SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Form 10-QSB
---------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number [000-30264]
--------------------------------
Acola Corp.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3177042
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
39 Neck Road
Madison, CT 06443
(Address of principal executive offices including zip code)
-----------------------------------
Registrant's telephone number, including area code:
(203) 318-8330
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
- ---- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 2002.
Class Outstanding at November 14, 2002
----- ---------------------------------
Common Stock, $0.0001 Par Value 34,805,050
ACOLA CORP. AND SUBSIDIARIES
Table of Contents
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2002 (unaudited) and June 30, 2002
(audited) 3
Condensed Consolidated Statements of Operations (unaudited) -
Three Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity (unaudited) - Three Months ended September
30, 2002 5
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Controls and Procedures 12
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports 14
113:
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 June 30, 2002
(Unaudited) (Audited)
------------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18 $ 179
----------- -----------
18 179
OZELLE PHARMACEUTICALS INC. COMMON STOCK 1 1
INTANGIBLE ASSETS - Net 10 10
---------- ---------
--
TOTAL ASSETS $ 29 $ 190
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 129,634 $ 138,467
Note Payable-Shareholder & Other 32,084 31,606
Due Related Party 14,577 5,613
Note Payable-Related Party 47,036 46,107
---------- ----------
TOTAL CURRENT LIABILITIES 223,331 221,793
----------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK; $.001 par value,
5,000,000 shares authorized;
and no shares issued and outstanding - -
COMMON STOCK CLASS A; $.001 par value; 100,000,000
shares authorized; 34,805,050 shares issued and
outstanding 34,805 34,805
COMMON STOCK CLASS B; Supervoting shares, 100
votes for each share, $.001 par value; 2,000,000
shares authorized; 2,000,000 shares issued and
outstanding 2,000 2,000
ADDITIONAL PAID-IN CAPITAL 3,373,173 3,373,173
ACCUMULATED DEFICIT (3,633,280) (3,631,581)
----------- ----------
TOTAL STOCKHOLDERS'(DEFICIT) (223,302) (221,603)
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 29 $ 190
=========== ===========
See accompanying notes.
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
---------------------
2002 2001
------- -------
EXPENSES
Professional fees $ - $ 12,312
Selling and marketing - 146
Management fee - 14,351
General and administrative expenses 1,699 66,367
--------- --------
1,699 93,176
--------- --------
LOSS FROM OPERATIONS (1,699) (93,176)
OTHER INCOME - Debt forgiveness - 116,138
INTEREST INCOME - 162
--------- ---------
NET INCOME $(1,699) $ 23,124
========= ==========
BASIC AND DILUTED INCOME
PER SHARE OF COMMON STOCK $ NIL $ 0.08
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 34,805,050 305,050
========== ==========
See accompanying notes.
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
Class A Class B Additional
Common Common Paid-In Accumulated
Stock Stock Capital Deficit Total
------ ------- ---------- ----------- ---------
BALANCE
AT JUNE
30,2002 $34,805 $2,000 $3,373,173 $(3,631,581) $(221,603)
NET LOSS FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 2002 - - - (1,699) (1,699)
------ -------- ---------- ----------- ---------
BALANCE AT $34,805 $2,000 $3,373,173 $(3,633,280) $(223,302)
JUNE 30, 2002 ======= ======== ========== ============ =========
See accompanying notes
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
---------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (1,699) $ 23,124
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization - 17,228
Debt forgiveness income not providing cash - (116,138)
Changes in assets and liabilities:
Miscellaneous receivables - 2,042
Prepaid expenses - 21,000
Accounts payable and accrued expenses (8,833) 21,196
--------- ---------
Net cash used in operating activities (10,532) (31,548)
CASH FLOW FROM FINANCING ACTIVITIES
Short term loans 10,371 -
--------- -----------
Net cash provided by financing activities 10,371 -
EFFECT OF EXCHANGE RATES ON CASH - 14,837
--------- ---------
NET DECREASE IN CASH (161) (16,711)
CASH - BEGINNING OF PERIOD 179 37,126
--------- ---------
CASH - END OF PERIOD $ 18 $ 20,415
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Accounts payable and accrued expenses
Extinguishments not requiring cash $ - $ 257,070
See accompanying notes.
ACOLA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's
management, reflects normal recurring adjustments necessary for a
fair presentation of the information for the periods presented.
Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. These financial
statements should be read in conjunction with the financial
statements and notes for the year ended June 30, 2002, included
in the Form 10-KSB.
The results of operations for the three month periods ended
September 30, 2002 and 2001 are not necessarily indicative of
operating results for the full year.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Acola Corp.
(the "Company") and its wholly owned subsidiaries. All material
intercompany balances and intercompany transactions have been eliminated.
Any comparisons of operations included on the Statement of Operations
for the quarter ended September 30, 2001 versus the quarter ended June
30, 2002 are not relevant as the Company is not engaged in any business
activity at this time.
As reflected in the accompanying financial statements, the Company has
negative working capital, almost no cash, no revenues, and no ongoing
operations to generate cash, working capital or profits. The Company
and its predecessor MegaChain.com Ltd. has accumulated approximately
$3.6 million of losses which will continue in the future. Because of
these and other matters, it is highly unlikely that the Company will be
able to raise additional debt or equity capital in amounts necessary to
remain in business. Consequently, it is very probable that the Company
will not be able to remain in business. The amounts reflected on the
accompanying balance sheet do not include any adjustments to reflect
the Company's inability to remain in business. Generally however, when
a business is unable to remain a going concern, assets are liquidated
for a very small percentage of the amounts reflected on its balance
sheet. At this time, the Company does not possess adequate assets to
satisfy its debts or to return to its shareholders their capital
investments.
NOTE 3 - MANAGEMENT PLANS
On October 12, 2001, MegaChain.com Ltd. and Acola Corp., a Delaware
corporation ("Acola"), completed the transactions contemplated by the
Agreement and Plan of Reorganization (the "Agreement") dated September
18, 2001, pursuant to which MegaChain.com Ltd. acquired 100% of the equity
interests in Acola with Acola changing its name to MCGL Acquisition Corp.
and continuing as a wholly-owned subsidiary of the Company. The
reorganization was completed by the issuance of 15,000,000 shares (in
excess of a majority) of the MegaChain.com Ltd. common stock, 100 shares
of Series A Preferred Stock, 150,000 shares of Series B Preferred Stock
and the payment of $280,000 to the Stockholders of MegaChain in exchange
for 100% of the equity interests of Acola. MegaChain.com Ltd. then
changed its name to Acola Corp. ("Acola Corp.") after completion of the
reorganization process.
Acola has accounted for the acquisition as a reverse acquisition of
MegaChain under the purchase method of accounting. Consequently, the
historical financial statements of Acola prior to the acquisition have
become the financial statements of the Company, and the results of
operations of MegaChain have been combined with Acola effective with
the acquisition. As a result of the acquisition, the former equity
holders of Acola now own approximately 99.9% of the voting stock of
the Company, which has changed its name to Acola
ACOLA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Corp. The acquisition did not require the approval of the stockholders of
the Company and the name change was previously approved by the Company's
stockholders. Coincident with this
transaction, Acola has filed on Forms 8-K with the Securities & Exchange
Commission notice of the transaction and notice of a change of its
independent accountants.
As provided for in the Agreement, upon completion of the transaction, Robert
B. Dillon was appointed as the new President, Chief Executive Officer and
director and Samuel M. Skipper as the new Chairman of the Board, Secretary
and director. The previous officers and directors resigned. On April 10,
2002, Samuel M. Skipper resigned as Chairman of the Board and as Director.
He has been replaced by Michael G. Wirtz.
On October 9, 2001 an amended Form S-8 was filed by MegaChain.com, Ltd.
registering 4,500,000 shares of the Company's common stock ($.0001 par value)
valued at $270,000 pursuant to Consulting Agreements. Additionally, one of
the Company's consultants purchased 1,150,000 shares of Acola common stock
for $375,000. As an element of the acquisition financing, Skipper and Dillon
pledged their shares to this consultant, the exercise of such contingency
could cause a change of control in the company, subject to mutual agreement
of all the parties.
On November 26, 2001 the Company adopted Restated Bylaws and Restated
Certificate of Incorporation of the Company. The Restated Certificate
resulted in a change of the Certificate of Incorporation of the Company that
(i) increased the par value of shares of common stock of the Company from
$.0001 to $.001, (ii) increased the number of shares of common stock the
Company is authorized to issue from 30,000,000 to 100,000,000, (iii)
increased the par value of shares of preferred stock of the Company from
$.0001 to $.001 and (iv) authorized the issuance of 5,000,000 shares of
Class B common stock, par value $.001 per share. The earnings per share as
reflected on the accompanying Condensed Consolidated Statements of Operations
for the three months ended September 30, 2001 has not been restated to
reflect this change.
This allows for the holders of the company's Class B preferred stock to
automatically convert each one of their Class B preferred shares into 100
shares of common stock. The preferred stock was authorized because of the
limitations on the number of issued and reserved shares of Acola common
stock.
Going Concern Considerations
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The Company
has suffered recurring losses from operations of approximately $3.6 million
and at September 30, 2002 has negative working capital of approximately
$223,000 and cash of only $18. These factors, among others, strongly suggest
the Company will not remain in business or continue as a going concern. At
this time, the Company does not have adequate cash, working capital or
capacity to borrow or raise additional equity capital with which to remain
in business.
The balance sheet does not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary in the event the
Company cannot continue in existence.
Although it was believed by prior management that the Company's software
product was ready to be sold as a stand-alone data base management system,
a considerable sales and marketing budget, not currently available to the
Company, would have been required in order to properly operate and market the
product. Because the new owners and management of the Company are interested
in other opportunities, an agreement was reached to exchange the
ACOLA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company's software product, with a net capitalized cost of $142,500, and
computer equipment, with a net cost of $28,582, for the extinguishment of
liabilities in the amounts
of $112,350 to a related party, Blue Wave Productions Ltd. and $144,720 to
other third parties. This exchange has been reflected in the financials as of
September 30, 2001.
NOTE 4 - PREPAID EXPENSES
As a result of the disposition of the software as previously discussed, the
Company expensed its prepaid software development costs.
NOTE 5 - PROPERTY AND EQUIPMENT
The company does not have any property and equipment as of September 30,
2002.
NOTE 6 - INTANGIBLE ASSETS
The company's only intangible asset is the Company's trademark.
NOTE 7 - NOTES PAYABLE
The company has three notes payable with three individuals. The first note
payable is a 90 day, 10% note in the principal amount of $14,500. Its
proceeds were used for day to day Company operating expenses. This note
contains a penalty for 35,000 shares of the Company's common stock if it is
not paid on the due date. The company accrued a liability of $5,950 on March
2, 2002 for the stock owed to this noteholder which was determined by the
price of the Company's common shares ($0.17) at that date. Interest on the
note in the amount of $1,244 has been accrued on the Company's books through
September 30, 2002.
The second note payable is to former Chairman Sam Skipper, a related party,
who incurred expenses on behalf of the Company. The note is a 90 day, 8%
note in the principal amount of $44,311. Interest on the note in the amount
of $2,725 has been accrued on the Company's books through September 30, 2002.
The third note payable is to a consultant who helped the Company in its
initial development. The note is a 90 day, 3.5% note in the principal amount
of $10,000. Interest on the note in the amount of $390 has been accrued on
the Company's books through September 30, 2002.
Should a settlement with Dr. Baxter be reached, it is anticipated that the
above notes, interest and penalty will be forgiven as part of the settlement.
At September 30, 2002, Dr. Donald Baxter claims that the Company still holds
a note payable to him in the principal amount of $75,000 ("July 2001 Note").
The company believes that this note was part of the purchase price for the
sale of 1,150,000 shares of the Company's Class A common stock. Therefore
the note is not included as a liability in the accompanying financial
statements.
NOTE 8 - LEGAL PROCEEDINGS
On or about August 4, 2000, Management received a letter from an attorney
advising that there is an Order for Entry of Default Judgment in favor of
two alleged former employees of Northern Lights Software, Ltd. (a
subsidiary of the Company) dated March 10, 1998 in the total amount of
$74,887. The judgment was obtained in the State of Colorado and was
apparently for unpaid wages. Until such time, present management was
unaware of this claim and judgment. A former director of the Company
advised management that he was also unaware of this claim and judgment
and believed that claimants were actually employees of Northern Lights
Software (New York) Ltd., a subsidiary of Northern Lights Software, Ltd.
Pursuant to an Agreement and Plan of Reorganization dated February 15,
1999, that former director personally warranted that there were no
undisclosed liabilities in the Company. The Company intends to dispute
the judgment. Management is not able to determine its chance of success
in attempting to set aside the judgment but has obtained compensation in
the amount of $10,300 from the former director in exchange for releasing
his indemnification of the Company for that claim.
On or about March 19, 2002, the Company received notice of a lawsuit from
two individuals claiming they are due $26,000 pursuant to their respective
consulting agreements. These consultants assisted in providing content and
advice on the Company's website that was being built in late 2001. Management
asserts that only 4,000 shares of the Company's common stock is due to each.
The Company accrued a total amount of $10,000 for the consultants. Management
believes the probability of any judgment against the Company is remote and
has not accrued any additional expense toward a settlement resulting from
resolution of future negotiations or litigation.
On or about January 4, 2002, the Company received written demand from a
website developer for payment of its billing purportedly under the Company's
agreement. The Company accrued $76,294 as a potential liability for this
demand, but did not reserve any cash for this purpose. Previous management
held several discussions with said website developer, but was unable to
resolve the differences in a mutually beneficial manner. On or about November
1, 2002, the Company's statutory agent in Delaware received notice of a
lawsuit brought by the website developer for alleged breach of contract,
failure to pay for goods and/or services allegedly sold to and accepted by
the Company, and attorney's fees. The lawsuit seeks $113,313 in damages.
The Company intends to defend this lawsuit vigorously.
On March 29, 2002 the Company received written demand from the Attorney
representing Donald E. Baxter, a consultant and stockholder of the Company.
Baxter claimed that he had been defrauded by investing in the Company and
that the Company has had numerous violations of federal and state law, filed
materially misleading filings with the Securities and Exchange Commission,
filed false financial statements and conspired to manipulate the market.
Baxter also claimed he was due $375,000 but was willing to settle for
28,523,400 of the Company's Class A shares as part of a comprehensive
settlement agreement. Such Company share amounts, if transferred to Baxter,
would give Baxter control of the Company. Management and certain other
shareholders have negotiated a resolution of this dispute and signed a
settlement agreement on October 14, 2002 that on October 16, 2002 gave Global
Investment Alliance, Inc. control of approximately 82% of the Company.
Baxter owns a majority of the common stock of Global Investment Alliance Inc.
Pursuant to the Settlement Agreement Baxter dropped his claim on the $75,000
note and other parties forgave over $107,000 of current liabilities reported
in the Company's Condensed Consolidated Balance Sheet at September 30, 2002.
(See Note 9 - SUBSEQUENT EVENTS.)
Other than that stated above, to the best knowledge of the Officers and
Directors of the Company, neither the Company nor any of its Officers or
Directors is a party to any material legal proceeding or litigation and such
persons know of no other material legal proceeding or litigation contemplated
or threatened. Other than that stated above, there are no judgments against
the Company or its Officers or Directors except for Mr. Dillon who has a
personal judgment against him unrelated to the Company.
NOTE 9 - SUBSEQUENT EVENTS
On October 16, 2002 the Company, Robert B. Dillon, Samuel M. Skipper, Michael
G. Wirtz and certain other former shareholders of the Company settled
disputes (most recently disclosed in the Company's annual report on Form 10-
KSB) with Donald E. Baxter, M.D., a shareholder and consultant to the Company
pursuant to a Settlement Agreement executed on October 14, 2002. As a result
of this settlement 28,523,400 shares, or 82.0%, of the outstanding Class A
Common Stock of the Company and 2,000,000 shares, or 100% of the outstanding
Class B Common Stock of the Company were transferred to Global Investment
Alliance Inc. ("Global"). Dr. Baxter owns a majority of the common stock of
Global. Messrs. Dillon and Skipper, who previously owned a majority of the
voting Common Stock of the Company, now own no shares of the Company's Common
Stock. At the closing, Messrs. Wirtz and Dillon resigned as Chairman and
President and as the only directors of the Company. Donald E. Baxter, M.D.
was appointed as Chairman of the Board of Directors, James N. Baxter was
appointed President and Chief Executive Officer and a Director, Hon. Jerry
W.Baxter was appointed a Director, and Barbara Brooks-Baxter was appointed
Secretary of the Company. Dr. Baxter, an orthopedic surgeon and sports
physician, James Baxter, an investment banker and securities attorney, and
Jerry Baxter, a Judge in Superior Court of Fulton County Georgia, are
brothers. James is married to Barbara Brooks-Baxter, an artist. Global and
Donald and James Baxter now control approximately 87.7% of the Company's
Common Stock and 97% of the votes.
As a result of the settlement Dr. Baxter released any and all claims against
the Company (including his claim on a $75,000 note of the Company which has
not been reported in the financial statements), and the other parties to the
Settlement Agreement over $107,000 of liabilities reported in the Company's
Condensed Consolidated Balance Sheet at September 30, 2002 in this quarterly
report.
Despite this substantial reduction in liabilities and claims at closing, the
Company remains seriously insolvent. New management has begun a process of
communications with creditors and claimants to determine whether acceptable
settlements and compromises can be negotiated with all such creditors and
claimants. Although there are no commitments or obligations to do so,
management may seek additional capital from current shareholders or others to
facilitate such global settlement. There can be no assurance that management
will succeed in this effort to reach acceptable agreements with all creditors
and claimants, which appears necessary for the Company to be able to raise
capital, to find attractive merger candidates or to engage in new business
ventures. If this effort fails, there is a serious likelihood that the
Company will be unable to continue in business. If it succeeds, management
intends to seek merger or acquisition candidates and to pursue other new
business initiatives for the benefit of all of the Company's shareholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements appearing elsewhere in this
report.
Quarter ended September 30, 2002
Revenue:
The Company did not earn any revenue during the three month periods ended
September 30, 2002 and September 30, 2001.
Professional Fee Expenses:
Professional fee expenses for the quarters ended September 30, 2002 and 2001
were $0 and $12,312 respectively, a decrease of $12,312 from the quarter
ended September 30, 2001. This decrease was due to the Company's cessation of
business during 2002.
Selling and Marketing Expenses:
Selling and Marketing expenses for the quarter ended September 30, 2002 were
$0, a decrease of $146 from the quarter ended September 30, 2001. The
decrease is because the company is not engaged in any business activity at
this time.
Management Fee Expenses:
Management fee expenses for the quarter ended September 30, 2002 were $0, a
decrease of $14,351 from the quarter ended September 30, 2001. The decrease
is because the company is not engaged in any business activity at this time.
General and Administrative Expenses:
General and administrative expenses for the quarter ended September 30, 2002
were $1,699, a decrease of $64,668 from the quarter ended September 30, 2001.
The decrease is because the company is not engaged in any business activity
at this time.
Other Income:
Other income for the quarter ended September 30, 2002 was $ 0, a decrease of
$116,300 from the quarter ended September 30, 2001. The decrease is because
of debt forgiveness received by the company during 2001. No debt was
forgiven during the quarter ended September 30, 2002.
Website:
The Company's website was shut down on or about the end of 2001 because of
(i) the expiration of the option agreement with Ozelle Pharmaceuticals, Inc.,
(ii) the company's possible inability to continue as a going concern, (iii)
the feasibility of spending monies on promoting something that the company
would no longer be involved with and (iv) disagreements with the Company's
website developer. The Company considers the website to have no value or any
future value to the Company.
Description of Property:
As of October 16, 2002, the Company maintains its principal place of business
at 39 Neck Road, Madison, Connecticut 06443.
ITEM 3. Controls and Procedures
Evaluation of disclosure controls and procedures. Within 90 days prior to
the date of this report, the Company carried out an evaluation, under the
supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based
on this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported to the Company's
management within the time periods specified in the Securities and Exchange
Commission's rules and forms.
Changes in internal controls. Subsequent to the date of their evaluation,
there were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's disclosure
controls and procedures, and there were no corrective actions with regard to
significant deficiencies and material weaknesses based on such evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about August 4, 2000, Management received a letter from an attorney
advising that there is an Order for Entry of Default Judgment in favor of
two alleged former employees of Northern Lights Software, Ltd. (a
subsidiary of the Company) dated March 10, 1998 in the total amount of
$74,887. The judgment was obtained in the State of Colorado and was
apparently for unpaid wages. Until such time, present management was
unaware of this claim and judgment. A former director of the Company advised
management that he was also unaware of this claim and judgment and believed
that claimants were actually employees of Northern Lights Software (New York)
Ltd., a subsidiary of Northern Lights Software, Ltd. Pursuant to an Agreement
and Plan of Reorganization dated February 15, 1999, that former director
personally warranted that there were no undisclosed liabilities in the Company.
The Company intends to dispute the judgment. Management is not able to
determine its chance of success in attempting to set aside the judgment but
has obtained compensation in the amount of $10,300 from the former director in
exchange for releasing his indemnification of the Company for that claim.
On or about March 19, 2002, the Company received notice of a lawsuit from two
individuals claiming they are due $26,000 pursuant to their respective
consulting agreements. These consultants assisted in providing content and
advice on the Company's website that was being built in late 2001. Management
asserts that only 4,000 shares of the Company's common stock is due to each.
The Company accrued a total amount of $10,000 for the consultants. Management
believes the probability of any judgment against the Company is remote and
has not accrued any additional expense toward a settlement resulting from
resolution of future negotiations or litigation.
On or about January 4, 2002, the Company received written demand from a
website developer for payment of its billing purportedly under the Company's
agreement. The Company accrued $76,294 as a potential liability for this
demand, but did not reserve any cash for this purpose. Previous management
held several discussions with said website developer, but was unable to
resolve the differences in a mutually beneficial manner. On or about November
1, 2002, the Company's statutory agent in Delaware received notice of a
lawsuit brought by the website developer for alleged breach of contract,
failure to pay for goods and/or services allegedly sold to and accepted by
the Company, and attorney's fees. The lawsuit seeks $113,313 in damages.
The Company intends to defend this lawsuit vigorously.
On March 29, 2002 the Company received written demand from the Attorney
representing Donald E. Baxter, a consultant and stockholder of the Company.
Baxter claimed that he has been defrauded by investing in the Company and
that the Company had numerous violations of federal and state law, filed
materially misleading filings with the Securities and Exchange Commission,
filed false financial statements and conspired to manipulate the market.
Baxter also claimed he was due $375,000 but was willing to settle for
28,523,400 of the Company's Class A shares as part of a comprehensive
settlement agreement. Such Company share amounts, if transferred to Baxter,
would give Baxter control of the Company. Management and certain other
shareholders have negotiated a resolution of this dispute and signed a
settlement agreement on October 14, 2002 that on October 16, 2002 gave Global
Investment Alliance, Inc. control of approximately 82% of the Company.
Baxter owns a majority of the common stock of Global Investment Alliance Inc.
Pursuant to the Settlement Agreement Baxter dropped his claim on the $75,000
note and other parties forgave over $107,000 of Current Liabilities reported
in the Company's Condensed Consolidated Balance Sheet at September 30, 2002.
(See Note 9 - SUBSEQUENT EVENTS.)
Other than that stated above, to the best knowledge of the Officers and
Directors of the Company, neither the Company nor any of its Officers or
Directors is a party to any material legal proceeding or litigation and such
persons know of no other material legal proceeding or litigation contemplated
or threatened. Other than that stated above, there are no judgments against
the Company or its Officers or Directors except for Mr. Dillon who has a
personal judgment against him unrelated to the Company.
While the Company has accrued the amounts described above for certain pending
litigation claims, it has no cash reserves with which to pay judgments or
settlements.
Item 2. Changes in Securities
On November 26, 2001 the Company adopted Restated Bylaws and Restated
Certificate of Incorporation of the Company. The Restated Certificate
resulted in a change of the Certificate of Incorporation of the Company that
(i) increased the par value of shares of common stock of the Company from
$.0001 to $.001, (ii) increased the number of shares of common stock the
Company is authorized to issue from 30,000,000 to 100,000,000, (iii)
increased the par value of shares of preferred stock of the Company from
$.0001 to $.001 and (iv) authorized the issuance of 5,000,000 shares of Class
B common stock, par value $.001 per share.
This allows for the holders of the company's Class B preferred stock to
automatically convert each one of their Class B preferred shares into 100
shares of common stock. The preferred stock was authorized because of the
limitations on the number of issued and reserved shares of Acola common
stock.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
Exhibit
Number Description
1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the three month
period ended September 30, 2002.
FORWARD-LOOKING STATEMENTS
The information in this Form 10-QSB includes "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934, and the Private Securities Litigation
Reform Act of 1995. Acola includes this statement for the express purpose of
availing itself of the protections of these safe harbor provisions with
respect to all of the forward-looking statements Acola makes. The forward-
looking statements in this Form 10-QSB reflect Acola's current views with
respect to possible future events and financial performance. They are
subject to certain risks and uncertainties, including without limitation the
absence of significant revenues, financial resources, significant competition
and those other risks and uncertainties discussed herein that could cause
Acola's actual results to differ materially from its historical results or
those that Acola hopes to achieve. In this Form 10-QSB, the words,
"anticipates," "plans," "believes," "expects," "intends," "future" and
similar expressions identify certain forward-looking statements. Please do
not place undue reliance on the forward-looking statements contained in this
Form 10-QSB. Acola undertakes no obligation to announce publicly revisions
Acola may make to these forward-looking statements to reflect the effect of
events or circumstances that may arise after the date of this Form 10-QSB.
All written and oral forward-looking statements made subsequent to the date
of this Form 10-QSB and attributable to Acola or persons acting on its behalf
are expressly qualified in their entirety by this section.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACOLA CORP.
By: /s/ James N. Baxter
-------------------------
Date: November 14, 2002 James N. Baxter
President
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- -----------
/s/ James N. Baxter Director, President & CEO, November 14, 2002
--------------------
James N. Baxter (Principal Executive Officer &
Principal Financial Officer)