UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2000
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-28303
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INVESTAMERICA, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0400797
- ------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 PARK AVENUE, #4, PARK CITY, UTAH 84060
--------------------------------------------
(Address of principal executive offices)
(435) 615-8801
--------------
(Issuer's telephone number)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
31,354,160 common shares issued and outstanding as at January 15, 2001
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
DISCLOSURE
To: The Shareholders of
Investamerica, Inc.
It is the opinion of management that the interim financial statements for the
quarter ended December 31, 2000 include all adjustments necessary in order to
ensure that the financial statements are not misleading.
Park City, Utah /s/ signed
Date: February 14, 2001 Director of Investamerica, Inc.
INVESTAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
ASSETS 2000 2000
-------------- ---------------
Current assets:
Cash and cash equivalents $ 30,120 $ 70,533
Accounts receivable 233,920 404,971
Inventories 26,222 14,547
-------------- ---------------
Total current assets 290,262 490,051
Long-term investment 4,000,000 4,000,000
Property and equipment, net 116,641 126,374
Goodwill, net 24,388,057 25,742,949
-------------- ---------------
Total assets $ 28,794,960 $ 30,359,374
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 757,918 $ 588,057
Notes payable 7,043,348 7,039,755
Due to related party 297,967 2,268,345
-------------- ---------------
Total current liabilities 8,099,233 9,896,157
-------------- ---------------
Continuing operations (Note 1)
Contingencies (Note 6)
Stockholders' equity (deficit):
Preferred stock, undesignated, par value $.001, authorized shares -
5,000,000 at December 31, 2000 and at September 30, 2000;
no shares issued and outstanding - -
Series A convertible preferred stock, par value $.001, authorized,
issued and outstanding shares - 450,000 at December 31, 2000
and at September 30, 2000 450 450
Series B convertible preferred stock, par value $.001, authorized,
issued and outstanding - none at December 31, 2000 and none
at September 30, 2000 - -
Equity conversion right 22,218,750 22,218,750
Common stock $.001 par value, authorized shares - 50,000,000 at
December 31, 2000 and at September 30, 2000; issued and
outstanding shares - 31,354,160 at December 31, 2000
and September 30, 2000, respectively 31,354 31,017
Common stock subscribed 100,000 -
Additional paid-in capital 8,078,270 6,078,607
Deferred share-based compensation (2,573,073) (3,020,187)
Accumulated deficit (7,156,628) (4,845,420)
Foreign exchange translation adjustment (3,396) -
Total stockholders' equity (deficit) 20,695,727 20,463,217
Total liabilities and stockholders' equity $ 28,794,960 $ 30,359,374
============== ===============
See Accompanying Notes to these Condensed Consolidated Financial Statements
INVESTAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS)
Three months ended
December 31,
--------------------
2000 1999
-------------------- -----------
Revenues $ 194,345 $ -
Cost of goods sold 83,680 -
-------------------- -----------
Gross profit 110,665 -
Operating expenses:
Selling, general and administrative (including amortization
of deferred compensation expense of $447,114) 852,004 18,426
Amortization of goodwill 1,354,892 -
------------------- ------------
Total operating expenses 2,206,896 18,426
-------------------- -----------
Loss from operations (2,096,231) (18,426)
Interest expense (214,978) -
Loss before income taxes (2,311,209) (18,426)
Income taxes - -
-------------------- -----------
Loss for the period $ (2,311,209) $ (18,426)
==================== ===========
Loss per share:
Basic $ (0.02) $ (0.00)
Weighted average number of shares used to calculate
loss per share:
Basic 114,383,801 9,859,148
See Accompanying Notes to these Condensed Consolidated Financial Statements
INVESTAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
Three months ended
December 31,
2000 1999
-------------------- ---------
Cash flows from operating activities:
Net loss for the period $ (2,311,209) $(18,426)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of goodwill. . . . . . . . . . . . . . . . . . . . . . . . 1,354,892 -
Amortization of deferred share-based compensation . . . . . . . . . . . 447,114 -
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,435 -
Foreign currency translation adjustment . . . . . . . . . . . . . . . . (3,397) -
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 171,051 68
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,675) -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,861 3,973
------------------- ----------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . (173,928) (14,385)
-------------------- ---------
Cash flows from investing activities:
Purchase of property and equipment. . . . . . . . . . . . . . . . . . . . (1,109)
------------------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . - (1,109)
-------------------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable . . . . . . . . . . . . . . . . . 3,593 20,340
Proceeds from shareholder loan. . . . . . . . . . . . . . . . . . . . . . 29,622 -
Proceeds from sales of property and equipment . . . . . . . . . . . . . . 300 -
Proceeds from common stock subscription . . . . . . . . . . . . . . . . . 100,000 -
-------------------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 133,515 20,340
-------------------- ---------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . (40,413) 4,846
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . 70,533 -
------------------- ----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . $ 30,120 $ 4,846
==================== =========
Supplemental non-cash financing disclosure
Issuance of common shares on settlement of note payable. . . . . . . . . . $ 2,000,000 -
==================== =========
See Accompanying Notes to these Condensed Consolidated Financial Statements
INVESTAMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Class A Convertible Equity
Preferred Stock Conversion
Shares Amount Right
------------------- ----------- -------------
Balance, October 1, 1998
(InvestAmerica) - $ - $ -
Net loss - - -
------------------- ----------- -------------
Balance, September 30, 1999 - - -
-
Shares issued on settlement of lawsuit - - -
Shares issued for cash - - -
Cancelled shares - - -
Net income - - -
------------------- ----------- -------------
Balance, March 15, 2000 - - -
Adjustment for reverse -
acquisition on March 15, 2000 - - -
- - -
------------------- ----------- -------------
-
Issued on acquisition of
Optica (Note 3) 450,000 450 -
Value of equity conversion right issued
upon acquisition of Zed (Note 3) - - 22,218,750
Compensation expense - - -
Issued for cash - - -
Deferred share-based compensation - - -
Amortization of shared-based
compensation - - -
Net loss - - -
------------------- ---------- ---------------
Balance, September 30, 2000 450,000 $ 450 $ 22,218,750
=================== =========== =============
See Accompanying Notes to these Condensed Consolidated Financial Statements
Additional Deferred
Common Stock Paid-in share-based
Shares Amount Capital compensation
Balance, October 1, 1998
(InvestAmerica) 9,859,148 $ 9,859 $ 1,777,180 $ -
Net loss - - - -
----------------------------------------------------
Balance, September 30, 1999 9,859,148 9,859 1,777,180 -
Shares issued on settlement of lawsuit 4,740,000 4,740 7,368,154 -
Shares issued for cash 16,148,555 16,148 699,059 -
Cancelled shares (225,000) (225) (5,975) -
Net income - - - -
-----------------------------------------------------
Balance, March 15, 2000 30,522,703 30,522 9,838,418 -
Adjustment for reverse
acquisition on March 15, 2000 - - (9,865,270) -
-----------------------------------------------------
30,522,703 30,522 (26,852) -
-----------------------------------------------------
Issued on acquisition of
Optica (Note 3) - - 70,184 -
Value of equity conversion right issued
upon acquisition of Zed (Note 3) - - - -
Compensation expense 300,000 300 1,574,700 -
Issued for cash 194,919 195 699,845 -
Deferred share-based compensation - - 3,760,730 (3,760,730)
Amortization of shared-based
compensation - - - 740,543
Net loss - - - -
Balance, September 30, 2000 31,017,622 $ 31,017 $ 6,078,607 $ (3,020,187)
=====================================================
See Accompanying Notes to these Condensed Consolidated Financial Statements
INVESTAMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Expressed in United States Dollars)
CONTINUED
Accumulated
Deficit During Total
Development Stockholders
Stage Equity (Deficit)
----------------- ----------------
Balance, October 1, 1998
(InvestAmerica) $ (3,005,878) $ (1,218,839)
Net loss (7,248,213) (7,248,213)
------------------- ---------------
Balance, September 30, 1999 (10,254,091) (8,467,052)
Shares issued on settlement of lawsuit - 7,372,894
Shares issued for cash - 715,207
Cancelled shares - (6,200)
Net Income 455,785 455,785
------------------- ---------------
Balance, March 15, 2000 (9,798,306) 70,634
Adjustment for reverse
acquisition on March 15, 2000 9,793,747 (71,523)
------------------- ---------------
(4,559) (899)
Issued on acquisition of
Optica (Note 3) - 70,634
Value of equity conversion right issued
upon acquisition of Zed (Note 3) - 22,218,750
Compensation expense - 1,575,000
Issued for cash - 700,040
Deferred share-based compensation - -
Amortization of shared-based
compensation - 740,543
Net loss (4,840,861) (4,840,861)
-----------------------------------
Balance, September 30, 2000 $ (4,845,420) $ 20,463,217
=================== ===============
See Accompanying Notes to these Condensed Consolidated Financial Statements
1. CONTINUING OPERATIONS
The financial statements of InvestAmerica, Inc. ("InvestAmerica") have been
prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP"). InvestAmerica is a public company quoted on the
NASD's OTC Bulletin Board.
The Company, through its subsidiary, Zed Data Systems Corp., provides public
and private sector end users with data communication solutions across North
America. These services primarily include system design and installation.
The accompanying condensed consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At December 31,
2000, the Company had negative working capital of $7,808,971. For the quarter
ended December 31, 2000, the Company incurred a net loss of $2,311,209 and is
reliant on current and future stockholders' financial support to assist in
meeting cash flow needs.
Management has evaluated the Company's alternatives to enable it to pay its
liabilities as they become due and payable in the current year, reduce operating
losses and obtain additional or new financing in order to advance its business
plan. Alternatives being considered by management include, among others,
obtaining financing from new lenders, obtaining vendor financing, and issuance
of additional equity. The Company believes these measures will provide
liquidity for it to continue as a going concern throughout fiscal 2001, however,
management can provide no assurance with regard thereto. These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern for a reasonable period of
time.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial data as of December 31, 2000 and for the three months
ended December 31, 2000 and December 31, 1999 has been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted pursuant to such rules and regulations. The
September 30, 2000 Condensed Consolidated Balance Sheet was derived from audited
financial statements, but does not include all disclosures required by U.S.
GAAP. However, the Company believes that the disclosures are adequate to make
the information presented not misleading. These Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial
Statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation (continued)
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present a fair statement of financial
position as of December 31, 2000, results of operations for the three months
ended December 31, 2000 and December 31, 1999, and cash flows for the three
months ended December 31, 2000 and December 31, 1999 have been made. The results
of operations for the three months ended December 31, 2000 are not necessarily
indicative of the operating results for the full fiscal year or any future
periods.
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 amounts reported in the condensed consolidated financial statements
and accompanying notes. While the Company believes that such estimates are fair
when considered in conjunction with the condensed consolidated financial
position and results of operations taken as a whole, the actual amount of such
estimates, when known, will vary from these estimates.
Concentration of Credit Risk and Economic Dependence
Financial instruments that potentially subject the Company to a concentration of
credit risk consist principally of cash and accounts receivable. Cash is
custodied with high-quality financial institutions and short term investments
are made in investment grade securities to mitigate exposure to credit risk.
The Company had revenues from one customer during the period ended December 31,
2000 that accounted for 74% of equipment sales and 39% of trade accounts
receivable as at December 31, 2000.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards NO. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS 137 and SFAS 138 as of the beginning of its fiscal year 2001.
The Standard requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the derivatives will either be offset
against the change in fair value of the hedges assets, liabilities or firm
commitments through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The change in a derivative's fair
value related to the ineffective portion of a hedge, if any, will be immediately
recognized in earnings. The effect of adopting SFAS 133, as amended, did not
have a material effect on the Company's financial position or overall trends in
results in operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the requirements that must be met in order to
recognize revenue and provides guidance for disclosure of revenue recognition
policies. In June 2000, the SEC issued SAB No. 101B which delays the
implementation date of SAB 101 until no later than the fourth quarter of fiscal
2000. The Company has assessed the impact of SAB 101 and does not expect the
adoption to have a material effect on its financial position or results of
operation.
3. ACCOUNTS RECEIVABLE
December 31, September 30,
2000 2000
-------------- ---------------
Trade accounts receivable $ 261,141 $ 451,082
Note receivable 9,130 9,462
Income taxes receivable 44,682 17,958
Other accounts receivable 160 7,446
Allowance for doubtful accounts (81,193) (80,977)
-------------- ---------------
Accounts receivable $ 233,920 $ 404,971
============== ===============
The note receivable does not bear interest and is unsecured.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities were as follows:
December 31, September 30,
2000 2000
------------- --------------
Trade accounts payable $ 128,443 $ 185,542
Accrued compensation 95,474 79,403
Accrued interest due to related parties 534,001 323,112
------------ ---------------
Accounts payable and accrued liabilities $ 757,918 $ 588,057
============= ==============
5. SEGMENTED INFORMATION
Currently, the Company is principally engaged in providing data communications
solutions within North America. Accordingly, the Company considers itself to be
in a single industry and geographic segment. All of the Company's long lived
assets are owned by its wholly-owned subsidiary, Zed Data Systems Corp. which
operates exclusively in North America. The Company allocates revenue based on
the location of the customer, all of which are located in North America.
6. CONTINGENCIES
During fiscal 1999, a shareholder of the Company (the "Shareholder") obtained
two default judgments against the Company; one required the payment of money and
the other declared that the Shareholder was then the sole officer and director
of the Company. The Shareholder alleges that the Company settled the matters
addressed in these two default judgments in a settlement agreement (the "First
Settlement Agreement") whereby the Company agreed to (i) issue common shares to
the Shareholder such that he would then own 95% of the total amount of issued
and outstanding common shares; (ii) deem the Shareholder the rightful owner of
certain common shares issued by Fidelity Holdings, Inc.(the "Fidelity Shares")
and certain royalties owed by a third party (the "Royalties"); and (iii)
recognize the Shareholder as the Company's sole director and Chief Executive
Officer.
The Company claims that the First Settlement Agreement was obtained without
management's knowledge Upon becoming aware of the First Settlement Agreement,
the Company entered into a second settlement agreement (the "Second Settlement
Agreement") with the Shareholder in which the Shareholder relinquished his
claims to the matters established in the First Settlement Agreement in exchange
for (i) 4,740,000 common shares of the Company (the "Settlement Shares"); and
(ii) the Company's agreement that the Shareholder is the rightful owner of the
Fidelity Shares and the Royalties. The financial statements have been presented
to reflect the Second Settlement Agreement.
Subsequent to the date of the Second Settlement Agreement, the Company issued
the Settlement Shares. The certificate evidencing the Settlement Shares had a
restrictive legend on it. The Shareholder arranged for the Court to require the
Company to re-issue the Settlement Shares without any restrictive legend. The
Company alleges that it did not receive notice of the hearing on this matter and
that the Court's order with respect to it was obtained improperly.
The Shareholder has also sued Fidelity Holdings, Inc. in a separate action in
United States District Court, in which ownership of the Fidelity Shares is an
issue. The Shareholder takes the position in this action that the Second
Settlement Agreement does not bind him. The Company has entered an appearance
in this action to assert that if the Second Settlement Agreement does not apply
to the Shareholder, then the Company asserts ownership to the Fidelity Shares.
Management is uncertain as to the resolution of this matter at this time.
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- - Item 1 of this Quarterly Report, and the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-KSB for
the fiscal year ended September 30, 2000.
Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without limitation, statements containing the words "believes", "anticipates",
"estimates", "intends", "expects" and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Although our management believes that the expectations reflected
in these forward-looking statements are reasonable, we can give no assurance
that such expectations will prove to have been correct. Actual results could
vary materially from those expressed in those forward-looking statements.
Readers are referred to "Plan of Operation", "Cash Requirements", "Future
Research, Development and Operations" and "Marketing" sections contained in this
Quarterly Report, as well as the factors described below in the section entitled
"Factors That May Affect Our Future Results", which identify some of the
important factors or events that could cause our actual results or performance
to differ materially from those contained in the forward looking statements.
GENERAL
On March 15, 2000, we acquired 100% of the issued and outstanding shares of
Optica Communications International Inc. ("Optica") by way of a share exchange
reorganization, which is described in detail in our Annual Report on Form 10-KSB
filed on January 16, 2001. Since incorporation, Optica has been in the business
of developing a fiber optic network over which it intends to provide optical
wavelength and multimedia bandwidth services, including internet, voice and data
communications, video and streaming media.
On July 7, 2000, we acquired 100% of the issued and outstanding common shares of
Zed Data Systems Corp. ("Zed") by way of a purchase of shares and a share
exchange reorganization. In the share purchase, we paid an aggregate of
$5,000,000 for approximately 77% of the issued and outstanding common shares of
Zed. As part of this Share Purchase, the balance of Zed's common shares were
converted into 50,000 shares of Class D Preferred Stock of Zed. One shareholder
owns all of these shares of Class D Preferred Stock of Zed, which are
exchangeable at any time for an aggregate of 50,000 shares of our Series B
Preferred Stock. As a result, we own all of the issued and outstanding common
shares of Zed. This acquisition is described in detail in our Annual Report on
Form 10-KSB, filed on January 16, 2001. Since incorporation, Zed has been in
the business of providing data communications and network systems solutions,
including network design, installation, commissioning, security and maintenance.
We plan to continue to operate both of these businesses over the twelve months
ending December 31, 2001.
RESULTS OF OPERATIONS
The following table presents selected financial data, derived from our unaudited
condensed consolidated statements of operations for the period ended December
31, 2000. The operating results for the three months ended December 31, 2000 and
1999, respectively, are not necessarily indicative of the results that may be
expected for the full fiscal year or any future period. As a result of our
acquisition of Optica via reverse acquisition on March 15, 2000, our financial
statements are presented as a continuation of Optica. Accordingly, financial
information relating to the quarter ended December 31, 1999 is that of Optica.
Year ended
Three months ended December 31, September 30,
2000 1999 2000
Revenues $ 194,345 $ - $ 1,293,690
Cost of goods sold 83,680 - 890,939
-----------------------------------------------
Gross Profit 110,665 - 402,751
Operating expenses:
Selling, general and
administrative (includes
amortization of deferred
share-based compensation) 852,004 118,426 3,625,652
Amortization of goodwill 1,354,892 - 1,354,892
Interest expense 214,978 - 263,068
Total operating expenses 2,421,874 18,426 5,243,612
-----------------------------------------------
Net loss from operations $2,311,209 18,426 $ 4,840,861
===============================================
REVENUES
Total revenues were $194,345 and $Nil for the quarters ended December 31, 2000
and 1999, respectively. Total revenue for the year ended September 30, 2000 was
$1,293,690.
We currently derive our revenues from the sale, installation and maintenance of
data communications equipment and data communication solutions provided by
InvestAmerica's subsidiary Zed, which was acquired at the beginning of the
fourth quarter of fiscal 2000. We recognize revenues on delivery if
persuasive evidence of an arrangement exists, delivery and installation is
complete, the fee is fixed and determinable and collection is probable. If
uncertainty exists regarding customer acceptance, revenues are deferred until
acceptance occurs. If an acceptance period is required, revenues are only
recognized upon customer acceptance.
Revenues for the quarter ended December 31, 2000 were lower than expected due to
the early completion of a major sales contract, lower than usual sales
generation resulting from our sales employees being on vacation or attending
various conferences, and other factors such as general slow down of capital and
information technology spending in the year-end holiday season. We expect sales
to slow down in the next two quarters as large telecom companies cut their
capital spending budgets further.
Revenues for the year ended September 30, 2000 were related to the completion of
a significant contract with a large local telecommunications company. There was
no revenue recorded in the quarter ended December 31, 1999 as the Company was in
the development stage at that time.
COST OF GOODS SOLD
Total cost of goods sold was $83,680 and $nil for the quarters ended December
31, 2000 and 1999, respectively. Total cost of goods sold for the year ended
September 30, 2000 was $890,939.
We are generally able to achieve high margins on our sales due to the nature of
our sales contracts and type of equipment we install. Data communications
equipment and data communication solutions continue to be in high demand and as
such provide us an opportunity to negotiate high margin contracts. We expect
that over time, our margins will begin to shrink as other competitors enter
the market and demand for data communications equipment declines.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses consist primarily of salaries,
bonuses and benefits earned by sales and marketing personnel, and related costs
for executive, finance and administrative personnel. Sales, general and
administrative expenses also include direct expenditures such as travel, rent,
depreciation, advertising and promotion, legal and other professional fees.
Sales, general and administrative expenses were $404,890 and $18,426 for the
quarters ended December 31, 2000 and 1999, respectively, excluding share-based
compensation charges. This increase is due to our increased level of activity.
Sales, general and administrative expenses were $2,885,109 for the year ended
September 30, 2000, excluding share-based compensation charges.
For the quarter ended December 31, 2000, general and administrative expenses
were higher than anticipated as we have incurred substantial legal fees related
to the various lawsuits that we are defending. General and administrative
expenses were also higher than anticipated for the year ended September 30, 2000
as we were in the process of commencing operations, hiring staff and obtaining
office space. We have tended to use consultants to manage shareholder relations
and various financial roles resulting in an increase in the professional fees we
have incurred. During the year ended September 30, 2000, we recorded a charge
for share-based compensation expense of $1,575,000 related to the hiring of
three new employees, which is also included in sales, general and administrative
expenses. We have often issued shares and options to employees and consultants
as a means of reducing our cash outlays. We expect general and administrative
expenses will increase as we continue to expand the business and increase our
administrative capability.
SHARE-BASED COMPENSATION
We recorded deferred share-based compensation of $3,760,730 during the year
ended September 30, 2000 in connection with grants of share purchase options to
our consultants. We are amortizing this amount over the four-year period and
will allocate the expense to selling, general and administrative expenses. We
recognized $447,114 and $nil in compensation expense in the quarters ended
December 31, 2000 and 1999, respectively. During the year ended September 30,
2000, we recognized $740,543 in compensation expense. We currently expect to
recognize $1,788,456, $1,200,121 and $31,001 in share-based compensation in the
years ending September 30, 2001, 2002 and 2003, respectively.
AMORTIZATION OF GOODWILL
Amortization of goodwill was $1,354,892 for the quarter ended December 31, 2000
and the year ended September 30, 2000. No such amortization was recorded in the
quarter ended December 31, 1999. This is related to the goodwill of
approximately $27.1 million arising from the acquisition of Zed during the
year ended September 30, 2000. We are amortizing goodwill from the acquisition
over a period of five years. We anticipate acquiring other companies or
assets which could result in further significant goodwill amortization or
other charges and this could materially impact our operating results.
INTEREST EXPENSE
Interest expense was $214,978 and $nil for the quarters ended December 31, 2000
and 1999, respectively, and $263,068 for the year ended September 30, 2000. The
interest expense relates to interest accrued on notes payable, which bear
interest at 12% per annum, have no fixed repayment terms and are secured. The
majority of these notes were issued in connection with the acquisition of Zed
Data Systems Corp in July 2000.
INCOME TAXES
We have not provided for income taxes for the quarters ended December 31, 2000
and 1999, nor for the year ended September 30, 2000 due to the fact that we have
not generated taxable income on a consolidated basis and due to the existence of
significant net operating tax loss carry-forwards. These loss carry-forwards
expire at various dates until 2006.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had $30,120 in cash and working capital of deficiency
$7,808,971. We had incurred a net loss of $2,311,209 for the quarter ending
December 31, 2000. Accordingly, our financial statements contain note
disclosures describing the fact that these circumstances raise substantial doubt
about our ability to continue as a going concern.
For the quarter ended December 31, 2000, our main source of working capital has
been issuance of notes payable and the issuance of common shares, resulting in
net cash provided by financing activities of $133,515. Operating activities
resulted in a net use of cash of $173,928. However, our operating assets and
liabilities provided us with cash in the amount of $329,237, due to active and
close management of accounts payable and receipt of payment in regards to
outstanding trade accounts receivable.
For the year ended September 30, 2000, our main source of capital was again the
issuance of notes payable and the issuance of common shares, for net cash
provided of $6.1 million. The acquisition of Zed and other investments resulted
in a net use of funds of $8.6 million. Operations, through collection of trade
receivables, also provided cash of $2.5 million.
Plan of Operation
Over the twelve months ending December 31, 2001, our primary objectives with
respect to the business of Optica include:
- - purchasing up to 16,500 route miles of fiber optic cable, linking over
forty-eight major metropolitan areas in North America;
- - arranging for the purchase, installation and maintenance of the hardware
necessary to activate and operate the fiber optic network;
- - engineering the fiber optic network for maximum flexibility and quality;
- - implementing, activating and testing selected routes of our fiber optic
network; and
- - reselling Indefeasible Rights of Use (IRUs) to a nominal number of users
within the geographic area served by our fiber optic network. An Indefeasible
Right of Use is an agreement for the use of dark fiber strands over a fixed
period of time (usually measured in years).
Over the twelve months ending December 31, 2001, our primary objectives with
respect to the business of Zed include:
- - increasing sales to past and current customers;
- - identifying and selling to new customers;
- - adjusting product and service offerings to meet customer needs and
demands; and
- - adding professional management, sales and service personnel to meet
customer needs.
We anticipate that we will be able to complete our plan of operations if we can
raise a significant amount of additional financing. Our actual expenditures and
business plan may differ significantly from those anticipated in our plan of
operations. We may decide not to pursue our plan of operations or we may modify
our plan of operations depending on the amount of financing that we are able to
secure. We do not currently have any arrangement in place for any debt or
equity financing which would enable us to satisfy the cash requirements required
by our plan of operations.
We anticipate that we will incur further operating losses in the foreseeable
future. We base this expectation in part on the assumption that we will incur
substantial operating and capital expenses in completing our plan of operations.
Our future financial results are also uncertain due to a number of factors, many
of which are outside of our control. These factors include, but are not limited
to, the following:
- - willingness of external investors, including our supplier and vendors, to
advance significant capital to us to finance our purchases of fiber optic
hardware and cable and to implement our business plan and plan of operations;
- - general economic conditions, government regulations and increased industry
competition;
- - uncertainty regarding our suppliers' ability to provide us with the
required fiber optic hardware and dark fiber cable in a timely fashion;
- - whether our fiber optic network can be successfully deployed;
- - whether there will be a market for our optical bandwidth services once the
development of our fiber optic network is completed; and
- - whether demand for our optical bandwidth services will be adequate to
support economically viable continued operations.
Cash Requirements
We will require a minimum of approximately $286 million over the period ending
December 31, 2001 in order to accomplish our goals. The cash requirements are
based on our estimates for operational and capital costs for the period ending
December 31, 2001.
For Optica, we estimate that in this period approximately $279.5 million will be
required for the purchase of fiber optic network hardware, including $25,000,000
for the purchase of up to 16,500 route miles of fiber optic cable, $4.5 million
to implement and test the fiber optic network, to hire project management staff,
to implement our planned sales and marketing program and for other operating
expenses.
For Zed, we estimate that approximately $200,000 will be required for debt
repayment, $300,000 will required to implement our planned sales and marketing
program and $500,000 will be required for acquisition or expansion.
The balance of $5.5 million will be required to repay debt of $5 million and to
support general corporate expenses, including the purchase of computer hardware
and software, office furniture and equipment, other information technology
equipment, expenses in connection with the engaging of both senior and
intermediate management personnel and other general operating expenses.
We believe we have sufficient funds on hand to pay for ongoing operating costs
and capital expenditures at least through March 2001. We intend to obtain the
balance of the cash requirements through the sale of our equity securities,
proceeds received from the exercise of outstanding warrants and stock options or
by obtaining further debt financing.
Future Research, Development and Operations
The purchase of fiber optic network equipment and fiber optic cable will
represent the first phase of a planned multi-phase deployment of an extensive
international fiber optic network. This first phase, known as the "Stage One
Network" will be located entirely in North America. Optica plans to use the
Stage One Network to serve 48 North American cities.
We intend to purchase the fiber optic network hardware and dark fiber optic
cable by June 30, 2001. Although we have identified several suppliers of fiber
optic cable and hardware, we have not entered into any binding arrangements for
the supply of such materials. On December 15, 2000, Optica signed a non-binding
letter of intent with a major fiber optical equipment manufacturer and is
proceeding with negotiations to finalize the terms of a supply agreement for the
purchase of approximately $675,000,000 worth of fiber optic network hardware
over the next two years. We anticipate implementing, activating and testing
selected routes of our fiber optic network in November, 2001 with the full fiber
optic network being deployed by the end of the fourth quarter of the year ended
September 30, 2002 as warranted by sales and customer demand. We anticipate
commencing the provision of optical bandwidth services by November 30, 2001. We
will be required to hire 20 technical staff in connection with the development
of our fiber optic network and we anticipate hiring some of those personnel by
June 30, 2001. Finally, we anticipate implementing our planned sales and
marketing program by June 30, 2001.
With respect to Zed, we intend to hire additional persons in sales management,
sales and service, and to conduct a telemarketing program in an effort to
increase our sales to past and current customers. The additional sales and
marketing personnel will also focus on identifying and contacting new customers.
We will also continue to monitor and adjust our product and service offerings to
keep pace with new technology and ever changing customer demand.
Marketing
In order to increase Zed's sales volume, we plan to:
- - hire a seasoned sales director;
- - hire additional sales staff;
- - hire additional sales staff;
- - negotiate with current and additional hardware and software vendors; and
- - operate a telemarketing program.
With respect to Optica, we expect that our primary customers for our optical
bandwidth services will include competitive local exchange carriers, data
oriented local exchange carriers, internet service providers, inter-exchange
carriers and incumbent local exchange carriers. In order to compete in the
existing markets for our products and generate consumer awareness, we will be
required to undertake a very aggressive advertising and marketing campaign.
This will require that we place advertisements in several key trade magazines
and publications, as well as exhibiting our software products at the major
tradeshows held throughout the year.
Personnel
As of December 31, 2001, we had 21 permanent employees with 12 in the area of
corporate administration, 6 in technology and service and 3 in sales (we employ
a total of 22 people, including consultants). Over the twelve month period
ending December 31, 2001, we plan to expand our total number of permanent
employees in these same departments to approximately 70, with 5 additional
part-time employees.
Purchase or Sale of Equipment
Other than the purchases planned by Optica for fiber optic network hardware and
fiber optic cable, we do not anticipate that we will expend any significant
amount on equipment for our present or future operations over the next twelve
months.
Factors That May Affect Our Future Results
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this annual report in evaluating InvestAmerica and our
businesses before purchasing shares of our common stock. Our business,
operating results and financial condition could be seriously harmed due to any
of the following risks. The trading price of the shares of our common stock
could decline due to any of these risks, and you could lose all or part of your
investment.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE WHETHER WE CAN
OPERATE PROFITABLY.
Before we acquired Zed, we had no revenues or earnings. We do not currently
have any significant assets or financial resources. Our prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the very early stages of development, especially in the new and rapidly evolving
field of fiber optic technology. There can be no assurance that we will be able
to address any of these challenges.
SINCE WE HAVE A HISTORY OF NET LOSSES AND A LACK OF ESTABLISHED REVENUE, WE
EXPECT TO INCUR NET LOSSES IN THE FUTURE.
Our consolidated financial statements reflect that we have not generated any
significant revenues and have incurred significant net losses, including a net
loss of $4,840,861 for the year ended September 30, 2000. As of December 31,
2000, we had an accumulated deficit of $7,156,628. We expect to have continuing
net losses and negative cash flows for the foreseeable future. The size of
these net losses will depend, in part, on the commencement of and the rate of
growth in our revenues.
Despite the revenues generated by Zed, with our entrance into the competitive
fiber optics communication business, we have significantly increased our
operating expenses and we expect that our operating expenses will significantly
increase in the future. To the extent that any such expenses are not timely
followed by increased revenues, our business, results of operations, financial
condition and prospects would be materially adversely affected. These
circumstances raise substantial doubt about our ability to continue as a going
concern as described in an explanatory paragraph to our independent accountants'
opinion on the December 31, 2000 audited financial statements.
IF WE DO NOT RAISE ADDITIONAL FUNDS FROM THIRD PARTY SOURCES OR BEGIN TO EARN
REVENUES, THEN WE MAY BE UNABLE TO CONTINUE OPERATING.
Recurring operating losses and the significant working capital needs predicted
for our fiber optic business will require that we obtain additional operating
capital before we have established that our fiber optic business can generate
significant revenue. The continuation of our businesses is dependent upon the
successful execution of our business plan. We will not have any products to
sell from our fiber optic business until July, 2001 at the earliest, and we are
relying on third parties (mainly suppliers) to meet that target date.
While we are expending our best efforts to meet our financing needs, there can
be no assurance that we will be successful in raising capital from third parties
or generating sufficient funds for operations and continued development. We are
planning to raise a substantial portion of the capital needed for our fiber
optic business through vendor financing from our suppliers, with whom we have
not yet contracted. In the event that we are unable to negotiate acceptable
terms with our suppliers, we may not have adequate financial resources to
continue our business.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF OUR COMPETITORS MAY BE MORE
SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS.
The market for fiber optic bandwidth and services is highly competitive; we
expect that competition will continue to intensify and prices will decline.
Negative competitive developments could prevent our business from being
successful. All of our potential competitors have more established operating
histories than our Optica subsidiary
does, as well as significantly greater financial, technical, sales and marketing
resources. As a result, our competitors are able to devote greater resources to
the development, promotion, sale and support of their products.
In particular, we will face significant competition from Global Crossing, GTE,
Broadwing, Level 3 Communications and Williams Communications. To a less
significant extent, we will face competition from AT&T, Sprint, Qwest
Communications and MCI Worldcom. All of these potential competitors have
greater name and brand recognition than we do.
ZED'S DEPENDENCE UPON KEY CUSTOMERS MAY AFFECT ITS FUTURE REVENUES AND PROSPECTS
Zed is dependent upon a limited number of customers for a substantial portion of
its revenues. The loss of any of these customers would have a material,
significant adverse impact upon Zed's continued operations, revenues and
prospects for profits, but would not significantly impact our working capital,
liquidity or long term prospects. One of Zed's customers accounted for 74% of
Zed's revenues and 39% of Zed's accounts receivable for the period from July 7,
2000 to December 31, 2000. Although Zed expects to expand its customer base,
there can be no assurance that it will be successful and, if the customer base
is expanded, that Zed will be able to retain its existing customers.
Furthermore, an unexpected decline in sales to this one customer could have a
materially adverse impact upon Zed and its continued operations. In addition,
there are no firm contracts governing Zed's relationship with any of its
customers. Accordingly, such business relationships could be terminated or
curtailed at any time. The lack of firm contracts between Zed and its customers
could have a materially adverse impact on Zed's revenue.
WE WILL RELY HEAVILY ON REVENUES DERIVED FROM A SMALL NUMBER OF CUSTOMERS, WHICH
MAY PROVE TO BE AN INEFFECTIVE MEANS OF RAISING REVENUES.
We expect to generate the majority of our fiber optic business revenues from a
very small number of significant customers. Our ability to continue to generate
substantial revenue will depend upon these customers and our revenue may decline
if any of these potential customers were to cancel, reduce or delay purchases of
our fiber optic network products or if they were to demand significant price
concessions.
FAILURE TO EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS COULD HARM OUR FUTURE
BUSINESS RESULTS AND MAY STRAIN OUR MANAGERIAL, FINANCIAL AND OPERATIONAL
RESOURCES.
As our Optica subsidiary proceeds with the development of its proposed Stage One
Network, we expect that it may experience significant and rapid growth. It will
need to add staff to market its products, manage operations, handle sales and
marketing and perform finance and accounting functions. This growth is likely
to place a significant strain on our managerial, financial and operational
resources. The failure to develop and implement effective systems, or to hire
and retain sufficient personnel for the performance of all of the functions
necessary to effectively service and manage our potential business, or the
failure to manage growth effectively, could have a material adverse impact on
our business and financial condition.
A LOSS OF ANY KEY PERSONNEL COULD IMPAIR OUR ABILITY TO SUCCEED.
In part, our future success depends on the continued service of our key
management personnel, particularly: Douglas Smith, Ernst Gemassmer and Rick
Connole at InvestAmerica, and Lyle Kerr, Neil Wieler, Jim Duncan and Mark Nomura
at Optica. The loss of their services, or the services of other key employees,
could impair our ability to grow our business.
Our future success also depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in our industry is intense.
We may be unable to attract, assimilate or retain other highly qualified
employees in the future. In the past, we have experienced difficulty in hiring
and retaining highly skilled employees with appropriate qualifications. We
expect this difficulty to continue in the future.
WE ARE UNCERTAIN WE CAN OBTAIN THE CAPITAL TO GROW OUR BUSINESS.
To fully realize our business objectives and potential, we will require
significant additional financing. The fiber optics networking business is very
capital intensive. Our current operating plan calls for the expenditure of over
one billion dollars in the next few years. For the year ending September 30,
2001, Optica plans to spend approximately $275 million for capital assets, $250
million of which we plan to raise through vendor financing. In addition, we
will need to raise another $94 million for debt repayment of $5 million, for
working capital and to establish an appropriate base of working capital for our
operations. We may be unable to obtain some or all of this required financing,
or we may not be able to acquire it on terms favorable to us. If adequate funds
are not available on acceptable terms, we may be unable to:
- - fund our expansion;
- - successfully promote our products and services;
- - develop or enhance our products and services;
- - respond to competitive pressures; or
- - take advantage of acquisition opportunities.
Additional financing may be debt, equity or a combination of debt and equity. If
we raise additional funds through the issuance of equity securities, our
stockholders may experience dilution of their ownership interest and the newly
issued securities may have rights superior to those of the common stock. If we
raise additional funds by issuing debt, we may be subject to limitations on our
operations, including limitations on the payment of dividends.
OUR INABILITY TO ADAPT TO EVOLVING TECHNOLOGIES AND CUSTOMER DEMANDS MAY IMPEDE
OUR FUTURE GROWTH.
To be successful, we must adapt to rapidly changing fiber optic technologies and
customer demands. To that end, we will continually need to enhance our products
and services and introduce new services to address our customers' changing
needs. If we need to modify our services or infrastructure to adapt to changes,
we could incur substantial additional development or acquisition costs. If we
cannot adapt to these changes, or do not sufficiently increase the features and
functionality of our products and services, our customers may switch to the
product and service offerings of our competitors or potential competitors.
IF OUR SYSTEMS DO NOT PERFORM AS EXPECTED, OUR POTENTIAL REVENUES MAY BE
SIGNIFICANTLY REDUCED.
Any system failure, including network, software or hardware failure, that causes
an interruption in our service or a decrease in our responsiveness could result
in a loss of customers, damage to our reputation and substantial costs.
SINCE THE MARKET FOR STOCKS OF TECHNOLOGY COMPANIES HAS EXPERIENCED EXTREME
PRICE FLUCTUATIONS, OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS.
The market for the stocks of technology-related companies has experienced
extreme price and volume fluctuations. The market price of our common stock may
be volatile and may decline. In the past, securities class action litigation has
often been initiated against companies following periods of volatility in the
market price of their securities. If initiated against us, regardless of the
outcome, litigation could result in substantial costs and a diversion of our
management's attention and resources.
IF HOLDERS OF OUR CONVERTIBLE PREFERRED STOCKS CONVERT, OUR COMMON STOCK MAY BE
DILUTED AND SALES OF THE SHARES MAY REDUCE OUR STOCK PRICE.
The existence of convertible preferred stocks may make it more difficult for us
to raise capital when necessary and may depress the market price of our common
stock in any market that may develop for such securities. Future sales of a
substantial number of our common shares in the public market could reduce the
market price of the stock. It could also impair our ability to raise additional
capital by selling more of our common stock.
SINCE OUR SHARES ARE SUBJECT TO SIGNIFICANT PRICE AND VOLUME FLUCTUATIONS,
STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
Our common stock is quoted on the OTC Bulletin Board and is thinly traded. In
the past, our trading price has fluctuated widely, depending on many factors
that may have little to do with our operations or business prospectus. In
addition, the OTC Bulletin Board is not an exchange and, because trading of the
securities on the OTC Bulletin Board is often more sporadic than the trading of
securities listed on an exchange or the Nasdaq, you may have difficulty
reselling any of the shares you purchase from the selling stockholders.
TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS
WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
The U.S. Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
(as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
"accredited investors." The term "accredited investor" refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standard risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid
and offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of, our common stock.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our Certificate of Incorporation and our Bylaws, as well as
provisions of applicable Nevada law may discourage, delay or prevent a merger or
other change of control that a stockholder may consider favourable. Our board
of directors has the authority to issue up to 200,000,000 shares of common stock
and to determine the price and terms, including preferences and voting rights,
of those shares without stockholder approval. As of December 31, 2000, we have
issued the following (or are required to issue additional shares of common stock
as the result of our receipt of conversion notices from the holders of the
convertible preferred stock): (1) 10,600,000 stock options to purchase common
stock, (2) 170,957 warrants to purchase common stock, (3) 83,250,000 shares of
common stock are issuable upon conversion of Series "A" preferred stock; and (4)
an additional 15,000,000 shares of common stock are issuable upon conversion of
Series "B" preferred stock assuming the exchange of Zed Preferred Stock for our
Series B Preferred Stock. The issuance of additional shares of common stock
could, among other things, have the following effect:
- - delay, defer or prevent an acquisition or a change in control of our
company;
- - discourage bids for our common stock at a premium over the market price;
or
- - reduce the market price of, and the voting and other rights of the holders
of, our common stock.
Furthermore, we are subject to Nevada laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our Certificate of Incorporation and our
By-laws, and the significant amount of common stock held by our executive
officers, directors and affiliates, could together have the effect of
discouraging potential takeover attempts or making it more difficult for
stockholders to change management.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have not paid dividends on our common stock or preferred stock and do not
expect to do so in the foreseeable future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As disclosed in our Annual Report on Form 10-KSB filed on January 16, 2001, we
are a defendant in a number of pending lawsuits that were filed by Daniel Tepper
(collectively, the "Tepper Actions").
There have been no material changes in any of the Tepper Actions since we filed
our Annual Report on Form 10-KSB. Other than as disclosed above and in our
Annual Report on Form 10-KSB, we know of no material, active or pending legal
proceedings against us, nor are we involved as a plaintiff in any material
proceedings or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder
is an adverse party of has a material interest adverse to us.
ITEM 2. CHANGES IN SECURITIES.
Shares Issued from Treasury
On December 5, 2000, we issued 336,538 common shares, at a price of $5.94 per
share, to one of our officers/directors in a transaction private in nature,
relying on the exemptions from registration under Section 4(2) and/or Rule 506
of Regulation D promulgated under the Securities Act of 1933.
Stock Options
As noted in our Annual Report on Form 10-KSB filed on January 16, 2001, on April
6, 2000, we granted an aggregate of 735,000 options to purchase shares of our
common stock to 1 employee and 1 consultant. The options were granted at an
exercise price of $5.94 per share, are exercisable until April 6, 2005 and were
granted to the employee and the consultant in a transaction private in nature,
in reliance on Section 4(2) and/or Rule 506 of Regulation D or in an "offshore
transaction" pursuant to Regulation S promulgated under the 1933 Act. Copies of
the stock option agreements between Investamerica, Inc. and the employee and
consultant are appended to this Quarterly Report as exhibits.
Also as noted in our Annual Report on Form 10-KSB filed on January 16, 2001, on
July 21, 2000, we granted an aggregate of 715,000 options to purchase shares of
our common stock to 14 employees. The options were granted at an exercise price
of $1.41 per share, are exercisable until July 21, 2005 and were granted to the
employees and the consultant in a transaction private in nature, in reliance on
Section 4(2) and/or Rule 506 of Regulation D or in an "offshore transaction"
pursuant to Regulation S promulgated under the 1933 Act. Copies of the stock
option agreements between Investamerica, Inc. and the employees are appended to
this Quarterly Report as exhibits.
On December 7, 2000, our Board of Directors approved the grant of options to 5
employees and 2 consultants to purchase up to an aggregate of 5,255,000 shares
of our common stock at an exercise price of $0.66 per share for a 5 year term,
vesting monthly over 24 months. The options were granted in a transaction
private in nature, in reliance on Section 4(2) and/or Rule 506 of Regulation D
or in an "offshore transaction" pursuant to Regulation S promulgated under the
1933 Act. Copies of the stock option agreements between Investamerica, Inc. and
Brian Kitts (a consultant), Eric Turcotte (a consultant), Mark Nomura (an
employee) and Ben Lew (an employee) are appended to this Quarterly Report as
exhibits.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
Following the end of the quarter ended December 31, 2001, we filed a Current
Report on Form 8-K on January 3, 2001 and a Current Report on Form 8-K/A, also
on January 3, 2001, both of which were filed with respect to the change in our
certifying accountant from Braverman & Company to Deloitte & Touche LLP. On
December 28, 2000, we announced that our Board of Directors had approved our
decision to engage Deloitte & Touche LLP to audit our financial statements from
this point forward. On January 16, 2001, we filed a further Current Report on
Form 8-K/A in this regard, attaching a letter from our previous auditors,
Braverman & Company.
Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
Exhibits Required by Item 601 of Regulation S-B
(3) Articles of Incorporation and By-laws
3.1 Articles of Incorporation of our company (incorporated by reference
from our Form 10-SB Registration Statement, filed November 30, 1999).
3.2 Bylaws of our company (incorporated by reference from our Form
10-SB Registration Statement, filed November 30, 1999).
3.3 Amended Articles of Incorporation of our company (incorporated by
reference from our Form 10-SB Registration Statement, filed November 30, 1999).
(10) Material Contracts
10.1 Stock Option Agreement between Investamerica, Inc. and M. Eric
Turcotte, dated April 6, 2000
10.2 Stock Option Agreement between Investamerica, Inc. and Raymond
Polman, dated April 6, 2000
10.3 Stock Option Agreement between Investamerica, Inc. and Shirley
Moy, dated July 10, 2000
10.4 Stock Option Agreement between Investamerica, Inc. and Angela
Chong, dated July 10, 2000
10.5 Stock Option Agreement between Investamerica, Inc. and Tracy
(Thuc) Pham, dated July 10, 2000
10.6 Stock Option Agreement between Investamerica, Inc. and Jennifer
Hepting, dated July 10, 2000
10.7 Stock Option Agreement between Investamerica, Inc. and Patrick
Chan, dated July 10, 2000
10.8 Stock Option Agreement between Investamerica, Inc. and Merlin
Mott, dated July 10, 2000
10.9 Stock Option Agreement between Investamerica, Inc. and Kelley
Deon, dated July 10, 2000
10.10 Stock Option Agreement between Investamerica, Inc. and Ian
Archibald, dated July 10, 2000
10.11 Stock Option Agreement between Investamerica, Inc. and Rick
Connole, dated July 10, 2000
10.12 Stock Option Agreement between Investamerica, Inc. and Maureen
Owen, dated July 10, 2000
10.13 Stock Option Agreement between Investamerica, Inc. and Doug
Thomas, dated July 10, 2000
10.14 Stock Option Agreement between Investamerica, Inc. and Tom
Wieler, dated July 10, 2000
10.15 Stock Option Agreement between Investamerica, Inc. and Helen
Moon, dated July 10, 2000
10.16 Stock Option Agreement between Investamerica, Inc. and Madeleine
Saw, dated July 10, 2000
10.17 Stock Option Agreement between Investamerica, Inc. and Brian
(Qian) Sun, dated July 10, 2000
10.18 Stock Option Agreement between Investamerica, Inc. and Neil
Wieler, dated February 8, 2000
10.19 Stock Option Agreement between Investamerica, Inc. and Lyle Kerr,
dated February 8, 2000
10.20 Stock Option Agreement between Investamerica, Inc. and Jim
Duncan, dated February 8, 2000
10.21 Stock Option Agreement between Investamerica, Inc. and Brian
Kitts, dated December 7, 2000
10.22 Stock Option Agreement between Investamerica, Inc. and M. Eric
Turcotte, dated December 7, 2000
10.23 Stock Option Agreement between Investamerica, Inc. and Mark
Nomura, dated December 7, 2000
10.24 Stock Option Agreement between Investamerica, Inc. and Ben Lew,
dated December 7, 2000
10.25 Lock-Up Agreement between Investamerica, Inc. and Crystsal
Marriott S.A., dated October 20, 2000
10.26 Lock-Up Agreement between Investamerica, Inc. and Russells
Systems Limited, dated October 20, 2000
10.27 Lock-Up Agreement between Investamerica, Inc. and Winjoy Services
Centre Limited, dated October 20, 2000
10.28 Lock-Up Agreement between Investamerica, Inc. and Virgil
Securities S.A., dated October 20, 2000
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INVESTAMERICA, INC.
By: /s/ Douglas Smith
Douglas Smith,
Chairman/President/Chief Executive Officer
Date: February 14, 2001
By: /s/ Brian Kitts
Brian Kitts, Secretary/Director
Date: February 14, 2001
By: /s/ Ernst Gemassmer
Ernst Gemassmer, Director
Date: February 14, 2001
By: /s/ Fred Fierling
Fred Fierling, Director
Date: February 14, 2001