactions Involving Officers, Directors, and Affiliates......................................... 16
Description of Common Stock................................................................................ 16
Indemnification and Public Policy.......................................................................... 19
Terms of the Offering...................................................................................... 19
No Public Market For Our Common Stock...................................................................... 20
Shares Eligible for Future Sale............................................................................ 21
Litigation................................................................................................. 22
Legal Matters.............................................................................................. 22
Experts.................................................................................................... 22
Additional Information..................................................................................... 22
Financial Information...................................................................................... 22
Financial Statements..................................................................................F-1 - F-11
PART II.................................................................................................... II-1
Indemnification of Directors and Officers.................................................................. II-1
Other Expenses of Issuance and Distribution................................................................ II-1
Recent Sales of unregistered Securities.................................................................... II-1
Exhibits................................................................................................... II-2
Undertakings............................................................................................... II-2
Signatures................................................................................................. II-3
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than contained in this Prospectus in
connection with the Offering described here. If given or made, such information
or representations must not be relied upon as having been authorized by us. This
Prospectus does not constitute an offer to sell, or the solicitation of an offer
to buy, the securities offered by this Prospectus to any person in any state or
other jurisdiction in which the offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale under this Prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since this date.
Until September 27, 2001 (90 days after the date of this Prospectus), all
dealers effecting transactions in the securities registered in this Offering may
be required to deliver a Prospectus. This is in addition to the dealer's
obligation to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
2
SUMMARY OF OFFERING
This summary highlights important information about our business and about this
Offering. Because it is a summary, it does not contain all the information you
may wish to consider before investing. Please read the entire Prospectus.
Cedar Mountain Distributors, Inc. was incorporated in the State of Nevada on
December 23, 1999 using the name "KNETX Skates Corporation." On June 9, 2000,
the name was changed to Cedar Mountain Distributors, Inc. ("our Company," "us,"
"we," "our," etc.). On June 20, 2000, we acquired all common stock of Tarus
International, Inc. ("Tarus"), a company incorporated in the State of Kansas.
That company is now our wholly-owned subsidiary. Before this acquisition, we
were not engaged in any business activities. Our principal executive offices are
located at 1236 East Frontier Lane, Olathe, Kansas 66062. Our telephone number
is (913) 782-3068. Our fiscal year coincides with the annual year and ends on
December 31.
BUSINESS
We are a start-up beverage brokerage company based in Olathe, Kansas. We supply
a limited line of beverages to schools, universities, wholesalers, retailers,
and distributors in the Midwestern United States through our subsidiary, Tarus.
Our products include beverages in four traditional beverage categories: bottled
water, fruit beverages, soft drinks, and sports drinks. We do not develop,
produce, bottle, or otherwise manufacture any of our own products. Our principal
business is soliciting contracts to purchase beverage products from wholesalers
and arranging distribution of those products to institutional and retail
customers.
OPERATING RESULTS
We have a very limited operating history since our inception in 1999. For 2000,
sales revenues were nominal and we experienced a net loss. Year 2000 represented
a transition year for us, as we operated as a part-time business for the
majority of 2000. In December 2000, Lauri A. Orscheln joined our Company as
full-time Vice President of Sales.
For the first quarter 2001, we had product sales of approximately $10,618 and a
gross profit of $3,896. During that same period, we had expenses of $12,084 and
a net loss of $(8,852).
During the first quarter of 2001, Ms. Orscheln expanded the customer base
substantially by adding nearly 40 new accounts. We anticipate that the addition
of these and other new accounts through Ms. Orscheln's efforts will generate
substantially increased revenues in 2001 compared to our results for 2000.
PROPOSED PLAN OF OPERATIONS
We currently have rights to distribute four new products in the Midwest. Kansas
City will become our base of operations and initial market. We plan to seek the
rights to broker additional products and will seek partnerships with bottlers,
distributors and producers to develop markets in other areas of the country.
Once established domestically, we intend to formulate a plan to expand into
international markets.
3
THE OFFERING
(A) Common stock offered......................... A total of 200,000 shares of par value $.001 common stock will
be offered hereunder. We will attempt to sell these shares to
the public ourselves without the assistance of an
underwriter. There is no minimum amount which must be sold in
order for the Offering to proceed and no minimum investment is
required. All funds invested may be used immediately.
(B) Proposed symbol and trading market........... We would like to establish a trading market for our common
stock on the Nasdaq OTC Bulletin Board. We have not applied
for a trading symbol and do not expect to before this public
Offering takes place. Nor have we identified or recruited a
market maker to make a market in our stock. Without a market
maker, we will not be able to have our stock trades reported
on the OTC Bulletin Board.
(C) Use of proceeds.............................. We will use the proceeds of this Offering first to pay the
Offering expenses. Assuming the entire Offering is sold,
approximately $150,000 will be raised after expenses.
Proceeds will be used to pay for product inventory, marketing,
general expenses related to operating the business, will serve
as working capital, and will go to pay off business-related
loans.
RISK FACTORS
This Offering involves a high degree of risk. You should carefully consider the
risks and uncertainties described below, and other information contained in the
Prospectus, before deciding whether to invest in shares of our common stock. If
any of these risks occur, our business results and financial condition could be
adversely affected. This could cause the trading price of our common stock to
decline, and you might lose part or all of your investment.
RISKS ASSOCIATED WITH OUR FINANCIAL POSITION
WE LACK WORKING CAPITAL AND WILL BE UNABLE TO CARRY OUT OUR PROPOSED PLAN
OF OPERATIONS WITHOUT ADDITIONAL WORKING CAPITAL. We are a newly-formed venture
without significant assets or cash. We have not brought in significant revenues
to offset operating expenses. Our lack of cash makes it difficult for us to
expand our business through marketing efforts or purchase sufficient product
inventory for distribution. For 2000, sales revenues were $20,272, with a gross
profit of $2,138. During 2000, our operating expenses were $14,050 and we had
net losses for the year of $(12,794). During the first quarter of 2001, we
experienced net losses of approximately $(8,552). Continuing losses are
possible, and there is no assurance that our business will ever become
profitable.
IF WE ARE UNSUCCESSFUL IN SELLING ALL OF OUR COMMON STOCK, WE WILL NOT
REALIZE THE CASH PROCEEDS NECESSARY TO FULLY IMPLEMENT OUR PROPOSED PLAN OF
OPERATION WHICH COULD SIGNIFICANTLY REDUCE THE LIKELIHOOD THAT WE WILL BE ABLE
TO GROW THE BUSINESS TO A SUSTAINABLE LEVEL. In order to fully implement our
proposed plan of operations, we need to sell all 200,000 shares of our common
stock that we are offering for sale. If we are not successful in selling all of
the stock, the resulting cash shortfall would, in all likelihood, impair our
ability to reach profitability because we would be forced to cut back in planned
expenditures for product inventory and marketing that would otherwise help us to
establish our presence in the marketplace.
4
RISKS ASSOCIATED WITH HOW THIS OFFERING IS BEING CONDUCTED
WE ARE ATTEMPTING TO SELL THE SHARES OF COMMON STOCK OURSELVES AND THERE IS
A RISK THAT WE WILL NOT BE ABLE TO COMPLETE THE OFFERING AS PLANNED. We have not
hired an underwriter to assist us in selling our common stock. Only our
officers, directors, and employees will assist us in selling our common stock.
They will not be paid any commission. Because none of these individuals has any
prior experience in selling stock to the public, it will be more difficult for
them to sell all of our common stock than it would have been had we employed an
underwriter. There can be no assurance that they will be able to sell all of our
common stock or even enough of our common stock to be able to fully implement
our proposed plan of operations. If that happens, an investor is at increased
risk that his investment will not provide us with enough funds to make
profitable operations more likely.
THERE IS NO MINIMUM INVESTMENT REQUIRED. BECAUSE OF THIS, THERE IS A RISK
THAT ONLY A SMALL PORTION OF THE FUNDS WE NEED TO FULLY IMPLEMENT OUR PROPOSED
PLAN OF OPERATIONS WILL BE RAISED. There is no minimum number of shares of
common stock that must be sold in this Offering and no minimum investment is
required of any investor. Furthermore, there is no escrow account into which the
proceeds of this Offering will be deposited pending the sale of all shares. All
proceeds of this Offering will be deposited directly into our operating account.
If less than all the shares of common stock offered by this Prospectus are sold,
we will have less cash to devote to developing our business. A resulting failure
to attain profitable operations would increase the risk that the value of an
investor's stock would decrease substantially or even be eliminated entirely.
NO REVIEW OF THE OFFERING PRICE BY AN UNDERWRITER WILL MEAN THAT THERE IS
AN INCREASED POSSIBILITY THAT OUR COMMON STOCK MIGHT NOT BE PRICED FAIRLY BASED
UPON OUR ASSETS AND LEVEL OF OPERATIONS. In most public offerings that use the
services of an underwriter, the underwriter has the opportunity to review the
terms of the public offering and decide whether the offering price of our common
stock is fair and reasonable. Because we are attempting to sell our common stock
ourselves without using an underwriter, this independent review is not present
in this Offering. We arbitrarily determined the offering price of our common
stock taking into consideration the following factors:
o the amount of proceeds required to initiate our business plan and
marketing strategy,
o our lack of revenues,
o our management capability,
o our plans for future growth,
o the general condition of the securities markets, and
o the amount of retained equity to the present shareholders.
Prospective investors should not assume that the offering price of our common
stock necessarily reflects the actual value of our common stock. Further, the
price does not bear any relationship to assets, earnings, book value, or any
other objective criteria of value. There is a risk that our arbitrary offering
price does not fairly value our common stock based upon the factors we took into
consideration.
OTHER FACTORS THAT MAY DIMINISH THE VALUE OF OUR COMMON STOCK
LACK OF A PUBLIC MARKET INCREASES THE RISK THAT AN INVESTMENT IN OUR COMMON
STOCK WILL BE ILLIQUID. Before this Offering, there has not been any public
market for our common stock. Furthermore, it is possible that an active public
market for our common stock may never develop or be sustained. We do not intend
to list our common stock on any national securities exchange or to apply for
listing on The Nasdaq National Stock Market or The Nasdaq SmallCap Stock Market.
Any trading in our common stock will take place in the over-the-counter market
in the so-called "PINK SHEETS" or possibly may be reported on the "OTC Bulletin
Board" service. If a public market does not develop or is not sustained, there
is a risk that an investor might find it difficult to sell our common stock at a
time when the investor needs or desires to do so.
POSSIBILITY OF VOLATILE PRICE SWINGS AND INACCURATE PRICING INFORMATION
WOULD CREATE A RISK THAT AN INVESTOR WOULD NOT BE ABLE TO ACCURATELY ASSESS THE
MARKET VALUE OF HIS COMMON STOCK. If our stock is traded on the OTC Bulletin
Board, a relative lack of liquidity or volume and the participation of only a
few market makers would make it more likely that wide fluctuations in the quoted
price of our common stock would occur. As a result, there is a risk that an
investor will not be able to obtain accurate price quotes or be able to
correctly assess the market price of his stock. Increases in volatility could
also make it more difficult to pledge our common stock as collateral if an
investor sought to do so because a lender might also be unable to accurately
value our common stock. Even if our stock was to be traded on the Nasdaq
National or SmallCap Stock Markets,
5
which we do not anticipate at the present time, the possibility of volatility
would still exist. These markets and the stocks traded thereon are also subject
to sharp fluctuations in value and in the number of shares traded.
YOU WILL EXPERIENCE IMMEDIATE SUBSTANTIAL DILUTION THAT WILL LOWER THE PER
SHARE TANGIBLE BOOK VALUE OF YOUR COMMON STOCK. The public offering price of our
common stock is much higher than the net book value of our common stock that we
have already issued. As a result, purchasers of our common stock who paid $1.00
per share will experience immediate and substantial dilution. Assuming we raise
the $200,000 intended by this Offering, the net tangible book value of our
common stock immediately after the Offering will be approximately $.044 per
share. Our existing shareholders paid an average of approximately $.0013 per
share of common stock and, accordingly, new investors will bear most of the
financial risks inherent in an investment in our Company.
THREE MILLION, OR 94% AFTER THE OFFERING, OF OUR TOTAL OUTSTANDING SHARES
ARE RESTRICTED SECURITIES, BUT A SIGNIFICANT PORTION OF THESE MAY ALREADY BE
SOLD INTO THE MARKET. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DROP SIGNIFICANTLY EVEN IF OUR BUSINESS IS DOING WELL. After this Offering, we
will have outstanding 3,200,000 shares of common stock. This assumes we will be
successful in selling the 200,000 shares we are selling in this Offering. The
200,000 shares in this Offering may be resold in the public market immediately
if a market develops. The remaining 94%, or 3,000,000 shares, of our total
outstanding shares are available, or will become available, for resale in the
public market as described under "Shares Eligible for Future Sale" below. As
more restricted shares become available for resale, the market price could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
WE DON'T PLAN TO PAY DIVIDENDS AND, THEREFORE, ANYONE IN NEED OF DIVIDEND
INCOME SHOULD NOT INVEST IN OUR STOCK. WE DON'T EXPECT TO PAY DIVIDENDS ON
COMMON STOCK ANYTIME SOON. We expect to use all earnings and the proceeds from
this Offering to develop our business.
A FEW INDIVIDUALS WILL BE ABLE TO CONTROL THE COMPANY. A few individuals
will be able to control the company after the registration. After this Offering,
approximately 31.3% of our common stock will be controlled by James R. Smith,
and an additional combined total of approximately 49.3% will be controlled by
David C. Owen and Malcolm Green, individually or jointly. Accordingly, under our
Articles of Incorporation and the Nevada corporate laws, these shareholders as a
group will control the votes necessary to approve or disapprove of any potential
acquisitions, mergers, or other actions requiring a simple majority vote of the
stockholders.
BUSINESS FACTORS THAT MAY HAVE A NEGATIVE EFFECT ON OUR OPERATIONS
WE ARE IN A COMPETITIVE MARKET. The industry within which we compete is
highly fragmented and comprised of numerous companies, many of whom are larger
and have significantly more resources. In 1999, there were an estimated 30
licensed beverage distributors located within a 50-mile radius of Kansas City.
Collectively, these distributors sold a total of approximately 70 million
gallons to the local market. A majority of these companies have been in business
for lengthy periods which make it difficult for us to break into the market and
become competitive. If a new consumer trend develops with significant market
potential, such as the high-energy beverage drink market, the potential exists
that major national distributors may enter and take-over that market very
quickly. Because we are significantly smaller than the majority of our national
or even local competitors, we may lack the financial resources needed to capture
market share in an amount sufficient for us to be profitable. Since we compete
for the same geographic markets, starting with the Kansas City metropolitan
area, as our competitors, their financial strength could prevent us from
capturing even a small portion of those markets.
ADAPTING TO CHANGING MARKET CONDITIONS. Company management must be able to
identify changes in consumer buying habits, adapt quickly to changing trends,
provide effective and timely promotions, and most importantly, generate sales.
Supporting systems and processes, such as product delivery, billing, and
customer payment must be in place and working efficiently. While we believe that
our management team has the experience needed to meet this challenge, we cannot
guarantee that they will adequately anticipate or meet the challenges discussed
in this paragraph.
RISKS INHERENT IN DISTRIBUTION. As a distributor, we face a number of risks
over which we will have little control. Since we do not bottle the products we
distribute, we are and will be dependent on our suppliers in many respects. Our
suppliers at anytime will determine prices, availability, delivery time, and the
quality of our products. While we believe that we have chosen a reliable
supplier for our initial product line, any failure by the supplier to meet
product demand or to maintain product quality could adversely affect us. At
present, our only supplier is Vancol Industries ("Vancol") of Denver, Colorado.
If Vancol were to experience production delays, work stoppages, an act of God,
or were to discontinue production of one or more of these
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beverages or go out of business, we would suffer financial losses. Under such a
scenario, there is no guarantee that we would be able to secure distribution
rights for any substitute products from other producers.
LICENSING RIGHTS AND TERRITORY NOT GUARANTEED. Our primary beverage
supplier, Vancol, does not grant exclusive marketing territories, nor are
licensing rights guaranteed. As a result, the target marketing area might be
given to a competitor if we fail to support the existing customer base,
aggressively market to new customers, or fail to grow sales. However, we can
represent multiple suppliers' products.
CHANGING CONSUMER HABITS. We have built our product line around certain
assumptions regarding consumer trends and profitability in the beverage market.
We believe it is feasible to build a profitable product line around bottled
still water, fruit flavored juices, and packaged sports drinks. Together, these
account for approximately 40% of the retail consumer market in the U.S. for
traditional beverage categories; however, if consumer preferences were to shift
in favor of other categories or in favor of competing products, our business
could be adversely affected.
INITIAL DEPENDENCE ON THE SCHOOL LUNCH MARKET. Much of our initial success
has centered on supplying beverages to schools in Johnson, Miami, and Franklin
counties in Kansas. The taste preferences of children may be hard to predict,
and may be subject to fads. While our initial success has been encouraging, we
will need to broaden our market beyond school lunch programs. We believe we are
beginning to successfully penetrate other markets, but much work remains to be
done in broadening and deepening our markets.
DEPENDENCE ON KEY EMPLOYEES. We depend almost entirely on two employees to
manage our Company, James R. Smith and Lauri A. Orscheln. If we were to lose the
services of either employee, it would be extremely difficult for us to continue
in business. The loss specifically of Mr. Smith could result in the loss of our
office space currently being provided to us at no charge in his residence.
GENERAL ECONOMIC CONDITIONS. In part, our ability to succeed with the
product line we have chosen will depend on general economic conditions.
Consumers could become more conservative in their beverage choices and may opt
to purchase lower-priced or generic beverages in greater quantities, thus
impacting the market for our products. Additionally, a recession or changing
economic conditions could make it more difficult for us to obtain working
capital.
PRODUCT LIABILITY AND OTHER SUITS. As a consumer-oriented business, we face
a possible risk of lawsuits for product liability and other causes. The primary
precaution we can take to minimize these risks is to maintain liability
insurance, which we presently do and intend to continue to do. Even though we
are insured, one or more claims could conceivably arise that would exceed, or
would not be covered by, our insurance. If this were to occur, we would likely
be forced to liquidate our business and cease operations. As described elsewhere
in this Prospectus, we are not presently subject to any actual or threatened
litigation that we know of.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements that are based on
beliefs and assumptions of our management. Often, you can recognize these
statements because we use words such as "BELIEVE," "ANTICIPATE," "INTEND,"
"ESTIMATE," and "EXPECT" in the statements. Our actual performance in 2001 and
beyond could differ materially from the forward-looking statements contained in
this Prospectus. However, we are not obligated to release publicly, and do not
presently intend to release, any revisions to the forward-looking statements
contained in this Prospectus.
USE OF PROCEEDS
The following table describes the intended use of proceeds of this Offering.
Because it is difficult to predict how many shares of this Offering may be sold
given the fact that we are attempting to sell the shares ourselves rather than
using the services of an underwriter, the table presents information that
assumes that one-third, two-thirds and all of the shares are sold. The
categories of expenditures are also listed in the order of priority, with
purchase of merchandise being the most important category and working capital
the least important category. Accordingly, anywhere between approximately
$66,000 and $200,000 in gross proceeds would be allocated among the intended
uses as follows:
7
PERCENTAGE OF SHARES SOLD IN THIS OFFERING
AMOUNT($)
--------------------------------------------------------
33 % 66 % 100 %
-------------- ----------------- -----------------
DESCRIPTION:
Purchase of Inventory................... 0 20,000 30,000
Marketing and Promotions................ 0 7,500 15,000
General and Administrative (1).......... 7,500 25,000 40,000
Expenses of the Offering (2)............ 49,500 49,500 49,500
Loan Repayment 9,000 30,000 60,000
----------- -------------- --------------
Working Capital......................... 0 0 5,500
----------- -------------- --------------
TOTAL................................... $66,000 $132,000 $200,000
- -------------------------------
(1) Includes officers' salaries, rent, other fixed overhead expenses, and other
costs associated with office space we anticipate leasing. All of these
expenses are associated with the development and implementation of our
proposed plan of operations.
(2) The expenses of the Offering are estimated to be $49,500 and include filing
fees, transfer agent fees and expenses, legal fees and expenses, and
accounting fees and expenses.
Certain of our investors have loaned us funds that are being used as operating
expenses and for the costs of this Offering. A portion of the proceeds of this
Offering will be used to pay off these loans. Thus far, these loans amount to
approximately $60,000. We intend to borrow up to a total of $80,000 in this
manner. Those loans are in the form of promissory notes (bridge loans) at an
interest rate of 10% per annum. The loans mature in one year and most will be
due beginning in March 2002.
If we are successful in raising only a minimal amount of money, the resulting
lack of proceeds will make it unlikely that we will be able to fully implement
our proposed plan of operations. The projected expenditures above are estimates
and approximations only and may change due to changes in our business; however,
as of the date hereof, they represent our best projection for how the funds
raised by this Offering will be used. For example, we may determine that funds
earmarked for one particular type of allocation may be more productively spent
in another allocated use, based upon the experience of our management in
evaluating our needs over the next twelve months. Proceeds not immediately used
will be invested in bank certificates of deposit, insured bank deposit accounts,
or similar investments.
8
DIVIDEND POLICY
We currently plan to retain any earnings and use them to finance the growth and
development of our business. We also intend to use earnings for working capital
and general corporate purposes. We do not anticipate paying cash dividends on
our common stock; however, any payment of dividends will be at the discretion of
the Board of Directors and will depend upon the following factors:
o earnings,
o financial condition,
o capital requirements,
o level of indebtedness,
o contractual provisions that might restrict the payment of dividends,
and
o factors that we cannot currently predict.
Persons who desire or need dividend income should not invest in our common
stock.
DILUTION
The net tangible book value deficiency of our outstanding shares of common stock
as of December 31, 2000, was approximately $(9,384) or $(.003) per share. "NET
TANGIBLE BOOK VALUE" per share represents the total amount of our tangible
assets, less the total amount of our liabilities, divided by the number of
shares of common stock outstanding. After giving effect to the sale of 200,000
shares offered at an initial public offering price of $1.00 per share less
estimated costs of the Offering, our net tangible book value at December 31,
2000 would have been $141,116 or approximately $0.044 per share. This represents
an immediate increase in net tangible book value of $0.047 per share to existing
shareholders and an immediate dilution of over $0.956 per share of common stock
to new investors.
The following table illustrates this per share dilution:
Initial public offering price per share $1.00
Net tangible book value per share
before the Offering ($ .003)
Increase per share attributable to new investors
purchasing this Offering $ .047
Net tangible book value per share
after this Offering $ .044
Dilution per share to new investors $ .956
The following table sets forth the number of shares of common stock purchased,
the total consideration paid and the average price per share paid by our
existing stockholders as of March 15, 2001 and new investors purchasing the
shares of common stock offered:
SHARES PURCHASE TOTAL CONSIDERATION
---------------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
---------------- -------------- -------------- ---------- ----------------
Existing shareholders....... 3,000,000 93.75% $4,000 2.0% $0.0013
New investors............... 200,000 6.25% $200,000 98.0% $1.00
Total....................... 3,200,000 100.00% $204,000 100.0%
The above discussion assumes that all 200,000 shares that we are offering to the
public at $1.00 will be sold. If less than $200,000 in gross proceeds is
received from the Offering, dilution to new investors who invest in the common
sock will be greater than described above. By way of example, if only 100,000
shares of common stock are sold in this Offering (one-half of the Offering), the
tangible book value per share would have been approximately $0.013 as of
December 31, 2000 and the new investors would have suffered a dilution of nearly
$0.987 per share.
9
BUSINESS
INTRODUCTION
We are a start-up beverage brokerage company. The initial mission of the Company
is to build a Midwest-based beverage brokerage that supplies a limited line of
unique, flavored, delightful beverages to schools, universities, wholesalers,
retailers, and distributors in the Midwestern United States. The Company has an
initial customer base with the local school districts as a result Mr. Smith's
position as an administrator and educator in the area for 25 years. In order to
focus on this initial customer base, we will focus on four traditional beverage
categories: bottled water, fruit beverages, soft drinks, and sports drinks.
We currently have rights to distribute four new products in the Kansas City
area, our base of operations and initial market. As our business expands, we
intend to seek the rights to broker new products and will seek partnerships with
bottlers, distributors, and manufacturers that have an existing customer base in
other parts of the country through which we can distribute our current product
line. Once established domestically, we also intend to formulate a plan to
expand into international markets. We are also in the process of pursuing a
government contract that would allow us to export to any military base in the
world.
We have the expertise to handle the anticipated first year product distribution,
an existing network of firms with which we will partner, an experienced staff,
an existing billing, tracking, and accounting system and the active involvement
of the owner.
We do not develop, produce, bottle, or otherwise manufacture any of our own
products. Our principal business is soliciting contracts to purchase beverage
products from a wholesaler and arranging distribution for those products to
institutional and retail customers. We also intend to build an Internet website,
establish a merchant account, and allow both existing and new customers to make
purchases directly from the website.
Management of the company anticipates that implementation of this business plan
will succeed for the following reasons:
o We have a network of reliable distributors in place to distribute
products;
o We have unique products that are oriented toward trending markets;
o We have established relationships with critical persons within the
beverage industry (distributors, manufacturers and bottlers);
o We are beginning to develop a customer base that includes established
businesses, distributors, and organizations, besides the initial
school contacts that were pursued; and
o Our President has worked successfully in the beverage distribution
business previously.
MARKETING STRATEGY AND PROPOSED PLAN OF OPERATION
We currently have the right to distribute four products from Vancol. These
products are Tommy Knocker Root Beer, Kwencher Thirst Aid Products, Ora
Nutritional Supplements, and Blue Ox Energy Drinks. The rights to distribute
these products are not exclusive to us and thus, do not preclude others from
marketing the products in the region where we operate. In addition, the
arrangement with Vancol does not include any obligations to either party, and it
will therefore be incumbent on us to establish the market and the customers.
We have recently secured an account to distribute the Kwencher line to school
lunch programs in Johnson, Miami, and Franklin counties in Kansas. We are
currently, and will continue, to search for new unique beverage products to
introduce to the Greater Kansas City metropolitan market.
The initial market will be the Greater Kansas City metropolitan area where there
are 30 school districts with over 100,000 students. The initial market emphasis
will be the Kwencher product line. The customers for these products will be
secondary students in the school districts of the counties mentioned above where
the products will be offered in the school lunch programs. The first account and
product order was with USD #233 Olathe, Kansas. Three schools ran out of product
within the first two days, indicating that the students are buying and enjoying
the product. The Kwencher line offers the student customers alternative choices
from Gatorade, Frutopia, and natural still water.
With the inclusion of Blue Ox energy drink in the product line, we will be able
to penetrate the fast growing New Age beverage market. Energy drinks are the
fastest growing beverages in the "New Age" category. In 1999 and 2000, energy
drinks have experienced over 100% growth, which is the highest growth factor in
all beverage categories. The next closest beverage is
10
vegetable and fruit blends experiencing 88.5% growth. Blue Ox is the industry
leader in energy drinks, with a great tasting product in four flavors. The other
energy drink makers only manufacture one flavor.
Of the total U.S. soft drink consumption, the West Central area consumes 57.3%.
We desire to include the soft drink market in our second year of operations. We
hope to introduce new products and a wider distribution area, including an
international market, during years three and four.
In addition to selling directly to the school lunch room market, we will target
markets where there are established distributors who currently have
transportation and distribution facilities and are capable of moving our product
lines into a new geographical area without requiring a physical presence or
infrastructure to allow both direct shipping of products and to gain accounts
with other established vendors and customers. We intend to hire a sales person
who will be given a base salary plus commission, that will be tasked with
marketing to wholesale and retail customers. We intend to have this person focus
his or her efforts on those companies that have corporate or regional
headquarters in the Kansas City area with the objective of gaining shelf space
in their retail facilities located in the Midwest.
For the next 12 months, our funding strategy will consist of relying on a
combination of bank and private financing and on the proceeds of this Offering.
As of June 1, 2001, we had raised approximately $60,000 through loans to certain
of our investors. These funds will be used to cover the costs of this Offering,
general operating expenses, marketing, and product inventory costs. Using this
interim financing and the sale proceeds from the Offering, we believe we will be
able to satisfy our cash requirements over the next year and anticipate that we
will have the resources to aggressively pursue our business plan.
THE INDUSTRY
In the United States in 1998, the market for the eight traditional beverage
categories, beer, bottled water, fruit beverages, tea, soft drinks, spirits,
sports drinks, and wine, was as follows: $187 billion in retail sales ($117
billion wholesale); 30.9 billion gallons of product sold, and an average per
person consumption of over 114 gallons.
For the same period, the sales data for the four product categories that we will
broker (bottled water, fruit beverages, soft drinks and sports drinks) were as
follows: $79.2 billion in retail sales ($61.7 billion wholesale); 13.1 billion
gallons of product sold, and an average per person consumption estimated at over
20 gallons per year.
Based on industry research, we believe it is feasible to initially focus our
operations on three specific product types; bottled still water, fruit-flavored
juices, and packaged sports drinks. According to the Beverage Marketing
Corporation, 92% of bottled water sold is still water, 60% of fruit beverages
sold are juices, and nearly 70% of sports drinks that are sold are the packaged
variety. Each of these markets is included in the our product line. In addition
to these three categories, we will also carry selected soft drinks for
distribution.
PRODUCTS
As mentioned above, we intend to distribute four products from Vancol: Kwencher
Thirst Aid Products, Tommy Knocker Root Beer, Ora Nutritional Supplements, and
Blue Ox Energy Drinks. The products are described in more detail below.
BLUE OX ENERGY DRINKS. Blue Ox Energy drinks are bottled in Denver,
Colorado by Vancol. This is our flagship product on which we are building our
initial business. Blue Ox comes in 8.4 fluid ounce cans in a 24-pack shrink-wrap
in the original Blue Cola Flavor, Orange, Citrus, and Black Cherry. They have
experienced over 100% growth in the last two years. Beverage industry experts
are predicting energy drink sales to soar from sales over $300 million to $2
billion within a few years. These stimulant drinks are also being sold as
"functional beverages" because they offer something beyond taste and hydration.
Many consumers under 35 are using the drinks as mixers with premium liquors.
WATER PRODUCTS. Kwencher water products, bottled in Denver, Colorado by
Vancol, are a pure, non-carbonated water with a major splash of natural fruit
flavors in 16.9 ounce plastic sports bottles. The flavors include Strawberry
Banana, Honey Bee, Lemonade, Kiwi, Strawberry, Strawberry Vanilla, Orange, Creme
Soda, and Peaches & Creme. Kwencher believes packaging drives sales for flavored
waters and led to the products' appearance at Wal-Mart stores starting in 1999.
Besides being eye-catching, the faceted bottle design is also functional. The
product is bottled under license from Mount Olympus Waters, Inc., Salt Lake
City, Utah. The new blue-tinted 1/2-L PET bottle, molded by Schmalbach-Lubeca
Plastic Containers, entered markets in
11
1999 to replace a stock blue-tinted PET bottle. Vancol credits the custom bottle
with drawing the interest and subsequent business of Wal-Mart. A limited test
that started around July 4, 1999, proved so successful that Kwencher stayed in
the stores.
The bottle's ribs, full-around narrow rings above and below the smooth label
area, and pipes bolster its strength. The pipes are the symmetrical convex
portions that extend out from the lines molded into the bottle. Together, these
strengthening aspects combine to provide very good top load capabilities and do
not compromise the bottle's squeezability, which is exceptional for a PET
bottle. The bottle also incorporates elements of a sports bottle, including the
push-pull cap, with tamper-evident inner seal, from Creative Packaging.
Kwencher's seven flavors were increased to nine with the addition of
Strawberry-Banana and Orange Mango Tango in September 1999.
ROOT BEER. Tommy Knocker root beer is bottled in Denver, Colorado by Vancol
and packed in 12 ounce bottles in attractive four-pack for each of the following
flavors: Original Root Beer, Strawberry Creme, and Almond Creme. The smooth
taste and unique flavors offer an alternative to standard root beer. The product
comes in a long-necked brown bottle and the attractive label with the Tommy
Knocker character intended to make this product stand out on the shelf.
SUPPLEMENT DRINK. Ora Nutritional drinks are bottled in Denver, Colorado by
Vancol and packed in 20 ounce bottles in a variety of flavors that include
nutritional supplements. Ora Nutritional suggests that the supplements, which
include ginseng, angelica, choline, ginkgo biloba, aloe vera, beta-carotene,
dandelion and guarana can enhance a consumer's energy, vitality, and focus. The
drinks come in four different flavors, all with an assortment or combination of
the above supplements.
ADVERTISING AND SALES PROMOTION PROGRAMS
Vancol provides excellent promotional materials for use by its distributors. The
materials include high quality multi-color booklets and brochures that can be
used in presentations to potential customers as well as for direct mailing or as
handouts at promotional events. We have a ready supply of these materials and,
to date, they have been effective in gaining sales. We intend to equip our sales
staff with the printed material and a supply of each product for use in
approaching potential customers. We anticipate that customers will also be
directed to a website maintained by our Company where information regarding each
product (ingredients, pricing, etc.) will be available.
We intend to use funds raised in this Offering to place advertisements in
printed industry periodicals and to place banner ads in various beverage
industry websites. The objective of the banner ads will be to drive potential
customers to our website.
In addition, both Vancol and other large- to mid-size bottling companies have
marketing campaigns to introduce, brand, and sell their products in certain
targeted areas of the country. These campaigns consist of television and radio
advertising, billboards, tradeshow kiosks, booths, banners, and other display
items. Our objective is to achieve a volume sales level from venders to allow
for their marketing campaign to enter our initial target market area. We desire
to assist in this effort by approaching retail customers to allow
point-of-purchase displays in their stores and conduct certain, targeted
promotions at community events where we will provide the product for both
giveaways and direct sales.
NEW PRODUCT DEVELOPMENT
Because we will rely on trending products and trending markets, we must monitor
the market to be able to deliver a continuous line of fresh, new products to
existing customers and to the marketplace. We plan to carefully watch beverage
market periodicals and beverage industry websites in search of new products,
test the products and, if deemed satisfactory, approach the manufacturer and
customer for sales agreements.
COMPETITION
While many of our competitors may have greater resources available to them, we
believe that we can successfully compete as a result of Mr. Smith's prior
experience in the field and our ability to enter the market with minimal
overhead. An important factor in our early sales growth is Mr. Smith's personal
contacts with the local school districts. As we expand our markets beyond school
programs, a key ingredient for the Company's success will be the caliber,
commitment, and drive of Mr. Smith and Ms. Orscheln.
12
PRICING AND MARKETING
Our pricing strategy is to broker products on a volume basis with a competitive
net margin. The pricing structure will provide a mark-up on the base price of
product that will range from $3.50 to $9.50 per case, yielding margins of
50-75%.
DISTRIBUTION
Our initial objective is to locate existing distributors that have the necessary
equipment, sales staff, and facilities to accept, store, and distribute our
products. This includes local distributors, grocery stores, and other various
wholesalers. We have informal arrangements with several local distributors who
will handle initial product pick-up and delivery. In addition, we intend to make
arrangements with Vancol to direct ship product to customers on an as-needed
basis.
CUSTOMER SERVICE PROGRAMS
As with all businesses, customer satisfaction is directly related to company
sales. We will accommodate the needs of our customers by providing excellent
customer service. Mr. Smith has existing relationships with the school districts
in the area, and his main focus will be to support and enhance these
relationships with frequent personal visits, follow-up telephone calls, and
occasional solicitation of customer satisfaction surveys. In addition, we will
provide point-of-sale items available from manufacturers, prompt and timely
filling of orders, and reasonable payment terms.
CREDIT AND COLLECTION POLICIES
Sales to the local school districts will be on terms of net 30 days. As we
expand and pick up customers and distributors, a letter of credit policy will be
adopted whereby customers will have to provide evidence of payment prior to
product shipping.
OPERATING SYSTEMS AND PROCEDURES
Orders are placed via telephone to our office. Once an order is received, a
target delivery date is established and an order form is completed and faxed to
the customer to confirm with signature. Within 24 hours, an order is forwarded
simultaneously to the bottler and to the distributor and is confirmed in a
return fax to us. We have online access to the bottler's shipping department to
confirm the agreed delivery date and maintain contact with this system to ensure
timely delivery. We then coordinate the delivery with the distributor and get
confirmation from the distributor when the delivery is made to the customer. We
also make a follow-up telephone call is made to the customer to confirm receipt
and condition of the product and an invoice is produced and mailed to the
customer.
We are set up with a local bank to process different types of payments,
including checks, credit cards, cash, and money orders. We also review each
account on a bi-weekly basis to insure that net 30-day terms are being met. If
an account becomes delinquent, we send a reminder letter.
INSURANCE
We intend to ensure that manufacturers for which we distribute product provide
evidence of insurance. In addition, we intend to maintain a $1 million general
liability policy for general company business protection, including employee
travel, facility and equipment, and product liability.
FACILITIES
We currently operate from a home office where all current orders, deliveries,
billing, and communications are handled. Current warehouse storage and
distribution services are being handled by local distributors for the interim
period until sales and cash flow permit expansion. As sales increase, we intend
to lease office space, warehouse space, dock, and forklift capabilities. We are
contemplating a secondary offering to fund this expansion when appropriate.
EQUIPMENT, MACHINERY, AND VEHICLES
As a broker, there will be no need initially for us to invest capital in
equipment, such as delivery trucks, forklifts, refrigeration equipment, or
dollies. The equipment we rely on includes computers, printers, fax machine,
scanner, telephones, and other general office equipment. As mentioned above,
growth and expansion may provide the necessity to acquire these assets in the
future.
13
MANAGEMENT
OFFICERS AND DIRECTORS
Information concerning each of our executive officers and directors is set forth
below:
NAME AGE POSITION
---- --- --------
James R. Smith 62 President, Secretary, Treasurer,
Acting CFO, Director
Lauri A. Orscheln 37 Vice President, Director
Our directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified. Our officers are elected by the Board of Directors and hold office
until their successors are elected and qualified.
JAMES R. SMITH is President, Secretary, Treasurer, and key manager of the
company. He has over 39 years business experience in public and private
companies, with approximately 15 of those years in the beverage industry. Mr.
Smith has demonstrated abilities in the areas of administration, management
(budget, personnel and facilities), sales, service, business consulting,
personnel interrelationships, advertising, and leadership. He has experience and
the ability to develop a business from start-up through implementation. His
business enterprises included creation and development of real estate
ownership/partnerships, a computer consulting company, a physical fitness
center, and two beverage distribution companies.
Mr. Smith's beverage distribution career began in 1982 when he created
Europa Distributors, Inc., a beverage distribution company very similar to Cedar
Mountain Distributors. Europa, based in Olathe, Kansas, obtained the exclusive
distributing rights for Chapelle(R) Sparkling Mineral Waters that were imported
from Germany. In a one-year period, Europa conducted $700,000 in sales in 23
states. Mr. Smith set up distribution nationwide with beer wholesalers and
served as President of the company. In 1984 Mr. Smith sold his shares in the
company to take the position of Vice President of University Relations at Ottawa
University. In 1992, Mr. Smith returned to the beverage industry and created
Frontier, Inc., a local beverage distribution service operating in the Kansas
City area. In 1999, Mr. Smith established Tarus International, Inc.
Mr. Smith is a graduate of Ottawa University in Ottawa, Kansas, with a
Bachelor of Science in Physical Education and Science. Later, he obtained a
Master of Science degree in Biology and Chemistry from Emporia State College in
Kansas, and also obtained an Educational Administrative Certification from the
University of Kansas. For the last six years, Mr. Smith has been employed as the
Director of Community Development with the Olathe Kansas School District.
LAURI A. ORSCHELN is Vice President and oversees sales and marketing
activities for the Company. With over a decade of experience in marketing and
finance, Ms. Orscheln possesses a proven track record in sales. She is a 1985
graduate of Emporia State University where she obtained a Bachelor of Science
Degree in Business Administration and Marketing. She attended Emporia State
University in Kansas on an athletic scholarship. She competed on the varsity
gymnastics team at the national level. Upon graduating from college, she went to
work in the banking industry. Ms. Orscheln has been a successful loan officer
for several lending institutions. Her sales figures were always in the top 5% of
her peers. Ms. Orscheln has served on the Board of Directors for Habitat for
Humanity and been an active member of the Board of Realtors. She currently is a
member of Noon Optimist Club of Olathe and the Olathe Chamber of Commerce. Since
joining us in December 2000, Ms. Orscheln has expanded the customer base
substantially from a year ago and has begun to successfully penetrate several
major market niches including schools, grocery stores, convenient stores, bars
and clubs, and military installations.
FAMILY RELATIONSHIPS
Ms. Orscheln is the daughter of James R. Smith.
14
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation
paid to executive officers since inception. There were no stock appreciation
rights outstanding during the fiscal year ending December 31, 2000, nor are
there any rights outstanding as of the date of this Prospectus.
LONG-TERM COMPENSATION
-----------------------
FISCAL OTHER ANNUAL
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
------------------------------ --------- ------------ ------------ -----------------------
James R. Smith,
President.................. 2000 0 0 0
There are no employment agreements with any of our officers or directors.
PRINCIPAL STOCKHOLDERS
The following table and notes set forth information concerning the beneficial
ownership of the Company's shares as of June 1, 2001 for (i) each current
Director and each nominee for Director (ii) each named executive officer of the
Company as defined in 402(a)(2) of Regulation S-B of the Securities Act of 1933,
(iii) all persons known by the Company to beneficially own more than 5% of the
Company's voting shares, and (iv) all officers and Directors of the Company as a
group.
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME TITLE OWNERSHIP(1)(2) CLASS(3)
- ------------------------------------ ------------------------------------- ----------------- ---------------
James R. Smith (4) President, Secretary/Treasurer, 1,000,000 33.3%
Acting CFO, Director
Lauri A. Orscheln Vice President, Director -0- -0-
David C. Owen (5) Beneficial Owner 940,000 36.0%
Malcolm K. Green (6) Beneficial Owner 640,000 21.3%
Laura Owen (7) Beneficial Owner 350,000 11.7%
All Directors and Executive Officers as a Group 1,000,000 33.3%
- ----------------------
(1) Unless otherwise noted, the Company believes that all shares are
beneficially owned and that all persons named in the table or family
members have sole voting and investment power with respect to all shares
owned by them. Unless otherwise indicated, the contact address of each
individual is 11011 King Street, Suite 260, Overland Park, Kansas 66062.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options.
(3) Assumes 3,000,000 shares outstanding plus, for each individual, any
securities that such individual has the right to acquire upon exercise of
presently exercisable stock options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(4) Mr. Smith's address is 1236 East Frontier Lane, Olathe, Kansas 66062.
(5) Includes the following shares for which David C. Owen holds voting and
investment control: (i) 300,000 shares held by Owen Enterprises, LLC, (ii)
100,000 shares held by DBM, LP, (iii) 100,000 shares held by Emerson B.
Wells, LP, (iv) 300,000 shares held by the David & Laura Owen Trust, and
(v) 140,000 of 280,000 shares held by Midwest Equity Group, LLC, which is
controlled jointly by David C. Owen and Malcolm K. Green.
15
(6) Includes 140,000 of 280,000 shares held by Midwest Equity Group, LLC.
(7) Laura Owen is the wife of David C. Owen.
CERTAIN TRANSACTIONS INVOLVING OUR OFFICERS, DIRECTORS AND AFFILIATES
Our corporate offices are located at the personal residence of James R. Smith.
Under an oral agreement with Mr. Smith, we pay no rent for the use of this
office space.
On June 15, 2000, our shareholders approved the acquisition of Tarus. As part of
the acquisition agreement, shareholders approved the exchange of 1,000,000
shares of restricted common stock for Cedar Mountain Distributors, Inc. in
exchange for 200,000 shares of common stock of Tarus. As a result, Tarus became
a wholly-owned subsidiary of Cedar Mountain Distributors, Inc.
David C. Owen and Malcolm K. Green have provided consulting services to the
Company in exchange for the right to purchase the ownership interests they
acquired in the Company as outlined in Item 26 below and as set forth under
Principal Stockholders above.
DESCRIPTION OF OUR STOCK
GENERAL
We are authorized to issue 50,000,000 shares of $0.001 par value common stock
and 5,000,000 shares of $0.001 par value preferred stock.
COMMON STOCK
As of the date of this Prospectus, there were 3,000,000 shares of common stock
outstanding held by 14 shareholders.
Holders of common stock are entitled to one vote per share in all matters to be
voted on by the shareholders. Except for any priority in the payment of
dividends, which may be granted to the holders of preferred stock, holders of
common stock are entitled to receive on a per share basis any dividends that may
be legally declared from time to time by our Board of Directors. If we were to
liquidate, dissolve, or wind up our affairs, holders of common stock would be
entitled to share ratably in all assets remaining after payment of our
liabilities and the liquidation preference, if any, of any outstanding preferred
stock. All of our issued and outstanding shares of common stock are fully paid
and non-assessable. The rights, preferences, and privileges of common stock
holders are subject to the rights of the holders of preferred stock even if the
preferred stock is issued after your common stock.
PREFERRED STOCK
The Board of Directors has the authority, without any further vote or action by
the shareholders, to issue up to 5,000,000 shares of preferred stock from time
to time on those terms that the Board of Directors may determine. Although it is
not possible to state what effect, if any, issuance of preferred stock might
have on the rights of common stockholders, the issuance of preferred stock may
have one or more of the following effects:
o to restrict common stock dividends if preferred stock dividends have
not been paid,
o to dilute the voting power and equity interest of holders of common
stock to the extent that any preferred stock has voting rights or is
convertible into common stock, and
o to prevent current holders of common stock from participating in our
assets if we were to liquidate until the preferred stockholders have
been paid.
The issuance of any shares of preferred stock having rights superior to those of
common stock may result in a decrease of the value or market price of our common
stock. The issuance of preferred stock could also be used by the Board of
Directors as a
16
device to prevent a change in our control. There are no shares of preferred
stock presently outstanding and the Board of Directors does not presently intend
to issue any shares of preferred stock.
NO PREEMPTIVE RIGHTS
Holders of common stock do not have any preemptive right to subscribe for or
purchase any class of our securities nor do they have any redemption or
conversion rights.
NO CUMULATIVE VOTING
Common stock shareholders do not have the right to cumulate his or her votes in
an election of directors or for any other matter or matters to be voted upon by
our shareholders.
CERTAIN PROVISIONS OF THE NEVADA GENERAL CORPORATION LAW
As a Nevada corporation, we are subject to the Nevada Revised Statutes ("NRS" or
"Nevada law"). Certain provisions of Nevada law create rights that might be
deemed material to our shareholders. Other provisions might delay or make more
difficult acquisitions of our stock or changes in our control or might also have
the effect of preventing changes in our management or might make it more
difficult to accomplish transactions that some of our shareholders may believe
to be in their best interests.
DISSENTERS' RIGHTS. Among the rights granted under Nevada law which might
be considered material is the right for shareholders to dissent from certain
corporate actions and obtain payment for their shares (see Nevada Revised
Statutes ("NRS") 92A.380-390). This right is subject to exceptions, summarized
below, and arises in the event of mergers or plans of exchange. This right
normally applies if shareholder approval of the corporate action is required
either by Nevada law or by the terms of the articles of incorporation.
A shareholder does not have the right to dissent with respect to any plan
of merger or exchange, if the shares held by the shareholder are part of a class
of shares which are (1) listed on a national securities exchange, (2) included
in the national market system by the National Association of Securities Dealers,
or (3) held of record by not less than 2,000 holders. This exception
notwithstanding, a shareholder will still have a right of dissent if it is
provided for in the articles of incorporation or if the shareholders are
required under the plan of merger or exchange to accept anything but cash or
owner's interests, or a combination of the two, in the surviving or acquiring
entity, or in any other entity falling in any of the three categories described
above in this paragraph.
INSPECTION RIGHTS. Nevada law also specifies that shareholders are to have
the right to inspect company records (see NRS 78.105). This right extends to any
person who has been a shareholder of record for at least six months immediately
preceding his demand. It also extends to any person holding, or authorized in
writing by the holders of, at least 5% of outstanding shares. Shareholders
having this right are to be granted inspection rights upon five days' written
notice. The records covered by this right include official copies of (1) the
articles of incorporation, and all amendments thereto, (2) bylaws and all
amendments thereto; and (3) a stock ledger or a duplicate stock ledger, revised
annually, containing the names, alphabetically arranged, of all persons who are
stockholders of the corporation, showing their places of residence, if known,
and the number of shares held by them respectively. In lieu of the stock ledger
or duplicate stock ledger, Nevada law provides that the corporation may keep a
statement setting out the name of the custodian of the stock ledger or duplicate
stock ledger, and the present and complete post office address, including street
and number, if any, where the stock ledger or duplicate stock ledger specified
in this section is kept.
CONTROL SHARE ACQUISITIONS. Sections 78.378 to 78.3793 of Nevada law
contain provisions that may prevent any person acquiring a controlling interest
in a Nevada-registered company from exercising voting rights. To the extent that
these rights support the voting power of minority shareholders, these rights may
also be deemed material. These provisions will be applicable to us as soon as we
have 200 shareholders of record with at least 100 of these having addresses in
Nevada as reflected on our stock ledger. While we do not yet have the required
number of shareholders in Nevada or elsewhere, it is possible that at some
future point we will reach these numbers and, accordingly, these provisions will
become applicable. We do not intend to notify shareholders when we have reached
the number of shareholders specified under these provisions of Nevada law.
Shareholders can learn this information pursuant to the inspection rights
described above and can see the approximate number of our shareholders by
checking under Item 5 of our annual reports on Form 10-KSB. This form is filed
with the
17
Securities and Exchange Commission within 90 days of the close of each fiscal
year hereafter. You can view these and our other filings at www.sec.gov in the
"EDGAR" database.
Under NRS Sections 78.378 to 78.3793, an acquiring person who acquires a
controlling interest in company shares may not exercise voting rights on any of
these shares unless these voting rights are granted by a majority vote of our
disinterested shareholders at a special shareholders' meeting held upon the
request and at the expense of the acquiring person. If the acquiring person's
shares are accorded full voting rights and the acquiring person acquires control
shares with a majority or more of all the voting power, any shareholder, other
than the acquiring person, who does not vote for authorizing voting rights for
the control shares, is entitled to demand payment for the fair value of their
shares, and we must comply with the demand. An "ACQUIRING PERSON" means any
person who, individually or acting with others, acquires or offers to acquire,
directly or indirectly, a controlling interest in our shares. "CONTROLLING
INTEREST" means the ownership of our outstanding voting shares sufficient to
enable the acquiring person, individually or acting with others, directly or
indirectly, to exercise one-fifth or more but less than one-third, one-third or
more but less than a majority, or a majority or more of the voting power of our
shares in the election of our directors. Voting rights must be given by a
majority of our disinterested shareholders as each threshold is reached or
exceeded. "CONTROL SHARES" means the company's outstanding voting shares that an
acquiring person acquires or offers to acquire in an acquisition or within 90
days immediately preceding the date when the acquiring person becomes an
acquiring person.
These Nevada statutes do not apply if a company's articles of incorporation
or bylaws in effect on the tenth day following the acquisition of a controlling
interest by an acquiring person provide that these provisions do not apply.
According to NRS 78.378, the provisions referred to above will not restrict
our directors from taking action to protect the interests of our Company and its
shareholders, including without limitation, adopting or executing plans,
arrangements or instruments that deny rights, privileges, power or authority to
a holder of a specified number of shares or percentage of share ownership or
voting power. Likewise, these provisions do not prevent directors or
shareholders from including stricter requirements in our Articles of
Incorporation or Bylaws relating to the acquisition of a controlling interest in
the Company.
Our Articles of Incorporation and Bylaws do not exclude us from the
restrictions imposed by NRS 78.378 to 78.3793, nor do they impose any more
stringent requirements.
CERTAIN BUSINESS COMBINATIONS. Sections 78.411 to 78.444 of the Nevada law
may restrict our ability to engage in a wide variety of transactions with an
"INTERESTED SHAREHOLDER." As was discussed above in connection with NRS 78.378
to 78.3793, these provisions could be considered material to our shareholders,
particularly to minority shareholders. They might also have the effect of
delaying or making more difficult acquisitions of our stock or changes in our
control. These sections of NRS are applicable to any Nevada company with 200 or
more stockholders of record and that has a class of securities registered under
Section 12 of the 1934 Securities Exchange Act, unless the company's articles of
incorporation provide otherwise. While our securities are not registered yet
under Section 12, we may register them under this provision at some point in the
future. Similarly, as was discussed above, although we do not yet have 200 or
more shareholders, we may reach this number at some future date. If these events
occur, we will be subject to these statutes as our Articles of Incorporation do
not exempt us from them.
These provisions of Nevada law prohibit us from engaging in any
"combination" with an interested stockholder for three years after the
interested stockholder acquired the shares that cause him to become an
interested shareholder, unless he had prior approval of our Board of Directors.
The term "COMBINATION" is described in NRS 78.416 and includes, among other
things, mergers, sales or purchases of assets, and issuances or
reclassifications of securities. If the combination did not have prior approval,
the interested shareholder may proceed after the three-year period only if the
shareholder receives approval from a majority of our disinterested shares or the
offer meets the requirements for fairness that are specified in NRS 78.441-42.
For the above provisions, "RESIDENT DOMESTIC CORPORATION" means a Nevada
corporation that has 200 or more shareholders. An "INTERESTED STOCKHOLDER" is
defined in NSR 78.423 as someone who is either:
o the beneficial owner, directly or indirectly, of 10% or more of the
voting power of our outstanding voting shares, or
o our affiliate or associate and who within three years immediately
before the date in question, was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of our outstanding
shares at that time.
DIRECTORS' DUTIES. Section 78.138 of the Nevada law allows our directors
and officers, in exercising their powers to further our interests, to consider
the interests of our employees, suppliers, creditors and customers. They can
also consider the economy of the state and the nation, the interests of the
community and of society and our long-term and short-term interests
18
and shareholders, including the possibility that these interests may be best
served by our continued independence. Our directors may resist a change or
potential change in control if they, by a majority vote of a quorum, determine
that the change or potential change is opposed to or not in our best interest.
Our Board of Directors may consider these interests or have reasonable grounds
to believe that, within a reasonable time, any debt which might be created as a
result of the change in control would cause our assets to be less than our
liabilities, render us insolvent, or cause us to file for bankruptcy protection
AMENDMENTS TO BYLAWS
Our Articles of Incorporation provide that the power to adopt, alter, amend, or
repeal our Bylaws is vested exclusively with the Board of Directors. In
exercising this discretion, our Board of Directors could conceivably alter our
Bylaws in ways that would affect the rights of our shareholders and the ability
of any shareholder or group to effect a change in our control; however, the
Board would not have the right to do so in a way that would violate law or the
applicable terms of our Articles of Incorporation.
TRANSFER AGENT AND REGISTRAR
Before the effective date of this Offering, we intend to engage Interwest
Transfer Company, Inc. of Salt Lake City, Utah, as the transfer agent and
registrar of our common stock.
INDEMNIFICATION AND PUBLIC POLICY
Our Articles of Incorporation contain a provision permitted under the Nevada law
concerning the liability of directors. This provision permits our Board of
Directors to enter into indemnity agreements between our Company and each
director or officer. These agreements shall provide for the fullest possible
indemnification of our directors and officers that is permitted under Nevada
law. They are to extend to all expenses, judgments, fines, penalties, excise
taxes, and amounts paid in settlement for claims relating to the particular
director or officer's service with or for our Company. This provision eliminates
a director or officer's personal liability for monetary damages; however, it
does not extend to breaches of the duty of loyalty or to acts or omissions that
involve intentional misconduct or a knowing violation of law. This provision
does not limit or eliminate our rights or the rights of any shareholder to seek
non-monetary relief, like an injunction or rescission, if there is a breach of a
director's fiduciary duty. This provision will not change a director's liability
under federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act is
permitted to our directors, officers, or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, this
type of indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
TERMS OF THE OFFERING
PLAN OF DISTRIBUTION
We are offering to sell up to 200,000 shares of our common stock at a purchase
price of $1.00 per share. Our common stock is being offered by our officers and
directors on a "DIRECT PARTICIPATION" basis. This means that no underwriter will
be involved to assist in our sales efforts. The employees, officers, and
directors who will sell the Offering on our behalf are James R. Smith and Lauri
A. Orscheln. These individuals will be relying on the safe harbor in Rule 3a4-1
under the Securities Exchange Act of 1934 to sell our securities. The principal
shareholders will supply names of prospective investors to our management, none
of whom shall have been offered shares of common stock prior to the date of this
Prospectus. We do not intend to offer the shares of common stock by means of
general advertising or solicitation. No sales commission, finder's fee, or other
compensation (other than the normal salaries paid to our management) will be
paid for common stock that we sell. We reserve the right to withdraw, cancel or
reject any offer to purchase our stock. The common stock registered in this
Offering will not be sold to our insiders, control persons, or affiliates. There
are no plans, proposals, arrangements, or understandings with any potential
sales agent with respect to participating in the distribution of our securities.
If at some point in the future, participation with sales agents develops, the
registration statement will be amended to identify those persons.
19
DETERMINATION OF OFFERING PRICE
We arbitrarily determined the offering price and other terms of our common stock
after considering the following factors:
o the amount of proceeds required to initiate our business plan and
marketing strategy.
o our lack of revenues,
o our management capability,
o our plans for future growth,
o the general condition of the securities markets, and
o the amount of retained equity to the present shareholders.
Prospective investors should not assume that the offering price of our common
stock necessarily reflects the actual value of our common stock.
NO MINIMUM INVESTMENT
There is no minimum investment that any investor must make in this Offering.
Further, there is no minimum amount of stock that must be sold in order for this
Offering to go forward. All funds received by us from the sale of our common
stock offered by this Prospectus will be deposited immediately into our
operating account and used as described above under "Use of Proceeds."
TERMINATION OF OFFERING
This Offering will terminate six months from the date of this Prospectus unless
all shares offered by this Prospectus are sold prior to that date.
NO PUBLIC MARKET FOR OUR COMMON STOCK
Before the Offering, there has been no established trading market for our common
stock. Even if a public market were to be created or maintained, brokers or
dealers who make a market in or otherwise trade in our common stock would be
subject to requirements when trading our stock that are not imposed upon the
trading of stock with a higher market value. This is because our stock would be
considered to be a "PENNY STOCK." For example, Rule 15g-9 under the Securities
Exchange Act of 1934 imposes additional sales practice requirements upon
broker-dealers who sell "PENNY STOCKS" to persons other than established
customers and institutional accredited investors. For transactions under this
rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to the sale. The SEC normally defines a "PENNY STOCK" to be any non-Nasdaq
Stock Market equity security that has a market price of less than $5.00 per
share. For any transaction by broker-dealers involving a penny stock, the rules
of the SEC usually require delivery, prior to a transaction in penny stock, of a
risk disclosure document relating to the penny stock market. These additional
requirements relating to "penny stocks" could result in the market liquidity of
our stock could be severely and adversely affected.
In addition, the National Association of Securities Dealers, Inc. ("NASD") has
adopted a series of changes pertaining to the OTC Bulletin Board and the OTC
market. Generally stated, these changes:
o allow only those companies that report their current financial
information to the SEC, banking, or insurance regulators to be quoted
on the OTC Bulletin Board;
o require brokers, before they recommend a transaction involving an OTC
security, to review current financial statements on the company they
are recommending; and
o prior to the initial purchase of an OTC security, require that every
investor receive a standard disclosure statement (prepared by the
NASD) emphasizing the differences between OTC securities and other
market-listed securities.
The NASD has also adopted a rule which grants authority for the NASD to halt
trading of securities on the OTC Bulletin Board under circumstances where the
NASD believed the investment public could be harmed. We cannot predict the
likelihood of these proposed changes being approved by the SEC in their current
form or the adoption of any additional changes by the NASD.
In addition, in order to create a market in our common stock that would trade on
the OTC Bulletin Board, we would need to recruit a NASD member broker-dealer to
act as a market maker. Although we have identified some potential market makers,
we
20
have not entered into any negotiations or arrangements with any broker-dealer
to act as a market maker. Even if such a public market were to develop, the
vagaries of the stock market might subject our stock to significant price and
volume fluctuations that may or may not be related to our operating performance.
Such a market maker cannot accept any consideration from us for initiating
quotations in our stock
We have not applied for a trading symbol under which our stock would trade. It
is anticipated that we would apply for a trading symbol once we have identified
a market maker that would agree to make a market in our stock.
SHARES ELIGIBLE FOR FUTURE SALE
IN GENERAL
Once the Offering is complete, we will have a total of 3,200,000 shares of
common stock outstanding, assuming we are able to sell all shares of common
stock offered by this Prospectus. Of these shares of common stock, all shares
from the Offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
"AFFILIATES," as that term is defined in Rule 144 of the Act, may generally be
sold only in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
IN GENERAL. The remaining 3,000,000 shares of common stock are "RESTRICTED
SECURITIES" as defined in Rule 144. Restricted securities may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under the Securities Act. Subject to the volume limitations
described below, 1,200,000 of these shares were eligible for sale under Rule 144
beginning in January 2001. An additional one million shares will qualify in June
2001. During January 2002, an additional 500,000 will be eligible, with the
remaining 300,000 becoming eligible by March 6, 2002.
WHO CAN SELL
IN GENERAL. Under Rule 144, in general, a person (or persons whose shares
are aggregated), including an affiliate, who has beneficially owned shares for
at least one year can sell, within any three-month period a number of shares of
common stock that does not exceed the greater of:
(a) 1% of the then outstanding shares of common stock (about 32,000 shares
immediately after the Offering); or
(b) the average weekly trading volume in our common stock during the four
calendar weeks before notice of the Rule 144 sale is filed, subject to
a few restrictions described in Rule 144.
NO VOLUME LIMITS. In addition, any person who has not been our affiliate at
anytime during the 90 days before a sale and who has beneficially owned the
shares he or she desires to sell for at least two years may sell those shares
under Rule 144(k) and not be concerned with the volume limits described above.
EFFECT OF SALES OF SHARES. Before the Offering, there has been no public
market for our common stock. No precise prediction can be made as to whether a
market will be created or sustained after the Offering. Therefore, we cannot
predict what precise effect sales of restricted stock may have on the market
price of our common stock. Nevertheless, sale of substantial amounts of common
stock in the public market could adversely affect market prices. Sales of
restricted stock could also impair our future ability to raise capital through
the sale of our equity securities.
21
LITIGATION
We are not a party to any pending or threatened legal proceedings.
LEGAL MATTERS
We are being advised on the legality of issuing our common stock offered by this
Prospectus by Gibson, Haglund & Paulsen, Sandy, Utah.
EXPERTS
The balance sheet of the Company as of December 31, 2000 and the statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 2000 and 1999 have been included herein in reliance upon the report of
Sartain Fischbein & Co., Independent Certified Public Accountants, given as the
authority of that firm as experts in accounting and auditing. With respect to
the unaudited interim financial information for the three month periods ended
March 31, 2001 and 2000, the independent certified public accountants have not
audited or reviewed such financial statements and have not expressed an opinion
or any other form of assurance with respect to such financial statements.
ADDITIONAL INFORMATION
We have filed our Form SB-2 Registration Statement with the SEC. This Prospectus
does not contain all of the information set forth in the registration statement.
You will find additional information about us and our common stock in the
registration statement and in the exhibits attached thereto. The registration
statement, including its exhibits, may be inspected without charge at the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
may be obtained from that office, if you pay the applicable fees. The
registration statement is available on the SEC's website at www.sec.gov.
We have to comply with the information requirements of the Securities Exchange
Act of 1934, and will file reports, proxy statements, and other information with
the SEC. These materials can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, or at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois, 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of these materials can be obtained from the SEC's Public
Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Some information about us is also available on the SEC's
website at www.sec.gov.
We intend to furnish our shareholders, after the close of each calendar year,
with an annual report that describes our business and contains audited financial
statements that have been examined and reported upon by an independent certified
public accountant. In addition, we may from time to time furnish our
shareholders with other reports that we believe will help keep them informed
about our business.
FINANCIAL INFORMATION
The Company financial statements for the year ended as of December 31, 2000, and
the related statements of operations, stockholders' deficit, and cash flows for
the year ended December 31, 2000 and the period from August 5, 1999 (inception)
to December 31, 1999; and the unaudited financial statements for the first
quarter of 2001 included below.
22
CEDAR MOUNTAIN DISTRIBUTORS, INC.
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets F-3
Statements of Operations F-4
Statement of Stockholders' Deficit F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 to F-11
F-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Cedar Mountain Distributors, Inc.
Olathe, Kansas
We have audited the accompanying balance sheet of Cedar Mountain Distributors,
Inc. as of December 31, 2000, and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 2000 and
the period from August 5, 1999 (inception) to December 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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits 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 Cedar Mountain Distributors,
Inc. as of December 31, 2000 and the results of its operations and its cash
flows for the year ended December 31, 2000 and the period from August 5, 1999
(inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
March 26, 2001 Sartain Fischbein & Co.
Tulsa, Oklahoma
F-2
CEDAR MOUNTAIN DISTRIBUTORS, INC.
BALANCE SHEETS
December 31, March 31,
2000 2001
(Unaudited)
------------ -----------
ASSETS
CURRENT ASSETS:
Cash $ 2,573 $ 21,200
Accounts receivable 715 1,975
Inventories 5,792 10,135
-------- --------
TOTAL CURRENT ASSETS $ 9,080 $ 33,310
-------- --------
OTHER ASSETS:
Deposits -- 600
Prepaid offering costs -- 7,500
-------- --------
-- 8,100
-------- --------
TOTAL ASSETS $ 9,080 $ 41,410
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 8,582 $ 1,600
Accrued interest payable 882 1,546
Notes payable - stockholders 9,000 56,500
-------- --------
TOTAL CURRENT LIABILITIES 18,464 59,646
-------- --------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.001 par value, 50,000,000 shares
authorized, 3,000,000 shares issued and outstanding 3,000 3,000
Additional paid-in capital 410 410
Accumulated deficit (12,794) (21,646)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (9,384) (18,236)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,080 $ 41,410
======== ========
F-3
The accompanying notes are an integral part of the financial statements.
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
Period from
August 5, 1999
(Inception)
to Year Ended Three Months Ended March 31,
December 31, December 31, ---------------------------
1999 2000 2000 2001
(Unaudited) (Unaudited)
--------- ----------- ---------- -----------
SALES $ -- $ 20,272 $ 19,230 $ 10,618
COST OF SALES -- 18,134 13,815 6,722
--------- ----------- ---------- -----------
GROSS PROFIT -- 2,138 5,415 3,896
OPERATING EXPENSES -- 14,050 1,547 12,084
--------- ----------- ---------- -----------
OPERATING INCOME (LOSS) -- (11,912) 3,868 (8,188)
INTEREST EXPENSE -- 882 168 664
--------- ----------- ---------- -----------
NET INCOME (LOSS) $ -- $ (12,794) $ 3,700 $ (8,852)
========= =========== ========== ===========
BASIC INCOME (LOSS)
PER SHARE $ * $ * $ * $ *
========= =========== ========== ===========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 1,000,000 2,060,109 1,000,000 3,000,000
========= =========== ========== ===========
* Less than $.01 per share
F-4
The accompanying notes are an integral part of the financial statements.
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
Common Stock Additional
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------ ---------- ----------- --------
Balance at Inception,
August 5, 1999 -- $ -- $ -- $ -- $ --
Issue shares for cash at
$.002 per share 1,000,000 1,000 1,000 -- 2,000
--------- ------ ------- -------- --------
Balance, December 31, 1999 1,000,000 1,000 1,000 -- 2,000
Common stock issued in
merger, $.001 par value 2,000,000 2,000 (590) -- 1,410
Net loss for year -- -- -- (12,794) (12,794)
--------- ------ ------- -------- --------
Balance, December 31, 2000 3,000,000 3,000 410 (12,794) (9,384)
Net loss for period
(unaudited) -- -- -- (8,852) (8,852)
--------- ------ ------- -------- --------
Balance, March 31, 2001
(unaudited) 3,000,000 $3,000 $ 410 $(21,646) $(18,236)
========= ====== ======= ======== ========
F-5
The accompanying notes are an integral part of the financial statements.
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
Period from
August 5, 1999
(inception)
to Year Ended Three Months Ended March 31,
December 31, December 31, ----------------------------
1999 2000 2000 2001
(Unaudited) (Unaudited)
-------------- ------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ -- $(12,794) $ 3,700 $ (8,852)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Increase in accounts receivable -- (715) -- (1,260)
Increase in inventories -- (5,792) -- (4,343)
Increase in deposits -- -- -- (600)
Increase (decrease) in accounts payable -- 8,582 653 (6,982)
Increase in accrued interest payable -- 882 168 664
------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES -- (9,837) 4,521 (21,373)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received upon merger (Note 2) -- 1,410 -- --
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepaid offering costs -- -- -- (7,500)
Proceeds from the sale of common stock 2,000 -- -- --
Proceeds from notes payable - stockholders -- 14,000 14,000 47,500
Repayments of note payable -- (5,000) -- --
------- -------- ------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,000 9,000 14,000 40,000
------- -------- ------- --------
NET INCREASE IN CASH 2,000 573 18,521 18,627
CASH, beginning of period -- 2,000 2,000 2,573
------- -------- ------- --------
CASH, end of period $ 2,000 $ 2,573 $20,521 $ 21,200
======= ======== ======= ========
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ -- $ -- $ --
======= ======== ======= ========
Income Taxes $ -- $ -- $ -- $ --
======= ======== ======= ========
F-6
The accompanying notes are an integral part of the financial statements.
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
(INFORMATION FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
1. INTERIM FINANCIALS In the opinion of Cedar Mountain Distributors,
STATEMENTS Inc. (the "Company"), the accompanying unaudited
(UNAUDITED) financial statements contain all adjustments
(consisting of only normal recurring adjustments)
necessary to present fairly the financial position
of the Company at March 31, 2001 and the results
of its operations and cash flows for the three
months ended March 31, 2001 and 2000. The results
of operations for the three months ended March 31,
2001 and 2000 are not necessarily indictive of the
results to be expected for the full year.
2. BUSINESS On June 20, 2000, a merger was consummated whereby
COMBINATION Cedar Mountain Distributors, Inc. (the "Company")
issued 1,000,000 common shares (par value $.001)
in exchange for 100% of Tarus International, Inc.
("Tarus") common stock. Immediately after the
merger, the Tarus stockholder owned 33.3% of
Company common stock.
The business combination was accounted for using
the principles of purchase accounting with Tarus
being the acquiring enterprise for the following
reasons:
1. The Company was a new entity formed to
issue stock to effect a business
combination and had no substantial
activity prior to the merger.
2. The management of Tarus became the
management of the Company immediately
after the merger.
Accordingly, the historical financial statements
prior to June 20, 2000 are those of Tarus restated
to reflect the equivalent number of Company shares
and the par value of such shares.
Tarus acquired the sole asset of the Company,
which consisted of $1,410 of cash.
No pro forma information giving effect of the
acquisition as if it had taken place on August 5,
1999 as the effect would be immaterial to the
results of operations.
F-7
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
(INFORMATION FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
3. SUMMARY OF NATURE OF OPERATIONS: Tarus International, Inc.
SIGNIFICANT ("Tarus") was incorporated in August 1999. Tarus'
ACCOUNTING principal operations during its development stage
POLICIES consisted of developing a business plan, raising
capital, establishing key relationships with
suppliers and customers and creating the operation
infrastructure. During the year ended December 31,
2000, Tarus began to sell imported soft drinks in
load quantities to schools and institutions. Tarus
intends to take advantage of the market for
healthy alternatives to traditional soft drinks.
The Company was incorporated on December 23, 1999
to effect a business combination with Tarus (See
Note 2).
INVENTORIES: Inventories, which consist of
purchased bottled and canned soft drinks, are
stated at the lower of cost (first-in, first-out
method) or market.
PREPAID OFFERING COSTS: Prepaid offering costs
represent costs incurred in connection with the
Company's proposed public offering. Prepaid
offering costs will be offset against net proceeds
if successful, or expensed in operations if the
offering is unsuccessful.
PER SHARE INFORMATION: The computation of income
(loss) per share is based on the income (loss)
applicable to common stockholders, divided by the
weighted average number of common shares
outstanding during the period. No diluted per
share information is provided as there are no
potential common shares.
INCOME TAXES: The Company uses the asset and
liability method of accounting for income taxes.
Under the asset and liability method, deferred tax
assets and liabilities are recognized for the
future tax consequences attributable to difference
between the financial statement carrying amounts
of existing assets and liabilities and their
respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates
expected to apply to taxable income in the years
in which those temporary differences are expected
to be recovered or settled.
ADVERTISING COSTS: Advertising costs are expensed
as incurred.
F-8
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
(INFORMATION FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
3. SUMMARY OF USE OF ESTIMATES: The preparation of financial
SIGNIFICANT statements in conformity with generally accepted
ACCOUNTING accounting principles requires management to make
POLICIES estimates and assumptions that affect the reported
(CONTINUED) amount of assets and liabilities and disclosure 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.
REVENUE RECOGNITION: Upon receipt of a customer
order, the Company places an order with their
vendor for the soft drink products. Vendors
supplying product to the Company generally require
payment before the product is picked up by a
common carrier for delivery to the customer.
Funds paid to the vendor are recorded as deposits
on inventory until the product is picked up by the
common carrier, at which time the product becomes
Company inventory. Inventory is recorded at cost.
The Company recognizes revenue upon delivery of
the products to the customer.
CONCENTRATION: The Company currently purchases all
its inventory from one supplier.
4. NOTES PAYABLE Notes payable stockholder consist of the
STOCKHOLDERS following:
December 31, March 31,
2000 2001
------------ ---------
Notes payable to stockholders with
interest at 10%, due on demand. The
notes are without collateral. $9,000 $56,500
====== =======
5. MAJOR CUSTOMERS One unaffiliated customer accounted for 96% of the
Company's total revenue during the year ended
December 31, 2000. At December 31, 2000, there
were no outstanding receivables from the customer.
F-9
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
(INFORMATION FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
5. MAJOR CUSTOMERS Three unaffiliated customers accounted for 75% of
(CONTINUED) the Company's total revenue during the three
months ended March 31, 2001 and one affiliated
customer accounted for 100% of the Company's total
revenue during the three months ended March 31,
2000.
6. RELATED PARTY From inception to December 2000, the Company had
TRANSACTIONS no employees and currently continues to utilize
the services, furniture, equipment, and facilities
of one of the stockholders for no charge.
7. INCOME TAX Components of the net deferred tax asset at are as
follows:
December 31, March 31,
2000 2001
------------ --------
Net operating losses $ 1,919 3,247
Valuation allowance (1,919) (3,247)
------- -------
Net deferred tax asset $ -- $ --
======= =======
At December 31, 2000 the Company has net operating
loss carryforwards of approximately $12,000 which
expire through 2021. Due to the uncertainty as to
the ultimate utilization, a deferred tax asset
valuation allowance has been provided and no net
provision for income taxes is included in the
statement of operations.
8. STOCK OPTION PLAN Effective January 6, 2000, the Company adopted a
Stock Option Plan ("the Plan") that provides for
qualified and non-qualified plans. The Plan covers
an aggregate 2,000,000 shares of common stock,
except that no more than 1,000,000 shares shall be
issued in connection with the exercise of
incentive options. The incentive plan is
administered by a committee appointed by the Board
of Directors' "committee", and requires that
options be granted at an exercise price of 100% of
the fair value of the common stock of the Company
on the date of the grant. Options granted to
stockholders who possess more than 10% of the
outstanding common stock have a required exercise
price of 100% of the fair value of the common
stock on the date of grant.
F-10
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO MARCH 31, 2001
(INFORMATION FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
8. STOCK OPTION PLAN The options expire up to ten years from date of
(CONTINUED) grant or up to five years from the date of grant
for options to stockholders who possess more than
10% of the outstanding common stock.
The non-qualified plan is also administered by the
Committee and is covered by the same 2,000,000
shares as the incentive plan. The non-qualified
plan provides that options may be granted at
exercise prices and terms as determined by the
Committee.
No options have been granted under the Plan.
9. STOCKHOLDERS' PREFERRED STOCK: The Board of Directors authorized
EQUITY 5,000,000 of $.001 par value preferred stock with
attributes to be determined by the Board of
Directors.
10. SUBSEQUENT Subsequent to March 31, 2001, the Board of
EVENT (UNAUDITED) Directors approved the sale of 200,000 shares of
common stock at $1.00 per share in a public
offering.
Subsequent to March 31, 2001, the Company borrowed
an additional $20,000 from a stockholder. The note
is due on demand, bears interest at 10% and is
without collateral.
F-11
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.037 of the Nevada Revised Statutes provides that a corporation, in
its Articles of Incorporation, may provide for the limitation of personal
liability of directors or officers to the corporation or its stockholders for
breach of fiduciary duty except for acts or omissions involving intentional
misconduct, fraud or knowing violation of law or unlawful payment of
distributions. The Company's Articles of Incorporation contains such a
provision.
The Company's Articles of Incorporation, pursuant to the authority granted by
NRS Section 78.037, state that no director or officer shall be personally liable
to company for monetary damages for any breach of fiduciary duty by such person
as a director or officer. Notwithstanding the foregoing sentence, a director or
officer shall be liable to the extent provided by applicable law, (i) for acts
or omissions which involve intentional misconduct, fraud or a knowing violation
of law, or (ii) for the payment of dividends in violation of NRS 78.300.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities offered hereby.
Amount
--------------
SEC Registration Fee...................................... $50
Printing ................................................. $100
Blue Sky Fees and Expenses................................ $5,000
Transfer Agent Fees....................................... $2,500
Accounting Fees and Expenses.............................. $12,500
Legal Fees and Expenses................................... $25,000
Miscellaneous Fees and Expenses........................... $2,000
--------------
Total........................................ $47,150
==============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception, sales of unregistered common stock (the only issued and
outstanding securities of the Company) were made by the small business issuer as
follows:
NAME AND CONSIDERATION DATE SOLD NUMBER OF SHARES CASH
- ----------------------------------------------- --------------------- ---------------------- ---------------
James R. Smith 06/15/00 1,000,000 $2,000.00
Peterson & Sons Holding Co. 01/06/00 900,000 $900.00
Owen Enterprises, LLC 01/06/00 300,000 $300.00
The David & Laura Owen Trust 01/06/00 300,000 $300.00
Bryan S. Ferguson 01/06/00 100,000 $100.00
MDN, LLP 01/06/00 100,000 $100.00
DBM, LLP 01/06/00 100,000 $100.00
Emerson B. Wells, LP 01/06/00 100,000 $100.00
Laura E. Owen 01/06/00 50,000 $50.00
Karen E. Taylor 01/06/00 25,000 $25.00
John C. Garrison 01/06/00 25,000 $25.00
With respect to the sale of all unregistered securities as described above, this
small business issuer relied upon the exemption afforded by Section 4(2) of the
Securities Act of 1933 which relates to transactions in securities not involving
a public offering. All recipients had a preexisting business relationship with a
founder, officer, or director of the Company. No advertisement or
II-1
general solicitation was used to promote sales of the Company's stock. The
Company believed that each purchaser was purchasing with the intent to invest,
and not with a view to distribution. No transfer of restricted securities will
be permitted without opinion of counsel that such transfer is in compliance with
the rules and regulations of the SEC.
ITEM 27. EXHIBITS.
Number Description
------ -----------
2.1 Agreement and Plan of Exchange between Cedar Mountain Distributors, Inc. and Tarus
International, Inc.
3.1 Articles of Incorporation of KNETX Skates Corporation
3.2 Restated Articles of Incorporation of Cedar Mountain Distributors, Inc.
3.3 Restated Bylaws of Cedar Mountain Distributors, Inc.
5.1 Opinion of Gibson, Haglund & Paulsen
21.1 Information Regarding our Subsidiary, Tarus International, Inc.
23.1 Consent of Sartain Fischbein & Co.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities
under Rule 415 of the Securities Act, a post-effective amendment to this
registration statement to:
(i) include any Prospectus required by section 10(a)(3) of the
Securities Act; and
(ii) reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change 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.
II-2
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 Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Olathe,
State of Kansas, on June 29, 2001.
CEDAR MOUNTAIN DISTRIBUTORS, INC.,
a Nevada corporation
By: /s/ James R. Smith
------------------------------
James R. Smith, President, Secretary,
Treasurer, and Acting Chief
Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
NAME TITLE DATE
- ---- ----- ----
/s/ James R. Smith
- ---------------------------------------- President, Secretary, Treasurer, Acting July 9, 2001
James R. Smith Chief Financial Officer, and Director
/s/ Lauri A. Orscheln
- ---------------------------------------- Vice President and Director July 9, 2001
Lauri A. Orscheln
II-3