As filed with the Securities and Exchange Commission on June 25, 2002
Registration. No. 333-86038
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
AMENDMENT NO. 2
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 87-0430260
---------------- ---------------------------- ----------------
(State or other (Primary Standard Industrial (I.R.S. employer
jurisdiction of Classification Code Number identification
incorporation number)
or organization)
13765 Alton Parkway, Suite F, Irvine California 92618
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(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)
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Copies to:
Owen Naccarato, Esq.
Naccarato & Associates
19600 Fairchild, Suite 260
Irvine, California 92612
(949) 851-9261
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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 163,158,334(2) $ 0.02 $ 3,263,167 $ 300.21
convertible debentures
---------------------------- ------------- ----------- ------------ -------------- --------- -----------------
Shares Underlying 1,780,053 (3) $ 0.02 $ 35,601 $ 3.28
Warrants
---------------------------- ------------- ----------- ------------ -------------- --------- -----------------
Total Registration Fee $ 303.49(4)
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(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.
(3) Common stock issuable upon the conversion of warrants issued in connection
with the above convertible debentures.
(4) Previously paid with original filing on April 11, 2002, file #333-86058
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.
1
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
June 25, 2002
THE AMANDA COMPANY
164,938,387 Shares of common stock
The 164,938,387 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 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 June 19, 2002 the closing bid price of our common stock on the OTC
Bulletin Board was $.012
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This investment involves a high degree of risk. See the "Risk Factors"
beginning on page 6.
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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.
2
TABLE OF CONTENTS
Page No.
Summary of Information in the Prospectus. . . . . . . . . . . . 4
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 9
Price Range of Common Stock . . . . . . . . . . . . . . . . . . 10
Our Dividend Policy . . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . 13
Our Business. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Executive Compensation. . . . . . . . . . . . . . . . . . . . . 23
Certain Relationships and Related Transactions. . . . . . . . . 24
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . 24
Description of Securities . . . . . . . . . . . . . . . . . . . 25
Selling Stockholders. . . . . . . . . . . . . . . . . . . . . . 26
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 28
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 30
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 31
Other Available Information . . . . . . . . . . . . . . . . . . 31
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Statements. . . . . . . . . . . . . . . . . . . . . . 31
3
PROSPECTUS SUMMARY
This summary contains all material terms of the prospectus. To understand this
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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:
- 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.
- 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.
- 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 164,938,387 Selling Security Holder Shares (see "Selling Shareholders" page 28).
Common Stock Outstanding: Prior to the Offering: 70,351,927 as of March 31, 2002
After the Offering: 235,290,314 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 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.
4
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 $1,241,784 and a loss $2,398,187 in fiscal 2000 plus a loss of
$1,256,087 for the Six Months Ended March 31, 2002 and $1,071,876 for the Six
Months Ended March 31, 2001. 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 $3,487,576 at
September 30, 2001 and $2,812,320 for the period ended March 31, 2002, 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:
- Overall economic conditions of the small and medium B2B segment;
- Fiscal health of our distribution channels;
- 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:
- The progress of production of product, sales, marketing and
distribution efforts;
- The timely entrance of new integrated products to market;
- The market acceptance of our products;
- 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.
5
Debt financing, if available, may have several negative effects on our future
operations, including:
- 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;
- increased debt burdens will substantially increase our
vulnerability to adverse changes in general economic and
competitive conditions; and
- 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:
- Cisco Systems
- Avaya
- NEC
- Voicegate
- 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;
(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.
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
6
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 March 31, 2002, we had 70,351,927 shares of common stock issued and
outstanding, notes outstanding and future notes that are convertible into
83,500,000 shares of common stock at current market prices, and outstanding
warrants to purchase 1,780,053 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.
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):
- 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 $1,670,000 of
convertible debentures would require 119,285,714 shares of Amanda's common
stock, or 169% of Amanda's current outstanding shares.
- 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 $1,670,000 of
convertible debentures would require 128,461,538 shares of Amanda's common
stock, or 182% of Amanda's current outstanding shares.
- 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 $ 1,670,000 of
convertible debentures would require 334,000,000 shares of Amanda's common
stock, or 474% of Amanda's current outstanding shares.
7
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 163,158,334 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:
- The bid and offer price quotes for the penny stock and the number of shares
to which the quoted prices apply.
- The brokerage firm's compensation for the trade.
- The compensation received by the brokerages firm's salesperson for the
trade.
In addition, the brokerage firm must send the investor:
- Monthly account statement that gives an estimate of the value of each penny
stock in your account.
- A written statement of your financial situation and investment goals.
Legal remedies which may be available to you are as follows:
- 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.
8
- 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.
- 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
9
proceeds of approximately $35,601. 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.
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
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 70,351,927 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 March 31, 2002, 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.
10
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.
11
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 CONSOLIDATED financial statements of Amanda for the periods ended
September 30, 2001 (audited) and 2000 (unaudited) and the unaudited quarterly
for Amanda for the six months ended March 31, 2002 and 2001. 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:
PEN INTERCONNECT INC. AMANDA CONSOLIDATED AMANDA
Years Ended Years Ended Six Months Ended
September 30, September 30, March 31,
2000 2001 2000 * 2001* 2001 2002
------------ ------------- ------------ -------------- ------------ ------------
Revenues $ 0 $ 0 $ 5,015,319 $ 4,032,546 $ 1,987,298 $ 1,694,939
Cost of goods 0 0 3,224,312 2,394,811 1,317,344 936,454
Gross profit 0 0 1,791,007 1,637,735 669,954 758,485
Net loss (1,891,199) (1,294,784) (2,398,189) (1,241,784) (1,071,876) (1,256,087)
Loss per share (1) ($.10) ($.03) ($.00) ( $.00) ($.00) ( $.00)
CONSOLIDATED BALANCE SHEET:
As of September 30, As of September 30 * As of March 31,
2000 2001 2000 2001 2002
------------ ------------ ------------- ------------ -----------------
Total current assets $ 9,319 $ 6,839 $ 412,671 $ 369,062 $ 428,434.21
Total current liabilities 982,047 824,729 3,562,974 3,856,629 3,131,956.48
Total stockholder (deficit) (1,977,040) (2,313,110) (2,982,829) (3,479,045) (3,7,087,267)
* CONSOLIDATED
(1) Before the February 8, 2002 reverse split.
12
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
THREE AND SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO MARCH 31, 2001
--------------------------------------------------------------------
Net sales: Net sales for the Company decreased $106,509 or approximately 12
percent for the three months ended March 31, 2002, as compared to the same
period in the prior year. Net sales for the Company decreased $292,359 or
approximately 15 percent for the six months ended March 31, 2002 as compared to
the same period in the prior year. The events of September 11, 2001 as well as
the general economic condition in the country today has contributed to the
general decrease in sales experienced not only by the Company, but the industry
as a whole.
Cost of sales: Cost of sales as a percentage of net sales decreased to 44
percent of net sales for the three months ended March 31, 2002 as compared to 29
percent for the same period in the prior year. Cost of sales as a percentage of
net sales decreased to 45 percent of net sales for the six months ended March
31, 2002 as compared to 34 percent for the same period in the prior year. Gross
profit increased due to an increase in product margins, reduced shipping costs
due to increased efficiency in product scheduling, both for incoming and
outgoing shipments, and a reduction in replacement of defective product due to
increased product testing prior to shipment to customers.
13
Selling, general and administrative expenses: Selling, general and
administrative expenses decreased $219,067 or approximately 28 percent for the
three months ended March 31, 2002 as compared to the same period in the prior
year. Selling, general and administrative costs decreased $618,227 or
approximately 35 percent for the six months ended March 31, 2002 as compared to
the same period in the prior year. The merger of Pen Interconnect and The
Automatic Answer (tAA) resulted in the elimination of several executive
positions, thereby eliminating significant salary and related payroll and
employee benefit expenses. In addition, the consolidation of offices, along with
the reduction in rent for both the California corporate office and the Danbury,
CT sales office contributed significantly to expense reduction in the current
quarter and six months. The Company has concentrated on reviewing all recurring
expenses and has made reductions when possible.
Other income and expenses: Other income decreased by $95,243, while interest
expense increased by $7,159 for the three months ended March 31, 2002 as
compared to the same period in the prior year. In the prior year the Company was
able to negotiate settlements on outstanding vendor debt resulting in a gain of
$73,168. There were no settlements in the quarter ended March 31, 2002.
THE AMANDA COMPANY CONSOLIDATED FINANCIAL STSTEMENTS
YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------
Net sales: Net sales for the Company decreased $982,773 to $4,032,546 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.
Cost of sales: Cost of sales of $2,394,811 for the period ended September 30,
2001 decreased $829,501 from $3,224,312 or 26% 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 $2,986,295 for the period ending September 30, 2001
decreased by $953,726 from $3,940,021 or approximately 24% 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 $67,237 for the period ending September
30, 2001 decreased $214,389 from the same period prior year due to the company's
line of credit being terminated in the year ended September 30, 2000.
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
14
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 $952,229, a net
change of 45%.
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 $325,147 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 $33,048 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.
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
15
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
------------------
MARCH 31, 2002
--------------
For the quarter ended March 31, 2002 and for the six months ended March 31,
2002, the Company sustained losses of $242,206 and $1,256,087, respectively. The
Company borrowed $40,000 from a potential investor in the quarter ended March
31, 2002.
FISCAL YEARS ENDING SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 - CONSOLIDATED
----------------------------------------------------------------------------
During the fiscal year ended September 30, 2001, the Company sustained
losses of $1,241,784. As a result of these losses the Company raised additional
working capital through the exercise of warrants $644,185 and the issuance of
Convertible Debentures $650,000.
Amanda had negative working capital at September 30, 2001 of $3,487,567
compared to negative working capital of $3,150,303 at September 30, 2000 for a
decrease in working capital of $337,264. 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.
16
OTHER EVENTS
-------------
On March 8, 2001, Amanda issued 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 a total of 8,055,583 warrants
(PRE-SPLIT). 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.
On October 23, 2001, Pen Interconnect 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
17
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 (PRE-SPLIT). 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 (PRE-SPLIT) for the right to purchase 8,571,1429 shares of
Common Stock of Amanda at an exercise price per share equal to the lesser of (i)
$.01 and (ii) 70% of the average of the lowest three inter-day sales prices
during the thirty (30) Trading Days immediately prior to exercise. These shares
have been canceled.
It is anticipated that the above of convertible debentures will be
converted into shares in accordance with the terms of these debentures.
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
18
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 (PRE-SPLIT) and modify the strike price on 375,000 warrants
(PRE-SPLIT) 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 (PRE-SPLIT) pursuant to this program. In FY 2001 Amanda issued
10,178 shares of common stock (PRE-SPLIT) to pay vendor debt of $25,390.
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:
- 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.
- 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.
- 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.
19
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
---------------------
- Regain profitability through product cost restructuring, pricing
changes and simplification of products.
- Gain market share with Mini SOHO and Portal (recently launched
products),
- Develop a new product that integrates our technologies with other
ready to market technologies,
- Reduce revenue product dependency on voice mail.
Long Term Objectives
--------------------
- Enhance revenue stream with recurring service revenues,
- Develop products that will allow different communication devices work
together.
Strategic Vision
----------------
Key to Amanda's business in the future is the following:
- 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.
- 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.
- Entering international markets through partnerships to create high
margin opportunities while minimizing our exposure.
- Identify and distribute related products manufactured by third parties
through our current distribution network that yield profitable gross
margins.
- 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.
20
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
21
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.
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 appointed as the interim Chairman 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.
22
Jose Candia ,who resigned on April 1, 2002 ( please see Form 8-K filed April 4,
2002 file number 001-14072) 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.
Bill Prevot, who resigned on March 26, 2002, for personal reasons, 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
23
(1) Resigned in 2001 for personal reasons
(2) Resigned in 1999/2000 for personal reasons
(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.
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 (pre-split) warrants, priced at $0.65 per
share, and 376,000 (pre-split) 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.
24
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 shares issued and outstanding as of March 31, 200
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 70,351,927 shares are issued and outstanding as of March 31, 2002, plus
5,000,000 shares of preferred stock, $0.001 par value, of which 807 shares are
issued and outstanding. 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.
25
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 805,585 warrants (PRE-SPLIT).
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.
On November 26, 2001 Amanda issued a total of 794,468 warrants (PRE-SPLIT).
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 857,143 warrants (PRE-SPLIT).
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 shares have been canceled.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this offering Amanda has 70,351,927 shares of Common Stock
outstanding. 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
166,718,440 shares of common stock, all of which will be freely tradable without
restriction or further registration under the Securities Act. This includes:
- 163,158,334 shares representing the conversion of the aggregate
of $1,670,000 plus interest of 7% and 8% debentures plus
estimated interest due.
- 1,780,053 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
26
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) 11,762,163 (17) 4.999% 20,256,667 (18) 0 0%
ALPHA Capital AG (3)(4) 11,762,163 (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) 11,762,183 (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) 11,762,163 (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) 11,762,163 (17) 4.999% 31,400,000 (18) 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.
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
27
(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 managing members, has investment control over the shares listed by
Bristol Investment Fund, Ltd.
(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 235,290,314 shares of our common stock outstanding
(includes the shares in this Offering) as of this offering.
28
PLAN OF DISTRIBUTION
The selling stockholders will most likely sell there shares on the OTCBB 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:
- Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers.
- 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.
- Purchases by a broker-dealer as principal and resale by the
broker-dealer for its own account.
- An exchange distribution following the rules of the applicable
exchange
- Privately negotiated transactions
- Short sales or sales of shares not previously owned by the seller
- Broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share
- A combination of any such methods of sale any other lawful method
The selling stockholders may also engage in:
- Short selling against the box, which is making a short sale when
the seller already owns the shares.
- Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
- 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.
29
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:
- AMRO Int'l Inc.
- ALPHA Capital, AG.
- Stonestreet LP
- Stonestreet Corp.
- Bristol Investment Fund Ltd.
- Alexander Dunham Capital Group, Inc.
- Balmore S.A.
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,
30
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.
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.
31
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 34
Consolidated Financial Statements of
THE AMANDA COMPANY
--------------------------------------------------------------------------------
PEN INTERCONNECT, INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 2001 and September 30, 2000.
Consolidated Statements of Loss for the years ended September 30, 2001 and
September 30, 2000.
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss
for the years ended September 30, 2001 and September 30, 2000.
Consolidated Statements of Cash Flows for the years ended September 30, 2001 and
September 30, 2000.
Notes to Consolidated financial Statements
THE AMANDA COMPANY
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2002 (unaudited) and September 30,
2001 (audited)
Consolidated Statements of Loss for the Quarters ended March 31, 2002
(unaudited) and March 31, 2001 (unaudited)
32
Consolidated Statements of Cash Flows for the Quarters ended March 31, 2001
(unaudited) and March 31, 2000 (unaudited)
Notes to Consolidated financial Statements
Continued on next page -
33
Consolidated Financial Statements of
THE AUTOMATIC ANSWER
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
THE AUTOMATIC ANSWER
September 30, 2001
INDEX TO AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 2001
Consolidated Statements of Loss for the years ended September 30, 2001
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss for the years ended September 30, 2001
Consolidated Statements of Cash Flows for the years ended September 30, 2001
Notes to Consolidated financial Statements
Continued on next page -
34
Consolidated Financial Statements of
THE AUTOMATIC ANSWER AND PEN INTERCONNECT, INC.
September 30, 2001 and 2000
INDEX TO FINANCIAL STATEMENTS
Consolidated CONSOLIDATED Balance Sheets as of September 30, 2001 (audited) and
2000 (unaudited)
Consolidated CONSOLIDATED Statements of Loss for the years ended September 30,
2001 (audited) and 2000 (unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss for the years ended September 30, 2001 (audited) and September 30, 2000
(unaudited).
CONSOLIDATED Consolidated Statements of Cash Flows for the year ended September
30, 2001 (audited).
35
PEN INTERCONNECT, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2001 AND 2000
36
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
37
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
38
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 TOCKHOLDERS' 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
Common Preferred Retained
Stock Stock Additional earnings
-------------------- ---------------------- 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
Common Preferred Retained
Stock Stock Additional earnings
---------------------- ---------------- 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 bad debts - -
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.
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.
The accompanying notes are an integral part of these financial statements.
61
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.
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
------------ --------- ----------- --------
Outstanding at end of year 15,192,654 0.34 11,036,654 $ 1.23
============ ========= =========== ========
Exercisable at end of year 15,187,654 $ 1.32 11,029,154 $ 2.34
============ ========= =========== ========
The accompanying notes are an integral part of these financial statements.
62
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
-------------------------------------------- ------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of as of Contractual Exercise as of Exercise
Exercise Prices September 30, 2001 Life Price September 30, 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
---------------------------------- -------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
as of Remaining Average as of Average
Range of September Contractual Exercise September 30, Exercise
Exercise Prices 30, 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)
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 accompanying notes are an integral part of these financial statements.
64
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 antidilutive.
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 AND SIX MONTHS PERIOD ENDED
MARCH 31, 2002 AND 2001
The accompanying notes are an integral part of these financial statements.
69
PEN INTERCONNECT, INC.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS PERIOD ENDING MARCH 2002 AND 2001
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
March 31, 2002 and September 30, 2001
ASSETS March 31, September 30,
2002 2001
-------------------- --------------------
CURRENT ASSETS
Cash and cash equivalents $ 14,042 $ 34,838
Accounts receivable, net 175,234 155,824
Other receivable 10,000 -
Inventory 129,444 172,617
Prepaid and other current assets 99,714 5,783
-------------------- --------------------
Total current assets 428,434 369,062
PROPERTY AND EQUIPMENT, NET 124,006 131,926
SECURITY AND OTHER DEPOSITS 30,512 29,974
-------------------- --------------------
Total assets $ 582,952 $ 530,962
==================== ====================
The accompanying notes are an integral part of these statements.
71
THE AMANDA COMPANY, INC.
BALANCE SHEETS
March 31, 2002 and September 30, 2001
LIABILITIES & STOCKHOLDER'S DEFICIT March 31, September 30
2002 2001
-------------------- --------------------
CURRENT LIABILITIES
Accounts payable $ 906,806 $ 1,352,916
Accrued liabilities 384,502 1,042,414
Leasing financing payable (40,268) 32,052
Notes payable 464,500 573,000
Deferred revenue 12,879 16,248
Convertible debentures 900,000 800,000
Accrued dividends payable 503,538
-------------------- --------------------
Advances payable 40,000
Total current liabilities 3,131,957 3,856,630
LONG-TERM LIABILITIES
Lease financing payable 204,099 92,687
Contingent notes payable 130,300 -
Promissory note - Bristol 300,000 -
Convertible promissory notes 470,000 -
-------------------- --------------------
Deferred gain on sale leaseback 60,691
-------------------- --------------------
-------------------- --------------------
Total long-term liabilities 1,104,399 153,378
-------------------- --------------------
Total liabilities 4,236,356 4,010,008
STOCKHOLDERS' DEFICIT
Convertible Preferred stock, $0.01 par value authorized
5,000,000 shares, Series A; issued and outstanding 1 1
61 shares at March 31, 2002 and 91 shares at
September 30, 2001. Series B: issued and 7 9
outstanding 746 shares at December 31, 2001 and
926 shares at September 30, 2001
Common stock, $0.01 par value, issued and out-
standing 70,351,927 shares at March 31, 2002
and 68,778,960 shares at September 30, 2001 703,519 687,789
Accumulated deficit (4,356,931) (4,166,845)
-------------------- --------------------
Total stockholders' deficit (3,653,404) (3,479,046)
-------------------- --------------------
Total liabilities and stockholders' deficit $ 582,952 $ 530,962
==================== ====================
The accompanying notes are an integral part of these statements.
72
The Amanda Company, Inc.
Statement of Operations
For the Three and Six Months Ended March 31, 2002 and 2001
(Unaudited)
Three months ended Six months ended
March 31, March 31, March 31 March 31
2002 2001 2002 2001
---------------- ---------------- --------------- ---------------
Net sales $ 794,562 $ 901,071 $ 1,694,939 $ 1,987,298
Cost of sales 447,760 641,171 936,454 1,317,344
---------------- ---------------- --------------- ---------------
Gross profit 346,802 259,900 758,485 669,954
---------------- ---------------- --------------- ---------------
Selling, general and
administrative expenses 577,304 796,371 1,134,244 1,752,471
---------------- ---------------- --------------- ---------------
Operating loss (230,502) (536,471) (375,759) (1,082,517)
Other income (expense):
Interest expense (45,725) (38,566) (83,585) (110,060)
Miscellaneous income, net 34,021 56,096 79,257 138,737
Loss on impairment - - - (63,000)
Loss from discontinued operations - - - (39,323)
Extinguishment of debt - 73,168 - 84,287
---------------- ---------------- --------------- ---------------
Loss before extraordinary item (242,206) (445,773) (380,087) (1,071,876)
Merger costs - - (876,000) -
---------------- ---------------- --------------- ---------------
Net loss before income taxes (242,206) (445,773) (1,256,087) (1,071,876)
Income taxes - - - -
---------------- ---------------- --------------- ---------------
Net loss $ (242,206) $ (445,773) $ (1,256,087) $ (1,071,876)
================ ================ =============== ===============
The accompanying notes are an integral part of these statements.
73
THE AMANDA COMPANY, INC.
STATEMENTS OF CASH FLOW
(Unaudited)
Six months ended
March 31, March 31,
2002 2001
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,256,087) $ (1,071,876)
Adjustments to reconcile net cash provided (used) in
operating activities
Depreciation and amortization 9,181 53,723
Loss on disposal of property and equipment - 40,545
Allowance for notes receivable - 63,000
Warrant/option compensation expense - 75,145
Common stock issued for compensation and interest 1,081,729 50,022
Effect on cash of changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net (19,410) 57,003
Decrease (increase) in other receivables (10,000) (2,515)
Decrease (increase) in inventory 43,173 58,454
Decrease (increase) in prepaid and other current assets (93,931) (17,590)
Decrease (increase) in security deposits - (4,492)
Increase (decrease) in accounts payable 169,113 10,153
Increase (decrease) in accrued expenses (679,596) (121,667)
Increase (decrease) in deferred revenue (3,369) (12,523)
------------------ -----------------
Net cash provided (used) in operating activities (759,197) (822,618)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to perFORMplace - (63,000)
------------------ -----------------
Net cash provided (used) in investing activities - (63,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (110,000)
Payments of equipment financing (21,599) -
Proceeds from equipment financing - 97,591
Exercise of warrants 380,451
Proceeds from notes payable - 470,776
Proceeds from convertible debenture 100,000 -
Proceeds from convertible promissory notes 770,000 -
------------------ -----------------
Net cash provided (used) in financing activities 738,401 948,818
------------------ -----------------
Net increase (decrease) in cash and cash equivalents (20,796) 63,200
Cash and cash equivalents at beginning of period 36,394 48,783
------------------ -----------------
Cash and cash equivalents at end of period $ 15,598 $ 111,983
================== =================
The accompanying notes are an integral part of these 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. There were no conversions of preferred shares into
common shares in the second quarter.
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
$242,206 for the quarter ended March 31, 2002, and a loss of $1,256,087 for
the six months ended March 31, 2002. A deficit of $3,708,267 in
stockholders' equity and negative working capital of $2,812,320 for the
period ended March 31, 2002. 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 second quarter.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
No warrants were exercised in the second quarter.
NOTE E - OPTIONS/WARRANTS TO PURCHASE COMMON STOCK
No options or warrants were issued in the second quarter.
NOTE F - ACCRUED PREFERRED STOCK DIVIDENDS
The Preferred Shareholders agreed to waive all dividends, effective October
1, 2001. No accrual for dividends on preferred shares was recorded in the
second quarter ended March 31, 2002.
The accompanying notes are an integral part of these statements.
75
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.
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.
The accompanying notes are an integral part of these statements.
76
For the six ended March 31, 2002, 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.
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.
NOTE M - COMMON STOCK OUTSTANDING
The number of common shares issued to shareholders as of December 31, 2001
was 321,760,040. As of December 31, 2001, the Company was obligated to
issue an additional 381,759,233 pursuant to the merger agreement with The
Automatic Answer, Inc. (tAA), for a total of 703,519,273 shares.
The number of shares issued due to the merger with The Automatic Answer,
Inc., was not determined until February, 2002 due to the dilution effect of
the merger agreement.
On February 8, 2002, the company executed a reverse split of one new share
for each ten outstanding shares of common stock. The resultant effect was
that the number of shares to be outstanding of 703,519,273 become
70,351,927 post split.
The accompanying notes are an integral part of these statements.
77
THE AUTOMATIC ANSWER, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
The accompanying notes are an integral part of these statements.
78
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 statements.
79
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.
80
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.
81
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.
82
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.
83
THE AUTOMATIC ANSWER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
DECEMBER 31, 2000 AND 1999
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
---------------- ------------------ PAID IN EARNINGS TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------- ------- --------- ------- ---------- ------------ ------------
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.
84
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.
85
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.
86
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.
87
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
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.
88
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.
89
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.
90
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.
91
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
======== ========
92
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. Principal payment is due at maturity. $300,000
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
--------
Total notes payable at December 31, 2000 $523,000
========
93
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. 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. $ 75,000
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
--------
Total notes payable at December 31, 1999 $545,383
========
94
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
=========
95
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
------ ------
96
Deferred
Federal - -
State - -
------ ------
Total $ 800 $ 800
====== ======
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.
Litigation
----------
97
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.
98
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
================= =================
99
NOTE 12 - STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes the Company's Stock Options activity:
2000 1999
------------------- --------------------
Weighted Weighted
Number average average
of exercise Number of 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
================= ================
100
NOTE 12 - STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes the Company's warrants activity:
Weighted
Average
Warrants Exercise
Outstanding 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
101
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.
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.
102
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.
103
THE AUTOMATIC ANSWER, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
SEPTEMBER 30, 2001
PAGE
-----
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . 9
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
104
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
The Automatic Answer, Inc.
We have audited the accompanying balance sheet of The Automatic Answer,
---------------------------------------------------------------------------
Inc., as of September 30, 2001 and the related statements of operations,
---------------------------------------------------------------------------
shareholders' equity, and cash flows for the year 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 audit.
----------------------
We conducted our audit 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 audit provides 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 September 30, 2001 and the results of its operations and its cash flows for
the year 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 sustained losses from operations and has a
net capital deficiency, which raises 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 17, 2002
105
THE AUTOMATIC ANSWER, INC.
BALANCE SHEET
SEPTEMBER 30, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,999
Accounts receivable, net 155,824
Inventory 172,617
------------
Total current assets 356,440
PROPERTY AND EQUIPMENT, net 131,925
OTHER ASSETS 35,757
------------
TOTAL ASSETS $ 524,122
============
(continued)
The accompanying notes are an integral part of these financial statements.
106
THE AUTOMATIC ANSWER, INC.
BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 2001
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 521,675
Accrued expenses 393,704
----------------
Deferred revenue 16,249
Notes payable - related party 523,000
Lease financing payable 32,052
Note payable 50,000
------------
Total current liabilities 1,536,680
LONG-TERM LIABILITIES
Deferred gain on sale leaseback 60,691
Lease financing payable 92,687
------------
Total long-term liabilities 153,378
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
Common stock, $.001 par value; 8,000,000 shares authorized;
4,425,235 shares issued and outstanding 4,426
Additional paid-in capital 1,115,954
Accumulated deficit (2,286,470)
------------
Total shareholders' equity (1,165,936)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 524,122
============
The accompanying notes are an integral part of these financial statements.
107
THE AUTOMATIC ANSWER, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NET SALES $4,032,546
COST OF SALES 2,394,811
-------------- -----------
GROSS PROFIT 1,637,735
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,034,066
-----------
LOSS FROM OPERATIONS (396,331)
-----------
OTHER INCOME (EXPENSE):
Interest Expense (100,285)
Merger advances 461,200
Other income 90,016
-----------
TOTAL OTHER INCOME (EXPENSE): 450,931
-----------
INCOME BEFORE INCOME TAXES 54,600
PROVISION FOR INCOME TAXES (1,600)
-----------
NET INCOME $ 53,000
===========
The accompanying notes are an integral part of these financial statements.
108
THE AUTOMATIC ANSWER, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2001
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------------------
SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL EARNINGS (DEFICIT) EQUITY
-----------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 153,920 $ 154 4,425,235 $ 4,426 $ 1,115,954 $ (2,339,470) $(1,218,936)
Net Income 53,000 53,000
-----------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 153,920 $ 154 4,425,235 $ 4,426 $ 1,115,954 $ (2,286,470) $(1,165,936)
=========================================================================================
The accompanying notes are an integral part of these financial statements.
109
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,000
Adjustments to reconcile net cash provided (used) in
operating activities:
Depreciation and amortization 86,472
Gain on debt relief (50,000)
-------------------
Merger advances (461,200)
Realized gain on sale of equipment (12,138)
Effect on cash of changes in operating assets and liabilities:
Increase in accounts receivable, net (1,076)
Increase in inventory (52,544)
Increase in prepaid assets (19,715)
Increase in other assets (279)
Decrease) in accounts payable (158,486)
Decrease in deferred revenue (48,716)
Increase in unearned gain on sale leaseback 72,829
Increase in accrued expenses 27,947
----------
Net cash used in operating activities (563,906)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (85,613)
----------
Net cash used in investing activities (85,613)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under equipment lease financing 129,813
Payments on equipment lease financing (14,009)
Borrowings under notes payable 59,050
Merger advances 461,200
----------
Net cash provided by financing activities 636,054
----------
Net decrease in cash and cash equivalents (13,465)
Cash and cash equivalents, beginning of year 41,464
----------
Cash and cash equivalents, end of year $ 27,999
-------------------------------------- ----------
The accompanying notes are an integral part of these financial statements.
110
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------
Cash paid during the year for:
Interest $ -
========
Income tax $ -
========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
-----------------------------------------------------------------------
Computer equipment refinanced under lease transactions: $124,739
The accompanying notes are an integral part of these financial statements.
111
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
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. There were no uninsured balances as of
September 30, 2001.
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.
Allowance for doubtful accounts
----------------------------------
The Company establishes an allowance for uncollectible trade accounts receivable
based on historical collection experience and management evaluation of
collectibility of outstanding accounts receivable.
The accompanying notes are an integral part of these financial statements.
112
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 $17,195 for the year ended September 30, 2001.
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.
The accompanying notes are an integral part of these financial statements.
113
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
In March 2000, the FASB released Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." This Interpretation addresses
certain practice issues related to APB 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 adopted the provisions of this Interpretation starting July 1, 2000.
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 year ended September 30, 2001, comprehensive income (loss) is equivalent
to the Company's net income (loss).
The accompanying notes are an integral part of these financial statements.
114
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 2001, no impairment has been recorded.
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.
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 implementation of FAS No. 141 and
FAS No. 142 will have no material effect on the Company's results of operations
or financial position.
The accompanying notes are an integral part of these financial statements.
115
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other accounting pronouncements
---------------------------------
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.
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. The Company has an accumulated deficit of $2,286,470
at September 30, 2001. In addition, the Company had a working capital deficit of
approximately $1,180,000 at September 30, 2001. 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.
The accompanying notes are an integral part of these financial statements.
116
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 3 - ACCOUNTS RECEIVABLE
The Company's accounts receivable consists of balances due from dealers in the
telecommunications industry. The terms are normally net 10 days. Accounts
receivable amounted to $209,977 at September 30, 2001.
The Company recorded an allowance for bad debts of $54,153 at September 30,
2001.
NOTE 4 - INVENTORY
Inventory, which principally consists of computer hardware, amounted to $204,617
at September 30, 2001. The Company's reserve for obsolete inventory amounted to
$32,000 at September 30, 2001.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2001 consisted of the following:
2001
----------
Office furniture and fixtures $ 112,182
Computer and office equipment 458,185
Computer software 40,036
Leasehold improvements 2,245
----------
Total property and equipment 612,648
Less accumulated depreciation and amortization (480,723)
----------
Total $ 131,925
==========
Depreciation expense for the year ended September 30, 2001 was $86,472. Computer
and office equipment includes $97,592 of leased computer equipment under lease
financing arrangements at September 30, 2001.
The accompanying notes are an integral part of these financial statements.
117
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 6 - ACCRUED EXPENSES
Accrued expenses at September 30, 2001 consisted of the following:
2001
--------
Accrued payroll and payroll taxes $ 73,779
Accrued consulting fees 96,000
Accrued benefits 50,197
Accrued accounting fees 45,000
Income taxes 1,600
Accrued interest 75,478
Other accrued expenses 51,650
--------
Total $393,704
========
The accompanying notes are an integral part of these financial statements.
118
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 7 - 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
September 30, 2001 consist of the following:
Note payable to a shareholder. Interest is 12% per annum, payable
monthly. The note is due on demand. $300,000
Note payable to a shareholder. 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 and is due on demand. 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. The note is due on demand and is still outstanding at
September 30, 2001. 25,000
Note payable to a shareholder. Interest is 10% per annum. Interest is
payable monthly. The note is due on demand and is still outstanding at
September 30, 2001. 4,500
Note payable to a shareholder. Interest is 12% per annum. Interest is
payable monthly. The note is due on demand and is still is outstanding at
September 30, 2001. 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. In February 2002, both parties agreed
to a settlement. 33,500
--------
TOTAL NOTES PAYABLE AT SEPTEMBER 30, 2001 $523,000
========
In conjunction with the notes, the Company issued warrants to the noteholders to
purchase shares of the Company's common stock at exercise prices that range from
$0.01 to $3.00.
Accrued interest on these notes amounted to $75,478 at September 30, 2001.
The accompanying notes are an integral part of these financial statements.
119
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
At September 30, 2001, 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. subsequent to September 30, 2001.
The accompanying notes are an integral part of these financial statements.
120
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 8 - LEASES
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 a lease financing
liability in the amount of $97,592 as a result of the financing arrangement.
During February 2001, the Company entered into another leasing arrangement and
recorded additional lease liabilities in the amount of $47,703.
Minimum annual rental payments at September 30,
2002 $ 47,670
2003 47,670
2004 31,147
2005 27,821
2006 8,181
---------
Total minimum lease payments $162,489
Less amount representing interest 37,750
---------
Total lease financing payable 124,739
Less current portion (32,052)
---------
Lease financing payable - long term $ 92,687
=========
NOTE 9 - NOTE PAYABLE - LUCENT
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 at September 30, 2001.
The classification of the note on the balance sheet is presented below:
2001
------------
Long term $ -
Current 50,000
------------
Total $ 50,000
============
The accompanying notes are an integral part of these financial statements.
121
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 10 - INCOME TAXES
Significant components of the provision for taxes based on income for the year
ended September 30 are as follows:
2001
--------
Current
Federal $ -
State 1,600
--------
$ 1,600
--------
Deferred
Federal -
State -
--------
Total $ 1,600
========
Significant components of the Company's deferred tax assets and liabilities for
income taxes consist of the following:
2001
----------
Deferred tax asset
Net operating loss carryforwards $ 626,438
Depreciation 39,418
Bad debts 23,199
Benefits and accruals 51,042
----------
Total deferred tax asset 740,097
----------
Deferred tax liability
State income taxes benefit (51,924)
----------
Less valuation allowance (688,173)
----------
Net deferred tax asset $ -
==========
At September 30, 2001, the Company has available approximately $1,462,000 in net
operating loss carryforwards available
The accompanying notes are an integral part of these financial statements.
122
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 10 - INCOME TAXES (CONTINUED)
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for (benefit from) income taxes for the year ended September
30, 2001, is as follows:
2001
--------
Income tax provision (benefit) computed
at federal statutory rate 35.00%
State 8.84%
NOL carryforward benefit (43.81%)
--------
Effective tax rate 0.03%
========
The Company continues to maintain a valuation allowance for its deferred net tax
benefits.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Office Lease
-------------
The Company is committed under operating lease agreements for its office
facility in California and Connecticut. In July 2001, the Company relocated and
entered into a new lease agreement with Kilroy Realty Corporation for a new
office space at 13765 Alton Parkway, Irvine, California. The lease is for a
period of three years beginning July 15, 2001 and expiring June 15, 2004. This
lease requires monthly rental payments of approximately $4,600. Future minimum
lease payments required under this non- cancelable operating lease are as
follows:
Years ending September 30, Amount
--------------------------- --------
2002 $ 90,924
2003 56,556
2004 43,756
--------
$191,236
========
Rent expense for the year ended September 30, 2001 amounted to $206,302.
The accompanying notes are an integral part of these financial statements.
123
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
----------
On May 16, 2001, a lawsuit was filed by 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 Company filed a
cross-complaint claiming that the product supplied by the plaintiff was
defective. The balance due to the plaintiff amounts to $33,500 plus accrued
interest at September 30, 2001. On February 25, 2002, both parties entered into
a settlement whereby each party released its claim on the complaint and
cross-complaint. Each side absorbed its own costs and fees and the case was
dismissed.
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 year ended September 30, 2001:
2001
-------
Net income
As reported $53,000
Pro forma $38,034
The accompanying notes are an integral part of these financial statements.
124
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 12 - STOCK OPTIONS AND WARRANTS (CONTINUED)
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 September 30, 2000: dividend yield of 0%; no
expected volatility; risk-free interest rate of 5.6%; and expected life of 4
years. There were no option grants during the year ended September 30, 2001.
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 September 30, 2001:
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
as of Remaining Exercise as of Exercise
Exercise Prices September 30, 2001 Contractual Price September 30, 2001 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 $ 2.50 151,000 $ 2.50
------------------ ------------------
237,303 237,303
================== ==================
The accompanying notes are an integral part of these financial statements.
125
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 12 - STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes the Company's Stock Options activity:
2001
-------------------
Weighted
Number average
of exercise
options price
-------- ---------
Outstanding at beginning of year 237,303 $ 1.94
Granted - -
Exercised - -
Forfeited/Cancelled - -
-------- ---------
Outstanding at end of year 237,303 $ 1.94
======== =========
Options exercisable at year end 237,303
========
The following table summarizes information with respect to warrants outstanding
and exercisable at September 30, 2001:
Warrants Outstanding Warrants Exercisable
------------------------------------- -----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
as of Remaining Average as of Average
Exercise September 30, Contractual Exercise September 30, Exercise
Prices 2001 Life Price 2001 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
============= =============
The accompanying notes are an integral part of these financial statements.
126
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 12 - STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes the Company's warrants activity:
Weighted
Average
Warrants Exercise
Outstanding Price
----------- --------
Outstanding, September 30, 2000 1,916,131 $ 1.31
Granted 1,740,000 $ 0.86
Exercised - $ -
Expired/Cancelled (1,710,000) $ 1.39
----------- --------
Outstanding, September 30, 2001 1,946,131 $ 1.21
=========== ========
In the past, the board of directors approved the issuance of warrants to
purchase an aggregate of 1,740,000 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.
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. 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 - MERGER AGREEMENT
On October 1, 2001, the Company concluded a reverse merger 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.
The accompanying notes are an integral part of these financial statements.
127
THE AUTOMATIC ANSWER, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2001
NOTE 14 - MERGER AGREEMENT (CONTINUED)
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. At September 30, 2001, Pen Interconnect forgave debt
owed by the Automatic Answer, Inc. in the amount of $461,200.
NOTE 15 - SUBSEQUENT EVENTS
Final determination of merger agreement
-------------------------------------------
Subsequent to the merger, Pen Interconnect changed its name to the Amanda
Company, Inc. An additional 38,175,923 shares of Amanda Company stock were
issued to the Automatic Answer, Inc shareholders as an adjustment to the
original price contemplated in the merger agreement. As of the merger date, the
Automatic Answer, Inc shareholders held 84% of the Amanda Company's outstanding
common stock.
Office Lease
-------------
In November 2001, the Company renewed the Connecticut lease for a period of
three years beginning on February 1, 2002 and expiring on January 31, 2005 with
a monthly base rent of approximately $4,500. Future minimum lease payments
required under this non- cancelable operating lease are as follows:
Years ending
September 30, Amount
-------------- --------
2002 $ 35,672
2003 53,508
2004 54,600
2005 18,382
--------
$162,162
========
128
THE AMANDA COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2001 AND 2000
129
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
PAGE
-------
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . 101-110
CONSOLIDATED STATEMENT OF OPERATIONS. . . . . . . . . . . . . . . . . . 111
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY . . . . . . . . . . . . . 112-113
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR 2001. . . . . . . . . . . . . 114-115
The accompanying notes are an integral part of these financial statements.
130
THE AMANDA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
September 30 September 30
2000 2001
(unaudited) (audited)
--------------------- --------------------
CURRENT ASSETS
Cash and cash equivalents $ 48,783 $ 34,839
Accounts receivable, net 211,575 155,824
Inventory 120,073 172,617
Prepaid and other current assets 32,240 5,783
--------------------- --------------------
Total current assets 412,671 369,062
PROPERTY AND EQUIPMENT, NET 126,883 131,926
OTHER ASSETS 40,591 29,974
--------------------- --------------------
Total assets $ 580,145 $ 530,962
====================== ====================
The accompanying notes are an integral part of these financial statements.
131
THE AMANDA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
30-Sep 30-Sep
2000 2001
(unaudited) (audited)
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 1,764,228 $ 1,352,915
Accrued liabilities 976,780 1,082,414
Leasing financing payable - 32,052
Notes payable 563,950 573,000
Deferred revenue 108,016 16,248
Convertible debentures 150,000 800,000
------------ ------------
Total current liabilities 3,562,974 3,856,629
LONG-TERM LIABILITIES
Lease financing payable - 153,378
------------ ------------
Total long-term liabilities - 153,378
------------ ------------
Total liabilities 3,562,974 3,856,629
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 27,596,946 shares at September 30, 2000 (post-split)
and 68,778,960 shares at September 30, 2001 (post-split) (1) 27,597 54,299
Additional Paid in Capital 637,916 633,489
Accumulated deficit (3,648,352) (4,166,844)
------------ ------------
Total stockholders' deficit (2,982,829) (3,479,045)
------------ ------------
Total liabilities and stockholders' deficit $ 580,145 $ 530,962
============ ============
(1) Reflects the issuance of the common shares for the TAA acquisition of
October 1, 2001.
The accompanying notes are an integral part of these financial statements.
132
THE AMANDA COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND 2000
2000 2001
------------ ------------
(unaudited) (audited)
Net sales $ 5,015,319 $ 4,032,546
Cost of sales 3,224,312 2,394,811
------------ ------------
Gross profit 1,791,007 1,637,735
Selling, general and administrative expenses 3,940,021 2,986,295
------------ ------------
Operating loss (2,149,014) (1,348,560)
Other income (expense)
Interest expense (444,729) (133,333)
Merger Advances (4,273) -
Other income (320,500) 90,016
Acquisition Expense (135,300) -
Loss on impairment (86,941) (63,000)
Gain (loss) from discontinued operations (1,274,211) 65,851
Extinguishment of debt 2,018,547 $ 149,642
------------ ------------
Total other income (expense) (247,407) 109,176
------------ ------------
Net loss before income taxes (2,396,421) (1,239,384)
Income taxes 1,766 2,400
------------ ------------
Net loss $(2,398,187) $(1,241,784)
============ ============
The accompanying notes are an integral part of these financial statements.
133
THE AMANDA COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS SEPTEMBER 30, 2001 AND 2000
Common Stock Preferred Stock Additional Accumulated Pen
Paid-in
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 stock options 346,000 3,460 40,882 44,342
Exercies 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
The accompanying notes are an integral part of these financial statements.
134
Preferred dividend adjustments 10,289 10,289
Adjustment (409) (4) (4)
Net loss (1,294,784) (1,294,784)
Balance September 30, 2001 (PEN) 49,873,603 498,737 977 10 20,008,060 (22,819,916) (2,313,109)
-
Balance TAA as of September 30, 2001 579,934,274 4,426 153,920 154 1,115,954 (2,286,470) (1,165,936)
Elimination 184,627 (154) (21,124,014) 20,939,541 -
Amanda Consolidated 629,807,877 687,790 154,897 10 (4,166,845) - (3,479,045)
Other 57,980,722
Amanda Consolidated Sept. 30, 2001 687,788,599 687,790 154,897 10 - (4,166,845) (3,479,045)
The accompanying notes are an integral part of these financial statements.
135
THE AMANDA COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED SEPTEMBER 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES: audited
Net loss $(1,241,784)
Adjustments to reconcile net cash provided (used) in
operating activities
Depreciation and amortization 87,346
Allowance for notes receivable -
Gain on debt relief (50,000)
Merger advances (461,200)
Realized gain on sale of equipment (12,138)
Warrant/option compensation expense 163,765
Debt conversion to common stock 23,378
Common stock issued for services 28,760
Common stock issued for compensation 44,000
Effect on cash of changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net (1,076)
Decrease (increase) in other receivables -
Decrease (increase) in inventory (52,544)
Decrease (increase) in prepaid and other current assets (10,110)
Decrease (increase) in other assets (279)
Decrease (increase) in security deposits -
Increase (decrease) in accounts payable (392,789)
Increase (decrease) in accrued expenses (104,639)
Increase (decrease) in unearned gain on sale leaseback 72,829
Increase (decease) in advances payable -
Increase (decrease) in deferred revenue (48,716)
------------
Net cash provided (used) in operating activities (1,955,197)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (85,613)
Issuance of notes receivable -
------------
Net cash provided (used) in investing activities (85,613)
The accompanying notes are an integral part of these financial statements.
136
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable -
Payments of equipment financing (14,009)
Proceeds from equipment financing 129,813
Proceeds from notes payable 59,050
Proceeds from convertible debenture 650,000
Proceeds from advances 501,200
Preferred dividends adjustments 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 2,024,866
------------
Net increase (decrease) in cash and cash equivalents (15,944)
Cash and cash equivalents at beginning of period 48,783
------------
Cash and cash equivalents at end of period 34,839
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
The accompanying notes are an integral part of these financial statements.
137
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.
(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.
The accompanying notes are an integral part of these financial statements.
138
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.
The accompanying notes are an integral part of these financial statements.
139
(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
The accompanying notes are an integral part of these financial statements.
140
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.
The accompanying notes are an integral part of these financial statements.
141
(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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 4(2) and Rule 506 under
the Securities Act of 1933, as amended (the "Securities Act"). The investors of
these securities were accredited investors.
The accompanying notes are an integral part of these financial statements.
142
On January 9, 2002, Amanda issued a convertible debenture for an amount of
$300,000 in cash in accordance with Sec. 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 Sec. 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 Sec. 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 stockThese warrants do not have an expiration date. These warrants were
issued in accordance with Sec. 4(2) and Rule 506 under the Securities Act of
1933, as amended (the "Securities Act"). The investors of these securities were
accredited investors. These warrants have been canceled.
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.
The accompanying notes are an integral part of these financial statements.
143
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)
The accompanying notes are an integral part of these financial statements.
144
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. (2)
10.55 Registration Rights Agreement, dated January 12, 2002. (2)
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
(2) Previously filed on Form SB-2A on May 17, 2002, File No.
333-86038
The accompanying notes are an integral part of these financial statements.
145
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.
The accompanying notes are an integral part of these financial statements.
146
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 June 24, 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 June 25, 2002
/s/Brian Bonar
-------------------------
Brian Bonar Chairman of the Board June 25, 2002
Acting Chief Executive officer
/s/ Steve Fryer
-------------------------
Steve Fryer Director June 25, 2002
/s/ E.Timothy Morgan
-------------------------
E. Timothy Morgan Director June 25, 2002
The accompanying notes are an integral part of these financial statements.
148