In this Annual Report, references to “Atlantica, Inc.,” “Atlantica,” the “Company,” “we,” “us,” “our” and words of similar import refer to Atlantica, Inc., the Registrant.
This Annual Report contains certain forward-looking statements, and for this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the markets in which we may participate, competition within our chosen industry, technological advances and failure by us to successfully develop business relationships.
ITEM 1. BUSINESS
Business Development
Our Company was organized pursuant to the laws of the State of Utah on March 3, 1938, under the name “Red Hills Mining Company,” with an authorized capital of $20,000 divided into 2,000,000 shares of common stock of a par value of $0.01 per share. Our Company was formed for the primary purpose of conducting the business of mining in all of its branches.
On February 5, 1953, we changed our name to “Allied Oil and Minerals Company,” with our primary purpose continuing to be mining.
On January 8, 1971, we changed our name to “Community Equities Corporation,” we increased our authorized capital from $20,000 to $150,000, comprised of 15,000,000 at $.01 and our purpose also changed to the business of real estate development. We discontinued the real estate development operations in 1990.
Effective March 26, 1996, the corporate charter was reinstated, and we changed our corporate name to “Atlantica, Inc.”
On March 13, 1998, we increased our authorized capital from 15,000,000 shares of $.01 par value to 25,000,000 shares of $0.0001 par value common stock; and we authorized a reverse split of one share for every 20 shares. We also authorized the issuance of 24,000,000 shares to Gregory Aurre, President and a director, for services rendered and expenses paid. The Board also issued 25,000 shares each to Amerika Aurre, Vice President and a director and Gregory Aurre III, Secretary and a director, for services rendered. We also adopted new Bylaws.
On October 30, 2002, the Board of Directors resolved to appoint new officers and directors since Gregory Aurre II, Gregory Aurre III and Amerika Aurre all resigned, in seriatim, from any and all capacity as officers and directors. Thomas J. Howells was appointed as President and director, Terry Jenson as Vice President and director and Travis T. Jenson as Secretary and director.
On November 12, 2002, the 23,908,000 shares held by Gregory Aurre II, were foreclosed on to satisfy debt in the amount of $80,000, owed to Duane S. Jenson. Mr. Jenson had personally loaned Mr. Aurre the $80,000 which was secured solely by Mr. Aurre’s shares of the Company. Subsequent to foreclosing on the shares of Mr. Aurre’s that were held by Mr. Jenson as security for the loan, Mr. Jenson elected to gift a portion of those shares to his son, Travis T. Jenson, as well as to a business associate, Thomas J. Howells, and a long-time friend and legal counsel, Leonard W. Burningham, Esq.
On November 15, 2002, we were reinstated with the State of Utah.
On November 30, 2004, Thomas J. Howells resigned as President and a director and Travis T. Jenson resigned as Secretary and a director. Shelley Goff and Duane S. Jenson were appointed as Secretary and President, respectively. Mr. Jenson and Ms. Goff were also elected as directors.
A copy of our Bylaws was attached to our Annual Report for the year ended December 31, 2001, and is incorporated herein by reference. See Part IV, Item 15.
A copy of our Articles of Incorporation, as amended, was attached to our initial Registration Statement on Form 10-SB and is incorporated herein by reference. See Part IV, Item 15.
On December 27, 2006, we filed a definitive Information Statement with the Securities and Exchange Commission regarding a one-for-10 (1:10) pro rata reverse split of our outstanding common stock (Proposal 1) and the adoption of Amended and Restated Articles of Incorporation (Proposal 2), to be voted upon at a special meeting of our shareholders (the “Meeting”). The Information Statement that was mailed to our stockholders was accompanied by a Notice of Special Meeting of Shareholders, both of which were mailed to our shareholders on or about January 5, 2007. Please see the Exhibit Index, Part IV, Item 15, for a copy of the Definitive Information Statement, as filed on December 27, 2006, which is incorporated herein by reference.
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These resolutions were unanimously adopted by our Board of Directors. Duane S. Jenson, and his son, Travis T. Jenson, who, at that time, collectively, beneficially owned 16,000,683 shares of our common stock or approximately 65.1% of our outstanding voting securities, agreed to and intended to vote in favor of the Proposals at the Meeting. No other votes were required or necessary to adopt these Proposals.
The Meeting was held at 4685 South Highland Drive, #202, Salt Lake City, Utah, 84117, on January 26, 2007, at 11:00 o’clock a.m., Mountain Standard Time. Present at the Meeting was Leonard W. Burningham, Esq., former counsel for the Company, Duane S. Jenson and Travis T. Jenson, representing 19,908,683 shares, or approximately 81%, of the 24,581,458 shares of our outstanding voting securities at that time.
All shares represented at the Meeting voted in favor of both Proposals. The reverse split subsequently became effective on February 15, 2007. That stock split is reflected herein on a retroactive basis.
On June 29, 2007, pursuant to a Stock Purchase Agreement among Mirabella Holdings, LLC, (the “Purchaser”), Duane S. Jenson, Travis T. Jenson, Thomas J. Howells, Leonard W. Burningham (collectively with Duane S. Jenson, Travis T. Jenson and Thomas J. Howells, the “Sellers”), and Leonard W. Burningham, as the representative of the Sellers, the Purchaser acquired from the Sellers a total of 1,966,872 shares of the Company’s common stock (the “Acquisition”), representing 80% of the Company’s currently outstanding shares, for a purchase price of $525,000 in cash. Upon the closing of the Acquisition, Duane S. Jenson and Terry Jenson resigned as directors and executive officers, Shelley Goff resigned as a director, retained her office as the Company’s Secretary and was appointed the Company’s Chief Financial Officer; and Alan D. Gordon was appointed as the Company’s President and Chief Executive Officer. In connection with the Acquisition and effective July 16, 2007, Alan D. Gordon, Frederick G. Pierce, II and
Richard F. Strup were elected as directors, and Duane S. Jenson, Terry Jenson and Shelley Goff resigned as directors.
In addition, pursuant to a Share Escrow and Reset Agreement (the “Reset Agreement”) entered into among the Purchaser, the Sellers’ Representative, the Sellers, the Company and the escrow agent thereunder contemporaneously with the Stock Purchase Agreement, the Sellers placed in escrow an additional 423,928 shares of the Company’s Common Stock then owned by them (the “Escrow Shares”), which at the time represented all but 70 of the remaining shares of the Company’s Common Stock owned by the Sellers. Pursuant to the Reset Agreement, if, during the five-year period following June 29, 2007 (the “Acquisition Period”), the Company acquired one or more companies having a combined enterprise value of at least $10 million (a “Threshold Acquisition”), the Escrow Shares would reset, at that time, to a number of newly-issued shares of the Company’s Common Stock that would represent (collectively with the 70 shares previously retained by the Sellers) 5% of the Company’s then fully-diluted Common Stock. If a Threshold Acquisition did not occur during the Acquisition Period, all of the Escrow Shares would be released to the Sellers without any reissuance or adjustment in their amount.
A Threshold Acquisition by the Company did not occur during the Acquisition Period and, as a result, the Company subsequently received the required notice from the Sellers’ Representative requesting the release of the Escrow Shares to the Sellers in accordance with the terms of the Reset Agreement. Accordingly, on November 12, 2012, all of the Escrow Shares were released to the Sellers without any reissuance or adjustment in their amount.
See the 8-K Current Report dated June 29, 2007 and filed with the Securities and Exchange Commission on July 3, 2007, and see the Schedule 14F-1 Information Statement filed with the Securities and Exchange Commission on July 3, 2007 and mailed to our stockholders on or about July 5, 2007. See Part IV, Item 15 of this Report.
Description of Business
We are currently seeking potential assets, property or businesses to acquire, in a business combination, by reorganization, merger or acquisition. We have had no material business operations since March 7, 1997. Our plan of operation for the next 12 months is to: (i) consider guidelines of industries in which we may have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) to commence operations through funding and/or the acquisition or business combination with a “going concern” engaged in any industry selected. We are unable to predict the time as to when and if we may actually participate in any specific business
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endeavor, and we will be unable to do so until we determine any particular industry in which we may conduct business operations.
We are not currently engaged in any substantive business activity except the search for potential assets, property or businesses to acquire, and we have no current plans to engage in any other activity in the foreseeable future unless and until we complete any such acquisition. In our present form, we are deemed to be a “shell company” seeking to acquire or merge with a business or company. We do not intend to restrict our search for business opportunities to any particular business or industry, and the areas in which we will seek out business opportunities may include all lawful businesses. We recognize that the number of suitable potential business ventures that may be available to us will be extremely limited, and may be restricted to businesses or entities that desire to become a publicly-held company while avoiding what many may deem to be the adverse factors related to an initial public offering (“IPO”) as a method of “going public.” The most prevalent of these factors include the substantial time requirements, legal and accounting costs, the inability to obtain an underwriter who is willing to publicly offer and sell securities on behalf of the particular entity, the lack of or the inability to obtain the required financial statements for such an undertaking, state limitations on the amount of dilution to public investors in comparison to the stockholders of any such entity, along with other conditions or requirements imposed by various federal and state securities laws, rules and regulations and federal and state agencies that implement them.
Amendments to SEC Form 8-K regarding shell companies and transactions with shell companies require the filing of all information about an acquired company that would have been required to have been filed had any such company filed a Form 10 Registration Statement with the SEC, along with required audited, interim and proforma financial statements, within four business days of the closing of any such transaction (Item 5.01(a)(8) of Form 8-K); and the recent amendments to Rule 144
(“Rule 144”) of the Securities Act of 1933, as amended (the “Securities Act”) adopted by the SEC that were effective on February 15, 2008, that limit the resale of most securities of shell companies until 12 months after the filing of such information (the “Form 10 Information”), may eliminate many of the perceived advantages of going public transactions with shell companies. These types of transactions are customarily referred to as “reverse” reorganizations or mergers in which the acquired company’s stockholders become the controlling stockholders in the acquiring company and the acquiring company becomes the successor to the business operations of the acquired company. Regulations governing shell companies also deny the use of SEC Form S-8 for the registration of securities and limit the use of SEC Form S-8 to a reorganized shell company until the expiration of 60 days from when any such entity is no longer considered to be a shell company. This prohibition could further restrict opportunities for us to acquire companies that may already have stock option plans in place that cover numerous employees. In such instances, there may be no exemption from registration for the issuance of securities in any business combination to these employees, thereby necessitating the filing of a registration statement with the SEC to complete any such reorganization, and incurring the time and expenses that are normally avoided by reverse reorganizations or mergers.
Amendments to Rule 144, adopted by the SEC and effective on February 15, 2008, codify the SEC’s prior position limiting the tradeability of certain securities of shell companies, including those issued by us in any business combination, and further limit the tradeability of additional securities of shell companies; these proposals will further restrict the availability of opportunities for us to acquire any business or enterprise that desires to utilize us as a means of going public. See the heading “Rule 144” in Part II, Item 5, for a discussion of the general requirements of Rule 144 and the limitations of Rule 144 with respect to shell companies.
Any of these types of business combination transactions, regardless of the particular prospect, would require us to issue a substantial number of shares of our common stock that could amount to as much as 95% or more of our outstanding voting securities; accordingly, investments in the private enterprise, if available, would be much more favorable than any investment in us.
Management intends to consider a number of factors prior to making any decision to participate in any specific business endeavor, none of which may be determinative or provide any assurance of success. These may include, but will not be limited to, as applicable, an analysis of the quality of the particular business or entity’s management and personnel; the anticipated acceptability of any new products or marketing concepts that any such business or company may have; the merits of any such business’s or company’s technology or intellectual property; the present financial condition, projected growth potential and available technical, financial and managerial resources; working capital, history of operations and future prospects; the nature of present and expected competition; the quality and experience of any such business’s or company’s management services and the depth of management; the business’
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or the company’s potential for further research, development or exploration; risk factors specifically related to the business’s or company’s operations; the potential for growth, expansion and profit; the perceived public recognition or acceptance of products, or services offered and trademarks and name identification; and numerous other factors that are difficult, if not impossible, to properly or accurately quantify or analyze, let alone describe or identify, without referring to specific objective criteria of an identified business or company.
Regardless, the results of operations of any specific entity may not necessarily be indicative of what may occur in the future, by reason of changing market strategies, plant or product expansion, changes in product emphasis, future management personnel and changes in innumerable other factors. Further, in the case of a new business venture or one that is in a research and development mode, the risks will be substantial, and there will be no objective criteria to examine the effectiveness or the abilities of its management or its business objectives. Also, a firm market for its products or services may yet need to be established, and with no past track record, the profitability of any such business will be unproven and cannot be predicted with any certainty.
Our management will attempt to meet personally with management and key personnel of any entity providing a potential business opportunity for us, visit and inspect material facilities, obtain independent analysis or verification of information provided and gathered, check references of material personnel and conduct other reasonably prudent measures calculated to ensure a reasonably thorough review of any particular business opportunity; however, due to time constraints of management and limited capital, these activities may be limited.
We are unable to predict the time as to when and if we may actually participate in any specific business endeavor or if at all. We anticipate that proposed business ventures will be made available to us through personal contacts of directors, executive officers and principal stockholders, professional advisors, broker dealers in securities, venture capital personnel and others who may present unsolicited proposals. In certain cases, we may agree to pay a finder’s fee or to otherwise compensate the persons who submit a potential business endeavor in which we eventually participate. Such persons may include our directors, executive officers and beneficial owners of our securities or their affiliates.
In this regard, see the description of our management services agreement with Richland, Gordon & Comp any contained in Part III, Item 13 of this Report, and a copy of that agreement included in Part IV, Item 15 of this Report, with respect to, among other things, certain cash fees that may be payable by us to Richland, Gordon in connection with future fina ncings and business combinations by us. In this event, such fees may become a factor in negotiations regarding any potential venture and, accordingly, may present a conflict of interest for such individuals.
Although we currently have no plans to do so, depending on the nature and extent of services rendered, we may compensate members of our management in the future for services that they may perform for us. Because we currently have extremely limited resources, and we are unlikely to have any significant resources until we have determined a business or enterprise to engage in or have completed a business combination, management expects that any such compensation would take the form of an issuance of shares of our common stock to these persons; this would have the effect of further diluting the holdings of our other stockholders. There are presently no preliminary agreements or understandings between us and members of our management respecting such compensation. Any shares issued to members of our management would be required to be resold under an effective registration statement filed with the SEC or could not be publicly sold until 12 months after we file the Form 10 information about the business combination with the SEC as required by SEC Form 8-K. These provisions could further inhibit our ability to complete any business combination where finders or others who may be subject to these resale limitations refuse to provide us with any introductions or to close any such transactions unless they are paid requested fees in cash rather than our shares or unless we agree to file a registration statement with the SEC that includes any shares that are to be issued to them, at no cost to them. These expenses could limit potential acquisition candidates, especially those in need of cash resources, and could affect the number of shares that our stockholders retain following any such transaction, by reason of the increased expense.
Substantial fees are also often paid in connection with the completion of all types of business combinations, ranging from a small amount to as much as $400,000 or more. These fees are usually divided among promoters or founders or finders, after deduction of legal, accounting and other related expenses, and it is not unusual for a portion of these fees to be paid to members of management or to principal stockholders as consideration for their agreement to retire a portion of their shares of common stock or as consideration to them to provide an indemnification for all of our prior liabilities. Members of management may also actively negotiate or otherwise consent to the purchase of all or any portion of their shares of common stock as a condition to, or in connection with, a proposed business combination. It is not anticipated that any such opportunity will be afforded to other stockholders or that such other
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stockholders will be afforded the opportunity to approve or consent to any particular stock buy-out transaction. In the event that any such fees are paid or shares are purchased, these requirements may become a factor in negotiations regarding any business combination with us and, accordingly, may also present a conflict of interest for such individuals. Any of these types of fees that are paid in shares of our common stock will also be subject to the resale limitations embodied in Rule 144 that prohibit, among other requirements, the public resale of these shares until 12 months after the filing of the Form 10 information with the SEC. We have no present arrangements or understandings respecting any of these types of fees or opportunities, other than pursuant to our management services agreement with Richland, Gordon & Company. See the description of our management services agreement with Richland, Gordon & Company contained in P art III, Item 13 of this Report, and a copy of that agreement included in Part IV, Item 15 of this Report, with respect to, among other things, certain cash fees that may be payable by us to Richland, Gordon in connection with future financings and busines s combinations by us.
Competitive Business Conditions and Our Competitive Position in the Industry and Methods of Competition
Management believes that there are literally thousands of shell companies engaged in endeavors similar to those engaged in by us; many of these companies have substantial current assets and cash reserves. Competitors also include thousands of other publicly-held companies whose business operations have proven unsuccessful, and whose only viable business opportunity is that of providing a publicly-held vehicle through which a private entity may have access to the public capital markets via a reverse reorganization or merger. There is no reasonable way to predict our competitive position or that of any other entity in these endeavors; however, we, have limited assets and no cash reserves, will no doubt be at a competitive disadvantage in competing with shell companies that have significant cash resources and have recent operating histories when compared with our lack of any substantive operations for many years.
Effect of Existing or Probable Governmental Regulations on our Business
We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:
Smaller Reporting Company
We are subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.
Sarbanes/Oxley Act
We are also subject to the Sarbanes/Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management's assessment of our internal controls; auditor attestation to management’s conclusions about internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act has substantially increased our legal and accounting costs.
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to stockholders at special or annual meetings thereof or pursuant to a written consent will require us to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
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We are also required to file Annual Reports on SEC Form 10-K and Quarterly Reports on SEC Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on SEC Form 8-K.
Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or “JOBS Act.” As long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not an “emerging growth company,” like those applicable to a “smaller reporting company,” including, but not limited to, a scaled down description of our business in Securities and Exchange Commission filings; no requirements to include risk factors in Exchange Act filings; no requirement to include certain selected financial data and supplementary financial information in Securities and Exchange Commission filings; not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements that we file under the Exchange Act; no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting; and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding stockholder approval of any golden parachute payments not previously approved. We are also only required to file audited financial statements for the previous two fiscal years when filing registration statements, together with reviewed financial statements of any applicable subsequent quarter.
We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We can remain an “emerging growth company” for up to five years. We would cease to be an “emerging growth company” prior to such time if we have total annual gross revenues of $1 billion or more and when we become a “larger accelerated filer,” have a public float of $700 million or more or we issue more than $1 billion of non-convertible debt over a three-year period.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Number of Total Employees and Number of Full Time Employees
We have no employees.
