UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT #3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CEDAR MOUNTAIN DISTRIBUTORS, INC.
---------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 42249 91-2015441
------ ----- ----------
(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
------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
------------------------------------------------------------
(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
-------------------------------------------------------
(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 to Dollar Amount Offering Price Aggregate Amount of
be Registered to be Registered per Unit Offering Price Registration Fee
- --------------------------------------- -------------------- ------------------- ------------------- -----------------
Common Stock par value $.001 $200,000 $1.00 $200,000 $50.00
- --------------------------------------- -------------------- ------------------- ------------------- -----------------
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
From 1 to 200,000 Shares of Common Stock
of
Cedar Mountain Distributors, Inc.
Total Total
If No If All
Per Shares 200,000 Shares
Share Are Sold Are Sold
------- ---------------- ---------------
Initial Offering Price
to the Public: $1.00 0 $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. No commissions are
Offering Expenses: $0.25 $49,500 $49,500 being paid. There is no 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
Net Proceeds: $0.75 [$49,500] $150,500 shares and any proceeds from this
Offering will become immediately
available for our use. No funds will
be returned regardless of how many or
how few shares are sold.
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 February 22, 2002
1
Table of Contents
Page
PART I................................................................... 3
Summary of Offering...................................................... 3
The Offering............................................................. 4
Risk Factors............................................................. 4
Forward Looking Statements............................................... 8
Use of Proceeds.......................................................... 8
Dividend Policy.......................................................... 9
Dilution................................................................. 10
Business................................................................. 11
Management............................................................... 17
Executive Compensation................................................... 18
Principal Stockholders................................................... 18
Certain Transactions Involving Officers, Directors, and Affiliates....... 19
Description of Common Stock.............................................. 19
Indemnification and Public Policy........................................ 23
Terms of the Offering.................................................... 23
No Public Market for Our Common Stock.................................... 24
Shares Eligible for Future Sale.......................................... 26
Litigation............................................................... 26
Legal Matters............................................................ 26
Experts.................................................................. 26
Additional Information................................................... 27
Financial Information.................................................... 27
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
Signature................................................................ 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 such date.
Only our President, James R. Smith, and our Vice President, Lauri A. Orscheln,
are authorized to offer these securities on our behalf. See "Plan of
Distribution," page 23.
Until February 22, 2002 (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
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,
which is now our wholly-owned subsidiary. Before this acquisition, we were not
actively engaged in any business activity, had no revenues, and had only very
limited operating expenses. Prior to this merger, Tarus was engaged in the sale
and distribution of beverage products from the time of its formation on August
5, 1999. 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 an early stage 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.
Through the third quarter 2001, we had product sales of approximately $27,792
and a gross profit of $10,230. During that same period, we had expenses of
$63,224 and a net loss of $(52,994). We have not been profitable during any
quarter or fiscal year since our inception.
During 2001, Ms. Orscheln expanded our customer base by adding 40 new accounts.
In contrast, as of the close of 2000, we had only three accounts. We anticipate
that the addition of these and other new accounts through Ms. Orcscheln's
efforts will generate increased revenues in 2001 over 2000; however, we
anticipate experiencing continued losses for the foreseeable future. At the
present time, four companies each account for 10% or more of our sales
including: AAFES (10.3%), Berbiglia Wine & Spirits (15.2%), Walgreen's (10.8%),
and Kmart (10.4%). See "Business" on page 11.
Proposed Plan of Operations
We currently have rights to distribute four beverage 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 (see "Marketing Strategy and Proposed Plan of
Operation," page 12).
The funding strategy for our plan of operations has been first to obtain loans
from our shareholders to cover approximately $80,000 in startup costs. No other
commitments for funding are currently in place. To date we have raised
approximately $80,000 in this manner, on terms described in "Use of Proceeds" on
page 8. These proceeds are being used to fund expenses of this public offering,
purchase product, and pay general and administrative expenses until additional
funds are raised through this Offering. After this Offering is completed,
proceeds here from will be used to pay the expenses associated with this
Offering including the repayment of loans, proceeds of which have been used to
3
front the Offering expenses, and to continue to grow the business (see "Use of
Proceeds," page 8). The first $50,000 of proceeds raised through this Offering
will be used to cover expenses associated with the Offering.
In the event that we do not raise sufficient funds through this Offering to
implement our business plan, we intend to seek additional funding through one of
two methods on terms not yet determined. The first method would involve securing
additional loans, most likely from our existing investors or possibly from
banks. The second method would involve a private offering of our stock in
reliance on Regulation D and/or Section 4(2) of the Securities Act. We may also
revise our business plan to enable us to continue operations with reduced
funding. Under any scenario, loans made by original investors to initially fund
our business and to pay for offering expenses will be honored and repayment
arrangements made. For more information regarding our plan of operations, see
"Marketing Strategy and Proposed Plan of Operations" on page 12.
THE OFFERING
(A) Common Stock Offered......................... A total of from 1 to 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. Funds from this Offering will not be held in
escrow and this Offering will close in six months, regardless
of how many or how few shares are sold. All funds we receive
may be used immediately. No funds will be returned regardless
of how many or how few shares are sold. Only our President,
James R. Smith, and our Vice President, Lauri A. Orscheln, are
authorized to offer or sell these securities on our behalf
(see "Plan of Distribution," page 23).
(B) Proposed Symbol and Trading Market........... There currently is no trading market for our stock.
(C) Use of Proceeds.............................. We will use the proceeds of this Offering first to pay the
Offering expenses, estimated to be approximately $50,000,
which are being paid with outstanding loans. Additional
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 (see "Use of Proceeds" on page 8).
(D) Offering Costs............................... The Offering costs have been and will be covered with loan
proceeds which will be repaid with proceeds generated through
this Offering.
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 price of our common stock to decline,
and you might lose part or all of your investment.
4
Risks Associated with Our Financial Position
We currently lack working capital sufficient to fully implement our
plan of operations. 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 three quarters of 2001, we experienced net losses of
approximately $60,000. Continuing losses for the immediate future are likely.
We need to sell all the shares included in this Offering to fully
implement our business plan. There is no minimum number of shares that must be
sold in this Offering; however, in order to fully implement our proposed plan of
operations, we need to sell all 200,000 shares of our common stock that are
included in this Offering. Additionally, to pay the expenses of this Offering
alone, we need to sell approximately 50,000 shares. If we sell less than 50,000
shares, no proceeds will be available to pursue our business plan. If we are not
successful in selling more than 50,000 shares, the resulting cash shortfall will
impair our ability to continue operations.
The shares we are selling constitute "Penny Stock" which carries
significant risk. Stock in our Company is currently considered "penny stock" as
that term is defined by the Securities and Exchange Commission ("SEC") Rule
3a-51-1. You should be aware that, according to the SEC Release No. 34-29093,
the market for penny stocks has suffered in recent years from patterns of fraud
and abuse which could cause investors in penny stocks to lose their entire
investment. Such patterns include:
o control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
o manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
o "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
o excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the inevitable collapse of those prices with consequent investor losses.
In addition to the abuses referenced, additional requirements to trade
in penny stocks exist such as broker-dealers needing to disclose specific penny
stock risks and to obtain potential investors signatures for specific penny
stock investments. These added requirements make trading in penny stocks more
difficult and cumbersome for investors than trading in more highly capitalized
stocks traded on large stock exchanges. For additional information regarding
"penny stock," see section heading "NO PUBLIC MARKET FOR OUR COMMON STOCK" on
page 24 below.
Risks Associated with How This Offering is Being Conducted
We are relying on our own efforts and not an underwriter to place our
stock. We have not hired an underwriter to assist us in selling our common
stock. Only our President, James R. Smith, and our Vice President, Lauri A.
Orscheln, are authorized to offer and sell these securities. Neither of these
individuals has any prior experience in selling stock to the public and we may
not be able to sell all or any part of the Offering.
We are not requiring any escrow or minimum sales of our shares to close
this Offering. There is no escrow account into which the proceeds of this
Offering will be deposited pending the sale of all shares. If we fail to sell
all the shares included in this Offering, no funds will be returned;
accordingly, if we only sell less than 50,000 shares, all proceeds will be used
5
to pay Offering expenses and none will be available to fund operations. All
proceeds of this Offering will be deposited directly into our operating account,
regardless of the number of shares sold for our immediate use.
We have arbitrarily determined the offering price per share. 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 a stock is fair and reasonable. Because we are attempting
to sell our common stock ourselves without using an underwriter, no independent
review will be conducted regarding the stock pricing. We arbitrarily determined
the offering price of our common stock. Prospective investors should not assume
that the offering price of our common stock necessarily reflects the actual
value of our common stock. 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. See
"Determination of Offering Price," page 23.
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 public trading in our common stock would most likely take place
over-the-counter in the so-called "pink sheets" or be reported on the OTC
Bulletin Board ("OTC:BB"); provided we comply with all prerequisites for such
reporting which we have not yet done. Investors in this Offering will find it
difficult to sell our common stock at most times.
Likely volatile price swings in our stock will make it difficult to
assess the market value. If our stock is ultimately traded through the pink
sheets or on the OTC:BB, 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 were to be traded on the
Nasdaq National or SmallCap Stock Markets, 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.
Investors will suffer immediate, substantial dilution. 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 pay $1.00 per share will experience immediate and substantial
dilution. Dilution to the purchasers of shares included in this Offering will
range from 95.5% to more than 100%, depending on the number of shares sold.
A large number of shares will be available for sale into the market. A
significant portion of our shares have already been issued. Any shares sold in
this Offering are unrestricted and thus may be resold in the public market
immediately after they are purchased. The remaining 3,000,000 of our outstanding
shares are restricted shares that were sold prior to this Offering. These
restricted shares are available for resale in the public market, or will become
available soon, 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 expect to pay dividends on common stock. We expect to use all
earnings and the proceeds from this Offering to develop our business. Anyone in
need of or expecting dividend income should not invest in our stock.
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
6
James R. Smith, and an additional combined total of approximately 49.3% will be
controlled by David C. Owen and Malcolm K. 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. Messrs. Owen and Green are early
investors in and consultants to the Company and are each more than 10%
beneficial owners of the Company. Before investing in the Company, Messrs. Owen
and Green had personal relationships with Mr. Smith, but had no prior business
relationship with the Company or Tarus.
Business Factors that may have a Negative Effect on Our Operations
Intense competition will impair our ability to succeed. 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. 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 insignificant in size to the majority of our national or
even local competitors, selling only approximately 3,142 gallons of product
through the third quarter of 2001, 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 keep us
from capturing a large enough percentage of the market to continue operations.
Governmental Regulations and Environmental Factors could effect our
business. Our business could be significantly affected if certain legislative
proposals are adopted, including soft drink taxes and mandatory container
deposit laws. In that connection, a proposal for a national container deposit
law has been introduced in the past and defeated in Congress. In addition, costs
of compliance with existing and future environmental laws and regulations cannot
be predicted with any degree of certainty and may significantly affect the
Company's operations.
We will need to hire additional personnel to pursue our business plan.
At present our operations are relatively simple. We have only two employees and
operate from the residence of our President, James. R. Smith; however, if we are
successful in increasing sales and growing our business, the size and complexity
of our operations will inevitably increase. We may need larger facilities, more
employees, and possibly our own warehouse. We may also need augmented
capabilities for order placement, billing, customer service, and inventory
control.
Our business depends heavily on a key supplier. 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. Suppliers at anytime will determine prices, availability, delivery
time, and the quality of our products. 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,
with which we have no formal agreement, only a operational understanding whereby
we request product and they determine whether or not to fill our requests as is
customary in the beverage distribution market. If Vancol or future suppliers
were to experience production delays, work stoppages, an act of God, or were to
discontinue production of one or more of these beverages or go out of business,
we would suffer financial losses.
We have no exclusive licensing rights and our territory not guaranteed.
Our primary beverage supplier, Vancol, does not grant exclusive marketing
territories, nor are licensing rights guaranteed for any defined period of time.
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.
7
Changing consumer habits will effect our business. We have built our
product line around certain assumptions regarding consumer trends and
profitability in the beverage market. One such assumption is that 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. If consumer preferences were to shift in favor of other categories
or in favor of competing products, our business could be adversely affected. A
partial shift to other products could occur, for example, if the US economy were
to enter a recession and more consumers were to purchase generic or lower-priced
beverages.
Our plan is initially heavily dependent on the school lunch market. Our
initial sales have come from 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. We will need to broaden our market beyond
school lunch programs. Much work remains to be done in broadening and deepening
our markets.
We are heavily dependent 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. We have no employment contracts or key person insurance covering
either Mr. Smith or Mr. Orscheln.
The nature of our business could subject us to product liability and
other suits. As a consumer-oriented business, we face a possible risk of
lawsuits for product liability and other causes. 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.
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, except to the extent that we are obligated to do
so under Item 28 of our registration statement filed with the SEC on Form SB-2.
This Item requires us to file post-effective amendment(s) to this registration
statement to include in the Prospectus any facts or events which, individually
or together, represent a fundamental change in the registration statement and
also to include any additional or changed material information on the plan of
distribution.
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-fourth, one-half, three-fourths and all of the shares are sold.
It is also possible that we will sell less than one-fourth of the shares covered
by this Offering. If we sell less than approximately one-fourth of the shares
registered in this Offering none of the funds raised would be available to our
Company; all would be used to pay the expenses of this Offering.
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
$50,000 and $200,000 in gross proceeds would be allocated among the intended
uses as follows:
8
Percentage of Shares Sold in This Offering
Amount($)
25% 50 % 75 % 100 %
-------------- --------------- ---------------- ----------------
Description:
Purchase of Inventory.................. 0 10,000 25,000 40,000
Marketing and Promotions............... 0 10,000 15,000 25,000
General and Administrative(1).......... 0 20,000 40,000 40,000
Offering Expenses/
Loan Repayment(2) ..................... 50,000 50,000 60,000 80,000
----------- ------------ ------------ ------------
Working Capital........................ 0 10,000 10,000 15,000
----------- ------------ ------------ ------------
Total.................................. $50,000 $100, 000 $150,000 $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. Because these expenses are being paid
with loan proceeds, the first $50,000 of Loan Repayment represents the
payment of "Offering Expenses" which have been and are being covered
with loan proceeds until such time as this Offering closes.
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 $80,000. 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 (see "Marketing Strategy and Proposed
Plan of Operation," page 12). We are seeking extensions on the repayment date of
these loans.
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 12 months. Proceeds not immediately used will
be invested in bank certificates of deposit, insured bank deposit accounts, or
similar investments.
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.
9
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 tables illustrate what dilution would have been,
respectively, as of December 31, 2000, assuming we had sold 100% and 25% of the
shares offered hereby (no additional shares have been issued from December 31,
2000 through the date of this filing):
If Offering is 100% sold:
Initial public offering price per share............. $1.00
Net tangible book value per share
before the Offering............................. ($0.003)
Increase per share attributable to new investors
purchasing this Offering........................ $0.047
Net tangible book value per share
after this Offering............................. $0.044
Dilution per share to new investors................. $0.956
If Offering is 25% sold:
Initial public offering price per share............. $1.00
Net tangible book value per share
before Offering................................. ($0.003)
Increase per share attributable to new investors
purchasing this Offering........................ ($0.003)
Net tangible book value per share
after this Offering............................. ($0.006)
Dilution per share to new investors................. ($1.006)
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 February 22, 2002 and any new investors purchasing
the shares of common stock offered:
Shares Purchase Total Consideration
---------------------------------- ---------------------------- Average Price
Number Percent(1) Number Percent Per Share(2)
---------------- -------------- -------------- ---------- ----------------
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%
- -----------------------
(1) If less than all of the offered shares are sold, the new investors will
receive a smaller aggregate percentage of ownership while the existing
shareholders will retain a greater percentage ownership. The above
discussion assumes that all 200,000 shares that we are offering to the
public at $1.00 will be sold.
10
(2) 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.
BUSINESS
Introduction
Our Company 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. On June 20, 2000, we acquired all common stock
of Tarus, a company incorporated in the State of Kansas on August 5, 1994, which
became our wholly-owned subsidiary. Before this acquisition, we were not engaged
in any business activities, and Tarus was engaged in the sale and distribution
of beverage products.
We are an early stage beverage brokerage company. The initial mission of the
Company is to build a Midwest-based beverage brokerage that supplies a limited
line of flavored 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 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 additional 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.
A key asset in our drive to build a beverage distributorship is the experience
of our President, James R. Smith, who has extensive prior experience in the
beverage industry (see "Management," page 16). With experience in helping found
two other beverage distributors and as an administrator, Mr. Smith has the
abilities needed to lead our Company. In 1992, Mr. Smith created Frontier, Inc.,
a Kansas City based vending machine supplier of soft drinks and snacks. In 1999,
Mr. Smith established Tarus. Each of these entities with which Mr. Smith works,
including the Company, service different markets and do not compete with each
other. Frontier, Inc.'s operation differs from Tarus by only providing vending
products: Tarus does not market or provide vending products. Additionally,
Frontier, Inc. does not individually market or distribute products represented
by Tarus.
Mr. Smith and our Vice President, Ms. Lauri A. Orscheln, have already
established accounts with retail, wholesale, and educational customers,
including Kmart, Walgreen, Hy-Vee Grocery, and assorted liquor and convenience
stores. The number of these accounts has increased markedly since 2000. As of
the close of 2000, all of our sales were to three customers--all school
districts. In contrast, we now have made sales to over forty customers, as of
September 21, 2001, drawn from a variety of types of industries and
institutions. Many of these accounts have only purchased small volumes of
product from us, sixteen customers have purchased between $500 and a few
thousand in merchandise during 2001. In broadening our account base, we are
laying the groundwork for what we hope will be an increase in our sales based
upon the number of customers alone.
In order to continue with the Kmart account, we have converted the relationship
to a commissioned sale. Vancol as a licensed supplier to Kmart can sell directly
to Kmart, but because we placed Vancol products with the local Kansas City
market, Vancol will compensate us on a commission basis. The current commission
rate is $1.60 per case, or $96 per pallet. Approximately 30 pallets have been
sold to Kmart under this arrangement which should result in approximately $2,880
in gross profit.
11
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. At the present time, four companies each
account for 10% or more of our sales including: AAFES (10.3%), Berbiglia Wine &
Spirits (15.2%), Walgreen's (10.8%), and Kmart (10.4%). A summary of our
increase in accounts from September 2000 to 2001 is as follows:
Nine Months Ending Nine Months Ending Net Change
9/30/00 9/30/01
- --------------------- ------------------- -------------------- ----------------
Accounts 3 40 + 37
- --------------------- ------------------- -------------------- ----------------
Revenues (unaudited) $19,397 $27,792 + $8,395
- --------------------- ------------------- -------------------- ----------------
Provided that we successfully sell all or most of the shares included in this
Offering, our management anticipates that implementation of this business plan
will succeed for the following reasons:
o We have an established and growing customer base that includes
retail establishments, wholesalers, convenience stores,
grocery stores, and school districts;
o Industry statistics indicate that our primary products
(including fruit beverages, high-energy sports drinks, and
bottled water represent the fastest growing segments in the
consumer market today);
o We have rights to distribute beverage products that are
specifically geared towards the growing segments (see "The
Industry," page 13, for description of the source of these
statistics);
o Our President, James R. Smith, has past experience in
marketing beverage products and in starting beverage
distributorships (see "Management," page 16).
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 (see "Our business depends
heavily on key suppliers" and "We have no exclusive licensing rights and our
territory not guaranteed" on page 7). In addition, the arrangement with Vancol
is "at-will" and does not include any obligations to either party, so it is
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 searching and will continue to search for beverage products to
introduce to the Greater Kansas City metropolitan market.
Our initial expanded market is the Greater Kansas City metropolitan area where
there are 30 school districts with over 100,000 students and where we will
promote the Kwencher product line. The customers for these products are
secondary students in the school districts of the counties mentioned above where
the products are offered in the school lunch programs. The first account and
product order was with USD #233 Olathe, Kansas. 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 believe we
will be able to penetrate the fast growing "New Age" beverage market. As defined
by Beverage Marketing Corporation, the New Age beverage market includes
"single-serve fresh fruit juices, ready-to-drink coffees, herbal ice teas,
premium sodas, smoothies, shelf-stable dairy drinks, nutritionally enhanced
beverages and energy drinks." Energy drinks are the fastest growing beverages in
the "New Age" category, with annual growth of over 100% in 1999 and 2000.
(Industry statistics and all others in this Prospectus relating to beverage
12
markets are drawn from "Beverage World's 2000 State of the Industry Report,"
available on their website at www.beverageworld.com under "Liquid Stats," or
from us upon request. This, and any other reference to any web site herein is
not intended to incorporate any information from such site into this filing.) We
intent to more aggressively market the Blue Ox product line in the Greater
Kansas City area during 2002.
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.
The funding strategy for our plan of operations has been first to obtain loans
from our shareholders to cover approximately $80,000 in startup costs. To date
we have raised approximately $80,000 in this manner on terms described in "Use
of Proceeds" on page 8. These proceeds are being used to fund expenses of this
public offering covered by loans, purchase product, and pay general and
administrative expenses for the first 12 months. After that time, proceeds from
the public offering will be used to pay any offering expense not yet paid, and
continue to grow the business (see "Use of Proceeds," page 8).
Our current business plan assumes that no further public or private offerings
will be required to fund our business if we sell all or most of the shares
included in this Offering. In the event that this Offering does not raise
sufficient funds for us to implement our business plan, we will likely seek
additional funding through one of two methods on terms not yet determined. The
first would involve securing additional loans, most likely from our existing
investors or possibly from banks. A second scenario would involve a private
offering of our stock in reliance on Regulation D and/or Section 4(2) of the
Securities Act. We may also revise our business plan to enable us to continue
operations with reduced funding. Under any scenario, loans made by original
investors to initially fund our business and to pay for offering expenses will
be honored and repayment arrangements made.
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 vast.
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 from $61.7 billion in wholesale sales,
13.1 billion gallons of product sold, and an average per person consumption
estimated at over 20 gallons per year. (See Beverage World's "Liquid Stats.")
Based on industry statistics, we believe it is feasible to initially focus our
expanded 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. These
13
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 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 four-pack for each of the following
flavors: Original Root Beer, Strawberry Creme, and Almond Creme. The product
comes in a long-necked brown bottle and the label with the Tommy Knocker
character is 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 an effective way of introducing our products to
customers. We intend to equip our sales staff with the printed material and a
supply of each product for use in approaching potential customers. We intend to
use funds raised in the Offering to place advertisements in printed industry
periodicals and also retail fliers and brochures.
If we successfully raise more than the costs of this Offering, we intend to use
a portion of the proceeds raised to place advertisements in printed industry
periodicals and to place banner ads in various beverage industry websites. The
amount we will spend on such advertising will depend on how much we raise in
this Offering (see page 8, "Use of Proceeds").
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.
14
Opportunities to Add Products
Because we will rely on trending products and trending markets, we must monitor
the market to be able to deliver a continuous line of additional products to
existing customers and to the marketplace. We plan to carefully watch beverage
market periodicals and beverage industry websites in search of products, test
the products and, if deemed satisfactory, approach the manufacturer and customer
for sales agreements.
Competition
The sports drink, fruit drink, and bottled water beverage markets are dominated
by major players such as Coca Cola, Pepsi, Cadbury, Quaker Oats, and others
whose total sales exceeded $20 billion in 1997. While many of our competitors
have greater financial resources, we believe we can successfully compete in
niche markets for two reasons. First, consumers like variety and choice. The
beverage industry is highly diversified. As a result, smaller beverage companies
have been successful in catering to market niches. Second, Mr. Smith's
experience and customer contacts have given us a foothold in the local
distribution market. An important factor in our early sales growth is Mr.
Smith's personal contacts with local school districts. As we expand our markets
beyond school programs, a key component of the Company's success will be the
caliber and commitment of Mr. Smith and Ms. Orscheln.
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%. Price discounts may occur in some instances, depending on volume sold.
For example, mark-up for the first order to K-Mart was only $1.60 per case,
netting us less than $50 on the first shipment, and approximately $2,880 on the
total order of 30 pallets at $96 per pallet.
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. Vancol, our primary supplier, has not provided us with any contract
to supply product to us. Currently we have an operating understanding whereby we
request product and Vancol determines whether or not to honor our request.
Operating understandings in the beverage industry, such as our understanding
with Vancol, permit distributors to represent a supplier as long as the
distributor is actively servicing customers in a defined area. If, after an
established period, a distributor fails to adequately represent the supplier,
support customers, or grow the customer base, then the supplier may elect to
change distributors. Likewise, these agreements permit distributors to represent
other competing or complementary products should they desire to do so.
We also use a few distributors who are handling product pickup and delivery for
us from Vancol. We are working directly with Vancol in an effort to arrange for
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, both directly, and by
telephone support offered by our supplier, Vancol. In addition, 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.
15
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 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 ensure that net 30-day terms are being met. If
an account becomes delinquent, we send a reminder letter.
Insurance
We will make efforts to ensure that manufacturers for which we distribute
products do provide evidence of product liability insurance. In addition, we
have obtained a $1 million dollar general liability policy for general company
business protection including employee travel, facility and equipment, and for
product liability. Annual premiums are currently $1,951 per year with no
deductible.
Description of Property
We currently operate from a home office where all current orders, deliveries,
billing, and communications are handled. This office is the personal residence
of our James R. Smith, our President, who provides the space at no charge under
no formal lease. We have no other properties or facilities currently. 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 will either seek additional loans or pursue another offering of
our stock in order to fund this expansion. The decision as to which type of
funding we will seek will be determined largely by the results of this Offering;
if we successfully sell all or nearly all of this Offering, we will most
probably pursue an additional public offering.
Equipment, Machinery, and Vehicles
As a broker, we have no current need 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.
16
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
Chief Financial Officer, and 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 and administrative experience,
including thirteen years of part or full time work in the beverage industry
(Europa Distributers, 1982-84; Frontier, Inc., 1992-2001; Tarus International,
our subsidiary, 1999-2001). 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 creation experience include the 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 Kansas City based vending machine supplier of soft drinks and
snacks. In 1999, Mr. Smith established Tarus International, Inc., a wholesale
beverage supplier that serves both retail stores and schools. Each of these
entities with which Mr. Smith works, including the Company service different
markets and do not compete with each other. Frontier, Inc.'s operation differs
from Tarus by only providing vending products: Tarus does not market or provide
vending products. Additionally, Frontier, Inc. does not individually market or
distribute products represented by Tarus.
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 full
time as the Director of Community Development with the Olathe Kansas School
District.
Mr. Smith devotes approximately 15 hours a week to the work of our
company in addition to his full time employment with the school district. Upon
sale of all or most of the shares included in this Offering, Mr. Smith is
prepared to devote more time to the Company.
Lauri A. Orscheln is Vice President and oversees sales and marketing
activities for the Company. For the five years prior to joining us, Ms. Orscheln
was a full-time homemaker. With her 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
17
lending institutions. 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 (see "Introduction," page 11) 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.
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 Percentage
Nature of of
Name Title Ownership(1)(2) Class(3)
- --------------------------------- --------------------------------------- -------------- --------------
James R. Smith(4).............. President, Secretary/Treasurer, 1,000,000 33.3%
Acting Chief Financial Officer,
and Director
Lauri A. Orscheln(4) .......... Vice President and Director -0- -0-
David C. Owen(5) Beneficial Owner 970,000 32.3%
Malcolm K. Green(6)............ Beneficial Owner 620,000 20.7%
Laura Owen(7) ............. Beneficial Owner 970,000 32.3%
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.
(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
18
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 and Ms. Orscheln's address is 1236 East Frontier Lane,
Olathe, Kansas 66062. Ms. Orscheln resides with Mr. Smith, who is her
father.
(5) Includes the following shares: (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) 120,000 of 280,000 shares held by
Midwest Equity Group, LLC, which is controlled jointly by David C. Owen
and Malcolm K. Green. An additional 50,000 shares held are held by
Laura Owen, the wife of David C. Owen; these are included here solely
because David C. Owen is deemed the beneficial owner of shares that his
wife controls. David C. Owen's address and the address of the various
entities he controls is 11011 King Street, Suite 260, Overland Park,
Kansas 66062.
(6) Includes 120,000 of 280,000 shares held by Midwest Equity Group, LLC.
Malcolm Green's address and Midwest Equity Group's address is 11011
King Street, Suite 260, Overland Park, Kansas 66062.
(7) Includes all of the shares reported for David C. Owen above in (5), of
which 50,000 are held directly by Laura Owen and 300,000 shares are
held by the David & Laura Owen Trust. All other shares are included
here solely because Laura Owen is deemed the beneficial owner of shares
her husband, David C. Owen, controls.
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
International, Inc, a Kansas corporation, Tarus was owned by Mr. Smith who was
the sole officer and stockholder prior to our 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
19
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. 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 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
20
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 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
21
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 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.
22
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 from 1 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. The principal shareholders will supply names of
prospective investors to Smith and Orscheln. None of these prospective investors
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. 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.
The individuals who will be selling the common stock offered in this Offering
will rely on the safe harbor in Rule 3a4-1 under the Securities Exchange Act of
1934 to sell our securities. Neither Smith nor Orscheln are subject to any
statutory disqualifications under Section 3(a)(39) of the Securities Exchange
Act of 1934. Neither will receive any sales commission, finder's fee, or other
compensation (other than the normal salaries paid to our management) for our
common stock that they sell, and neither is an associated person of a broker or
dealer as those terms are defined in Rule 3a4-1 nor has been in the last twelve
months. Both Smith and Orscheln meet the criteria set forth in Rule
3a4-1(a)(4)(ii). Both perform substantial duties on our behalf other than in
connection with transactions in securities and neither has or will participate
in an offering of securities by any issuer more than once in any twelve-month
period.
Determination of Offering Price
We arbitrarily determined the offering price and other terms of our common stock
after generally considering the following:
23
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 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, and 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 term "penny stock" is defined in Rule 3a51-1 of the Securities and Exchange
Commission. "Penny stocks" are securities:
o with a price of less than five dollars per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet the first requirement above); or
o of an issuer with net tangible assets less than $2,000,000 (if the
issuer has been in continuous operation for at least three years) or $5,000,000
(if in continuous operation for less than three years), or with average annual
revenues of less than $6,000,000 for the last three years.
24
Section 15(g) of the 1934 Act, and Rule 15g-2 of the Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor's account.
Rule 15g-9 of the Commission requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to:
o obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives;
o reasonably determine, based on that information, that transactions in
penny stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions;
o provide the investor with a written statement setting forth the basis
on which the broker-dealer made his or her determination; and
o receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's financial situation,
investment experience and investment objectives.
Compliance with these requirements may make it more difficult for purchasers of
our common stock to resell their shares to third parties or to otherwise dispose
of them.
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 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.
25
SHARES ELIGIBLE FOR FUTURE SALE
In General
Once the Offering is complete, we will have a total of at least 3,000,000 shares
of common stock outstanding, and may have as many as 3,200,000, depending on how
many shares we sell under this Offering. Of these shares of common stock, all
shares from the Offering will be freely tradable without restriction or further
registration under the Securities Act.
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, approximately 2,200,000 of these shares are already
eligible for sale under Rule 144. 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 (between
30,000 and 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.
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
September 30, 2001, and 2000, the independent certified public accountants have
26
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 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 third
quarter of 2001 included below.
27
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.
February 22, 2002 Sartain Fischbein & Co.
Tulsa, Oklahoma
F-2
CEDAR MOUNTAIN DISTRIBUTORS, INC.
BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
September 30,
December 31, 2001
2000 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 2,573 $ 18,486
Accounts receivable 715 6,420
Inventories 5,792 12,394
-------------------- --------------------
Total Current Assets 9,080 37,300
-------------------- --------------------
Other Assets:
Deposits - 600
Prepaid offering costs - 15,000
-------------------- --------------------
- 15,600
-------------------- --------------------
Total Assets $ 9,080 $ 52,900
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 8,582 $ 4,569
Accrued interest payable 882 9,792
Notes payable - stockholders 9,000 89,000
-------------------- --------------------
Total Current Liabilities 18,464 103,361
-------------------- --------------------
-------------------- --------------------
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 14,810 31,910
Accumulated deficit (27,194) (85,371)
-------------------- --------------------
Total Stockholders' Deficit (9,384) (50,461)
-------------------- --------------------
Total Liabilities and Stockholders' Deficit $ 9,080 $ 52,900
==================== ====================
The accompanying notes are an integral part of the financial statements.
F-3
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Period from
August 5, 1999
(Inception) Nine Months Ended September 30,
to Year Ended -------------------------------------------
December 31, December 31, 2000 2001
1999 2000 (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Sales $ - $ 20,272 $ 19,397 $ 27,792
Cost of Sales - 18,134 15,305 17,562
-------------------- ------------------- -------------------- ---------------------
Gross Profit - 2,138 4,092 10,230
Operating Expenses - 28,450 20,283 63,224
-------------------- ------------------- -------------------- ---------------------
Operating Income (Loss) - (26,312) (16,191) (52,994)
Interest Expense - 882 657 5,183
-------------------- ------------------- -------------------- ---------------------
Net Income (Loss) $ - $ (27,194) $ (16,848) $ (58,177)
==================== =================== ==================== =====================
Basic Income (Loss)
Per Share $ * $ (0.02) $ (0.01) $ (0.02)
==================== =================== ==================== =====================
Basic Weighted Average
Shares Outstanding 200,000 1,688,219 1,252,555 3,000,000
==================== =================== ==================== =====================
* Less than $.01 per share
The accompanying notes are an integral part of the financial statements.
F-4
- -------------------------------------------------------------------------------------------------------------------------
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Periods from August 5, 1999 (inception) to September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
------------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
---------------- ------------ -------------- ------------------- ---------------
Balance at Inception,
August 5, 1999 - $ - $ - $ - $ -
Issue shares for cash at
$.01 per share 200,000 2,000 - - 2,000
---------------- ------------ -------------- ------------------- ---------------
Balance, December 31, 1999 200,000 2,000 - - 2,000
Exchange of common stock
in merger, $.01 per share (200,000) (2,000) - - (2,000)
Exchange of common stock
in merger, $.001 per share 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
Contributions of services - - 14,400 - 14,400
Net loss for year - - - (27,194) (27,194)
---------------- ------------ -------------- ------------------- ---------------
Balance, December 31, 2000 3,000,000 3,000 14,810 (27,194) (9,384)
Contribution of services - - 17,100 - 17,100
Net loss for period
(unaudited) - - - (58,177) (58,177)
---------------- ------------ -------------- ------------------- ---------------
Balance, September 30, 2001
(unaudited) 3,000,000 $ 3,000 $ 31,910 $ (85,371) $ (50,461)
================ ============ ============== =================== ===============
The accompanying notes are an integral part of the financial statements.
F-5
- ------------------------------------------------------------------------------------------------------------------------------
CEDAR MOUNTAIN DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
Period from
August 5, 1999
(inception) Nine Months Ended September 30,
to Year Ended --------------------------------
December 31, December 31, 2000 2001
1999 2000 (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $ - $ (27,194) $ (16,848) $ (58,177)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Contribution of services - 14,400 10,800 17,100
Increase in accounts receivable - (715) (6,395) (5,705)
Increase in inventories - (5,792) - (6,602)
Increase in deposits - - - (600)
Increase (decrease) in accounts payable - 8,582 1,348 (4,014)
Increase in accrued expenses - 882 657 8,911
---------------- ---------------- ------------------ ------------------
Net Cash Provided by (Used in) Operating
Activities - (9,837) (10,438) (49,087)
---------------- ---------------- ------------------ ------------------
Cash Flows From Investing Activities:
Cash received upon merger (Note 2) - 1,410 1,410 -
---------------- ---------------- ------------------ ------------------
Cash Flows From Financing Activities:
Prepaid offering costs - - - (15,000)
Proceeds from the sale of common stock 2,000 - - -
Proceeds from notes payable - stockholders - 14,000 14,000 87,500
Repayments of note payable - (5,000) (5,000) (7,500)
---------------- ---------------- ------------------ ------------------
Net Cash Provided By Financing Activities 2,000 9,000 9,000 65,000
---------------- ---------------- ------------------ ------------------
Net Increase in Cash 2,000 573 (28) 15,913
Cash, beginning of period - 2,000 2,000 2,573
---------------- ---------------- ------------------ ------------------
Cash, end of period $ 2,000 $ 2,573 $ 1,972 $ 18,486
================ ================ ================== ==================
Cash Paid During the Period For:
Interest $ - $ - $ - $ -
================ ================ ================== ==================
Income Taxes $ - $ - $ - $ -
================ ================ ================== ==================
The accompanying notes are an integral part of the financial statements.
F-6
- -------------------------------------------------------------------------------------------------------------------------------
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO SEPTEMBER 30, 2001
(INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
1. INTERIM In the opinion of Cedar Mountain Distributors, Inc. (the
FINANCIAL "Company"), the accompanying unaudited financial statements
STATEMENTS contain all adjustments (consisting of only normal recurring
(UNAUDITED) adjustments) necessary to present fairly the financial
position of the Company at September 30, 2001 and the results
of its operations and cash flows for the nine months ended
September 30, 2001 and 2000. The results of operations for the
nine months ended September 30, 2001 and 2000 are not
necessarily indicative of the results to be expected for the
full year.
2. BUSINESS On June 20, 2000, a merger was consummated whereby Cedar
COMBINATION 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.
Tarus acquired the sole asset of the Company, which consisted
of $1,410 of cash.
No pro forma information is presented 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 SEPTEMBER 30, 2001
(INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
3. RESTATEMENT The accompanying financial statements have been restated to
reflect actual outstanding shares prior to the merger and
changes made as a merger rather than as a restatement and to
record expense related to the facilities and services
contributed to the Company by shareholders.
4. SUMMARY OF Nature of Operations: Tarus International, Inc. ("Tarus") was
SIGNIFICANT incorporated in August 1999. Tarus' principal operations
ACCOUNTING during its development stage consisted of developing a
POLICIES 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.
F-8
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO SEPTEMBER 30, 2001
(INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
4. SUMMARY OF Income Taxes: The Company uses the asset and liability method
SIGNIFICANT of accounting for income taxes. Under the asset and liability
ACCOUNTING method, deferred tax assets and liabilities are recognized for
POLICIES the future tax consequences attributable to difference between
(CONTINUED) 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.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported 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.
F-9
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO SEPTEMBER 30, 2001
(INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
5. NOTES Notes payable stockholder consist of the following:
PAYABLE
STOCKHOLDERS December 31, September 30,
2000 2001
------------ -------------
Notes payable to stockholders
with interest at 10%, due on
demand. The notes are without
collateral. $9,000 $89,000
====== =======
6. MAJOR One unaffiliated customer accounted for 96% of the Company's
CUSTOMERS total revenue during the year ended December 31, 2000. At
December 31, 2000, there were no outstanding receivables from
the customer. Four unaffiliated customers accounted for 48% of
the Company's total revenue during the nine months ended
September 30, 2001.
7. RELATED From inception to December 2000, the Company had no employees
PARTY and currently continues to utilize the services, furniture,
TRANSACTIONS equipment, and facilities of one of the stockholders for no
charge. An expense of $1,200 per month is recorded to reflect
the value of these services as contributed capital.
8. INCOME TAX Components of the net deferred tax assets are as follows:
December 31, September 30,
2000 2001
------------ -------------
Net operating losses $ 4,100 $ 12,800
Valuation allowance (4,100) (12,800)
-------- ---------
Net deferred tax asset $ - $ -
======== =========
At December 31, 2000 the Company has net operating loss
carryforwards of approximately $27,200, which expire through
2020. 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.
F-10
CEDAR MOUNTAIN DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS FROM AUGUST 5, 1999 (INCEPTION) TO SEPTEMBER 30, 2001
(INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
9. STOCK Effective January 6, 2000, the Company adopted a Stock Option
OPTION Plan ("the Plan") that provides for qualified and
PLAN 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.
The options expire up to ten years from date of 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.
10. STOCKHOLDERS'Preferred Stock: The Board of Directors authorized 5,000,000
EQUITY of $.001 par value preferred stock with attributes to be
determined by the Board of Directors.
11. OTHER On June 6, 2001, the Board of Directors approved the sale of
(UNAUDITED) 200,000 shares of common stock at $1.00 per share in a public
offering.
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. 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; although, a director or officer shall be liable for acts or omissions
which involve intentional misconduct, fraud, or a knowing violation of law. The
Company intends to indemnify officers and directors to the fullest extent
permitted under state law.
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............ $4,350
--------------
Total......................... $49,500
==============
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:
Number of
Name and Consideration Date Sold Shares(3) Cash
- ------------------------------- ------------ ------------- -----------
James R. Smith(1) 09/19/99 200,000 $2,000.00
Peterson & Sons Holding Co.(2) 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
- --------------
(1) Shares issued at incorporation of Tarus International, Inc., which
shares were exchanged for 1,000,000 shares of Cedar Mountain
Distributors, Inc. on June 20, 2000.
(2) Peterson & Sons Holding Co. subsequently sold a total of 500,000 shares
to Malcolm Green and 300,000 shares to Midwest Equity Group in a
private transaction.
II-1
(3) Shares issued at the incorporation of Cedar Mountain Distributors, Inc.
which acquired Tarus International, Inc. on June 20, 2000. This
transaction was recorded using principles of purchase accounting
whereby the historical financial statements of the Company are those of
the acquired operating company, Tarus International, Inc. Accordingly,
of the $2,000 received by Cedar Mountain Distributors, Inc. from the
sale of stock, only the amount of cash on hand on the date of the
transaction, $1,410, is recorded as cash received upon merger in the
accompanying financial statements.
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 relationship with a founder,
officer, or director of the Company. No advertisement or 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 Gibson, Haglund & Paulsen, see Exhibit 5.1
23.2 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
(4) Provide, through its stock transfer agent, certificates in such
denominations and registered in such names as required by the company and
transfer agent to permit prompt delivery to each purchaser of certificates
evidencing ownership.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against such public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
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 February 22, 2002.
CEDAR MOUNTAIN DISTRIBUTORS, INC.,
a Nevada corporation
By: /s/ JAMES R. SMITH
-----------------------------------------
James R. Smith, President, Secretary,
Treasurer, Chief Executive Officer 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/Signing Capacity Date
- ---- ---------------------- ----
/s/ JAMES R. SMITH President, Secretary, Treasurer, February 22, 2002
- ------------------------- Acting Chief Financial Officer,
James R. Smith and Director
/s/ LAURI A. ORSCHLEN Vice President and Director February 22, 2002
- ------------------------
Lauri A. Orscheln
II-3