As filed with the Securities and Exchange Commission on May 17, 2002
Registration. No. 333-86038
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Amendment No. 1
Registration Statement
Under
The Securities Act of 1933
THE AMANDA COMPANY
(Formerly Pen Interconnect, Inc.)
(Exact name of registrant as specified in its charter)
Utah 3357
------------------- ---------------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number
87-0430260
-----------------------
(I.R.S. employer
identification number)
13765 Alton Parkway, Suite F, Irvine California 92618
(Address of principal executive offices) (Zip Code)
(949) 859-6279
Registrant's Telephone number,
including area code:
------------------------------------
Brian Bonar
Chief Executive Officer
13765 Alton Parkway, Suite F
Irvine, California 92618
(949) 859-6279
(Name, address and telephone number of agent for service)
----------------------------------
Copies to:
Owen Naccarato, Esq.
Naccarato & Associates
19600 Fairchild, Suite 260
Irvine, California 92612
(949) 851-9261
----------------------------------
Approximate date of proposed
sale to the public: As soon as practicable
after the registration statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]:
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
Calculation of registration fee
Proposed Proposed
maximum maximum
Number offering aggregate Exercise Proceeds
Title of each class of to be price Per offering price to the Amount of
securities to be registered registered share (1) price (1) per share (1) Company registration fee
--------------------------- ----------- --------- ------------ ------------- ------------ ----------------
Common Shares, par value
$.01 underlying secured 193,158,333 (2) $0.02 $3,863,167 $355.41
convertible debentures
--------------------------- ----------- --------- ------------ ------------- ------------ ----------------
Shares Underlying 3,494,339 (3) $0.02 $69,887 $ 6.43
Warrants
--------------------------- ----------- --------- ------------ ------------- ------------ ----------------
Total Registration Fee 196,652,672 $361.84
--------------------------- ----------- --------- ------------ ------------- ------------ ----------------
(1) Estimated solely for the purpose of determining the registration fee
(2) Common stock issuable upon conversion of an aggregate of $1,670,000 in
convertible debentures issued to various investors, plus a $300,000
convertible debenture to be issued on the fifth trading day following the
effective date of this registration statement.
(3) Common stock issuable upon the conversion of warrants issued in connection
with the above convertible debentures.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
PROSPECTUS
May 17, 2002
THE AMANDA COMPANY
196,652,672 Shares of common stock
.
The 196,652,672 shares of common stock offered by this prospectus are
being offered for resale by the security holders listed in the section of
this prospectus called "Selling Security Holders". The selling shareholders
may sell common stock from time to time in the principal market on which
the stock is traded at the prevailing market price or in negotiated
transactions. The selling shareholders who invested in our private
placements including the funding to occur on the fifth day after the
effectiveness of this registration statement are deemed to be underwriters
within the meaning of the Securities Act of 1933. Please see the "Selling
Shareholders" section in this prospectus for a complete description of all
of the selling shareholders
Our common stock is traded on the OTC Bulletin Board under the symbol
"AMNA". On May 15, 2002 the closing bid price of our common stock on the
OTC Bulletin Board was $.018
This investment involves a high degree of risk. See the "Risk Factors"
beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of the prospectus. Any representation to the
contrary is a criminal offense.
3
TABLE OF CONTENTS
Page No.
Summary of Information in the Prospectus...................................5
Risk Factors...............................................................6
Use of Proceeds...........................................................10
Price Range of Common Stock...............................................11
Our Dividend Policy.......................................................12
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................14
Our Business..............................................................21
Management................................................................24
Executive Compensation....................................................25
Certain Relationships and Related Transactions............................26
Principal Stockholders....................................................26
Description of Securities.................................................27
Selling Stockholders......................................................28
Plan of Distribution......................................................31
Legal Proceedings.........................................................32
Experts...................................................................32
Legal Matters.............................................................32
Other Available Information...............................................33
Indemnification...........................................................33
Financial Statements......................................................35
4
Prospectus summary
This summary contains all material terms of the prospectus. To understand this
offering fully, you should read the entire prospectus carefully. Please pay
particular attention to the section entitled "Risk Factors" and the section
entitled "Financial Statements".
Unless otherwise indicated, this prospectus assumes that any of Amanda's
outstanding options or warrants have not been exercised into shares of our
common stock.
THE AMANDA COMPANY
The Amanda Company ("Amanda") is located at 13765 Alton Parkway, phone
(949) 859-6279 and is a Utah Corporation. On October 1, 2001, The Amanda
Company, formerly known as Pen Interconnect, Inc., merged with The Automatic
Answer, Inc. ("tAA") and concurrently changed its name to The Amanda Company,
Inc. Pen Interconnect, Inc., prior to the merger, was a shell company with no
operations.
Amanda is in the voice mail messaging industry. Amanda is a supplier of
call processing software systems that are used with industry standard-PC
platforms.
Amanda delivers to the market the following products:
o Amanda voicemail software utilizing Microsoft DOS 6.22 Operating
System, sold to the small business segment utilizing from four to
twenty-four ports and providing up to 33 hours of message storage,
subject to disk space on the hardware platform. This system supports
PBX ("Private Brand Exchanges") and Key Systems (telephone equipment)
ranging from ten to 200 telephone users.
o Amanda software utilizing Microsoft Windows Operating System for the
small and medium business segment utilizing from four to seventy-two
ports and unlimited message storage subject to disk space. This system
supports PBX and Key System of over 200 telephone users and smaller
users with high voice mail storage requirements. These systems are
also capable of supporting multiple PBXs.
o Amanda voicemail software utilizing Microsoft Windows NT/XP Operating
System capable of integrating with the PSTN (Public Switched Telephone
Network) and Internet networks. This system has also the ability to
integrate with other computer based data bases and/or applications.
(Amanda Portal)
The offering
Securities Offered
196,652,672 Selling Security Holder Shares (see "Selling Shareholders" page
28).
Common Stock Outstanding:
Prior to the Offering: 34,921,976* as of March 13, 2002
After the Offering: 231,574,648 Shares
Offering Price The selling shareholders can sell the shares at any price.
Use of Proceeds
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive
any proceeds from the sale of shares by the selling shareholders. However,
we will receive proceeds upon the exercise of any warrants that may be
exercised by the selling shareholders. These funds will be used for ongoing
operations.
Market for our Common Stock:
Our Common Stock trades on the Over-the Counter Bulletin Board, also called
OTCBB, under the trading symbol "AMNA". The market for our common stock is
highly volatile (see "Price range of our common stock" page eleven). We can
provide no assurance that there will be a market in the future for our
Common Stock.
* Post February 8, 2002 reverse split
Amanda is obligated to issue 35,429,951 shares of common stock to tAA
shareholders pursuant to the Merger Agreement. Amanda expects to issue
the tAA shares within the next two weeks. After issuing the tAA shares
there will be 70,351,927 shares outstanding.
5
Risk Factors
Any investment in shares of Amanda's common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy Amanda's common stock. If any of the following risks actually
occur, Amanda's business would likely suffer. In these circumstances, the market
price of Amanda's common stock could decline, and you may lose all or part of
the money you paid to buy Amanda's common stock.
Risks Relating to our Business:
Amanda has sustained continuing losses making it a risky investment.
Amanda's continued losses and working capital deficiency makes any
investment in Amanda at risk of being lost. Amanda incurred a loss in fiscal
2001 of $1,556,747 and a loss $2,398,189 in fiscal 2000 plus a loss of
$1,013,881 for the quarter ended December 31, 2001 and a $626,103 for December
31, 2000. Amanda does not anticipate realizing a profit during the next fiscal
year. Our September 30, 2001 consolidated financial statements highlight that we
have a working capital deficiency of $3,524,044 at September 30, 2001 and
$2,995,556 at December 31, 2001, plus recurring losses from operations raise
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this activity.
Here is a list of some of the factors that may affect the future
profitability of our business:
o Overall economic conditions of the small and medium B2B segment;
o Fiscal health of our distribution channels;
o Competitive pricing.
Amanda may not be able to obtain sufficient capital to fund operations and, as a
result, Amanda will cut back or discontinue operations.
Amanda will need significant additional capital in the near future and
may be unable to obtain such funding. If adequate funds are not available, we
may be required to cut back on one or more of our production locations, sales,
marketing or distribution programs or plans; or reduce operating expenses, or
attempt to obtain funds through strategic alliances that may require us to
relinquish rights to our technologies or products.
Our future capital requirements will depend on many factors, including:
o The progress of production of product, sales, marketing and
distribution efforts;
o The timely entrance of new integrated products to market;
o The market acceptance of our products;
6
o Our service capacity.
In addition, future financing may be increasingly difficult to obtain due to
such factors as our unfavorable operating history and results, the level of risk
associated with our business and business plans, increases in our vulnerability
to general economic conditions, and increased stockholder dilution. Debt
financing, if available, may have several negative effects on our future
operations, including:
o a portion of our cash flow from operations will be dedicated to
payment of principal and interest and this would reduce the funds
available for operations and capital expenditures;
o increased debt burdens will substantially increase our vulnerability
to adverse changes in general economic and competitive conditions; and
o we may be subject to restrictive debt covenants and other conditions
in our debt instruments that may limit our capital expenditures, limit
our expansion or future acquisitions, and restrict our ability to
pursue our business strategies.
Competition from voice messaging companies with substantially greater assets may
limit Amanda's ability to grow.
Some of our competitors are:
o Cisco Systems
o Avaya
o NEC
o Voicegate
o Nortel
We will be competing for customers with other voice messaging
companies, many of which have substantially greater assets and resources than we
have. Additionally, major companies presently dominate the voice messaging
industry and have long-standing distribution and marketing relationships, which
may operate to the disadvantage of Amanda and could adversely affect our
business and future operating results.
If Amanda defaults in one of the conditions to the debenture agreement, at the
note holder's option, the full principal amount of the debenture(s) together
with interest and other amounts owing may become immediately due and payable in
cash. If this event were to occur, it would probably result in the shut down of
Amanda's operations.
Amanda would be in default if any one of the following occurs:
(i) failure in making a payment of the principal and interest;
(ii) files for bankruptcy or insolvency
(iii) defaults in any of its other debt obligations;
(iv) Amanda's Common Stock shall not be eligible for quotation and
trading on the OTC Bulletin Board;
(v) Amanda sells or disposes all or in excess of 33% of its assets in
one or more transactions;
(vi) this registration statement shall not have been declared
effective by the Commission on or prior to May 24, 2002, or 135
days after the transactions documents were executed (see exhibit
10.22).
(vii)if the effectiveness of the Underlying Shares Registration
Statement lapses;
(viii) the Company shall fail to deliver certificates to a Holder
within three days of conversion request.
7
We are presently in compliance with all conditions of the debenture
agreement and anticipate that we will stay in compliance with the conditions
while this prospectus is in use.
We have a "Going-Concern Qualification" in our certifying accountant's financial
statement report, which may make capital raising more difficult and may require
us to scale back or cease operations.
The report of our auditors includes a going concern qualification which
indicates an absence of obvious or reasonably assured sources of future funding
that will be required by us to maintain ongoing operations. To date we have
successfully funded Amanda by attracting additional issues of debt. We believe
that our ongoing efforts will continue to successfully fund operations until
positive cash flow is attained. However, there is no guarantee that our efforts
will be able to attract additional necessary equity and/or debt investors. If we
are unable to obtain this additional funding, we may not be able to continue
operations. Additionally, we have a net worth deficit as of our latest balance
sheet date. This deficit indicates that we will be unable to meet our future
obligations unless additional funding sources are obtained. To date we have been
able to obtain funding and meet our obligations in a reasonably timely manner.
However, if in the future we are unsuccessful in attracting new sources of
funding then we will be unable to continue in business.
Amanda's expenses for fiscal year 2001 ran approximately $170,000 a
month with cash outflows of approximately $150,000 a month. A temporary
reduction in operations would lower the expenses, however, cash outflow would
still remain approximately $50,000 to $75,000 a month. Absent a plan to obtain
the necessary funds to maintain Amanda during a temporary shutdown, Amanda would
have to terminate all operations.
Risks Relating to our Stock:
There are a large number of shares underlying our convertible notes and warrants
that may be available for future sale and the sale of these shares may depress
the market price of our common stock and may cause substantial dilution to our
existing stockholders.
As of February 28, 2002, we had 34,921,976 shares of common stock
issued and outstanding, notes outstanding and future notes that are convertible
into 98,500,000 shares of common stock at current market prices, and outstanding
warrants to purchase 3,494,339 shares of common stock. In addition, the number
of shares of common stock issuable upon conversion of the outstanding
convertible notes and debentures may increase if the market price of our stock
declines. All of the shares, including all of the shares issuable upon
conversion of the notes and debentures and upon exercise of our warrants, may be
sold without restriction. The sale of these shares may adversely affect the
market price of our common stock. The issuance of shares upon conversion of the
convertible notes and debentures and exercise of outstanding warrants will also
cause immediate and substantial dilution to our existing stockholders and may
make it difficult to obtain additional capital.
9
The following gives examples of the number of shares that would be
issued if all the debentures were converted at one time at prices representing
70%, 66.67% and 25% of the current market price (assuming a market price of
$0.02):
o 70% of current stock price:
Amanda's stock converted at 70% of current stock price would result in
a debenture conversion rate of $.014 cents. To convert the $1,970,000
of convertible debentures would require 140,714,287 shares of Amanda's
common stock, or 402% of Amanda's current outstanding shares.
o 66.67% of current stock price:
Amanda's stock converted at 66.67% of current stock price would result
in a debenture conversion rate of $.013 cents. To convert the
$1,970,000 of convertible debentures would require 151,538,462 shares
of Amanda's common stock, or 434% of Amanda's current outstanding
shares.
o 25% of current stock price
Amanda's stock converted at 25% of current stock price would result in
a debenture conversion rate of $.005 cents. To convert the $ 1,970,000
of convertible debentures would require 394,000,000 shares of Amanda's
common stock, or 1128% of Amanda's current outstanding shares.
A drop in stock price of greater than 50% would require Amanda to
register more shares to provide for the conversion of these convertible
debentures.
In addition, Amanda will be issuing an additional 35,429,951 shares of
common stock to the tAA share holders pursuant to the Merger Agreement.
Amanda's overhang affect of the selling shareholders resale of their securities
on the market could result in lower stock prices when converted
Overhang can translate into a potential decrease in Amanda's market
price per share. The common stock underlying unconverted debentures represents
overhang. These debentures are converted into common stock at a discount to the
market price providing the debenture holder the ability to sell his or her stock
at or below market and still make a profit. If the share volume cannot absorb
the discounted shares, Amanda's market price per share will likely decrease. As
the market price decrease, each subsequent conversion will require a larger
quantity of shares.
Currently Amanda has reserved up to from 150% to 200% of the estimated
maximum number of shares of common stock which would be issuable upon conversion
in full of the debentures, amounting to 193,158,330 shares of authorized and
unissued common stock. These reserve amounts are our good faith estimate of the
number of shares that we believe we need to reserve. We can provide no assurance
as to how many shares we will ultimately need to issue upon the conversion of
the debentures. If we are required to issue more shares then are currently
reserved, we will be required to file an additional registration statement for
those shares.
Short selling common stock by warrant and debenture holders may drive down the
market price of our stock.
Warrant and debenture holders may sell shares of Amanda's common stock
on the market before exercising the warrant or converting the debenture. The
stock is usually offered at or below market since the warrant and debenture
holders receive stock at a discount to market. Once the sale is completed the
holders exercise or convert a like dollar amount of shares. If the stock sale
lowered the market price, upon exercise or conversion, the holders would receive
a greater number of shares then they would have absent the short sale. This
pattern may result in the spiraling down of our stock's market price.
Amanda's common stock is subject to the "Penny Stock" rules of the SEC and the
trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
Our shares of Common Stock are "penny stocks" as defined in the
Exchange Act, which are traded in the over-the-counter market on the OTC
Bulletin Board. As a result, an investor may find it more difficult to dispose
of or obtain accurate quotations as to the price of the shares of the Common
Stock being registered hereby. In addition, the "penny stock" rules adopted by
the Commission under the Exchange Act subject the sale of the shares of the
Common Stock to certain regulations which impose sales practice requirements on
broker-dealers. For example, broker-dealers selling such securities must, prior
to effecting the transaction, provide their customers with a document that
discloses the risks of investing in such securities. Included in this document
are the following:
o The bid and offer price quotes for the penny stock and the number of shares
to which the quoted prices apply.
o The brokerage firm's compensation for the trade.
o The compensation received by the brokerages firm's salesperson for the
trade.
In addition, the brokerage firm must send the investor:
o Monthly account statement that gives an estimate of the value of each penny
stock in your account.
o A written statement of your financial situation and investment goals.
Legal remedies which may be available to you are as follows:
o If penny stocks are sold to you in violation of your rights listed
above, or other federal or state securities laws, you may be able to
cancel your purchase and get your money back.
o If the stocks are sold in a fraudulent manner, you may be able to sue
the persons and firms that caused the fraud for damages.
o If you have signed an arbitration agreement, however, you may have to
pursue your claim through arbitration.
If the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of the Common Stock.
Resale restrictions on transferring "penny stocks" are sometimes imposed by some
states, which may make transactions in our stock cumbersome and may reduce the
value of an investment in our stock.
Various state securities laws impose restrictions on transferring
"penny stocks" and as a result, investors in the Common Stock may have their
ability to sell their shares of the Common Stock impaired. For example, the Utah
Securities Commission prohibits brokers from soliciting buyers for "penny
stocks", which makes selling them more difficult.
Information about forward-looking statements
This Prospectus contains certain forward-looking statements, which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified because the context of the statement includes words
such as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, this prospectus also contains
forward-looking statements about our future. Forward-looking statements include
statements about our:
Plans, Objectives, Goals, Strategies, Expectations for the future, Future
performance and events, Underlying assumptions for all of the above and Other
statements which are not statements of historical facts.
These forward-looking statements involve risks and uncertainties, which
could cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the results set forth in these forward-looking statements. Our
forward-looking statements are expressed in good faith and we believe that there
is a reasonable basis for us to make them.
In addition to other factors discussed in this prospectus, the
following are important factors that could cause our actual results to
materially differ from our forward-looking statements: - Our ability to respond
to changes in the marketplace - Competitive factors - The availability of
financing on terms and conditions acceptable to us - The availability of
personnel with the appropriate technical skills
We have no obligation to update or revise these forward-looking
statements to reflect future events.
Use of proceeds
Amanda will not receive any of the proceeds from the sale of the shares
of common stock offered by the selling stockholders under this prospectus. If
all warrants, being registered, to purchase the shares of common stock offered
for resale in this offering were exercised, Amanda would receive aggregate gross
proceeds of approximately $69,887. Since all the warrants are currently out of
the money, it is not anticipated that these funds will be made available anytime
in the near future.
The proceeds, if any, that Amanda receives from the exercise of
warrants will be used for working capital in support of growing the business.
The foregoing represents Amanda's current best estimate of our use of
the proceeds derived from the exercise of the warrants to purchase the shares of
common stock offered in this prospectus, if any, based upon our present plans,
the state of our business operations and current conditions in the industry in
which we operate. Amanda reserves the right to change the use of the proceeds if
unanticipated developments in our business, business opportunities, or changes
in economic, regulatory or competitive conditions, make shifts in the
allocations of proceeds necessary or desirable.
10
Price range of our common stock
Our common stock and warrants have been traded on the OTC Bulletin
Board since they were de-listed from the National Association of Securities
Dealers Automated Quotation system as of March 30, 1999. They were traded under
the symbol "PENC:OB" for the common stock and "PENCW" for the warrants. On
December 11, 2001, the stock symbols changed to AMNA.OB for the common stock and
AMNAW for the warrants. The common stock and warrants were first publicly traded
on November 17, 1995. The following table sets forth the range of high and low
bids for our common stock for the last three years.
High Low
Fiscal Year 2001-Quarter Ended
March 31, 2002 * $0.03 $0.01
December 31, 2001 0.03 0.01
Fiscal Year 2000-Quarter Ended
September 30, 2001 $0.04 $0.03
June 30, 2001 0.05 0.04
March 31, 2001 0.11 0.03
December 31, 2000 0.19 0.02
Fiscal Year 1999-Quarter Ended
September 30, 2000 $0.30 $0.17
June 30, 2000 0.36 0.18
March 31, 2000 0.55 0.20
December 31, 1999 0.53 0.25
Fiscal Year 1998-Quarter Ended
September 30, 1999 $0.81 $0.52
June 30, 1999 1.19 0.78
March 31, 1999 2.00 0.72
December 31, 1998 2.50 0.77
* Post reverse split
11
On February 8, 2002, Amanda did a 10 to 1 reverse stock split of its
common stock. Before the reverse split on February 8, 2002 there were
349,219,760 shares of common stock outstanding. After the reverse split on
February 28, 2002 there were 34,921,976 shares of common stock outstanding, held
by approximately 4,100 shareholders, including several holders who are nominees
for an undetermined number of beneficial owners.
On December 31, 2001, the closing quotation for the warrants was $0.002
per warrant. The Company extended the public warrants for one more year to
November 17, 2002 as they were to expire on November 17, 2001. As of September
30, 2001, there were issued and outstanding public and private warrants to
purchase 10,509,700 shares of the Company's common stock.
Transfer Agent and Registrar
The Company's transfer agent is American Stock Transfer and Trust
Company located at 6201 15th Avenue, Brooklyn, NY 10004.
Our Dividend Policy
Company does not anticipate paying dividends on the Common Stock in the
foreseeable future. The payment of future dividends will be at the sole
discretion of the Company's Board of Directors and will depend the Company's
general business condition.
12
SELECTED FINANCIAL INFORMATION
The information set forth below is derived from the audited financial
statements of Pen Interconnect, Inc. for the periods ended September 30, 2001
and 2000, the audited financial statements of tAA for the year ended December
31, 2000 and from unaudited financial statements. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
including the notes thereto and other financial information, appearing elsewhere
in this registration statement.
Consolidated Statement of Operations:
Years Ended Years Ended Three Months Ended
September 30, September 30, December 31,
2000 2001 2000 * 2001 * 2000 * 2001
----------- ----------- ----------- ------------ ------------ --------
Revenues $ 0 $ 0 $ 5,015,319 $ 3,990,679 $ 1,086,227 $ 900,377
Cost of goods 0 0 3,224,312 2,361,425 676,173 488,694
Gross profit 0 0 1,791,007 1,629,254 410,054 411,683
Net loss (1,891,199) (1,294,784) (2,398,189) (1,556,747) (626,103) (1,013,881)
Loss per share (1) ($.10) ($.03) ($.00) ($.00) ($.00) ($.00)
Consolidated Balance Sheet:
As of September 30, As of September 30 * As of December 31,
2000 2001 2000 2001 2001
----------- ----------- ----------- ------------ ------------
Total current assets $ 9,319 $ 6,839 $ 412,671 $ 344,960 $ 525,294
Total current liabilities 982,047 824,729 3,562,974 3,869,004 3,520,850
Total stockholder (deficit) (1,977,040) (2,313,110) (2,982,829) (3,533,908) (3,466,061)
* Proforma
(1) Before the February 8, 2002 reverse split.
13
Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The short-term objectives of Amanda are the following:
1. Regain profitability through product cost restructuring, pricing
changes and simplification of products.
2. Gain market share with Mini SOHO (small office, home office) and
Portal (recently launched products),
3. Develop a new product that integrates our technologies
with other ready to market technologies,
4. Reduce revenue product dependency on voice mail.
Amanda's long-term objectives are as follows:
1. Enhance revenue stream with recurring service revenues,
2. Develop products that will allow different communication devices
work together,
Over the next twelve months, Management is of the opinion that
sufficient working capital will be obtained from operations and external
financing to meet the Company's liabilities and commitments as they become
payable. The Company has in the past successfully relied on private placements
of common stock securities, bank debt, loans from private investors and the
exercise of common stock warrants in order to sustain operations. A recent
financing has been obtained and the underlying shares are being registered in
this registration statement (see "Selling shareholders" and "Recent financing"
on page 27).
There is no expected or planned sale of significant equipment by the
Company. The Company's work force is expected to remain at the current level
over the next twelve months.
Results of Operations
THE AMANDA COMPANY ONLY
Three Months Ended December 31, 2001 Compared to December 31, 2000
Net sales. Net sales for the three-month period ended December 31, 2001
of $900,377 decreased $185,850 or approximately 17 % from $1,086,277 for the
same period in the prior year. The Company believes that the economic after
effect of September 11, 2001 was the main factor for the decline in revenues.
Cost of sales. Cost of sales for the three-month period ended December
31, 2001 of $488,694 decreased $187,479 or 28% from 676,173 for the same period
prior year. Cost of sales as a percentage of net sales decreased to 54% of net
sales as compared to 62% for the same period in the prior year. The decrease on
Cost of sales resulted from the increase in the shipment of higher gross profit
margin products; along with a reduction in shipping costs due to improved
inventory control and production processes.
14
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three-month period ended December 31, 2001 of
$556,940 decreased $399,160 or approximately 42% from $956,100 for the three
month period ended December 31, 2000. The decrease is mainly due to the
reduction in salaries, payroll taxes and related employee expenses resulting
from a reduction in personnel, the relocating of operations of Pen Interconnect
to the offices of the Automatic Answer, Inc. (tAA) in Irvine, CA, and the moving
of The Automatic Answer Company's San Juan Capistrano, CA offices to Irvine, CA
thereby reducing monthly rent expense and (3) the reduction of miscellaneous
expenses as a result of the headcount reductions.
Other income and expenses: Interest expense for the quarter ended December 31,
2001 amounted to $37,860 compared to $71,494 for the same period prior year for
a decrease of $33,634. Other income the quarter ended December 31, 2001 amounted
to $45,236 compared to $82,641 for the same period prior year for a decrease of
$$37,405.
Extraordinary costs. The Company recorded costs of $876,000 for the quarter
ended December 31, 2001. These costs are associated with the merger between Pen
Interconnect, Inc. and the Automatic Answer, Inc. (tAA).
Net earnings (loss) and earnings (loss) per share. Net loss for the
first fiscal quarter ended December 31, 2001 totaled ($1,013,881) compared with
losses of ($626,103), or an increase of $387,778 from the same period prior
year.
THE AMANDA COMPANY PROFORMA
Year ended September 30, 2001 compared to year ended September 30, 2000
Net sales. Net sales for the Company decreased $1,024,640 to
$3,990,679 for the period ending September 30, 2001 from $5,015,319 from the
period ending September 30, 2000, or approximately 20 percent. A slowdown in
orders from Amanda's distributors resulted in the reduced sales. Our
distributors claim to have experienced lower sales as a result of the economic
conditions since September.
Cost of sales. Cost of sales of $2,361,425 for the period ended
September 30, 2001 decreased $862,887 from $3,224,312 or 27% from the same
period prior year. As a percentage of net sales, Cost of sales decreased to 59%
of net sales as compared to 64% for the same period in the prior year. The
decrease in Cost of sales was mainly due to the reduction in shipping costs due
to improved management of inventory purchases and shipments to customers.
Selling, general and administrative expenses. Selling, general and
administrative expenses of $3,284,560 for the period ending September 30, 2001
decreased by $655,461 from $3,940,021 or approximately 17% from the year ended
September 30, 2000. The decrease is due to (1) the reduction in the number of
employees, thereby reducing salaries, payroll taxes and other employee related
expenses; (2) a reduction in travel and entertainment expenses due to the
reduction in sales personnel, and (3) a decrease in miscellaneous expenses which
are related to the headcount reductions.
Interest expense. Interest expense of $163,013 for the period ending
September 30, 2001 decreased $281,626 from the same period prior year due to the
company's line of credit being terminated in the year ended September 30, 2000.
15
PEN INTERCONNECT ONLY
Year ended September 30, 2001 compared to year ended September 30, 2000
Net sales and cost of sales: There were no sales from continuing
operations for Pen Interconnect Inc., the years ended September 30, 2001 and
2000 due to its status as a shell company. All operating divisions were disposed
of during 1999 and 2000, and all operating activity was reclassified as
discontinued operations. Since March 2, 2000, the Company decided to maintain
its situation as a reporting public company, and to reduce its debt in order to
make the Company attractive to private companies that would want to use Pen to
go public. This approach was designed to maintain shareholder value.
The Company did enter into a Letter of Intent to merge with a small
private dot com company, perFORMplace.com, in the entertainment services
business. A definitive agreement was signed in late August 2000 with the intent
to obtain shareholder ratification at the next shareholders' meeting. However,
on November 8, 2000, before the meeting could be held, perFORMplace.com
terminated the merger. This caused a serious drop in the Company's stock price
and the need to go back out to seek a new merger partner or acquisition.
The Company entered into an agreement to acquire shares of The
Automatic Answer, Inc., a California company on April 10, 2001.
Operating Expenses: Since the foreclosure on the assets and the sale of
its operating divisions, the operating costs of the Company have been kept to a
minimum, with two employees and limited travel and expenses. As a result,
general and administrative expenses decreased from $1,733,596 to $787,591, a net
change of 55%.
Depreciation increased $771 from 2000 to 2001. Most of the Company's
fixed assets were disposed of during 2000 and the remainder in 2001.
Interest expense decreased $315,147 during 2001, primarily due to the
foreclosure of the assets of its InCirT division, and the resulting affect
against the Company's line of credit. Interest expense of $43,048 resulted
predominantly from the issuance of convertible debentures.
The Company recorded during 2001, a $320,500 loss from impairment due
to the write-off of advances made to a merger candidate in 2000. In 2001, an
additional amount of $63,000 was recognized as a loss relating to the same
event.
Other Income/Expenses: As part of the merger between the Company and
tAA, the Company made several loans to tAA in 2001 totaling $461,200. The loans
were used to fund tAA's pre-merger operations. The merger was effective October
1, 2001 and these loans will be eliminated upon the consolidations of the two
companies. The $461,2000 was expensed as acquisition expense.
The Company recorded a $135,300 loss in FY 2000 from a lawsuit brought
by a former executive of the Company.
Losses from discontinued operations decreased to $497,827 in 2000 from
$5,695,148 in 1999. The Company disposed of two divisions during 1999 and the
remaining two divisions early in 2000.
Losses on the disposal of the Company's two remaining operating
divisions in 2000 was $776,384.
Extraordinary Income: The Company recorded a gain from extinguishments
of debt of $149,642 in 2001 and $2,018,547 during 2000 resulting from the
conversion of vendor payables to equity.
16
Net Loss and Loss Per Share: Net loss and loss per share. Net losses
for the period ended September 30, 2001 of $1,294,784 decreased $596,415 or 31%
from $1,891,199 for the same period prior year. Decreased losses result from a
reduction in operating expenses as the Company sought merger candidates.
Liquidity and capital resources
The Company's revenues have been insufficient to cover the cost of
revenues and operating expenses. Therefore, the Company has been dependent on
private placements of its common stock and issuance of convertible notes in
order to sustain operations. In addition, there can be no assurances that the
proceeds from private or other capital will continue to be available, or that
revenues will increase to meet the Company's cash needs, or that a sufficient
amount of the Company's common stock or other securities can or will be sold or
that any common stock purchase options/warrants will be exercised to fund the
operating needs of the Company.
THE AMANDA COMPANY
December 31, 2001
During the first three months of FY 2001 the Company sustained losses
of $1,013,881. As a result of these losses the Company raised additional working
capital through the issuance of Convertible Debentures ($100,000) and
Convertible Promissory Notes ($450,000).
Net cash used (generated) in operating activities for the three months
ended December 30, 2001 and 2000 was $416,412 and 251,530 respectively. The
change in cash from operating activities of $164,882 was principally due to the
increase in the net loss for the 2001 first three months of $387,778, plus a
decrease in accounts payable of $251,491, a decrease in prepaid and other assets
of $104,404, a decrease in accrued expenses of $128, 864 and an increase in
accounts receivable of $184,861, offset by an increase in common stock issued
for compensation of $1,031,707 and by changes in operating assets and
liabilities.
Net cash used in investing activities was $0 and $100,020 for the three
months ended December 31, 2001 and 2000 respectively, reflecting a change of
$100,020. This change is due to no the closing of advances and the closing out
of a notes receivable.
Net cash provided by financing activities was $449,266 and $338,288 for
the three months ended December 31, 2001 and 2000, respectively, reflecting a
change of $110,978. This increase was principally due to proceeds received from
the issuance of convertible debentures by Amanda
Fiscal years ending September 30, 2001 and September 31, 2000 - PROFORMA
During the fiscal year ended September 30, 2001, the Company sustained
losses of $1,556,747. As a result of these losses the Company raised additional
working capital through the exercise of warrants ($483,861) and the issuance of
Convertible Debentures ($650,000).
17
THE AMANDA COMPANY (formerly PEN INTERCONNECT)
Fiscal years ending September 30, 2001 and September 31, 2000
Amanda had negative working capital at September 30, 2001 of $2,377,692
compared to negative working capital of $1,977,914 at September 30, 2000 for a
decrease in working capital of $399,778. The decrease is due to the raising of
additional capital through the issuance of convertible debentures which allowed
the company to have sufficient working capital to pay salaries, office rent and
other expenses while the company looked for a merger partner.
During fiscal 2001 Amanda continued to experience cash flow problems.
For most of fiscal 2000, the market price of Amanda's stock was sufficient to
raise additional funds to support the negative cash flow from operations.
Amanda's stock price has continued to decline since Amanda's securities were
de-listed from the NASDAQ National Market in March of 1999.
In March 2000, because of Amanda's inability to clear the default
notice, our bank, Finova Capital caused a pre-packaged foreclosure of all of
Amanda's assets, including the take-over of our largest division, InCirT, which
was subsequently sold to ADTI, a subsidiary of Comtel Holdings, Inc. Since that
time, Amanda has maintained its' fully reporting public status and sought a new
asset/company that would benefit from a merger with a public company.
Additional capital infusions will be necessary if the Company is to
continue its' Operations. The investors which purchased the preferred stock in
FY99 have been willing to continue limited funding to assist the Company. There
is no guarantee that this will continue for any sustained period. If Amanda
cannot raise additional funding, Amanda will have to seek bankruptcy protection.
In February 2000, Amanda sold its' PowerStream division to Lund
Engineering or Orem, Utah for cash and notes. Lund took over the assets and debt
of PowerStream which paid off its' obligations to Finova, which also owns the
note through its' foreclosure actions.
In September 1999, Amanda completed the sale of the MotoSat division to
a company controlled by James Pendleton, Amanda's former Chairman and CEO. The
sale did not generate cash proceeds but eliminated monthly operating losses
associated with MotoSat. All assets and liabilities of the MotoSat division were
transferred to Mr. Pendleton's company in exchange for Mr. Pendleton's agreement
to waive any claim to post employment, deferred compensation or retirement
benefits. The transfer of the MotoSat division to Mr. Pendleton resulted in a
loss to the Company of approximately $68,000.
18
Other events
On March 8, 2001, Amanda issued a three convertible debentures for an
aggregate amount of $200,000, with simple interest accruing at the annual rate
of 8%. These debentures are due March 8, 2002. Interest payable on the
Debentures shall be paid quarterly commencing March 30, 2001. The holders shall
have the right to convert the principal amount and interest due under the
debentures into shares of Amanda's common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $.04 and (2) 70% of the
average of the lowest three inter-day sales prices of the Common Stock during
the thirty Trading Days immediately preceding the applicable Conversion Date.
The shares that will be issued upon conversion of these debentures are being
registered for resale purposes by this registration statement.
On May 14, 2001, Amanda issued a convertible debenture for $150,000,
with simple interest accruing at the annual rate of 8%. These debentures are due
May 14, 2004. Interest payable on the Debentures shall be paid quarterly
commencing June 30, 2001. The holders shall have the right to convert the
principal amount and interest due under the debentures into shares of Amanda's
common stock. The conversion price in effect on any Conversion Date shall be the
lesser of (1) $.04 and (2) 70% of the average of the lowest three inter-day
sales prices of the Common Stock during the thirty Trading Days immediately
preceding the applicable Conversion Date. The shares that will be issued upon
conversion of these debentures are being registered for resale purposes by this
registration statement.
On July 9, 2001, Amanda issued a convertible debenture for $100,000,
with simple interest accruing at the annual rate of 8%. These debentures are due
July 9, 2004. Interest payable on the Debentures shall be paid quarterly
commencing September 30, 2001. The holders shall have the right to convert the
principal amount and interest due under the debentures into shares of Amanda's
common stock. The conversion price in effect on any Conversion Date shall be the
lesser of (1) $.04 and (2) 70% of the average of the lowest three inter-day
sales prices of the Common Stock during the thirty Trading Days immediately
preceding the applicable Conversion Date. The shares that will be issued upon
conversion of these debentures are being registered for resale purposes by this
registration statement.
On July 16, 2001, Amanda issued a convertible debenture for $100,000,
with simple interest accruing at the annual rate of 8%. These debentures are due
July 16, 2004. Interest payable on the Debentures shall be paid quarterly
commencing September 30, 2001. The holders shall have the right to convert the
principal amount and interest due under the debentures into shares of Amanda's
common stock. The conversion price in effect on any Conversion Date shall be the
lesser of (1) $.04 and (2) 70% of the average of the lowest three inter-day
sales prices of the Common Stock during the thirty Trading Days immediately
preceding the applicable Conversion Date. The shares that will be issued upon
conversion of these debentures are being registered for resale purposes by this
registration statement.
On October 4, 2001, Amanda issued a convertible debenture for $250,000,
with simple interest accruing at the annual rate of 8%. These debentures are due
October 4, 2004. Interest payable on the Debentures shall be paid quarterly
commencing December 31, 2001. The holders shall have the right to convert the
principal amount and interest due under the debentures into shares of Amanda's
common stock. The conversion price in effect on any Conversion Date shall be the
lesser of (1) $.02 and (2) 70% of the average of the lowest three inter-day
sales prices of the Common Stock during the thirty Trading Days immediately
preceding the applicable Conversion Date. The shares that will be issued upon
conversion of these debentures are being registered for resale purposes by this
registration statement. Amanda also issued common stock purchase warrants for
the right to purchase 8,571,429 shares of Common Stock of Amanda at an exercise
price per share equal to the lesser of (i) $.10 and (ii) 70% of the average of
the lowest three inter-day sales prices during the thirty (30) Trading Days
immediately prior to exercise. Amanda also issued a total of 8,055,583 warrants.
Each warrant allows the holder to purchase 1 share of our common stock at an
exercise price equal to $02 per share. These warrants expire October 4, 2006.
19
On October 23, 2001, Amanda changed its name to The Amanda Company.
On November 19, 2001, Amanda issued two convertible debentures for an
aggregate of $100,000 with simple interest accruing at the annual rate of 8%.
These debentures are due November 19, 2004. Interest payable on the Debentures
shall be paid quarterly commencing December 31, 2001. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of Amanda's common stock. The conversion price in effect on any
Conversion Date shall be the lesser of (1) $.02 and (2) 70% of the average of
the lowest three inter-day sales prices of the Common Stock during the thirty
Trading Days immediately preceding the applicable Conversion Date. The shares
that will be issued upon conversion of these debentures are being registered for
resale purposes by this registration statement.
On November 26, 2001, Amanda issued two convertible debentures for an
aggregate of $220,000 with simple interest accruing at the annual rate of 8%.
These debentures are due November 26, 2004. Interest payable on the Debentures
shall be paid quarterly commencing December 31, 2001. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of Amanda's common stock. The conversion price in effect on any
Conversion Date shall be the lesser of (1) $.02 and (2) 70% of the average of
the lowest three inter-day sales prices of the Common Stock during the thirty
Trading Days immediately preceding the applicable Conversion Date. The shares
that will be issued upon conversion of these debentures are being registered for
resale purposes by this registration statement. Amanda also issued a total of
7,944,682 warrants. Each warrant allows the holder to purchase 1 share of our
common stock at an exercise price equal to $01 per share.
On January 9, 2002, Amanda issued a convertible debenture for an
aggregate amount of $300,000, with simple interest accruing at the annual rate
of 8%. This debenture is due January 9, 2003. Interest payable on the Debentures
shall be paid quarterly commencing March 30, 2002. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of Amanda's common stock. The conversion price in effect on any
Conversion Date shall be the lesser of (1) $.10 and (2) 70% of the average of
the lowest three inter-day sales prices of the Common Stock during the thirty
Trading Days immediately preceding the applicable Conversion Date. The shares
that will be issued upon conversion of these debentures are being registered for
resale purposes by this registration statement. Amanda also issued common stock
purchase warrants for the right to purchase 8,571,429 shares of Common Stock of
Amanda at an exercise price per share equal to the lesser of (i) $.10 and (ii)
70% of the average of the lowest three inter-day sales prices during the thirty
(30) Trading Days immediately prior to exercise.
It is anticipated that the above of convertible debentures will be
converted into shares in accordance with the terms of these debentures.
.. Within five days subsequent to the effectiveness of this registration
statement, Amanda will issue a convertible debenture for an aggregate amount of
$300,000, with simple interest accruing at the annual rate of 8%. This
debentures will be due one year after the date of issuance. The Holder shall
have the right to convert the principal amount and interest due under the
debentures into shares of Amanda's common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $0.10, and (2) 70% of the
average of the lowest three inter-day sales prices of the Common Stock during
the thirty Trading Days immediately preceding the applicable Conversion Date.
Amanda will also issue additional common stock purchase warrants for the right
to purchase 8,571,429 shares of Common Stock of Amanda at an exercise price per
share equal to the lesser of (i) $.10 and (ii) the average of the lowest three
inter-day sales prices during the thirty (30) Trading Days immediately prior to
exercise. The shares that will be issued upon conversion of these debentures are
being registered for resale purposes by this registration statement.
Certain terms and conditions must be met at the time of the closing of
the $300,000 in convertible debentures that are to be to be issued within five
trading days after the effective date of this registration statement. These
terms and conditions are summarized as follows:
o The representations and warranties given by the company are still
valid at the time of funding i.e.,
i) Amanda is in good standing under the laws of the state of Utah,
ii) the financing transaction is properly authorized by the Amanda
Board of Directors and that the debentures are issued free of
encumbrances,
iii) that there are adequate authorized shares available to convert
the debentures as provided by the financing agreement,
iv) all disclosures provided by Amanda regarding Amanda, its business
and the current financing are true and Amanda did not omit any
statement that an investor may find significant.
o The registration statement shall be declared effective on or prior to
May 24, 2002, or 135 days after execution of the transaction
documents,
o Amanda has not broken any laws or incurred any other event which would
prevent this registration statement from becoming effective,
o The trading of Amanda's stock on the OTC Bulletin Board has not been
suspended,
o Amanda has not had in excess of 33% of its voting securities acquired.
20
Our Business
The Amanda Company ("Amanda") is located at 13765 Alton Parkway, phone
(949) 859-6279 and is a Utah Corporation. On October 1, 2001, The Amanda
Company, formerly known as Pen Interconnect, Inc. ("Pen"), merged with The
Automatic Answer, Inc. ("tAA") and changed its name to The Amanda Company, Inc.
The transaction was accounted for as a reverse merger with tAA as the surviving
entity. Amanda, prior to the merger, was a shell company with no operations.
Amanda is a technology company with its primary focus in
voice-processing. Amanda's principal product is a voice messaging system that
functions from the client's server using software that works primarily with
Microsoft's Windows operating systems. Amanda's voicemail system uses the
worldwide public switched telephone network ("PSTN") and both Intranet and
Internet computer based technologies which allows communication content to flow
through a telephone network and the internet.
General History
In October of 1999 the Company received notice from its primary lender
(Finova) that they were placing the Company's loan in default status for
non-compliance with loan covenants as a result of one of our major customers
going into receivership and leaving Amanda with over $1.5 million in accounts
receivable and inventory. The Company was originally given until December 18,
1999 to pay off the loan balance. (Note, the balance due Finova was paid off
November 26, 2001).
In February 2000, Amanda sold its' PowersStream division to Lund
Engineering of Orem, Utah for cash and notes and used the proceeds to pay off
PowerStream's obligations to Finova.
Finova then extended the deadline to pay the default to February 28,
2000, provided no other lending arrangements or definitive agreements to sell
the Company or any of its divisions were made. In March 2000, Finova caused a
foreclosure of all of Amanda' assets as a result of the default notice not being
satisfied, which caused Amanda to shut down operations.
In May 2001, the Company and Finova reached a settlement agreement, for
$150,000 over time in payments of $10,000, issue 250,000 shares of Amanda's
Common Stock and modify the strike price on 375,000 warrants to One Tenth of One
Cent ($0.001) in exchange of the return to the Company of certain assets which
do not have significant value as of the current date. Finova was paid off on
November 26, 2001. The expiration date for such warrants shall remain September
4, 2004
Additionally, during the last six (6) months of FY 2000, Amanda reduced
its debt through a stock for debt program with its vendors. Seventy-six (76)
percent of the vendors agreed to the program, thus reducing Amanda's outstanding
vendor debt from $3.2 million to $689,541. Amanda issued 761,747 shares of
restricted common stock pursuant to this program. In FY 2001 Amanda issued
10,178 shares of common stock to pay vendor debt of $25,390.
21
Acquisition of tAA
On October 1, 2001, The Amanda Company, formerly known as Pen Interconnect,
Inc. ("Pen"), merged with The Automatic Answer, Inc. ("tAA").
Amanda's Principal Product
Amanda is in the voice mail messaging industry. Amanda is a supplier of
call processing software systems that are used with industry standard-personal
computer setups.
Amanda delivers to the market the following products:
o Amanda voicemail software utilizing Microsoft DOS 6.22 Operating System,
sold to the small business segment utilizing from four to twenty-four ports
and providing up to 33 hours of message storage, subject to disk space on
the hardware platform. This system supports PBX ("Private Brand Exchanges")
and Key Systems (telephone equipment) ranging from ten to 200 telephone
users.
o Amanda software utilizing Microsoft Windows Operating System for the small
and medium business segment utilizing from four to seventy-two ports and
unlimited message storage subject to disk space. This system supports PBX
and Key System of over 200 telephone users and smaller users with high
voice mail storage requirements. These systems are also capable of
supporting multiple PBXs.
o Amanda voicemail software utilizing Microsoft Windows NT/XP Operating
System capable of integrating with PSTN and Internet networks. This system
has also the ability to integrate with other computer based data bases
and/or applications. (Amanda Portal)
License Revenue:
Amanda also licenses under OEM agreements its software to other
organizations. Some of those organizations are Cadcom, Cobotyx and Transtel
Communications.
Non-Amanda Products:
Amanda also distributes third party products to its indirect
distribution, such as Amanda Mini SoHo (small office, home office), manufactured
by Aleen Technologies.
Marketing and distribution Process
Amanda currently has a network of 650 dealers that resell the Amanda
line of products to the small business market and four distribution houses
strategically located in the country serving more than 25,000 independent
dealers.
Our approach to market is through indirect distribution supported by a
National Inside Sales and Technical Support Call Center located in Danbury,
Connecticut, which handles both the domestic and international markets.
Short Term Objectives
o Regain profitability through product cost restructuring, pricing changes
and simplification of products.
o Gain market share with Mini SOHO and Portal (recently launched products),
o Develop a new product that integrates our technologies with other ready to
market technologies,
o Reduce revenue product dependency on voice mail.
Long Term Objectives
o Enhance revenue stream with recurring service revenues,
o Develop products that will allow different communication devices work
together.
22
Strategic Vision
Key to Amanda's business in the future is the following:
o Transition of Amanda's product strength away from PBX and Key Systems that
is a declining market to products that bring together PSTN and IP network
capabilities. Amanda's Microsoft DOS based product line still has a demand
for new shipments and field replacements, which represents the bulk of
Amanda sales. However, the Amanda Portal is capable of generating new
revenues as a product that can bring together and create new applications
for PSTN and IP network capabilities. . o Sustaining and increasing our
National Certified Dealer network (650 plus dealers) and our
Wholesale-Distribution (Reaching over 25,000 independent dealers) to take
our products to market.
o Entering international markets through partnerships to create high margin
opportunities while minimizing our exposure.
o Identify and distribute related products manufactured by third parties
through our current distribution network that yield profitable gross
margins.
o Implement the integration of other technologies with our Amanda Portal in
order to create new need products.
Sales by Geographic Area
Ninety-five percent (95%) of our sales come from the domestic market
and five percent from International areas. Of the domestic market 98% of sales
are to dealers and 2% to OEM entities who utilize our software for their own
brands. 35% of sales are shipped to dealers in the western states, 30% to the
eastern states, 25% to the southern states and 10% to the Great Lakes states.
Competition
There are several small businesses that provide similar products,
however, our traditional competition has been acquired by larger entities, such
as, Active Voice was acquired by Nippon Electric Corporation (NEC), Centigram
was acquired by Mitel of Canada, Octel and VMX was acquired by
Avaya/Lucent/AT&T.
Other manufacturers are building voicemail capabilities internal to
their products such as Panasonic, Intertel, Mitel, etc. Other competitors are
manufacturers such as Toshiba and Cisco. Most of the large competitors target
the Fortune 1000 companies, which leaves the small to medium size business as
our main target.
Suppliers
Our main suppliers are Brooktrout Technologies (voice processing
cards), BICOM, Inc. (voicemail platforms), Central Technology of Texas (PC
platforms), and Aleen Technologies (voicemail systems).
Amanda has replacement suppliers available for all supplies.
Government Regulation or Government Approval
Amanda's products require FCC approval..
Research and Development
Amanda does not do research and development.
Patents, Trademarks and Licenses
Amanda maintain several Trademarks involving the name Amanda.
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
1a) to the consolidated financial statements, the Company has a working capital
deficiency of $ 3,524,044 as at September 30, 2001 and has suffered recurring
losses from operations which raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in note 2, page 54. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Description of Property
Amanda's corporate offices are located at 13765 Alton Parkway, Suite F,
Irvine, CA 92618. Amanda is committed through July 15, 2004 with monthly
payments $5,928.13 for approximately 4,961 square feet.
Amanda's national sales and support office is located at 100 Mill Plain
Road, Danbury CT. The term is a three year agreement leasing 2,184 square feet,
expiring January 31, 2005 with monthly payments as follows:
1. February 1, 2002 through January 31, 2004 - monthly payments of
$4,459.00
2. February 1, 2004 through January 31, 2005 - monthly payments of
$4,595.50
Employees
Amanda employs a total of 7 full time and no part time employees in the
corporate office and 9 full time employees outside of the corporate office.
23
Management
The Company's directors and executive officers, and their respective ages and
positions with the Company, are set forth below in tabular form. Biographical
information on each person is set forth following the tabular information. There
are no family relationships between any of the Company's directors or executive
officers. The Company's board of directors is currently comprised of six
members, each of whom is elected for a term of one year. Executive officers are
chosen by and serve at the discretion of the Board of Directors.
Name Age Position
Brian Bonar 54 Chairman of the Board, Chief
Executive Officer
Stephen J. Fryer 64 Director
David Woo 41 Director
E. Timothy Morgan 43 Director
Jose Candia (1) 53 Director
Bill Prevot (2) 58 Director
(1) Resigned April 1, 2002
(2) Resigned March 26, 2002
The officers and Directors of Amanda will devote only such time as they
deem appropriate in the business affairs of our Company. It is, however,
expected that the officers will devote the time deemed necessary to perform
their duties for the business of our Company. The amount of time devoted by each
director is discussed below.
The directors of Amanda are elected to hold office until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified.
Biographies Of Our Executive Officers And Directors
Stephen J. Fryer had served as Chief Executive Officer of the Company from 1999
to 2001 and has been a director of the Company since 1997. He served as Senior
Vice President of Sales and Marketing from October 1996 to October 1997. From
1989 to 1996, Mr. Fryer was a principal in Venting International, Ltd, an
Irvine, California based venture capital and private investment banking firm.
Mr. Fryer graduated from the University of Southern California in 1960 with a
Bachelors Degree in Mechanical Engineering and has spent over twenty-eight years
in the computer business in the United States, Asia and Europe.
Brian Bonar was appointed a director of the Company on November 30, 1999 and on
April 1, 2000 was appionted as the interim Chsirman of the Board and chief
Executive Officer. Mr. Bonar currently serves as CEO and President of Imaging
Technologies Corporation (ITEC) and has held this position since April 1998.
Prior to his appointment as CEO of ITEC, Mr. Bonar served in other capacities
with ITEC since August 1992. From 1991 to 1992 Mr. Bonar was Vice President of
Worldwide Sales and Marketing for Bezsier Systems, Inc. From 1990 to 1991 he was
Worldwide Sales Manager for Adaptec, Inc. From 1988 to 1990 Mr. Bonar was Vice
President of Sales and Marketing for Rastek Corporation. From 1984 to 1988 Mr.
Bonar was employed as Executive Director of Engineering at QMS, Inc. Prior to
these appointments, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
Jose Candia ,who resigned on April 1, 2002, was CEO, President and Chairman of
the Board. Mr. Candia was appointed a director of the Company on August 30,
2001. Mr. Candia currently most recently served as CEO and President of The
Amanda Company, Inc. He brought 20 years of experience in the telecommunications
and business arena. He was Senior V.P. of Sales and Operations for
Centrecom.com, a VOLP enterprise. Mr. Candia directed a sales force of over 250
individuals for AT&T Wireless/L.A. Cellular; managed the western regions of
Mitel, Intecom-Matra and United Technologies Communications; directed the
national sales efforts for Fujitsu Communications Company and managed overseas
for Warner-Lambert International. Mr. Candia has a business administration
degree from Northwood University, Midland, Michigan and a business management
degree from the Institoto Superior De Administracion Y Productividad in Lima,
Peru.
David Woo, director and past chairman, was appointed to the Board of the Company
on August 30, 2001. Mr. Woo was the Founder and past CEO of tAA. He received his
Bachelors Degree in Computer Science from Columbia College, Columbia University.
24
Bill Prevot, who resigned on March 26, 2002, was appointed a director of the
Company on August 30, 2001. Mr. Prevot recently served as Chief Operating
Officer of OhGolly.com. He brings more than eleven years of experience from AT&T
Wireless and the cellular telephone industry, where he has served as Vice
President of Customer Care, Chief Information Officer and Director of
Administration and Operations, overseeing staff expansion of over 300% to
accommodate the rapid growth of this division and customer responsiveness.
E. Timothy Morgan was appointed a director of the Company on August 30, 2001.
Mr. Morgan is a Founder and Senior Vice President of Advanced Research at Mr.
Morgan has over twenty years experience in computer programming and software
engineering. His work in concurrent software design includes software tools and
authoring of several publications explicitly for the analysis of concurrent
systems.
Information concerning our Board of directors and its Committees
Directors receive no cash remuneration at this time. All Amanda's
Directors are entitled to reimbursement of funds advanced to pay expenses in
connection with our Company's business. Amanda has a compensation committee.
Executive Compensation
Annual Compensation Long Term Compensation Awards
Payouts ________________________ ___________________________
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other Securities All
and Annual Restricted Underlying Other
Principal Compen Stock Options/ LTIP Compen
Position Year Salary Bonus sation($) Award($) Sar (#) Payouts($) sation ($)
------------------- ------ --------- -------- ---------- ---------- ----------- ---------- -----------
Stephen J. Fryer(1)
Past President/CEO 2001 $ 63,267 0 0 0 0 0 0
2001 $148,802 $ 4,116 0 0 0 0 0
1999 $139,000 $17,304
Jim Pendleton (2)
Chairman 1999 $139,666 0 0 0 0 0 0
Mehrdad Mobasseri (2)
President-InCirT 1999 $ 96,000 $89,282 0 0 0 0 0
Alan Weaver (2)
Vice President 1999 $100,000 $30,881 0 0 0 0 0
Jose Candia (3) 2001 $ 90,000 0 0 0 0 0 0
(1) Resigned in 2001
(2) Resigned in 1999/2000.
(3) Resigned April 1, 2002
Options/Sar Grants in Last Fiscal Year
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base
Name Granted Fiscal Year Price ($/Sh) Expiration Date
None granted
Aggregated Option/Sar Exercises
None Granted
Compensation of Directors: Directors receive no remuneration for their services
as directors at this time.
25
Certain Relationships and Related Transactions
The following information summarizes certain transactions, either engaged in
within the last two (2) years or, proposed to be engaged in, by the Company and
the individuals described.
Former officers and board members, James Pendleton and Wayne Wright reached a
modified settlement with the Company, per their management and deferred income
statements, by each accepting 250,000 warrants, priced at $0.65 per share, and
376,000 shares of common stock in place of monetary payments.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of the date of this Registration
Statement regarding certain Ownership of Amanda's outstanding Common Stock by
all officers and directors individually, all officers and directors as a group,
and all beneficial owners of more than five percent of the common stock. Unless
otherwise indicated, each stockholder's address is c/o the Company, 13765 Alton
Parkway, Suite F, Irvine, CA. 92618.
Name and Address Shares Owned Beneficially (1) Percent of Class
------------------ ---------------------------- ----------------
Steven Fryer 309,250 0 %
Brian Bonner 3,397,383 4.8%
E. Timothy Morgan 5,779,780 8.2%
David L Woo 8,307,788 11.8%
Officer/Director as a Group 10,337,358 25.3%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of the registration
statement upon the exercise of options or warrants. Each of the above beneficial
owner's percentage ownership is determined by including the options and/or
warrants that are held by such person and which are exercisable within 60 days
of the date of this registration statement. Unless otherwise indicated, the
company believes that all persons named in the table have voting and investment
power with respect to all shares of common stock beneficially owned by them.
Based on 70,351,927 post tAA merger shares.
26
Description of Securities
General
As of the date of this Registration Statement, the authorized capital
stock of Amanda consists of 500,000,000 shares of Common Stock, $.001 par value,
of which 34,921,976 shares are issued and outstanding as of March 15, 2002, plus
5,000,000 shares of preferred stock, $0.001 par value, of which 807 shares are
issued and outstanding. Post tAA merger shares outstanding would be 70,351,927.
Shares pursuant to the tAA merger agreement totaling 35,429,951 have not been
issued as of this filing. There are approximately 4,100 shareholders. The
following is a description of the securities of Amanda taken from provisions of
our Company's Articles of Incorporation and By-laws, each as amended. The
following description is a summary and is qualified in its entirety by the above
referenced provisions of the Articles of Incorporation and By laws as currently
in effect. The following description includes all material provisions of the
applicable sections of the underlying documents in the summary.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders, including the election of
directors. Accordingly, holders of a majority of shares of common stock entitled
to vote in any election of directors may elect all of the directors standing for
election if they chose to do so. The Articles of Incorporation does not provide
for cumulative voting for the election of directors. Holders of Common Stock
will be entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefore, and will be entitled to receive, pro rata, all assets of the Company
available for distribution to such holders upon liquidation. Holders of Common
Stock have no preemptive, subscription or redemption rights. All outstanding
shares of common stock are, and the shares offered hereby, upon issuance, will
be, fully paid and non assessable.
Preferred Stock
There are 5,000,000 shares of preferred stock, $0.01 par value
authorized. The Articles of Incorporation provide that the Preferred stock may
be issued from time to time in one or more series, the shares of each series to
have voting powers, full or limited, and such designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof as are stated and expressed herein or in the
resolution or resolutions providing for the issue of such series adopted by the
board of directors. There are 801 shares of Preferred Stock issued or
outstanding at this time.
Change in Control
There are no provisions in the Articles of Incorporation or Bylaws that
would delay, defer, or prevent a change in control of Amanda.
Penny Stock Disclosure Requirements:
See discussion in risk factor section, page 9, with the heading "Penny
Stock issues may be difficult for an investor to dispose of".
Warrants and Options:
On October 4, 2001 Amanda issued a total of 8,055,583 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an exercise
price equal to $.02 per share. These warrants expire October 4, 2006. The
Warrant provides that in no event shall the holder beneficially own more than
4.999% of our outstanding common stock.
27
On November 26, 2001 Amanda issued a total of 7,944,682 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an exercise
price equal to $.01 per share. These warrants expire November 26, 2006. The
Warrant provides that in no event shall the holder beneficially own more than
4.999% of our outstanding common stock.
On January 11, 2002, Amanda issued a total of 8,571,429 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an at an
exercise price per share equal to the lesser of (i) $.007 and (ii) the average
of the lowest three (3) trading prices during the thirty (30) trading days
immediately prior to exercise, discounted by 30%. The Warrant provides that in
no event shall the holder beneficially own more than 4.999% of our outstanding
common stock.
Five days after the effectiveness of this registration statement,
Amanda will issue additional common stock purchase warrants for the right to
purchase 8,571,429 shares of Common Stock of Amanda at an exercise price per
share equal to the lesser of (i) $.007 and (ii) the average of the lowest three
(3) trading prices during the thirty (30) trading days immediately prior to
exercise, discounted by 30%. These warrants will not have an expiration date.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this offering Amanda has 34,921,976 shares of Common
Stock outstanding. Amanda is obligated to issue 35,429,951 shares pursuant to
the tAA merger agreement. Sales of a substantial number of shares of our
Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. Amanda is registering
with this document 196,652,673 shares of common stock, all of which will be
freely tradable without restriction or further registration under the Securities
Act. This includes:
o 193,158,333 shares representing the conversion of the aggregate of
$1,970,000 plus interest of 7% and 8% debentures plus estimated
interest due.
o 3,494,339 shares underlying warrants to be registered in connection
with the convertible debenture purchase agreements shareholders.
SELLING SHAREHOLDERS
The table below sets forth information concerning the resale of shares
of Common Stock by the Selling Stockholders. We will not receive any proceeds
from the resale of the common stock by the Selling Stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the Selling Stockholders, none of the Selling Stockholders
will continue to own any shares of our Common Stock.
The following table also sets forth the name of each person who is
offering shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
Shares Beneficially Shares Shares Beneficially Owned
Owned Offered After Offering
Selling Prior to the For If All Offered
Stockholder Offering Sale Shares Are Sold
Number of Shares Percentage (20) Number of Shares Percentage
AMRO Int', Inc. (1)(2) 11,127,376 (17) 4.999% 20,256,667 (18) 0 0%
ALPHA Capital AG (3)(4) 11,127,376 (17) 4.999% 17,537,500 (18) 0 0%
Woo Young Kim (5) 10,816,667 4.86% 10,816,667 (18) 0 0%
Filter Int'l Corp (6) 11,127,376 (17) 4.999% 16,100,000 (18) 0 0%
George Furla (7) 10,666,667 4.79% 10,666,667 (18) 0 0%
Howard Schraub (8) 10,666,667 4.79% 10,666,667 (18) 0 0%
Stonestreet LP (9)(10) 11,127,376 (17) 4.999% 37,616,720 (19) 0 0%
Stonetreet Corp (11) 1,750,000 0.79% 1,750,000 (19) 0 0%
Bristol Investment Fund Ltd. (12)(13) 11,127 376 (17) 4.999% 63,028,572 (18) 0 0%
Alexander Dunham
Capital Group,Inc (14) 85,714 0.04% 85,714 0 0%
Austost Anstalt Schaan (15) 4,063,750 0.83% 4,063,750 (18) 0 0%
Balmore S.A (16) 4,063,750 0.83% 4,063,750 (18) 0 0%
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares which the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the conversion
of the debentures and exercise of the debenture warrants is subject to
adjustment depending on, among other factors, the future market price of the
common stock, and could be materially less or more than the number estimated in
the table.
28
No Selling Stockholder has held any position or office, or has had any
material relationship with us or any of our affiliates within the past three
years.
None of the selling shareholders are broker-dealers or affiliates of
broker-dealers.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Mr. H.U. Bachofen may be deemed the control person of the shares owned by
such entity. AMRO Int'l, Inc. is a private investment fund that is owned by
all its investors and managed by Mr. H.U. Bachofen.
(2) Independent third party who invested in our company through three
convertible notes, 1) on August 8, 2000 for $150,000, 2) on March 8, 2001
for $75,000 and 3) on November 19, 2001 for $50,000. The selling
shareholder is an "underwriter" within the meaning of Section 2(11) of the
Securities Act of 1933.
(3) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Mr. Konard Ackerman may be deemed the control person of the shares owned by
such entity. ALPHA Capital AG is a private investment fund that is owned by
all its investors and managed by Mr. Konard Ackerman.
(4) Independent third party who invested in our company through two convertible
notes, 1) on March 8, 2001 for $125,000 and 2) on November 19, 2001 for
$50,000. The selling shareholder is an "underwriter" within the meaning of
Section 2(11) of the Securities Act of 1933.
(5) Represents the underlying shares of a convertible note for $100,000 issued
on March 8, 2001.
(6) Represents the underlying shares of a convertible note for $150,000 issued
on April 14, 2001. Mr. Allen Davis is the control person for Filter
International
(7) Represents the underlying shares of a convertible note for $100,000 issued
on July 9, 2001.
(8) Represents the underlying shares of a convertible note for $100,000 issued
on July 16, 2001.
(9) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Mr. Michael Finkelstein may be deemed a control person of the shares owned
by such entity. Stonestreet L.P. is a private investment fund that is owned
by all its investors and managed by Ms. Libby Leonard.
(10) Independent third party who invested in our company through two convertible
notes issued on October 6, 2001 for $250,000 plus 8.055,843 warrants, and
on November 26, 2001 for $200,000 plus 6,444,682 warrants (showing as
644,468 as a result of the 10 to 1 reverse split). The selling shareholder
is an "underwriter" within the meaning of Section 2(11) of the Securities
Act of 1933.
(11) Represents the underlying shares of a convertible note for $20,000 plus
1,500,000 warrants (showing as 150,000 as a result of the 10 to 1 reverse
split) issued on November 19, 2001. Michael Finkelstein is the control
person for Stonestreet Corporation.
(12) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Mr. Paul Kessler and Ms. Diana Kessler may be deemed the control person of
the shares owned by such entity. Bristol Investment Fund, Ltd is a private
investment fund that is owned by all its investors and managed by Bristol
DLP. LLC. Bristol DLP. LLC, of which Mr. Paul Kessler and Ms. Diana Kessler
are the fund managers, has investment control over the shares listed by
Bristol Investment Fund, Ltd.
29
(13) Independent third party who invested in our January 12, 2002 bridge
financing. In connection with our bridge financing of $300,000, we issued
convertible debentures and warrants to purchase 8,571,429 (showing as
857,143 as a result of the 10 to 1 reverse split) shares of our common
stock. The selling shareholder is an "underwriter" within the meaning of
Section 2(11) of the Securities Act of 1933.
(14) Represents 857,143 warrants issued on January 12, 2002, showing as 85,714
as a result of the 10 to one reverse split. Diana Kessler is the registered
representative for Alexander Dunham.
(15) Represents the underlying shares of a convertible note for $37,500 plus
75,000 warrants (showing as 7,500 as a result of the 10 to one reverse
split) issued on August 24, 2000.
(16) Represents the underlying shares of a convertible note for $37,500 plus
75,000 warrants (showing as 7,500 as a result of the 10 to one reverse
split) issued on August 24, 2000. Giselo Kindle is the control person for
Balmore S.A.
(17) Includes the right to shares of our common stock subject to the 4.999%
limitation, upon conversion of its debentures and exercise of its warrants.
(18) Pursuant to the Registration Rights Agreement between us and the debenture
holders, we are required to register such number of shares of common stock
equal to the sum of (i) 200% of the number of shares of common stock
issuable upon conversion in full of their debentures, assuming for such
purposes that all interest is paid in shares of our common stock, that the
Debentures are outstanding for one year and that such conversion occurred
at a price as specified in the debentures respective agreements and (ii)
the number of shares of Common Stock issuable upon exercise in full of the
warrants. As a result of the contractual agreement not to exceed 4.99%
beneficial ownership, the selling shareholder does not believe it is a
control person as defined in the Securities Exchange Act of 1934 or is
required to file a Schedule 13D.
(19) Pursuant to the Registration Rights Agreement between us and the debenture
holders, we are required to register such number of shares of common stock
equal to the sum of (i) 150% of the number of shares of common stock
issuable upon conversion in full of their debentures, assuming for such
purposes that all interest is paid in shares of our common stock, that the
Debentures are outstanding for one year and that such conversion occurred
at a price as specified in the debentures respective agreements and (ii)
the number of shares of Common Stock issuable upon exercise in full of the
warrants. As a result of the contractual agreement not to exceed 4.99%
beneficial ownership, the selling shareholder does not believe it is a
control person as defined in the Securities Exchange Act of 1934 or is
required to file a Schedule 13D.
(20) Percentages are based on 222,592,036 shares of our common stock outstanding
(includes the shares in this Offering) as of this offering.
30
Plan of Distribution
The selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market, or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. There is no assurance that the selling stockholders
will sell any or all of the common stock in this offering. The selling
stockholders may use any one or more of the following methods when selling
shares:
o Ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers.
o Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction.
o Purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account.
o An exchange distribution following the rules of the applicable exchange
o Privately negotiated transactions
o Short sales or sales of shares not previously owned by the seller
o Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share
o A combination of any such methods of sale any other lawful method
The selling stockholders may also engage in:
o Short selling against the box, which is making a short sale when the seller
already owns the shares.
o Other transactions in our securities or in derivatives of our securities
and the subsequent sale or delivery of shares by the stockholder.
o Pledging shares to their brokers under the margin provisions of customer
agreements. If a selling stockholder defaults on a margin loan, the broker
may, from time to time, offer to sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from selling stockholders in amounts to be negotiated.
If any broker-dealer acts as agent for the purchaser of shares, the
broker-dealer may receive commission from the purchaser in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be considered to be "underwriters" within the
meaning of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
Because the following selling shareholders are "underwriters" within
the meaning of Section 2(11) of the Securities Act, they will be subject to the
prospectus delivery requirements:
o AMRO Int'l Inc.
o ALPHA Capital, AG.
o Stonestreet LP
o Stonestreet Corp.
o Bristol Investment Fund Ltd.
o Alexander Dunham Capital Group, Inc.
o Balmore S.A.
31
We are required to pay all fees and expenses incident to the
registration of the shares in this offering. However, we will not pay any
commissions or any other fees in connection with the resale of the common stock
in this offering. We have agreed to indemnify the selling shareholders and their
officers, directors, employees and agents, and each person who controls any
selling shareholder, in certain circumstances against certain liabilities,
including liabilities arising under the Securities Act. Each selling shareholder
has agreed to indemnify the Company and its directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
If we are notified by the selling stockholder that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
Legal Proceedings
1. On October 28, 1999 Color Savvy Systems, Ltd., filed suit to recover
$165,750 in past due uncontested vendor obligations. On February 16, 2000,
Color Savvy obtained a judgment against the Company for $165,750. No
payments were made during fiscal 2001. The Company is still attempting to
negotiate a final settlement.
2. On February 15, 2000, Amistar Corporation filed suit against the Company to
recover $95,733 in uncontested past due vendor obligations. Amistar has
accepted and received 31,912 shares of Company stock on September 20,2000
as payment in full of debt.
3. On March 21, 2000, Interworks Computer Products, Inc., filed suit to
recover $35,771 in past due uncontested vendor obligations. Interworks
received 11,924 shares of stock in January 2001 as settlement of all
amounts due.
4. On July 22, 2000, Force Electronics filed suit to recover $68,816 in past
due uncontested vendor obligations, and obtained a judgment on September
15, 2000. Force received 23,316 shares of common stock in January 2001 as
full settlement of this obligation.
5. Control Design Supply/Nedco filed suit to recover $6,788 in past due
uncontested vendor obligations. The company paid off this judgement during
fiscal 2000.
6. On March 20, 2000, DHL Airways Inc. obtained a judgment in the amount of
$3,868 for past due uncontested vendor obligation. This suite was settled
in March 2001 for 769 shares of the Company's stock.
7. On April 5, 2001, Sony Recording Media Products obtained a judgment against
the company in the amount of $35,000. This suit was settled for cash with a
final payment made in February 2002.
8. On November 15, 1999, Alan L. Weaver, former CEO of Pen Interconnect, Inc.,
obtained a judgment against the Company in the amount of $118,500 for
breach of a settlement agreement relative to Mr. Weavers' employment
agreement with the Company. The Company has reserved $135,300 for this
agreement, which includes interest from the date of the judgment. The
settlement calls for monthly payments of $3,500. To date, the Company has
made payments totaling $8,500.
Experts
Pen Interconnect financial statements as at September 30, 2001 and 2000
and for the years ended September 30, 2001 and 2000 included in this prospectus
have been audited by Pohl, McNabola, Berg & Co. LLP, independent public
accountants, as stated in their report also included herein and has been
included in reliance upon such opinion, and upon their authority as experts in
accounting and auditing.
The Automatic Answer's (tAA) financial statements as at December 31,
2000 and 1999 and for the years ended December 31, 2000 and 1999 included in
this prospectus have been audited by Pohl, McNabola, Berg & Co. LLP, independent
public accountants, as stated in their report also included herein and has been
included in reliance upon such opinion, and upon their authority as experts in
accounting and auditing.
Legal Matters
Legal matters concerning the validity of the issuance of shares of
common stock offered in this registration statement was passed upon by Naccarato
& Associates, Owen Naccarato, Esq. does not beneficially own any shares of the
company.
32
Other available information
Amanda is subject to the reporting requirements of the Securities and
Exchange Commission (the "commission"). We file periodic reports, proxy
statements and other information with the commission under the Securities
Exchange Act of 1934.
Amanda has filed a registration statement on Form SB-2 under the
Securities Act of 1933 Act with the Commission in connection with the securities
offered by this prospectus. You may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribe rates. Information about the
public reference room is available from the commission by calling
1-800-SEC-0330.
The commission maintains a web site on the Internet that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the commission. The address of the site is
www.sec.gov. Visitors to the site may access such information by searching the
EDGAR archives on this web site.
Indemnification
The Certificate of Incorporation of the Company provides that all
directors, officers, employees and agents of the Company shall be entitled to be
indemnified by the Company to the fullest extent permitted by law. The
Certificate of Incorporation also provides as follows:
The corporation shall, to the fullest extent permitted by the Act, as
the same may be amended and supplemented, indemnify all directors, officers,
employees, and agents of the corporation whom it shall have power to indemnify
thereunder from and against any and all of the expenses, liabilities, or other
matters referred to therein or covered thereby. Such right to indemnification or
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee, or agent of the corporation, and shall inure to the
benefit of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any bylaw, agreement, vote of stockholders or
of disinterested directors or otherwise. The corporation shall have the right to
purchase and maintain insurance on behalf of its directors, officers, and
employees or agents to the full extent permitted by the Act, as the same may be
amended or supplemented.
33
Commission Policy
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
Financial Statements
Our Financial Statements begin on page 35
34
Consolidated Financial Statements of
The Amanda company
September 30, 2001 and 2000
December 31, 2001 and 2000
Index To Audited Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 2001 and 2000
Consolidated Statements of Loss for the years ended September 30, 2001 and 2000
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss for the years ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended September 30, 2001
and 2000
Notes to Consolidated financial Statements
Index To Unaudited Financial Statements
Unaudited Consolidated Balance Sheets as of December 31, 2001 and September 30,
2001 Unaudited Consolidated Statements of Loss for the Quarters ended December
31, 2001 and 2000
Unaudited Consolidated Statement of Stockholders' Deficiency and Comprehensive
Loss for the Quarter ended December 31, 2001
Unaudited Consolidated Statements of Cash Flows for the Quarters ended
August 31, 2001 and 2000
Notes to Unaudited Consolidated financial Statements
Continued on next page -
Consolidated Financial Statements of
THE AUTOMATIC ANSWER
(formerly Pen Interconnect, Inc.)
December 31, 2000 and 1999
Index To Audited Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Loss for the years ended December 31, 2000 and 1999
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss for the years ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2000
and 1999
Notes to Consolidated financial Statements
Consolidated Proforma Financial Statements of
The Automatic Answer and Pen Interconnect, Inc.
September 30, 2001 and 2000
Index To Unaudited Financial Statements
Consolidated Proforma Balance Sheets as of September 30, 2001 and 2000
Consolidated Proforma Statements of Loss for the years ended September 30, 2001
and 2000
Proforma Consolidated Statements of Cash Flows for the year ended
September 30, 2001
Pen Interconnect, Inc.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2001 AND 2000
PEN INTERCONNECT, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Page
Report of Independent Auditors.......................................39
Balance Sheets.......................................................40
Statements of Operations and Retained Earnings....................41-42
Consolidated Statement of Stockholders Equity ....................43-44
Statements of Cash Flows..........................................45-47
Notes to Financial Statements.....................................48-69
Report of Independent Auditors
Board of Directors
Pen Interconnect, Inc.
Irvine, California
We have audited the accompanying balance sheets of Pen Interconnect, Inc., a
Utah Corporation, as of September 30, 2001 and 2000, and the related statements
of operations, stockholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the management of Pen
Interconnect, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pen Interconnect, Inc. as of
September 30, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations.
The Company has a stockholders' deficit of ($2,313,110) and ($1,977,041) and its
current liabilities exceeded its current assets by $817,888 and $972,729 as of
September 30, 2001 and 2000, respectively. These factors, among others, as
discussed in Note 2 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/Pohl, McNabola, Berg & Company LLP
San Francisco, California
January 11, 2002
Pen Interconnect, Inc.
BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 AND 2000
ASSETS
2001 2000
----------------------------------
Current assets:
Cash and cash equivalents (Note 1) $ 6,839 $ 9,319
----------------------------------
----------------------------------
Total Current Assets 6,839 9,319
----------------------------------
Property and equipment, net of accumulated depreciation (Note 1) - 874
Discontinued operations - 9,605
----------------------------------
Total assets $ 6,839 $ 19,798
==================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable 176,017 200,751
Accrued liabilities 648,710 781,296
----------------------------------
Total current liabilities 824,727 982,047
Convertible debentures 800,000 150,000
Advances payable 40,000 -
----------------------------------
Total non-current liabilities 840,000 150,000
Liabilities from discontinued operations 655,222 864,791
----------------------------------
Total liabilities 2,319,949 1,996,838
Stockholders deficit:
Convertible preferred stock, $.01 par value, authorized 5,000,000
shares Series A, issued and outstanding, 91 shares in 2001
and 130 shares in 2000 1 1
Series B, issued and outstanding, 886 shares in 2001
and 926 shares in 2000 9 9
Common stock, $.01 par value, authorized 50,000,000 shares
issued and outstanding 49,873,603 shares in 2001
and 27,596,946 shares in 2000 498,736 275,969
Additional paid in capital 20,008,060 19,282,402
Accumulated deficit (22,819,916) (21,535,421)
----------------------------------
Total stockholders' deficit (2,313,110) (1,977,040)
----------------------------------
Total liabilities and stockholders' deficit $ 6,839 $ 19,798
==================================
The accompanying notes are an integral part of
these financial statements.
39
Pen Interconnect, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
------------------- ---------------------
Revenues:
Net revenues (Note 1) $ - $ -
Costs of revenues - -
------------------- ---------------------
- -
------------------- ---------------------
General and administrative expenses 951,355 1,733,596
Depreciation 874 103
------------------- ---------------------
Loss from operations 952,229 1,733,699
Other income and expense
Interest (income) expense 33,048 358,195
Acquisition Expense 461,200 -
Loss on impairment 63,000 320,500
Loss on lawsuit - 135,300
Liquidation damage waiver - 86,941
------------------- ---------------------
Total other income and expense 557,248 900,936
Loss from continuing operations before income taxes 1,509,477 2,634,635
Income Taxes 800 900
------------------- ---------------------
Loss from continuing operations 1,510,277 2,635,535
(Gain) loss from discontinued operations, net of taxes of $-0-
InCirT (65,851) -
Powerstream - 269,356
------------------- ---------------------
Total (gain) loss from discontinued operations (65,851) 269,356
(continued)
The accompanying notes are an integral part of
these financial statements.
40
Pen Interconnect, Inc.
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
------------------------------------
Loss from foreclosed segment:
InCirT - 228,471
(Gain) loss from disposal of discontinued operations, net of
taxes of $-0-
Powerstream - 963,027
InCirT - (186,643)
------------------------------------
Total loss from disposal of discontinued operations - 776,384
Total (gain) loss from discontinued operations (65,851) 1,274,211
------------------------------------
Net loss before extraordinary item 1,444,426 3,909,746
------------------------------------
Extinguishment of debt (149,642) (2,018,547)
Net loss $ 1,294,784 $ 1,891,199
====================================
Earnings per share, basic and fully diluted:
Loss before discontinued items and extraordinary item $ (0.03) $ (0.14)
Loss from discontinued items - (0.07)
------------------------------------
Loss before extraordinary item (0.03) (0.21)
------------------------------------
Extinguishment of debt - 0.11
------------------------------------
Net loss per share $ (0.03) $ (0.10)
====================================
Shares used in per share calculation - basic and fully diluted 37,701,171 18,556,461
====================================
The accompanying notes are an integral part of
these financial statements.
41
Pen Interconnect, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Retained
Common Preferred Additional earnings
Stock Stock paid-in (accumulated
Shares Amount Shares Amount Capital deficit) Total
------------- ------------------------------- -------------------------------------
Balance September 30, 1999 9,638,114 $ 96,381 2,800 $ 28 $ 17,447,876 $ (19,354,413) $(1,810,128)
------------- ----------------------------------------------------------------------
Conversion of Preferred Stock -
Series B 411,112 4,111 (74) (1) (4,111) (1)
Conversion of Preferred Stock -
Series A 9,057,654 90,577 (1,670) (17) (90,577) (17)
Common stock issued in lieu of
preferred stock dividend payable 349,323 3,493 61,088 64,581
Compensation expense recognized
on repricing of options and
warrants 339,822 339,822
Conversion of warrants - Preferred
Stock Series A into common stock 315,000 3,150 83,792 86,942
Exercise of stock options 1,150,000 11,500 254,941 266,441
Exercise of warrants 2,766,668 27,667 273,451 301,118
Common stock issued for services 1,760,193 17,602 416,372 433,974
Conversion of trade payables and debt
into common stock 1,061,747 10,617 250,655 261,272
Sale of common stock 1,087,135 10,871 206,843 217,714
Dividends on Preferred Stock (289,809) (289,809)
Stock options granted as compensation 42,250 42,250
Net loss (1,891,199) (1,891,199)
------------- ----------------------------------------------------------------------
Balance September 30, 2000 27,596,946 $275,969 1,056 $ 10 $19,282,402 $ (21,535,421) $(1,977,040)
============= ======================================================================
The accompanying notes are an integral part of
these financial statements.
42
Pen Interconnect, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Retained
Common Preferred Additional earnings
Stock Stock paid-in (accumulated
Shares Amount Shares Amount Capital deficit) Total
--------------------------------------- ---------------------------------------
Balance September 30, 2000 27,596,946$ 275,969 1,056 $ 10 $ 19,282,402 $(21,535,421)$ (1,977,040)
-------------------------------------------------------------------------------
Conversion of Preferred Stock - Series B 1,617,648 16,177 (40) - (16,177) -
Conversion of Preferred Stock - Series A 1,667,039 16,670 (39) - (16,670) -
Exercise of options 346,000 3,460 40,882 44,342
Exercise of warrants 16,102,251 161,023 483,162 644,185
Common stock issued for services 683,950 6,840 21,920 28,760
Conversion of trade payables and debt
into common stock 760,178 7,602 15,776 23,378
Stock granted as compensation 1,100,000 11,000 33,000 44,000
Compensation expense granted on options and
warrants 163,765 163,765
Preferred dividend adjustment 10,289 10,289
Other (409) (4) (4)
Net loss (1,294,784) (1,294,784)
-------------------------------------------------------------------------------
Balance September 30, 2001 49,873,603$ 498,736 977 $ 10 $ 20,008,060 $(22,819,916)$ (2,313,110)
===============================================================================
The accompanying notes are an integral part of
these financial statements.
43
Pen Interconnect, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF SEPTEMBER 30, 2001 AND 2000
2001 2000
------------------ ------------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (1,294,784) $ (1,891,199)
Adjustments to reconcile net loss to net cash used .
in operating activities
Depreciation and amortization 874 90,514
Allowance for note receivable - 320,500
Common stock issued for services 28,760 433,974
Compensation expense granted on options and warrants 163,765 -
Extinguishment of debt - (2,018,547)
Conversion of warrants - 86,941
Debt conversion to common stock 23,378 261,272
Common stock issued for dividends payable - 64,581
Common stock issued in lieu of compensation 44,000 -
Stock options issued for services at below the fair market value
of the stock on the date of the grant and repricing of options - 382,071
Discontinued operations
Loss on sale of divisions - (186,643)
Loss on foreclosure of division - 963,027
Changes in assets and liabilities
Trade accounts receivable - 790,429
Inventories - 1,300,987
Prepaid expenses and other current assets 9,605 9,171
Accounts payable (234,303) 1,861,945
Accrued liabilities (132,586) (141,401)
------------------ ------------------
Cash flow generated by (used in) operating activities (1,391,292) 2,327,622
------------------ ------------------
Cash flow from investing activities:
Advances to perFORMplace - 320,500
Collections of notes receivable - (374,567)
Proceeds from sale of divisions - 75,689
----------------------------------------
Net cash generated by investing activities - 21,622
----------------------------------------
(continued)
The accompanying notes are an integral part of
these financial statements.
44
Cash flow from financing activities:
Issuance of preferred stock - (18)
Proceeds from issuance of common stock - 217,714
Proceeds from convertible debenture 650,000 150,000
Proceed from advances 40,000
Net change in line of credit - (1,840,467)
Net change in long-term debt obligations - (1,611,010)
Preferred dividends adjustment 10,285 -
Exercise of warrants 644,185 301,117
Exercise of stock options 44,342 266,440
------------------------------------
Net cash provided (consumed) in financing activities 1,388,812 (2,516,224)
------------------------------------
Net (decrease) in cash and cash equivalents (2,480) (166,980)
------------------------------------
Cash and cash equivalents at beginning of year 9,319 176,299
------------------------------------
Cash and cash equivalents at end of year $ 6,839 $ 9,319
====================================
Supplementary disclosures of cash flow information
Cash paid during the year for
Interest $ - $ 360,296
Income taxes $ 800 $ 900
Sale of Division
On January 21, 2000, the Company sold substantially all of the assets
and certain liabilities of its Powerstream division (Note 3, 9)
noted as follows:
Cash $ -
Accounts receivable, net 142,017
Inventories 74,262
Note Receivable 9,017
Property, equipment and leaseholds, net 69,229
Accounts Payable (166,661)
Unearned revenue (216,000)
Note payable (14,820)
Capital leases (7,998)
------------------
Net gain on sale of Division (110,954)
Less consideration received
Note receivable $ -
Cash 75,689
------------------
(Gain) on sale of division $ (186,643)
==================
The accompanying notes are an integral part of
these financial statements.
45
Foreclosure of Division
On March 3, 2000, the Company's InCirT Division was foreclosed and
substantially all of the assets and liabilities were turned over to a
secured lender (Note 3, 9). The value of the assets and liabilities
transferred were as follows:
Accounts receivable, net $ 2,038,322
Inventories 2,875,412
Notes receivable 299,662
Property, equipment and leaseholds, net 959,758
Accounts payable (2,614,032)
Other debt obligations (2,596,095)
-----------------------
Loss on foreclosure of division $ (963,027)
=======================
Conversion of debt and trade payables
During 2001, debt and trade payables in the amount of $23,378 were
converted in to 760,178 shares of common stock. During fiscal year 2000,
debt and trade payables in the amount of $261,272 were converted into
1,061,747 shares of common stock.
2001 2000
------------------- -------------------
The following are the other non-cash charges to common stock:
Conversion of preferred stock into common stock $ $ (18)
Common stock issued in lieu of dividends payable 64,581
Conversion of warrants-preferred stock into common stock 86,941
Common stock issued and warrants converted for services 151,395 433,974
Common stock issued for compensation 44,000 -
Compensation expense on stock options 163,765 -
Compensation expense on repricing of options and warrants - 339,822
The accompanying notes are an integral part of
these financial statements.
46
1. Organization and Summary of Significant Accounting Principles
Organization
Pen Interconnect, Inc. ("the Company" or "Pen") was incorporated on September
30, 1985, in the State of Utah. Through March 3, 2000, the date of foreclosure
of its last operating division, the Company was a total interconnection solution
provider offering custom design and manufacturing of circuit boards, battery
chargers, power supplies and uninterrupted power supply systems for original
equipment manufacturers. Most of the Company's sales, before the closure of its
operating divisions, consisted of printed circuit boards.
The Company experienced severe cash flow problems for several years and in an
attempt to satisfy the demands of its creditors, sold three of its operating
divisions, noted as follows:
Division Name Date Sold
--------------------------- -------------------------
Cable Davison January 31, 1999
MOTO-SAT September 30, 1999
Powerstream January 21, 2000
On March 3, 2000 the Company and its secured asset based lender, Finova Capital,
entered into a voluntary foreclosure in which all the assets in the Company's
last remaining division, InCirt, was transferred to Finova to satisfy the
revolving credit and term loans held by the bank In a subsequent agreement,
dated May 31, 2001 Finova Capital and Pen Interconnect agreed to a final
settlement of all claims between them.
During the second quarter of FY2000, the Company announced a change in its
strategic direction and began seeking merger candidates with new technologies.
On March 29, 2000, the Company announced the signing of a letter of intent to
acquire perFORMplace.com, a privately held Internet provider of electronic
business-to-business services to the entertainment industry. On November 11,
2000, perFORMplace.com informed the Company that it had decided not to pursue
the merger.
The Company subsequently signed a merger agreement with the The Automatic
Answer, Inc. ("tAA"). tAA, a distributor of voice mail systems, has developed a
client service based software products that are used in a Microsoft Window's
environment. The Company's products include voice mail, automated attendant,
call control, messaging and voice over Internet. The merger with tAA was
effective October 1, 2001.
Basis of Presentation
The financial statements include the corporate operations of Pen Interconnect as
continuing operations. All the remaining activity from the Company's prior
operating divisions, including Cable, MOTO SAT, Powerstream and InCirt have been
disclosed as discontinued operations in the financial statements for the years
ended September 30, 2000 and 2001. During 2001, activity from discontinued
operations was limited to the settlement of accounts payable.
The accompanying notes are an integral part of
these financial statements.
47
1. Organization and Summary of Significant Accounting Principles (continued)
Basis of Presentation (continued)
Transactions related to the October 1, 2001 merger with tAA consist solely of
advances from the Company to tAA to cover tAA's operating expenses during the
pre-merger period. These advances have been expensed as acquisition expense.
Cash, Cash Equivalents and Short-Term Investments
The Company considers cash on hand, cash in banks, certificates of deposits and
time deposits with original maturities of three months or less when purchased as
cash equivalents. Short-term investments are investments with original maturity
greater than ninety days and less than one year.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for additions and
major improvements are capitalized. Expenditures for repairs and maintenance and
minor improvements are charged to expense as incurred. Gains or losses from
retirements and disposals are recorded as other income or expense.
Property and equipment are depreciated over their estimated useful lives.
Leasehold improvements and assets financed under capital leases are amortized
over their estimated useful lives or the lease term, whichever is shorter.
Depreciation and amortization are calculated using straight-line and accelerated
methods over the following estimated useful lives:
Years
-------------
Production equipment 5-6
Furniture and fixtures 10
Transportation equipment 10
Leasehold improvements 5
The accompanying notes are an integral part of
these financial statements.
48
1. Organization and Summary of Significant Accounting Principles (continued)
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
Financial Instruments
Cash and cash equivalents, trade accounts payable, and accrued
liabilities are reflected in the financial statements at cost that approximates
fair value.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan based on Accounting
Principles Board ("APB") Opinion No. 25. In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company has determined that it will not change to
the fair value method and will continue to use APB Opinion No. 25 for
measurement and recognition of any expense related to employee stock based
transactions.
In March 2000, the FASB released Interpretation No.44, " Accounting for Certain
Transactions Involving Stock Compensation." This Interpretation addresses
certain practice issues related to APE Opinion No.25. The provisions of this
Interpretation are effective July 1, 2000, and except for specific transactions
noted in paragraphs 94-96 of this Interpretation, shall be applied prospectively
to new awards, exchanges of awards in business combinations, modifications to an
outstanding award, and exchanges in grantee status that occur on or after that
date.
Certain events and practices covered in this Interpretation have different
application dates, and events that occur after an application date but prior to
July 1, 2000, shall be recognized only on a prospective basis. Accordingly, no
adjustment shall be made upon initial application of the Interpretation to
financial statements for periods prior to July 1, 2000. Thus, any compensation
cost measured upon initial application of this Interpretation that is attributed
to periods prior to July 1, 2000 shall not be recognized. The Company has
adopted the provisions of this Interpretation starting July 1,2000.
The accompanying notes are an integral part of
these financial statements.
49
1. Organization and Summary of Significant Accounting Principles (continued)
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") which establishes standards for
reporting and display of changes in equity from non-owner sources in the
financial statements. The Company does not have any components of comprehensive
income in 2001 or 2000.
Valuation of Long-lived Assets
The Company periodically evaluates the carrying value of long-lived assets to be
held and used, including intangible assets, when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated discounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
are reflected in the financial statements at fair value because of the
short-term maturity of these instruments. Because of the unique aspects of the
subordinated debentures and long-term debt, fair values cannot readily be
determined.
Revenue Recognition
Sales are generally recorded when products are shipped or when services are
rendered.
Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America necessarily
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Significant estimates include
allowance for doubtful accounts, inventory obsolescence, estimated lives for
fixed assets, goodwill and intangibles, the liabilities posed by lawsuits and
collection of contingent assets. Actual results could differ from these
estimates.
The accompanying notes are an integral part of
these financial statements.
50
1. Organization and Summary of Significant Accounting Principles (continued)
Advertising
The Company did not incur any significant amount of advertising expenses.
Earnings per share
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the period.
Diluted earnings per common share incorporate the incremental shares issuable
upon the assumed exercise of stock options and warrants.
Certain of The Company's stock options were excluded from the calculation of
diluted earnings per share because they were antidilutive, but these options
could be dilutive in the future.
Segment and geographic information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires enterprises to report
information about operating segments in annual financial statements and selected
information about reportable segments in interim financial reports issued to
shareholders, on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. It also
established standards for related disclosures about products and services,
geographic areas and major customers. Segment disclosures have been provided for
discontinued operations.
Recent pronouncements
In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement No. 133, "Accounting for the Derivative Instruments and Hedging
Activities". The Statement will require The Company to recognize all derivatives
on the balance sheet at fair value. This statement is effective for fiscal years
beginning after June 15, 2000, and has been adopted by The Company for the years
ending September 30, 2001 and 2000. The management does not anticipate that the
adoption of the new Statement will have a significant effect on The Company's
revenues and earnings, as The Company currently does not have any derivative
instruments.
The FASB issued SFAS No. 131 on "Disclosures about Segments of an Enterprise and
Related Information" effective in 1998. The Company evaluated SFAS No. 131 and
determined that the Company operates in only one segment.
The accompanying notes are an integral part of
these financial statements.
51
1. Organization and Summary of Significant Accounting Principles (continued)
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141") and
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but instead tested for
impairment at least annually in accordance with the provisions of FAS No. 142.
FAS No. 142 will also require that intangible assets with definite lives be
amortized over their respective useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001. The Company will continue to amortize
goodwill existing at September 30, 2001 until the new standard is adopted and
test goodwill for impairment in accordance with SFAS No. 121. The Company is
currently evaluating the effect that adoption of the provisions of FAS No. 142
will have on its results of operations and financial position.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires liability recognition for obligations
associated with the retirement of tangible long-lived asset and the associated
asset retirement costs. The Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with earlier application
encouraged. The implementation of SFAS No. 143 will not have a material affect
on the Company's results of operations or financial position.
In August 2001, the FASB issued SFAFS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", in that it removes goodwill from its impairment scope and
allows for different approaches in cash flow estimation. However, SFAS No. 144
retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of. SFAS No. 144 also supersedes the business
segment concept in APB opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," in
that it permits presentation of a component of an entity, whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of APB Opinion No. 30 to report discontinued operations
separately from continuing operations. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 with earlier application encouraged. Implementation of SFAS
No. 144 will not have a material effect on the Company's results of operations
or financial position.
Reclassifications
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation. Such reclassifications had no effect on net
income as previously reported.
The accompanying notes are an integral part of
these financial statements.
52
2. Financial Results and Liquidity
The Company has incurred net losses of $1,294,784, $1,891,199, in 2001 and 2000,
respectively. In addition, the Company has a stockholders' deficit of $2,313,110
and $1,977,041 and a working capital deficit of $817,888 and $972,729 as of
September 30, 2001 and 2000, respectively. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's operations, including its combined operations with tAA once the
merger becomes effective, continue to generate operating losses and to use
rather than provide cash flow. The Company has issued common stock, preferred
stock, debentures and convertible debt in exchange for cash and services to
provide the necessary resources and working capital to help meet its strategic
goals and to meet its current obligations.
While the Company continues to seek additional equity capital, there
can be no assurance that The Company will be successful. Without an infusion of
sufficient additional capital, the Company will not be able to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary should The Company be unable to continue as a going concern.
3. Disposition of Operating Divisions
Cable Division
Effective January 31, 1999, the Company sold substantially all of the assets and
certain of the liabilities of its Cable Division to Cables To Go, Inc (CTG). Net
assets of $2,732,059 were sold for $1,075,000 in cash and a royalty payment
contingent upon the future revenues of the Cable Division. $150,000 of the
royalty payment was guaranteed and has been recorded by the Company as a note
receivable from CTG. CTG agreed to use and compensate the Company for an
additional $558,747 of the net assets contingent upon certain of its future
operating needs. The Company originally recorded a loss of $948,312 upon
disposition of the Cable Division but has adjusted the loss to $1,507,059 based
on its determination that CTG will not use nor compensate the Company for the
additional $558,747 of net assets.
MOTO-SAT Division
Effective September 30, 1999, the Company sold substantially all of the assets
and liabilities of its MOTO-SAT Division to James Pendleton, the Company's
former CEO and Chairman. The net assets of $68,438 were sold in exchange for Mr.
Pendleton's agreement to waive any claim to post-employment, deferred
compensation, or retirement benefits. The Company recognized a loss of $68,438
upon disposition of the MOTO-SAT Division.
The accompanying notes are an integral part of
these financial statements.
53
3. Disposition of Operating Divisions (continued)
Powerstream Division
Effective January 21, 2000, the Company sold substantially all of the assets and
liabilities of its Powerstream Division to Lund Instrument Engineering, Inc. The
net assets of $ (110,954) were sold for cash of $75,689 plus a royalties ranging
from 8% to 16% of the gross profits generated by the sale of certain products
for a period of three years subsequent to the sale subject to certain
adjustments. The Company recognized a gain of $186,643 upon the disposition of
the PowerStream division. Cash proceeds were used to pay down a note due to a
secured lender.
InCirt Division
The Company had been operating under a default notice with its asset-based
lender, Finova Capital, since September 1999, when the Company began seeking
buyers for its two remaining divisions PowerStream and InCirT. In February of
2000, a Letter of Intent to sell the InCirT division to another contract
manufacturer was terminated. The Company then solicited a competitor to purchase
most of the assets and to negotiate a supplier agreement with the Company's
largest account as part of a voluntary foreclosure of all the remaining assets
of the Company, for which Finova had a perfected security interest. The Company
recognized a loss of $963,027 during 2000 resulting from the foreclosure of the
InCirT division.
4. Concentrations
Financial instruments that potentially subject The Company to concentration of
credit risk include cash deposits in excess of FDIC limits and short-term
investments. The Company restricts investment of cash balances to financial
institutions with high credit standing.
5. Investment in tAA
The Company concluded a merger agreement with The Automatic Answer, Inc. (tAA),
a distributor of voice mail systems and other telephone products, on April 13,
2001. Under the agreement, the Company will give up sixty-seven percent (67%) of
its shares to acquire tAA subject to the adjustment, noted below. Certain of
tAA's debt holders are to convert their outstanding notes to a new class of
preferred shares within 120 days after the close of the transaction.
The number of shares that the Company will give to tAA will be adjusted if the
average closing price of the Company's stock, in the aggregate, for the 60 days
after the close of the transaction, falls below $10,000,000.
The accompanying notes are an integral part of
these financial statements.
54
5. Investment in tAA (continued)
As part of the transaction, the Company made several loans to tAA totaling
$461,200. The loans were used to fund tAA's pre-merger cash flow.
The merger was effective October 1, 2001 and these loans are eliminated upon the
consolidation of the two companies. These financial statements classify the
$461,200 as acquisition expenses. The transaction will be accounted for as a
reverse merger with tAA as the surviving entity. Pen shareholders will retain
approximately 7% of the merged company.
6. Foreclosure
The Company entered into a financing agreement with a bank for $6,300,000. The
agreement consisted of a $5,000,000 revolving credit line and two term loans for
$800,000 and $500,000. Under the loan agreements for these loans, the Company
was required to meet certain financial ratios and specific minimum levels of
earnings and net worth. The loan agreements also restricted employee advances,
capital expenditures, compensation, and additional indebtedness; and restricted
the payment of dividends. The Company had borrowed $4,436,562 under the line of
credit at September 30, 1999. At times, including at September 30, 1999, the
Company had been in violation of certain of the covenants of this credit
facility. The Company operated under a forbearance agreement during all of
fiscal 1999.
As of September 30, 1999, the Company had not received a waiver from the lender
and all obligations under this credit facility were payable on demand of the
lender and were classified as current liabilities in the balance sheet.
Subsequent to September 30, 1999, the lender declared the loan agreement in
default.
The Company continued operating under a default notice with its Lender as it
disposed of its remaining operating divisions. Finova and the Company agreed to
a voluntary foreclosure of all the remaining assets of the Company, for which
Finova had a perfected security interest. The Company's September 30, 2000
balance sheet reflects the transfer of all collateral assets to Finova and the
Company recognized an equal offset of the bank's line of credit balance and term
loans owed by the Company. The Company recorded a loss on transfer of assets of
$900,000.
During 2001, the Company negotiated an agreement with the Lender, which resulted
in the complete satisfaction of all the debt with the Lender in exchange for
$150,000, of which $40,000 remains unpaid as of September 30, 2001. The
agreement also includes the issuance of 250,000 additional share of common
stock, the repricing of 350,000 warrants from $1.00 to $.001, and the issuance
of an additional 150,000 warrants at $.001.
Finova also transferred back to the Company rights to recover certain assets
owned by the Company prior to the foreclosure. These assets, which have an
estimated original book value of $800,000, have been fully reserved as of
September 30, 2001.
The accompanying notes are an integral part of
these financial statements.
55
7. Long Lived Assets
On an ongoing basis, management reviews the valuation of long-lived assets,
including intangible assets, to determine possible impairment by comparing the
carrying value to the undiscounted estimated future cash flows of the related
assets and necessary adjustments, if any, are recorded. Based upon operating
losses from certain divisions, continued cash flow problems and managements
decision to negotiate the sale of other divisions, the Company reduced the
carrying costs of certain of its long-lived assets by $320,500 in 2000 to better
reflect management's current expectations for the realization of these assets.
The adjustments relate to assets of the Company's various discontinued divisions
and to assets from continuing operations.
During 2001, the Company decided to fully reserve the balance of amounts due
from perFORMplace.com. The Company had signed a Letter of Intent with
perFormplace.com during April 2000 providing for a reverse merger of the two
companies. On November 8, 2000, perFormplace.com terminated the agreement.
The following is a summary of the assets charged-off to impairment for the years
ended December 31:
2001 2000
----------------- --- ---------------
Goodwill $ - $ -
Investments 63,000 320,500
--- ------------- --- ---------------
$ 63,000 $ 320,500
=== ============= === ===============
8. Operating Leases
The Company rents office space on a monthly basis. There are no long-term lease
commitments.
The accompanying notes are an integral part of
these financial statements.
56
9. Discontinued Operations
With the sale of its Cable and MOTO SAT operations during 1999 and the
sale of Powerstream operation and the foreclosure of its InCirt division in 2000
(See Footnote 3), all of the operating divisions of the Company have been
classified as discontinued operations.
Following is a summary of the operating activity and the discontinued
assets and liabilities of these operations:
2001 2000
--------------------- -------------------
Revenues:
InCirT Division $ - $ 6,674,890
Cable Division - -
Other Divisions - 50,489
--- ----------------- -- ----------------
$ - $ 6,725,379
Gross Profit:
InCirT Division $ - $ 1,160,301
Cable Division - -
Other Divisions - 17,818
--- ----------------- -- ----------------
$ - $ 1,178,119
Indentifiable Assets:
InCirT Division $ - $ 9,605
Cable Division - -
Other Divisions - -
--- ----------------- -- ----------------
$ - $ 9,605
Identifiable Liabilities:
InCirT Division $ (655,222) $ (864,791)
Cable Division - -
Other Divisions - -
--- ----------------- -- ----------------
$ (655,222) $ (864,791)
=== ================= == ================
The accompanying notes are an integral part of
these financial statements.
57
9. Discontinued Operations (continued)
2001 2000
---------------- -------------------
Assets from Discontinued Operations
Prepaid Expenses $ - $ 9,605
--- ------------ --- ---------------
$ - $ 9,605
=== ============ === ===============
Liabilities from Discontinued Operations
Accounts Payable $ 655,222 $ 864,791
--- ------------ --- ---------------
$ 655,222 $ 864,791
=== ============ === ===============
During 2001, activity from discontinued operations was limited to the settlement
of accounts payable.
10. Related Party Transactions
Stephen J. Fryer, former Chairman, CEO, President and Chief Accounting Officer,
received options for 4,700,000 shares in 2001.
Brian Bonar and Milton Haber, Directors of Pen, received 500,000 shares of
common stock for their continued service as Board Members. Additionally, Mr.
Bonar received options for 500,000 shares of the Company's common stock.
Brian Bonar has been a Director with Pen since January 2000 and is also Chairman
of the Board at Itec. As of the foreclosure date, Itec owed InCirT/Pen $850,000
for services performed by InCirT. During the year, the Company received payments
of $93,000 from Itek.
11. Convertible Debentures
During 2001, the Company issued $800,000 in new one-year convertible debentures
with interest rates ranging from 7% to 8%, payable quarterly. These debentures
are convertible in the Company's common stock at the lower of $.04 or 70% of the
average of the three lowest closing prices during the 30 days prior to the
conversion. All these debentures are redeemable in cash due one year from the
date of issuance.
In August 2000, the Company entered into a convertible debenture agreement for
$600,000 in exchange for 4,000,000 shares of the Company's common stock. The
convertible debenture has an interest rate of 7% per annum. The debenture is
convertible into common stock at the lesser of $0.15 per share or 70% of market
price on the conversion date.
The accompanying notes are an integral part of
these financial statements.
58
12. Stock Holders' Equity
Preferred Stock Dividends in Arrears Deferred
Payments of annual dividends for 2001 and 2000 were deferred by the Company's
board of directors on the outstanding preferred stocks because of losses
sustained by the Company. As of September 30, 2001, preferred dividends in
arrears amounted to $480,323 on the Preferred Stock Series A and B.
Conversion of Convertible Preferred Stock - Series A
In 2000, the Company converted 1,670 shares of Preferred Stock Series A into
9,057,654 shares of common stock, and the Company converted $64,581 of dividends
payable on these share shares of Preferred Stock into 349,323 shares of common
stock. During 2001, the Company redeemed 39 shares of Preferred Stock Series A
for 1,667,039 shares of common stock.
Conversion of Convertible Preferred Stock - Series B
In 2000, the Company converted 74 shares of Preferred Stock Series B into
411,112 shares of common stock. During 2001, the Company redeemed 40 shares of
Preferred Stock Series B stock for 1,617,648 shares of common stock.
Conversion of Preferred Stock - Series A Warrants
In 2000, the Company converted warrants to purchase shares of Preferred Stock
Series A into 315,000 shares of common stock in a cashless exercise, and the
Company recorded an expense of $86,941 based on the fair value of the common
stock on the date of conversion. During 2001, an additional 13,121,201 shares
were issued in exchange of warrants at prices that ranged from $0.02 to $0.063.
An additional 3,327,050 warrants were converted in lieu of payments for services
rendered.
Repricing of Stock Options
In order to continue to attract and retain employees, the Board of Directors
authorized the repricing of options and warrants to purchase shares of common
stock effective March 2000, to the then fair market value of $0.30 per share.
All repriced options maintained the same expiration terms. Approximately
1,240,000 options and warrants were repriced under this program. The repricing
included members of the Board of Directors and executive officers.
The accompanying notes are an integral part of
these financial statements.
59
12. Stock Holders' Equity (continued)
Warrants Activity for the Period
During the year ended September 30, 2001, the Board of Directors approved the
issuance of warrants to purchase an aggregate of 21,754,251 shares of the
Company's common stock. Such warrants are exercisable at prices ranging from
$0.02 to $0.10 per share, vest immediately, and expire at various times through
December 2004.
In order to continue to meet operating cash flow requirements, and to attract
and retain employees and consultants, the Board of Directors authorized the
repricing of options and/or warrants to purchase shares of common stock in
November 2000, February, 2001, March 2001 and June 2001, to the then fair market
value, which ranged from $0.25 to $0.06 per share. Approximately 14 million
options/warrants were repriced under this program. The repricing included
approximately 2.6 million options and warrants granted to members of the Board
of Directors and executive officers. The repricing of options/warrants resulted
in warrants/options being exercised for approximately 11.7 million shares of
common stock.
In September 2001, the Board of Directors authorized the repricing and the
extended the expiration date of the public warrants to purchase shares of common
stock to be effective November 2001. The price per share was repriced to $0.20,
(the per share price has to be at a minimum of $0.24 for 15 days prior to
conversion), from $6.50 per share and the expiration date was extended by one
year (warrants will expire in November 2002. Approximately 2.8 million warrants
were repriced under this program.
Included in the issuance of warrants to purchase 14 million aggregate shares of
the Company's common stock are warrants that were issued to individuals under
terms of a consulting agreement during the years ended September 30, 2001 and
2000. Such issuances were accounted for under Financial Accounting Standards
Board Statement No. 123 using primarily the Black-Scholes option pricing model,
which resulted in the recording of compensation cost during the years ended
September 30, 2001 and 2000 (see note 14).
Grant of Equity Interest in Full Settlement of Trade Payable and Troubled Debt
Due to significant cash flow problems, in April 2000 the Company commenced on a
program to reach agreements with its vendors to grant shares of its common stock
to the vendors in full settlement of the amounts due the vendors. At the date of
issuance of the shares, the amounts due vendors exceeded the fair market value
of the common stock issued by $1,988,218, which is classified in the statement
of operations as an extraordinary gain due to the extingushment of debt. As of
September 30, 2000, the Company has issued 1,061,747 shares of its common stock
under this program. An additional 760,178 shares were issued as settlement of
debt during 2001.
The accompanying notes are an integral part of
these financial statements.
60
13. Preferred Stock
The Company issued two series of Preferred Stock. Series A was issued in
February 1999 consisting of 1,800 shares, par value $0.01 per share, for $1,000
per share. Series B was issued in April 1999 at the same price but only 1,000
shares were issued. As mentioned in Note C, part of the funds raised from the
issuance of this stock were used to repay the bridge loans made earlier in the
fiscal year. After repayment of the bridge loans and paying $238,500 in fees and
expenses, the net cash raised by the Company for operations was $1,665,500. Both
series of Preferred Stock carry a 16 percent dividend rate, which is paid
quarterly.
Both issuances of Preferred Stock are convertible into shares of the
Company's Common Stock. Each share of Series A Preferred Stock is convertible
into an amount of shares of Pen Common Stock equal to $1,000 divided by the
average of the two lowest closing bid prices for Pen Common Stock during the
period of 22 consecutive trading days ending with the last trading day before
the date of conversion, after discounting that market price by 15 percent (the
"Conversion Price"). During the first six months, the Board of Directors
approved a reduction of the maximum Conversion Price for the Series A Preferred
Stock and Series B Preferred Stock to $.53 from $1.17 and $.79 per share
respectively. The reduction was granted to obtain a waiver in relation to the
sale of a major asset - InCirT Technologies Division. The shares of Series B
Preferred Stock are convertible into Common Stock at the same Conversion Price
as the Series A Preferred Stock. Warrants to acquire 335,453 shares of Common
Stock at conversion prices ranging from $0.86 to $1.434 per share were also
issued to the purchasers of the Series A and Series B Preferred Stock. The
warrants expire three years from date the Preferred Stock and warrants were
initially issued.
Convertible Debentures
On October 22, 1997, the Board of Directors of the Company approved the issuance
of up to $1,500,000 of 3 percent convertible Debentures with a maximum term of
24 months. On June 16, 1998, the Board of Directors of the Company approved the
issuance of up to $1,000,000 of additional three percent convertible debentures
with a maximum term of 24 months. The convertible debentures (the "Debentures")
mature, unless earlier converted by the holders, into shares of common stock of
the Company. The Company filed a registration statement with the United States
Securities and Exchange Commission with respect to the common stock of the
Company into which the Debentures may be converted.
The Debentures were convertible by the holders thereof into the number of shares
of common stock equal to the face amount of the Debentures being converted
divided by the lesser of (i) eighty percent (80 percent) of the closing bid
price of the Company's common stock as reported on the NASDAQ Small Cap market
on the day of conversion, or (ii) $2.75. The Debentures could be converted in
three equal installments beginning on the earlier of (i) the 75th day of their
issuance, and continuing through the 135th day of their issuance, or (ii) the
day following the effective date of the Registration Statement, through the 60th
day following the effective date of the Registration Statement. The Company
could cause the Debentures to be converted into shares of common stock after the
110th day following the effective date of the Registration Statement, if the
common stock traded at or above $5.50 per share for 20 consecutive days.
The accompanying notes are an integral part of
these financial statements.
61
13. Preferred Stock (continued)
Convertible Debentures (continued)
As of September 30, 1998, the Company had issued all $2,500,000 of these
convertible Debentures and $1,000,000 had been converted to 689,332 shares of
common stock. As of September 30, 1999, the remaining $1,500,000 of convertible
Debentures had been converted into 2,092,671 shares of common stock.
Because of the favorable conversion feature of the Debentures, the Company has
recognized interest expense relating to the price below market at which the
Debentures can be converted into common shares of stock. The interest is
initially set up as a deferred charge against the subordinated debenture balance
with an offset to additional paid-in capital. The deferred interest is amortized
over a period corresponding to time restrictions as to when the Debentures can
be converted into stock. The resulting charge to interest expense increases the
effective interest rate of the Debentures. Deferred interest expense of $250,032
was recorded on the $1,000,000 in Debenture issue relative to the favorable
conversion feature and was amortized over four months and charged to interest
expense. Amortization of the $250,032 deferred charge totaled $98,571 in fiscal
1999 ($151,461 in fiscal 1998). This interest along with the stated 3 percent
interest rate in the Debentures results in an inherent interest rate of 31
percent.
In connection with the $1,500,000 Debenture issue, the Company recorded $389,591
of deferred interest expense related to the beneficial conversion feature. The
entire deferred charge was amortized and charged to interest expense as of
September 30, 1998. This interest when added to the stated 3 percent interest
rate of the Debenture results in an inherent interest rate of 28 percent.
14. Stock Options and Warrants
The Company has a Stock Option Plan (the Plan). The Plan provides for
the granting of both Incentive Stock Options (ISOs) and Non-qualified Stock
Options (NSOs) to purchase shares of common stock. ISOs are granted at not less
than market value on the date of grant, whereas NSOs may be granted at not less
than 85 percent of the market value on the date of the grant. Options may be
granted under the Plan to all officers, directors, and employees of the Company.
In addition, NSOs may be granted to other parties who perform services for the
Company. The Board of Directors has granted management the authority to issue
non-statutory stock options and/or warrants to employees and consultants of the
Company.
As of September 30, 2001 and 2000, the Company granted to its employees
and other eligible participants options and warrants exercisable for the
Company's common stock and preferred stock. Options and warrants to purchase
shares of its common stock are usually granted at the prices equal to the
current fair value of the Company's common stock at the date of grant.
Under the Plan, no option may be exercised after the expiration date of ten
years from the date of grant. As of September 30, 2000, there are two types of
convertible securities (NSOs and Warrants) outstanding.
NSOs may be granted to any eligible participant as determined by the management
of the Company.
The accompanying notes are an integral part of
these financial statements.
62
14. Stock Options and Warrants (continued)
Stock options and warrants issued as of September 30, 2001 and 2000 are
summarized as follows:
2001 2000
-------------------------------- ------------------------------
Average Average
Exercise Exercise
Shares Price Shares Price
---------------- --- -------- -------------- --- --------
Outstanding at beginning of year 11,036,654 $ 2.34 11,086,667 $ 2.45
Granted 21,754,251 0.05 4,304,655 0.34
Exercised (16,448,251) 0.04 (4,231,668) 0.16
Forfeited/Cancelled (1,150,000) 0.06 (123,000) 2.45
---------------- --- -------- -------------- --- --------
15,192,654 0.34 11,036,654 $ 1.23
Outstanding at end of year
================ === ======== ============== === ========
Exercisable at end of year 15,187,654 $ 1.32 11,029,154 $ 2.34
================ === ======== ============== === ========
The non-statutory stock options and warrants are for periods of two to
five years.
Under APB-25, the cost of compensation is measured by the excess of the fair
market price of the stock over the option exercise price on the measurement
date. This is referred to as the intrinsic value method. Accordingly, the
Company recorded compensation expense of $163,765 and $339,822 for options and
warrants granted for the years ended September 30, 2001 and 2000.
The following table summarizes information about options and warrants
outstanding at September 30, 2001:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Range of Number Weighted Weighted Number Weighted
Outstanding Average Exercisable
as of Remaining Average as of Average
September 30, Contractual Exercise September 30, Exercise
Exercise Prices 2001 Life Price 2001 Price
------------------- --------------- --------------- -------------- ----------------- --------------
$0.01 - $0.06 11,049,701 0.65 $ 0.08 11,049,701 $ 0.08
$0.07 -$0.10 510,000 4.27 $ 0.10 510,000 $ 0.10
$0.11 - $0.50 315,000 3.69 $ 0.31 310,000 $ 0.31
$0.51 - $1.00 326,953 4.96 $ 0.73 326,953 $ 0.73
$1.01 - $2.00 140,000 1.13 $ 1.72 140,000 $ 1.72
$2.01 - $6.50 2,851,000 0.09 $ 6.49 2,851,000 $ 6.49
--------------- --------------- -------------- ----------------- --------------
15,192,654 0.83 $ 0.34 15,187,654 $ 1.32
=============== =============== ============== ================= ==============
The accompanying notes are an integral part of
these financial statements.
63
14. Stock Options and Warrants (continued)
The following table summarizes information about options and warrants
outstanding at September 30, 2000:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Range of Number Weighted Weighted Number Weighted
Outstanding Average Exercisable
as of Remaining Average as of Average
September 30, Contractual Exercise September 30, Exercise
Exercise Prices 2000 Life Price 2000 Price
------------------- --------------- --------------- -------------- ----------------- --------------
0.01 -0.20 2,074,201 0.65 $ 0.06 2,074,201 $ 0.65
0.21 -0.30 2,067,500 4.27 $ 0.30 2,060,000 $ 4.27
0.31 - 1.00 921,953 3.69 $ 0.86 921,953 $ 3.69
1.01 - 2.00 3,112,000 4.96 $ 1.85 3,112,000 $ 4.96
2.01 - 3.00 11,000 1.13 $ 2.71 11,000 $ 1.13
3.01 - 6.50 2,850,000 0.09 $ 6.50 2,850,000 $ 0.09
--------------- --------------- -------------- ----------------- --------------
11,036,654 2.65 $ 1.23 11,029,154 $ 2.34
=============== =============== ============== ================= ==============
The exercises period for the options ranges from immediate to four years from
the date of the grant and have various vesting requirements.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB Opinion No. 25 and related interpretations in accounting for its
stock options and warrants granted to employees or to members of the Company's
Board of Directors. Pursuant to FASB Interpretation No. 44, the Company applies
provisions of SFAS No. 123 for options and warrants granted to third parties.
Accordingly, in 2000, compensation cost has been recognized for its stock
options and warrants granted to outside third parties subsequent to June 30,
2000. This information is required to be determined as if the Company had
accounted for its employee stock options/warrants granted subsequent to December
31, 1994, under the fair value method of that statement. If the Company had
elected to recognize compensation expense based upon the fair value at the grant
date for awards under this plan consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be reduced to the
pro forma amounts indicated below for the years ended September 30:
2001 2000
------------------- -------------------
Net Loss:
As reported $ (1,294,784) $ (1,891,199)
Pro forma $ (1,388,495) $ (1,966,130)
Basic and diluted loss per
common share:
As reported:
Basic $ (0.035) $ (0.10)
Diluted $ (0.035) $ (0.10)
Pro forma:
Basic $ (0.037) $ (0.11)
Diluted $ (0.037) $ (0.11)
The accompanying notes are an integral part of
these financial statements.
64
14. Stock Options and Warrants (continued)
Options/warrants are granted at prices equal to the current fair value of the
Company's common stock at the date of grant. All options and warrants granted
during fiscal year 2000 vest immediately.
The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2000: dividend yield of 0%; expected volatility of 200%; risk-free
interest rate of 5.6%, and expected life of 2 to 5 years; 2001: dividend yield
of 0%; expected volatility of 300%; risk-free interest rate of 5.8%, and
expected life equal to the actual life for the period. The weighted-average fair
value of options and warrants granted were $0.02 and $0.06 for 2001, and $0.25
and $0.33 for 2000.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
15. Earnings Per Share
The number of weighted common shares outstanding used in the loss per share
calculation is 37,701,171 in 2001 and 18,556,461 in 2000.
2001 2000
------------------- -------------------
Net loss $ (1,294,784) $ (1,891,199)
Dividends on preferred stock 10,289 (289,809)
Imputed dividends from beneficial
conversion feature - -
--- --------------- --- ---------------
Loss applicable to common stock $ (1,284,495) $ (2,181,008)
=== =============== === ===============
For the years ended September 30, 2001 and 2000, all of the options and
warrants that were outstanding were not included in the computation of diluted
EPS because to do so would have been anti-dilutive.
The accompanying notes are an integral part of
these financial statements.
65
16. Income Taxes
Income tax expense from continuing operations consists of the following:
2001 2000
------------ ------------
Federal $ - $ -
State 800 900
--- -------- --- --------
$ 800 $ 900
=== ======== === ========
Reconciliation of income taxes (benefit) computed at the federal statutory rate
of 34 percent is as follows:
2001 2000
------------------ ------------------
Federal income taxes (benefit) at statutory rate $ (258,957) $ (568,743)
State income taxes (benefit), net of federal tax benefit (129,478) (147,873)
Permanent differences - -
Increase in valuation allowance 387,635 717,516
-- --------------- --- --------------
Income taxes $ 800 $ 900
== =============== === ==============
Deferred tax assets and liabilities consisted of the following:
2001 2000
------------------- ------------------
Deferred tax assets (liabilities)
Net operating loss $ 8,295,665 $ 7,954,332
Impairment of note receivable 157,057 137,302
Other 26,547 -
-- ---------------- --- --------------
Deferred tax asset 8,479,269 8,091,634
Valuation allowance (8,479,269) (8,091,634)
-- ---------------- --- --------------
Net deferred tax asset $ - $ -
== ================ === ==============
The Company sustained net operating losses in each of the periods presented. For
2001 and 2000, there were no deferred tax assets or income tax benefits recorded
in the financial statements for net deductible temporary differences or net
operating loss carryforwards because the likelihood of realization of the
related tax benefits cannot be fully established. A valuation allowance of
$8,479,269 has been recorded in 2001 ($8,091,634 in 2000) to reduce the net
deferred tax assets to their estimated net realizable value.
The accompanying notes are an integral part of
these financial statements.
66
16. Income Taxes (continued)
As of September 30, 2001, the Company as net operating loss carryforwards for
tax reporting purposes of approximately $17,315,000 expiring in various years
through 2020. The merger with tAA results in a greater than 50% change in
ownership and represents a different line of business. This severely restricts
the use of these loss carryforwards.
17. Commitments and Contingencies
Litigation
From time to time, the Company is engaged in various lawsuits or disputes as
plaintiff or defendant arising in the normal course of business.
Following are the matters pending as of September 31, 2001:
1) On October 28, 1999 Color Savvy Systems, Ltd. filed suit to recover $165,750
in past due uncontested vendor obligations. On February 16, 2000, Color Savvy
obtained a judgment against the Company for $165,783.
2) Sony Recording Media Products obtained a judgment against the Company for
$35,086 plus interest during 2001. The Company has been making monthly payments
of $5,000 per month against the outstanding balance.
3) On November 15, 2000 Alan L. Weaver, former CEO of Pen Interconnect, Inc.,
obtained a judgment against the Company in the amount of $118,500 plus interest
for breach of a settlement agreement relative to Mr. Weaver's employment
agreement with the Company. The Company is currently negotiating a payment plan
with the former CEO.
4) The Company is in discussion with Wayne Wright, the prior CFO of the Company,
regarding a claim the CFO has regarding the value of certain stock given to him
as part a settlement of his employment agreement. The resolution of amounts due
under this potential claim is not currently determinable.
Capitalized Leases
Subsequent to the cessation of manufacturing operations in March 2000, various
lessors foreclosed upon capitalized lease equipment and the equipment was
returned to the lessors. At the beginning of the fiscal year, October 1999
future lease payments were $558,492. The Company had made certain payments prior
to default. The lessors have not made additional claims after repossession of
the equipment.
The accompanying notes are an integral part of
these financial statements.
67
18. Subsequent Events
The merger with tAA was effective October 1, 2001. The name of the
Company and its trading symbol was changed to The Amanda Company, Inc (trading
symbol AMND.OB), effective with the merger.
In accordance with the merger agreement with tAA, the Company issued
408,163,265 shares of the Company stock to the tAA shareholders and will issue
an estimated additional 200,000,000 shares to the tAA shareholders to complete
the merger. An additional 50,000,000 shares are to be issued to Bi-Coastal,
Inc., a company that helped orchestrate the merger.
The Company anticipates that the 10-1 reverse split approved by the
shareholders at the annual meeting on August 30, 2001 will be effective in
January 2002.
The Company leased 5000-sq.ft. new office space Irvine, CA over a 60-month
term at $ 5056 per month.
The Company issued $100,000 in one year convertible debentures with
interest at 8%, payable quarterly. These debentures are convertible in the
Company's common stock at the lower of $.04 or 70% of the average of the three
lowest closing prices during the 30 days prior to the conversion. These
debentures are due one year from the date of issuance.
The Company issued convertible promissory notes totaling $450,000 in
October 2001. These notes are convertible into the company's common stock at
$.01 per share and have a 8,055,853 warrant exercisable for common stock at $.02
per share and 1,500,000 warrants at $.01 per share.
The accompanying notes are an integral part of
these financial statements.
68
THE AMANADA COMPANY
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED
DECEMBER 31, 2001 AND 2000
The accompanying notes are an integral part of
these financial statements.
69
PEN INTERCONNECT, INC.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDING DECEMBER 2001 AND 2000
Page
Balance Sheets...................................................72-73
Statements of Operations ...........................................74
Statements of Cash Flows............................................75
Notes to Financial Statements....................................76-80
The accompanying notes are an integral part of
these financial statements.
70
THE AMANDA COMPANY, INC.
BALANCE SHEETS
ASSETS
December 31, September 30,
2001 2001
------------- -------------
(Unaudited) (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 69,247 $ 36,394
Accounts receivable, net 153,607 84,069
Other receivable 10,000 -
Inventory 168,396 172,617
Prepaid and other current assets 124,044 51,880
------------- -------------
Total current assets 525,294 344,960
PROPERTY AND EQUIPMENT, NET 24,608 33,020
SECURITY AND OTHER DEPOSITS 36,474 29,436
------------- -------------
Total assets $ 586,376 $ 407,416
============= =============
The accompanying notes are an integral part of these financial statements.
71
THE AMANDA COMPANY, INC.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, September 30,
2001 2001
------------- -------------
(Unaudited) (Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,093,766 $ 778,986
Accrued liabilities 510,636 1,198,496
Leasing financing payable 22,750 22,750
Notes payable 463,000 573,000
Deferred revenue 27,161 15,448
Convertible debentures 900,000 800,000
Accrued dividends payable 503,537 480,324
------------- -------------
Total current liabilities 3,520,850 3,869,004
LONG-TERM LIABILITIES
Lease financing payable 61,586 72,320
Convertible promissory notes 470,000 -
------------- -------------
Total long-term liabilities 531,586 72,320
------------- -------------
Total liabilities 4,052,436 3,941,324
STOCKHOLDERS' DEFICIT
Convertible Preferred stock, $0.01 par value
authorized 5,000,000 shares, Series A; issued 1 1
and outstanding 61 shares at December 31, 2001
and 91 shares at September 30, 2001. Series B; 7 9
issued and outstanding 746 shares at December 31,
2001 and 926 shares at September 30, 2001
Common stock, $.001 par value, issued and
outstanding 703,519,273 shares at December 31, 2001
and 687,789,599 shares at September 30, 2001 703,519 687,789
Accumulated deficit (4,169,588) (4,221,707)
------------- -------------
Total stockholders' deficit (3,466,061) (3,533,908)
------------- -------------
Total liabilities and stockholders' deficit $ 586,375 $ 407,416
============= =============
The accompanying notes are an integral part of these financial statements.
72
THE AMANDA COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
December 31,
2001 2000
------------- -------------
Net sales $ 900,377 $ 1,086,227
Cost of sales 488,694 676,173
------------- -------------
Gross profit 411,683 410,054
Selling, general and administrative expenses 556,940 956,100
------------- -------------
Operating loss (145,257) (546,046)
Other income (expense)
Interest expense (37,860) (71,494)
Miscellaneous income, net 45,236 82,641
Loss on impairment - (63,000)
Loss from discontinued operations - (39,323)
Exitinguishment of debt - 11,119
------------- -------------
Loss before extraordinary item (137,881) (626,103)
Merger costs (876,000) -
------------- -------------
Net loss before income taxes (1,013,881) (626,103)
------------- -------------
Income taxes - -
------------- -------------
Net loss $ (1,013,881) $ (626,103)
============= =============
The accompanying notes are an intergral part of these statements.
73
THE AMANDA COMPANY, INC.
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
------------- -------------
CASH FLOES FROM OPERATING ACTIVITIES:
Net loss $ (1,013,881) $ (626,103)
Adjustments to reconcile net cash provided
(used) in operating activities
Depreciation and amortization 8,412 27,194
Allowance for notes receivable - 63,000
Warrant/option compensation expense - 42,513
Common stock issued for compensation 1,081,729 50,022
Effect on cash of changes in operating assets
and liabilities:
Decrease (increase) in accounts receivable, net (69,538) 115,323
Decrease (increase) in other receivables (10,000) (37,020)
Decrease (increase) in inventory 4,221 (13,291)
Decrease (increase) in prepaid and other current
assets (72,164) 32,240
Decrease (increase) in security deposits (7,038) (4,492)
Increase (decrease) in accounts payable (300,442) (48,951)
Increase (decrease) in accrued expenses (9,424) 119,440
Increase (decrease) in advances payable (40,000) -
Increase (decrease) in deferred revenue 11,713 28,595
------------- -------------
Net cash provided (used) in operating activities (416,412) (251,530)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to perFORMplace - (63,000)
Issuance of notes receivable - (37,020)
------------- -------------
Net cash provided (used) in investing activities - (100,020)
CASH FLOWS FROM FINANCING ACTIVITIES;
Payments of notes payable (110,000) -
Payments of equipment financing (10,735) -
Proceeds from equipment financing - 97,591
Proceeds from notes payable - 240,698
Proceeds from convertible debenture 100,000 -
Proceeds from convertible promissory notes 470,000 -
------------- -------------
Net cash provided (used) in financing activities 449,265 338,289
------------- -------------
Net increase (decrease) in cash and cash equivalents 32,853 (13,261)
Cash and cash equivalents at beginning of period 36,394 48,783
------------- -------------
Cash and cash equivalents at end of period $ 69,247 $ 35,522
============= =============
The accompanying notes are an integral part of these financial statements.
74
The accompanying notes are an integral part of these statements.
Non-cash investing and financing activities
During the first quarter of FY2002 Series A preferred shareholders
converted 30 preferred shares into 2,941,176 common shares at an
average conversion price of $0.0102 per common share. Series B
preferred shareholders converted 150 preferred shares into 15,730,674
common shares at an average conversion price of $0.0095 per common
share. Under the conversion terms of the convertible preferred shares,
a holder has the right to convert preferred shares into common shares
at eighty-five (85%) percent of the average of the two lowest closing
bid prices during the last twenty-two (22) consecutive trading days
prior to conversion. As part of the merger, the Company issued
50,000,000 shares of common stock with a value of $876,000.
NOTE A - GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company had a loss of
$1,013,881 for the quarter ended December 31, 2001, a deficit of
$3,466,061 in stockholders' equity and negative working capital of
$2,934,474 for the period ended December 31, 2001. The Company intends
to continue to raise additional funds in the capital markets for
working capital purposes. The Company must raise additional capital in
order to continue as a going concern.
NOTE B - ACQUISITIONS/DISPOSITIONS
The Company completed its merger with the Automatic Answer Company
(tAA) in the quarter ended December 31, 2001. The merger was accounted
for as a reverse merger. The recapitalization of tAA, the surviving
entity, resulted in a reduction of $2,119,979 in stockholder's equity;
$876,000 of which was attributable to merger expenses and $1,243,979
resulting from the assumption of the net deficit of the registrant.
NOTE C - OPTIONS TO PURCHASE COMMON STOCK
No options were exercised in the first quarter.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
No warrants were exercised in the first quarter.
NOTE E - OPTIONS/WARRANTS TO PURCHASE COMMON STOCK
No options or warrants were issued in the first quarter/
NOTE F - ACCRUED PREFERRED STOCK DIVIDENDS
The Company accrued $23,214 for dividends payable to preferred
shareholders during the quarter.
Note G - Preferred Stock
The Company has issued two series of Preferred Stock. Series A was
issued in February 1999 consisting of 1,800 shares, par value $0.01 per
share, for $1,000 per share. Series B was issued in April 1999 at the
same price and par value but only 1,000 shares were issued. Both series
of Preferred Stock carry a 16 percent dividend rate, which is paid
quarterly. If and when the Company's stock is listed again on NASDAQ
the dividend rate will drop to 8 percent.
The accompanying notes are an integral part of these financial statements.
75
Both issuances of Preferred Stock are convertible into shares of the
Company's Common Stock. Each share of Series A Preferred Stock is
convertible into an amount of shares of Pen Common Stock equal to
$1,000 divided by the average of the two lowest closing bid prices for
Pen Common Stock during the period of 22 consecutive trading days
ending with the last trading day before the date of conversion, after
discounting that market price by 15 percent (the "Conversion Price").
The maximum Conversion Price for the Series A Preferred Stock is $1.17
per share. The shares of Series B Preferred Stock are convertible into
Common Stock at the same Conversion Price as the Series A Preferred
Stock except for a maximum Conversion Price of $0.79 per share.
Warrants to acquire 320,000 shares of Common Stock at prices ranging
from $0.86 to $1.28 per share were also issued to the purchasers of the
Series A and Series B Preferred Stock. The Warrants expire three years
from date the Preferred Stock and warrants were initially issued.
NOTE H - CONVERTIBLE DEBENTURE
In the first quarter ended December 31, 2001 the Company issued
$100,000 in one year convertible debentures with interest at eight (8)
percent, payable quarterly. These debentures are convertible into the
Company's common stock at the lower of $.04 or 70% of the average of
the three lowest closing prices during the 30 days prior to the
conversion. These debentures are due one year from the date of the
issuance.
NOTE I - CONVERTIBLE PROMISSORY NOTE
In the first quarter ended December 31, 2001 the Company issued a
convertible promissory note totaling $450,000 at an interest rate of
eight (8) percent per annum. These notes are convertible into the
Company's common stock at $.01 per share and a 8,055,853 warrant
exercisable for common stock at $.02 per share and 1,500,000 warrants
at $.01 per share.
Note J - Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net
earnings (loss) available to common shareholders by the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share are similarly calculated, except that
the weighted average number of common shares outstanding includes
common shares that may be issued subject to existing rights with
dilutive potential except for periods when such calculations would be
anti-dilutive.
For the three ended December 31, 2001, net earnings (loss) attributable
to common shareholders includes accrued dividends at the stated
dividend rate from date of issuance and a non-cash imputed dividend to
the preferred shareholders related to the beneficial conversion feature
on the 1999 Series A and B Preferred Stock and related warrants. The
beneficial conversion feature is computed as the difference between the
market value of the common stock into which the Series A and B
Preferred Stock can be converted and the value assigned to the Series A
and B Preferred Stock in the private placement. The imputed dividend is
a one-time non-cash charge against the earnings (loss) per common
share. The calculation of earnings (loss) per share is included in
Exhibit 11.
The accompanying notes are an integral part of these financial statements.
76
NOTE K - INTERIM PERIOD COST OF GOODS SOLD
Inventory costing is based on specific identification. An inventory
count is taken at the end of each quarter.
NOTE L - INCOME TAXES
The future benefits of loss carried forward are fully reserved. There
were no income taxes during the quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS. This report contains certain
forward-looking statements within the meaning of section 27A of the
Securities Act of 1933 as amended, and section 21E of the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties.
In addition, the Company may from time to time make oral
forward-looking statements. Actual results are uncertain and may be
impacted by the following factors. In particular, certain risks and
uncertainties that may impact the accuracy of the forward-looking
statements with respect to revenues, expenses and operating results
include without limitation, cycles of customer orders, general economic
and competitive conditions and changing consumer trends, technological
advances and the number and timing of new product introductions,
shipments of products and components from foreign suppliers, and
changes in the mix of products ordered by customers. As a result, the
actual results may differ materially from those projected in the
forward-looking statements.
Because of these and other factors that may affect the Company's
operating results, past financial performance should not be considered
an indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
The following discussion and analysis provides certain information
which the Company's management believes is relevant to an assessment
and understanding of the Company's results of operations and financial
condition for the three months ended December 31, 2001 and 2000. This
discussion should be read in conjunction with the audited financial
statements of the Company and notes thereto included in the Annual
Report of the Company on Form 10-KSB for the year ended September 30,
2001.
General
There were no sales from continuing operations for the quarter ended
December 31, 2000. All operating divisions were disposed of during 1999
and 2000, and all operating activity was reclassified as discontinued
operations. Since March 2, 2000, the Company decided to maintain its'
situation as a reporting public company, and to reduce its' debt in
order to make the Company attractive to private companies that would
want to use Pen to go public. This approach would be a major step to
possibly help to maintain some shareholder value in the Company's stock
price.
The accompanying notes are an integral part of these financial statements.
77
The Company did enter into a Letter of Intent to reverse merge with a
small private .com company, perFORMplace.com, in the entertainment
services business. A definitive agreement was signed in late August
2000 with the intent to obtain shareholder ratification at the next
shareholders' meeting. However, on November 8, 2000, before the meeting
could be held, perFORMplace.com terminated the merger.
On October 1, 2001, the Company completed a reverse merger with tAA.
tAA is the surviving entity for accounting purposes. The following
discussion is based upon the merged activities of both companies for
all periods presented.
Net sales. Net sales for the Company decreased $185,850 or
approximately 17 percent for the three month period ended December 31,
2001, as compared to the same period in the prior year. The Company
believes that the economic conditions after September 11, 2001 have
contributed significantly to the decline in revenues. Prior to
September 11, 2001, the Company was achieving higher monthly sales
revenues.
Cost of sales. Cost of sales as a percentage of net sales decreased to
54% of net sales as compared to 62% for the same period in the prior
year. The decrease resulted from the increase in the shipment of higher
gross profit margin products; along with a reduction in shipping costs
due to improved inventory control and production processes.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $399,160 or approximately 42% from
the three month period ended December 31, 2001 as compared to the same
period in the prior year. The decrease is due (1) the reduction in
salaries, payroll taxes and related employee expenses paid in the
current quarter as compared to the prior year due a reduction in
personnel. (2) In June 2001, the operations of Pen Interconnect were
relocated to the offices of the Automatic Answer, Inc. (tAA). The
relocation resulted in the termination of the remaining Pen employees
as salaried employees, along with a reduction in operating expenses.
(3) The Automatic Answer Company moved it offices from San Juan
Capistrano, CA to Irvine, CA thereby reducing monthly rent expense for
the quarter ended December 31, 2001 by approximately $15,000; and (4)
the Company has made a concerted effort to eliminate any on-going
expenses that were not relative to producing revenue or profit for the
Company.
Other income and expenses. The net decrease in other income and
expenses for the quarter ended December 31, 2001 amounted to $87,433.
In the same period in the prior year the Company incurred a loss on
impairment of
$63,000 and a loss from discontinued operations of $39,323. There were
no comparable losses in the current quarter.
The accompanying notes are an integral part of these financial statements.
78
Extraordinary costs. The Company recorded costs of $876,000 for the
quarter ended December 31, 2001. These costs are associated with the
merger between Pen Interconnect, Inc. and the Automatic Answer, Inc. (tAA).
Net earnings (loss) and earnings (loss) per share. Net loss for the
first fiscal quarter ended December 31, 2001 totaled ($1,013,881) or
($0.00) per share, compared with losses of ($626,103) or ($0.00) per
share for the first fiscal quarter of FY 2000.
Liquidity and Capital Resources
During the first three months of FY 2001 the Company sustained losses
of $1,013,881. As a result of these losses the Company raised
additional working capital through the issuance of Convertible
Debentures ($100,000) and Convertible Promissory Notes ($450,000).
Inflation and Seasonality
The Company does not believe that it is significantly impacted by
inflation or seasonally.
The accompanying notes are an integral part of these financial statements.
79
THE AUTOMATIC ANSWER, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
The accompanying notes are an integral part of these financial statements.
80
THE AUTOMATIC ANSWER, INC.
Financial Statements
December 31, 2000 and 1999
Report of Independent Certified Public Accountants 83
Balance Sheets 84 - 85
Statements of Operations 86
Statements of Shareholders' Equity 87
Statements of Cash Flows 88 - 89
Notes to Financial Statements 90 - 106
The accompanying notes are an integral part of these financial statements.
81
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
The Automatic Answer, Inc.
We have audited the accompanying balance sheets of The Automatic Answer,
Inc. as of December 31, 2000, and 1999 and the related statements of
operations, shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Automatic Answer, Inc. as
of December 31, 2000, and 1999 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has sustained losses from operations and has a
net capital deficiency, which raise doubts about its ability to continue as a
going concern. Management's plans regarding those matters also are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Pohl, McNabola, Berg & Company LLP
May 25, 2001
The accompanying notes are an integral part of these financial statements.
82
THE AUTOMATIC ANSWER, INC.
Balance Sheets
December 31, 2000 and 1999
2000 1999
------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,278 $ 41,771
Accounts receivable, net 96,252 241,523
Inventory 133,364 338,118
Employee advances - 10,647
Prepaid and other current assets - 24,000
------------------------------------
Total current assets 258,894 656,059
PROPERTY AND EQUIPMENT, net 107,087 195,055
OTHER ASSETS 35,478 35,478
------------------------------------
TOTAL ASSETS $ 401,459 $ 886,592
====================================
(continued)
The accompanying notes are an integral part of these financial statements.
83
THE AUTOMATIC ANSWER, INC.
Balance Sheets (continued)
December 31, 2000 and 1999
2000 1999
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 601,330 $ 776,018
Accrued expenses 327,707 214,834
Deferred revenue 94,611 64,790
Notes payable - related party 523,000 545,383
Lease financing payable 22,750 -
Note payable 50,000 50,000
------------------------------------
Total current liabilities 1,619,398 1,651,025
LONG-TERM LIABILITIES
Note payable - 50,000
Lease financing payable 74,841 -
------------------------------------
Total long-term liabilities 74,841 50,000
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 2,000,000 shares authorized; 200,000
Series A; 153,920 shares of Series A issued and outstanding 154 154
Common stock, $.001 par value; 8,000,000 shares authorized; 4,425,235 and
2,070,581 shares issued and outstanding 4,426 2,071
Additional paid-in capital 1,115,954 1,094,762
Retained earnings (2,413,314) (1,911,420)
------------------------------------
Total shareholders' equity (1,292,780) (814,433)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 401,459 $ 886,592
====================================
The accompanying notes are an integral part of these financial statements.
84
THE AUTOMATIC ANSWER, INC.
Statements of Operations
December 31, 2000 and 1999
2000 1999 1998
----------------- ------------------ --------------------
NET SALES $ 5,150,379 $ 6,392,937 $ 6,335,427
COST OF SALES 3,220,140 3,685,583 3,946,588
----------------- ------------------ --------------------
GROSS PROFIT 1,930,239 2,707,353 2,388,839
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,367,317 2,357,340 2,998,941
RESEARCH AND DEVELOPMENT EXPENSES - - 913,353
----------------- ------------------ --------------------
OPERATING INCOME (LOSS) (437,077) 350,013 (1,523,455)
INTEREST EXPENSE 117,849 73,779 65,775
OTHER (INCOME) EXPENSE (53,834) (36,591) (6,160)
----------------- ------------------ --------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX (501,093) 312,826 (1,583,070)
INCOME TAX (BENEFIT) PROVISION 800 1,600 (62,592)
----------------- ------------------ --------------------
NET INCOME (LOSS) $ (501,893) $ 311,226 $ (1,520,478)
================= ================== ====================
The accompanying notes are an integral part of these financial statements.
85
THE AUTOMATIC ANSWER, INC.
Statements of Shareholders' Equity
December 31, 2000 and 1999
Additional
Paid in Retained
capital earnings Total
Preferred stock Common stock (deficit) Equity
Shares Amount Shares Amount
----------------------------------------------------------------------------------------
Balance, December 31, 1997 150,920 $ 151 2,055,627 $ 2,056 1,063,762 $ $(702,172) $363,797
Shares issued - preferred 3,000 3 16,061 16,064
Net loss (1,520,474) (1,520,474)
----------------------------------------------------------------------------------------
Balance, December 31, 1998 153,920 154 2,055,627 2,056 1,079,823 (2,222,646) (1,140,613)
Shares issued for
compensation 14,854 15 14,839 14,854
Stock option exercised 100 - 100 100
Net income 311,226 311,226
----------------------------------------------------------------------------------------
Balance, December 31, 1999 153,920 154 2,070,581 2,071 1,094,762 (1,911,420) (814,433)
Shares issued for
compensation 1,457,825 1,458 13,121 14,579
Shares issued for interest
on loans 896,829 897 8,071 8,968
Net loss (501,893) (501,893)
----------------------------------------------------------------------------------------
Balance, December 31, 2000 153,920 $ 154 4,425,235 $ 4,426 1,115,954 $ (2,413,313) (1,292,780)
========================================================================================
The accompanying notes are an integral part of these financial statements.
86
THE AUTOMATIC ANSWER, INC.
Statements of Cash Flows
December 31, 2000 and 1999
2000 1999 1998
------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (501,893) $ 311,226 $ (1,520,478)
Adjustments to reconcile net cash provided (used) in
operating activities:
Depreciation and amortization 107,497 148,130 150,530
Loss (gain) on disposal of equipment - - 15,486
Common Stock issued for compensation and interest 23,546 14,954 -
Effect on cash of changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 145,271 (23,945) (29,136)
Decrease (increase) in inventory 204,754 107,585 (143,915)
Decrease (increase) in prepaid assets 24,000 (7,937) 45,815
Decrease (increase) in employee advances 10,647 (10,647) -
Decrease in income tax receivable - - 92,413
Decrease in security deposits - 4,800 -
Increase (decrease) in accounts payable (174,688) (264,594) 540,158
Increase (decrease) in deferred revenue 29,821 36,268 (3,989)
Increase in accrued expenses 112,873 33,914 52,209
Increase (decrease) in license fee payable - (84,000) 84,000
-------------- -------------- -----------------
Net cash provided (used) in operating activities (18,172) 265,754 (716,907)
-------------- -------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,595) - (162,453)
-------------- -------------- -----------------
Net cash used in investing activities (10,595) - (162,453)
-------------- -------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock - - 16,065
Payments of notes payable (72,383) (50,000)
Proceeds from equipment refinancing 88,657 - -
Borrowings under notes payable - 85,070 360,313
Borrowing under line of credit - - 73,588
Payments under line of credit - (263,588) -
-------------- -------------- -----------------
Net cash provided (used) by financing activities 16,274 (228,518) 449,966
-------------- -------------- -----------------
Net increase (decrease) in cash and cash equivalents (12,493) 37,236 (429,394)
Cash and cash equivalents, beginning of year 41,771 4,535 433,929
-------------- -------------- -----------------
Cash and cash equivalents, end of year $ 29,278 $ 41,771 $ 4,535
============== ============== =================
(continued)
The accompanying notes are an integral part of these financial statements.
87
THE AUTOMATIC ANSWER, INC.
Statements of Cash Flows (continued)
December 31, 2000 and 1999
2000 1999 1998
------------ ------------ ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- Cash paid during the year
for:
Interest $ 42,578 $ 52,506 $ 65,775
Income tax $ - $ 1,600 $ 800
============== ============== =================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING TRANSACTIONS:
Computer equipment refinanced under a lease transaction:
Cash received $ 88,657
Retired computer equipment (15,828)
Refurbished computer equipment 24,762
--------------
Lease financing payable $ 97,591
==============
The accompanying notes are an integral part of these financial statements.
88
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and line of business
The Automatic Answer, Inc. (the Company) makes PC-enabled telephone
answering software. Sales are made primarily to resellers and dealers.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Significant
estimates include reserve for bad debts, reserve for obsolete
inventory, and depreciation. Actual results could differ from those
estimates.
Cash and cash equivalents
For purpose of the statements of cash flows, cash equivalents include
amounts invested in a money market account with a financial
institution. The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Cash equivalents are carried at cost, which approximates market.
Concentration of cash
The Company at times maintains cash balances in excess of the federally
insured limit of $100,000 per institution. Uninsured balances as of
December 31, 2000 and 1999 were $92,279 and $0
respectively.
Revenue recognition
The Company recognizes revenue when merchandise is shipped to a
customer or at the time services are rendered. The Company estimates
the reserve for returns based on the historical amount of returns.
89
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable
The Company's accounts receivable consists of balances due from dealers
in the telecommunications industry. The terms are normally net 10 days.
The Company recorded an allowance for bad debts of $71,828 and $25,000
at December 31, 2000 and 1999, respectively.
Inventory
Inventory consists principally of network telephone PC hardware and is
stated at the lower of cost (first-in, first-out method) or market.
Property and equipment
Property and equipment are recorded at cost less accumulated
depreciation and amortization. Maintenance and minor replacements are
charged to expense as incurred. Gains and losses on disposals are
included in the results of operations.
Depreciation and amortization are provided using the straight-line
method over estimated useful lives of the respective assets as follows:
Office furniture and fixtures 7 years
Computer and office equipment 5 years
Computer software 3 years
90
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment (continued)
Amortization of leasehold improvements is computed using the
straight-line method over the lesser of the asset life or the life of
the respective lease.
Advertising cost
The Company expenses advertising costs as incurred. Total advertising
expense was $11,402 and $32,677 for the years ended December 31, 2000
and 1999, respectively.
Income taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Fair value of financial instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash and cash equivalents
and accounts payable and accrued liabilities, the carrying amounts
approximate fair value due to their short maturities. The amounts shown
for notes payable also approximate fair value because current interest
rates offered to the Company for debt of similar maturities are
substantially the same.
91
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock options
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes
and encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined
as of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current intrinsic value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation.
The Company has elected to use the intrinsic value based method and has
disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation.
Comprehensive income (loss):
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for financial statements for
periods beginning after December 15, 1997. This pronouncement
establishes standards for reporting and display of comprehensive income
(loss) and its components in a full set of general-purpose financial
statements. The Company, however, does not have any components of
comprehensive income (loss) as defined by SFAS 130 and therefore, for
the years ended December 31, 2000 and 1999, comprehensive income (loss)
is equivalent to the Company's net income (loss).
Long-Lived assets
The Company accounts for the impairment and disposition of long-lived
assets in accordance with SFAS No. 121, "Accounting for the impairment
of long-lived Assets and Long-Lived Assets to Be Disposed Of". In
accordance with SFAS No. 121, long-lived assets to be held are reviewed
for events or changes in circumstances, which indicate that their
carrying value may not be recoverable. As of December 31, 2000 and
1999, no impairment has been recorded.
92
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. The Company does not believe that the adoption of the
provisions of SFAS No. 133 will have a material impact on its financial
position or results of operations.
The FASB issued SFAS No. 131 on "Disclosures about Segments of an
Enterprise and Related Information" effective in 1998. The Company
evaluated SFAS No. 131 and determined that the Company operates in
only one segment.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
earned approximately $311,000 in 1999 and sustained net losses of $
501,893 and $ 1,520,478 in 2000 and 1998, respectively. The Company has
an accumulated deficit of approximately $1,293,000 and $814,000 at
December 31, 2000 and 1999, respectively. In addition, the Company had
a working deficit of approximately $1,360,500 and 994,900 at December
31, 2000 and 1999. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts
and classification of liabilities that might be necessary should the
Company be unable to continue in existence. The Company's continuation
as a going concern is dependent upon its ability to obtain the
additional financing necessary to complete development of new products
and achieve the level of sales that will enable it to sustain its
operations.
The Company is seeking to enter into a strategic acquisition with a
publicly held company and anticipates more financing from equity
sources to fund its operations. No assurance can be given that the
Company will be successful in these efforts.
93
NOTE 3 - INVENTORY
Inventory, which principally consists of computer hardware, amounted to
$133,364 and $338,118 at December 31, 2000 and 1999, respectively. The
Company's reserve for obsolete inventory amounted to $50,000 at
December 31, 2000 and 1999.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 consisted of the
following:
2000 1999
------------------ ------------------
Office furniture and fixtures $ 274,167 $ 274,166
Computer and office equipment 225,488 273,509
Computer software 40,036 40,036
Leasehold improvements 90,574 90,574
--- -------------- -- ---------------
Total property and equipment 630,265 678,285
Less accumulated depreciation and amortization (523,178) (483,230)
--- -------------- -- ---------------
Total $ 107,087 $ 195,055
=== ============== == ===============
Depreciation expense for the years ended December 31, 2000 and 1999 was
$107,497 and $148,130, respectively. Computer and office equipment
includes $24,762 of leased computer equipment under a lease financing
arrangement at December 31, 2000.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses at December 31, 2000 and 1999 consisted of the
following:
2000 1999
------------------ ------------------
Accrued payroll and payroll taxes $ 104,576 $ 125,879
Accrued consulting fees 96,000 -
Accrued benefits 66,876 74,165
Accrued accounting fees 30,000 12,000
Income taxes 800 -
Accrued interest 20,803 -
Other accrued expenses 8,652 2,790
-- --------------- --- --------------
Total $ 327,707 $ 214,834
== =============== === ==============
94
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
The company has entered into multiple loan agreements with its
shareholders and other related parties. Notes payable to shareholders
and related parties at December 31, 2000 consist of the following:
Note payable to a shareholder. Interest is 12% per annum, payable monthly. $ 300,000
Principal payment is due at maturity.
Note payable to a Trust. Interest is 12% per annum. Interest and principal
payments are due at maturity, February 10, 2001. The note is secured by the
assets of the company. 50,000
Note payable to a shareholder. Interest is 12%. Interest is payable monthly.
This is a short-term note with no fixed maturity date. 75,000
Note payable to a shareholder. Interest is 10% per annum. Interest is payable
monthly. Principal payment is due at maturity, April 25, 2000. The note is
outstanding at December 31, 2000. 25,000
Note payable to a shareholder. Interest is 10% per annum. Interest is payable
monthly. Principal payment is due at maturity, December 31, 1999. The note is
outstanding at December 31, 2000. 4,500
Note payable to a shareholder. Interest is 12% per annum. Interest is payable
monthly. Principal payment is due at maturity, March 01, 1999. The note is
outstanding at December 31, 2000. 35,000
Note payable to a Corporation. Interest is 7% per annum. Principal and
interest are due at maturity, August 11, 2000. The note is secured by the
assets of the company. On May 16, 2001 the Corporation filed a lawsuit against
the company for repayment. 33,500
-------------
-------------
$ 523,000
Total notes payable at December 31, 2000
=== =============
95
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS (continued)
Notes payable to shareholders and related parties at December 1999
consist of the following:
Note payable to an organization. Interest is 10% per annum, payable monthly. $ 75,000
Principal payment is due by November 30, 1999. The note is renewable every quarter
for additional interest. The note is secured by the assets of the company. The note
is outstanding at December 31, 1999.
Note payable to a shareholder. Interest is 10% per annum, payable monthly. Principal
payment is due at maturity, May 02, 1998. The note is renewable every quarter for
additional interest. The note is secured by the company's assets. The note is
outstanding at December 31, 1999. 100,000
Note payable to a shareholder. Interest is 12% per annum. Interest is due monthly
and principal payment is due at maturity. 125,000
Note payable to a Trust. Interest is 10% per annum. Interest and principal payments
are due at maturity, May 03, 1999. The note is outstanding at December 31, 1999. 50,000
Note payable to a shareholder. Interest is 10%. Interest is payable quarterly.
Principal payment is due at maturity, March 08, 2000. 25,000
Note payable to a shareholder. Interest is 10% per annum. Interest is payable
monthly. Principal payments are maturity, April 25, 2000. 25,000
Note payable to a shareholder. Interest is 10% per annum. Interest is payable
monthly. Principal payment is due at maturity, December 31, 1999.
The note is outstanding at December 31, 1999. 4,500
Note payable to a shareholder. Interest is 12% per annum. Interest is payable
monthly. Principal payment is due at maturity, March 01, 1999.
The note is outstanding at December 31, 1999. 35,000
Note payable to a shareholder. Interest is 10% per annum. Principal and interest
payments are due and payable. 56,433
Note payable to a Corporation. Interest is 7% per annum. Principal and accrued
interest are payable at maturity, August 11, 2000. The note is secured by the
assets of the company. 49,450
------------
------------
$ 545,383
Total notes payable at December 31, 1999
=== ============
96
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS (continued)
In conjunction with the notes, the Company issued warrants to the note
holders to purchase shares of the Company's common stock at exercise
prices that range from $0.01 to $3.00.
Interest expense on these notes amounted to $117,849 and $73,779 for
the years ended December 31, 2000 and 1999, respectively.
At December 31, 2000, several of these notes were in default. The
company is planning to convert the outstanding notes to a new class of
preferred stock within 120 days after the close of the proposed merger
agreement with Pen InterConnect, Inc. during the year 2001.
NOTE 7 - LEASE COMMITMENTS
The company entered into a financing arrangement with a financing
company at December 31, 2000. The company surrendered old equipment and
received new equipment as part of the transaction. The company recorded
lease financing payable in the amount of $97,591 at December 31, 2000
as a result of the financing arrangement.
Minimum annual rental payments subsequent to December 31, 2000 are:
2001 $ 33,474
2002 33,474
2003 31,837
2004 13,624
2005 12,489
--- ----------------
--- ----------------
Total minimum lease payments $ 124,898
Less amount representing interest 27,307
--- ----------------
--- ----------------
Total lease financing payable 97,591
Less current portion (22,750)
--- ----------------
--- ----------------
Lease financing payable - long term $ 74,841
=== ================
97
NOTE 8 - NOTE PAYABLE
On October 10, 1998 the Company entered into a volume purchase
agreement with Lucent Computer Telephony Products (CTP). CTP agreed to
loan the company $150,000 bearing interest at a rate of 10% per annum.
One third of the debt plus any accrued interest will be forgiven by CTP
on October 1, 1999, November 1, 2000 and December 1, 2001, provided
that CTP is the "primary supplier" of computer telephony products to
the Company for the three years following the date of the agreement.
The outstanding balance on this loan amounted to $50,000 and $100,000
at December 31, 2000 and 1999, respectively. Accrued interest in
relation to that note amounted to $5,000 at December 31, 2000. The
classification of the note on the balance sheet is presented below:
2000 1999
----------------- ------------------
Long term $ - $ 50,000
Current 50,000 50,000
--- ------------- --- --------------
Total $ 50,000 $ 100,000
=== ============= === ==============
NOTE 9 - LICENSE FEE PAYABLE
During 1998 the Company received $105,000 from a South African Company
for software license fees for a period of five years. During 1999, the
South African company discontinued operations and management decided to
write off the remaining balance in 1999. License fee expense at
December 31, 2000 and 1999 amounted to $0 and $84,000, respectively.
NOTE 10 - INCOME TAXES
Significant components of the provision for taxes based on income for
the years ended December 31 are as follows:
2000 1999
---------------- ---------------
Current
Federal $ - $ -
State 800 800
--- ------------ --- -----------
$ 800 $ 800
--- ------------ --- -----------
Deferred
Federal - -
State - -
--- ------------ --- -----------
$ 800 $ 800
Total
=== ============ === ===========
98
Significant components of the Company's deferred tax assets and
liabilities for income taxes consist of the following:
2000 1999
------------------- ------------------
Deferred tax asset
Net operating loss carryforwards $ 630,844 $ 440,093
Depreciation 39,418 31,705
Bad debts 30,771 10,710
Benefits and accruals 67,538 59,556
--- --------------- --- --------------
Total deferred tax asset 768,571 542,064
--- --------------- --- --------------
Deferred tax liability
State income taxes benefit (53,922) (38,031)
--- --------------- --- --------------
Less valuation allowance (714,649) (504,033)
--- --------------- --- --------------
Net deferred tax asset $ - $ -
=== =============== === ==============
At December 31, 2000 and 1999, the Company has available approximately
$1,472,557 and $1,027,295, respectively, in net operating loss
carryforwards available to offset future federal and state income
taxes, which expire through 2020.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Office Lease
The Company is committed under operating lease agreements for its
office facilities in Connecticut and California that expire in November
and July 2001 respectively. Certain leases contain renewal options.
Future minimum lease payments required under these non- cancelable
operating leases as of December 31, 2000 amount to $140,097.
Rent expense for the years ended December 31, 2000 and 1999 was
$182,096 and $212,459, respectively.
99
Litigation
On May 16, 2001, a lawsuit was filed, one of the Company's note
holders, for breach of contract. The plaintiff argues that the
Automatic Answer, Inc. has failed and refused to make the required loan
payments according to the terms of the written agreements between both
parties. The balance due to the plaintiff amounts to $33,500 plus
accrued interest at December 31, 2000.
NOTE 12 - STOCK OPTIONS AND WARRANTS
The Company adopted the 1996 Stock Option Plan ("the Plan") in July
1996. The Plan provides for the granting of incentive stock options and
non-qualified options to purchase shares of the Company's common stock
covering an aggregate of 600,000 shares of the Company's common stock.
The exercise price of incentive stock options under the Plan must at
least be equal to the fair market value of a share of common stock on
the date the option is granted. Non-qualified options shall have an
exercise price of not less than 85% of fair market value of a share of
common stock on the date such option is granted. The options must
expire no later than ten years from the date of grant. Vesting on
options granted in the future will be at a rate of no less than 20% per
year over a period of no more than five years following the date of
grant.
The Company has adopted only the disclosure provisions of SFAS No. 123.
It applies APB Opinion No. 25 and related interpretations in accounting
for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock and
options issued to outside third parties. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under this plan consistent with the methodology
prescribed by SFAS No. 123, the Company's net loss and loss per share
would be reduced to the pro forma amounts indicated below for the years
ended December 31:
2000 1999
------------------ -------------------
Net income (loss)
As reported $ (501,893) $ 311,226
Pro forma $ (542,593) $ 237,803
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the year ended December 31, 2000:
dividend yield of 0%; no expected volatility; risk-free interest rate
of 5.6%; and expected life of 4 years.
100
NOTE 12 - STOCK OPTIONS AND WARRANTS (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility.
The following table summarizes information with respect to options
outstanding and exercisable at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------- ---------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
as of Contractual Exercise as of Exercise
Exercise Prices December 31, 2000 Life Price December 31, 2000 Price
----------------- ------------------------------------------------- ---------------------------------
$ 0.10 2,500 4.99 $ 0.10 2,500 $ 0.10
$ 1.00 83,803 5.97 $ 1.00 83,803 $ 1.00
$ 2.50 151,000 8.58 $ 2.50 70,640 $ 2.50
--------------------- ---------------------
237,303 156,943
===================== =====================
101
NOTE 12 - STOCK OPTIONS AND WARRANTS (continued)
The following summarizes the Company's Stock Options activity:
2000 1999
---------------------------- ----------------------------
Number Weighted Number of Weighted
average average
of exercise exercise
options price options price
------------ ------------ ------------ ------------
Outstanding at beginning of year 515,120 $ 0.83 515,120 $ 0.83
Granted 153,000 2.50 - -
Exercised (100) 1.00 - -
Forfeited/Cancelled (430,717) 1.09 - -
------------ -- --------- ------------ -- ---------
Outstanding at end of year 237,303 $ 1.94 515,120 $ 0.83
============ == ========= ============ == =========
Options exercisable at year end 156,943 507,120
============ ============
Weighted average fair value of
options granted during the year $ 0.50 $ -
============ ============
The following table summarizes information with respect to warrants
outstanding and exercisable at December 31, 2000:
Warrants Outstanding Warrants Exercisable
-------------------------------------------------- ---------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
as of Contractual Exercise as of Exercise
Exercise Prices December 31, 2000 Life Price December 31, 2000 Price
---------------- --------------------- -------------- ------------- ---------------------------------
$ 0.01 775,131 9.63 $ 0.01 775,131 $ 0.01
$ 1.00 10,000 0.63 $ 1.00 10,000 $ 1.00
$ 2.00 1,131,000 3.91 $ 2.00 1,131,000 $ 2.00
$ 2.50 30,000 4.88 $ 2.50 30,000 $ 2.50
--------------------- --------------------
1,946,131 1,946,131
===================== ====================
102
NOTE 12 - STOCK OPTIONS AND WARRANTS (continued)
The following summarizes the Company's warrants activity:
Warrants Weighted
Average
Outstanding Exercise Price
----------------- ---------------
Outstanding, December 31, 1998 201,500 $ 2.19
Granted 1,428,500 $ 2.07
Exercised - $ -
Expired/Cancelled - $ -
----------------- -- ------------
Outstanding, December 31, 1999 1,630,000 $ 2.03
Granted 2,637,631 $ 0.862
Exercised - $ -
Expired/Cancelled (2,321,500) $ 1.39
----------------- -- ------------
Outstanding, December 31, 2000 1,946,131 $ 1.21
================= == ============
During the years ended December 31, 2000, and December 31, 1999, the
board of directors approved the issuance of warrants to purchase an
aggregate of 2,637,631 and 1,428,500 shares of the Company's common
stock. Such warrants are exercisable at prices ranging from $0.01 to
$2.50 per share, and these warrant vest immediately, and expire at
various times through August 2010.
During the year ended December 31, 2000, certain warrant holders
relinquished warrants to purchase 2,321,500 shares, in order to assist
the Company in its efforts to restructure operations.
Included in the issuance of warrants to purchase 2,637,631 aggregate
shares of the Company's common stock is a warrant to purchase 333,920
shares that was issued to the Chief Executive Officer and the Chairman
of Board as a bonus. The exercise price of the warrants is equal to the
fair value of the common shares. This issuance was accounted for under
APB Opinion No. 25, and accordingly, no compensation expense was
recorded. If this issuance was accounted for under Financial Accounting
Standards Board Statement No. 123 using the Black-Scholes option
pricing model, which would have resulted in the recording of $1,335 in
compensation cost during the year ended December 31, 2000
103
NOTE 12 - STOCK OPTIONS AND WARRANTS (continued)
During 2000, included in the issuance of warrants to purchase shares of
the Company's common stock are warrants to purchase 30,000 shares that
was issued to an employee as a bonus. The exercise price of the
warrants is in excess of the fair value of the common shares. This
issuance was accounted for under APB Opinion No. 25, and accordingly,
no compensation expense was recorded. If this issuance was accounted
for under Financial Accounting Standards Board Statement No. 123 using
the Black-Scholes option pricing model, which would have resulted in
the recording of no additional compensation cost during the year ended
December 31, 2000
During 1999, included in the issuance of warrants to purchase shares of
the Company's common stock are warrants to purchase 100,000 shares that
was issued to an employee as a bonus. The exercise price of the
warrants is equal of the fair value of the common shares. This issuance
was accounted for under APB Opinion No. 25, and accordingly, no
compensation expense was recorded. If this issuance was accounted for
under Financial Accounting Standards Board Statement No. 123 using the
Black-Scholes option pricing model, which would have resulted in the
recording of $47,500 in compensation cost during the year ended
December 31, 1999
NOTE 13 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, the Company adopted a defined contribution
plan (the Plan) that meets the requirements of Section 401(k) of the
Internal Revenue Code. To become eligible to join the plan, employees
must have attained the age of 21 and completed 90 days of service with
the Company. Participants may contribute up to 15% of their
compensation, not to exceed $10,500. Plan expense was $8,799 and
$11,226 for the years ended December 31, 2000 and 1999, respectively.
The employer matching percentage varies from 11% to 25% of the amount
contributed by the employee during a calendar year. The company
terminated employer-matching contribution in April 30, 2001.
\NOTE 14 - RELATED PARTY TRANSACTIONS
During the year 2000, the Company issued 427,464 shares of common stock
with a value of $4,274 to two members of its board of directors in lieu
of cash payments for consulting services provided to the company.
The Company issued 475,172 shares of common stock with a value of
$4,752 to various shareholders as payment for consulting services
rendered to the company or for settlement of amounts due them.
The Company issued 398,035 shares of common stock with a value of
$3,980 to an officer of the company as payment for services rendered to
the company.
104
The Company issued 525,378 shares of its common stock with a value of
$5,254 to the president of the company in lieu of cash compensation.
The Company issued 192,248 shares of its common stock with a value of
$1,922 to a family member of the President of the Company as settlement
of amounts due them.
NOTE 15 - SUBSEQUENT EVENTS
The Company reached an agreement with Pen InterConnect, Inc. (trading
symbol, PENC), a publicly traded corporation on the NASDAQ Over the
Counter Bulletin Board ("OTCBB"). Under the agreement, the Company will
exchange all of its shares, including the exercise of all stock and
options, for sixty-seven (67%) of PENC's outstanding common shares.
The number of shares the Company receives will be adjusted if the
average closing price of the PENC common stock, in the aggregate, for
the 60 days after the close of the transaction, falls below
$10,000,000. The agreement calls for certain of the Company's debt
holders to convert their outstanding notes to a new class of preferred
stock within 120 days after the close of the transaction.
As part of the transaction, The Automatic Answer, Inc. borrowed
$500,000 from Pen Interconnect, Inc in two installments, $250,000 on
February 1, 2001 and $250,000 on April 26, 2001. These notes are due on
September 1, 2001 and bear interest at 9% per annum.
105
THE AMANDA COMPANY
UNAUDITED PROFORMA FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2001 AND 2000
106
UnAUDITED PROFORMA FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Page
Balance Sheets......................................101-110
Statements of Operations................................111
Statement of Cash Flows Year 2001...................112-113
107
THE AMANDA COMPANY, INC.
PROFORMA BALANCE SHEETS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
September 30 September 30
2000 2001
------------------------------------------
(unaudited) (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 48,783 $ 36,394
Accounts receivable, net 211,575 84,069
Inventory 120,073 172,617
Prepaid and other current assets 32,240 51,880
-------------------- --------------------
Total current assets
412,671 344,960
PROPERTY AND EQUIPMENT, NET 126,883 33,020
OTHER ASSETS 40,591 29,436
-------------------- --------------------
Total assets $ $
580,145 407,416
==================== ====================
108
THE AMANDA COMPANY, INC.
PROFORMA BALANCE SHEETS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
30-Sep 30-Sep
2000 2001
---------------------------------
(unaudited) (unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,764,228 $ 778,986
Accrued liabilities 976,780 1,678,820
Leasing financing payable - 22,750
Notes payable 563,950 573,000
Deferred revenue 108,016 15,448
Convertible debentures 150,000 800,000
------------- ------------
Total current liabilities 3,562,974 3,869,004
LONG-TERM LIABILITIES
Lease financing payable - 72,320
--------------- ---------------
Total long-term liabilities - 72,320
--------------- ---------------
Total liabilities 3,562,974 3,941,324
STOCKHOLDERS' DEFICIT
Convertible Preferred stock, $0.01 par value authorized
5,000,000 shares, Series A; issued and outstanding 1 1
130 shares at September 30, 2000 and 91 shares at
September 30, 2001. Series B: issued and 9 9
outstanding 926 shares at September 30, 2000 and
886 shares at September 30, 2001
Common stock, $.001 par value, issued and out- standing 665,512,533 shares at
September 30, 2000
and 687,789,599 shares at September 30, 2001 665,513 687,789
Accumulated deficit (3,648,352) (4,221,707)
------------ ------------
Total stockholders' deficit (2,982,829) (3,533,908)
------------ ------------
Total liabilities and stockholders'
deficit $ 580,145 $ 407,416
=============== ===============
109
THE AMANDA COMPANY, INC.
PROFORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
\
2000 2001
---- ----
(unaudited) (unaudited)
Net sales $ 5,015,319 $ 3,990,679
Cost of sales 3,224,312 2,361,425
------------------- ------------------
Gross profit 1,791,007 1,629,254
Selling, general and administrative expenses 3,940,021 3,284,560
------------------- ------------------
Operating loss (2,149,014) (1,655,306)
Other income (expense)
Interest expense (444,729) (163,103)
Miscellaneous income (expense), net (4,273) 110,769
Loss on impairment (320,500) (63,000)
Loss on lawsuit (135,300) -
Liquidation damage waiver (86,941) -
Gain (loss) from discontinued operations (1,274,211) 65,851
Extinguishment of debt 2,018,547 # 149,642
------------------- ------------------
Total other income (expense) (247,407) 100,159
------------------- ------------------
Net loss before income taxes (2,396,421) (1,555,147)
Income taxes 1,766 1,600
------------------- ------------------
Net loss $ (2,398,187) $ (1,556,747)
==================== ====================
110
THE AMANDA COMPANY, INC.
PROFORMA STATEMENT OF CASH FLOW
FOR THE YEAR ENDED SEPTEMBER 30, 2001
2001
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,556,747)
Adjustments to reconcile net cash provided (used) in
operating activities
Depreciation and amortization 103,328
Common stock issued for services 28,760
Debt conversion to common stock 23,378
Warrant/option compensation expense 163,765
Common stock issued for compensation and interest 67,546
Effect on cash of changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 127,506
Decrease (increase) in inventory (52,544)
Decrease (increase) in prepaid and other current assets (19,640)
Decrease (increase) in security deposits 11,155
Increase (decrease) in accounts payable (985,242)
Increase (decrease) in accrued expenses 702,040
Increase (decrease) in deferred revenue (92,568)
---------------
Net cash provided (used) in operating activities (1,479,263)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (10,595)
---------------
Net cash provided (used) in investing activities (10,595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equipment financing 88,657
Proceeds from convertible debenture 650,000
Proceeds from advances 40,000
Preferred dividends adjustment 10,285
Exercise of warrants 644,185
Exercise of stock options 44,342
Proceeds from convertible promissory notes -
-
Net cash provided (used) in financing activities # 1,477,469
--------------
Net increase (decrease) in cash and cash equivalents (12,389)
Cash and cash equivalents at beginning of period 48,783
--------------
Cash and cash equivalents at end of period 36,394
==============
Supplemental disclosure of cash flow information
-------------------------------------------------------
Cash paid during the period for:
Interest expense $ 0.00
Income tax expense $ 0.00
111
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
The Certificate of Incorporation of the Company provides that all
directors, officers, employees and agents of the Company shall be entitled to be
indemnified by the Company to the fullest extent permitted by law. The
Certificate of Incorporation also provides as follows:
The corporation shall, to the fullest extent permitted by the Act, as
the same may be amended and supplemented, indemnify all directors, officers,
employees, and agents of the corporation whom it shall have power to indemnify
thereunder from and against any and all of the expenses, liabilities, or other
matters referred to therein or covered thereby. Such right to indemnification or
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee, or agent of the corporation, and shall inure to the
benefit of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any bylaw, agreement, vote of stockholders or
of disinterested directors or otherwise. The corporation shall have the right to
purchase and maintain insurance on behalf of its directors, officers, and
employees or agents to the full extent permitted by the Act, as the same may be
amended or supplemented.
Commission Policy
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
Other Expenses of Issuance and Distribution
Related to the securities being registered. The expenses shall be paid by the
Registrant.
SEC Registration Fee $ 345.31
Printing and Engraving Expenses $ 2,000.00
Legal Fees and Expenses $ 15,000.00
Accounting Fees and Expenses $ 25,000.00
Transfer Agent Fees $ 2,000.00
Blue Sky Fees $ 2,000.00
Miscellaneous $ 5,000.00
---------------
Total $ 51,345.31
Recent Sales of Unregistered Securities
Shares of common stock issued
(1) In October 1998, Amanda issued 388,846 shares of common stock to BNC Bach
International Ltd. Upon conversion of subordinated debentures of $252,750.
112
(2) In October 1998, Amanda issued 157,935 shares of common stock to RBB Bank
Aktiengrsellshaft. Upon conversion of subordinated debentures of $107,668.
(3) In November 1998, Amanda issued 30,000 shares of common stock at $0.75 per
share to Heracles Holdings Limited upon exercise of warrants.
(4) In November 1998, Amanda issued 20,000 shares of common stock at $0.75 per
share to Lawson Rollins upon exercise of warrants.
(5) In December 1998, Amanda issued 50,000 shares of common stock at $0.75 per
share to Louis F. Centofanti upon exercise of warrants.
(6) In December 1998, Amanda issued 20,000 shares of common stock at $0.75 per
share to Neyla Kizner upon exercise of warrants.
(7) In December 1998, Amanda issued 10,000 shares of common stock at $0.75 per
share to Rahim Kaba upon exercise of warrants.
(8) In December 1998, Amanda issued 307,692 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of $200,000.
(9) In December 1998, Amanda issued 90,000 shares of common stock at $0.75 per
share to Gordon Mundy upon exercise of warrants.
(10) In January 1999, Amanda issued 46,014 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of $50,846.
(11) In January 1999, Amanda issued 103,956 shares of common stock to Dundee
Securities. upon conversion of subordinated debentures of $101,877.
(12) In March 1999, Amanda issued 172,681 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of $127,784.
(13) In March 1999, Amanda issued 104,372 shares of common stock to BNC Bach
International Ltd.
In fiscal 2000, there were 17,958,832 shares of common stock issued of which
16,698,832 were unregistered, as follows:
(14) In April 2000, 411,112 shares of common stock were issued at $.20 per share
upon exercise of Series B Preferred stock. These shares were issued pursuant to
the exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." The investors of
the stock were accredited investors.
(15) In February 2000 through April 2000, there were 9,406,977 shares of common
stock issued upon conversion of Series A Preferred stock. These shares were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investors of the stock were accredited investors.
(16) In September 2000, Amanda issued 1,055,540 shares of common stock in
payment of $101,305 at $.10 a share, or 50% of market price, in payment of
accounts payable. These shares were issued pursuant to the exemption provided
for under Section 4(2) of the Securities Act of 1933, as amended, as a
"transaction not involving a public offering." The investors of the stock were
accredited investors.
(17) In December 1999 through April 2000 3,041,668 shares of common stock were
issued at $.14 a share upon exercise of warrants. These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering." The
investors of the stock were accredited investors.
(18) In March of 2000, Amanda issued 315,000 shares of common stock at $.27 a
shares upon conversion of warrants. These shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." The investors of
the stock were accredited investors.
(19) In May and June of 2000, Amanda issued 1,397,328 shares of common stock for
services rendered at $.25 a share (approximately market price). These shares
were issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investors of the stock were accredited investors.
(20) In May and June of 2000, Amanda issued 1,065,000 shares of common stock for
services rendered at $.22 a share (approximately market price) upon the exercise
of options. These shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering." The investors of the stock were accredited
investors.
(21) In September 2000, Amanda issued 6,207 shares of common stock in payment of
accounts payable at $.01 per share (approximately 50% discount to market). These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investors of the stock were accredited investors. In fiscal 2001,
there were 22,276,657 shares of common stock issued of which 10,666,657 were
unregistered, as follows:
(22) In October 2000, Amanda issued 95,000 shares of common stock at $.16 a
share (approximately market price) a share to Alan Weaver for services rendered.
These shares were issued pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933, as amended, as a "transaction not involving
a public offering." The investor of the stock was an accredited investor.
(23) In October 2000, Amanda issued 617,000 shares of common stock at $.06 a
share upon the exercise of warrants. These shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." The investor of the
stock was an accredited investor.
(24) In October 2000, Amanda issued 667 shares of common stock at $3.00 per
share to Mr. Fisher to retire debt owed. These shares were issued pursuant to
the exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." The investor of the
stock was an accredited investor.
(25) In October 2000, Amanda issued 3,200 shares of common stock at $3.00 a
share to Multitik to retire debt owed. These shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering." The investor of the
stock was an accredited investor.
(26) In November 2000, Amanda issued 481,979, shares of common stock at $.08 a
shares (approximately market price) to The Trading Post upon exercise of
warrants. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering." The investor of the stock was an accredited
investor.
(27) In November 2000, Amanda issued 47,222, shares of common stock at $.09 a
shares (approximately market price) to Milt Haber upon exercise of warrants.
These shares were issued pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933, as amended, as a "transaction not involving
a public offering." The investor of the stock was an accredited investor.
(28) In November 2000, Amanda issued 500,000, shares of common stock at $.05 a
shares (approximately market price) to Bi-Coastal Consulting Group upon exercise
of warrants. These shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering." The investor of the stock was an accredited
investor.
(29) In November 2000, Amanda issued 200,000, shares of common stock at $.03 a
shares (approximately market price) to Josh Weinfield upon exercise of warrants.
These shares were issued pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933, as amended, as a "transaction not involving
a public offering." The investor of the stock was an accredited investor.
(30) In December 2000, Amanda issued 450,000, shares of common stock at $.02 a
shares (a 50% discount to market price) to AMRO International upon exercise of
warrants. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering." The investor of the stock was an accredited
investor.
(31) In December 2000, Amanda issued 475,000, shares of common stock at $.05
(approximately market price) to Ed Saverese upon exercise of warrants. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(32) In January 2001, Amanda issued 75,000, shares of common stock at $.06
(approximately market price) to Scott Sellers upon exercise of warrants. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(33) In January 2001, Amanda issued 250,000, shares of common stock at $.03
(approximately market price) to Bi-Coastal Consulting Group upon exercise of
warrants. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as
(34) In January 2001, Amanda issued 500,000, shares of common stock at $.02
(approximately 50% discount to market price) to Ed Saverese upon exercise of
warrants. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering." The investor of the stock was an accredited
investor.
(35) In February 2001, Amanda issued 117 shares of common stock at $3.00
(settlement figure) to US Vibra in payment of debt. These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering." The
investor of the stock was an accredited investor.
(36) In February 2001, Amanda issued 1,194 shares of common stock at $3.00
(settlement figure) to AndersonECD in payment of debt. These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering." The
investor of the stock was an accredited investor.
(38) In February 2001, Amanda issued 5,000 shares of common stock at $1.97
(settlement figure) to Pioneer Standard in payment of debt. These shares were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(39) In May 2001, Amanda issued 416,667 shares of common stock at $.04 a shares
(approximately market price) to Austost Anstalt upon exercise of warrants. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(40) In May 2001, Amanda issued 416,667 shares of common stock at $.04 a shares
(approximately market price) to Balmore Funds upon exercise of warrants. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(41) In June 2001, Amanda issued 237,000 shares of common stock at $.04 a shares
(approximately market price) to Jay Chung upon exercise of warrants. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(42) In June 2001, Amanda issued 1,217,039 shares of common stock at $.03 a
shares (approximately market price) to AMRO International upon exercise of
warrants. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering." The investor of the stock was an accredited
investor.
(43) In June 2001, Amanda issued 300,000 shares of common stock at $.03 a shares
(approximately market price) to Ashford Capital for services rendered. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(44) In June 2001, Amanda issued 910,000 shares of common stock at $.05 a shares
(approximately market price) to Bi-Coastal Consulting Group for services
rendered. These shares were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering." The investor of the stock was an accredited
investor.
(45) In July 2001, Amanda issued 500,000 shares of common stock at $.03 a shares
(approximately market price) to Milton Hauber for services rendered. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(46) In July 2001, Amanda issued 100,000 shares of common stock at $.03 a shares
(approximately market price) to Christine Risner for services rendered. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(47) In July 2001, Amanda issued 500,000 shares of common stock at $.03 a shares
(approximately market price) to Brian Bonar for services rendered. These shares
were issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(48) In July 2001, Amanda issued 300,000 shares of common stock at $.03 a shares
(approximately market price) to Robert Dietrich for services rendered. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(49) In July 2001, Amanda issued 250,000 shares of common stock at $.03 a shares
(approximately market price) to Finova Capital for settlement of debt. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.
(50) In August 2001, Amanda issued 500,000 shares of common stock at $.03 a
shares (approximately market price) to Finova Capital for Settlement of Debt.
These shares were issued pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933, as amended, as a "transaction not involving
a public offering." The investor of the stock was an accredited investor.
(51) In August 2001, Amanda issued 392,157 shares of common stock at $.03 a
shares (approximately market price) to Austost Anstalt upon conversion of
preferred stock. These shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering." The investor of the stock was an accredited
investor.
(52) In August 2001, Amanda issued 392,157 shares of common stock at $.03 a
shares (approximately market price) to Balmore Funds upon conversion of
preferred stock. These shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering." The investor of the stock was an accredited
investor.
(53) In December 2001, Amanda issued 236,174,041 shares of common stock pursuant
to the "Final Merger Agreement Pen Interconnect,Inc./The Automatic Answer, Inc."
dated October 23, 2001.
(54) In April 2002, Amanda issued 28,119,856 shares of common stock pursuant to
the "Final Merger Agreement Pen Interconnect,Inc./The Automatic Answer, Inc."
dated October 23, 2001.
Convertible Notes issued
On March 8, 2001, Amanda issued three convertible debentures for an
aggregate of $200,000 in cash in accordance with ss. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act"). The investors of
these securities were accredited investors.
On May 14, 2001, Amanda issued a convertible debenture for an $150,000
in cash in accordance with ss. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investors of these securities were
accredited investors.
On July 9, 2001, Amanda issued a convertible debenture for an $100,000
in cash in accordance with ss. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investor of this security is an
accredited investor.
On July 16, 2001, Amanda issued a convertible debenture for an $100,000
in cash in accordance with ss. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investor of this security is an
accredited investor.
On October 4, 2001, Amanda issued a convertible debenture for an
$250,000 in cash in accordance with ss. 4(2) and Rule 506 under the Securities
Act of 1933, as amended (the "Securities Act"). The investor of this security is
an accredited investor.
In November, 2001, Amanda issued four convertible debentures for an
aggregate of $320,000 in cash in accordance with ss. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act"). The investors of
these securities were accredited investors.
On January 9, 2002, Amanda issued a convertible debenture for an amount
of $300,000 in cash in accordance with ss. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act"). The investor of this
security is an accredited investor.
Within five days after the effectiveness of this registration
statement, Amanda will issue a convertible debenture for an amount of $100,000
in cash in accordance with ss. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investor of this security is an
accredited investor.
Warrants and options issued:
---------------------------
On October 4, 2001 Amanda issued a total of 8,055,583 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an exercise
price equal to $02 per share. These warrants expire October 4, 2006. The Warrant
provides that in no event shall the holder beneficially own more than 4.999% of
our outstanding common stock. These warrants were issued in accordance with ss.
4(2) and Rule 506 under the Securities Act of 1933, as amended (the "Securities
Act"). The investors of these securities were accredited investors.
On November 26, 2001 Amanda issued a total of 7,944,682 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an exercise
price equal to $01 per share. These warrants expire November 26, 2006. The
Warrant provides that in no event shall the holder beneficially own more than
4.999% of our outstanding common stock. These warrants were issued in accordance
with ss. 4(2) and Rule 506 under the Securities Act of 1933, as amended (the
"Securities Act"). The investors of these securities were accredited investors.
On January 11, 2002, Amanda issued a total of 8,571,429 warrants. Each
warrant allows the holder to purchase 1 share of our common stock at an at an
exercise price per share equal to the lesser of (i) $.007 and (ii) the average
of the lowest three (3) trading prices during the thirty (30) trading days
immediately prior to exercise, discounted by 30%. The Warrant provides that in
no event shall the holder beneficially own more than 4.999% of our outstanding
common stock.. These warrants do not have an expiration date. These warrants
were issued in accordance with ss. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investors of these securities were
accredited investors.
Five days after the effectiveness of this registration statement,
Amanda will issue additional common stock purchase warrants for the right to
purchase 8,571,429 shares of Common Stock of Amanda at an exercise price per
share equal to the lesser of (i) $.007 and (ii) the average of the lowest three
(3) trading prices during the thirty (30) trading days immediately prior to
exercise, discounted by 30%. These warrants will not have an expiration date.
These warrants will be issued in accordance with ss. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act"). The investors of
these securities are accredited investors.
Exhibits:
1. Underwriter's Warrant Agreement including Form of Underwriter's
Warrant, incorporated by reference to the Company's Registration
Statement filed on Form SB-2, SEC File No. 33-96444.
3. Articles of Incorporation and By-Laws, incorporated by reference to the
Company's Registration Statement filed on Form SB-2, SEC File No.
33-96444
4.1 Certificate of Amendment creating Series A Convertible Preferred Stock
as amended, as filed February 10, 1999. See Exhibit to report on Form
8-K filed on February 17, 1999.
4.2 Certificate of Amendment creating Series B Convertible Preferred Stock
as amended.
5.1 Opinion re: Legality
10.4 Form of Warrant between the Registrant and JW Charles Securities, Inc.,
BMC Bach International Ltd., Gordon Mundy, Louis Centofanti and
Heracles Holdings. See Registration Statement filed on Form S-3, SEC
File No. 333-60451.
10.5 Form of 1995 Stock Option Plan. See Registration Statement filed on
Form SB-2, SEC File No. 33-96444.
10.7 Loan and Security Agreement between FINOVA and the Company. See Exhibit
to Report on Form 10-KSB, dated September 30, 1997.
10.8 Employment Agreement between Stephen J. Fryer and the Company. See
Exhibit to Report on Form 10-KSB, dated September 30, 1997.
10.11.1 Finder's Agreement between the Registrant and JW Charles Securities,
Inc., dated June 2, 1998. See Registration Statement filed on Form S-3,
SEC File No. 333-60451.
10.12 Convertible Preferred Stock and Warrant Purchase Agreement between Pen,
RBB Bank AG, Austost Anstalt Schaan, Balmore Funds SA and AMRO
International, SA dated as of February 12, 1999. See Exhibits to Report
on Form 8-K filed February 17, 1999.
10.13 Amendment in Total and Complete Restatement of the Deferred
Compensation Salary Continuation Plan and Employment Agreement between
Pen and James S. Pendleton, dated as of July 23, 1999.
10.14 Amendment in Total and Complete Restatement of the Deferred
Compensation Salary Continuation Plan and Employment Agreement between
Pen, Wayne R. Wright, and Rent A Profession, dated as of October 1,
1999.
10.15 Change in Pen's Auditors from Grant Thornton LLP to Berg & company as
have March 7, 2000, and FINOVA's foreclosure action on Pen's assets to
recover its' loans to the Company. See Exhibits to Report on Form 8-K
filed on March 14, 2000, SEC File No. 1-14072.
10.16 Amended Registration Rights Agreement for registration of Common stock,
Form S-B2 filed February 16, 2000. Registration Statement # 333-79631.
10.17 1999 Consulting Services Agreement and Compensation Plan for outside
consultants (Incorporated by reference to Form S-8, filed September 3,
1999.
10.18 2000 Consulting Services Agreement and compensation plan for outside
consultants. (Incorporated by reference to Form S-8 filed May 17, 2000.
10.19 2001 Consulting and Advisors Service Agreement for outside consultants
(Incorporated by reference to Form S-8 filed on May 19, 2001; Form
S-8 filed on August 14, 2001; Form S-8 filed on February 23, 2001
and Form S-8 filed on January 25, 2001.
10.20 Convertible Note issued to AMRO Int'l S.A. dated August 24, 2000. (1)
10.21 Convertible Note issued to Austost Anstalt Schaan dated
August 24, 2000. (1)
10.22 Convertible Note issued to Balmore S.A dated august 24, 2000. (1)
10.23 Convertible Note issued to ALPHA CAPITAL AG dated March 8, 2001. (1)
10.24 Convertible Note issued to AMRO Int'l S.A. dated March 8, 2001. (1)
10.25 Convertible Note issued to Woo Young Kim dated March 8, 2001. (1)
10.26 Convertible Debenture Purchase Agreement dated March 8, 2001. (1)
10.27 Registration Rights Agreement Dated March 8, 2001. (1)
10.28 Convertible Note issued to Filter Int'l Corp. dated May 14, 2001.(1)
10.29 Convertible Note issued to George Furla dated July 9, 2001. (1)
10.30 Convertible Note issued to Howard Schraub dated July 16, 2001. (1)
10.31 Convertible Note Purchase Agreement, Filter Int'l, George Furla,
Howard Schraub. (1)
10.32 Registration Rights Agreement, Filter Int'l, George Furla,
Howard Schraub
10.33 convertible Note issued to Stonestreet LP dated October 4, 2001. (1)
10.34 Warrant Agreement, Stonestreet LP dated October 4, 2001. (1)
10.35 Convertible Note Purchase Agreement, Stonestreet L.P., dated October 4,
2001. (1)
10.36 Registration Rights Agreement, Stonestreet L.P., dated
October 4, 2001. (1)
10.37 Convertible Note issued to AMRO Int'l S.A. dated November 19, 2001. (1)
10.38 Convertible Note Purchase Agreement, AMRO Int'l S.A. dated November 19,
2001. (1)
10.39 Registration Rights Agreement, AMRO Int'l S.A. dated
November 19, 2001. (1)
10.40 Convertible Note issued to ALPHA Capital AG dated
November 19, 2001. (1)
10.41 Convertible Note Purchase Agreement, ALPHA Capital AG dated November 19,
2001. (1)
10.42 Registration Rights Agreement, ALPHA Capital AG dated November 19, 2001
10.43 Convertible Note Purchase Agreement, Stonestreet L.P., dated
November 26,
2001. (1)
10.44 Convertible Note Purchase Agreement, Stonestreet Corporation., dated
November 26,2001. (1)
10.45 Warrant Agreement, Stonestreet LP dated November 26, 2001. (1)
10.46 Warrant Agreement, Stonestreet Corporation dated November 26, 2001. (1)
10.47 Convertible Note Purchase Agreement, dated November 26, 2001. (1)
10.48 Registration Rights Agreement, dated November 26, 2001. (1)
10.49 2001 Consulting and Advisors Service Agreement for outside consultants
Incorporated by reference to Form S-8 filed on October 19, 2000, and
Form S-8 filed on December 04, 2001). (1)
10.50 Warrant Agreement, Bristol Investment Fund, Ltd., dated
January 12, 2002. (1)
10.51 Warrant Agreement, Bristol Capital, LLC dated January 12, 2002. (1)
10.52 Warrant Agreement, Alexander Dunham Capital Group, Inc., dated
January 12, 2002. (1)
10.53 tAA and Pen Interconnect Merger Agreement dated October 23, 2001. (1)
10.54 Secured Convertible Note Purchase Agreement, Bristol
Investment Fund, Ltd., dated dated January 12, 2002.
10.55 Registration Rights Agreement, dated January 12, 2002.
10.56 Secured Convertible Note, Bristol Investment Fund, Ltd.
January 12, 2002.
23.1 Consent of counsel, Naccarato & Associates (included in Exhibit 5.1)
23.2 Consent of Pohl, McNabola, Berg & Company LLP
(1) Previously filed on Form SB/2 on April 14, 2002, File No.
333-86038
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in the
registration statement; and arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertaking (e)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Irvine,
CA on May 17, 2002.
The Amanda Company
By: /s/ Brian bonar
Brian bonar
Chairman of the Board, Acting Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
---------- --------- ----
/s/ David Woo
David Woo Director May 17, 2002
/s/Brian Bonar
Brian Bonar Chairman of the Board May 17, 2002
Acting Chief Executive officer
/s/ Steve Fryer
Steve Fryer Director May 17, 2002
/s/ E.Timothy Morgan
E. Timothy Morgan Director May 17, 2002
Exhibit 5.1
May 17, 2002
The Amanda Company
13765 Alton Parkway, suite F
Irvine, California 92618
Dear Sir or Madam:
We have acted as counsel for The Amanda Company, a Utah corporation
(the "Company"), in connection with its Registration Statement on Form SB-2 (the
"Registration Statement") being filed with the Securities and Exchange
Commission relating to the registration for resale of 196,652,672 shares of
Common Stock, par value $.01 per share, of which 193,158,333 are issuable upon
conversion of convertible debentures and 3,494,339 shares are issuable upon the
exercise of warrants.
In connection with the foregoing, we have examined, among other
things, the Registration Statement and originals or copies, satisfactory to us,
of all such corporate records and of all such other agreements, certificates and
documents (including instruments evidencing or setting forth the terms and
provisions of the Convertible Securities) as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
documents of documents submitted to us as copies. As to any facts material to
such opinion, we have, to the extent that relevant facts were not independently
established by us, relied on certificates of public officials and certificates,
oaths and declarations of officers or other representatives of the Company.
Based on our examination mentioned above, we are of the opinion that
the securities being sold pursuant to the Registration Statement are duly
authorized and will be, when sold in the manner described in the Registration
Statement, legally and validly issued, and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to our firm under "Legal
Matters" in the related Prospectus.
Very truly yours,
/s/ Naccarato & Associates
Exhibit 10.54
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,
OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
REGULATION S UNDER SAID ACT.
SECURED CONVERTIBLE DEBENTURE
Irvine, California
January 12, 2002 $300,000
FOR VALUE RECEIVED, THE AMANDA COMPANY, a Utah corporation
(hereinafter called the "Borrower"), hereby promises to pay to the order of
BRISTOL INVESTMENT FUND, LTD. or registered assigns (the "Holder") the sum of
Three Hundred Thousand Dollars ($300,000), on January 12, 2003 (the "Maturity
Date"), and to pay interest on the unpaid principal balance hereof at the rate
of eight percent (8%) per annum from January 12, 2002 (the "Issue Date") until
the same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on this Debenture
which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the issue date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30, September 30 and December 31 of each year beginning on March 31, 2002,
or at the time of conversion of the principal to which such interest relates in
accordance with Article I below. All payments due hereunder (to the extent not
converted into common stock, par value $0.01 per share, of the Borrower (the
"Common Stock") in accordance with the terms hereof) shall be made in lawful
money of the United States of America or, at the option of the Holder, in whole
or in part, in shares of Common Stock of the Borrower valued at the then
applicable Conversion Price (as defined herein). All payments shall be made at
such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Debenture is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date. As used in this
Debenture, the term "business day" shall mean any day other than a Saturday,
Sunday or a day on which commercial banks in the city of Los Angeles, California
are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated January
12, 2002, pursuant to which this Debenture was originally issued (the "Purchase
Agreement").
This Debenture is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of stockholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Debenture shall be secured by that certain Security Agreement dated
by and between the Borrower and the Holder of even date herewith.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from
time to time, and at any time on or prior to the earlier of (i) the Maturity
Date and (ii) the date of payment of the Default Amount (as defined in Article
III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount
(as defined in Section 5.1 or any payments pursuant to Section 1.7, each in
respect of the remaining outstanding principal amount of this Debenture to
convert all or any part of the outstanding and unpaid principal amount of this
Debenture into fully paid and non-assessable shares of Common Stock, as such
Common Stock exists on the Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be
changed or reclassified at the conversion price (the "Conversion Price")
determined as provided herein (a "Conversion"); provided, however, that in no
event shall the Holder be entitled to convert any portion of this Debenture in
excess of that portion of this Debenture upon conversion of which the sum of (1)
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Debentures, or the
unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares of
Common Stock issuable upon the conversion of the portion of this Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The Holder of this Debenture may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Borrower. The number of shares of Common Stock to be issued upon each conversion
of this Debenture shall be determined by dividing the Conversion Amount (as
defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 3:00 p.m., Los Angeles, California
time on such conversion date (the "Conversion Date"). The term "Conversion
Amount" means, with respect to any conversion of this Debenture, the sum of (1)
the principal amount of this Debenture to be converted in such conversion plus
(2) accrued and unpaid interest, if any, on such principal amount at the
interest rates provided in this Debenture to the Conversion Date plus (3)
Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (1) and/or (2) plus (4) at the Holder's option, any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of that certain Registration Rights Agreement, dated as of January
12, 2002, executed in connection with the initial issuance of this Debenture and
the other Debentures issued on the Issue Date (the "Registration Rights
Agreement").
1.2 Conversion Price.
----------------
(a) Calculation of Conversion Price. The Conversion Price shall be the
lesser of (i) the Variable Conversion Price (as defined herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings by the
Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the
thirty (30) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any date, the
intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Debentures and the
Borrower or, if the OTCBB is not the principal trading market for such security,
the intraday trading price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "Trading
Day" shall mean any day on which the Common Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded. "Applicable Percentage" shall mean
70%. The "Fixed Conversion Price" shall mean $____. [average of the 3 lowest
Trading Prices for the 30 Trading Days immediately prior to the closing date,
discounted by 30%].
(b) Conversion Price During Major Announcements. Notwithstanding anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes
a public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Borrower is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the "Announcement Date"), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this Section
1.2(a). For purposes hereof, "Adjusted Conversion Price Termination Date" shall
mean, with respect to any proposed transaction or tender offer (or takeover
scheme) for which a public announcement as contemplated by this Section 1.2(b)
has been made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
1.3 Authorized Shares. The Borrower covenants that during the
period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement. The Borrower is required at all times to have authorized and
reserved two times the number of shares that is actually issuable upon full
conversion of the Debentures (based on the Conversion Price of the Debentures or
the Exercise Price of the Warrants in effect from time to time) (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Borrower's obligations pursuant to Section 4(h) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. In addition, if the Borrower
shall issue any securities or make any change to its capital structure which
would change the number of shares of Common Stock into which the Debentures
shall be convertible at the then current Conversion Price, the Borrower shall at
the same time make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Debentures. The Borrower
(i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Debenture,
and (ii) agrees that its issuance of this Debenture shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof
until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized by the Borrower to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i)
the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Debenture plus (2)
accrued and unpaid interest on the unpaid principal amount of this Debenture
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Borrower shall use its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable following the earlier of (i) such time
that the Holder notifies the Borrower or that the Borrower otherwise becomes
aware that there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common Stock)
at the applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash payment
shall be made to Holder by the fifth (5th) day of the month following the month
in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock, the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance with the terms
of this Article I (so long as there is then a sufficient number of authorized
shares of Common Stock).
The Holder's election shall be made in writing to the Borrower
at any time prior to 6:00 p.m., Los Angeles time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Debenture may be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 3:00 p.m., Los Angeles, California time) and (B)
subject to Section 1.4(b), surrendering this Debenture at the principal office
of the Borrower.
(b) Surrender of Debenture Upon Conversion. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Debenture in accordance with
the terms hereof, the Holder shall not be required to physically surrender this
Debenture to the Borrower unless the entire unpaid principal amount of this
Debenture is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Borrower, so as not to require physical surrender of this Debenture upon each
such conversion. In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Debenture is
converted as aforesaid, the Holder may not transfer this Debenture unless the
Holder first physically surrenders this Debenture to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Holder a new
Debenture of like tenor, registered as the Holder (upon payment by the Holder of
any applicable transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Debenture. The Holder and any
assignee, by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.
(c) Payment of Taxes.The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Debenture in a name other than that of the Holder (or in street name),
and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower
from the Holder of a facsimile transmission (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements for conversion
as provided in this Section 1.4, the Borrower shall issue and deliver or cause
to be issued and delivered to or upon the order of the Holder certificates for
the Common Stock issuable upon such conversion within three (3) business days
after such receipt (and, solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Debenture) (such second business day
being hereinafter referred to as the "Deadline") in accordance with the terms
hereof and the Purchase Agreement (including, without limitation, in accordance
with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Debenture shall not bear any
restrictive legend).
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Debenture
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion
of this Debenture being so converted shall forthwith terminate except the right
to receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 3:00
p.m., Los Angeles, California time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account of Holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. In the
event that Borrower's transfer agent is not eligible or is not currently
participating in the DTC FAST program, Borrower will cause its transfer agent to
take whatever action is necessary to become eligible to participate in the DTC
FAST program within ten (10) business days following the Issue Date.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way
limiting the Holder's right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common Stock
issuable upon conversion of this Debenture is more than two (2) business days
after the Deadline (other than a failure due to the circumstances described in
Section 1.3 above, which failure shall be governed by such Section) the Borrower
shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
that the Borrower fails to deliver such Common Stock. Such cash amount shall be
paid to Holder by the fifth day of the month following the month in which it has
accrued or, at the option of the Holder (by written notice to the Borrower by
the first day of the month following the month in which it has accrued), shall
be added to the principal amount of this Debenture, in which event interest
shall accrue thereon in accordance with the terms of this Debenture and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of this Debenture.
1.5 Concerning the Shares. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv)
such shares are transferred to an "affiliate" (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance
with this Section 1.5 and who is an Accredited Investor (as defined in the
Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Debenture have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Debenture that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER
SAID ACT."
The legend set forth above shall be removed and the Borrower
shall issue to the Holder a new certificate therefor free of any transfer legend
if (i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon conversion
of this Debenture (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Debenture, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold. Nothing in this Debenture shall (i) limit the Borrower's
obligation under the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable prospectus delivery requirements
upon the resale of the securities referred to herein.
1.6 Effect of Certain Events.
------------------------
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions in which more than 50% of the voting power of the Borrower is
disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the
Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this
Debenture is issued and outstanding and prior to conversion of all of the
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
stockholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "Distribution"), then the Holder of this Debenture shall
be entitled, upon any conversion of this Debenture after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(d) Purchase Rights. If, at any time when any Debentures are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "Purchase Rights")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Debenture will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(e) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Debenture.
1.7 Trading Market Limitations. Unless permitted or not
prohibited by the applicable rules and regulations of the principal securities
market on which the Common Stock is then listed or traded, in no event shall the
Borrower issue upon conversion of or otherwise pursuant to this Debenture and
the other Debentures issued pursuant to the Purchase Agreement more than the
maximum number of shares of Common Stock that the Borrower can issue pursuant to
any rule of the principal United States securities market on which the Common
Stock is then traded (the "Maximum Share Amount"), which, as of the Issue Date
shall be ________ shares (19.99% of the total shares outstanding on the Issue
Date), subject to equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the date hereof. Once the Maximum Share Amount
has been issued (the date of which is hereinafter referred to as the "Maximum
Conversion Date"), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue shares
of Common Stock in excess of the Maximum Share Amount (a "Trading Market
Prepayment Event"), in lieu of any further right to convert this Debenture, and
in full satisfaction of the Borrower's obligations under this Debenture, the
Borrower shall pay to the Holder, within fifteen (15) business days of the
Maximum Conversion Date (the "Trading Market Prepayment Date"), an amount equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture immediately following the Maximum Conversion Date, plus (b) accrued
and unpaid interest on the unpaid principal amount of this Debenture to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the
amounts referred to in clause (a) and/or (b) above, plus (d) any optional
amounts that may be added thereto at the Maximum Conversion Date by the Holder
in accordance with the terms hereof (the then outstanding principal amount of
this Debenture immediately following the Maximum Conversion Date, plus the
amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the "Remaining Convertible Amount"). With respect to each Holder
of Debentures, the Maximum Share Amount shall refer to such Holder's pro rata
share thereof determined in accordance with Section 4.8 below. In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Debenture and the other Debentures
issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Borrower will use its best efforts to seek and obtain Stockholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, "Stockholder Approval" means
approval by the stockholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Debentures but for the Maximum Share Amount.
1.8 Status as Stockholder. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder's rights as a
Holder of such converted portion of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Borrower to comply with the terms of
this Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments pursuant to Section 1.3 to the
extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Section 1.3) for the
Borrower's failure to convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly
or through any subsidiary make any other payment or distribution in respect of
its capital stock except for distributions pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.
2.2 Restriction on Stock Repurchases. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares.
2.3 Borrowings. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, create, incur, assume or suffer to exist any liability for
borrowed money, except (a) borrowings in existence or committed on the date
hereof and of which the Borrower has informed Holder in writing prior to the
date hereof, (b) indebtedness to trade creditors or financial institutions
incurred in the ordinary course of business or (c) borrowings, the proceeds of
which shall be used to repay this Debenture.
2.4 Sale of Assets. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, sell, lease or otherwise dispose of any significant portion of
its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.
2.5 Advances and Loans. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date hereof and which
the Borrower has informed Holder in writing prior to the date hereof, (b) made
in the ordinary course of business or (c) not in excess of $50,000.
2.6 Contingent Liabilities. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not, without the
Holder's written consent, assume, guarantee, endorse, contingently agree to
purchase or otherwise become liable upon the obligation of any person, firm,
partnership, joint venture or corporation, except by the endorsement of
negotiable instruments for deposit or collection and except assumptions,
guarantees, endorsements and contingencies (a) in existence or committed on the
date hereof and which the Borrower has informed Holder in writing prior to the
date hereof, and (b) similar transactions in the ordinary course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails
to pay the principal hereof or interest thereon when due on this Debenture,
whether at maturity, upon a Trading Market Prepayment Event pursuant to Section
1.7, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower fails to issue
shares of Common Stock to the Holder (or announces or threatens that it will not
honor its obligation to do so) upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Debenture (provided
that, if such failure is solely as a result of the circumstances governed by
Section 1.3 and the Borrower is using its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable, such failure shall
continue for a period of sixty (60) days), fails to transfer or cause its
transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of
or otherwise pursuant to this Debenture as and when required by this Debenture
or the Registration Rights Agreement, or fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of or otherwise pursuant to this Debenture as and when required by this
Debenture or the Registration Rights Agreement (or makes any announcement,
statement or threat that it does not intend to honor the obligations described
in this paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall not be
rescinded in writing) for ten (10) business days after the Borrower shall have
been notified thereof in writing by the Holder.
3.3 Failure to Timely File Registration or Effect
Registration. The Borrower fails to file the Registration Statement within
forty-five (45) days following the Filing Date (as defined in the Registration
Rights Agreement) or obtain effectiveness with the Securities and Exchange
Commission of the Registration Statement within one hundred thirty-five (135)
days following the Filing Date or such Registration Statement lapses in effect
(or sales cannot otherwise be made thereunder effective, whether by reason of
the Borrower's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
thirty (30) consecutive days or forty-five (45) days in any twelve month period
after the Registration Statement becomes effective;
3.4 Breach of Covenants. The Borrower breaches any material
covenant or other material term or condition contained in Sections 1.3, 1.6 or
1.7 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the
Purchase Agreement and such breach continues for a period of ten (10) days after
written notice thereof to the Borrower from the Holder;
3.5 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Purchase Agreement and the
Registration Rights Agreement), shall be false or misleading in any material
respect when made and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;
3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;
3.7 Judgments. Any money judgment, writ or similar process
shall be entered or filed against the Borrower or any subsidiary of the Borrower
or any of its property or other assets for more than $100,000, and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower; or
3.9 Delisting of Common Stock. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of the OTCBB, the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
Stock Exchange;
3.10 Default Under Other Debentures. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant to
the Purchase Agreement (including without limitation the Additional Debentures
(as defined in the Purchase Agreement)).
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 135% times the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment plus the amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "Default Sum") or (ii) the
"parity value" of the Default Sum to be prepaid, where parity value means (a)
the highest number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such Default Sum in accordance with Article I, treating
the Trading Day immediately preceding the Mandatory Prepayment Date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
"Default Amount") and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in
equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally served or delivered by courier
or sent by United States mail and shall be deemed to have been given upon
receipt if personally served (which shall include telephone line facsimile
transmission) or sent by courier or three (3) days after being deposited in the
United States mail, certified, with postage pre-paid and properly addressed, if
sent by mail. For the purposes hereof, the address of the Holder shall be as
shown on the records of the Borrower; and the address of the Borrower shall be
13765 Alton Parkway, Suite F, Irvine, California 92618, facsimile number:
949-859-4380). Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
4.3 Amendments. This Debenture and any provision hereof may
only be amended by an instrument in writing signed by the Borrower and the
Holder. The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued pursuant
to the Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
4.4 Assignability. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
4.5 Cost of Collection. If default is made in the payment of
this Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 Governing Law. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS DEBENTURE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
4.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.
4.8 Allocations of Maximum Share Amount and Reserved Amount.
The Maximum Share Amount and Reserved Amount shall be allocated pro rata among
the Holders of Debentures based on the principal amount of such Debentures
issued to each Holder. Each increase to the Maximum Share Amount and Reserved
Amount shall be allocated pro rata among the Holders of Debentures based on the
principal amount of such Debentures held by each Holder at the time of the
increase in the Maximum Share Amount or Reserved Amount. In the event a Holder
shall sell or otherwise transfer any of such Holder's Debentures, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Debentures shall be allocated to the remaining Holders of Debentures,
pro rata based on the principal amount of such Debentures then held by such
Holders.
4.9 Damages Shares. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("Damages Shares") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
4.10 Denominations. At the request of the Holder, upon
surrender of this Debenture, the Borrower shall promptly issue new Debentures in
the aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $50,000 as the Holder shall request.
4.11 Purchase Agreement. By its acceptance of this Debenture, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 Notice of Corporate Events. Except as otherwise provided
below, the Holder of this Debenture shall have no rights as a Holder of Common
Stock unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the Borrower of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed sale, lease or conveyance of all or substantially all of the assets
of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13 Remedies. The Borrower acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a breach of
its obligations under this Debenture will be inadequate and agrees, in the event
of a breach or threatened breach by the Borrower of the provisions of this
Debenture, that the Holder shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
ARTICLE V. OPTIONAL PREPAYMENT
5.1. Optional Prepayment. Notwithstanding anything to the
contrary contained in this Article V, so long as (i) no Event of Default or
Trading Market Prepayment Event shall have occurred and be continuing, and (ii)
the Borrower has a sufficient number of authorized shares of Common Stock
reserved for issuance upon full conversion of the Debentures, then at any time
after the Issue Date, the Borrower shall have the right, exercisable on not less
than ten (10) Trading Days prior written notice to the Holders of the Debentures
(which notice may not be sent to the Holders of the Debentures until the
Borrower is permitted to prepay the Debentures pursuant to this Section 5.1), to
prepay all of the outstanding Debentures in accordance with this Section 5.1.
Any notice of prepayment hereunder (an "Optional Prepayment") shall be delivered
to the Holders of the Debentures at their registered addresses appearing on the
books and records of the Borrower and shall state (1) that the Borrower is
exercising its right to prepay all of the Debentures issued on the Issue Date
and (2) the date of prepayment (the "Optional Prepayment Notice"). On the date
fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make
payment of the Optional Prepayment Amount (as defined below) to or upon the
order of the Holders as specified by the Holders in writing to the Borrower at
least one (1) business day prior to the Optional Prepayment Date. If the
Borrower exercises its right to prepay the Debentures, the Borrower shall make
payment to the holders of an amount in cash (the "Optional Prepayment Amount")
equal to 135% multiplied by the sum of (w) the then outstanding principal amount
of this Debenture plus (x) accrued and unpaid interest on the unpaid principal
amount of this Debenture to the Optional Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Debenture to the date of payment plus the
amounts referred to in clauses (x), (y) and (z) shall collectively be known as
the "Optional Prepayment Sum"). Notwithstanding notice of an Optional
Prepayment, the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Debentures in accordance
with Article I and any portion of Debentures so converted after receipt of an
Optional Prepayment Notice and prior to the Optional Prepayment Date set forth
in such notice and payment of the aggregate Optional Prepayment Amount shall be
deducted from the principal amount of Debentures which are otherwise subject to
prepayment pursuant to such notice. If the Borrower delivers an Optional
Prepayment Notice and fails to pay the Optional Prepayment Amount due to the
Holders of the Debentures within two (2) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to redeem the
Debentures pursuant to this Section 5.1.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this 12 day of January, 2002.
THE AMANDA COMPANY
By: /s/ Jose Candia
Jose Candia
Chief Executive Officer and President
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert
$________principal amount of the Debenture (defined below) into shares of common
stock, par value $0.01 per share ("Common Stock"), of The Amanda Company, a Utah
corporation (the "Borrower") according to the conditions of the convertible
debentures of the Borrower dated as of January __, 2002 (the "Debentures"), as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Debenture is attached hereto (or evidence of loss, theft
or destruction thereof).
The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system (
"DWAC Transfer").
Name of DTC Prime Broker:
--------------------------------------------
Account Number:
------------------------------------------------------
In lieu of receiving shares of Common Stock issuable pursuant
to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Debentures shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Debentures:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________
The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.
Exhibit 10.55
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January 12, 2002,
by and among The Amanda Company, a Utah corporation, with headquarters located
at 13765 Alton Parkway, Suite F, Irvine, California 92618 (the "Company"), and
each of the purchasers set forth on the signature pages hereto (the "Buyers").
WHEREAS:
The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by
the rules and regulations as promulgated by the United States Securities
and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 Act");
Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 8%
convertible debentures of the Company, in the form attached hereto as
Exhibit "A", in the aggregate
principal amount of Six Hundred Thousand Dollars ($600,000) (together
with any debenture(s) issued in replacement thereof or as a dividend
thereon or otherwise with respect thereto in accordance with the terms
thereof, the "Debentures"),
convertible into shares of common stock, $0.01 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in such Debentures and (ii)
warrants, in the form attached hereto as
Exhibit "B", to purchase ________________ (_________) shares
of Common Stock (the "Warrants"); Each Buyer wishes to purchase, upon the
terms and conditions stated in this Agreement, such principal amount of
Debentures
and number of Warrants as is set forth immediately below its
name on the signature pages hereto; and Contemporaneous with the
execution and delivery of this Agreement, the parties hereto are
executing and delivering a
Registration Rights Agreement, in the form attached hereto as Exhibit "C"
(the "Registration Rights Agreement"), pursuant to which the Company has
agreed to provide certain registration rights under the 1933 Act and the
rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and each of
the Buyers severally (and not
jointly) hereby agree as follows:
PURCHASE AND SALE OF DEBENTURES AND
WARRANTS.
Purchase of Debentures and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such
Buyer's name on the signature pages hereto. Form of Payment. On the
Closing Date (as defined below), (i) each Buyer shall pay the purchase
price for the Debentures and the Warrants to be issued and sold to it at
the Closing (as defined below) (the "Purchase Price") by wire transfer of
immediately available funds to the Company, in accordance with the
Company's written wiring instructions, against delivery of the Debentures
in the principal amount equal to the Purchase Price and the number of
Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto, and (ii) the Company shall deliver such Debentures
and Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price. Closing Date. Subject to the
satisfaction (or written waiver) of the conditions thereto set forth in
Section 6 and Section 7 below, the date and time of the issuance and sale
of the Debentures and the Warrants pursuant to this Agreement (the
"Closing Date") shall be 12:00 noon Pacific Standard Time on January __,
2002 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on
the Closing Date at such location as may be agreed to by the parties.
BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company
solely as to such Buyer that:
Investment Purpose. As of the date hereof, the Buyer is purchasing the
Debentures and the shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Debentures (including, without limitation, such
additional shares of Common Stock, if any, as are (i) issuable on account
of interest on the Debentures, (ii) as a result of the events described in
Sections 1.3 and 1.4(g) of the Debentures and Section 2(c) of the
Registration Rights Agreement or (iii) in payment of the Standard
Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to
this Agreement, such shares of Common Stock being collectively referred to
herein as the "Conversion Shares") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "Warrant Shares" and,
collectively with the Debentures, Warrants and Conversion Shares, the
"Securities") for its own account and not with a present view towards the
public sale or distribution thereof, except pursuant to sales registered
or exempted from registration under the 1933 Act; provided, however, that
by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
Reliance on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Securities.
Information. The Buyer and its advisors, if any, have been, and for so
long as the Debentures and Warrants remain outstanding will continue to
be, furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Securities which have been requested by the Buyer or its advisors. The
Buyer and its advisors, if any, have been, and for so long as the
Debentures and Warrants remain outstanding will continue to be, afforded
the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material
nonpublic information and will not disclose such information unless such
information is disclosed to the public prior to or promptly following such
disclosure to the Buyer. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a
significant degree of risk. Governmental Review. The Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities. Transfer or Re-sale. The Buyer understands
that (i) except as provided in the Registration Rights Agreement, the sale
or re-sale of the Securities has not been and is not being registered
under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold
pursuant to an effective registration statement under the 1933 Act, (b)
the Buyer shall have delivered to the Company an opinion of counsel that
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of
the Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor, (d)
the Securities are sold pursuant to Rule 144, or (e) the Securities are
sold pursuant to Regulation S under the 1933 Act (or a successor rule)
("Regulation S"), and the Buyer shall have delivered to the Company an
opinion of counsel that shall be in form, substance and scope customary
for opinions of counsel in corporate transactions, which opinion shall be
accepted by the Company; (ii) any sale of such Securities made in reliance
on Rule 144 may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such Securities
under circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is defined
in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder (in
each case, other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein to the
contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement. In the event that
the Company does not accept the opinion of counsel provided by the Buyer
with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business
days of delivery of the opinion to the Company, the Company shall pay to
the Buyer liquidated damages of three percent (3%) of the outstanding
amount of the Debentures per month plus accrued and unpaid interest on the
Debentures, prorated for partial months, in cash or shares at the option
of the Buyer ("Standard Liquidated Damages Amount"). If the Buyer elects
to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. Legends. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and Warrant Shares
have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule
144 or Regulation S without any restriction as to the number of securities
as of a particular date that can then be immediately sold, the Conversion
Shares and Warrant Shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against
transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and
binding agreements of the Buyer enforceable in accordance with their
terms.
Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature
pages hereto.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that: Organization and
Qualification. The Company and each of its Subsidiaries (as defined
below), if any, is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own,
lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets
forth a list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect. "Material Adverse
Effect" means any material adverse effect on the business, operations,
assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into
in connection herewith. "Subsidiaries" means any corporation or other
organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the
Warrants and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof)
have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly
executed and delivered by the Company by its authorized representative,
and such authorized representative is the true and official representative
with authority to sign this Agreement and the other documents executed in
connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement, the Debentures and the Warrants, each
of such instruments will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms.
Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 500,000,000 shares of Common Stock, of which
319,282,242 shares are issued and outstanding, __________ shares are
reserved for issuance pursuant to the Company's stock option plans,
__________ shares are reserved for issuance pursuant to securities (other
than the Debentures and the Warrants) exercisable for, or convertible into
or exchangeable for shares of Common Stock and __________ shares are
reserved for issuance upon conversion of the Debentures and the Additional
Debentures (as defined in Section 4(l)) and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); and (ii) 5,000,000 shares of preferred stock, of
which 2,800,000 shares have been designated as Series A and B Preferred
Stock, all of which are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized,
validly issued, fully paid and nonassessable. No shares of capital stock
of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. Except as
disclosed in Schedule 3(c), as of the effective date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe
for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for any
shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional shares of capital stock of the Company or
any of its Subsidiaries, (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act
(except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Debentures, the
Warrants, the Conversion Shares or Warrant Shares. The Company has
furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof ("Certificate
of Incorporation"), the Company's By-laws, as in effect on the date hereof
(the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer
with a written update of this representation signed by the Company's Chief
Executive Officer or Chief Financial Officer on behalf of the Company as
of the Closing Date.
Issuance of Shares. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the
Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or other
similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion of the Debenture or
exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion
of the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
No Conflicts. The execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws or (ii) violate
or conflict with, or result in a breach of any provision of, or constitute
a default (or an event which with notice or lapse of time or both could
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture,
patent, patent license or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject)
applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or
in the aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the
Company nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the Company
or any of its Subsidiaries in default) under, and neither the Company nor
any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its Subsidiaries is a party or by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in
the aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make
any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any
third party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants in accordance with the terms hereof or thereof
or to issue and sell the Debentures and Warrants in accordance with the
terms hereof and to issue the Conversion Shares upon conversion of the
Debentures and the Warrant Shares upon exercise of the Warrants. Except as
disclosed in Schedule 3(f), all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably
anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
SEC Documents; Financial Statements. The Company has timely filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to each Buyer true and complete copies of the SEC Documents,
except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or
has been, required to be amended or updated under applicable law (except
for such statements as have been amended or updated in subsequent filings
prior the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes
or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 2000 and (ii)
obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
Absence of Certain Changes. Since December 31, 2000, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its
Subsidiaries.
Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge
of the Company or any of its Subsidiaries, threatened against or affecting
the Company or any of its Subsidiaries, or their officers or directors in
their capacity as such, that could have a Material Adverse Effect.
Schedule 3(i) contains a complete list and summary description of any
pending or threatened proceeding against or affecting the Company or any
of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
Patents, Copyrights, etc.
------------------------
The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks,
service names, trade names and copyrights ("Intellectual Property")
necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the
Company's knowledge, as presently
contemplated to be operated in the future); there is no claim or action by
any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company or of a
Subsidiary with respect to any Intellectual Property necessary to enable
it to conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the
Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
All of the Company's computer software and computer hardware, and other
similar or related items of automated, computerized or software systems
that are used or relied on by the Company in the conduct of its business
or that were, or currently are
being, sold or licensed by the Company to customers (collectively,
"Information Technology"), are Year 2000 Compliant. For purposes of this
Agreement, the term "Year 2000 Compliant" means, with respect to the
Company's Information Technology,
that the Information Technology is designed to be used prior to,
during and after the calendar Year 2000, and the Information Technology
used during each such time period will accurately receive, provide and
process date and time data
(including, but not limited to, calculating, comparing and sequencing)
from, into and between the 20th and 21st centuries, including the years
1999 and 2000, and leap-year calculations, and will not malfunction,
cease to function, or provide
invalid or incorrect results as a result of the date or time data, to the
extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it.
The Company has delivered to
the Buyers true and correct copies of all analyses, reports, studies
and similar written information, whether prepared by the Company
or another party, relating to whether the Information Technology
is Year 2000 Compliant, if any.
No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Company's officers has or is expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of the Company's officers has or is expected to have a Material Adverse
Effect.
Tax Status. Except as set forth on Schedule 3(l), the Company and each of
its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined
to be due on such returns, reports and declarations, except those being
contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set
forth on Schedule 3(l), none of the Company's tax returns is presently
being audited by any taxing authority. Certain Transactions. Except as set
forth on Schedule 3(m) and except for arm's length transactions pursuant
to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company
or any of its Subsidiaries could obtain from third parties and other than
the grant of stock options disclosed on Schedule 3(c), none of the
officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee or partner.
Disclosure. All information relating to or concerning the Company or any
of its Subsidiaries set forth in this Agreement and provided to the Buyers
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light
of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or exists with respect to the Company or any
of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity
of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Buyers' purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to
enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has directly or indirectly
made any offers or sales in any security or solicited any offers to buy
any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of
the Securities to the Buyers will not be integrated with any other
issuance of the Company's securities (past, current or future) for
purposes of any stockholder approval provisions applicable to the Company
or its securities. No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions,
transaction fees or similar payments relating to this Agreement or the
transactions contemplated hereby. Permits; Compliance. The Company and
each of its Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted (collectively, the "Company Permits"), and there is no action
pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December
31, 2000, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts,
defaults or violations, which conflicts, defaults or violations would not
have a Material Adverse Effect.
Environmental Matters.
---------------------
Except as set forth in Schedule 3(s), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of
Environmental Laws (as defined below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental
liability or any liability under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 or similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with respect
to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in
connection with any of the foregoing. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or
protection of human health or
the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases
or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or
wastes (collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands or
demand letters,
injunctions, judgments, licenses, notices
or notice letters, orders,
permits, plans or regulations
issued, entered, promulgated
or approved thereunder.
Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on
or about any real property currently owned, leased or used by the Company
or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the
Company or any of
its Subsidiaries during the period the property was
owned, leased or used by the Company or any of its
Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
Except as set forth in Schedule 3(s), there are no underground
storage tanks on or under any real property owned, leased
or used by the Company or any of its Subsidiaries that are
not in compliance with applicable law.
Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material
to the business of the Company and its Subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are described
in Schedule 3(t) or such as would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a Material Adverse Effect.
Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. The
Company has provided to Buyer true and correct copies of all policies
relating to directors' and officers' liability coverage, errors and
omissions coverage, and commercial general liability coverage. Internal
Accounting Controls. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended,
or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
[Intentionally Omitted]
No Investment Company. The Company is not, and upon the issuance and sale
of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not
controlled by an Investment Company.
Breach of Representations and Warranties by the Company. If the Company
materially breaches any of the representations or warranties set forth in
this Section 3, and in addition to any other remedies available to the
Buyers pursuant to this Agreement, the Company shall pay to the Buyer the
Standard Liquidated Damages Amount in cash or in shares of Common Stock at
the option of the Buyer, until such breach is cured. If the Buyers elect
to be paid the Standard Liquidated Damages Amounts in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment.
4. COVENANTS.
---------
a.Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
b.Form D; Blue Sky Laws. If required by applicable
securities laws, the Company agrees to file a Form D with
respect to the Securities
as required under Regulation D and to provide a copy thereof to each Buyer
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyers at the applicable closing pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to each Buyer on or prior to
the Closing Date.
c.Reporting Status; Eligibility to Use Form SB-2 or
Form S-1. The Company's Common Stock is registered under Section 12(g) of the
1934
Act. The Company represents and warrants that it meets the requirements for the
use of Form SB-2 (or if Company is not eligible for the use of Form SB-2 as of
the Filing Date (as defined in the Registration Rights Agreement), the Company
may use the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities (as defined
in the Registration Rights Agreement). So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
The Company further agrees to file all reports required to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to maintain its eligibility, for the use of Form S-3. The Company shall issue a
press release describing the materials terms of the transaction contemplated
hereby as soon as practicable following the Closing Date but in no event more
than two (2) business days of the Closing Date, which press release shall be
subject to prior review by the Buyers. The Company agrees that such press
release shall not disclose the name of the Buyers unless expressly consented to
in writing by the Buyers or unless required by applicable law or regulation, and
then only to the extent of such requirement.
d.Use of Proceeds. The Company shall use the proceeds
from the sale of the Debentures and the Warrants in the manner set forth in
Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries).
e.Future Offerings. Subject to the exceptions
described below, the Company will not, without the prior written consent of
a majority-in-interest
of the Buyers, not to be unreasonably withheld, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) that involves (A) the issuance of Common Stock at a discount
to the market price of the Common Stock on the date of issuance (taking into
account the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred twenty-five (225) days
from the Closing Date and (ii) one hundred fifty (150) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Buyer, at least twenty (20) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Debentures purchased by it hereunder bears to the aggregate principal amount of
Debentures purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed Future
Offering, the Company shall deliver a new notice to each Buyer describing the
amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the Stockholders of the Company. In the event that the Company completes a
Future Offering on terms more favorable to another investor than the transaction
contemplated hereby, the terms of the Debentures and the Warrants will be
amended to reflect such more favorable terms.
f.Expenses. At the Closing, the Company shall
reimburse Buyers for reasonable expenses incurred by it in connection with
the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, attorneys' and consultants' fees and expenses, transfer
agent fees, fees for stock quotation services, fees relating to any amendments
or modifications of the Documents or any consents or waivers of provisions in
the Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer. If the Company fails to reimburse the Buyer in full within five (5)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum.
g.Financial Information. The Company agrees to send
the following reports to each Buyer until such Buyer transfers, assigns, or
sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB
and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h.Authorization and Reservation of Shares.
The Company shall at all times have authorized, and reserved for the purpose
of issuance,
a sufficient number of shares of Common Stock to provide for the full conversion
or exercise of the outstanding Debentures and Warrants and issuance of the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Debentures or Exercise Price of the Warrants in effect
from time to time) and as otherwise required by the Debentures. The Company
shall not reduce the number of shares of Common Stock reserved for issuance upon
conversion of Debentures and exercise of the Warrants without the consent of
each Buyer. The Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at an amount ("Reserved Amount") equal to
no less than three (3) times the number that is then actually issuable upon full
conversion of the Debentures and Additional Debentures and upon exercise of the
Warrants (based on the Conversion Price of the Debentures or the Exercise Price
of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance ("Authorized and
Reserved Shares") is below the Reserved Amount, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within forty-five (45) days following the date on which the
number of Authorized and Reserved Shares exceeds the Reserved Amount, the
Company shall pay to the Buyer the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Buyer. If the Buyer elects to
be paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment. In order
to ensure that the Company has authorized a sufficient amount of shares to meet
the Reserved Amount at all times, the Company must deliver to the Buyer at the
end of every month a list detailing (1) the current amount of shares authorized
by the Company and reserved for the Buyer; and (2) amount of shares issuable
upon conversion of the Debentures and upon exercise of the Warrants and as
payment of interest accrued on the Debentures for one year. If the Company fails
to provide such list within five (5) business days of the end of each month, the
Company shall pay the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until the list is delivered. If the
Buyer elects to be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.
i.Listing. The Company shall promptly secure any
applicable listing of the Conversion Shares and Warrant Shares upon each
national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and, so long as
any Buyer owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion Shares
and Warrant Shares from time to time issuable upon conversion of the Debentures
or exercise of the Warrants. The Company will obtain and, so long as any Buyer
owns any of the Securities, maintain the listing and trading of its Common Stock
on the OTCBB, the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market
("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"), or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each Buyer copies of any notices it
receives from the OTCBB and any other exchanges or quotation systems on which
the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
j.Corporate Existence. So long as a Buyer beneficially
owns any Debentures or Warrants, the Company shall maintain its
corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k.No Integration. The Company shall not make any
offers or sales of any security (other than the Securities) under
circumstances that
would require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be integrated with
any other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its securities.
l.Subsequent Investment. The Company and the Buyers
agree that, upon the declaration of effectiveness of the Registration Statement
to be filed pursuant to the Registration Rights Agreement (the "Effective
Date"), the Buyers shall purchase additional debentures ("Additional
Debentures") in the aggregate principal amount of Three Hundred Thousand Dollars
($300,000) for an aggregate purchase price of Three Hundred Thousand Dollars
($300,000), with the closing of such purchase to occur within five (5) business
days of the Effective Date; provided, however, that the obligation of each Buyer
to purchase the Additional Debentures is subject to the satisfaction, at or
before the closing of such purchase and sale, of the conditions set forth in
Section 7; and, provided, further, that there shall not have been a Material
Adverse Effect as of such effective date. The terms of the Additional Debentures
shall be identical to the terms of the Debentures to be issued on the Closing
Date. The Common Stock underlying the Additional Debentures shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the Registration
Rights Agreement.
m.Breach of Covenants. If the Company materially
breaches any of the covenants set forth in this Section 4, and in addition to
any other
remedies available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyers the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until such breach is cured. If the
Buyers elect to be paid the Standard Liquidated Damages Amount in shares, such
shares shall be issued at the Conversion Price at the time of payment.
5.TRANSFER AGENT INSTRUCTIONS. The Company shall
issue irrevocable instructions to its transfer agent to issue certificates,
registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and Warrant Shares, prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is effected or
(ii) the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyers, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6.CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Debentures and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a.The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and
delivered the same to the Company. b.The applicable
Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above. c.The
representations and warranties of the applicable
Buyer shall be true and correct in all material
respects as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
d.No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated
or endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7.CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a.The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the
same to the Buyer. b.The Company shall have delivered
to such Buyer duly executed Debentures (in such
denominations as the Buyer shall request) and
Warrants
in accordance with Section 1(b) above.
c.The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to a majority-in-interest of the Buyers, shall
have
been delivered to and acknowledged in writing by the Company's Transfer Agent.
d.The representations and warranties of the Company
shall be true and correct in all material respects as of the date when made and
as
of the Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e.No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated
or endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f.No event shall have occurred which could reasonably
be expected to have a Material Adverse Effect on the
Company. g.Trading in the Common Stock on the OTCBB
shall not have been suspended by the SEC or the
OTCBB. h.The Buyer shall have received an opinion of
the Company's counsel, dated as of the Closing Date,
in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i.The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a.Governing Law. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL REASONABLE FEES AND EXPENSES,
INCLUDING REASONABLE ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.
b.Counterparts; Signatures by Facsimile.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an
original but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c.Headings. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation
of, this Agreement.
d.Severability. In the event that any provision of
this Agreement is invalid or enforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
e.Entire Agreement; Amendments. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f.Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
The Amanda Company
13765 Alton Parkway
Suite F
Irvine, California 92618
Attention: Jose Candia, Chief Executive Officer and President
Telephone: 949-859-6279
Facsimile: 949-859-4380
Email:
With copy to:
Naccarato & Associates
19600 Fairchild, Suite 260
Irvine, California 92612
Attention: Owen Naccarato, Esq.
Telephone: 949-851-9261
Facsimile: 949-851-9262
Email: onacc@jps.net
If to a Buyer: To the address set forth immediately
below such Buyer's name on the signature pages hereto.
With copy to:
Bristol DLP, LLC
Investment Manager
6363 Sunset Blvd., Fifth Floor
Hollywood, CA 90028
Attention: Amy Wang
Telephone: 323-769-2852
Facsimile: 323-468-8307
Email: amy@bristolcompanies.net
Each party shall provide notice to the other party of any change in address.
g.Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h.Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i.Survival. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5 and
8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j.Publicity. The Company and each of the Buyers shall
have the right to review a reasonable period of time before issuance of
any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
k.Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l.No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties
to express their
mutual intent,
and no rules of strict construction will be applied against any party.
m.Remedies. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above
written.
THE AMANDA COMPANY
/s/ Jose Candia
By: ________________________________
Jose Candia
Chief Executive Officer and President
BRISTOL INVESTMENT FUND, LTD.
/s/ Diana Derycz Kessler
By:
--------------------------------------------
Diana Derycz Kessler
Director
RESIDENCE: Cayman Islands
ADDRESS: Caledonian House
Jennett Street
George Town
Grand Cayman, Cayman Islands
Facsimile: 441-295-2305
Telephone: 441-298-5067
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $300,000
Number of Warrants: ________
Aggregate Purchase Price: $300,000
Exhibit 10.56
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January 12, 2002,
by and among The Amanda Company, a Utah corporation, with its headquarters
located at 13765 Alton Parkway, Suite F, Irvine, California 92618 (the
"Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
(i) 8% convertible debentures in the aggregate principal amount of up to
Six Hundred Thousand Dollars ($600,000) (the "Debentures") that are
convertible into shares of the Company's common stock (the "Common
Stock"),
upon the terms and subject to the limitations and conditions set
forth in such Debentures and (ii) warrants (the "Warrants") to acquire
an aggregate 17,142,858 shares of Common Stock, upon the terms and
conditions and subject to the limitations and conditions set forth in the
Warrants dated January 12, 2002; and
To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any
similar successor statute (collectively, the "1933 Act"),
and applicable state securities laws; NOW, THEREFORE, in consideration of the
premises and the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and each of the Initial Investors hereby agree as follows:
DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Investors" means the Initial Investors and any
transferee or assignee who agrees
to become bound by the provisions
of this Agreement in accordance
with Section 9 hereof.
"register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements
in compliance with the 1933 Act and pursuant to Rule 415 under the 1933
Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of
such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
"Registrable Securities" means the Conversion Shares issued or issuable
upon conversion or otherwise pursuant to the
Debentures and Additional Debentures (as defined in the Securities
Purchase Agreement) (including, without limitation, Damages Shares (as
defined in the Debentures) issued or issuable pursuant to the Debentures,
shares of Common Stock issued or issuable in payment of the Standard
Liquidated Damages Amount (as defined in the Securities Purchase
Agreement), shares
issued or issuable in respect of interest or in redemption of the
Debentures in accordance with the terms thereof) and Warrant Shares
issuable upon exercise or otherwise pursuant to the Warrants (including
any Default Amounts (as defined in the Warrants)) and Additional Warrants
(as defined in the Securities Purchase Agreement), and any shares of
capital stock
issued or issuable as a dividend on or in exchange for or
otherwise with respect to any of the foregoing.
"Registration Statement" means a registration statement
of the Company under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement or
Convertible Debenture.
REGISTRATION.
Mandatory Registration. The Company shall prepare, and, on or prior to
thirty (30) days from the date of Closing (as defined in the Securities
Purchase Agreement) (the "Filing Date"), file with the SEC a Registration
Statement on Form SB-2 (or, if Form SB-2 is not then available, on such
form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld)
covering the resale of the Registrable Securities underlying the
Debentures and Warrants issued or issuable pursuant to the Securities
Purchase Agreement, which Registration Statement, to the extent allowable
under the 1933 Act and the rules and regulations promulgated thereunder
(including Rule 416), shall state that such Registration Statement also
covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the
Debentures and exercise of the Warrants to prevent dilution resulting from
stock splits, stock dividends or similar transactions. The number of
shares of Common Stock initially included in such Registration Statement
shall be no less than an amount equal to three (3) times the sum of the
number of Conversion Shares that are then issuable upon conversion of the
Debentures and Additional Debentures (based on the Variable Conversion
Price as would then be in effect and assuming the Variable Conversion
Price is the Conversion Price at such time), and the number of Warrant
Shares that are then issuable upon exercise of the Warrants, without
regard to any limitation on the Investor's ability to convert the
Debentures or exercise the Warrants. The Company acknowledges that the
number of shares initially included in the Registration Statement
represents a good faith estimate of the maximum number of shares issuable
upon conversion of the Debentures and upon exercise of the Warrants.
Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to
select one legal counsel and an investment banker or bankers and manager
or managers to administer the offering, which investment banker or bankers
or manager or managers shall be reasonably satisfactory to the Company.
Payments by the Company. The Company shall use its best efforts to obtain
effectiveness of the Registration Statement as soon as practicable. If (i)
the Registration Statement(s) covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not filed by
the Filing Date or declared effective by the SEC on or prior to one
hundred twenty (120) days from the date of Closing, or (ii) after the
Registration Statement has been declared effective by the SEC, sales of
all of the Registrable Securities cannot be made pursuant to the
Registration Statement, or (iii) the Common Stock is not listed or
included for quotation on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
(the "NYSE") or the American Stock Exchange (the "AMEX") after being so
listed or included for quotation, or (iv) the Common Stock ceases to be
traded on the Over-the-Counter Bulletin Board (the "OTC BB") prior to
being listed or included for quotation on one of the aforementioned
markets, then the Company will make payments to the Investors in such
amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any
such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity). The Company shall pay to each holder of
the Debentures or Registrable Securities an amount equal to the then
outstanding principal amount of the Debentures (and, in the case of
holders of Registrable Securities, the principal amount of Debentures from
which such Registrable Securities were converted) ("Outstanding Principal
Amount"), multiplied by the Applicable Percentage (as defined below) times
the sum of: (i) the number of months (prorated for partial months) after
the Filing Date or the end of the aforementioned one hundred twenty (120)
day period and prior to the date the Registration Statement is declared
effective by the SEC, provided, however, that there shall be excluded from
such period any delays which are solely attributable to changes required
by the Investors in the Registration Statement with respect to information
relating to the Investors, including, without limitation, changes to the
plan of distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner; (ii) the number of months (prorated for partial
months) that sales of all of the Registrable Securities cannot be made
pursuant to the Registration Statement after the Registration Statement
has been declared effective (including, without limitation, when sales
cannot be made by reason of the Company's failure to properly supplement
or amend the prospectus included therein in accordance with the terms of
this Agreement, but excluding any days during an Allowed Delay (as defined
in Section 3(f)); and (iii) the number of months (prorated for partial
months) that the Common Stock is not listed or included for quotation on
the OTC BB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon
is halted after the Registration Statement has been declared effective.
The term "Applicable Percentage" means two hundredths (.02) with respect
to the first thirty (30) days of any calculation under clause (i) of the
sentence in which the term is used, and three hundredths (.03) for any
other purpose. (For example, if the Registration Statement becomes
effective one (1) month after the end of such thirty-day period, the
Company would pay $5,000 for each $250,000 of Outstanding Principal
Amount. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the
Company would pay an additional $7,500 for each $250,000 of Outstanding
Principal Amount.) Such amounts shall be paid in cash or, at each
Investor's option, in shares of Common Stock priced at the Conversion
Price (as defined in the Debentures) on such payment date.
Piggy-Back Registrations. Subject to the last sentence of this Section
2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC
a Registration Statement relating to an offering for its own account or
the account of others under the 1933 Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition
of any entity or business or equity securities issuable in connection with
stock option or other employee benefit plans), the Company shall send to
each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days
after the effective date of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or
any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock
which may be included in the Registration Statement because, in such
underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which
such Investor has requested inclusion hereunder as the underwriter shall
permit. Any exclusion of Registrable Securities shall be made pro rata
among the Investors seeking to include Registrable Securities in
proportion to the number of Registrable Securities sought to be included
by such Investors; provided, however, that the Company shall not exclude
any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion
of such securities in such Registration Statement or are not entitled to
pro rata inclusion with the Registrable Securities; and provided, further,
however, that, after giving effect to the immediately preceding proviso,
any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in
the Registration Statement other than holders of securities entitled to
inclusion of their securities in such Registration Statement by reason of
demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. If an offering in
connection with which an Investor is entitled to registration under this
Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section
2(d) shall only be available in the event the Company fails to timely
file, obtain effectiveness or maintain effectiveness of any Registration
Statement to be filed pursuant to Section 2(a) in accordance with the
terms of this Agreement.
Eligibility for Form S-3, SB-2 or S-1: Conversion to Form S-3. The Company
represents and warrants that it meets the requirements for the use of Form
S-3, SB-2 or S-1 for registration of the sale by the Initial Investors and
any other Investors of the Registrable Securities. The Company agrees to
file all reports required to be filed by the Company with the SEC in a
timely manner so as to remain eligible or become eligible, as the case may
be, and thereafter to maintain its eligibility, for the use of Form S-3.
If the Company is not currently eligible to use Form S-3, not later than
five (5) business days after the Company first meets the registration
eligibility and transaction requirements for the use of Form S-3 (or any
successor form) for registration of the offer and sale by the Initial
Investors and any other Investors of Registrable Securities, the Company
shall file a Registration Statement on Form S-3 (or such successor form)
with respect to the Registrable Securities covered by the Registration
Statement on Form SB-2 or Form S-1, whichever is applicable, filed
pursuant to Section 2(a) (and include in such Registration Statement on
Form S-3 the information required by Rule 429 under the 1933 Act) or
convert the Registration Statement on Form SB-2 or Form S-1, whichever is
applicable, filed pursuant to Section 2(a) to a Form S-3 pursuant to Rule
429 under the 1933 Act and cause such Registration Statement (or such
amendment) to be declared effective no later than forty-five (45) days
after filing. In the event of a breach by the Company of the provisions of
this Section 2(e), the Company will be required to make payments pursuant
to Section 2(c) hereof.
OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations: The Company shall prepare
promptly, and file with the SEC not later than the Filing Date, a
Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts
to cause such Registration Statement relating to Registrable Securities to
become effective as soon as possible after such filing but in no event
later than one hundred twenty (120) days from the date of Closing), and
keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of
the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial
Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder
thereof) under the 1933 Act (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein not misleading.
The Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statements
and the prospectus used in connection with the Registration Statements as
may be necessary to keep the Registration Statements effective at all
times during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration
Statements until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in the Registration Statements. In
the event the number of shares available under a Registration Statement
filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities issued or issuable upon conversion of the
Debentures and exercise of the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short
form available therefore, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as practicable, but in
any event within fifteen (15) days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors
on which the Company reasonably elects to rely). The Company shall use its
best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof, but
in any event within forty-five (45) days after the date on which the
Company reasonably first determines (or reasonably should have determined)
the need therefor. The provisions of Section 2(c) above shall be
applicable with respect to such obligation, with the one hundred twenty
(120) days running from the day the Company reasonably first determines
(or reasonably should have determined) the need therefor.
The Company shall furnish to each Investor whose Registrable Securities
are included in a Registration Statement and its legal counsel (i)
promptly (but in no event more than two (2) business days) after the same
is prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of each Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each amendment or
supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and
such other documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor. The Company will immediately notify each Investor by facsimile
of the effectiveness of each Registration Statement or any post-effective
amendment. The Company will promptly (but in no event more than five (5)
business days) respond to any and all comments received from the SEC
(which comments shall promptly be made available to the Investors upon
request), with a view towards causing each Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as
practicable, shall promptly file an acceleration request as soon as
practicable (but in no event more than two (2) business days) following
the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or
any amendment thereto will not be subject to review and shall promptly
file with the SEC a final prospectus as soon as practicable (but in no
event more than two (2) business days) following receipt by the Company
from the SEC of an order declaring the Registration Statement effective.
In the event of a breach by the Company of the provisions of this Section
3(c), the Company will be required to make payments pursuant to Section
2(c) hereof.
If required by applicable law, the Company shall use reasonable efforts to
(i) register and qualify the Registrable Securities covered by the
Registration Statements under such other securities or "blue sky" laws of
such jurisdictions in the United States as the Investors who hold a
majority in interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify
the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or
as a condition thereto to (a) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (b) subject itself to general taxation in any such jurisdiction, (c)
file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden,
or (e) make any change in its charter or bylaws, which in each case the
Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders. In the event Investors who
hold a majority-in-interest of the Registrable Securities being offered in
the offering (with the approval of a majority-in-interest of the Initial
Investors) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of
such offering. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the
prospectus included in any Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than thirty (30)
consecutive trading days (or a total of not more than forty-five (45)
trading days in any twelve (12) month period), the Company may delay the
disclosure of material non-public information concerning the Company (as
well as prospectus or Registration Statement updating) the disclosure of
which at the time is not, in the good faith opinion of the Company, in the
best interests of the Company (an "Allowed Delay"); provided, further,
that the Company shall promptly (i) notify the Investors in writing of the
existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay and (ii) advise the Investors in writing to cease all sales
under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the
first sentence of this Section 3(f) with respect to the information giving
rise thereto. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify
each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof. The Company shall
permit a single firm of counsel designated by the Initial Investors to
review such Registration Statement and all amendments and supplements
thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC,
and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement
without prior notice to such counsel. The sections of such Registration
Statement covering information with respect to the Investors, the
Investor's beneficial ownership of securities of the Company or the
Investors intended method of disposition of Registrable Securities shall
conform to the information provided to the Company by each of the
Investors.
The Company shall make generally available to its security holders as soon
as practicable, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
At the request of any Investor, the Company shall furnish, on the date
that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof
(i) an opinion, dated as of such date, from counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering,
addressed to the underwriters, if any, and the Investors and (ii) a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and the Investors.
The Company shall make available for inspection by (i) any Investor, (ii)
any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, (iv) one
firm of attorneys and one firm of accountants or other agents retained by
all other Investors, and (v) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company, including without limitation, records of conversions by other
holders of convertible securities issued by the Company and the issuance
of stock to such holders pursuant to the conversions (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector to
enable each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of
such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (b)
the release of such Records is ordered pursuant to a subpoena or other
order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other
agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor
agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement
between the Company and any Investor) shall be deemed to limit the
Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations. The Company
shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of
such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other
order from a court or governmental body of competent jurisdiction, or (iv)
such information has been made generally available to the public other
than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor prior to making such disclosure, and allow
the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information. The
Company shall (i) cause all the Registrable Securities covered by the
Registration Statement to be listed on each national securities exchange
on which securities of the same class or series issued by the Company are
then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the
securities of the same class or series are not then listed on a national
securities exchange, secure the designation and quotation, of all the
Registrable Securities covered by the Registration Statement on Nasdaq or,
if not eligible for Nasdaq, on Nasdaq SmallCap or, if not eligible for
Nasdaq or Nasdaq SmallCap, on the OTC BB and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities. The Company
shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date
of the Registration Statement.
The Company shall cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters, if
any, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable Securities
to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be,
as the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may request, and,
within three (3) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the
Company to deliver, to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are included in
such Registration Statement) an instruction in the form attached hereto as
Exhibit 1 and an opinion of such counsel in the form attached hereto as
Exhibit 2.
At the request of the holders of a majority-in-interest of the Registrable
Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section
3(b) hereof without the consent of the holders of a majority-in-interest
of the Registrable Securities.
The Company shall take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
OBLIGATIONS OF THE INVESTORS.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations: It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and
the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At least three
(3) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor, and such
Investor shall reply to such request within two (2) business days.
Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested
by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statements.
In the event Investors holding a majority-in-interest of the Registrable
Securities being registered (with the approval of the Initial Investors)
determine to engage the services of an underwriter, each Investor agrees
to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with
the managing underwriter of such offering and take such other actions as
are reasonably required in order to expedite or facilitate the disposition
of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or 3(g),
such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g)
and, if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities current
at the time of receipt of such notice.
No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual
and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions and any expenses in excess of
those payable by the Company pursuant to Section 5 below.
EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company.
INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration Statement
under this Agreement:
To the extent permitted by law, the Company will indemnify, hold harmless
and defend (i) each Investor who holds such Registrable Securities, (ii)
the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any
such underwriter within the meaning of the 1933 Act or the 1934 Act, if
any (each, an "Indemnified Person"), against any joint or several losses,
claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof,
"Claims") to which any of them may become subject insofar as such Claims
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated
or necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading; or (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations").
Subject to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Indemnified
Person, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to
the Company by any Indemnified Person or underwriter for such Indemnified
Person expressly for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus, shall not
inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or
supplemented, such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior to
the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. In connection with any
Registration Statement in which an Investor is participating, each such
Investor agrees severally and not jointly to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section
6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the Company
within the meaning of the 1933 Act or the 1934 Act, any underwriter and
any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls
such stockholder or underwriter within the meaning of the 1933 Act or the
1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation by such Investor, in
each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection
with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such
expenses are incurred and are due and payable) reasonably incurred by them
in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b)
and Section 7) for only that amount as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant
to such Registration Statement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented. Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall
have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party
shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim
relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors are entitled to indemnification hereunder, or
the Company, if the Company is entitled to indemnification hereunder, as
applicable. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to
the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
make and keep public information available, as those terms are understood
and defined in Rule 144;
file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and
furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested
to permit the Investors to sell such securities pursuant to Rule 144
without registration.
ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
MISCELLANEOUS.
A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities.
If the Company receives conflicting instructions, notices or elections
from two or more persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice
or election received from the registered owner of such Registrable
Securities.
Any notices required or permitted to be given under the terms hereof shall
be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile and shall be effective five days after
being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
The Amanda Company
13765 Alton Parkway
Suite F
Irvine, California 92618
Attention: Jose Candia, Chief Executive Officer and President
Telephone: 949-859-6279
Facsimile: 949-859-4380
Email:
With copy to:
Bristol DLP, LLC
Investment Manager
6363 Sunset Blvd., Fifth Floor
Hollywood, CA 90028
Attention: Amy Wang
Telephone: 323-769-2852
Facsimile: 323-468-8307
Email: amy@bristolcompanies.net
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With a copy to:
Bristol DLP, LLC
Investment Manager
6363 Sunset Blvd., Fifth Floor
Hollywood, California 90028
Attention: Amy Wang
Telephone: 323-769-2852
Facsimile: 323-468-8307
Email: amy@bristolcompanies.com
Failure of any party to exercise any right or remedy under this Agreement
or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE
OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.
BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT
IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL
MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS
AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
This Agreement, the Warrants and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede
all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
Subject to the requirements of Section 9 hereof, this Agreement shall be
binding upon and inure to the benefit of the parties and their successors
and assigns. The headings in this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation
of, this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the
same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement,
once executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the signature
of the party so delivering this Agreement. Each party shall do and
perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of
this Agreement and the consummation of the transactions contemplated
hereby.
Except as otherwise provided herein, all consents and other determinations
to be made by the Investors pursuant to this Agreement shall be made by
Investors holding a majority of the Registrable Securities, determined as
if the all of the Debentures then outstanding have been converted into for
Registrable Securities.
The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to each Investor by vitiating the intent and
purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations under
this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of any of the provisions under this
Agreement, that each Investor shall be entitled, in addition to all other
available remedies in law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing
or curing any breach of this Agreement and to enforce specifically the
terms and provisions hereof, without the necessity of showing economic
loss and without any bond or other security being required.
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above written.
THE AMANDA COMPANY
/s/ Jose Candia
--------------------------------------
Jose Candia
Chief Executive Officer and President
BRISTOL INVESTMENT FUND, LTD.
/s/ Diana Derycz Kessler
--------------------------------------
Diana Derycz Kessler
Director
Exhibit 23.1
May 17, 2002
The Amanda Company
13765 Alton Parkway, suite F
Irvine, California 92618
Dear Sir or Madam:
We have acted as counsel for The Amanda Company, a Utah corporation
(the "Company"), in connection with its Registration Statement on Form SB-2 (the
"Registration Statement") being filed with the Securities and Exchange
Commission relating to the registration for resale of 196,652,672 shares of
Common Stock, par value $.01 per share, of which 193,158,333 are issuable upon
conversion of convertible debentures and 3,494,339 shares are issuable upon the
exercise of warrants.
In connection with the foregoing, we have examined, among other
things, the Registration Statement and originals or copies, satisfactory to us,
of all such corporate records and of all such other agreements, certificates and
documents (including instruments evidencing or setting forth the terms and
provisions of the Convertible Securities) as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
documents of documents submitted to us as copies. As to any facts material to
such opinion, we have, to the extent that relevant facts were not independently
established by us, relied on certificates of public officials and certificates,
oaths and declarations of officers or other representatives of the Company.
Based on our examination mentioned above, we are of the opinion that
the securities being sold pursuant to the Registration Statement are duly
authorized and will be, when sold in the manner described in the Registration
Statement, legally and validly issued, and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to our firm under "Legal
Matters" in the related Prospectus.
Very truly yours,
/s/ Naccarato & Associates
Exhibit 23.2
Board of Directors
The Amanda Company
Irvine, California
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our reports, dated January
11, 2002 and May 25, 2001, contain an explanatory paragraph that states that
working capital deficiencies and recurring losses, which raise substantial doubt
about the abilites of Pen Interconnect, Inc. and The Automatic Answer, Inc. have
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Pohl, McNabola, Berg, & Company
Pohl, McNabola, Berg, & Company
San Francisco, CA
May 17, 2002