SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 0-26454
OTHNET, INC.
(Exact name of Small Business Issuer
as specified in its Charter)
Delaware 98-0142664
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
The First National Bank Building
332 Minnesota Street, Suite 100 North
St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (651) 291-2993
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ______
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
Common, $.001 par value per share: 16,949,279 outstanding as of
April 15, 2002
OTHNET, INC.
Quarter Ended January 31, 2002
INDEX
Part I - Financial Information
Item 1. Financial Statements
Page
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Cash Flows 5
Unaudited Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis or Plan of Operation 8
Part II - Other Information 13
OTHNET, INC.
(Formerly known as PL Brands, Inc.)
(A development stage company)
UNAUDITED CONSOLIDATED BALANCE SHEETS
January 31, April, 30
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 116 $ 559,365
Prepaid expenses - 875
------------ ------------
Total current assets 116 560,240
PROPERTY AND EQUIPMENT:
Office furniture and equipment 72,312 55,599
Less accumulated depreciation 20,498 8,132
------------ ------------
Property and equipment, net 51,814 47,467
OTHER ASSETS:
Investment in Savage Beast 250,000 -
License Agreement - 180,000
Proprietary information database and search engine 800,000 2,166,310
------------ ------------
Total other assets 1,050,000 2,346,310
------------ ------------
$ 1,101,930 $ 2,954,017
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 478,677 $ 246,086
Note payable to bank 25,000 -
Notes payable to shareholders 29,725 -
Shareholder advances 10,276 -
Accrued salaries and benefits 176,095 35,462
------------ ------------
Total current liabilities 719,773 281,548
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 40,000,000 shares authorized,
16,949,279 issued and outstanding 16,949 16,899
Preferred stock, $.001 par value, 2,000,000 shares authorized - -
Additional paid-in capital 12,219,230 11,969,280
Accumulated deficit (11,854,022) (9,313,710)
------------ ------------
Total shareholders' equity 382,157 2,672,469
$ 1,101,930 $ 2,954,017
============ ============
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(Formerly known as PL Brands, Inc.)
(A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
Period From
May 1, 2000 Three Months Ended January 31, Nine Months Ended January 31,
to January 31, ------------------------------ -----------------------------
2002 2002 2001 2002 2001
------------ ------------ -------------- ------------ -------------
Net sales $ 31,205 $ 66 $ 10,352 5,750 28,782
Operating Expenses:
Amortization of intellectual property 1,499,745 166,634 249,955 666,555 583,233
General and administrative expenses 3,055,406 273,788 636,964 1,098,903 1,451,748
Write-off of impaired assets 783,755 783,755 783,755
Stock based compensation for nonemployees 4,404,307
------------ ------------ ------------ ------------ ------------
Total operating expenses 9,743,213 1,224,177 886,919 2,549,213 2,034,981
Loss from operations (9,712,008) (1,224,111) (876,567) (2,543,463) (2,006,199)
Other Income 77,476 56 16,815 3,151 46,129
------------ ------------ ------------ ------------ ------------
Net loss $ (9,634,532) $ (1,224,055) $ (859,752) $ (2,540,312) $ (1,960,070)
============ ============ ============ ============ ============
Basic and diluted net loss per share $(0.60) $(0.07) $(0.05) $(0.15) $(0.13)
============ ============ ============ ============ ============
Weighted average shares outstanding 16,168,364 16,949,279 16,899,279 16,915,946 15,175,726
============ ============ ============ ============ ============
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(Formerly known as PL Brands, Inc.)
(A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
Period From
May 1, 2000 Nine Months Ended January 31,
to January 31, -----------------------------
2002 2002 2001
----------- ----------- -----------
Operating Activities
Net loss $(9,634,532) $(2,540,312) $(1,960,070)
Adjustment to reconcile net loss to net cash used
used in operating activities:
Fair value of options granted to nonemployees 4,404,307 -
Stock compensation expense 499,000 - 499,000
Depreciation and amortization 1,616,243 774,921 588,145
Write-off of impaired assets 783,755 783,755
Changes in assets and liabilities affecting cash flow:
flow (net of assets acquired):
Prepaid expenses - 875 (55,877)
Accounts Receivable - (15,132)
Accounts payable 314,197 232,591 38,891
Accrued salaries and benefits 176,095 140,633 26,178
----------- ----------- -----------
Net cash (used in operating activities) (1,840,935) (607,537) (878,865)
Investing Activities
Purchase of intellectual property - Othnet (500,000) - (500,000)
Purchase of license agreement (100,000) - -
Purchase of office furniture and equipment (72,312) (16,713) (49,489)
----------- ----------- -----------
Net cash used in investing activities (672,312) (16,713) (549,489)
Financing Activities
Net proceeds from sale of common stock
in private placement 2,443,823 - 2,443,823
Proceeds from bank loan 25,000 25,000 -
Proceeds from shareholder loans 29,725 29,725
Advances from shareholders 10,276 10,276
Other proceeds from issuance of common stock 1,500 - 1,500
----------- ----------- -----------
Net cash from financing activities 2,510,324 65,001 2,445,323
Net (decrease) increase in cash (2,923) (559,249) 1,016,969
Cash beginning of period 3,039 559,365 3,039
----------- ----------- -----------
Cash end of period $ 116 $ 116 $ 1,020,008
=========== =========== ===========
NONCASH TRANSACTIONS
Issuance of 50,000 shares for investment in
Savage Beast $ 250,000 $ 250,000 $ -
=========== =========== ===========
Issuances of 500,000 common shares for
services provided $ 249,500 $ - 249,500
=========== =========== ===========
Issuances of 4,500,000 common shares for purchase
of intellectual database and search engine $ 2,250,000 $ - $ 2,250,000
=========== =========== ===========
Amount due for purchase of license agreement
(included in accounts payable) $ 80,000 $ - $ 80,000
=========== =========== ===========
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(formerly known as PL Brands, Inc.)
(a development stage company)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Unaudited Interim Financial Information
The accompanying interim consolidated financial
statements are unaudited, but in the opinion of the management
of the Company, contain all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the
financial position at January 31, 2002 and April 30, 2001, the
results of operations for the three and nine month periods
ended January 31, 2002 and 2001, and the cash flows for the
nine month periods ended January 31, 2002 and 2001. The
results of operations for the three and nine month periods
ended January 31, 2002 are not necessarily indicative of the
results of operations to be expected for the full fiscal year
ending April 30, 2002. These interim consolidated financial
statements should be read in conjunction with the audited
financial statements and notes thereto appearing in the
Company's Form 10-KSB for the year ended April 30, 2001.
Note 2. Note Payable to Bank
On October 19, 2001, the Company borrowed $25,000 from a
bank. The loan was due on December 18, 2001, and bears
interest at 1% over the bank prime rate (6.5%). The loan is
secured by the assets of the Company and a personal guaranty by
the President of the Company. The due date of the loan has
been extended to May 18, 2002.
Note 3. Savage Beast
The Company completed a stock exchange with Savage Beast
Technologies Incorporated ("Savage Beast") during the three months
ended October 31, 2001, by issuing Savage Beast 50,000 shares
of common stock, at an agreed valuation of $5.00 per share, or
$250,000 in the aggregate, in exchange for 100,000 shares of
Savage Beast's common stock, at an agreed valuation of $2.50
per share, or $250,000 in the aggregate. Should the Company
sell shares of its common stock at a price below $5.00 per
share (reduced price) in its next round of financing, the
number of shares of Company common stock issued to Savage Beast
shall be increased such that the total number of shares issued
multiplied by the reduced price equals $250,000.
Note 4. Asset Impairment
In December 2001, the Board of Directors approved a plan
to shut down all nonessential functions of the Company and to
reduce all expenses that were not absolutely essential to
maintaining the Company as a reporting entity until the Company
is able to obtain some type of cash infusion. Additionally, the
Company began pursuing the sale or license of its technology.
In carrying out this plan, management has entered into
agreements described in Note 5. Based on management's plan, it
was deemed that the license agreement and the Company's
proprietary information data base and search engine were
impaired, and as a result, an impairment charge of $84,000 and
$700,000, respectively, was recorded at December 31, 2001. The
impairment charges are based on the estimated fair value of the
common stock being exchanged for the transfer of the technology
as described in Note 5.
Note 5. Subsequent Event
In April 2002, the Company received $300,000 in equity
financing from a private investor by selling 600,000 shares of
its common stock at a purchase price of $0.50 per share. In
addition, the following documents have been executed (all of
which will be effective upon the clearance of the foregoing
funds received from such investor and certain other conditions
(the "Initial Closing")):
Pursuant to a Redemption Agreement and an Assignment
and Assumption Agreement, the Company has agreed to redeem
4,085,000 shares of its common stock from certain shareholders
of the Company in consideration (i) for the assignment by the
Company to a new entity called People to People Publishing,
Inc. (formed by such selling shareholders) ("PPP") of the
Company's current principal technology consisting primarily of
the Company's peer to peer file sharing software, including
without limitation, the technology with respect to digital
rights management technology which is subject of the Company's
patent application (the "Othnet Technology"), and (ii) a
payment of $32,500. In connection with the assignment, PPP has
agreed to assume all liabilities or obligations in connection
with the Othnet Technology whether such liabilities were
incurred prior to or after the date of the assignment, except
with respect to legal fees or other trade creditor debt
associated with the development of the Othnet Technology.
Notwithstanding the foregoing, the assignment is subject to the
Company obtaining shareholder approval (the "Shareholder
Approval") on or before September 30, 2002. Pending such
approval, all of the foregoing 4,085,000 shares to be redeemed
are to be held in escrow and will maintain voting rights
although the holder thereof has agreed to vote all of the
shares in favor of the assignment. The Company has also
transferred ownership of its web sites www.oth.net and
www.othnet.com in consideration for the assumption of all
liabilities associated with such sites.
Pursuant to an Agreement for Separation and Release
entered into with Richard A. Barbari, the Company's Chief
Executive Officer, Mr. Barbari has agreed to resign as an
officer and director of the Company and have 400,000 shares of
common stock of the Company owned by him redeemed by the
Company in consideration for the payment by the Company of
certain funds Mr. Barbari has advanced on behalf of the Company
or debt Mr. Barbari has guaranteed, as well as the transfer to
Mr. Barbari of an automobile registered in the Company's name.
Prior to the filing of this report, Mr. Barbari and the Company
executed a Redemption Agreement with respect to such 400,000
shares.
Prior to the Initial Closing, the Company will obtain
the resignation of each of the current officers and Board
members, and Jeffrey Wattenberg will be elected sole director
of the Company which shall be effective upon the Initial
Closing.
All of the documents which have been executed prior to
the filing of this report in connection with the foregoing
transactions are being held in escrow pending the Initial
Closing (other than the 4,085,000 shares to be redeemed as
described above which will continue to be held in escrow
pending the Shareholder Approval). It is anticipated that the
Initial Closing will occur within days after the filing of this
report. Following the Initial Closing, it is expected that the
Company will seek to extinguish much of its outstanding debt
and seek another business opportunity. As of the date of this
report, the Company has no agreement, understanding or
arrangement to acquire or participate in any specific business
opportunity. No assurance can be given that the Company will
be able to consummate any such arrangements or, if consummated,
that such business opportunity will be successful.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following discussion of the Company's financial
condition and results of operations is based on the Company's
Consolidated Financial Statements and the related notes
thereto.
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking
statements and information that reflect the Company's
expectations about its future operating results, performance
and opportunities that involve substantial risks and
uncertainties. When used in this Form 10-QSB, the words
"anticipate", "believe", "estimate", "plan," "intend" and
"expect" and similar expressions, as they relate to Othnet,
Inc. for its management, are intended to identify such forward-
looking statements. These forward looking statements are based
on information currently available to the Company and are
subject to a number of risks, uncertainties, and other factors
that could cause the Company's actual results, performance,
prospects, and opportunities to differ materially from those
expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences
include, but are not limited to, the factors discussed under
"Other Factors Affecting Our Operating Results".
Results of Operations
In December 2001, the Board of Directors approved a plan
to shut down all nonessential functions of the Company and to
reduce all expenses that were not absolutely essential to
maintaining the Company as a reporting entity until the Company
is able to obtain some type of cash infusion. Additionally, the
Company began pursuing the sale or license of its technology.
In carrying out this Plan, management has entered into
agreements described in "Recent Events" below. Based on
management's plan, it was deemed that the license agreement and
the Company's proprietary information data base and search
engine were impaired, and as a result, an impairment charge of
$84,000 and $700,000, respectively, was recorded at December
31, 2001. The impairment charges are based on the estimated
fair value of the common stock being exchanged for the transfer
of the technology as described in "Recent Events" below.
The Company reported revenues of approximately $100 and
$6,000 from operations for the three and nine months ended
January 31, 2002 compared to revenues of approximately $10,000
and $29,000 for the three and nine months ended January 31,
2001.
Operating expenses were approximately $1,224,000 and
$2,549,000 for the three and nine months ended January 31, 2002
and were comprised primarily of write-offs of impaired assets,
compensation expense, amortization (relating to the Company's
proprietary information database, search engine and license
agreement), contract labor, consulting, and professional fees.
This compared to operating expenses of approximately $887,000
and $2,035,000 for the three and nine months ended January 31,
2001. The increase for the three and nine months ended January
31, 2002 compared to the comparable periods of 2001 was
primarily attributable to write-offs of impaired assets of
approximately $784,000 for the three and nine months ended
January 31, 2002 and an increase in amortization of
intellectual property to approximately $667,000 for the nine
months ended January 31, 2002 compared to $583,000 for the
comparable period of fiscal 2001, partially offset by a
decrease in general and administrative expenses to
approximately $274,000 and $1,099,000 for the three and nine
months ended January 31, 2002 from approximately $637,000 and
$1,452,000 for the three and nine months ended January 31,
2001.
The Company had interest income of approximately $100
and $3,000 for the three and nine months ended January 31, 2002
compared to approximately $17,000 and $46,000 for the three and
nine months ended January 31, 2001.
For the three and nine months ended January 31, 2002,
the Company had a net loss of approximately $1,224,000 and
$2,540,000, respectively, compared to a net loss of
approximately $860,000 and $1,960,000, respectively, for the
three and nine months ended January 31, 2001. The increase in
net loss for the three and nine months ended January 31, 2002
is primarily due to a write-off of impaired assets of
approximately $784,000 partially offset by a decrease in
general and administrative expenses.
Liquidity and Capital Resources
On January 31, 2002, the Company had cash of
approximately $100 and a working capital deficit of
approximately $720,000. The Company's primary source of
liquidity has been cash provided through equity offerings and
interest income.
Cash used in operating activities was approximately
$608,000 for the nine months ended January 31, 2002 which was
primarily the result of a loss of approximately $2,540,000
partially offset by non-cash charges totaling approximately
$775,000 for depreciation and amortization, impaired asset
write-offs of approximately $784,000, and an increase in
accounts payable and accrued salaries and benefits of
approximately $373,000.
Cash used in operating activities was approximately
$879,000 for the nine month period ended January 31, 2001 which
was primarily the result of a loss of approximately $1,960,000
partially offset by non-cash charges totaling $499,000 for
stock compensation expense and approximately $588,000 for
depreciation and amortization.
For the nine months ended January 31, 2002, the Company
also used approximately $17,000 in investing activities for the
purchase of property and equipment, compared to approximately
$49,000 in the nine months ended January 31, 2001. The Company
also paid $500,000 of cash as part of the consideration for the
intellectual property in the nine months ended January 31,
2001.
Cash provided by financing activities totaled
approximately $65,000 in the nine months ended January 31, 2002
which was provided by a bank loan of $25,000 and loans and
advances from shareholders of $40,000, compared to $2,445,000
from the sale of common stock in the nine months ended January
31, 2001.
The Company's cash position is minimal at January 31,
2002 and the Company's funds, together with any operating
revenues that are recognized, are inadequate to meet its
current cash requirements.
During the quarter ended January 31, 2002, the Company
decided to shut down all nonessential functions of the Company
and to reduce all expenses that were not absolutely essential
to maintaining the Company as a reporting entity until the
Company is able to obtain some type of cash infusion.
Additionally, the Company began pursuing the sale or license of
its technology.
As a result of such actions, during the quarter ended
January 31, 2002, the Company entered into a letter of intent
which provided that the Company would attempt to complete a
private offering of its stock in order to raise approximately
$250,000 to $500,000 for the purpose of extinguishing certain
liabilities of the Company and financing the Company's
participation in a transaction whereby shares of stock owned by
certain shareholders (the "Sellers") would be redeemed by the
Company in consideration of a license, sale or other transfer
by the Company to a corporation to be created by the Sellers of
the Company's technology. The letter of intent further
provided that upon receipt and approval of a business plan and
pro forma financial statements from the new entity, the Company
would further provide an investment in the new entity of
$125,000 in consideration of the receipt of shares comprising
not less than 33 1/3% of the issued shares of the new entity.
All of the transactions as contemplated by the letter of intent
have not been consummated but
the Company has, prior to the filing of this report, effected
certain transactions in place thereof which it believes will
allow the Company to relieve itself of much debt and seek
another business opportunity (see "Recent Events").
Recent Events
In April 2002, the Company received $300,000 in equity
financing from a private investor by selling 600,000 shares of
its common stock at a purchase price of $0.50 per share. In
addition, the following documents have been executed (all of
which will be effective upon the clearance of the foregoing
funds received from such investor and certain other conditions
(the "Initial Closing")):
Pursuant to a Redemption Agreement and an Assignment
and Assumption Agreement, the Company has agreed to redeem
4,085,000 shares of its common stock from certain shareholders
of the Company in consideration (i) for the assignment by the
Company to a new entity called People to People Publishing,
Inc. (formed by such selling shareholders) ("PPP") of the
Company's current principal technology consisting primarily of
the Company's peer to peer file sharing software, including
without limitation, the technology with respect to digital
rights management technology which is subject of the Company's
patent application (the "Othnet Technology"), and (ii) a
payment of $32,500. In connection with the assignment, PPP has
agreed to assume all liabilities or obligations in connection
with the Othnet Technology whether such liabilities were
incurred prior to or after the date of the assignment, except
with respect to legal fees or other trade creditor debt
associated with the development of the Othnet Technology.
Notwithstanding the foregoing, the assignment is subject to the
Company obtaining shareholder approval (the "Shareholder
Approval") on or before September 30, 2002. Pending such
approval, all of the foregoing 4,085,000 shares to be redeemed
are to be held in escrow and will maintain voting rights
although the holder thereof has agreed to vote all of the
shares in favor of the assignment. The Company has also
transferred ownership of its web sites www.oth.net and
www.othnet.com in consideration for the assumption of all
liabilities associated with such sites.
Pursuant to an Agreement for Separation and Release
entered into with Richard A. Barbari, the Company's Chief
Executive Officer, Mr. Barbari has agreed to resign as an
officer and director of the Company and have 400,000 shares of
common stock of the Company owned by him redeemed by the
Company in consideration for the payment by the Company of
certain funds Mr. Barbari has advanced on behalf of the Company
or debt Mr. Barbari has guaranteed, as well as the transfer to
Mr. Barbari of an automobile registered in the Company's name.
Prior to the filing of this report, Mr. Barbari and the Company
executed a Redemption Agreement with respect to such 400,000
shares.
Prior to the Initial Closing, the Company will obtain
the resignation of each of the current officers and Board
members, and Jeffrey Wattenberg will be elected sole director
of the Company which shall be effective upon the Initial
Closing.
All of the documents which have been executed prior to
the filing of this report in connection with the foregoing
transactions are being held in escrow pending the Initial
Closing (other than the 4,085,000 shares to be redeemed as
described above which will continue to be held in escrow
pending the Shareholder Approval). It is anticipated that the
Initial Closing will occur within days after the filing of this
report. Following the Initial Closing, it is expected that the
Company will seek to extinguish much of its outstanding debt
and seek another business opportunity. As of the date of this
report, the Company has no agreement, understanding or
arrangement to acquire or participate in any specific business
opportunity. No assurance can be given that the Company will
be able to consummate any such arrangements or, if consummated,
that such business opportunity will be successful.
Other Factors Affecting our Operating Results
The following risk factors and other information
included in this Form 10-QSB should be carefully considered.
The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also
impair our business operations. See "Forward-Looking
Statements" above.
WE NEED TO OBTAIN ADDITIONAL FUNDS. At January 31,
2002, the Company had principally exhausted all of its
remaining cash and the Company's funds, together with any
operating revenues that are recognized, are inadequate to meet
its current cash requirements. See "Liquidity and Capital
Resources" above for additional information.
COMPETITION FOR BUSINESS OPPORTUNITIES. In the event
the Company seeks another business opportunity, the Company is
aware that there are many other public companies with only
nominal assets that are also searching for operating businesses
and other business opportunities as potential acquisition or
merger candidates. The Company will be in direct competition
with these other public companies in its search for business
opportunities. In addition, the Company expects to encounter
substantial competition in its efforts to attract business
opportunities from business development companies, venture
capital partnerships and corporations, venture capital
affiliates of large industrial and financial institutions,
small business investment companies and wealthy individuals.
Competition in the search for business opportunities is
principally based upon experience in connection with
identifying and effecting business acquisitions, financial and
personnel resources and technical expertise. Many of these
entities have significantly greater experience, financial and
personnel resources, and managerial and technical capabilities
than the Company and in all likelihood will be in a better
position than the Company to obtain access to attractive
business opportunities. In view of the Company's limited
financial resources and personnel, the Company will continue to
be at a significant competitive disadvantage in identifying
possible business opportunities and successfully completing a
business combination.
EXTREMELY LIMITED CAPITALIZATION. The Company has
insufficient capital with which to make any significant asset
acquisitions. Accordingly, it is likely that the consideration
utilized to make any acquisitions will consist of equity
securities. In addition, inasmuch as the Company's
capitalization is limited and the issuance of additional Common
Stock will result in a dilution of interest for present
shareholders, it is unlikely the Company will be capable of
negotiating more than one merger or acquisition.
Consequently, the Company's lack of diversification may
subject the Company to economic fluctuation within a
particular industry in which a target company conducts
business.
LACK OF MARKET RESEARCH OR IDENTIFICATION OF ACQUISITION
OR MERGER CANDIDATE. The Company has neither conducted nor
have others made available to it results of market research
concerning the availability of potential business
opportunities. Therefore, management has no assurance that
market demand exists for a merger or acquisition in the event
the Company seeks another business opportunity.
TAXATION. In the course of any acquisition or merger
the Company may undertake, a substantial amount of attention
will be focused upon federal and state tax consequences to both
the Company and the "target" company. Presently, under Section
368 of the Internal Revenue Code of 1986, as amended, a
statutory merger or consolidation is an exempt transaction and
may be tax-free if effected in accordance with State law.
While the Company expects to undertake any merger or
acquisition so as to minimize federal and state tax
consequences to both the Company and the "target" company,
there is no assurance that such business combination will meet
the statutory requirements of a reorganization or that the
parties will obtain the intended tax-free treatment upon a
transfer of stock or assets. A nonqualifying reorganization
could result in the imposition of both federal and state taxes
which may have substantial adverse effect on the Company.
POSSIBLE USE OF DEBT FINANCING; DEBT OF AN ACQUIRED
BUSINESS. There are currently no limitations relating to the
Company's ability to borrow funds to increase the amount of
capital available to the Company to effect a business
combination or otherwise finance the operations of an acquired
business. The amount and nature of any borrowings by the
Company will depend on numerous considerations, including the
Company's capital requirements, the Company's perceived ability
to meet debt service on such borrowings, and then-prevailing
conditions in the financial markets, as well as general
economic conditions. There can be no assurance that debt
financing, if required or otherwise sought, will be available
on terms deemed to be commercially acceptable and in the best
interest of the Company. The inability of the Company to
borrow funds required to effect or facilitate a business
combination, or to provide funds for an additional infusion of
capital into an acquired business, may have a material adverse
effect on the Company's financial condition and future
prospects. Additionally, to the extent that debt financing
ultimately proves to be available, any borrowings may subject
the Company to various risks traditionally associated with
incurring of indebtedness, including the risks of interest
rate fluctuations and insufficiency of cash flow to pay
principal and interest. Furthermore, an acquired business may
already have previously-incurred debt financing and, therefore,
the risks inherent thereto, as discussed above.
ISSUANCE OF SHARES IN MERGER OR ACQUISITION. Any
acquisition effected by the Company may result in the issuance
of additional Common Stock without shareholder approval and may
result in substantial dilution in the percentage of the
Company's securities held by the Company's then-shareholders.
Moreover, the Common Stock issued in any such merger or
acquisition transaction may be valued on an arbitrary or non
arm's-length basis by management of the Company, resulting in
an additional reduction in the percentage of securities held by
the Company's then-shareholders.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
There are no exhibits applicable to this Form
10-QSB.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed
during fiscal quarter ended January 31, 2002.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
OTHNET, INC.
(Registrant)
Dated: April 23, 2002 By: /s/ Richard A. Barbari
Richard A Barbari,
President, Chief Executive
Officer and Chairman of
the Board
(Principal Executive Officer
and Principal Accounting
and Financial Officer)