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 December 31, 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 February 12, 2003.
Class Outstanding at February 12, 2003
----- -----------------------------
Common Stock,Class A,
$0.001 Par Value 39,755,050
Common Stock,Class B,
$0.001 Par Value 2,000,000
ACOLA CORP. AND SUBSIDIARIES
Table of Contents
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2002 (unaudited) and June 30, 2002
(audited) 3
Condensed Consolidated Statements of Operations
(unaudited) -Three and Six Months Ended December 31,
2002 and 2001 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity (unaudited) -
Six Months ended December 31, 2002 5
Condensed Consolidated Statements of Cash Flows
(unaudited) -Six Months Ended December 31, 2002 and
2001 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Controls and Procedures 14
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports 16
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2002 June 30, 2002
(Unaudited) (Audited)
------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,326 $ 179
Receivables - Related Parties 18,005 -
---------- -----------
$ 23,331 $ 179
PROPERTY AND EQUIPMENT - Net 290 -
OZELLE PHARMACEUTICALS
INC. COMMON STOCK - 1
INTANGIBLE ASSETS - Net 10 10
---------- -------
TOTAL ASSETS $ 23,631 $ 190
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 29,473 $ 138,467
Note Payable - Shareholder and other - 31,606
Due Related Party - 5,613
Note Payable - Related Party - 46,107
---------- ----------
TOTAL CURRENT LIABILITIES 29,473 221,793
----------- ----------
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; $.001
par value; 2,000,000 shares authorized;
2,000,000 shares issued and outstanding 2,000 2,000
ADDITIONAL PAID-IN CAPITAL 3,540,126 3,373,173
ACCUMULATED DEFICIT (3,582,773) (3,631,581)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (5,842) (221,603)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 23,631 $ 190
====== =======
See accompanying notes.
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------------------
2002 2001 2002 2001
------- ------- -------- --------
EXPENSES
Professional fees $ 4,718 $ 9,750 $ 4,718 $ 22,062
Selling and marketing - 15,920 - 16,066
Management fee - - - 14,351
General and admin
istrative expenses 13,477 64,396 15,183 131,174
--------- -------- --------- ---------
18,195 90,066 19,901 183,653
--------- -------- --------- ---------
LOSS FROM
OPERATIONS (18,195) ( 90,066) (19,901) (183,653)
-------- --------- -------- ---------
OTHER INCOME -
Gain on sale of asset 59,999 - 59,999 -
Debt forgiveness 8,710 - 8,710 116,138
INTEREST INCOME - 1 - 492
-------- --------- --------- --------
TOTAL OTHER INCOME 68,709 1 68,709 116,630
-------- --------- -------- --------
NET INCOME (LOSS) $ 50,514 $(90,065) $ 48,808 $(67,023)
======= ====== ======= ========
BASIC AND DILUTED LOSS
PER SHARE OF
COMMON STOCK $ NIL $ NIL $ NIL $ (0.01)
====== ======== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Class A 34,805,050 23,489,848 34,805,050 11,894,140
Class B 2,000,000 1,758,242 2,000,000 874,317
========== ======= ======== =========
See accompanying notes.
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
SIX MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
Class A Class B Additional Accumulated
Common Common Paid-In Accumulated Total
Stock Stock Capital Deficit
------ ------ ---------- ----------- --------
BALANCE
AT JUNE
30,2002 $34,805 $2,000 $3,373,174 $(3,631,581) $(221,602)
Release of
Related party
Debt - - 166,952 - 166,952
Net income for
the six
months ended
December 31,
2002 - - - 48,808 48,808
BALANCE AT
DECEMBER ------ -------- ---------- ----------- ---------
31,2002 $34,805 $2,000 $3,540,126 $(3,582,773) $(5,842)
====== ==== ========= ========= ========
See accompanying notes
ACOLA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
---------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income(loss) $48,808 $ (67,023)
Adjustments to reconcile net
income(loss) to net cash
used in operating activities
Depreciation and amortization 7 6,217
Debt forgiveness income not
providing cash (116,138)
Short term loans (31,606) 58,811
Changes in assets and liabilities:
Miscellaneous receivables (18,005) 3,100
Prepaid expenses 21,000
Accounts payable and accrued
expenses (108,992) (130,223)
Due to Former Director (5,614) -
Note due to Former Director (46,107) -
--------- ---------
Net cash used in operating activities (161,509) (224,256)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of computer hardware
and software (297) (5,632)
Investment in Ozelle Pharmaceuticals,
Inc. Common Stock 1 (200,000)
Investment in Trademark - (750)
Investment in web site - (106,845)
--------- -----------
Net cash used by investment
activities (296) (313,227)
CASH FLOW FROM FINANCING
ACTIVITIES
Issuance of Capital Stock - 34,774
Additional Paid in Capital 166,952 486,776
--------- -----------
Net cash provided by financing
activities 166,952 521,550
EFFECT OF EXCHANGE RATES ON CASH - (20,973)
--------- ---------
NET INCREASE (DECREASE) IN CASH 5,147 (36,906)
CASH - BEGINNING OF PERIOD 179 37,126
----- ---------
CASH - END OF PERIOD $5,326 $ 220
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Accounts payable and accrued expenses
extinguishments not requiring cash $175,662 $ 257,070
See accompanying notes.
345:
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 and six month periods ended
December 31, 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 three and six months ended December 31, 2001 versus the three
and six months ended December 31, 2002 are not relevant as the Company
is not engaged in business operations 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 may 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, unless it can negotiate a merger with
a viable business, 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 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 $280,000 to the
Stockholders of MegaChain in exchange for 100% of the equity interests
of Acola. MegaChain.com Ltd. then changed its name to Acola Corp.
("Acola Corp.") after completion of the reorganization process.
Acola has accounted for the acquisition as a reverse acquisition of
MegaChain under the purchase method of accounting. Consequently, the
historical financial statements of Acola prior to the acquisition have
become the financial statements of the Company, and the results of
operations of MegaChain have been combined with Acola effective with
the acquisition. As a result of the acquisition, the former equity
holders of Acola now own approximately 99.9% of the voting stock of
the Company, which has changed its name to Acola Corp. The acquisition
did not require the approval of the stockholders of the Company and the
name change was previously approved by the Company's stockholders.
Coincident with this transaction, Acola has filed on Forms 8-K with
the Securities & Exchange Commission notice of the transaction and
notice of a change of its independent accountants.
As provided for in the Agreement, upon completion of the transaction,
Robert B. Dillon was appointed as the new President, Chief Executive
Officer and director and Samuel M. Skipper as the new Chairman of the
Board, Secretary and director. The previous officers and directors
resigned. On April 10,2002, Samuel M. Skipper resigned as Chairman
of the Board and as Director. He was replaced by Michael G. Wirtz.
On October 9, 2001 an amended Form S-8 was filed by MegaChain.com,
Ltd. registering 4,500,000 shares of the Company's common stock ($.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 six months ended December 31, 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.
On October 16, 2002, Messrs. Dillon, Skipper, and Wirtz and other
shareholders of the Company settled disputes with Donald E. Baxter, MD by
transferring approximately 82% of the outstanding Common Stock, and 97% of
the votes, of the Company to Global Investment Alliance Inc. ("Global"). Dr.
Baxter owns a majority of the shares of Global. Dr. Baxter, James N. Baxter
and Hon. Jerry W. Baxter were elected as Directors of the Company and Dr.
Baxter became Chairman of the Board and James Baxter became President 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. On December
17, 2002 Richard A. Evans, MD, a cancer specialist, board certified surgeon
and author, was elected a Director of the Company. As part of the
settlement, Messrs. Dillon, Skipper and Wirtz and other shareholders forgave
all claims against the Company. After this change of control, new management
negotiated compromises with various creditors and settled the AMS Web Design
lawsuit. Dr. Baxter provided working capital to the Company by agreeing to
pay $60,000 to buy the Company's restricted stock in Ozelle Pharmaceuticals,
Inc. which had been written down to a value of $1.00 by previous management.
The Company intends to seek merger or acquisition candidates and to pursue
other new business initiatives for the benefit of all of the Company's
shareholders. Although there is no assurance that the Company will succeed
and the Company has not yet made any agreement to merge, management believes
that its chances have been increased by the elimination of most of the
Company's liabilities.
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 December 31, 2002 has negative working capital of approximately
$6,000 and cash of only $5,326. 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. The last management of the Company agreed to exchange the 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 was
reflected in the financials as of September 30, 2001.
Although prior management attempted to secure an exclusive distributorship in
Mexico for AnvizoleTM, it was unable to secure adequate capital to make
necessary initial royalty payments, so the Company lost the distributorship.
Therefore, the Company will probably need to negotiate a merger with a viable
other business in order to continue in business.
NOTE 4 - INTANGIBLE ASSETS
The company's only intangible asset is the Company's trademark.
NOTE 5 - NOTES PAYABLE
As of December 31, 2002, the Company has no notes payable. All three notes
payable outstanding as of June 30, 2002, including all accrued interest, have
been forgiven, two at the October 16, 2002 settlement and the last during the
restructuring of the Company's balance sheet by current management. As part
of the October settlement Dr. Baxter also dropped his claim on the disputed
$75,000 note, which was not included as a liability in the Company's
financial statements.
NOTE 6 - LEGAL PROCEEDINGS
In August 2000 previous management received a letter from an attorney
advising that there is an Order for Entry of Default Judgment in the
District Court of Boulder, Colorado against a predecessor of the Company
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 apparently for alleged unpaid wages. Pursuant to an
Agreement and Plan of Reorganization dated February 15, 1999, a former
director of the Company had personally warranted that there were no
undisclosed liabilities in the Company and had indemnified the Company
against such claims. He stated that he believed that claimants were actually
employees of Northern Lights Software (New York) Ltd., a subsidiary of
Northern Lights Software, Ltd. (Delaware), a predecessor of the Company.
The Company accepted $10,300 from the former director in exchange for
releasing his indemnification of the Company. The Company believes that
the Colorado lawsuit was brought against the wrong corporation and that the
default judgment was erroneously issued in violation of Colorado statutes,
as interpreted by the Colorado Supreme Court. Based upon a review of the
record in the case, management believes that it would be an error for any
court to enforce the default judgment, and the Company plans to mount a
vigorous defense against any effort to enforce the judgment against the
Company.
On or about March 19, 2002, the Company received notice of a lawsuit in the
127th Civil District Court of Harris County, Texas brought by two
individuals claiming total damages of $26,000 pursuant to their consulting
agreements. These consultants assisted in providing content and advice on
the Company's website, which was being built in late 2001. Management has
taken the position 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. Company legal counsel is engaged in settlement discussions now
and management believes that no additional accrual is necessary.
On or about December 12, 2002, the Company settled the $113,313 contract
lawsuit brought against Company in the 164th Judicial District Court of
Harris County, Texas by AMS Web Design. The Company had previously accrued
an amount in excess of the actual settlement amount as a potential liability
for this dispute, and the excess has been transferred to additional paid-in
capital following the settlement.
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, and Hon.
Jerry W.Baxter was appointed a Director. Dr. Baxter, James Baxter and Jerry
Baxter are brothers. Donald and James Baxter now control approximately 86% 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 the disputed $75,000 note of the Company
which has not been reported in the financial statements), and the other
parties to the Settlement Agreement released over $107,000 of liabilities
reported in the Company's Condensed Consolidated Balance Sheet at September
30, 2002 in its last quarterly report on Form 10-QSB.
Other than that stated above, to the best knowledge of the Officers and
Directors of the Company, neither the Company nor any of its Officers or
Directors is a party to any material legal proceeding or litigation and such
persons know of no other material legal proceeding or litigation contemplated
or threatened. Other than that stated above, there are no judgments against
the Company or its Officers or Directors.
NOTE 7 - SUBSEQUENT EVENTS
On January 10, 2003 an amended Form S-8 was filed by the Company registering
up to 5,194,950 shares of the Company's Common Stock, Class A ($.001 par
value)valued at $77,924 for issuance to Directors and consultants pursuant to
the Company's Directors and Employees Stock Award Plan. Following the January
14, 2003 issuance of 4,950,000 shares of the Company's Class A Common Stock
to Directors and consultants, the Company's accounts payable liability was
substantially reduced, resulting in a small positive net worth.
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.
Overview
During the last few years, led by two previous management teams, the Company
has failed in a technology business and then in an international
pharmaceutical distribution business, resulting in large losses and a large
accumulated deficit. It has no current operations. With enough working
capital for about six months, the Company has obtained releases of almost all
of its liabilities and has achieved a small positive net worth as of January
2003. It will need to obtain additional funds within the next twelve months.
It is a fully reporting company and has a well-respected Board of Directors
with broad experience and a wide network of contacts. Because of the decline
of the IPO (initial public offering) market, some successful private
companies are interested in becoming public through a negotiated "reverse
merger" with companies such as the Company. In the opinion of management,
the most crucial factor in whether the Company will continue in business and
achieve value for its shareholders or go out of business is whether
management will succeed in identifying an attractive growing private company
and negotiating a merger on favorable terms. The Company has only recently
achieved a sufficient financial condition to be able to consider candidates.
Although there is no assurance that a transaction will be achieved,
management is now considering several potential candidates.
Three and six months ended December 31, 2002 and 2001
Revenue:
The Company did not earn any revenue during the three and six month periods
ended December 31, 2002 and December 31, 2001.
Professional Fee Expenses:
Professional fee expenses for the three and six months ended December 31,
2002 were each $4,718, primarily to achieve compliance with SEC filing
requirements, a substantial decrease from the $9,750 and $22,062 for the
three and six months ended December 31, 2001. This decrease was because the
Company ceased business operations during 2002.
Selling and Marketing Expenses:
Selling and Marketing expenses for the three and six months ended December
31, 2002 were $0, a substantial decrease from the $15,920 and $16,066
expended in the three and six months ended December 31, 2001. The
decrease is because the Company does not currently have any product or
service.
Management Fee Expenses:
Management fee expenses have been $0 for the last five quarters because the
Company has no management contract.
General and Administrative Expenses:
General and administrative expenses for the three and six months ended
December 31, 2002 were $13,477 and $15,183, a decrease of $50,919 and
$115,991, respectively, from the prior year periods. The decrease is
because the Company's current activities are limited to a spartan program
of restructuring the balance sheet, disposing of litigation and searching
for attractive merger candidates.
Other Income:
Other income for the three and six months ended December 31, 2002 was
$68,709, an increase of $68,708 over the quarter ended December 31, 2001 and
a decrease of $47,921 from the six months ended December 31, 2001. The
increase was primarily because of the one-time profit on the sale of the
Ozelle stock. The decrease is because the debt forgiveness received by the
company during 2001 greatly exceeded the income in the 2002 period. Only
$8,710 of debt forgiveness income was recorded during the six months ended
December 31, 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 inadvisability of spending monies to promote something that the company
would no longer distribute and (iv) disagreements with the Company's
website developer. The Company considers that the website has no current
value to the Company and is unlikely to have any future value, but the
terms of the Company's litigation settlement with the website developer
provides for the website assets to be transferred to the Company.
Description of Property:
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
In August 2000 previous management received a letter from an attorney
advising that there is an Order for Entry of Default Judgment in the
District Court of Boulder, Colorado against a predecessor of the Company
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 apparently for alleged unpaid wages. Pursuant to
an Agreement and Plan of Reorganization dated February 15, 1999, A former
director of the Company had personally warranted that there were no
undisclosed liabilities in the Company and had indemnified the Company
against such claims. He stated that he believed that claimants were actually
employees of Northern Lights Software (New York) Ltd., a subsidiary of
Northern Lights Software, Ltd. (Delaware), a predecessor of the Company.
The Company accepted $10,300 from the former director
in exchange for releasing his indemnification of the Company. The
Company believes that the Colorado lawsuit was brought against the wrong
corporation and that the default judgment was erroneously issued in
violation of Colorado statutes, as interpreted by the Colorado Supreme
Court. Based upon a review of the record in the case, management believes
that it would be an error for any court to enforce the default judgment, and
the Company plans to mount a vigorous defense against any effort to enforce
the judgment against the Company.
On or about March 19, 2002, the Company received notice of a lawsuit in the
127th Civil District Court of Harris County, Texas brought by two
individuals claiming total damages of $26,000 pursuant to their consulting
agreements. These consultants assisted in providing content and advice on
the Company's website that was being built in late 2001. Management has taken
the position 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.
Company legal counsel is engaged in settlement discussions now and management
believes that no additional accrual is necessary.
On or about December 12, 2002, the Company settled the $113,313 contract
lawsuit brought against the Company in the 164th Judicial District Court of
Harris County, Texas by AMS Web Design. The Company had previously accrued
an amount in excess of the actual settlement amount as a potential liability
for this dispute, and the excess has been transferred to additional paid-in
capital following the settlement.
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, and Hon.
Jerry W.Baxter was appointed a Director. Dr. Baxter, James Baxter and Jerry
Baxter are brothers. Donald and James Baxter now control approximately 86% 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 the disputed $75,000 note of the Company
which has not been reported in the financial statements), and the other
parties to the Settlement Agreement released over $107,000 of liabilities
reported in the Company's Condensed Consolidated Balance Sheet at September
30, 2002 in its last quarterly report on Form 10-QSB.
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.
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 filed three reports on Form 8-K since September 30, 2002:
On October 31, 2002 (Change of control); December 17, 2002 (Sale of Ozelle
shares and settlement of AMS Web Design lawsuit); January 2, 2003 (Press
Release regarding new Director Evans and progress in reducing liabilities).
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: February 13, 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, February 13, 2002
--------------------
James N. Baxter (Principal Executive Officer &
Principal Financial Officer)
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