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EX-23.1 - MAM SOFTWARE GROUP, INC. | v190556_ex23-1.htm |
EX-3.(I)(B) - MAM SOFTWARE GROUP, INC. | v190556_ex3-ib.htm |
As filed with the Securities and
Exchange Commission on July ___, 2010
Registration No.
333-167483
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
MAM SOFTWARE GROUP,
INC.
(Exact name of Registrant as specified
in its charter)
Delaware
|
6770
|
84-1108035
|
||
(State or other
jurisdiction
of
incorporation)
|
(Primary Standard
Industrial
Classification Code
Number)
|
(I.R.S.
Employer
Identification
No.)
|
Maple
Park, Maple Court,
Tankersley,
Barnsley, UK S75 3DP
011-44-124-431-1794
(Address, including zip code, and
telephone number, including area code,
of Registrant’s principal executive
offices)
Incorporating Services,
Ltd.
3500 South DuPont
Highway
Dover, Delaware
19901
(302) 531 0855
(Name, address, including zip code, and
telephone number,
including area code, of agent for
service)
Copies of all correspondence
to:
Gersten Savage LLP
David E. Danovitch,
Esq.
Kristin Angelino,
Esq.
Rostin Behnam, Esq.
600 Lexington Avenue
New York, NY
10022-6018
Tel: (212) 752-9700 Fax: (212)
980-5192
Approximate date of commencement of
proposed sale to the public: As soon as practicable after the effective date of
this registration statement.
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, please check the
following box: þ
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
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. o
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. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer
¨
|
Accelerated filer
¨
|
Non-accelerated filer
¨ (Do not check if
smaller reporting company)
|
Smaller reporting
company þ
|
CALCULATION OF REGISTRATION FEE
|
||||||||||||||||
Title of Each Class of
Securities to be Registered (1)
|
Amount to be
Registered
|
Proposed
Maximum
Offering Price
per
Share
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount of
Registration
Fee
|
||||||||||||
Common Stock, par value
$0.0001 per share
|
51,122,650 | $ | [0.065 | ] | $ | [3,322,972 | ] (2) | $ | 236.93 | (3) |
(1)
|
This registration statement
relates to shares of our common stock, par value $0.0001 per share, deliverable upon the exercise of
the subscription rights.
|
(2)
|
Represents the gross proceeds from
the sale of shares of our common stock assuming the exercise of all
non-transferable subscription rights
to be distributed and additional over-subscriptions up to the maximum
amount contemplated in this registration
statement.
|
(3)
|
Note that $235.98 has already been
paid.
|
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective 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 Commission, acting pursuant to said Section 8(a), may
determine.
The information in this prospectus
is not complete and may be amended. The selling stockholders 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 it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
|
SUBJECT TO COMPLETION DATED JULY___,
2010
PRELIMINARY
PROSPECTUS
MAM SOFTWARE GROUP,
INC.
Up to
51,122,650 Shares of Common Stock Issuable Upon
Exercise of Rights to Subscribe for Such Shares at [$0.065] per
Share
We are distributing, at no charge, to
holders of our common stock non-transferable subscription rights to purchase up
to 51,122,650 shares of our common stock. We refer to this
offering as the “rights offering.” In this rights offering, you will receive one
subscription right for every one share of common stock owned at 5:00 p.m., New
York time, on [RECORD
DATE], the record
date.
Each whole subscription right will
entitle you to purchase 0.6 shares of our common stock at a
subscription price of
[$0.065] per share, which we refer to as the
“basic subscription privilege.” The per share subscription price was determined
by a committee of our board of directors after a review of recent historical
trading prices of our common stock and the closing sales price of our common
stock on [_______], the last trading day prior to the
announcement of the subscription price. We will not issue fractional shares of
common stock in the rights offering, and holders will only be entitled to
purchase a whole number of shares of common stock, rounded down to the nearest
whole number a holder would otherwise be entitled to
purchase.
If you fully exercise your basic
subscription privilege and other stockholders do not fully exercise their basic
subscription privileges, you may also exercise an over-subscription privilege to
purchase a portion of the unsubscribed shares at the same subscription price of
[$0.065] per share, subject to certain
limitations. To the extent you properly exercise
your over-subscription privilege for an amount of shares that exceeds the number
of the unsubscribed shares available to you, any excess subscription payment
received by the subscription agent will be returned promptly, without interest
or penalty. If all of the rights are exercised, the total purchase price of the
shares offered in the rights offering would be [$3,322,972]. The net
proceeds to the Company, after deducting offering expenses of $50,000, would be
[$3,272,972].
We are not entering into any standby
purchase agreement or similar agreement with respect to the purchase of any
shares of our common stock not subscribed for through the basic subscription
privilege or the over-subscription privilege. Therefore, there is no certainty
that any shares will be purchased pursuant to the rights offering and there is
no minimum purchase requirement as a condition to accepting
subscriptions.
The subscription rights will expire void
and worthless if they are not exercised by 5:00 p.m., New York time, on
[TERMINATION
DATE] unless we extend the
rights offering period. However, our board of
directors reserves the right to cancel the rights offering at any time, for any
reason. If the rights offering is cancelled, all subscription
payments received by the subscription agent will be returned
promptly.
Shares of our common stock are, and we
expect that the shares of common stock to be issued in the rights offering will
be, quoted on the OTC Bulletin Board under the symbol
“MAMS.OB”. On July___, 2010, the bid and ask prices of our
Common Stock were $______ and $_____ per share, respectively, as reported by the
OTC Bulletin Board. We urge you to obtain a current market price for the shares
of our common stock before making any determination with respect to the exercise
of your rights.
This is not an underwritten offering.
The shares of common stock are being offered directly by us without the services
of an underwriter or selling agent.
Exercising the rights and investing in
our common stock involves a high degree of risk. We urge you to read
carefully this prospectus, and the “Risk Factors” section beginning on page [10]
of this prospectus, the section entitled “Risk Factors” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2009, and all other information
included or incorporated herein by reference in this prospectus in its entirety
before you decide whether to exercise your rights.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is
_________, 2010
TABLE OF CONTENTS
The following table of contents has been
designed to help you find information contained in this prospectus. We encourage
you to read the entire prospectus.
Page
|
|
QUESTIONS AND ANSWERS RELATED TO
THE RIGHTS OFFERING
|
1
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
|
4
|
PROSPECTUS SUMMARY
|
4
|
RISK
FACTORS
|
10
|
USE OF
PROCEEDS
|
17
|
DETERMINATION OF OFFERING
PRICE
|
17
|
DILUTION
|
17
|
CAPITALIZATION
|
18
|
THE RIGHTS
OFFERING
|
19
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MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES
|
25
|
PLAN OF
DISTRIBUTION
|
27
|
DESCRIPTION OF
SECURITIES TO BE
REGISTERED
|
28
|
EXPERTS
|
28
|
LEGAL
REPRESENTATION
|
28
|
DESCRIPTION OF
BUSINESS
|
29
|
DESCRIPTION OF
PROPERTY
|
37
|
LEGAL
PROCEEDINGS
|
38
|
MARKET PRICE OF AND DIVIDENDS ON
COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
|
39
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
41
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CHANGES AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|
49
|
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
|
50
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EXECUTIVE
COMPENSATION
|
52
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
|
61
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
64
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DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
|
67
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WHERE YOU CAN GET MORE
INFORMATION
|
67
|
FINANCIAL
STATEMENTS
|
68
|
i
QUESTIONS AND ANSWERS RELATED TO THE
RIGHTS OFFERING
Q:
What is a rights offering?
A: A
rights offering is a distribution of subscription rights on a pro rata basis to all
stockholders of a company. We are distributing to holders of our common stock as
of 5:00 p.m., New York time, on [RECORD DATE], the “record date,” at no
charge, non-transferable subscription rights to purchase shares of our common
stock. You will receive one subscription right for every share of our common
stock you owned as of 5:00 p.m., New York time, on the record date. The
subscription rights will be evidenced by rights certificates.
Q:
Why are we engaging in a rights offering and how will we use the proceeds from
the rights offering?
A: The
purpose of this rights offering is to raise equity capital in a cost-effective
manner that allows all shareholders to participate. The net proceeds will be
used to repay the ComVest loans and for working capital needs.
Q:
Am I required to subscribe in the rights offering?
A:
No.
Q:
What is the basic subscription right?
A: Each
subscription right evidences a right to purchase 0.6 share of our common stock
at a subscription price of [$0.065] per share and carries with it a basic
subscription right and an over-subscription right.
Q:
What is the oversubscription right?
A: We do
not expect all of our shareholders to exercise all of their basic subscription
rights. The oversubscription right provides shareholders that exercise all of
their basic subscription rights the opportunity to purchase the shares that are
not purchased by other shareholders. If you fully exercise your basic
subscription right, the oversubscription right of each right entitles you to
subscribe for additional shares of our common stock unclaimed by other holders
of rights in this offering at the same subscription price per share. If an
insufficient number of shares are available to fully satisfy all
oversubscription right requests, the available shares will be distributed
proportionately among rights holders who exercise their oversubscription right
based on the number of shares each rights holder subscribed for under the basic
subscription right. The subscription agent will return any excess payments by
mail without interest or deduction promptly after the expiration of the
subscription period.
Q:
How was the [$0.065] per share subscription price established?
A: A
Special Committee of our board of directors determined that the subscription
price should be designed to, among other things, provide an incentive to our
current shareholders to exercise their rights. Other factors considered in
setting the subscription price included the amount of proceeds desired, our need
for equity capital, alternatives available to us for raising equity capital, the
historic and current market price and liquidity of our common stock, the pricing
of similar transactions, the historic volatility of the market price of our
common stock, the historic trading volume of our common stock, our business
prospects, our recent and anticipated operating results and general conditions
in the securities market. The subscription price does not necessarily bear any
relationship to the book value of our assets, net worth, past operations, cash
flows, losses, financial condition, or any other established criteria for
valuing the Company. You should not consider the subscription price as an
indication of the value of the Company or our common stock.
Q:
Who will receive subscription rights?
A:
Holders of our common stock will receive one non-transferable subscription right
for each share of common stock owned as of [ ]
[__], 2010, the record date.
Q:
How many shares may I purchase if I exercise my subscription
rights?
A: You
will receive one non-transferable subscription right for each share of our
common stock that you owned on [ ]
[__], 2010, the record date. Each subscription right evidences a right to
purchase 0.6 share of our common stock at a subscription price of [$0.065] per
share. You may exercise any number of your subscription rights.
Q:
What happens if I choose not to exercise my subscription rights?
A: If you
choose not to exercise your subscription rights you will retain your current
number of shares of common stock of the Company. However, the percentage of the
common stock of the Company that you own will decrease and your voting rights
and other rights will be diluted if and to the extent that other shareholders
exercise their subscription rights. Your subscription rights will expire and
have no value if they are not exercised prior to 5:00 p.m., New York City time,
on [ ]
[__], 2010, subject to extension, the expiration date.
Q:
Does the Company need to achieve a certain participation level in order to
complete the rights offering?
A: No. We
may choose to consummate the rights offering regardless of the number of shares
actually purchased.
1
Q:
Can the board of directors cancel,
terminate, amend, or extend the rights offering?
A: Yes. We have the option to extend the
rights offering and the period for exercising your subscription rights, although
we do not presently intend to do so. Our board of directors may cancel the
rights offering at any time for any reason. If the rights offering is cancelled,
all subscription payments received by the subscription agent will be returned
promptly, without interest or penalty. Our board of directors reserves the right
to amend or modify the terms of the rights offering at any time, for any
reason. See
“The Rights Offering—Expiration of the Rights Offering and Extensions,
Amendments and Termination.”
Q:
May I transfer my subscription rights if I do not want to purchase any
shares?
A: No.
Should you choose not to exercise your rights, you may not sell, give away or
otherwise transfer your rights. However, rights will be transferable to
affiliates of the recipient and by operation of law, for example, upon the death
of the recipient.
Q:
When will the rights offering expire?
A: The
subscription rights will expire and will have no value, if not exercised prior
thereto, at 5:00 p.m., New York City time, on [ ]
[__], 2010, unless we decide to extend the rights offering expiration date until
some later time. See “The Rights Offering—Expiration of the Rights Offering and
Extensions, Amendments and Termination.” The subscription agent must actually
receive all required documents and payments before the expiration
date.
Q:
How do I exercise my subscription rights?
A: You
may exercise your subscription rights by properly completing and executing your
rights certificate and delivering it, together in full with the subscription
price for each share of common stock you subscribe for, to the subscription
agent on or prior to the expiration date. If you use the mail, we recommend that
you use insured, registered mail, return receipt requested. If you cannot
deliver your rights certificate to the subscription agent on time, you may
follow the guaranteed delivery procedures described under “The Rights
Offering—Guaranteed Delivery Procedures” beginning on page [__]. If you hold
shares of our common stock through a broker, custodian bank or other nominee,
see “The Rights Offering—Beneficial Owners” beginning on page [__].
Q:
What should I do if I want to participate in the rights offering but my shares
are held in the name of my broker, custodian bank or other nominee?
A: If you
hold our common stock through a broker, custodian bank or other nominee, we will
ask your broker, custodian bank or other nominee to notify you of the rights
offering. If you wish to exercise your rights, you will need to have your
broker, custodian bank or other nominee act for you. To indicate your decision,
you should complete and return to your broker, custodian bank or other nominee
the form entitled “Beneficial Owner Election Form.” You should receive this form
from your broker, custodian bank or other nominee with the other rights offering
materials. You should contact your broker, custodian bank or other nominee if
you believe you are entitled to participate in the rights offering but you have
not received this form.
Q:
What should I do if I want to participate in the rights offering, but I am a
shareholder with a foreign address or a shareholder with an APO or FPO
address?
A: The
subscription agent will not mail rights certificates to you if you are a
shareholder whose address is outside the United States or if you have an Army
Post Office or a Fleet Post Office address. To exercise your rights, you must
notify the subscription agent prior to 11:00 a.m., New York City time, at least
three business days prior to the expiration date, and establish to the
satisfaction of the subscription agent that it is permitted to exercise your
subscription rights under applicable law. If you do not follow these procedures
by such time, your rights will expire and will have no value.
Q:
Will I be charged a sales commission or a fee if I exercise my subscription
rights?
A: We
will not charge a brokerage commission or a fee to rights holders for exercising
their subscription rights. However, if you exercise your subscription rights
through a broker, dealer or nominee, you will be responsible for any fees
charged by your broker, dealer or nominee.
Q:
Are there any conditions to my right to exercise my subscription
rights?
A: Yes.
The rights offering is subject to certain limited conditions. Please see “The
Rights Offering—Conditions to the Rights Offering.”
Q:
Has the board of directors made a recommendation regarding the rights
offering?
A:
Neither we, nor our board of directors is making any recommendation as to
whether or not you should exercise your subscription rights. You are urged to
make your decision based on your own assessment of our business and the rights
offering, after considering all of the information herein, including the “Risk
Factors” section of this document.
Q:
May shareholders in all states participate in the rights offering?
A:
Although we intend to distribute the rights to all shareholders, we reserve the
right in some states to require shareholders, if they wish to participate, to
state and agree upon exercise of their respective rights that they are acquiring
the shares for investment purposes only, and that they have no present intention
to resell or transfer any shares acquired. Our securities are not being offered
in any jurisdiction where the offer is not permitted under applicable local
laws.
2
Q:
Have any shareholders indicated they will exercise their rights?
A: Yes.
Wynnefield Persons (as defined below) has indicated to the Company that it
intends to exercise all of its basic subscription rights, but has not made any
formal commitment to do so. Wynnefield Persons also has indicated its intention
to over-subscribe for the maximum amount of shares it can over-subscribe
for. Depending on the level of participation in the rights offering,
the exercise by the Wynnefield Persons of its basic subscription rights and
oversubscription rights may result in the Wynnefield Persons being able to
exercise substantial control over matters requiring shareholder approval upon
completion of the offering. Please see the “Risk Factors” section of this
prospectus for more information.
Q:
Is exercising my subscription rights risky?
A: The
exercise of your subscription rights involves significant risks. Exercising your
rights means buying additional shares of our common stock and should be
considered as carefully as you would consider any other equity investment. Among
other things, you should carefully consider the risks described under the “Risk
Factors” section of this prospectus for more information.
Q:
How many shares will be outstanding after the rights offering?
A: The
number of shares of common stock that will be outstanding after the rights
offering will depend on the number of shares that are purchased in the rights
offering. If we sell all of the shares being offered, then we will issue
approximately 51,122,650 shares of common stock. In that case, we will have
approximately 136,327,066 shares of common stock outstanding after the
rights offering. This would represent an increase of approximately 60% in the
number of outstanding shares of common stock. However, we do not expect that all
of the subscription rights will be exercised.
Q:
What will be the proceeds of the rights offering?
A: If we
sell all the shares being offered, we will receive gross proceeds of
approximately [$3.322] million. We are offering shares in the rights offering
with no minimum purchase requirement. As a result, there is no assurance we will
be able to sell all or any of the shares being offered, and it is not likely
that all of our shareholders will participate in the rights offering. [We
reserve the right to limit the exercise of rights by certain shareholders in
order to protect against an unexpected “ownership change” for federal income tax
purposes. This may affect our ability to receive gross proceeds of up to
[$3.322] million in the rights offering.]
Q:
After I exercise my rights, can I change my mind and cancel my
purchase?
A: No.
Once you exercise and send in your subscription rights certificate and payment
you cannot revoke the exercise of your subscription rights, even if you later
learn information about the Company that you consider to be unfavorable and even
if the market price of our common stock falls below the [$0.065] per share
subscription price. You should not exercise your subscription rights unless you
are certain that you wish to purchase additional shares of our common stock at a
price of [$0.065] per share. See “The Rights Offering—No Revocation or
Change.”
Q:
What are the material United States Federal income tax consequences of
exercising my subscription rights?
A: A
holder should not recognize income or loss for United States Federal income tax
purposes in connection with the receipt or exercise of subscription rights in
the rights offering. For a detailed discussion, see the “Material United States
Federal Income Tax Consequences” section of the prospectus. You should consult
your tax advisor as to the particular consequences to you of the rights
offering.
Q:
If I exercise my subscription rights, when will I receive shares of common stock
I purchased in the rights offering?
A: We
will deliver certificates representing the shares of our common stock purchased
in the rights offering as soon as practicable after the expiration of the rights
offering and after all pro rata allocations and adjustments have been completed.
We will not be able to calculate the number of shares to be issued to each
exercising holder until 5:00 p.m., New York City time, on the third business day
after the expiration date of the rights offering, which is the latest time by
which subscription rights certificates may be delivered to the subscription
agent under the guaranteed delivery procedures described under “The Rights
Offering—Guaranteed Delivery Procedures” section of the prospectus.
Q:
To whom should I send my forms and payment?
A: If
your shares are held in the name of a broker, dealer or other nominee, then you
should send your subscription documents, rights certificate and payment to that
record holder. If you are the record holder, then you should send your
subscription documents, rights certificate and payment by hand delivery, first
class mail or courier service to Corporate Stock Transfer, the subscription
agent. The address for delivery to the subscription agent is as
follows:
If delivering by
Hand/Mail/Overnight Courier:
Corporate
Stock Transfer
3200
Cherry Creek Dr. South Suite 430
Denver,
Colorado 80209
(303) 282-4800
3
Your
delivery other than in the manner or to the address listed above will not
constitute valid delivery.
Q:
Why does the registration statement contain financial statements for Aftersoft
Group, Inc.?
A:
Aftersoft Group, Inc. is the former name of the Company. The Company
changed its name to “MAM Software Group, Inc.” on May 5, 2010 because the Board
believed that such name more accurately reflected the Company’s current
operations.
Q:
What if I have other questions?
A: If you
have other questions about the rights offering, please contact our information
agent, Corporate Stock Transfer, by telephone at
(303) 282-4800.
FOR
A MORE COMPLETE DESCRIPTION OF THE RIGHTS OFFERING, SEE “THE RIGHTS OFFERING”
BEGINNING ON PAGE [__].
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking
statements and information relating to our business that are based on our
beliefs as well as assumptions made by us or based upon information currently
available to us. These statements reflect our current views and assumptions with
respect to future events and are subject to risks and
uncertainties. No forward-looking statement can be guaranteed, and
actual results may vary materially from those anticipated in any forward-looking
statement. Forward-looking statements are often identified by words like:
“believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar
expressions or words which, by their nature, refer to future events. In some
cases, you can also identify forward-looking statements by terminology such as
“may,” “will,” “should,” “plans,” “predicts,” “potential” or “continue” or the
negative of these terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled Risk Factors beginning on
page [10], that may cause our or our industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. In addition, you are directed to factors
discussed in the Management’s Discussion and Analysis of Financial Condition and
Results of Operation section beginning on page 37, and the section entitled
Description of Business beginning on page [__], and as well as those discussed
elsewhere in this prospectus.
The aforementioned factors do not
represent an all-inclusive list. Actual results, performance or achievements
could differ materially from those contemplated, expressed or implied by the
forward-looking statements contained in this prospectus. In particular, this
prospectus sets forth important factors that could cause actual results to
differ materially from our forward-looking statements. These and other factors,
including general economic factors, business strategies, the state of capital
markets, regulatory conditions, and other factors not currently known to us, may
be significant, now or in the future, and the factors set forth in this
prospectus may affect us to a greater extent than indicated. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth in this
prospectus and in other documents that we may file from time to time with the
Securities and Exchange Commission including Quarterly Reports on Form 10-Q,
Annual Reports on Form 10-K and Current Reports on Form 8-K.
These forward-looking statements speak
only as of the date of this prospectus. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, or achievements. Except as
required by applicable law, including the securities laws of the United States,
we expressly disclaim any obligation or undertaking to disseminate any update or
revisions of any of the forward-looking statements to reflect any change in our
expectations with regard thereto or to conform these statements to actual
results.
PROSPECTUS SUMMARY
You should read the following summary
together with the more detailed information elsewhere in this Prospectus,
including our consolidated financial statements and the notes to those
consolidated financial statements and the section titled Risks Factors,
regarding us and the Common Stock being offered for sale by means of this
Prospectus.
Unless the context indicates or requires
otherwise, (i) the term “MAM” refers to MAM Software Group, Inc. and its
principal operating subsidiaries; (ii) the term “MAM Software” refers to MAM
Software Limited and its operating subsidiaries; (iii) the term “ASNA” refers to
Aftersoft Network N.A., Inc. and its operating subsidiaries;(iv) the term “EXP
Dealer Software” refers to EXP Dealer Software Limited and its operating
subsidiaries; and (v) the terms “we,” “our,” “ours,” “us” and the “Company”
refer collectively to MAM Software Group, Inc.
4
CORPORATE BACKGROUND
The Company’s principal executive office
is located at Maple Park, Maple Court, Tankersley, Barnsley, UK S75
3DP and its phone number is
011-44-124-431-1794.
In December 2005, W3 Group, Inc. (“W3”)
consummated a reverse acquisition and changed its corporate name to Aftersoft
Group, Inc. W3, which was initially incorporated in February 1988 in Colorado,
changed its state of incorporation to Delaware in May 2003. On December 21,
2005, an Acquisition Agreement (the “Agreement”) was consummated among W3, a
separate Delaware corporation named Aftersoft Group, Inc. (“Oldco”) and Auto
Data Network, Inc. (“ADNW”) in which W3 acquired all of the issued and
outstanding shares of Oldco in exchange for issuing 32,500,000 shares of Common
Stock of W3, par value $0.0001 per share, to ADNW, which was then the sole
shareholder of the Company. At the time of the acquisition, W3 had no business
operations. Concurrent with the acquisition, W3 changed its name to Aftersoft
Group, Inc. and its corporate officers were replaced. The Board of Directors of
the Company appointed three additional directors designated by ADNW to serve
until the next annual election of directors. As a result of the acquisition,
former W3 shareholders owned 1,601,167, or 4.7% of the 34,101,167 total issued
and outstanding shares of Common Stock and ADNW owned 32,500,000 or 95.3% of the
Company’s Common Stock. On December 22, 2005, Oldco changed its name to
Aftersoft Software, Inc. and is currently inactive.
On August 26, 2006, the Company acquired
100% of the issued and outstanding shares of EXP from ADNW in exchange for
issuing 28,000,000 shares of Common Stock to ADNW with a market value of
$30,800,000. On February 1, 2007, the Company consummated an agreement to
acquire Dealer Software and Services Limited (“DSS”), a subsidiary of ADNW, in
exchange for issuing 16,750,000 shares of Common Stock to ADNW with a market
value of $15,075,000.
During 2007, the Company conducted a
strategic assessment of its businesses and determined that neither EXP nor DSS
fit within its long-term business model. The Company identified a buyer for the
two businesses in First London PLC (formerly, First London Securities PLC)
(“First London”). First London is a UK-based holding company for a group of
businesses engaged in asset management, investment banking, and merchant
banking. First London’s shares are traded on the London Plus market. First
London’s areas of specialization include technology, healthcare, and resources,
and its merchant banking operations take strategic, principal positions in
businesses that fall within its areas of specialization.
On June 17, 2007, DSS sold all of the
shares of Consolidated Software Capital Limited (“CSC”), its wholly owned
subsidiary, to RLI Limited, a company affiliated with First London (“RLI”). The
consideration for this sale consisted of a note from RLI with a face value of
$865,000. On November 12, 2007, as part of the sale of EXP (see below), the
$865,000 note was exchanged for 578,672 shares of First London common stock
having a fair value of $682,000. The transaction resulted in a loss of $183,000
to the Company.
The Company sold its interest in EXP and
DSS, EXP’s wholly owned subsidiary, on November 12, 2007. Pursuant to the terms
of a Share Sale Agreement (the “EXP Agreement”), EU Web Services Limited (“EU
Web Services”) a subsidiary of First London, agreed to acquire, and the Company
agreed to sell, the entire issued share capital of EXP it then owned, which
amounted to 100% of EXP’s outstanding stock.
As consideration for the sale of EXP,
including DSS, EU Web Services agreed to issue to the Company, within 28 days of
the closing, 1,980,198 Ordinary shares (the UK equivalent of common stock),
£0.01 par value, in its parent company, First London. The Ordinary shares
received by the Company had an agreed upon fair market value of $3,000,000 at
the date of issuance of such shares. The Company recorded the shares received at
$2,334,000, which represents the bid price of the restricted securities
received, and discounted the carrying value by 11% (or $280,000) as, pursuant to
the EXP Agreement, the shares could not be sold by the Company for at least 12
months. Further, the EXP Agreement provided that the Company receive on May 12,
2008 additional consideration in the form of: (i) Ordinary shares in EU Web
Services having a fair market value of $2,000,000 as of the date of issuance,
provided that EU Web Services is listed and becomes quoted on a recognized
trading market within six (6) months from the date of the Agreement; or (ii) if
EU Web Services does not become listed within the time period specified,
Ordinary shares in First London having a fair market value of $2,000,000 as of
May 12, 2008. As EU Web Services did not become listed within the six-month
timeframe, the Company received on August 14, 2008 1,874,414 shares in First
London, which had a fair market value of $2,000,000 on May 12,
2008.
On April 21, 2010, the Company’s
stockholders approved the proposal to amend the Company’s Certificate of
Incorporation to change the Company’s name from Aftersoft Group, Inc. to MAM
Software Group, Inc. (“MAM”)
5
MAM is a former subsidiary of ADNW, a
publicly traded company, the stock of which is currently traded on the Pink
Sheets under the symbol ADNW.PK. ADNW transferred its software aftermarket
services operating businesses to MAM and retained its database technology,
Orbit. Orbit is a system for supply and collection of data throughout the
automotive industry. To date, Orbit is still in its development phase, and ADNW
will require substantial external funding to bring the technology to its first
phase of testing and deployment. On November 24, 2008, ADNW distributed a
dividend of the 71,250,000 shares of MAM common stock that ADNW owned at such
time in order to complete the previously announced spin-off of MAM’s businesses.
The dividend shares were distributed in the form of a pro rata dividend to the
holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common
and convertible preferred stock. Each holder of record of shares of ADNW common
and preferred stock as of the close of business on the Record Date was entitled
to receive 0.6864782 shares of MAM’s common stock for each share of common stock
of ADNW held at such time, and/or for each share of ADNW common stock that such
holder would own, assuming the convertible preferred stock owned on the Record
Date was converted in full. Prior to the spin-off, ADNW owned
approximately 77% of MAM’s issued and outstanding common stock. Subsequent to
and as a result of the spin-off, MAM is no longer a subsidiary of
ADNW.
DESCRIPTION OF THE COMPANY AND
BUSINESS
MAM Software Group, Inc. provides
software, information and related services to businesses engaged in the
automotive aftermarket in the US, UK and Canada and to the automotive dealership
market in the UK. The automotive aftermarket consists of businesses associated
with the life cycle of a motor vehicle from when the original manufacturer’s
warranty expires to when the vehicle is scrapped. Products sold by businesses
engaged in this market include the parts, tires and auto services required to
maintain and improve the performance or appeal of a vehicle throughout its
useful life. The Company aims to meet the business needs of customers who are
involved in the maintenance and repair of automobiles and light trucks in three
key segments of the automotive aftermarket, namely parts, tires and auto
service.
The Company’s business management
systems, information products and online services permit our customers to manage
their critical day-to-day business operations through automated point-of-sale,
inventory management, purchasing, general accounting and customer relationship
management.
The Company’s customer base consists of
wholesale parts and tire distributors, retailers, franchisees, cooperatives,
auto service chains and single location auto service businesses with high
customer service expectations and complex commercial
relationships.
The Company’s revenues are derived from
the following:
|
·
|
The sale of business management
systems comprised of proprietary software applications, implementation and
training; and
|
|
·
|
Providing subscription-based
services, including software support and maintenance, information
(content) products and online services for a
fee.
|
The Company currently has the following
wholly owned direct operating subsidiaries: MAM Software in the UK, and ASNA in
the US.
MAM Software Ltd.
MAM Software is a provider of software
to the automotive aftermarket in the UK. MAM Software specializes in providing
reliable and competitive business management solutions to the motor factoring
(also known as jobber), retailing, and wholesale distribution sectors. It also
develops applications for vehicle repair management and provides solutions to
the retail and wholesale tire industry. All MAM Software programs are based on
the Microsoft Windows family of operating systems. Each program is fully
compatible with the other applications in their range, enabling them to be
combined to create a fully integrated package. MAM Software is based in
Barnsley, UK.
Aftersoft Network N.A., Inc.
(ASNA)
ASNA develops open business automation
and distribution channel e-commerce systems for the automotive aftermarket
supply chain. These systems are used by leading aftermarket outlets, including
tier one manufacturers, program groups, warehouse distributors, tire and service
chains and independent installers. ASNA products and services enable companies
to generate new sales, operate more cost efficiently, accelerate inventory turns
and maintain stronger relationships with suppliers and customers. ASNA has three
wholly owned subsidiaries operating separate businesses: (i) AFS Warehouse
Distribution Management, Inc. and (ii) AFS Tire Management, Inc. which are both
based in Dana Point, California, and (iii) MAM Software, Inc., which is based in
Allentown, Pennsylvania.
6
Summary of the
Offering
The following summary describes the
principal terms of the rights offering, but is not intended to be complete. See
the information in the section entitled “The Rights Offering” in this prospectus
for a more detailed description of the terms and conditions of the rights
offering.
Rights
Granted
|
|
We
will distribute to each stockholder of record on [______] [__], 2010, at
no charge, one non-transferable subscription right for each share of our
common stock then owned. The rights will be evidenced by rights
certificates. If and to the extent that our stockholders exercise their
right to purchase our common stock we will issue up to 51,122,650
shares and receive gross proceeds of up to [$3.322] million in cash in the
rights offering.
|
Subscription
Rights
|
|
Each
subscription right will entitle the holder to purchase 0.6 shares of our
common stock for [$0.065] per share, the subscription price, which shall
be paid in cash. We will not issue fractional shares, but rather will
round down the aggregate number of shares you are entitled to receive to
the nearest whole number.
|
Subscription
Price
|
|
[$0.065]
per share, which shall be paid in cash.
|
Record
Date
|
|
[______]
[__], 2010
|
Expiration
Date
|
|
5:00
p.m., New York City time, on [______], subject to extension or earlier
termination
|
Oversubscription
Rights
|
|
We
do not expect that all of our stockholders will exercise all of their
basic subscription rights. If you fully exercise your basic subscription
right, the oversubscription right entitles you to subscribe for additional
shares of our common stock unclaimed by other holders of rights in this
offering at the same subscription price per share. If an insufficient
number of shares is available to fully satisfy all oversubscription right
requests, the available shares will be distributed proportionately among
rights holders who exercise their oversubscription right based on the
number of shares each rights holder subscribed for under the basic
subscription right. The subscription agent will return any excess payments
by mail without interest or deduction promptly after the expiration of the
subscription period.
|
Non-Transferability of Rights
|
|
The
subscription rights are not transferable, other than to affiliates of the
recipient or by operation of law.
|
Amendment,
Extension and Termination
|
|
We
may extend the expiration date at any time after the record date. We may
amend or modify the terms of the rights offering. We also reserve the
right to terminate the rights offering at any time prior to the expiration
date for any reason, in which event all funds received in connection with
the rights offering will be returned without interest or deduction to
those persons who exercised their subscription rights.
|
Fractional
Shares
|
|
We
will not issue fractional shares, but rather will round down the aggregate
number of shares you are entitled to receive to the nearest whole
number.
|
Procedure
for Exercising Rights
|
|
You
may exercise your subscription rights by properly completing and executing
your rights certificate and delivering it, together with the subscription
price for each share of common stock for which you subscribe, to the
subscription agent on or prior to the expiration date. If you use the
mail, we recommend that you use insured, registered mail, return receipt
requested. If you cannot deliver your rights certificate to the
subscription agent on time, you may follow the guaranteed delivery
procedures described under “The Rights Offering — Guaranteed Delivery
Procedures” beginning on page [__].
|
No
Revocation
|
|
Once
you submit the form of rights certificate to exercise any subscription
rights, you may not revoke or change your exercise or request a refund of
monies paid. All exercises of rights are irrevocable, even if you
subsequently learn information about us that you consider to be
unfavorable.
|
Payment
Adjustments
|
|
If
you send a payment that is insufficient to purchase the number of shares
requested, or if the number of shares requested is not specified in the
rights certificate, the payment received will be applied to exercise your
subscription rights to the extent of the payment. If the payment exceeds
the amount necessary for the full exercise of your subscription rights,
including any oversubscription rights exercised and permitted, the excess
will be returned to you as soon as practicable in cash. You will not
receive interest or a deduction on any payments refunded to you under the
rights offering.
|
7
How
Rights Holders Can Exercise Rights Through Others
|
|
If
you hold our common stock through a broker, custodian bank or other
nominee, we will ask your broker, custodian bank or other nominee to
notify you of the rights offering. If you wish to exercise your rights,
you will need to have your broker, custodian bank or other nominee act for
you. To indicate your decision, you should complete and return to your
broker, custodian bank or other nominee the form entitled “Beneficial
Owners Election Form.” You should receive this form from your broker,
custodian bank or other nominee with the other rights offering materials.
You should contact your broker, custodian bank or other nominee if you
believe you are entitled to participate in the rights offering but you
have not received this form.
|
How
Foreign Stockholders and Other Stockholders Can Exercise
Rights
|
|
The
subscription agent will not mail rights certificates to you if you are a
stockholder whose address is outside the United States or if you have an
Army Post Office or a Fleet Post Office address. Instead, we will have the
subscription agent hold the subscription rights certificates for your
account. To exercise your rights, you must notify the subscription agent
prior to 11:00 a.m., New York City time, at least three business days
prior to the expiration date, and establish to the satisfaction of the
subscription agent that it is permitted to exercise your subscription
rights under applicable law. If you do not follow these procedures by such
time, your rights will expire and will have no value.
|
Material
United States Federal Income Tax Consequences
|
|
A
holder will not recognize income or loss for United States Federal income
tax purposes in connection with the receipt or exercise of subscription
rights in the rights offering. For a detailed discussion, see “Material
United States Federal Income Tax Consequences” beginning on page [__]. You
should consult your tax advisor as to the particular consequences to you
of the rights offering.
|
Issuance
of Our Common Stock
|
|
We
will issue certificates representing shares purchased in the rights
offering as soon as practicable after the expiration of the rights
offering.
|
Conditions
|
|
See
“The Rights Offering—Conditions to the Rights
Offering.”
|
No
Recommendation to Rights Holders
|
|
An
investment in shares of our common stock must be made according to your
evaluation of our business and the rights offering and after considering
all of the information herein, including the “Risk Factors” section of
this prospectus. Neither we nor our Board of Directors are making any
recommendation regarding whether you should exercise your subscription
rights.
|
Use
of Proceeds
|
|
The
proceeds from the rights offering will be used for (i) repayment of the term loan
with the Company’s senior secured lender, ComVest Capital LLC (“ComVest’);
and (ii) working capital needs. In the event that we do not
obtain all or a portion of the maximum proceeds from this rights offering,
we will need to obtain additional financing.
|
Subscription
Agent
|
|
Corporate
Stock Transfer
|
Information
Agent
|
|
Corporate
Stock Transfer
|
Summary Financial
Data
The summary consolidated financial data
set forth below should be read in conjunction with the information presented in
this prospectus under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and with our audited and unaudited
consolidated financial statements and the related notes included elsewhere in
this prospectus.
8
The summary consolidated financial data
set forth below is derived from our consolidated financial statements. The
consolidated statement of operations data for the fiscal years ended June 30,
2009 and 2008 and the consolidated balance sheet data as of June 30, 2009 and
2008 is derived from our audited consolidated financial statements included
elsewhere in this prospectus. The consolidated statement of
operations data for the nine-month periods ended March 31, 2010 and 2009 and the
consolidated balance sheet data as of March 31, 2010 is derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus. The consolidated balance sheet data as of March 31, 2009
is derived from our unaudited consolidated financial statements not included in
this prospectus.
Statement of Operations
Data
(In thousands, except per share data)
|
Nine Months Ended
(unaudited)
|
Fiscal Years Ended
(audited)
|
||||||||||||||
March 31, 2010
|
March 31, 2009
|
June 30, 2009
|
June 30, 2008
|
|||||||||||||
Total
revenue
|
$ | 18,508 | 15,877 | $ | 21,119 | $ | 22,463 | |||||||||
Costs and operating
expenses
|
$ | 19,384 | 21,541 | $ | 28,742 | $ | 34,269 | |||||||||
Income (loss) continuing
operations
|
$ | (876 | ) | (5,664 | ) | $ | (7,623 | ) | $ | (11,806 | ) | |||||
Loss from discontinued
operations
|
$ | - | - | $ | - | $ | (13 | ) | ||||||||
Net loss
|
$ | (876 | ) | (5,664 | ) | $ | (7,623 | ) | $ | (11,819 | ) | |||||
Loss per share attributed to common
stockholders basic and diluted
|
||||||||||||||||
Continuing
operations
|
$ | (0.01 | ) | (0.07 | ) | $ | (0.09 | ) | $ | (0.15 | ) | |||||
Discontinued
operations
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Net loss per
share
|
$ | (0.01 | ) | (0.07 | ) | $ | (0.09 | ) | $ | (0.15 | ) | |||||
Weighted average number of shares
- basic and diluted
|
83,761,308 | 88,291,870 | 86,272,712 | 87,057,391 |
Balance Sheet Data
(In thousands)
|
March 31, 2010
|
March 31, 2009
|
June 30, 2009
|
June 30, 2008
|
||||||||||||
Total
assets
|
$
|
19,085
|
$
|
21,670
|
$
|
20,654
|
$
|
29,802
|
||||||||
Cash and cash
equivalents
|
$
|
1,457
|
$
|
1,147
|
$
|
1,663
|
$
|
1,964
|
||||||||
Total
liabilities
|
$
|
14,326
|
$
|
14,416
|
$
|
14,154
|
$
|
14,747
|
||||||||
Working capital
(deficiency)
|
$
|
(7,692
|
)
|
$
|
(2,775
|
)
|
$
|
(2,972
|
)
|
$
|
(1,895
|
)
|
||||
Shareholders’
equity
|
$
|
4,759
|
$
|
7,254
|
$
|
6,500
|
$
|
15,055
|
9
RISK FACTORS
Investing in our securities involves a
high degree of risk. You should carefully consider the specific risks described
below, the risks described in our Annual Report on Form 10-K for the fiscal
year ended June 30, 2009 and any risks described in our other filings with the
Securities and Exchange Commission, pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”) before making an investment decision.
See the section of this prospectus entitled “Where You Can Find More
Information.” Any of the risks we describe below or in the information
incorporated herein by reference could cause our business, financial condition,
results of operations or future prospects to be materially adversely affected.
Our business strategy involves significant risks and could result in operating
losses. The market price of our common stock could decline if one or more of
these risks and uncertainties develop into actual events and you could lose all
or part of your investment. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition, results of operations or
future prospects. Some of the statements in this section of the prospectus are
forward-looking statements. For more information about forward-looking
statements, please see the section of this prospectus entitled “Cautionary Note Regarding Forward-Looking
Statements.”
Risks Related to the Rights
Offering
IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION
RIGHTS, YOUR OWNERSHIP INTEREST WILL BE DILUTED UPON THE COMPLETION OF THE
RIGHTS OFFERING.
The rights offering will result in the Company
having more shares of its common stock issued and outstanding. To the
extent that you do not exercise your rights under the rights offering and the Company’s shares being offered
pursuant thereto are purchased by other shareholders, your proportionate
ownership and voting interest in the Company will be reduced. As
such, the percentage that your original shares represent of our outstanding
common stock after the rights offering will be diluted.
THE PRICE OF OUR COMMON STOCK IS
VOLATILE AND MAY DECLINE EITHER BEFORE OR AFTER THE RIGHTS OFFERING
EXPIRES.
The market price of our common stock is
subject to fluctuations in response to numerous factors, including factors that
have little or nothing to do with us or our performance as a
company. These fluctuations could materially reduce our stock price
and include, among other things:
|
•
|
|
actual or anticipated variations
in our operating results and cash
flow;
|
|
•
|
|
the nature and content of our
earnings releases, and our competitors’ and customers’ earnings
releases;
|
|
•
|
|
changes in financial estimates by
securities analysts;
|
|
•
|
|
business conditions in our
markets, the general state of the securities markets and the market for
common stock in companies similar to
ours;
|
|
•
|
|
the number of shares of our common
stock outstanding;
|
|
•
|
|
changes in capital markets that
affect the perceived availability of capital to companies in our
industries;
|
|
•
|
|
governmental legislation or
regulation;
|
|
•
|
|
currency and exchange rate
fluctuations; and
|
|
•
|
|
general economic and market
conditions.
|
In addition, the stock market
historically has experienced significant price and volume fluctuations
which, at times, are unrelated to the
operating performance of any particular company. We do not have
control over these fluctuations, which may occur irrespective of our operating
results or performance and may cause a decline in the market price of our common
stock.
10
THE SUBSCRIPTION PRICE DETERMINED FOR
THE RIGHTS OFFERING IS NOT NECESSARILY AN INDICATION OF THE FAIR VALUE OF OUR
COMMON STOCK.
The subscription price for the shares of
our common stock pursuant to the rights offering is [$0.065] per share of our common stock. The
subscription price was determined by members of a special committee of our board of directors and represents a
discount to the market price of a share of common stock on the date that the
subscription price was determined. Factors considered by the special committee included the market price of the common
stock before the announcement of the rights offering, the business prospects of our company
and the general condition of the securities market. No assurance can
be given that the market price for our common stock during the rights offering will continue to be above or even equal
to the subscription price or that a subscribing owner of rights will be able to
sell the shares of common stock purchased in the rights offering at a price equal to or greater than the
subscription price.
ONCE YOU AGREE TO SUBSCRIBE TO OUR
SHARES PURSUANT TO THE RIGHTS OFFERING, YOU ARE COMMITTED TO BUYING SHARES OF
OUR COMMON STOCK AT A PRICE WHICH MAY BE ABOVE THE PREVAILING MARKET
PRICE.
Once you exercise your subscription rights, you may not revoke the exercise of
such rights. The trading price of our common stock may decline before the
rights offering is concluded or before the subscription rights expire. If you exercise your
subscription
rights and, thereafter, the
trading price of our common stock decreases below the subscription price, you
will have committed to buying shares of our common stock at a price above the
prevailing market price, in which case you will have an immediate, unrealized
loss. No assurance can be given that following the exercise of your
subscription
rights, you will be able to
sell your shares of common stock at a price equal to or greater than the
subscription price paid for such shares. As such, you may lose all or
part of your investment in our common stock. Further, until the certificate
representing the shares purchased under the rights offering is delivered to you, you will not be
able to sell such shares of our common stock.
IF YOU DO NOT ACT PROMPTLY AND FOLLOW
THE SUBSCRIPTION INSTRUCTIONS, YOUR EXERCISE OF SUBSCRIPTION RIGHTS MAY BE
REJECTED.
Shareholders who desire to purchase
shares in the rights
offering must act promptly
to ensure that all required forms and payments are actually received by the
subscription
agent before 5:00 p.m., New
York time, on [_________], the expiration date of the rights offering, unless extended by us, in our sole
discretion. If you are a beneficial owner of shares, but not a record holder,
you must act promptly to ensure that your broker, bank, or other nominee acts
for you and that all required forms and payments are actually received by the
subscription
agent before the expiration
date of the rights
offering. We will not be
responsible if your broker, custodian, or nominee fails to ensure that all
required forms and payments are actually received by the subscription agent before the expiration date of the
rights offering. If you fail to complete and sign the
required subscription forms, send an incorrect payment amount or otherwise fail
to follow the subscription procedures of the rights offering, the subscription agent may reject your subscription or accept
it only to the extent of the payment received. Neither we nor the subscription agent undertakes to contact you concerning an
incomplete or incorrect subscription form or payment, nor are we under any
obligation to correct such forms or payment. We have the sole discretion to
determine whether a subscription exercise properly follows the subscription
procedures.
SIGNIFICANT SALES OF OUR COMMON STOCK,
OR THE PERCEPTION THAT SIGNIFICANT SALES THEREOF MAY OCCUR IN THE FUTURE COULD
ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK.
The sale of substantial amounts of our
common stock could adversely affect the price of these securities. Sales of
substantial amounts of our common stock in the public market, and the
availability of shares for future sale could adversely affect the prevailing
market price of our common stock and could cause the market price of our common
stock to remain low for a substantial amount of time.
WE MAY CANCEL THE RIGHTS OFFERING AT ANY
TIME IN WHICH EVENT OUR ONLY OBLIGATION WOULD BE TO RETURN YOUR EXERCISE
PAYMENTS.
We may, in our sole discretion, decide
not to continue with the rights offering or to cancel the same, in which case
our only obligation would be to return to you, without interest or penalty, all subscription payments received by
the subscription
agent.
DEPENDING ON THE LEVEL OF PARTICIPATION
IN THE RIGHTS OFFERING, WYNNEFIELD PERSONS MAY BE ABLE TO EXERCISE SUBSTANTIAL
CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL UPON COMPLETION OF THE
OFFERING.
On the record date of the rights
offering, Wynnefield Persons collectively beneficially owned [_______]% of the
outstanding shares of the Company’s common stock. As a shareholder as of the
record date, Wynnefield Persons will have the right to subscribe for and
purchase shares of our common stock under both the basic subscription and
oversubscription rights provided by the rights offering. Wynnefield Persons has
indicated to us that it intends to exercise all of its basic subscription
rights, but has not made any formal commitment to do so. Wynnefield Persons has
also indicated that it intends to oversubscribe for the maximum amount of shares
for which it can oversubscribe without endangering the availability of the
Company’s net operating loss carryforwards under Section 382 of the Internal
Revenue Code. However, there is no guarantee or commitment that Wynnefield
Persons will ultimately decide to exercise any of its rights, including its
basic subscription or oversubscription rights. If Wynnefield Persons exercises
its rights in the rights offering and a significant number of other shareholders
do not exercise their rights, the ownership percentage of Wynnefield Persons
following completion of the offering may increase to greater than 50%
of the outstanding shares
of the Company’s common stock. If this were to occur, Wynnefield Persons would
be able to exercise substantial control over matters requiring shareholder
approval. Your interests as a holder of common stock may differ from the
interests of Wynnefield Persons.
11
Risks Related to Our Common
Stock
ADDITIONAL ISSUANCES OF OUR SECURITIES
WILL DILUTE YOUR STOCK OWNERSHIP AND COULD AFFECT OUR STOCK
PRICE.
As of July 12, 2010, there were 85,204,416 shares
of our common stock issued and outstanding. Our Articles of Incorporation authorize the
issuance of an aggregate of 150,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock, on such terms and at such prices as our board of
directors may determine. These shares are intended to provide us with the
necessary flexibility to undertake and complete plans to raise funds if and when
needed. Although we have not entered into any agreements relating to any future
acquisitions, we may do so in the future. Any such acquisition may entail the
issuances of securities that would have a dilutive effect on current ownership
of our common stock. The market price of our common stock could fall in response
to the sale or issuance of a large number of shares, or the perception that
sales of a large number of shares could occur.
CONCENTRATED OWNERSHIP OF OUR COMMON
STOCK CREATES A RISK OF SUDDEN CHANGE IN OUR SHARE PRICE.
Investors who purchase our common stock
may be subject to certain risks due to the concentrated ownership of our common
stock. The sale by any of our large shareholders of a significant portion of
that shareholder’s holdings could have a material adverse effect on the market
price of our common stock.
As of July 12, 2010, certain shareholders owned common
stock and warrants to
purchase approximately 31.5% of our outstanding common stock. As
such, any sale by these large shareholders of a significant number of our shares
could create a decrease in the price of our common stock.
In addition, the registration of any
significant amount of additional shares of our common stock will have the
immediate effect of increasing the public float of our common stock and any such
increase may cause the market price of our common stock to decline or fluctuate
significantly.
THE MARKET FOR OUR COMMON STOCK IS
LIMITED AND YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK.
Our common stock is currently quoted on
the Over the Counter Bulletin Board, and is not traded on a national securities
exchange. The market for purchases and sales of our common stock is limited and
therefore the sale of a relatively small number of shares could cause the price
to fall sharply. Accordingly, it may be difficult to sell shares quickly without
depressing the value of our common stock significantly. Unless we are successful
in developing continued investor interest in our stock, sales of our common
stock could continue to result in major fluctuations in the price
thereof.
WE DO NOT INTEND TO DECLARE DIVIDENDS ON
OUR COMMON STOCK.
We will not distribute dividends to our
shareholders until and unless we can develop sufficient funds from operations to
meet our ongoing needs and implement our business plan. The time frame for that
is inherently unpredictable, and no shareholder should expect to receive
dividends in the near future, or at all.
THE PRICE OF OUR COMMON STOCK IS LIKELY
TO BE VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS.
The market price of the securities of
software companies has been especially volatile. Thus, the market price of our
common stock is likely to be subject to wide fluctuations. If our revenues do
not grow, or if such revenues grow at a slower pace than anticipated, or, if
operating or capital expenditures exceed our expectations and cannot be adjusted
accordingly, the market price of our common stock could decline. If the stock
market in general experiences a loss in investor confidence or otherwise fails,
the market price of our common stock could fall for reasons unrelated to our
business, results of operations and financial condition. The market price of our
stock also might decline in reaction to events that affect other companies in
our industry even if these events do not directly affect
us.
12
SINCE OUR STOCK IS CLASSIFIED AS A
“PENNY STOCK,” THE RESTRICTIONS OF THE SECURITIES AND EXCHANGE COMMISSION’S
PENNY STOCK REGULATIONS MAY RESULT IN LESS LIQUIDITY FOR OUR
STOCK.
The US Securities and Exchange Commission
(the “SEC”) has adopted
regulations which define a “penny stock” to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. For any
transactions involving a penny stock, unless exempt, the rules require the
delivery, prior to any transaction involving a penny stock by a retail customer,
of a disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about commissions payable to both the
broker/dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. Because the market price for our shares
of common stock is less than $5.00, our securities are classified as penny
stock. As a result of the penny stock restrictions, brokers or potential
investors may be reluctant to trade in our securities, which may result in less
liquidity for our stock.
Risks Related to Our
Business
WE HAVE A LIMITED OPERATING HISTORY THAT
MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND TO PREDICT OUR FUTURE OPERATING
RESULTS.
We were known as W3 Group, Inc. and we
had no operations in December 2005, at which time we engaged in a reverse
acquisition; therefore, we have limited historical operations. Two of our
subsidiaries, MAM Software, Ltd. and AFS Tire Management, Inc. (f/k/a CarParts
Technologies, Inc.) have operated since 1984 and 1997, respectively, as
independent companies under different management until our former parent, ADNW,
acquired MAM Software in April 2003 and CarParts Technologies, Inc. in August
2004. Since the reverse merger in December 2005, we have been primarily engaged
in organizational activities, including developing a strategic operating plan
and developing, marketing and selling our products. In particular, we had
integrated a third subsidiary as a result of the acquisition of EXP from ADNW in
August 2006, its MMI Automotive subsidiary. In February 2007, we acquired DSS
from ADNW, which owned a minority interest of DCS Automotive Limited. On
November 12, 2007, we sold EXP and DSS, which was EXP’s wholly owned subsidiary.
As a result of our limited operating history, it will be difficult to evaluate
our business and predict our future operating results.
WE MAY FAIL TO ADDRESS RISKS WE FACE AS
A DEVELOPING BUSINESS WHICH COULD ADVERSELY AFFECT THE IMPLEMENTATION OF OUR
BUSINESS PLAN.
We are prone to all of the risks
inherent in the establishment of any new business venture. You should consider
the likelihood of our future success to be highly speculative in light of our
limited operating history, as well as the limited resources, problems, expenses,
risks and complications frequently encountered by entities at our current stage
of development. To address these risks, we must, among other
things,
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implement and successfully execute
our business and marketing
strategy;
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continue to develop new products
and upgrade our existing
products;
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respond to industry and
competitive developments;
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attract, retain, and motivate
qualified personnel; and
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obtain equity and debt financing
on satisfactory terms and in timely fashion in amounts adequate to
implement our business plan and meet our
obligations.
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We may not be successful in addressing
these risks. If we are unable to do so, our business prospects, financial
condition and results of operations would be materially adversely
affected.
WE MAY FAIL TO SUCCESSFULLY DEVELOP,
MARKET AND SELL OUR PRODUCTS.
To achieve profitable operations, we,
along with our subsidiaries, must continue successfully to improve, market and
sell existing products and develop, market and sell new products. Our product
development efforts may not be successful. The development of new software
products is highly uncertain and subject to a number of significant risks. The
development cycle - from inception to installing the software for customers -
can be lengthy and uncertain. The ability to develop and market our products is
unpredictable and may be subject to delays which are beyond our control.
Potential products may appear promising at early stages of development, and yet
may not reach the market for a number of reasons.
13
WE MAY ENCOUNTER SIGNIFICANT FINANCIAL
AND OPERATING RISKS IF WE GROW OUR BUSINESS THROUGH
ACQUISITIONS.
As part of our growth strategy, we may
seek to acquire or invest in complementary or competitive businesses, products
or technologies. The process of integrating acquired assets into our operations
may result in unforeseen operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for our
ongoing business activities. Although at this time, no agreements have been
entered into relating to an acquisition or investment in a complementary or
competitive business, we may, in the future, allocate a significant portion of
our available working capital to finance all or a portion of the purchase price
relating to such possible acquisitions. Any future acquisition or investment
opportunity may require us to obtain additional financing to complete the
transaction. The anticipated benefits of any acquisitions may not be immediately
realized, or at all. In addition, future acquisitions by us could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect our operating
results and financial position. Acquisitions also involve other risks, including
entering markets in which we have no or limited prior
experience.
AN INCREASE IN COMPETITION FROM OTHER
SOFTWARE MANUFACTURERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO
GENERATE REVENUE AND CASH FLOW.
Competition in our industry is intense.
Potential competitors in the U.S. and Europe are numerous. Most competitors have
substantially greater capital resources, marketing experience, research and
development staffs and facilities than we have. Our competitors may be able to
develop products before us, develop more effective products or market such
products more effectively than us, which would limit our ability to compete
effectively and consequently, our ability to generate revenue and cash
flow.
THE PRICES WE CHARGE FOR OUR PRODUCTS
MAY DECREASE AS A RESULT OF COMPETITION AND OUR REVENUES COULD DECREASE AS A
RESULT.
We face potential competition from very
large software companies, including Oracle, Microsoft and SAP that could offer
Enterprise Resource Planning (“ERP”) and Supply Chain Management (“SCM”)
products to our target market of small- to medium-sized businesses servicing the
automotive aftermarket. To date, we have directly competed with one of these
larger software and service companies. There can be no assurance that these
companies will not develop or acquire a competitive product or service in the
future. Our business would be dramatically affected by an increase in
competition, which may drive us to decrease the prices of our products in
response to software companies’ attempts to gain market share through the use of
highly discounted sales and extensive marketing campaigns.
IF WE FAIL TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGE, OUR TECHNOLOGIES AND PRODUCTS COULD BECOME LESS
COMPETITIVE OR OBSOLETE.
The software industry is characterized
by rapid and significant technological change. We expect that the software needs
associated with the automotive technology will continue to develop rapidly, and
our future success will depend on our ability to develop and maintain a
competitive position through technological development. We cannot assure you that we will be able to respond to
rapid changes in technology and that we will be able to maintain a competitive
position.
WE DEPEND ON PATENT AND PROPRIETARY
RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGIES AND PRODUCTS, WHICH RIGHTS MAY
NOT OFFER US SUFFICIENT PROTECTION.
The software industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Our success will depend on our ability to
obtain and enforce protection for products that we develop under US and foreign
patent laws and other intellectual property laws, preserve the confidentiality
of our trade secrets and operate without infringing the proprietary rights of
third parties.
We also rely upon trade secret
protection for our confidential and proprietary information. Others may
independently develop substantially equivalent proprietary information and
techniques or gain access to our trade secrets or disclose our technology. We
may not be able to meaningfully protect our trade secrets which could limit our
ability to exclusively produce products.
We require our employees, consultants,
and parties to collaborative agreements to execute confidentiality agreements
upon the commencement of employment or consulting relationships or collaboration
with us. These agreements may not provide meaningful protection of our trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
confidential and proprietary information.
14
IF WE BECOME SUBJECT TO CLAIMS ALLEGING
INFRINGEMENT OF THIRD-PARTY PROPRIETARY RIGHTS, WE MAY INCUR SUBSTANTIAL
UNANTICIPATED COSTS AND OUR COMPETITIVE POSITION MAY SUFFER.
We are subject to the risk that we are
infringing on the proprietary rights of third parties. Although we are not aware
of any infringement by our technology on the proprietary rights of others, and
are not currently subject to any legal proceedings involving claimed
infringements, we cannot assure you that we will not be subject to such
third-party claims, litigation or indemnity demands in the future. If a claim or
indemnity demand were to be brought against us, it could result in costly
litigation or product shipment delays or force us to cease from selling such
product or providing our services, or may even constrain us to enter into
royalty or license agreements that have the effect of decreasing our
revenue.
OUR SOFTWARE AND INFORMATION SERVICES
COULD CONTAIN DESIGN DEFECTS OR ERRORS WHICH COULD AFFECT OUR REPUTATION, RESULT
IN SIGNIFICANT COSTS TO US AND IMPAIR OUR ABILITY TO SELL OUR
PRODUCTS.
Our software and information services
are highly complex and sophisticated and could, from time to time, contain
design defects or errors. We cannot assure you that these defects or errors will
not delay the release or shipment of our products or, if the defect or error is
discovered only after customers have received the products, that these defects
or errors will not result in increased costs, litigation, customer attrition,
reduced market acceptance of our systems and services or damage to our
reputation.
IF WE LOSE KEY MANAGEMENT OR OTHER
PERSONNEL OUR BUSINESS WILL SUFFER.
We are highly dependent on the principal
members of our management staff. We also rely on consultants and advisors to
assist us in formulating our development strategy. Our success also depends upon
retaining key management and technical personnel, as well as our ability to
continue to attract and retain additional highly qualified personnel. We may not
be successful in retaining our current personnel or hiring and retaining
qualified personnel in the future. If we lose the services of any of our
management staff or key technical personnel, or if we fail to continue to
attract qualified personnel, our ability to acquire, develop or sell products
would be adversely affected.
IT MAY BE DIFFICULT FOR SHAREHOLDERS TO
RECOVER AGAINST THOSE OF OUR DIRECTORS AND OFFICERS THAT ARE NOT RESIDENTS OF
THE U.S.
Two of our directors and one of our executive officers are residents of
the United Kingdom. In addition, our significant operating
subsidiary, MAM Software, is located in the United Kingdom. If
one or more shareholders were to bring an action against us in the United
States and succeed, either through default or on the merits, and obtain a
financial award against an officer or director of the Company, that shareholder
may be required to enforce and collect on his or her judgment in the United
Kingdom, unless the officer or director owned assets which were located in the
United States. Further, shareholder efforts to bring an action in the United
Kingdom against its citizens for any alleged breach of a duty in a foreign
jurisdiction may be difficult, as prosecution of a claim in a foreign
jurisdiction, and in particular a foreign nation, is fraught with difficulty and
may be effectively, if not financially, unfeasible.
OUR MANAGEMENT AND INTERNAL SYSTEMS
MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL GROWTH.
Our success will depend in significant
part on the expansion of our operations and the effective management of growth.
This growth will place a significant strain on our management and information
systems and resources and operational and financial systems and resources. To
manage future growth, our management must continue to improve our operational
and financial systems and expand, train, retain and manage our employee base.
Our management may not be able to manage our growth effectively. If our systems,
procedures, controls, and resources are inadequate to support our operations,
our expansion would be halted and we could lose our opportunity to gain
significant market share. Any inability to manage growth effectively may harm
our ability to institute our business plan.
BECAUSE WE HAVE INTERNATIONAL
OPERATIONS, WE WILL BE SUBJECT TO RISKS OF CONDUCTING BUSINESS IN FOREIGN
COUNTRIES.
International operations constitute a
significant part of our business, and we are subject to the risks of conducting
business in foreign countries, including:
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difficulty in establishing or
managing distribution
relationships;
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different standards for the
development, use, packaging and marketing of our products and
technologies;
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our ability to locate qualified
local employees, partners, distributors and
suppliers;
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15
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the potential burden of complying
with a variety of foreign laws and trade standards;
and
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general geopolitical risks, such
as political and economic instability, changes in diplomatic and trade
relations, and foreign currency risks and
fluctuations.
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No assurance can be given that we will
be able to positively manage the risks inherent in the conduct of our
international operations or that such operations will not have a negative impact
on our overall financial operations.
WE
WERE NOT IN COMPLIANCE WITH CERTAIN COVENANTS UNDER OUR SENIOR SECURED
NOTE.
As of March 31, 2010, we failed to meet
the EBIDA Ratio Covenant of 1.25:1 as required under our senior secured
note with ComVest Capital LLC, dated December 21, 2007, as amended, which
failure constitutes an event of default. The terms of the note
provide that, if any event of default occurs, the full principal amount of the
note, together with interest and other amounts owing in respect thereof to the
date of acceleration, shall become, at ComVest’s election, immediately due and
payable in cash. We currently are in negotiations with ComVest to resolve
the default, however, we cannot assure you that we will be successful, in which
case ComVest could require full repayment of the loan, which would
negatively impact our liquidity and our ability to operate.
WE
WILL NEED ADDITIONAL FINANCING OF $4,125,000 TO MAKE THE $3,125,000 BALLOON
PAYMENT DUE IN NOVEMBER 2010 ON OUR TERM LOAN AND $1,000,000 DUE ON THE
REVOLVING CREDIT FACILITY TO CONTINUE AS A GOING CONCERN, WHICH ADDITIONAL
FINANCING MAY NOT BE AVAILABLE ON A TIMELY BASIS, OR AT ALL.
We
prepared our condensed consolidated financial statements in the Form 10-Q for
the quarter ended March 31, 2010 on a going-concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. We had an accumulated deficit of $23.7 million and a working
capital deficit of $7.7 million at March 31, 2010. These factors,
along with the $4,125,000 payments due in November 2010 on our loans, raise
substantial doubt about our ability to continue as a going concern unless we are
able to secure additional funds.
Although
we intend to use the net proceeds of this rights offering to pay the $3,125,000
balloon payment due in November 2010, in the event that we are unable to raise
all, or we obtain only a portion,
of the maximum proceeds from this rights offering, we likely will need to
pursue sources of additional capital to fund our operations through various
means, which may consist of equity or debt financing. Future financings through
equity investments are likely to be dilutive to existing stockholders. Also, the
terms of securities we may issue in future capital transactions may be more
favorable for our new investors. Newly issued securities may include
preferences, superior voting rights and the issuance of warrants or other
derivative securities, which may have additional dilutive effects. Further, we
may incur substantial costs in pursuing future capital and/or financing,
including investment banking fees, legal fees, accounting fees, printing and
distribution expenses and other costs. We may also be required to recognize
non-cash expenses in connection with certain securities we may issue, such as
convertible notes and warrants, which will adversely impact our financial
results.
As a
result, there can be no assurance that additional funds will be available when
needed from any source or, if available, will be available on terms that are
acceptable to us. If we are unable to raise funds to satisfy our capital needs
on a timely basis, we may be required to cease operations.
16
USE
OF PROCEEDS
The net
proceeds from this rights offering are expected to be used for (i) repayment of
the term loan with the Company’s senior secured lender, ComVest Capital LLC
(“ComVest’); and (ii) working capital needs. During fiscal 2008,
ComVest extended to the Company a $1,000,000 secured revolving credit facility
and a $5,000,000 term loan (the “Term Loan”) pursuant to the terms of a
Revolving Credit and Term Loan Agreement (the “Loan Agreement”), dated December
21, 2007, as amended. The Term Loan is evidenced by a Convertible
Term Note (the “Term Note”) issued on December 21, 2007, in the principal amount
of $5,000,000. The Term Note originally bore interest at a rate of
eleven percent (11%) per annum. On June 17, 2010, the interest rate was
increased to sixteen percent (16%), due to an event of default under Loan
Agreement.
Initially,
the Term Note was payable in 23 equal monthly installments of $208,333 each,
payable on first day of each calendar month commencing January 1, 2009, through
November 1, 2010, with the balance due on November 30, 2010. The
amortization schedule was subsequently modified, and was delayed for one
year so that payments will commence on January 1, 2010, pursuant to an amendment
of the Loan Agreement during the quarter ended June 30, 2008. See the
section entitled “Certain Relationships and Related Transactions and Director
Independence” for more information regarding the Term Loan.
In the event that we do not obtain all,
or we obtain only a portion, of the maximum proceeds from this rights offering,
we will need to pursue additional sources of capital to fund our operations,
which may consist of equity or debt financing. If we are unable to raise funds
to satisfy our capital needs on a timely basis, we may be required to cease
operations.
DETERMINATION
OF OFFERING PRICE
Our Board of Directors created a
Special Committee comprised of independent directors to determine the
subscription price. The Special Committee will consider a number of factors,
including the price at which our shareholders might be willing to participate in
the rights offering, historical and current trading prices for our common
shares, the need for liquidity and capital, and the desire to provide an
opportunity to our shareholders to participate in the rights offering on a pro
rata basis. In conjunction with its review of these factors, the Special
Committee is currently reviewing our history and prospects, including our
prospects for future earnings, our current financial condition and regulatory
status, and a range of discounts to market value represented by the subscription
prices in various prior rights offerings of public companies. The subscription
price will not necessarily be related to our book value, net worth or any other
established criteria of value and may or may not be considered the fair value of
our common shares to be offered in the rights offering. You should not assume or
expect that, after the rights offering, our common shares will trade at or above
the subscription price and we cannot assure you that our common shares will
trade at or above the subscription price in any given time period.
We also cannot
assure you that you will be able to sell common shares purchased during the
rights offering at a price equal to or greater than the subscription price.
Accordingly, we urge you to obtain a current quote for our common shares before
exercising your subscription rights.
DILUTION
Purchasers
of our common stock in the rights offering will experience an immediate
dilution of the net tangible book value per share of our common
stock. Our net tangible book value as of May 31, 2010 was
approximately $(8,513,000), or $(0.100) per share of our common stock (based
upon 84,862,880 shares of our common stock outstanding). Net
tangible book value per share is equal to our total net tangible book value,
which is our total tangible assets less our total liabilities, divided by the
number of shares of our outstanding common stock. Dilution per share
equals the difference between the amount per share paid by purchasers of shares
of common stock in the rights offering and the net tangible book value per share
of our common stock immediately after the rights offering.
Based on
the aggregate offering of a maximum of 51,122,650 shares and after
deducting estimated offering expenses payable by us of [$50,000], and the
application of the estimated $3,272,972 of net proceeds from the rights
offering, our pro forma net tangible book value as of May 31,
2010 would have been approximately $(5,240,028) or $(0.038) per
share. This represents an immediate increase in pro forma net
tangible book value to existing shareholders of $0.062 per share and an
immediate dilution to purchasers in the rights offering of $0.103 per
share.
The
following table illustrates this per-share dilution (assuming a fully subscribed
for rights offering of 51,122,650 shares of common stock at the
subscription price of [$0.065] per share:
Subscription
price
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$ | 0.065 | ||
Net tangible book value per
share prior to the rights offering
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$ | (0.100 | ) | |
Increase per share attributable
to the rights offering
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$ | 0.062 | ||
Pro forma net tangible book
value per share after the rights offering
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$ | (0.038 | ) | |
Dilution in net tangible book
value per share to purchasers
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$ | (0.103 | ) |
17
CAPITALIZATION
The
following table sets forth our historical and pro forma cash and cash
equivalents and capitalization as of July 12,
2010. The pro forma information gives effect to a net assumed
$3.272 million equity raise from this rights offering.
For
purposes of this table, we have assumed that $3.272 million net is raised in
this rights offering. However, it is impossible to predict how many rights will
be exercised in this offering and therefore how much proceeds will actually be
raised.
This
table should be read in conjunction with our consolidated financial statements
and the notes thereto which are incorporated by reference into this
prospectus.
July 12, 2010
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Actual
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Pro Forma(1)
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|||||||
(Dollars in Thousands)
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Cash
and cash equivalents
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$ | 1,278 | $ | 1,278 | ||||
Short-term
credit facilities
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$ | 1,000 | $ | 1,000 | ||||
Current
portion of long-term bank debt, net
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4,392 | 1,282 | ||||||
Long-tem
debt
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600 | 600 | ||||||
Total
debt
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5,992 | 2,882 | ||||||
Common
stock - $0.0001 par value, 150,000,000 shares authorized, 85,204,416
shares and 136,327,066 shares issued on an actual and pro forma
basis, respectively
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8 | 13 | ||||||
Additional
paid-in capital
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29,532 | 32,800 | ||||||
Accumulated
other comprehensive income
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(1,000 | ) | (1,000 | ) | ||||
Accumulated
deficit
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(23,650 | ) | (23,813 | ) | ||||
Total
stockholders’ equity
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4,890 | 8,000 | ||||||
Total
capitalization
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$ | 10,882 | $ | 10,882 |
(1)
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Pro
forma balance reflects [$3.322] million
of gross proceeds from the rights offering, less [$50,000] of
offering costs. In
addition to the issued shares as disclosed above, as of July 12, 2010, we
have 12,970,134 shares that can be issued pursuant to outstanding
warrants.
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THE
RIGHTS OFFERING
Basic
Subscription Rights
We will
distribute, at no charge, to each holder of our common stock who is a
record holder of our common stock on the record date, which is [
], 2010, one non-transferable subscription right for each share of common
stock owned. The subscription rights will be evidenced by rights certificates.
Each subscription right will entitle the rights holder to purchase 0.6 shares of
our common stock at a price of [$0. 065] per share, the subscription price,
which shall be paid in cash, upon timely delivery of the required documents and
payment of the subscription price. We will not issue fractional shares, but
rather will round down the aggregate number of shares you are entitled to
receive to the nearest whole number. If rights holders wish to exercise their
subscription rights, they must do so prior to 5:00 p.m., New York City time, on
[
] [
], 2010, the expiration date for the rights offering, subject to
extension. After the expiration date, the subscription rights will expire and
will have no value. See below “— Expiration of the Rights Offering and
Extensions, Amendments and Termination.” You are not required to exercise all of
your subscription rights. We will deliver to the record holders who purchase
shares in the rights offering certificates representing the shares purchased as
soon as practicable after the rights offering has expired.
Oversubscription
Rights
Subject
to the allocation described below, each subscription right also grants the
holder an oversubscription right to purchase additional shares of our common
stock that are not purchased by other rights holders pursuant to their basic
subscription rights. You are entitled to exercise your oversubscription right
only if you exercise your basic subscription right in full.
If you
wish to exercise your oversubscription right, you should indicate the number of
additional shares that you would like to purchase in the space provided on your
rights certificate, as well as the number of shares that you beneficially own
without giving effect to any shares to be purchased in this offering. When you
send in your rights certificate, you must also send the full purchase price in
cash for the number of additional shares that you have requested to purchase (in
addition to the payment in cash due for shares purchased through your basic
subscription right). If the number of shares remaining after the exercise of all
basic subscription rights is not sufficient to satisfy all requests for shares
pursuant to oversubscription rights, you will be allocated additional shares
(subject to elimination of fractional shares) in the proportion which the number
of shares you purchased through the basic subscription right bears to the total
number of shares that all oversubscribing shareholders purchased through the
basic subscription right. The subscription agent will return any excess payments
by mail without interest or deduction promptly after the expiration of the
subscription period.
As soon
as practicable after the expiration date, the subscription agent will determine
the number of shares of common stock that you may purchase pursuant to the
oversubscription right. You will receive certificates representing these shares
as soon as practicable after the expiration date and after all allocations and
adjustments have been effected. If you request and pay for more shares than are
allocated to you, we will refund the overpayment, without interest or deduction.
In connection with the exercise of the oversubscription right, banks, brokers
and other nominee holders of subscription rights who act on behalf of beneficial
owners will be required to certify to us and to the subscription agent as to the
aggregate number of subscription rights exercised, and the number of shares of
common stock requested through the oversubscription right, by each beneficial
owner on whose behalf the nominee holder is acting.
Expiration
of the Rights Offering and Extensions, Amendments and Termination
You may
exercise your subscription rights at any time prior to 5:00 p.m., New York City
time, on [
], 2010, the expiration date for the rights offering. If you do not
exercise your subscription rights before the expiration date of the rights
offering, your subscription rights will expire and will have no value. We will
not be required to issue shares of our common stock to you if the subscription
agent receives your rights certificate or payment, after the expiration date,
regardless of when you sent the rights certificate and payment, unless you send
the documents in compliance with the guaranteed delivery procedures described
below.
We may,
in our sole discretion, extend the time for exercising the subscription rights.
We may extend the expiration date at any time after the record date. If the
commencement of the rights offering is delayed for a period of time, the
expiration date of the rights offering may be similarly extended. We will extend
the duration of the rights offering as required by applicable law, and may
choose to extend the duration of the rights offering for any reason. We may
extend the expiration date of the rights offering by giving oral or written
notice to the subscription agent on or before the scheduled expiration date. If
we elect to extend the expiration date of the rights offering, we will issue a
press release announcing such extension no later than 9:00 a.m., New York City
time, on the next business day after the most recently announced expiration
date. In no event will we extend the expiration date beyond 90 days from the
date we distribute the rights.
19
We
reserve the right, in our sole discretion, to amend or modify the terms of the
rights offering. We also reserve the right to terminate the rights offering at
any time prior to the expiration date for any reason, in which event all funds
received in connection with the rights offering will be returned without
interest or deduction to those persons who exercised their subscription rights
as soon as practicable.
Conditions
to the Rights Offering
We may
terminate the rights offering, in whole or in part, if at any time before
completion of the rights offering there is any judgment, order, decree,
injunction, statute, law or regulation entered, enacted, amended or held to be
applicable to the rights offering that in the sole judgment of our Board of
Directors would or might make the rights offering or its completion, whether in
whole or in part, illegal or otherwise restrict or prohibit completion of the
rights offering. We may waive any of these conditions and choose to proceed with
the rights offering even if one or more of these events occur. If we terminate
the rights offering, in whole or in part, all affected subscription rights will
expire without value and all subscription payments in the form in which received
by the subscription agent will be returned in the form in which paid, without
interest or deduction, as soon as practicable. See also “— Expiration of the
Rights Offering and Extensions, Amendments and Termination.”
Method
of Exercising Subscription Rights
The
exercise of subscription rights is irrevocable and may not be cancelled or
modified. Your subscription rights will not be considered exercised unless the
subscription agent receives from you, your broker, custodian or nominee, as the
case may be, all of the required documents properly completed and executed and
your full subscription price payment in cash and/or securities, as provided
herein, prior to 5:00 p.m., New York City time, on [
] [
], 2010, the expiration date of the rights offering. Rights holders may
exercise their rights as follows:
Subscription
by Registered Holders
Rights
holders who are registered holders of our common stock may exercise their
subscription privilege by properly completing and executing the rights
certificate together with any required signature guarantees and forwarding it,
together with payment in full in cash, of the subscription price for each share
of the common stock for which they subscribe, to the subscription agent at the
address set forth under the subsection entitled “— Delivery of Subscription
Materials and Payment,” on or prior to the expiration date.
Subscription
by DTC Participants
We expect
that the exercise of your subscription rights may be made through the facilities
of DTC. If your subscription rights are held of record through DTC, you may
exercise your subscription rights by instructing DTC, or having your broker
instruct DTC, to transfer your subscription rights from your account to the
account of the subscription agent, together with certification as to the
aggregate number of subscription rights you are exercising and the number of
shares of our common stock you are subscribing for under your basic subscription
privilege and your over-subscription privilege, if any, and your full
subscription payment.
Subscription
by Beneficial Owners
Rights
holders who are beneficial owners of shares of our common stock and whose shares
are registered in the name of a broker, custodian bank or other nominee, and
rights holders who hold common stock certificates and would prefer to have an
institution conduct the transaction relating to the rights on their behalf,
should instruct their broker, custodian bank or other nominee or institution to
exercise their rights and deliver all documents and payment on their behalf,
prior to the expiration date. A rights holder’s subscription rights will not be
considered exercised unless the subscription agent receives from such rights
holder, its broker, custodian, nominee or institution, as the case may be, all
of the required documents and such holder’s full subscription price
payment.
Method
of Payment
Payments
must be made in full in:
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U.S. currency
by:
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check or bank draft drawn on a
U.S. bank, or postal telegraphic or express, payable to “Corporate Stock
Transfer, as Subscription
Agent”;
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money order payable to “Corporate
Stock Transfer, as Subscription Agent”;
or
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wire
transfer of immediately available funds directly to the account maintained
by Corporate Stock Transfer , as Subscription Agent, for
purposes of accepting subscriptions in this Rights Offering
at:
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United
Western Bank
ABA
#102089534
Account
#3100108889 Corporate Stock Transfer F/B/O MAM Software Group, Inc.
Subscription, with reference to the rights holder’s name.
Rights
certificates received after 5:00 p.m., New York City time, on [
] [
], 2010, the expiration date of the rights offering, will not be honored,
and we will return your payment to you as soon as practicable, without interest
or deduction.
The
subscription agent will be deemed to receive payment upon:
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clearance of any uncertified
check deposited by the subject
agent;
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receipt by the subscription agent
of any certified bank check draft drawn upon a U.S.
bank;
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receipt by the subscription agent
of any U.S. Postal money order;
or
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receipt by the subscription agent
of any appropriately executed wire
transfer.
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You
should read the instruction letter accompanying the rights certificate carefully
and strictly follow it. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS TO US.
Except as described below under “— Guaranteed Delivery Procedures,” we will not
consider your subscription received until the subscription agent has received
delivery of a properly completed and duly executed rights certificate and
payment of the full subscription amount. The risk of delivery of all documents
and payments is on you or your nominee, not us or the subscription
agent.
The
method of delivery of rights certificates and payment of the subscription amount
to the subscription agent will be at the risk of the holders of rights, but, if
sent by mail, we recommend that you send those certificates and payments by
overnight courier or by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the subscription agent and clearance of payment before the expiration of the
subscription period.
Unless a
rights certificate provides that the shares of common stock are to be delivered
to the record holder of such rights or such certificate is submitted for the
account of a bank or a broker, signatures on such rights certificate must be
guaranteed by an “Eligible Guarantor Institution,” as such term is defined in
Rule 17Ad-15 of the Exchange Act, subject to any standards and procedures
adopted by the subscription agent. See “— Medallion Guarantee May be
Required.”
Medallion
Guarantee May Be Required
Your
signature on each subscription rights certificate must be guaranteed by an
eligible institution, such as a member firm of a registered national securities
exchange or a member of the Financial Industry Regulatory Authority, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, subject to standards and procedures adopted by the subscription agent,
unless:
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your subscription rights
certificate provides that shares are to be delivered to you as record
holder of those subscription rights;
or
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you are an eligible
institution.
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Subscription
Agent
The
subscription agent for this rights offering is Corporate Stock Transfer. We will
pay all fees and expenses of the subscription agent related to the rights
offering and have also agreed to indemnify the subscription agent from certain
liabilities that it may incur in connection with the rights
offering.
Information
Agent
The
information agent for this rights offering is Corporate Stock Transfer. We will
pay all fees and expenses of the information agent related to the rights
offering and have also agreed to indemnify the information agent from certain
liabilities that it may incur in connection with the rights offering. The
information agent can be contacted at the following address and telephone
number:
21
Corporate
Stock Transfer
3200
Cherry Creek Dr. South, Suite 430
Denver,
Colorado 80209
(303) 282-4800)
or
E-mail:
shumpherys@corporatestock.com
Delivery
of Subscription Materials and Payment
You
should deliver your subscription rights certificate and payment of the
subscription price in cash and/or securities, as provided herein, or, if
applicable, notice of guaranteed delivery, to the subscription agent by one of
the methods described below:
If delivering by
Hand/Mail/Overnight Courier :
Corporate
Stock Transfer
3200
Cherry Creek Dr. South, Suite 430
Denver,
Colorado 80209
(303) 282-4800
Your
delivery other than in the manner or to the address listed above will not
constitute valid delivery.
You
should direct any questions or requests for assistance concerning the method of
subscribing for the shares of common stock or for additional copies of this
prospectus to the information agent.
Guaranteed
Delivery Procedures
The
subscription agent will grant you three business days after the expiration date
to deliver the rights certificate if you follow the following instructions for
providing the subscription agent notice of guaranteed delivery. On or prior to
the expiration date, the subscription agent must receive payment in full in
cash, as provided herein, for all shares of common stock subscribed for through
the exercise of the subscription privilege, together with a properly completed
and duly executed notice of guaranteed delivery substantially in the form
accompanying this prospectus either by mail or overnight carrier, that specifies
the name of the holder of the rights and the number of shares of common stock
subscribed for. If applicable, it must state separately the number of shares of
common stock subscribed for through the exercise of the subscription privilege
and a member firm of a registered national securities exchange, a member of the
Financial Industry Regulatory Authority, Inc., or a commercial bank or trust
company having an office or correspondent in the United States must guarantee
that the properly completed and executed rights certificate for all shares of
common stock subscribed for will be delivered to the subscription agent within
three business days after the expiration date. The subscription agent will then
conditionally accept the exercise of the rights and will withhold the
certificates for shares of common stock until it receives the properly completed
and duly executed rights certificate within that time period.
In the
case of holders of rights that are held of record through DTC, those rights may
be exercised by instructing DTC to transfer rights from that holder’s DTC
account to the subscription agent’s DTC account, together with payment of the
full subscription price. The notice of guaranteed delivery must be guaranteed by
a commercial bank, trust company or credit union having an office, branch or
agency in the United States or by a member of a Stock Transfer Association
approved medallion program such as STAMP, SEMP or MSP.
Notices
of guaranteed delivery and payments should be mailed or delivered to the
appropriate addresses set forth under “— Delivery of Subscription Materials and
Payment.”
Calculation
of Subscription Rights Exercised
If you do
not indicate the number of subscription rights being exercised, or do not
forward full payment in cash and/or securities, as provided herein, of the total
subscription price payment for the number of subscription rights that you
indicate are being exercised, then you will be deemed to have exercised your
subscription right with respect to the maximum number of subscription rights
that may be exercised with the aggregate subscription price payment in cash
and/or securities, as provided herein, you delivered to the subscription agent.
If we do not apply your full subscription price payment to your purchase of
shares of our common stock, we or the subscription agent will return in cash the
excess amount to you by mail, without interest or deduction, as soon as
practicable after the expiration date of the rights offering.
Escrow
Arrangements
The
subscription agent will hold funds received in payment of the subscription price
in a segregated account until the rights offering is completed or withdrawn and
terminated.
22
Notice
to Beneficial Holders
If you
are a broker, a trustee or a depositary for securities who holds shares of our
common stock for the account of others as of the record date, you should notify
the respective beneficial owners of such shares of the rights offering as soon
as possible to find out their intentions with respect to exercising their
subscription rights. You should obtain instructions from the beneficial owners
with respect to their subscription rights, as set forth in the instructions we
have provided to you for your distribution to beneficial owners. If a beneficial
owner so instructs, you should complete the appropriate subscription rights
certificates and submit them to the subscription agent with the proper payment.
If you hold shares of our common stock for the account(s) of more than one
beneficial owner, you may exercise the number of subscription rights to which
all such beneficial owners in the aggregate otherwise would have been entitled
had they been direct record holders of our common stock on the record date,
provided that you, as a nominee record holder, make a proper showing to the
subscription agent by submitting the form entitled “Nominee Holder
Certification” that we will provide to you with your rights offering materials.
If you did not receive this form, you should contact the subscription agent to
request a copy.
Beneficial
Owners
If you
are a beneficial owner of shares of our common stock or will receive
subscription rights through a broker, custodian bank or other nominee, we will
ask your broker, custodian bank or other nominee to notify you of the rights
offering. If you wish to exercise your subscription rights, you will need to
have your broker, custodian bank or other nominee act for you. If you hold
certificates of our common stock directly and would prefer to have your broker,
custodian bank or other nominee act for you, you should contact your nominee and
request it to effect the transactions for you. To indicate your decision with
respect to your subscription rights, you should complete and return to your
broker, custodian bank or other nominee the form entitled “Beneficial Owners
Election Form”. You should receive the “Beneficial Owners Election Form” from
your broker, custodian bank or other nominee with the other rights offering
materials. If you wish to obtain a separate subscription rights certificate, you
should contact the nominee as soon as possible and request that a separate
subscription rights certificate be issued to you. You should contact your
broker, custodian bank or other nominee if you do not receive this form but you
believe you are entitled to participate in the rights offering. We are not
responsible if you do not receive this form from your broker, custodian bank or
nominee or if you receive it without sufficient time to respond.
Subscription
Price
Our Board
of Directors created a Rights Offering Special Committee comprised of
independent directors to determine the subscription price. The Special Committee
will consider a number of factors, including the price at which our shareholders
might be willing to participate in the rights offering, historical and current
trading prices for our common shares, the need for liquidity and capital, and
the desire to provide an opportunity to our shareholders to participate in the
rights offering on a pro rata basis. In conjunction with its review of these
factors, the Special Committee is currently reviewing our history and prospects,
including our prospects for future earnings, our current financial condition and
regulatory status, and a range of discounts to market value represented by the
subscription prices in various prior rights offerings of public companies. The
subscription price will not necessarily be related to our book value, net worth
or any other established criteria of value and may or may not be considered the
fair value of our common shares to be offered in the rights offering. You should
not assume or expect that, after the rights offering, our common shares will
trade at or above the subscription price. The Company can give no assurance that
our common shares will trade at or above the subscription price in any given
time period.
We also
cannot assure you that you will be able to sell common shares purchased during
the rights offering at a price equal to or greater than the subscription price.
We urge you to obtain a current quote for our common shares before exercising
your subscription rights.
Determinations
Regarding the Exercise of Your Subscription Rights
We will
decide all questions concerning the timeliness, validity, form and eligibility
of the exercise of your subscription rights and any such determinations by us
will be final and binding. We, in our sole discretion, may waive, in any
particular instance, any defect or irregularity, or permit, in any particular
instance, a defect or irregularity to be corrected within such time as we may
determine. We will not be required to make uniform determinations in all cases.
We may reject the exercise of any of your subscription rights because of any
defect or irregularity. We will not accept any exercise of subscription rights
until all irregularities have been waived by us or cured by you within such time
as we decide, in our sole discretion. Our interpretations of the terms and
conditions of the rights offering will be final and binding.
Neither
we, nor the subscription agent, will be under any duty to notify you of any
defect or irregularity in connection with your submission of subscription rights
certificates and we will not be liable for failure to notify you of any defect
or irregularity. We reserve the right to reject your exercise of subscription
rights if your exercise is not in accordance with the terms of the rights
offering or in proper form. We will also not accept the exercise of your
subscription rights if our issuance of shares of our common stock to you could
be deemed unlawful under applicable law.
23
No
Revocation or Change
Once you
submit the form of rights certificate to exercise any subscription rights, you
may not revoke or change your exercise or request a refund of monies paid. All
exercises of rights are irrevocable, even if you subsequently learn information
about us that you consider to be unfavorable. You should not exercise your
rights unless you are certain that you wish to purchase additional shares of our
common stock at the subscription price.
Non-Transferability
of the Rights
The
subscription rights granted to you are non-transferable and, therefore, may not
be assigned, gifted, purchased, sold or otherwise transferred to anyone else.
Notwithstanding the foregoing, you may transfer your rights to any affiliate of
yours and your rights also may be transferred by operation of law; for example,
a transfer of rights to the estate of the recipient upon the death of the
recipient would be permitted. If the rights are transferred as permitted,
evidence satisfactory to us that the transfer was proper must be received by us
prior to the expiration date.
Rights
of Subscribers
You will
have no rights as a shareholder with respect to shares you subscribe for in the
rights offering until certificates representing shares of common stock are
issued to you. You will have no right to revoke your subscriptions after you
deliver your completed rights certificate, payment in cash and/or securities, as
provided herein, and any other required documents to the subscription
agent.
Intended
Purchases
Wynnefield
Persons has indicated to us that it intends to exercise all of its rights, but
has not made any formal commitment to do so, for a total exercise of
shares equaling approximately $[
] million (it currently holds approximately [12.71]% of the outstanding
shares of the Company’s common stock). Depending on the level of participation
in the rights offering, the exercise by Wynnefield Persons of its basic
subscription rights and oversubscription rights may result in Wynnefield Persons
being able to exercise substantial control over matters requiring shareholder
approval upon completion of the offering. Please see the “Risk Factors” section
of this prospectus for more information.
Foreign
Shareholders and Shareholders with Army Post Office or Fleet Post Office
Addresses
The
subscription agent will not mail rights certificates to you if you are a
shareholder whose address is outside the United States or if you have an Army
Post Office or a Fleet Post Office address. Instead, we will have the
subscription agent hold the subscription rights certificates for your account.
To exercise your rights, you must notify the subscription agent prior to 11:00
a.m., New York City time, at least three business days prior to the expiration
date, and establish to the satisfaction of the subscription agent that it is
permitted to exercise your subscription rights under applicable law. If you do
not follow these procedures by such time, your rights will expire and will have
no value.
No
Board Recommendation
An
investment in shares of our common stock must be made according to your
evaluation of your own best interests and after considering all of the
information herein, including the “Risk Factors” section of this prospectus.
Neither we nor our Board of Directors are making any recommendation regarding
whether you should exercise your subscription rights.
Shares
of Common Stock Outstanding After the Rights Offering
Based on
the 85,204,416 shares of our common stock currently outstanding, and the
potential that MAM may issue as many as 51,122,650 shares pursuant to this
rights offering, 136,327,066 shares of our common stock may be issued and
outstanding following the rights offering, which represents an increase in the
number of outstanding shares of our common stock of approximately
62%.
Fees
and Expenses
Neither
we, nor the subscription agent, will charge a brokerage commission or a fee to
subscription rights holders for exercising their rights. However, if you
exercise your subscription rights through a broker, dealer or nominee, you will
be responsible for any fees charged by your broker, dealer or
nominee.
Questions
About Exercising Subscription Rights
If you
have any questions or require assistance regarding the method of exercising your
subscription rights or requests for additional copies of this document or any
document mentioned herein, you should contact the subscription agent at the
address and telephone number set forth above under “— Delivery of Subscription
Materials and Payment.”
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Other
Matters
MAM is
not making the rights offering in any state or other jurisdiction in which it is
unlawful to do so, nor is MAM distributing or accepting any offers to purchase
any shares of our common stock from subscription rights holders who are
residents of those states or of other jurisdictions or who are otherwise
prohibited by federal or state laws or regulations to accept or exercise the
subscription rights. MAM may delay the commencement of the rights offering in
those states or other jurisdictions, or change the terms of the rights offering,
in whole or in part, in order to comply with the securities law or other legal
requirements of those states or other jurisdictions. Subject to state securities
laws and regulations, MAM also has the discretion to delay allocation and
distribution of any shares you may elect to purchase by exercise of your
subscription rights in order to comply with state securities laws. MAM may
decline to make modifications to the terms of the rights offering requested by
those states or other jurisdictions, in which case, if you are a resident in one
of those states or jurisdictions or if you are otherwise prohibited by federal
or state laws or regulations from accepting or exercising the subscription
rights you will not be eligible to participate in the rights
offering.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The
following summary describes the material U.S. federal income tax consequences of
the receipt and exercise (or expiration) of the subscription rights or, if
applicable, the over-subscription privilege, acquired through the rights
offering and owning and disposing of the shares of common stock received upon
exercise of the subscription rights. This summary is based upon the Internal
Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, all as
currently in effect and all of which are subject to differing interpretations or
to change, possibly with retroactive effect. No assurance can be given that the
IRS would not assert, or that a court would not sustain, a position contrary to
any of the tax consequences described below.
This
summary is for general information only and does not purport to discuss all
aspects of U.S. federal income taxation that may be important to a particular
holder in light of its particular circumstances or to holders that may be
subject to special tax rules, including, but not limited to, partnerships or
other pass-through entities, banks and other financial institutions, tax-exempt
entities, employee stock ownership plans, certain former citizens or residents
of the United States, insurance companies, regulated investment companies, real
estate investment trusts, dealers in securities or currencies, brokers, traders
in securities that have elected to use the mark-to-market method of accounting,
persons holding subscription rights or shares of common stock as part of an
integrated transaction, including a “straddle,” “hedge,” “constructive sale” or
“conversion transaction,” persons whose functional currency for tax purposes is
not the U.S. dollar, and persons subject to the alternative minimum tax
provisions of the Code.
This
summary applies to you only if you are a U.S. holder (as defined below) and
receive your subscription rights in the rights offering, and you hold your
subscription rights or shares of common stock issued to you upon exercise of the
subscription rights or, if applicable, the over-subscription privilege, as
capital assets for tax purposes. This summary does not apply to you if you are
not a U.S. Holder.
We have
not sought, and will not seek, a ruling from the IRS regarding the federal
income tax consequences of the rights offering or the related share issuances.
The following summary does not address the tax consequences of the rights
offering or the related share issuance under foreign, state, or local tax
laws.
You are a
U.S. holder if you are a beneficial owner of subscription rights or common stock
and you are:
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An
individual who is a citizen or resident of the United States for U.S.
federal income tax purposes;
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A
corporation (or other business entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of
the United Sates, any state thereof or the District of
Columbia;
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An
estate the income of which is subject to U.S. federal income tax
regardless of its source; or
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A
trust (a) if a court within the United States can exercise primary
supervision over its administration and one or more U.S. persons are
authorized to control all substantial decisions of the trust or
(b) that has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S.
person.
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If a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) receives the subscription rights or holds the common stock
received upon exercise of the subscription rights or, if applicable, the
over-subscription privilege, the tax treatment of a partner in such partnership
generally will depend upon the status of the partner and the activities of the
partnership. Such a partner or partnership is urged to consult its own tax
advisor as to the U.S. federal income tax consequences of receiving and
exercising the subscription rights and acquiring, holding or disposing of our
common shares.
25
ACCORDINGLY,
EACH RECIPIENT OF RIGHTS IN THE RIGHTS OFFERING SHOULD CONSULT THE RECIPIENT’S
OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING AND
THE RELATED SHARE ISSUANCES THAT MAY RESULT FROM SUCH RECIPIENT’S PARTICULAR
CIRCUMSTANCES.
Taxation
of Subscription Rights
Receipt
of Subscription Rights
Your
receipt of subscription rights pursuant to the rights offering should not be
treated as a taxable distribution with respect to your existing shares of common
stock for U.S. federal income tax purposes. Under Section 305 of the Code,
a stockholder who receives a right to acquire shares will, in certain
circumstances, be treated as having received a taxable dividend in an amount
equal to the value of such right. A common stockholder who receives a right
to acquire shares of common stock generally will be treated as having received a
taxable dividend if such stockholder’s proportionate interest in the earnings
and profits or assets of the corporation is increased and any other stockholder
receives a distribution of cash or other property. For purposes of the
above, “stockholder” includes holders of warrants, options and convertible
securities. The application of this rule is very complex and subject to
uncertainty. We believe, however, that pursuant to Section 305 of the
Code and the Treasury Regulations issued thereunder, the receipt of subscription
rights should generally not be taxable to a stockholder.
Tax
Basis in the Subscription Rights
If the
fair market value of the subscription rights you receive is less than 15% of the
fair market value of your existing shares of common stock on the date you
receive the subscription rights, the subscription rights will be allocated a
zero basis for U.S. federal income tax purposes, unless you elect to allocate
your basis in your existing shares of common stock between your existing shares
of common stock and the subscription rights in proportion to the relative fair
market values of the existing shares of common stock and the subscription rights
determined on the date of receipt of the subscription rights. If you choose to
allocate basis between your existing shares of common stock and the subscription
rights, you must make this election on a statement included with your tax return
for the taxable year in which you receive the subscription rights. Such an
election is irrevocable.
However,
if the fair market value of the subscription rights you receive is 15% or more
of the fair market value of your existing shares of common stock on the date you
receive the subscription rights, then you must allocate your basis in your
existing shares of common stock between your existing shares of common stock and
the subscription rights you receive in proportion to their fair market values
determined on the date you receive the subscription rights. The fair market
value of the subscription rights on the date the subscription rights will be
distributed is uncertain. In determining the fair market value of the
subscription rights, you should consider all relevant facts and circumstances,
including the trading price thereof.
Exercise
of Subscription Rights
Generally,
you will not recognize gain or loss on the exercise of a subscription right.
Your tax basis in a new share of common stock acquired when you exercise a
subscription right will be equal to your adjusted tax basis in the subscription
right, if any, plus the subscription price. The holding period of a share of
common stock acquired when you exercise your subscription rights will begin on
the date of exercise.
Expiration
of Subscription Rights
If you
allow subscription rights received in the rights offering to expire, you should
not recognize any gain or loss for U.S. federal income tax purposes, and you
should re-allocate any portion of the tax basis in your existing shares of
common stock previously allocated to the subscription rights that have expired
to the existing shares of common stock.
Sale
or Other Disposition of Subscription Rights
If you
sell or otherwise dispose of your subscription rights prior to the expiration
date, you will recognize capital gain or loss equal to the difference between
the amount of cash and the fair market value of any property you receive and
your tax basis, if any, in the subscription rights sold or otherwise disposed
of. Any capital gain or loss will be long-term capital gain or loss if the
holding period for the subscription rights exceeds one year at the time of
disposition. The deductibility of capital losses is subject to limitations under
the Code.
26
Taxation
of Shares of Common Stock
Distributions
Distributions
with respect to shares of common stock acquired upon exercise of subscription
rights will be taxable as dividend income when actually or constructively
received to the extent of our current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. To the extent that the amount
of a distribution exceeds our current and accumulated earnings and profits, such
distribution will be treated first as a tax-free return of capital to the extent
of your adjusted tax basis in such shares of common stock and thereafter as
capital gain. We currently do not make any cash distributions on our shares of
common stock.
Dispositions
If you
sell or otherwise dispose of the shares of common stock acquired upon exercise
of the subscription rights, you will generally recognize capital gain or loss
equal to the difference between the amount realized and your adjusted tax basis
in the shares of common stock. Such capital gain or loss will be long-term
capital gain or loss if your holding period for the shares of common stock is
more than one year. Long-term capital gain of an individual is generally taxed
at favorable rates. The deductibility of capital losses is subject to
limitations.
New
Legislation Relating to Foreign Accounts
Newly
enacted legislation may impose withholding taxes on certain types of payments
made to “foreign financial institutions” and certain other
non-U.S. entities after December 31, 2012. The legislation
imposes a 30% withholding tax on dividends on, or gross proceeds from the sale
or other disposition of, our common stock paid to a foreign financial
institution unless the foreign financial institution enters into an agreement
with the U.S. Treasury to among other things, undertake to identify accounts
held by certain U.S. persons or U.S.-owned foreign entities, annually report
certain information about such accounts and withhold 30% on payments to account
holders whose actions prevent it from complying with these reporting and other
requirements. In addition, the legislation imposes a 30% withholding tax on the
same types of payments to a foreign non-financial entity unless the entity
certifies that it does not have any substantial U.S. owners or furnishes
identifying information regarding each substantial U.S. owner. Prospective
investors should consult their tax advisors regarding this
legislation.
Health
Care and Reconciliation Act of 2010
On
March 30, 2010, President Obama signed into law the Health Care and
Reconciliation Act of 2010, which requires certain U.S. stockholders who are
individuals, estates or trusts to pay a 3.8% tax on, among other things,
dividends on and capital gains from the sale or other disposition of stock for
taxable years beginning after December 31, 2012. U.S. stockholders should
consult their tax advisors regarding the effect, if any, of this legislation on
their ownership and disposition of our common stock.
Information
Reporting and Backup Withholding
You may
be subject to information reporting and/or backup withholding with respect to
dividend payments on or the gross proceeds from the disposition of our common
stock acquired through the exercise of subscription rights. Backup withholding
may apply under certain circumstances if you (1) fail to furnish your
social security or other taxpayer identification number (“TIN”),
(2) furnish an incorrect TIN, (3) fail to report interest or dividends
properly, or (4) fail to provide a certified statement, signed under
penalty of perjury, that the TIN provided is correct, that you are not subject
to backup withholding and that you are a U.S. person. Any amount withheld from a
payment under the backup withholding rules is allowable as a credit against (and
may entitle you to a refund with respect to) your U.S. federal income tax
liability, provided that the required information is furnished to the IRS.
Certain persons are exempt from backup withholding, including corporations and
financial institutions. You are urged to consult your own tax advisor as to your
qualification for exemption from backup withholding and the procedure for
obtaining such exemption.
PLAN OF
DISTRIBUTION
On or
about [____________, 2010], we will distribute the rights, rights certificates,
and copies of this prospectus to individuals who owned shares of common stock as
of [RECORD DATE]. If you wish to exercise your rights and purchase shares
of common stock pursuant to the Rights Offering, you should complete the rights
certificate and return it with payment for the shares, to the Subscription Agent
at the following address:
Corporate
Stock Transfer
3200
Cherry Creek Dr. South Suite 430
Denver,
Colorado 80209
For more
information, please see the section of this prospectus entitled “The Rights
Offering.” If you have any questions, you should contact the Subscription
Agent, at 3200 Cherry Creek Dr. South, Suite 430, Denver, Colorado 80209,
telephone number: (303) 282-4800.
27
We do not
know of any existing agreements between any stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the common stock
underlying the rights.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Number of Authorized and Outstanding
Shares. Our Articles of Incorporation authorized the issuance of an
aggregate of 150,000,000 shares of common stock, par value $0.0001 per share,
and 10,000,000 shares of preferred stock, par value $0.0001 per share, with the
preferred stock to be issued on such terms and at such prices as our Board of
Directors may determine.
As of
July 12, 2010, the Company had 85,204,416 shares of common stock issued and
outstanding and no shares of preferred stock issued.
Voting Rights. Holders of
shares of common stock are entitled to one vote for each share on all matters to
be voted on by the stockholders. Holders of common stock have no cumulative
voting rights. Accordingly, the holders of in excess of 50% of the aggregate
number of shares of common stock issued and outstanding will be able to elect
all of our directors and to approve or disapprove any other matter submitted to
a vote of all stockholders.
Other. Holders of common stock
have no preemptive rights to purchase our common stock.
Dividend. We have never
declared or paid cash dividends on our common stock, and our board of directors
does not intend to declare or pay any dividends on the common stock in the
foreseeable future.
EXPERTS
The
consolidated financial statements included in this prospectus of MAM Software
Group, Inc. (formerly known as Aftersoft Group, Inc.) and subsidiaries as of
June 30, 2009 and 2008 and for the years then ended, have been audited by KMJ
Corbin & Company LLP, an independent registered public accounting firm, as
stated in their report appearing herein (which report expresses an unqualified
opinion), and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
KMJ
Corbin & Company LLP was not employed on a contingency basis or had, or is
to receive, in connection with the offering, a substantial interest, directly or
indirectly, in the Company, nor was it with the Company as a promoter, managing
or principal underwriter, voting trustee, director, officer or
employee.
LEGAL
REPRESENTATION
Gersten
Savage LLP (“Gersten”), at 600 Lexington Avenue, New York, NY 10022, has passed
upon the validity of the securities being offered hereby. Gersten Savage LLP was
not hired on a contingent basis. Gersten owns 549,183 shares of the
Company’s common stock, which shares it received as part of the spin-off of
ADNW’s shares. Prior to the spin-off, Gersten Savage had received
800,000 shares of ADNW’s common stock in consideration for work previously
undertaken on behalf of ADNW, for which it was not compensated. Further, Gersten
is not nor will it be a promoter, underwriter, voting trustee, director,
officer, or employee of the issuer.
28
Our
Company
MAM
Software Group, Inc. provides software, information and related services to
businesses engaged in the automotive aftermarket in the US, UK and Canada and to
the automotive dealership market in the UK. The automotive aftermarket consists
of businesses associated with the life cycle of a motor vehicle from when the
original manufacturer’s warranty expires to when the vehicle is scrapped.
Products sold by businesses engaged in this market include the parts, tires and
auto services required to maintain and improve the performance or appeal of a
vehicle throughout its useful life. The Company aims to meet the business needs
of customers who are involved in the maintenance and repair of automobiles and
light trucks in three key segments of the automotive aftermarket, namely parts,
tires and auto service.
The
Company’s business management systems, information products and online services
permit our customers to manage their critical day-to-day business operations
through automated point-of-sale, inventory management, purchasing, general
accounting and customer relationship management.
The
Company’s customer base consists of wholesale parts and tire distributors,
retailers, franchisees, cooperatives, auto service chains and single location
auto service businesses with high customer service expectations and complex
commercial relationships.
The
Company’s revenues are derived from the following:
|
·
|
The
sale of business management systems comprised of proprietary software
applications, implementation and training;
and
|
|
·
|
Providing
subscription-based services, including software support and maintenance,
information (content) products and online services for a
fee.
|
The
Company’s principal executive office is located at Maple Park, Maple Court,
Tankersley, Barnsley, UK S75 3DP and its phone number is
011-44-124-431-1794.
CORPORATE
BACKGROUND
In
December 2005, W3 Group, Inc. (“W3”) consummated a reverse acquisition and
changed its corporate name to Aftersoft Group, Inc. W3, which was initially
incorporated in February 1988 in Colorado, changed its state of incorporation to
Delaware in May 2003. On December 21, 2005, an Acquisition Agreement (the
“Agreement”) was consummated among W3, a separate Delaware corporation named
Aftersoft Group, Inc. (“Oldco”) and Auto Data Network, Inc. (“ADNW”) in which W3
acquired all of the issued and outstanding shares of Oldco in exchange for
issuing 32,500,000 shares of Common Stock of W3, par value $0.0001 per share, to
ADNW, which was then the sole shareholder of the Company. At the time of the
acquisition, W3 had no business operations. Concurrent with the acquisition, W3
changed its name to Aftersoft Group, Inc. and its corporate officers were
replaced. The Board of Directors of the Company appointed three additional
directors designated by ADNW to serve until the next annual election of
directors. As a result of the acquisition, former W3 shareholders owned
1,601,167, or 4.7% of the 34,101,167 total issued and outstanding shares of
Common Stock and ADNW owned 32,500,000 or 95.3% of the Company’s Common Stock.
On December 22, 2005, Oldco changed its name to Aftersoft Software, Inc. and is
currently inactive.
On August
26, 2006, the Company acquired 100% of the issued and outstanding shares of EXP
from ADNW in exchange for issuing 28,000,000 shares of Common Stock to ADNW with
a market value of $30,800,000. On February 1, 2007, the Company consummated an
agreement to acquire Dealer Software and Services Limited (“DSS”), a subsidiary
of ADNW, in exchange for issuing 16,750,000 shares of Common Stock to ADNW with
a market value of $15,075,000.
During
2007, the Company conducted a strategic assessment of its businesses and
determined that neither EXP nor DSS fit within its long-term business model. The
Company identified a buyer for the two businesses in First London PLC (formerly,
First London Securities PLC) (“First London”). First London is a UK-based
holding company for a group of businesses engaged in asset management,
investment banking, and merchant banking. First London’s shares are traded on
the London Plus market. First London’s areas of specialization include
technology, healthcare, and resources, and its merchant banking operations take
strategic, principal positions in businesses that fall within its areas of
specialization.
On June
17, 2007, DSS sold all of the shares of Consolidated Software Capital Limited
(“CSC”), its wholly owned subsidiary, to RLI Limited, a company affiliated with
First London (“RLI”). The consideration for this sale consisted of a note from
RLI with a face value of $865,000. On November 12, 2007, as part of the sale of
EXP (see below), the $865,000 note was exchanged for 578,672 shares of First
London common stock having a fair value of $682,000. The transaction resulted in
a loss of $183,000 to the Company.
29
The
Company sold its interest in EXP and DSS, EXP’s wholly owned subsidiary, on
November 12, 2007. Pursuant to the terms of a Share Sale Agreement (the “EXP
Agreement”), EU Web Services Limited (“EU Web Services”) a subsidiary of First
London, agreed to acquire, and the Company agreed to sell, the entire issued
share capital of EXP it then owned, which amounted to 100% of EXP’s outstanding
stock.
As
consideration for the sale of EXP, including DSS, EU Web Services agreed to
issue to the Company, within 28 days of the closing, 1,980,198 ordinary shares
(the UK equivalent of common stock), £0.01 par value, in its parent company,
First London. The Ordinary shares received by the Company had an agreed upon
fair market value of $3,000,000 at the date of issuance of such shares. The
Company recorded the shares received at $2,334,000, which represents the bid
price of the restricted securities received, and discounted the carrying value
by 11% (or $280,000) as, pursuant to the EXP Agreement, the shares could not be
sold by the Company for at least 12 months. Further, the EXP Agreement provided
that the Company receive on May 12, 2008 additional consideration in the form
of: (i) Ordinary shares in EU Web Services having a fair market value of
$2,000,000 as of the date of issuance, provided that EU Web Services is listed
and becomes quoted on a recognized trading market within six (6) months from the
date of the Agreement; or (ii) if EU Web Services does not become listed within
the time period specified, Ordinary shares in First London having a fair market
value of $2,000,000 as of May 12, 2008. As EU Web Services did not become listed
within the six-month timeframe, the Company received on August 14, 2008
1,874,414 shares in First London, which had a fair market value of $2,000,000 on
May 12, 2008.
On April
21, 2010, the Company’s stockholders approved the proposal to amend the
Company’s Certificate of Incorporation to change the Company’s name from
Aftersoft Group, Inc. to MAM Software Group, Inc. (“MAM”).
MAM is a
former subsidiary of ADNW, a publicly traded company, the stock of which is
currently traded on the Pink Sheets under the symbol ADNW.PK. ADNW transferred
its software aftermarket services operating businesses to MAM and retained its
database technology, Orbit. Orbit is a system for supply and collection of data
throughout the automotive industry. To date, Orbit is still in its development
phase, and ADNW will require substantial external funding to bring the
technology to its first phase of testing and deployment. On November 24, 2008,
ADNW distributed a dividend of the 71,250,000 shares of MAM common stock that
ADNW owned at such time in order to complete the previously announced spin-off
of MAM’s businesses. The dividend shares were distributed in the form of a pro
rata dividend to the holders of record as of November 17, 2008 (the “Record
Date”) of ADNW’s common and convertible preferred stock. Each holder of record
of shares of ADNW common and preferred stock as of the close of business on the
Record Date was entitled to receive 0.6864782 shares of MAM’s common stock for
each share of common stock of ADNW held at such time, and/or for each share of
ADNW common stock that such holder would own, assuming the convertible preferred
stock owned on the Record Date was converted in full. Prior to the spin-off,
ADNW owned approximately 77% of MAM’s issued and outstanding common stock.
Subsequent to and as a result of the spin-off, MAM is no longer a subsidiary of
ADNW.
The
Company currently has the following wholly owned direct operating subsidiaries:
MAM Software in the UK, and ASNA in the US.
30
MAM
Software Group, Inc. Organization Chart
MAM
Software Ltd.
MAM
Software is a provider of software to the automotive aftermarket in the UK. MAM
Software specializes in providing reliable and competitive business management
solutions to the motor factoring (also known as jobber), retailing, and
wholesale distribution sectors. It also develops applications for vehicle repair
management and provides solutions to the retail and wholesale tire industry. All
MAM Software programs are based on the Microsoft Windows family of operating
systems. Each program is fully compatible with the other applications in their
range, enabling them to be combined to create a fully integrated package. MAM
Software is based in Barnsley, UK.
Aftersoft
Network N.A., Inc. (ASNA)
ASNA
develops open business automation and distribution channel e-commerce systems
for the automotive aftermarket supply chain. These systems are used by leading
aftermarket outlets, including tier one manufacturers, program groups, warehouse
distributors, tire and service chains and independent installers. ASNA products
and services enable companies to generate new sales, operate more cost
efficiently, accelerate inventory turns and maintain stronger relationships with
suppliers and customers. ASNA has three wholly owned subsidiaries operating
separate businesses: (i) AFS Warehouse Distribution Management, Inc. and (ii)
AFS Tire Management, Inc. which are both based in Dana Point, California, and
(iii) MAM Software, Inc., which is based in Allentown,
Pennsylvania.
ASNA
specially focuses on selling systems to the service and tire segment of the
market, while MAM Software focuses on the warehouse and jobber segment of the
market.
Industry
Overview
The
Company serves the business needs of customers involved in the supply of parts,
maintenance and repair of automobiles and light trucks in three key segments of
the automotive aftermarket, namely parts, tires and auto service.
The
industry is presently experiencing a level of consolidation in the lines that
are being sold. The previous distinction of having parts and tires provided by
two distinct suppliers is coming to an end, as our customer’s businesses need to
offer their clients the widest range of products and services under one roof. As
a result, what were previously parts-only stores, jobbers and warehouses, are
now taking in tire inventory as well in order to satisfy their clients’ demands,
and vice-versa. This in turn is causing owners of these businesses to evaluate
their business systems to ensure they can compete over the short, medium and
long term. An increase in the “do-it-yourself” market due to “credit crunch” is
requiring these systems, but at the same time a need to compete strongly with
other parts stores is cutting margins as businesses attempt to attract new and
return business. Longer warranties are still deferring the length of time until
newer vehicles are entering the aftermarket, except for running spares and
service parts, accident damage, and optional add-ons such as security,
entertainment, performance and customization.
31
The
Company believes that growth in the automotive aftermarket will continue to be
driven by the following factors:
|
·
|
gradual
growth in the aggregate number of vehicles in
use;
|
|
·
|
an
increase in the average age of vehicles in
operation;
|
|
·
|
fewer
new vehicles being purchased due to uncertainty in the economy, especially
available credit;
|
|
·
|
growth
in the total number of miles driven per vehicle per year;
and
|
|
·
|
increased
vehicle complexity.
|
Products
and Services
Meeting
the needs of the automotive aftermarket requires a combination of business
management systems, information products and online services that combine to
deliver benefits for all parties involved in the timely repair of a vehicle. The
Company provides systems and services that meet these needs and help its
customers to meet their customers’ expectations. These products and services
include:
|
1.
|
Business
Management Systems comprised of the Company’s proprietary software
applications, implementation and training and third-party hardware and
peripherals;
|
|
2.
|
Information
Products such as an accessible catalog database related to parts,
tires, labor estimates, scheduled maintenance, repair information,
technical service bulletins, pricing and product features and benefits
that are used by the different participants in the automotive
aftermarket;
|
|
3.
|
Online
Services and products that provide online connectivity between
manufacturers, warehouse distributors, retailers and automotive service
providers. These products enable electronic data interchange throughout
the automotive aftermarket supply chain between the different trading
partners. They also enable procurement and business services to be
projected over the Web to an expanded business audience;
and
|
|
4.
|
Customer
Support, Consulting and Training that provide phone and online
support, implementation and
training.
|
Business
Management Systems
ASNA’s
business management systems meet the needs of warehouse distributors, part
stores and automotive service providers as follows:
Warehouse
Distributors
DirectStep.
This product is designed for and targeted at warehouse distributors that seek to
manage multiple locations and inventories on a single system. ASNA through its
subsidiary, MAM Software Inc., provides distributors a complete business
management system for inventory management, customer maintenance, accounting,
purchasing and business analytics. The products enable online trading and
services (through ASNA’s OpenWebs product) including price and product
information updating integrated with Autopart and VAST products, which are used
by parts stores and automotive service providers.
Parts
Stores
Autopart.
This is a UK-developed product that is sold and promoted in the US by MAM
Software Inc. This product is designed for and targeted at parts store chains
that seek to manage multiple locations and inventories on a single system for a
regional area and are also suited to managing single location franchisees or
buying group members. The product provides point of sale, inventory management,
electronic purchasing capabilities and a fully integrated accounting module. It
also allows the parts stores to connect with automotive service providers
through our Openwebs online services product.
32
Automotive
Service Providers
VAST.
This product is designed for and targeted at large- to medium- sized automotive
service chains that seek to manage multiple locations and inventories for a
regional area is also suited to managing single location stores that are part of
a franchise or a buying group. VAST provides point-of-sale, inventory
management, electronic purchasing and customer relationship management
capabilities. It also allows the automotive service providers to connect with
parts and tires warehouse distributors and parts stores through ASNA’s online
services and products.
Autowork.
This is a UK-developed product that is sold by MAM Software Ltd. This product is
designed for and targeted at small single store automotive installers. The
Autowork product provides estimate, job card, parts procurement and invoice
capabilities. It also allows the automotive installer to connect with parts
distributors through the Company’s online services and products. This product
has recently been made available over the internet as a Software as a Service
product (SaaS), allowing customers to purchase the solution on a monthly basis
but without the need to manage the system. It has been launched under the name
of Autowork+.
Autopart.
This is a UK-developed product that is sold in both the US and UK. In the US it
is sold by MAM Software Inc. and in the UK by MAM Software Ltd. This product is
designed for and targeted at parts store chains that seek to manage multiple
locations and inventories on a single system for a regional area. It is also
suited to managing single location franchisees or buying group members. The
product provides point of sale, inventory management, electronic purchasing
capabilities and a fully integrated accounting module. An Autopart PDA module is
also available to allow field sales personnel to record sales activity in real
time on handheld devices while on the road. The PDA module also allows the sales
representative to maintain their stock and synchronize in real time while
traveling or later locally with Autopart directly. It also allows parts stores
to connect with automotive service providers through the ASNA online services,
OpenWebs.
Information
Products
The
Company provides product catalog and vehicle repair information required to
enable point-of-sale transactions. These proprietary database products and
services generate recurring revenues through monthly or annual subscription
fees.
MAM
Software Ltd. develops and maintains proprietary information products that
differentiate its products from those of the majority of its competitors in the
UK. In the US and Canada, ASNA develops and maintains a proprietary workflow
capability that integrates information products sourced from its suppliers such
as Activant, WHI and NAPA to its automotive parts and tire customers, including
warehouse distributors, parts stores and automotive service
providers.
MAM
Software Ltd.’s principal information service is AutoCat, which provides access
to a database of over 9 million unique automobile vehicle applications for
approximately 500,000 automotive parts product lines in the UK market. Business
systems software used by the warehouse distributor, parts store and auto service
provider enable the user to access information about parts quickly and
accurately. MAM Software Ltd. charges a monthly or annual subscription fee for
its information products and provides customers with periodic updates via
compact discs. In the UK, there are approximately 1,300 end-users who use our
information products.
In
addition, information products developed or resold by ASNA include Interchange
Catalog, a database that provides cross references of original equipment
manufacturer part numbers to aftermarket manufacturer part numbers; Price
Updating, a service that provides electronic price updates following a price
change by the part manufacturer; Labor Guide, a database used by automotive
service providers to estimate labor hours for purposes of providing written
estimates of repair costs to customers; Scheduled Service Intervals, a database
of maintenance intervals; and Tire Sizing, a database that cross-references
various tire products and applications.
Online
Services
Both ASNA
and MAM Software Ltd. offer online e-commerce services in the form of
system-to-system and web browser implementations. These online services connect
the automotive aftermarket from manufacturers through warehouse distributors and
parts stores to automotive service providers for the purpose of purchasing parts
and tires, fleet and national account transaction processing and online product
price information.
OpenWebs(TM)
e-Commerce Gateway Services
In the US
and Canada, ASNA’s e-commerce gateway services use automotive industry standard
messaging specifications to deliver online services that connect the automotive
aftermarket supply chain for the purpose of purchasing parts and tires, fleet
and national account transaction processing, online product and price updating
for parts and tires.
33
OpenWebs(TM)
e-Commerce Browser Services
In the US
and Canada, ASNA’s e-commerce browser services enable warehouse distributors and
parts stores to provide an online service to automotive service providers for
the purpose of purchasing of parts and tires, accessing account information and
other browser-based channel management services.
Autonet
In the
UK, MAM Software Ltd.’s Autonet online services connect manufacturers, warehouse
distributors, parts stores and automotive service providers for the purpose of
purchasing of parts and tires, fleet and national account transaction processing
and product information and price distribution.
AutoCat+
MAM
Software Ltd.’s UK product information database is available for access and
distribution as a Web-driven service called AutoCat+ in which the database and
access software have been enhanced to enable service professionals to look up
automotive products for themselves, view diagrams and select the parts for their
vehicle. This enhanced version of the AutoCat product is used by parts stores
and the professional installer segments of the automotive parts aftermarket in
the UK. ASNA resells a similar online service in the US and Canada called
VAST.
Customer
Support and Consulting and Training
The
Company provides support, consulting and training to its customers to ensure the
successful use of its products and services. The Company believes this extra
level of commitment and service builds customer relationships, enhances customer
satisfaction and maximizes customer retention. These services consist of the
following:
|
·
|
Phone
and online support. Customers can call dedicated support lines to speak
with knowledgeable personnel who provide support and perform on-line
problem solving as required.
|
|
·
|
Implementation,
education and training consulting. Our consulting and training teams work
together to minimize the disruption to a customer’s business during the
implementation process of a new system and to maximize the customer’s
benefit from the use of the system through
training.
|
ASNA and
MAM Software Ltd. also provide a customer-only section on their intranet sites
that allows customers direct access to newsgroups, on-line documentation and
information related to products and services. New customers enter into support
agreements, and most retain such service agreements for as long as they own the
system. Monthly fees vary with the number of locations and the software modules,
information products and online services subscribed to. The agreements are
generally month-to-month agreements. The Company offers training at both ASNA
and MAM Software Ltd.’s facilities, the customer’s facilities and online for
product updates or introduce specific new capabilities.
MAM
Software Ltd.’s UK catalog information product and other information services
are delivered by its AutoCat team. The AutoCat product team sources,
standardizes and formats data collected in an electronic format from over 130
automotive parts manufacturers. MAM Software Ltd. provides this data to its
customers in a variety of formats. MAM Software Ltd. previously produced catalog
updates on compact discs approximately four times a year from its facilities in
Wareham, England, but has recently updated the system to AutoCat+, which allows
customers to subscribe to receive online updates via the Internet.
Distribution
There are
two primary vertical distribution channels for aftermarket parts and tire
distribution: the traditional wholesale channel and the retail
channel.
Automotive
Aftermarket Distribution Channels
|
·
|
Traditional
Wholesale Channel. The wholesale channel is the predominant distribution
channel in the automotive aftermarket. It is characterized by the
distribution of parts from the manufacturer to a warehouse distributor, to
parts stores and then to automotive service providers. Warehouse
distributors sell to automotive service providers through parts stores,
which are positioned geographically near the automotive service providers
they serve. This distribution method provides for the rapid distribution
of parts. The Company has products and services that meet the needs of the
warehouse distributors, parts stores and the automotive service
providers.
|
34
|
·
|
Retail
Channel. The retail channel is comprised of large specialty retailers,
small independent parts stores and regional chains that sell to
“do-it-yourself” customers. Larger specialty retailers, such as Advance
Discount Auto Parts, AutoZone, Inc., O’Reilly Automotive, Inc. and CSK
Auto Corporation carry a greater number of parts and accessories at more
attractive prices than smaller retail outlets and are gaining market
share. The business management systems used in this channel are either
custom developed by the large specialty retailers or purchased from
business systems providers by small to medium-sized businesses. The
Company has products and services that support the retail
channel.
|
In
addition to these two primary channels, some aftermarket parts and tires end up
being distributed to new car dealers. The business management systems used in
this channel have unique functionality specific to new car dealerships. The
Company sells a small number of products into the auto service provider side of
car dealerships. Aftermarket wholesalers of parts and tires provide online
purchasing capabilities to some new car dealerships.
Product
Development
The
Company’s goal is to add value to its customer’s businesses through products and
services designed to create optimal efficiency. To accomplish this goal, the
Company’s product development strategy consists of the following three key
components:
|
·
|
Integrating
all of the Company’s products so that its software solutions work together
seamlessly, thereby eliminating the need to switch between
applications;
|
|
·
|
Enhancing
the Company’s current products and services to support its changing
customers needs; and
|
|
·
|
Providing
a migration path to the Company’s business management systems, reducing a
fear that many customers have that changing systems will disrupt
business.
|
Sales
and Marketing
The
Company’s sales and marketing strategy is to acquire customers and retain them
by cross-selling and up-selling a range of commercially compelling business
management systems, information products and online services.
Within
the parts, tire and auto service provider segments, each division sells and
markets through a combination of field sales, inside sales, and independent
representatives. The Company seeks to partner with large customers or buying
groups and leverage their relationships with their customers or members.
Incentive pay is a significant portion of the total compensation package for all
sales representatives and sales managers. Outside sales representatives focus
primarily on identifying and selling to new customers complemented by an inside
sales focus on selling upgrades and new software applications to its installed
customer base.
The
Company’s marketing approach aims to leverage its reputation for customer
satisfaction and for delivering systems, information and services that improve a
customer’s commercial results. The goal of these initiatives is to maximize
customer retention and recurring revenues, to enhance the productivity of the
field sales team, and to create the cross-selling and up-selling opportunities
for its systems, information products and online services.
ASNA also has agreements
with three software distributors in North America to sell its products. We pay
distributors a percentage for each software package they sell. The client pays
the distributor directly for any professional services rendered to deploy the
software. This is becoming a less important part of ASNA’s sales strategy as our
in-house sales representatives generate most of our sales.
Research
and Development
The
Company spent approximately $2.9 million in fiscal 2009 on research and
development, with approximately $1.2 million spent by ASNA, $0.4 million by MAM
Software Inc., and $1.3 million by MAM Software Ltd. The Company spent
approximately $3.2 million in fiscal 2008 on research and development, with
approximately $1.8 million spent by ASNA, and $1.4 million by MAM
Software.
The
Company spent approximately $0.75 million for the three months ended March 31,
2010 on research and development, with approximately $0.3 million spent by ASNA,
$0.05 million spent by MAM Software Inc. and $0.4 million spent by MAM Software
Ltd.
The
Company spent approximately $0.72 million for the three months ended March 31,
2009 on research and development with approximately $0.20 million spent by ASNA,
$0.22 million spent by MAM Software Inc. and $0.30 million spent by MAM Software
Ltd.
35
The
Company spent approximately $2.4 million for the nine months ended March 31,
2010 on research and development with approximately $0.80 million spent by ASNA,
$0.20 million spent by MAM Software Inc. and $1.3 million spent by MAM Software
Ltd.
The
Company spent approximately $2.2 million for the nine months ended March 31,
2009 on research and development with approximately $1.0 million spent by ASNA,
$0.20 million spent by MAM Software Inc. and $1.0 million spent by MAM Software
Ltd.
Patent
and Trademark
MAM
Software holds a UK trademark for its Autonet product. The trademark is a
graphical device that is made up of text saying “Autonet Tailored Internet
Solutions for the Automotive Industry.” It was filed for registration December
8, 2001 and registration was granted August 9, 2002 under ADP number 0812875001
and is due for renewal December 8, 2011.
Customers
For its
fiscal year ended June 30, 2009, no single customer accounted for more than 10%
of the Company’s total revenues. The Company’s top ten customers collectively
accounted for 20% of total revenues. Some of ASNA’s top customers in North
America include Autopart International, AutoZone, Monro Muffler Brake, Fountain
Tire and US Tire and Exhaust. In the UK market, MAM Software’s top customers
include Unipart Automotive, Motoserv, Sutton Autofactors, and Auto Battery
Service.
No
customers accounted for approximately 10% or more of the Company’s revenue for
the three month period ended March 31, 2010. During the nine month period ended
March 31, 2010, one customer accounted for 11.5% of the Company’s
revenue. No such concentration existed during the three and nine
month periods ended March 31, 2009.
Competition
In the US
and Canada, ASNA competes primarily with Activant, Inc. and several smaller
software companies, including Autologue, Maddenco, Janco, ASA and WHI, Inc.
(formerly known as Wrenchead Inc.) that provide similar products and services to
the US automotive aftermarket. Additionally, an ongoing competitive threat to
the Company is custom developed in-house systems, information products and
online services. For example, AutoZone, Inc. and Genuine Parts Company’s NAPA
Parts Group both developed their own business management systems and electronic
automotive parts catalogs for their stores and members, although the Company
currently has a partnership agreement with each of these companies to supply
their information products the Company’s solutions.
In the US
and Canada, the Company expects to compete successfully against its competitors
using two separate and complimentary strategies. First, the Company will
continue to focus on selling and promoting our complete supply chain solutions
that provide businesses with easy integration of its business management
information systems into their existing supply chain structures. Second, the
Company will continue its strategy of working with those businesses that already
manage their own supply chains and information products (catalogs), such as
buying groups like NAPA, helping to improve and compliment their systems with
the Company’s products.
ASNA, in
the US and Canada, competes with multiple products across different market
segments, so its competitors vary by segment. Within
the warehouse distribution segment, the Company will continue to support its
legacy system, Direct Step, which is a product which the Company developed many
years ago that enables large warehouses with millions of parts to locate,
manage, pack and deliver the parts with ease and efficiency. Direct Step is not
a Microsoft Windows-based technology. The Company’s existing and prospective
customers are moving towards modern solutions which integrate easily with
Internet-based transactions and interactions, and the Company believes that its
AutoPart product provides that solution. The Company has been selling AutoPart
successfully in the UK for the past six years, and feels that the success this
product in the UK and the successful installation of this product within the US
will enable the Company to promote and benefit quickly from this
product.
The tire
segment is comprised of three distinct elements: retail, wholesale and
commercial. Within the tire segment and the auto service segment, the Company
focuses on client and market requirements, which the Company believes will
enable it to offer its clients the best solution, regardless of the size of a
client’s business. By continually integrating and extending the functionality of
its solutions across the entire supply chain, the Company believes that it will
be able to offer existing and potential clients products that suit their present
and future needs. Management believes that its products will present existing
and potential clients the opportunity to move away from their older existing
systems, which may restrict their market opportunities, and will permit
integration into additional sales channels and reduce the costly maintenance of
older systems.
36
The auto
parts segment within the auto service space has many competitors who have
developed applications for single location auto service shops. Many of these
have been developed by parts distributors like NAPA and AutoZone. While these
applications do well in a small single location store, they are not widely
distributed in the multi-store location segment of the auto parts business. The
Company’s goal is not to pursue single store locations. Rather, it will focus on
the multi-store for which its product VAST is highly suited. The Company
believes that this multi-store ability offers strong opportunities to beat the
competition in this area and quickly increase the Company’s customer
base.
The last
area that the Company plans to compete in is the e-commerce space, providing new
tools and solutions for this expanding Internet marketplace. The goal of the
Company’s OpenWebs product is to connect both parts and tire partners together
in a real-time environment so they can perform electronic ordering as well as
disseminate information. Within the Tire segment, the Company feels that it has
a competitive advantage. The Company’s observation has led it to believe that
most tire distributors either do not have a business-to-business solution or
have developed solutions from independent sources. While the parts segment of
this market is largely tied to Activant, Inc at this time, the Company believes
that customers are looking for solutions that simply integrate their supply
chain, completely and without further restrictions. The Company’s OpenWebs
solution will allow them to achieve these goals.
In the
UK, MAM Software continues to compete primarily with Activant, Inc. and several
other smaller software companies including EGO and RAMDATA. The Company feels
that it provides a range of solutions that combine proven concepts with
cutting-edge technology that are functional, effective and reliable. The
Company’s feels that its focus towards continuing to provide solutions that
enable business to find new efficiencies and increase existing efficiencies, as
the Company develops its own products, will provide it an advantage over the
competition. These efforts, together with strong post sales support and ongoing
in depth product and market support, will assist the Company in generating and
maintaining its position within the market.
Several
large enterprise resource planning and software companies, including Microsoft
Corporation, Oracle Corporation and SAP AG continue to make public announcements
regarding the attractiveness of various small and medium enterprise vertical
markets and have established new accounts in non-automotive markets. The Company
to date has only competed with one of these larger software and service
companies, in the UK, which has lead to a partnership on a project with MAM
Software Ltd taking the lead. However there can be no assurance that those
companies will not develop or acquire a competitive product or service in the
future.
Employees
The
Company has 174 full-time employees: three at MAM Software Group, Inc., 52 at
ASNA and 119 at MAM Software Ltd. The three employees in MAM Software Group,
Inc. are our senior executives. ASNA has 52 employees in the US comprised of 4
in management, 8 in sales and marketing, 10 in research and development, 25 in
professional services and support and 5 in general and administration. MAM
Software has 119 employees in the UK comprised of 6 in management, 13 in sales
and marketing, 22 in research and development, 70 in professional services and
support and 8 in general and administration.
All of
the Company’s employees have executed customary confidentiality and restrictive
covenant agreements.
The
Company believes it has a good relationship with its employees and is currently
unaware of any key management or other personnel looking to either retire or
leave the employment of the Company. During 2008, the Company adopted a 2007
Long Term Stock Incentive Plan, which was approved by the Company’s Board of
Directors and stockholders.
DESCRIPTION
OF PROPERTY
Our
corporate offices are located at Maple Park, Maple Court, Tankersley, Barnsley,
UK S75 3DP. The main telephone number is
011-44-124-431-1794. MAM leases approximately 600 square feet at its
corporate offices and pays rent of $3,227 per month. Aftersoft Group (UK) Ltd
also has offices at Maple Park, Maple Court, Tankersley, Barnsley, UK S75
3DP. The main telephone number is 011-44-124-431-1794.
ASNA has
offices at 34052 La Plaza Drive, Suite 201, Dana Point, California 92629. The
main telephone number is 949-488-8860. ASNA has an office at 3435 Winchester Rd,
Ste 100, Allentown, PA 18104 and the phone number at that office is
610-336-9045, and an office at 125 Fernwood Rd, Ste 202, Wintersville, OH 43953,
with a phone number of 740-264-6853. The California offices total approximately
3,400 square feet and are leased at an aggregate a monthly cost of $7,672. The
Allentown, Pennsylvania office is approximately 7,105 square feet in size and is
leased for a monthly cost of $14,663 and the Wintersville, Ohio office is
approximately 617 square feet in size and is leased monthly for a cost of
$436.
37
MAM
Software has three offices. It has headquarters at Maple Park, Maple Court,
Tankersley, Barnsley, UK S75 3DP. The phone number is 011-44-124-431-1794. It
also has a regional office at 15 Duncan Close, Red House Square, Moulton Park,
Northampton, NN3 6WL, UK. The phone number is 44-160-449-4001. It has second
regional office at Leanne Business Centre, Sandford Lane, Wareham, Dorset, BH20
4DY, UK. The phone number is 44-192-955-0922. MAM Software leases approximately
17,970 square feet at its company headquarters at a monthly cost of $15,294. It
leases approximately 1,223 square feet at its Northampton office at a monthly
cost of $2,105 and approximately 717 square feet at its Wareham office at a
monthly cost of $1,277.
LEGAL
PROCEEDINGS
As
previously reported, the Company was informed of a verdict against CarParts
Technologies, Inc. (“CarParts”) in favor of Aidan McKenna, one of the selling
stockholders named herein, in litigation in the Court of Common Pleas of
Allegheny County, Pennsylvania. The judgment was for the principal amount of
$3,555,000 and stems from a complaint filed by Mr. McKenna on November 13, 2002
regarding an asset purchase transaction. That judgment also terminated the
Company’s counter-claim against Mr. McKenna alleging breach of contract.
CarParts is now known as AFS Tire Management, Inc. (“AFS Tire”). AFS Tire is a
wholly owned subsidiary of Aftersoft Network N.A, Inc., which, in turn, is a
wholly owned subsidiary of the Company.
In a
companion case to the aforementioned action, Mr. McKenna filed a Request for
Entry of Sister State Judgment in the Superior Court of California for Orange
County seeking the enforcement of his Pennsylvania judgment against CarParts in
Orange County, California. In response, CarParts filed a Motion to Vacate Entry
of Judgment on Sister State Judgment or to Stay Enforcement of Judgment. The
hearing on that motion was set for and heard on September 7, 2006. At the
hearing, CarParts’ motion was denied.
In
September 2006, Mr. McKenna filed another action in the Court of Common Pleas of
Allegheny County, Pennsylvania. This new action seeks to enforce Mr. McKenna’s
previously described judgment against CarParts against several new entities,
including AFS Tire Management, Inc., AFS Warehouse Distribution Management,
Inc., AFS Autoservice, Inc., Auto Data Network, Inc. and the Company. This new
action alleges that all of these entities are liable for payment of Mr.
McKenna’s judgment against CarParts.
On August
1, 2007, the Company and Mr. McKenna entered into an agreement that settled this
outstanding matter. Pursuant to the settlement, we paid Mr. McKenna $2,000,000
in cash, issued him an 8% promissory note in the principal amount of $825,000,
which is payable over 24 months, and issued Mr. McKenna 1,718,750 shares of our
Common Stock, which represented $825,000 at a value of $0.48 per share (the
closing price of the Company’s Common Stock on the date of settlement). Mr.
McKenna was also entitled to warrants to purchase an equivalent number of shares
of Common Stock at the same price. Upon entering this agreement all parties
agreed to withdraw all existing litigation and claims. The Company finalized its
agreement with McKenna on September 6, 2007 and revised its litigation accrual
to $3,650,000 to reflect the settlement. The shares were issued in August 2007
(see Notes 7, 9 and 10 to the Company’s audited consolidated financial
statements included elsewhere in this Registration Statement). In November 2007,
the Company amended the settlement agreement and issued 1,718,750 warrants to
purchase Common Stock for $0.48 per share. The warrants were issued to replace
the Common Stock included in the settlement agreement. The common
stock underlying 3,337,500 of these Warrants form part of the shares being
registered herein.
Homann
Tire LTD (“Homann”) filed a complaint against the Company’s subsidiary AFS Tire
Management, Inc. (f/k/a CarParts Technologies, Inc.) in California District
Court on August 11, 2005 regarding the Company’s obligations pursuant to a
software license agreement that it had entered into with Homann on October 18,
2002. The Company believed that complaint was “without merit” as it had received
a signed system acceptance on the software and as per standard contracts, this
removes any possibility of a refund, unfortunately, the Company was not in a
financial position to pursue this case so it was felt prudent to settle the
case. The Company started to implement the system but full installation was
never completed and Homann moved to another system 6 months later. During
depositions pursuant to this case, the Company successfully negotiated a
settlement agreement with Homann on March 29, 2007. Although the maximum sum
payable under the original contract was $271,408, the Company was able to
negotiate more favorable terms. The terms of the agreement call for a settlement
payment to Homann for $150,000 as evidenced by a note payable. The note payable
bears interest at 8% per annum. Payment of $25,000 cash was made in April 2007.
The remaining balance of $125,000 is payable in April 2009, the Company expects
to be able to pay for this from free cash flow at that time. Interest on the
note payable is payable in monthly installments of $833. The Company
reclassified the settlement liability from accrued legal expenses to $25,000 of
current portion of notes payable and $125,000 of notes payable, net of current
portion.
The
Company entered into a settlement agreement with Mr. Arthur Blumenthal, a former
shareholder of Anderson BDG, Inc. Mr. Blumenthal’s lawsuit against the Company’s
parent ADNW emanated from an agreement Mr. Blumenthal had with a subsidiary of
the Company, ASNA (f/k/a CarParts Technologies, Inc.) for the purchase of
Anderson BDG, that had not been settled although it was past due. The Company
assumed the liability as part of a plan of spinning off certain businesses into
the Company and renegotiated the agreement with Mr. Blumenthal, the terms of
which required the Company to make a payment of $50,000 cash and the issuance to
Mr. Blumenthal and registration of 300,000 shares of the Company’s common stock,
which were issued in fiscal 2007 and valued at $0.48 per share, (the closing
price of the Company’s common stock on the date of settlement) or $144,000. The
Company subsequently completely settled the lawsuit with Mr. Blumenthal and
repaid his notes in fiscal 2008.
38
On
February 17, 2010, Mr. Blumenthal commenced a civil action against the Company,
certain subsidiaries, and current and former officers and directors of the
Company. On April 16, 2010, the Company settled the litigation
with Mr. Blumenthal for $1,250,000. On April 19, 2010, the Company paid Mr.
Blumenthal $350,000. The balance of the settlement amount is payable
through November 2012 in equal monthly payments of $31,750, which includes
interest at 7%. In the event the Company defaults in payment, Mr. Blumenthal may
elect to reinstitute the original litigation.
As of
March 31, 2010, the Company has accrued $1,250,000 for the settlement of this
liability which is included in the consolidated balance sheet of the
accompanying financial statements.
The
Company is also involved in certain legal proceedings and is subject to certain
lawsuits, claims and regulations in the ordinary course of its business.
Although the ultimate effect of these matters is often difficult to predict,
management believes that their resolution will not have a material adverse
effect on the Company’s financial statements.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
Common Stock is traded on the Over-The-Counter Bulletin Board under the symbol
“MAMS.OB.” As of July 12, 2010, there were approximately _______ shareholders
and 85,204,416 shares of Common Stock issued and outstanding.
On
July [____], 2010 the bid and ask prices of our Common Stock were [$0.____]
and [$0._____] per share, respectively, as reported by the Over-the-Counter
Bulletin Board. The following table shows the range of high and low bids per
share of our Common Stock as reported by the Over-the-Counter Bulletin Board for
the fiscal year periods indicated. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission, and
may not necessarily represent actual transactions.
2008
|
||||||||
High
|
Low
|
|||||||
1st
Quarter ended September 30
|
$ | 0.47 | $ | 0.20 | ||||
2nd
Quarter ended December 31
|
$ | 0.30 | $ | 0.16 | ||||
3rd
Quarter ended March 31
|
$ | 0.45 | $ | 0.23 | ||||
4th
Quarter ended June 30
|
$ | 0.25 | $ | 0.10 |
2009
|
||||||||
High
|
Low
|
|||||||
1st
Quarter ended September 30
|
$ | 0.51 | $ | 0.10 | ||||
2nd
Quarter ended December 31
|
$ | 0.34 | $ | 0.07 | ||||
3rd
Quarter ended March 31
|
$ | 0.10 | $ | 0.03 | ||||
4th
Quarter ended June 30
|
$ | 0.11 | $ | 0.03 |
2010
|
||||||||
High
|
Low
|
|||||||
1st
Quarter ended September 30
|
$ | 0.14 | $ | 0.05 | ||||
2nd
Quarter ended December 31
|
$ | 0.11 | $ | 0.06 | ||||
3rd
Quarter ended March 31
|
$ | 0.09 | $ | 0.06 |
DIVIDENDS
We have
never declared or paid dividends on our Common Stock, and our board of directors
does not intend to declare or pay any dividends on the Common Stock in the
foreseeable future. Our earnings are expected to be retained for use in
expanding our business. The declaration and payment in the future of any cash or
stock dividends on the Common Stock will be at the discretion of the board of
directors and will depend upon a variety of factors, including our future
earnings, capital requirements, financial condition and such other factors as
our board of directors may consider to be relevant from time to time.
39
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Plan Category
|
Number of
Securities to Be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
|
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
|
|
Number of
Securities
Remaining
Available for
Future Issuance
under the Plan (2)
|
||||
(a)
|
(b)
|
(c)
|
||||||
Equity compensation plans
approved by security holders (1)
|
0
|
N/A
|
13,909,983
|
|||||
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|||||
Total
|
0
|
0
|
13,909,983
|
(1)
|
Represents
the shares authorized for issuance under the Aftersoft Group Inc. 2007
Long-Term Incentive Plan, which was approved by the Company’s shareholders
at the Annual Meeting held on June 12, 2008. The maximum aggregate number
of shares of Common Stock that may be issued under the Plan, including
Stock Options, Stock Awards, and Stock Appreciation Rights is limited to
15% of the shares of Common Stock outstanding on the first trading day of
any fiscal year, or 13,909,983 for fiscal
2009.
|
(2)
|
As
of June 30, 2009.
|
40
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Some
of the statements contained in this Form S-1, which are not purely historical,
may contain forward-looking statements, including, but not limited to,
statements regarding the Company’s objectives, expectations, hopes, beliefs,
intentions or strategies regarding the future. In some cases, you can identify
forward-looking statements by the use of the words “may,” “will,” “should,”
“expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” or “continue” or the negative of those terms or other
comparable terminology. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, our actual results could differ
materially from those disclosed in these statements due to various risk factors
and uncertainties affecting our business, including those detailed in the “Risk
Factors” section. We caution you not to place undue reliance on these
forward-looking statements. We do not intend to update any of the
forward-looking statements after the date of this report to conform them to
actual results. You should read the following discussion in conjunction with our
financial statements and related notes included elsewhere in this
report.
Critical
Accounting Policies
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis of making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We
believe the following critical accounting policies, among others, affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements:
Available-for-Sale
Investments
We
account for our investments in equity securities with readily determinable fair
values that are not accounted for under the equity method of accounting under
Accounting Standards Codification (“ASC”) 320, “Investments – Debt and Equity
Securities”, (“ASC 320”). Management determines the appropriate classification
of such securities at the time of purchase and re-evaluates such classification
as of each balance sheet date. Restricted securities are valued at the quoted
market bid price and discounted for the required holding period until the
securities can be liquidated. We classify our marketable securities as
available-for-sale under ASC 320. Marketable securities consist of equity
securities. The specific identification method is used to determine the cost
basis of securities disposed of. Available-for-sale securities with quoted
market prices are adjusted to their fair value. Any change in fair value during
the period is excluded from earnings and recorded, net of tax, as a component of
accumulated other comprehensive income (loss). Any decline in value of
available-for-sale securities below cost that is considered to be “other than
temporary” is recorded as a reduction of the cost basis of the security and is
included in the statement of operations as an impairment loss.
Allowance
for Doubtful Accounts
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. The allowance for
doubtful accounts is based on specific identification of customer accounts and
our best estimate of the likelihood of potential loss, taking into account such
factors as the financial condition and payment history of major customers. We
evaluate the collectability of our receivables at least quarterly. The allowance
for doubtful accounts is subject to estimates based on the historical actual
costs of bad debt experienced, total accounts receivable amounts, age of
accounts receivable and any knowledge of the customers’ ability or inability to
pay outstanding balances. If the financial condition of our customers were to
deteriorate, resulting in impairment of their ability to make payments,
additional allowances may be required. The differences could be material and
could significantly impact cash flows from operating activities.
Software
Development Costs
Costs
incurred to develop computer software products to be sold or otherwise marketed
are charged to expense until technological feasibility of the product has been
established. Once technological feasibility has been established, computer
software development costs (consisting primarily of internal labor costs) are
capitalized and reported at the lower of amortized cost or estimated realizable
value. Purchased software development is recorded at its estimated fair market
value. When a product is ready for general release, its capitalized costs are
amortized using the straight-line method over a period of three years. If the
future market viability of a software product is less than anticipated,
impairment of the related unamortized development costs could occur, which could
significantly impact our recorded net income/loss.
41
Goodwill
ASC 350,
“Intangibles - Goodwill and Other”, (“ASC 350”) addresses how intangible assets
that are acquired individually or with a group of other assets should be
accounted for in the financial statements upon their acquisition and after they
have been initially recognized in the financial statements. ASC 350 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. In
addition, ASC 350 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition. ASC 350 provides
specific guidance for testing goodwill and intangible assets that will not be
amortized for impairment. Goodwill will be subject to impairment reviews by
applying a fair-value-based test at the reporting unit level, which generally
represents operations one level below the segments we report. An impairment loss
will be recorded for any goodwill that is determined to be impaired. We perform
impairment testing on all existing goodwill at least annually. If the actual
fair value of the reporting unit is less than estimated, impairment of the
related goodwill could occur, which could significantly impact our recorded net
income/loss.
Long-Lived
Assets
Our
management assesses the recoverability of long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their
remaining lives can be recovered through projected undiscounted future cash
flows. The amount of long-lived asset impairment, if any, is measured based on
fair value and is charged to operations in the period in which long-lived asset
impairment is determined by management. If the actual fair value of the
long-lived assets are less than estimated, impairment of the related asset could
occur, which could significantly impact the recorded net income/loss of the
Company.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605 “Revenue Recognition”,
(“ASC 605”). Accordingly, software license revenue is recognized when persuasive
evidence of an arrangement exists, delivery of the product component has
occurred, the fee is fixed and determinable, and collectibility is probable. If
any of these criteria are not met, revenue recognition is deferred until such
time as all of the criteria are met. In accordance with ASC 605, the Company
accounts for delivered elements in accordance with the residual method when
arrangements include multiple product components or other elements and
vendor-specific objective evidence exists for the value of all undelivered
elements. Revenues on undelivered elements are recognized once delivery is
complete.
In those
instances where arrangements include significant customization, contractual
milestones, acceptance criteria or other contingencies (which represents the
majority of the Company’s arrangements), the Company accounts for the
arrangements using contract accounting, as follows:
|
1.
|
When
customer acceptance can be estimated, expenditures are capitalized as work
in process and deferred until completion of the contract at which time the
costs and revenues are recognized.
|
|
2.
|
When
customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion
of the contract when customer acceptance is
obtained.
|
The
Company records amounts billed to customers in excess of recognizable revenue as
customer advances and deferred revenue in the accompanying consolidated balance
sheets.
Revenues
for maintenance agreements, software support, on-line services and information
products are recognized ratably over the terms of the related service
agreements.
Income
Taxes
The
Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”),
“Accounting for Income Taxes.” Under the asset and liability method of ASC 740,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under ASC 740, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period the enactment occurs. Deferred taxation is provided in full
in respect of taxation deferred by timing differences between the treatment of
certain items for taxation and accounting purposes.
42
Overview
MAM
Software Group Inc. (“MAM”) is a company that operates through two wholly owned
subsidiaries based in the US (ASNA) and the UK (MAM Software), which operate
independently of one another. We market and develop business management software
solutions that manage both the business and supply chain for small and
medium-sized firms in the automotive aftermarket. The automotive aftermarket
includes those businesses that supply servicing, parts, oil, tires, and
performance extras to the retail market.
We
believe that the largest single issue facing the automotive aftermarket at this
time is the down turn of the global economy, especially the economics in which
we operate. The constraint of credit within the US and U.K. markets is forcing
automobile owners to retain their existing automobiles far longer than they may
have previously planned. This phenomenon is forcing owners to seek out more
economic ways of maintaining their vehicles, and we believe this presents an
opportunity to the Company. The need for consumers to maintain their vehicles
longer requires service suppliers to offer a wide range of services at highly
competitive prices. We believe that this can be achieved only by those
businesses that are able to efficiently manage their businesses and find methods
to reduce costs without affecting service levels, which may best be done through
investments in ‘up to date’ management information systems, specifically those
designed for the automotive market. However, we have recently noticed that some
businesses wishing to invest in new management systems are also finding their
access to credit reduced. This may have a detrimental effect on our revenues if
customers are unable to fund purchases. We still believe that the aftermarket
landscape will continue to change over the next 18 months, with the convergence
of the aftermarket and tire markets, but this rate of change maybe slower than
first expected.
Our
revenue and income is derived primarily from the sale of software, services and
support, although in the UK we also earn a percentage of our revenue and income
from the sale of hardware systems to clients. During the fiscal year ended June
30, 2009, we generated revenues of $21,119,000 with an operating loss of
$1,031,000, and during the nine months ended March 31, 2010, we generated
revenues of $18,508,000 with an operating income of $644,000. During our
2009 fiscal year and the first three quarters of fiscal 2010, 72% and 74%,
respectively, of our revenues come from the UK market. Our capital is
being used to fund the growth of our business.
Our
headquarters were formerly in Chester, U.K., and were moved to Barnsley, U.K.,
effective February 1, 2010. We maintain additional offices for our US
operating subsidiary in Dana Point, California, Allentown, Pennsylvania and, for
our U.K. operating subsidiary, in Barnsley, Northampton and Wareham in the
U.K.
The
software that we sell is mainly based on a Microsoft Windows-based technology
although we do still have an older ‘Green Screen’ terminal-based product. The
four main products that we sell in the US each relate to a specific component of
the automotive aftermarket supply chain, including warehouse distributing, the
jobber, the installing and the “open web.” We sell our Direct Step product into
the warehouse segment, which enables large warehouses with millions of parts to
locate, manage, pack and deliver the parts with ease and efficiency. We sell our
Autopart product into the jobber segment, which manages a jobber’s entire
business (i.e., financial, stock control and order management) but more
important, enables the jobber quickly to identify the parts that his client
needs, either via the internet or telephone, so that the correct product for the
vehicle on the ramp can be supplied. We sell our VAST product into the
installer, segment, which repairs and maintains automobiles. The installer needs
systems that enable it to efficiently and simply manage its businesses, whether
as a single entity or national multi-site franchise. The fourth and final
segment is the “open webs.” This technology allows these three separate business
solutions to connect to each other and/or other third party systems to allow,
among other processes, ordering, invoicing and stock checking to take place in
real-time both up and down the supply chain. The UK market differs from that of
the US in that it does not have the same number of large warehouse distribution
centers, so we do not sell the Direct Step product in the UK We continue to sell
the Autopart product to the jobber market, but sell Autowork and Autocat+ to the
installer market.
To date,
management has identified four areas that it believes we need to focus
on.
The first
area is the release of one of our U.K. products developed by MAM, our U.K.
subsidiary, under a Software as a Service (SaaS) model. This is where software
solutions are made available to end-users via the Internet and does not require
them to purchase the software directly but ‘rent’ it over a fixed period of
time. Our management believes that this will be a rapidly growing market for the
U.K. as businesses continue to look for ways of reducing capital expenditures
while maintaining levels of service. Once this has been successfully deployed in
the U.K., we will look to use a similar model in the US.
The
second area of focus is the sales and marketing strategy within the U.S. market.
To date, although increased resources have been made available for sales and
marketing, they have not brought the levels of return that management had
expected. Our management has reviewed the U.S. business’ sales processes and
marketing efforts and made what it believes are significant improvements that
will be successful over the last quarter of fiscal 2010.
43
The third
area of focus relates to the continued sales and marketing initiatives tied to
the Autopart and Autocat products within the U.S. market. A senior member of the
U.K. management team has been appointed to join the U.S. business to head the
efforts relating to this product along with a complementary DirectStep product.
To date this move has proved successful, as we have increased levels of service
and knowledge of our U.S. staff members, and management believes that this will
lead to significant revenue increases within the next six months. While
management believes that this is the correct route to follow, it is aware that
this effort and the move of personnel may affect the U.K. business following the
transfer of a key member of former U.K. management.
The
fourth area is within the U.K. market and we are continually working to
sustain the previous year’s levels of growth in the U.K. business by focusing on
additional vertical markets, which share common issues to that of the automotive
market. We have developed a reputation of high levels of service and knowledge
within the automotive market; and are now working on replicating this reputation
in these additional verticals markets. Management intends to carefully monitor
this expansion as a result of the current state of the global
economy.
Recent
Events
Effective
January 31, 2010, Ian Warwick, CEO and director, and Simon Chadwick, COO and
director, resigned from those positions with our Company. Pursuant to
the terms of the Separation Agreements we entered into on January 20, 2010 with
Messrs. Warwick and Chadwick, we agreed to pay to them an aggregate of $525,000
in termination payments, payable over six months, and additional payments of an
aggregate of $125,000 if certain events occur. In connection with
their resignations, we closed our Chester UK offices, and moved our principal
executive offices to that of our U.K.-based subsidiary, MAM Software, Ltd.,
located at Maple Park, Maple Court, Tankersley, Barnsley, UK S75
3DP.
Effective
February 1, 2010, Michael Jamieson was appointed to serve as our Interim CEO and
as a director. Mr. Jamieson was also elected to serve as a director
on our Board of Directors at our Annual Meeting of Stockholders, which was held
on April 21, 2010.
On April
16, 2010, the Company settled a litigation with Mr. Blumenthal for $1,250,000.
On April 19, 2010, the Company paid Mr. Blumenthal $350,000. The balance of the
settlement amount is payable through November 2012 in equal monthly payments of
$31,750, which includes interest at 7%. In the event the Company defaults in
payment, Mr. Blumenthal may elect to reinstitute the original
litigation. See note 6 to the interim financial statements as of
March 31, 2010.
On April
21, 2010, the Company’s stockholders approved the proposal to amend the
Company’s Certificate of Incorporation to change the Company’s name from
Aftersoft Group, Inc. to MAM Software Group, Inc.
On July
2, 2010, the Board unanimously approved a proposed exchange offer (the “Exchange
Offer”), whereby the Company would exchange outstanding warrants to purchase
shares of the Company’s common stock, which are currently exercisable at $1.00
per share and expire either on July 2, 2013 or April 24, 2014 (the “Exchange
Warrants”) for a to-be-designated series of preferred stock, $.0001 par value
(the “Series A Preferred Stock”). Each holder of Series A Preferred
Stock will have one vote per share. Each share of Series A Preferred
Stock will be convertible into one share of common stock, subject to the
approval by the Company’s stockholders of an increase in the Company’s
authorized shares of common stock. In the event that the
Company’s stockholders do not approve an increase in its authorized shares, each
Series A Preferred stockholder will be entitled to a dividend, in an amount to
be determined. As of July 12, 2010, holders of 9,528,001 Exchange
Warrants have agreed to exchange their Exchange Warrants for 1,465,846 shares of
Series A Preferred Stock. The Series A Preferred Stock will be issued
in reliance upon the exemption from registration set forth in Section 3(a)(9) of
the Securities Act of 1933, as amended (the “Securities Act”) for any security
exchanged by an issuer exclusively with its existing security holders in a
transaction where no commission or other remuneration is paid or given directly
or indirectly for soliciting such exchange.
Critical
Accounting Policies
There
were no changes to those policies disclosed in the Annual Report on Form 10-K
for the fiscal year ended June 30, 2009 except as discussed below.
Effective
July 1, 2009, we adopted the accounting standard that provides guidance for
determining whether an equity-linked financial instrument, or embedded feature,
is indexed to an entity’s own stock. The standard applies to any
freestanding financial instruments or embedded features that have the
characteristics of a derivative, and to any freestanding financial instruments
that are potentially settled in an entity’s own common stock. As a result of the
adoption, 5,083,333 of our issued and outstanding common stock purchase warrants
previously treated as equity pursuant to the derivative treatment exemption were
no longer afforded equity treatment. These warrants have an average exercise
price of $0.21 and expiration dates of December 31, 2013. In addition, amounts
related to the embedded conversion feature of convertible notes issued
previously treated as equity pursuant to the derivative treatment exemption were
also no longer afforded equity treatment. As such, effective July 1, 2009, we
reclassified the fair value of these common stock purchase warrants and recorded
the fair value of the embedded conversion features, which both have exercise
price reset features, from equity to liability status as if these warrants and
embedded conversion features were treated as a derivative liability since the
earliest date of issue in December 2007.
44
Impact
of Currency Exchange Rate
Our net
revenue derived from sales in currencies other than the U.S. dollar was 73% and
75% for the three and nine month periods ended March 31, 2010, respectively, as
compared to 75% and 76% for the corresponding periods in 2009. As the
US dollar strengthens in relation to the Great Britain Pound (“GBP”), as it has
recently done, our revenue and income, which is reported in US dollars, is
negatively impacted. Changes in the currency values occur regularly
and in some instances may have a significant effect on our results of
operations.
Income
and expenses of our MAM subsidiary are translated at the average exchange rate
for the period. During the three and nine month periods ended March 31, 2010,
the exchange rate for MAM’s operating results was US$1.6094 per GBP1, compared
with US$1.6384 per GBP1 for the three and nine periods ended March 31,
2009.
Currency
translation (loss) and gain adjustments are accumulated as a separate component
of stockholders’ equity, which totaled ($437,000) and ($458,000) for the three
months ended March 31, 2010 and 2009, respectively, and ($545,000) and
($4,101,000) for the nine months ended March 31, 2010 and 2009,
respectively.
As of
March 31, 2010, we had a backlog of unfilled orders of business management
systems of $1,837,000 compared to a backlog of $3,900,000 at March 31,
2009. We expect to recognize approximately 65% of such backlog during
the next six months.
Results
of Operations
Results
of Operations for the Twelve Months Ended June 30, 2009 Compared to the Twelve
Months Ended June 30, 2008
Our
results of continuing operations for the fiscal year ended June 30, 2009
compared with the year ended June 30, 2008 were as follows:
Revenues. Revenues decreased
$1,344,000 or 6% to $21,119,000 for the year ended June 30, 2009, compared with
$22,463,000 for the year ended June 30, 2008. Revenue was negatively
impacted by the strength of the U.S. dollar during 2009 (see
above). Revenue increased 728,000GBP from organic sales growth in
data services and support in our UK operations from 8,590,000GBP during the year
ended June 30, 2008 to 9,318,000GBP during the year ended June 30,
2009.
The
stronger US dollar resulted in dollar denominated revenue of $15,048,000 during
2009 as compared to $17,132,000 during 2008, which is a decrease of
$2,084,000. US revenue increased $740,000 to $6,071,000 in 2009 from
$5,331,000 in 2008 because of increased sales of software. We believe
that the increase in revenues, coupled with extensive cost-reduction
initiatives, will enable us to sustain ongoing operations through the course of
the next twelve months.
Cost of Revenues. Total cost
of revenues decreased $933,000 or 9% to $9,496,000 for the year ended June 30,
2009, compared with $10,429,000 for the same period of June 30, 2008. Cost of
revenues as a percentage of revenues decreased slightly from 46% for the year
ended June 30, 2008 to 45% for the year ended June 30, 2009. The reduction in
cost of revenues was the result of a stronger US dollar in 2009. MAM
Software Ltd.’s expenses were 158,000GBP higher for 2009, or increased to
4,114,000GBP from 3,956,000GBP for 2008, but the stronger dollar produced a
decrease in reported expenses of $1,280,000. US expenses increased
$347,000 to $2,847,000 from $2,500,000 in 2008, which was in line with the
increased US revenues. As a result of ongoing cost-cutting initiatives, we have
been able to minimize any increase in the cost of sales after a thorough review
of operations throughout the Company, but focused primarily on the US
operations, which revealed discretionary items that were capable of being
reduced or eliminated without sacrificing revenue. Included in such items were
the elimination or reduction of cost and expenses such as travel for sales
personnel that was not directly related to new business development or closing a
sale; reduction of non-performing sales staff from the US payroll; and
outsourcing of software development work where feasible.
Operating Expenses. The
following tables set forth, for the periods indicated, our operating expenses
and the variance thereof:
For the Twelve Months Ended
June 30,
|
||||||||||||||||
2009
|
2008
|
$ Variance
|
% Variance
|
|||||||||||||
Research
and development
|
$ | 2,860,000 | $ | 3,176,000 | $ | (316,000 | ) | (10.0 | )% | |||||||
Sales
and marketing
|
2,211,000 | 2,467,000 | (256,000 | ) | (10.4 | )% | ||||||||||
General
and administrative
|
5,651,000 | 8,438,000 | (2,787,000 | ) | (33.0 | ) % | ||||||||||
Depreciation
and amortization
|
1,082,000 | 1,287,000 | (205,000 | ) | (15.9 | )% | ||||||||||
Impairment
of Goodwill
|
850,000 | 8,170,000 | (7,320,000 | ) | (89.6 | )% | ||||||||||
Total
Operating Expenses
|
$ | 12,654,000 | $ | 23,538,000 | $ | (10,884,000 | ) | (46.2 | )% |
45
Operating
expenses decreased by $10,884,000 or 46.2% for the twelve months ended June 30,
2009 compared with the year ended June 30, 2008. This is due to the
following:
Research and Development
Expenses. Research and Development expenses decreased by $316,000 or
10.0% for the year ended June 30, 2009, when compared with the previous fiscal
year. This decrease was due to reductions in expenses and staff aggregating
$295,000 in the US business. The UK business experienced an increase in
expenditures of 148,000GBP to 820,000GBP in line with the increased revenue,
however with the stronger US dollar the conversion resulted in $21,000 decrease
in expenditures.
Sales and Marketing Expenses.
Sales and Marketing expenses decreased by $256,000 or 10.4% for the year ended
June 30, 2009 compared with the year ended June 30, 2008. The US business
experienced a net decrease in expenses of $78,000 from a reduction in sales
personnel which more than offset additional costs associated with increased
attendance at industry shows compared to the previous year. The UK operation
experienced an increase in local currency expenses, but the stronger dollar
resulted in a lower reported expenses of $178,000.
General and Administrative
Expenses. General and Administrative expenses decreased by $2,787,000 or
33.0% to $5,651,000 for the year ended June 30, 2009 as compared to $8,438,000
for the same period in 2008. The decreased expenses were
the result of the absence of one time expenditures incurred in 2008 including an
$800,000 write
down of receivables from our former parent company, ADNW, $300,000 of
ADNW liabilities, $544,000 of costs incurred within the US and UK operating
companies, $150,000 for financial consulting, and $166,000 of liabilities
payable upon completion of the ComVest financing.
For the
year ended June 30, 2009, legal expenses were $243,000 lower than those in 2008,
because prior legal matters were resolved and the registration statements filed
in prior years were declared effective by the SEC without significant
expenditures necessary in 2009. Additionally, we terminated our
public relations firm in 2009, and as a result, such expenses were reduced by
$120,000.
In an
effort to conserve cash, we have and continue to reduce costs within our US
operations and have implemented reporting systems and controls to better manage
the US business. Should our cost-cutting efforts not be successful or in the
event that our revenue decreases in the future, we may need to seek additional
debt or equity financing. Any inability to obtain additional financing, if
required, or an inability to obtain additional financing on favorable terms,
would have a material adverse effect on our ability to implement our business
plan.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses decreased by $205,000
for the year ended June 30, 2009 as compared with the same period in
2008. This decrease is almost entirely due to the UK operation
having fully amortized capital development projects when compared to
the previous fiscal year. The reduction was partially
offset by increased depreciation and amortization expense in the US of
$74,000. The current year incurred a full twelve months of lease hold
improvement amortization, as compared to only five months during the prior
year.
Goodwill
Impairment. Following operating losses at ASNA during fiscal
periods 2009 and 2008 and after an analysis of goodwill at ASNA, management
recognized an impairment of $850,000 in 2009 and $8,170,000 in 2008 that is not
expected to recur as the Company executes on its growth plans.
Interest Expense. Interest
expense increased by $728,000 to $1,602,000 for the year ended June 30, 2009.
This increase in interest expense is related to our interest associated with our
loan from ComVest Capital LLC, which was outstanding for the full year in 2009
and for only six months during 2008. We accrued interest under
the ComVest loan of $675,000. The remaining ComVest interest of $699,000 was
accounted for in amortization of debt discount and debt issuance costs, which
are included in interest expense.
Other Income (Expenses). Other
income for the year ended June 30, 2009 included a write down of $4,732,000 in
Available–for –Sale Securities, which did not occur in
2008, a $98,000 gain from the write-off of old liabilities net of the
write-off of obsolete assets as compared to $57,000 in 2008. The year
ended June 30, 2008 also benefitted from the reduction in litigation settlements
of $76,000 and the one-time gain on sale of non-marketable securities of
$1,312,000 which did not occur in the twelve months ended June 30,
2009.
Income Taxes. Income taxes
decreased $487,000 to $386,000 for the year ended June 30, 2009 as compared
to $873,000 for the year ended June 30, 2008. This decrease was due to a
reduction in the effective tax rate.
46
Loss From Continuing
Operations. As a result of the above, we realized a net loss of
$7,623,000 for the year ended June 30, 2009, compared with a net loss of
$11,806,000 for the for the year ended June 30, 2008.
Discontinued
Operations. There was no income from discontinued operations for the
year ended June 30, 2009. Income from discontinued operations was
$13,000 for the year ended June 30, 2008 and the loss on the sale of
discontinued operations was $26,000 for the year ended June 30,
2008.
Net Income (Loss). We realized
a net loss of $7,623,000 for the year ended June 30, 2009 compared with a net
loss of $11,819,000 for the year ended June 30, 2008.
Results
of Operations for the Three Months and Nine Months Ended March 31, 2010 Compared
with the Three Months and Nine Months Ended March 31, 2009
Revenues. Revenues were
$5,550,000 and $18,508,000 for the three and nine months ended March 31, 2010,
respectively, an increase of 10.4% and 16.6%, respectively, compared with
revenues of $5,027,000 and $15,877,000 for the three and nine months ended March
31, 2009, respectively. U.S. operations increased revenue by
$330,000 and the U.K. operation increased revenue by $2,288,000 for the nine
month periods. Our U.S. operation experienced higher revenues for the
three and nine month periods ended March 31, 2010 than it did during the 2009
periods due to increased maintenance revenue and increased software
revenue. U.K. revenues were positively impacted by increased
systems sales to a large customer. The strength of the U.S. dollar
vs. the British Pound had a negative effect on reported revenue for our U.K.
operations compared to the prior periods.
Cost of Revenues. Total cost
of revenues for the three months and nine months ended March 31, 2010, were
$2,492,000 and $7,926,000, respectively, compared with $2,125,000 and $7,115,000
for the same periods of March 31, 2009, respectively. The increase in
cost of sales was 17.3% and 11.4%, respectively, for the three month and nine
month periods. This increase was less than the increase in revenue
because of higher margin system sales during the three and nine month periods
ended March 31, 2010.
Operating Expenses. The
following tables set forth, for the periods indicated, our operating expenses
and the variance thereof:
|
|
For the Three Months
|
|
|
|
|
|
|||||||||
(In thousands)
|
|
Ended March 31,
|
|
|
|
|
|
|||||||||
|
|
2010
|
|
|
2009
|
|
|
Variance $
|
|
|
Variance %
|
|
||||
Research
and development
|
$
|
754,000
|
$
|
721,000
|
$
|
33,000
|
4.6
|
%
|
||||||||
Sales
and marketing
|
493,000
|
550,000
|
(57,000
|
)
|
-10.4
|
%
|
||||||||||
General
and administrative
|
1,746
,000
|
1,134,000
|
612,000
|
54.0
|
%
|
|||||||||||
Depreciation
and amortization
|
276,000
|
253,000
|
23,000
|
9.1
|
%
|
|||||||||||
Total
Operating Expenses
|
$
|
3,269,000
|
$
|
2,658,000
|
$
|
611,000
|
23.0
|
%
|
(In thousands)
|
|
For the Nine Months
Ended March 31,
|
|
|
|
|
|
|||||||||
|
|
2010
|
|
|
2009
|
|
|
Variance $
|
|
|
Variance %
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Research
and development
|
$
|
2,361,000
|
$
|
2,215,000
|
$
|
146,000
|
6.6
|
%
|
||||||||
Sales
and marketing
|
1,757,000
|
1,710,000
|
47,000
|
2.7
|
%
|
|||||||||||
General
and administrative
|
4,973,000
|
4,117,000
|
856,000
|
20.8
|
%
|
|||||||||||
Depreciation
and amortization
|
847,000
|
781,000
|
66,000
|
8.5
|
%
|
|||||||||||
Total
Operating Expenses
|
$
|
9,938,000
|
$
|
8,823,000
|
$
|
1,115,000
|
12.6
|
%
|
47
Research and Development Expenses.
Research and Development expenses increased by $33,000 for
the three month period ended March 31, 2010 and increased by $146,000 for the
nine month period ended March 31, 2010 compared to the same periods in the prior
fiscal year, or increased by 4.6% and 6.6%, respectively. The increase for the
three and nine month periods ended March 31, 2010 is primarily a result of an
increase in the number of personnel working on development projects during the
quarter ended March 31, 2010.
Sales and Marketing Expenses.
Sales and Marketing expenses decreased by $57,000 or 10.4% during the
three months ended March 31, 2010 as compared with the same period in 2009, and
increased by $47,000 or 2.7% for the nine months ended March 31, 2010 compared
with the nine months ended March 31, 2009. The decrease for the three month
period was the result of reductions in advertising, travel and entertainment
expenses. The increase for the nine months ended March 31, 2010 was
the result of increased incentive compensation of $85,000 in the
UK business, which was partially offset by reductions in expenses for
the US operations.
General and Administrative Expenses.
General and Administrative expenses increased by $612,000 or 54.0% for
the three months ended March 31, 2010 as compared to the same period in 2009,
and increased $856,000 or 20.8% for the nine months ended March 31, 2010 as
compared with the same period in 2009. The increase for the three
month period was the result of increased legal fees of $271,000 for the defense
of the Blumenthal litigation, $300,000 for the settlement of that
litigation and an increase in marketing consulting expenses of
$73,000. The increase for the nine month period was the result
of an increase of $154,000 in legal fees, $533,000 for the settlement of
litigation and $650,000 in termination expenses. These
increased expenses were partially offset by reduced expenditures in most other
areas of administrative expenses.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
increased $23,000, or 9.1%, and increased $66,000, or 8.5%, for the
three and nine month periods ended March 31, 2010, respectively, as
compared to the same periods in 2009, which is primarily due to increased
capital expenditures at our U.K. businesses.
Interest Expense. Interest
expense decreased by $99,000 or 24.0% to $314,000 for the three months ended
March 31, 2010, as compared to the three months ended March 31, 2009, and
decreased $169,000 or 13.9% to $1,044,000 for the nine months ended March 31,
2010 as compared to the nine months ended March 31, 2009. The
decrease in interest expense is related to a reduction in our total interest
bearing liabilities and a reduction in amortization of debt discount and
debt issuance costs, which are included in interest expense. For the
three months ended March 31, 2010 we paid or incurred $176,000 in interest
expense to ComVest. For the nine months ended March 31, 2010, we
paid or incurred $514,000 in interest expense.
Other Income.
(Expense) During the three and nine month periods ended March 31,
2010, the Company had a loss from the change in fair value of derivative
liabilities of ($62,000) and $253,000, respectively. Other income includes
$50,000 from the net settlement of an outstanding liability for the nine month
period. The three and nine month periods ended March 31, 2010
did not have any write down of available-for-sale securities. The nine month
periods ended March 31, 2009 includes a write down of $3,957,000
available-for-sale securities because of an other-than-temporary decline in the
market value of the securities.
Net Loss. As a result of the
above, we recorded a net loss of $719,000 for the three month period ended March
31, 2010, compared with a net loss of $315,000 for the three month period ended
March 31, 2009, and realized a net loss of $876,000 for the nine months ended
March 31, 2010, compared with a net loss of $5,664,000 for the nine months ended
March 31, 2009.
LIQUIDITY
AND CAPITAL RESOURCES
To date,
most of our profits have been generated in Europe, but with the introduction of
new products and efforts to streamline U.S. operations, we expect to see an
increase in overall revenues with a contribution from U.S. operations in fiscal
2010.
At March
31, 2010, we had cash and cash equivalents of $1,457,000, a decrease of $206,000
from June 30, 2009. During the period ended March 31, 2010, we had
$138,000 of capital expenditures and made payments of $719,000 on
debt. The payments on the ComVest loan of $208,000 per month
commenced in February 2010. Our total debt payments were $499,000 and $730,000
for the three and nine months ending March 31, 2010, respectively. We
expect to make our upcoming monthly payments on this debt and the other
outstanding obligations from operating cash flow. However, we do not
expect to be able to make the $3,125,000 balloon payment due in November 2010 on
the Term Loan or to pay off the $1,000,000 Revolver due at the same time from
internally generated cash flow. To that end, we are engaged in
several different efforts to effect the pay-off of the ComVest loan at
maturity. As an initial matter, we are engaged in an effort to effect a
refinancing of the existing ComVest loan with a new financial institution or
investor that will replace the ComVest loan with debt, equity, or some
combination thereof. In addition to seeking alternative debt financing, we
are pursuing a variety of other efforts to raise the necessary capital in order
to defease the ComVest loan. As one of the elements of our efforts to
defease the ComVest loan at maturity, we intend to use the proceeds from this
offering to make necessary payments on the ComVest loan. We cannot
assure you that such funding will be available on acceptable terms, in a timely
fashion or even available at all. In the event that we are unable to
raise all or a portion of the maximum proceeds from this rights offering, we
will continue to seek additional financing, which may consist of equity or debt
financing. In the event that we are unable to raise funds to satisfy
our capital needs on a timely basis, we may be required to cease
operations.
48
We expect
to see continued growth from both the US and UK operations, with strong growth
in revenues and operating income from the US operation. We have identified a
number of opportunities to widen our client base within the automotive industry
and are actively pursuing those at this time. We also expect to see increases in
revenue over the next quarter, specifically due to additional products that have
been developed by the US operation which are currently being released to
customers, and the reintroduction of our Autopart line of products in the US
market.
We intend
to continue to work at maximizing customer retention by supplying and developing
products that streamline and simplify customer operations, thereby increasing
their profit margin. By supporting our customers’ recurring revenues, we expect
to continue to build our own revenue stream. We believe that we can continue to
grow our customer base through additional sales personnel, targeted media and
marketing campaigns and products that completely fit clients’ requirements. We
also intend to service existing clients to higher levels and increasingly
partner with them so that together we’ll both achieve our goals.
Revenues
in the UK are continuing to generate positive cash flow and more than offset the
loss in the US operations, corporate expenses before one-time charges for
litigation and settlement expenses and interest payments aggregating
approximately $2,207,000. Excluding the one-time cash requirements,
the results would have been in a positive cash flow for the
quarter Our current plans still require us to hire additional sales
and marketing staff, to expand within the U.S. market, to target new vertical
markets effectively in the U.K. and to support expanded operations overall.
We
believe our plan will strengthen our relationships with our existing customers
and provide new income streams by targeting new vertical markets for our
AutoPart product.
The
accompanying condensed consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. We had an
accumulated deficit of $23.7 million and a working capital deficit of $7.7
million at March 31, 2010. These factors, along with the amounts due on the Term
Loan in November 2010 as discussed above, raise substantial doubt about our
ability to continue as a going concern.
Our
continuation as a going concern is dependent on our ability to obtain additional
financing. The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURES
None.
49
Our
executive officers, directors and other significant employees and their ages and
positions are as follows:
Name
|
Age
|
Position
|
||
Michael
Jamieson
|
43
|
Interim
Chief Executive Officer and Director
|
||
Charles
F. Trapp
|
60
|
Chief
Financial Officer of the Company
|
||
Dwight
B. Mamanteo
|
40
|
Director
|
||
Marcus
Wohlrab
|
47
|
Director
|
||
Frederick
Wasserman
|
55
|
Director
|
||
Gerald
M. Czarnecki
|
69
|
Chairman
of the Board of Directors of the Company
|
||
W.
Austin Lewis IV
|
34
|
Director
|
Michael Jamieson was appointed
to the Board and to the position of interim Chief Executive Officer in February
2010. Mr. Jamieson previously served as Chief Operating Officer and a
director of the Company from December 2005 to March 2007. Mr.
Jamieson has served as Managing Director of MAM's subsidiary, MAM Software Ltd.
(“MAM”), since 2004. Mr. Jamieson joined MAM in 1991 in its
installation and configuration department and has held a number of positions
within MAM's implementation and support departments until his appointment as
Department Manager for Workshop and Bodyshop Systems in 1995. Mr. Jamieson was
promoted to the position of Associate Director of Workshop and Bodyshop Systems
in 2002 before taking his current role as Managing Director of MAM in 2004.
Charles F. Trapp was appointed
Vice President of Finance and Chief Financial Officer on November 30, 2007,
following the resignation of the company’s former CFO, Michael O’Driscoll. Mr.
Trapp was the co-founder and President of Somerset Kensington Capital Co., a
Bridgewater, New Jersey-based investment firm that provided capital and
expertise to help public companies restructure and reorganize from 1997 until
November 2007. Earlier in his career, he served as CFO and/or a board member for
a number of public companies, including AW Computer Systems, Vertex Electronics
Corp., Worldwide Computer Services and Keystone Cement Co. His responsibilities
have included accounting and financial controls, federal regulatory filings,
investor relations, mergers and acquisitions, loan and labor negotiations, and
litigation management. Mr. Trapp is a Certified Public Accountant and received
his Bachelor of Science degree in Accounting from St. Peter’s College in Jersey
City, New Jersey.
Dwight B. Mamanteo became a
Director of the Company on March 1, 2007. Mr. Mamanteo serves as the Chairman of
the Company’s Compensation Committee and as a member of the Company’s Audit
Committee and as a member of the Company’s Governance Nomination Committee. From
November 2004 to the present, he has served as an investment analyst and
portfolio manager at Wynnefield Capital Inc., a private investment firm
headquartered in New York City. From September 1999 to June 2004, he served as
manager of Global Alliances Technical Services for BEA Systems in the US and
France. He has also provided technical consulting services to Delta
Technologies, VISA International, Liberty Mutual, Ameritec Communications and
Ericcson Communications. Mr. Mamanteo also serves on the Board of Directors of
PetWatch Animal Hospitals, Inc and served on the Board of Directors of Sevis
Sherpa Corporation, where he chaired the Compensation Committee. He received his
MBA from the Columbia University Graduate School of Business and his Bachelor of
Electrical Engineering from Concordia University (Montreal).
Marcus Wohlrab became a
Director of the Company on March 1, 2007. Mr. Wohlrab is the Chairman of the
Governance and Nomination Committee and is a member of the Audit Committee and
the Compensation Committee. In April 2001, Mr. Wohlrab founded Easting Capital
Limited, a company that serves as a placing agent for credit and interest rate
securities as well as negotiating public finance deals for large infrastructure
projects as well as private companies. Easting Capital has recently been re
launched beginning 2008 with new shareholders and is now known as M2group AG
registered in Switzerland. From October 2000 to April 2001, Mr. Wohlrab was
Executive Vice President Market Development for Easdaq, the pan-European Stock
Market for growth companies (later acquired by NASDAQ). From January 1998 to
September 2000, he served as Director Europe and Middle East for NASDAQ
International. He also founded, built and helped finance WinWatch/WinVista, a
software programming entity focused on Internet and Windows security products.
He was also Director of Corporate Finance for Modatech Systems, Assistant
Director for the Union Bank of Switzerland, Vice President of Sales and
Marketing for Paine Webber International, and Vice President for Wood
Gundy/CIBC/Oppenheimer. Mr. Wohlrab received a Bachelor of Science degree in
Mathematics and Geology from Devon University and is fluent in Italian, French,
German and English.
50
Frederick Wasserman became a
Director of the Company on July 17, 2007. Mr. Wasserman is the Chairman of the
Audit Committee and is a member of the Governance and Nomination Committee. Mr.
Wasserman is President of FGW Partners, LLC, a financial management consulting
firm he started, effective as of May 1, 2008. From August 2005 to December 2006,
he served as Chief Operating and Chief Financial Officer of Mitchell & Ness
Nostalgia Company, a manufacturer of licensed sportswear. From January 2001 to
February 2005, he served as President and Chief Financial Officer of Goebel of
North America, a subsidiary of the manufacturer of M.I. Hummel products, W.
Goebel Porzellanfabrik Company. From December 1995 to January 2001 he served as
Vice-President of Finance and Chief Financial Officer of Papel Giftware, serving
as the company’s interim president from May 2000 to January 2001. He also brings
13 years of public accounting experience, most notably work with each of Coopers
& Lybrand and Eisner & Company. He received a Bachelor of Science degree
in Economics from the University of Pennsylvania’s Wharton School, and has been
a Certified Public Accountant. Mr. Wasserman also serves as a Director for the
following companies: Acme Communications, Inc. (chairman- Nominating Committee,
member- Audit Committee), Breeze-Eastern Corporation (Chairman- Audit
Committee), Allied Defense Group (Member-Audit Committee, Ethics and Governance
Committee), TeamStaff, Inc., (Chairman of the Board of Directors) and (Chairman-
Audit Committee), Crown Crafts, Inc. and Gilman + Ciocia, Inc. (Chairman-
Compensation Committee, Member- Audit Committee).
Gerald Czarnecki became a
Director of the Company on August 13, 2008. Mr. Czarnecki is the Chairman and
CEO of The Deltennium Group, Inc., a privately held consulting and direct
investment firm, since its founding in 1995. Since August 2007, Mr. Czarnecki
has served as President and CEO of 02Media, Inc., a private organization
providing direct response marketing campaign management and infomercial
production, educational and branded entertainment TV programming and Internet
marketing campaign management. From April 1, 2007 to January 15, 2008, Mr.
Czarnecki served as interim President & CEO of Junior Achievement Worldwide,
Inc., where he also serves on the board of directors, and as member of the
Executive Committee, and Chairman of its Human Resources, Compensation and
Pension Committees. Mr. Czarnecki is a member of the Board of Directors of State
Farm Insurance Company and is Chairman of the Audit Committee; a member of the
Board of Directors of Del Global Technology, Inc. since June 2003, and Chairman
of the Audit Committee; and a member of the Board of Directors of State Farm
Bank and State Farm Fire & Casualty. He is also a member of the advisory
board for Private Capital, Inc. and serves as Chairman of the Board of Trustees
of National University. In addition he is Chairman of the Board of National
Leadership Institute, a nonprofit organization dedication to facilitating
quality leadership and governance in nonprofit organizations; Chairman of the
National Association of Corporate Directors - Florida Chapter, and faculty
member; and member of the Board of Directors of Junior Achievement of South
Florida, Inc. Mr. Czarnecki holds a B.S. in Economics from Temple University,
and M.A. in Economics from Michigan State University, a Doctor of Humane Letters
from National University and is a Certified Public Accountant. Mr. Czarnecki
serves as our lead director.
W. Austin Lewis was appointed
to the Board on January 27, 2009. He currently serves as the Chief
Executive Officer of Lewis Asset Management Corp., an investment management
company headquartered in New York City which he founded in 2004. From
2003 to 2004, Mr. Lewis was employed at Puglisi & Company, a New York based
broker-dealer registered with FINRA, where he served as a registered
representative and managed individual client accounts, conducted due diligence
for investment banking activities and managed his own personal
account. In 2002, Mr. Lewis co-founded Thompson Davis, & Company,
Inc., a registered broker-dealer headquartered in Richmond, Virginia. From 1998
to 2002, Mr. Lewis was employed by Branch Cabell and Company, Inc. in Richmond,
Virginia (“Branch Cabell”) where he was a registered representative. Following
the November 2000 acquisition of Branch Cabell by Tucker Anthony Incorporated
(“Tucker Anthony”), Mr. Lewis served as a Vice-President for Tucker Anthony and
subsequently RBC Dain Rauscher, Inc. which acquired Tucker Anthony in August of
2001. Mr. Lewis received his Bachelor of Science degree in Finance
and Financial Economics from James Madison University in 1998.
Board
Committees
The
Company’s Board of Directors has three standing committees of the Board: a
Compensation Committee, an Audit Committee and Governance and Nomination
Committee. The directors named above serve on the following Board
committees:
Compensation Committee:
|
Audit Committee
|
Governance and
Nomination Committee
|
||
Dwight
B. Mamanteo – Chair
|
Dwight
B. Mamanteo
|
Dwight
B. Mamanteo
|
||
Marcus
Wohlrab
|
Marcus
Wohlrab
|
Marcus
Wohlrab – Chair
|
||
-
|
Frederick
Wasserman** – Chair
|
Frederick
Wasserman
|
||
Gerald
M. Czarnecki -ex officio member
|
Gerald
M. Czarnecki -ex officio member
|
Gerald
M. Czarnecki -ex officio member
|
||
W.
Austin Lewis IV
|
W.
Austin Lewis IV
|
W.
Austin Lewis IV
|
**
|
The
Board of Directors has determined that Frederick Wasserman is a financial
expert as defined in Regulation S-K promulgated under the Securities
Act.
|
51
Section
16(a) Beneficial Ownership Reporting Compliance
Under the
securities laws of the United States, our directors, executive (and certain
other) officers, and any persons holding ten percent or more of our Common Stock
must report on their ownership of the Common Stock and any changes in that
ownership to the Securities and Exchange Commission. Specific due dates for
these reports have been established. During the fiscal year ended June 30, 2009,
we believe that all reports required to be filed by such persons pursuant to
Section 16(a) were filed on a timely basis.
Code
of Ethics
The
Company has adopted a code of ethics that applies to our CEO and CFO, principal
accounting officer, controller, and persons performing similar functions, a copy
of which is filed as Exhibit 14 to the Company’s annual report on Form 10-KSB
for the fiscal year ended June 30, 2007.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
The
Compensation Committee (the “Compensation Committee” or the “Committee”) of the
Board administers our executive compensation program. Each member of the
Committee is a non-employee and an independent director. The Compensation
Committee is responsible for establishing salaries, administering our incentive
programs, and determining the total compensation for our Chief Executive Officer
and other executive officers. The Compensation Committees seeks to achieve the
following goals with our executive compensation programs: to attract, motivate,
and retain key executives and to reward executives for value creation. The
Compensation Committee seeks to foster a performance-oriented environment by
tying a significant portion of each executive’s cash and equity compensation to
the achievement of performance targets that are important to the Company and its
stockholders. Our executive compensation program has three principal elements:
base salary, cash bonuses, and equity incentives under a recently established
2007 Long-Term Stock Incentive Plan (the “LTIP”).
Unless
otherwise noted, this Compensation Discussion and Analysis speaks as of the end
of the fiscal year ended June 30, 2009.
Compensation
Principles
We
believe the top growing companies design their compensation program to attract,
motivate, and retain highly talented individuals to drive business success. We
further believe that the ideal programs tend to be principle-based rather than
rules-based with such best practices compensation programs providing for the
opportunity for executives and other key employees to achieve significant
compensation upon the realization of objectives that clearly benefit a company
and its shareholders. The Committee believes that best-practices plan will
reflect the following principles:
(1) Compensation
should be related to performance
A proper
compensation program should reinforce our Company’s business and financial
objectives. Employee compensation will vary based on Company versus individual
performance. When the Company performs well against the objectives that the
Compensation Committee and Board will set, employees will receive greater
incentive compensation. To the extent the business does not achieve or meet
these objectives, incentive awards will be reduced or eliminated. An employee’s
individual compensation will also vary based on his or her performance,
contribution, and overall value to the business. Employees with sustained high
performance should be rewarded more than those in similar positions with lesser
performance.
(2) Our
employees should think like stockholders
The
second critical principle of our compensation programs should be to foster an
environment where our employees should act in the interests of the Company’s
stockholders. We believe that the best way to encourage them to do that is
through an equity interest in their company. Equity interest in a company
can be achieved in several respects: the establishment of equity incentive plans
that provide for the granting of equity-based awards, such as stock options
and/or restricted stock or performance share units to employees. This requires
the establishment of an omnibus long-term stock-based incentive plan, which LTIP
was approved and adopted by our Board and shareholders. While this plan also
provides for traditional stock options, we believe that options should not
form the dominant focus of a proper incentive plan and that performance
share units or performance vesting restricted stock grants represent a preferred
form of equity incentive. The philosophy behind such a structure is that as
employees earn more stock (as opposed to options) they will think more like
stockholders. Put another way, when all employees become owners, they think and
behave like owners.
52
(3) Incentive
compensation should be a greater part of total compensation for more senior
positions
The
proportion of an individual’s total compensation that varies with individual and
Company performance objectives should increase as the individual’s business
responsibilities increase. Thus, cash bonuses and LTIP-based compensation should
form the overwhelmingly dominant portion of overall compensation for the
Company’s senior employees and the milestones for payouts on those plans for our
senior employees are based entirely on corporate results.
Compensation
Targets
Our
Compensation Committee with the input of the officers of the Company has
established competitive targets for our executive officers that we believe
reflect the challenges of our business and create an equity-focused culture
throughout the entire Company.
We
believe that in allocating compensation among these elements, the compensation
of a company’s senior-most levels of management - those persons having the
greatest ability to influence a company’s performance - should be predominantly
performance-based, while more junior employees should receive a greater portion
of their compensation based on their base salary.
These
targets are described below under “Employment Agreements.”
Base
Salary and Cash Incentive
We divide
total cash compensation into a base salary portion and a cash incentive bonus
portion. The Compensation Committee establishes the Chief Executive Officer’s
targeted cash compensation first and then sets the cash compensation for other
officers accordingly, based on the function served by that officer, that
officer’s experience, and expected individual performance. Generally, we believe
that the higher the level of responsibility of the executive within our Company,
the greater the portion of that executive’s target total cash compensation that
consists of the cash incentive component. The higher the executive’s level of
responsibility within the Company, the greater the percentage of the executive’s
compensation that should be tied to the Company’s performance.
Equity
Incentive
Long-term
performance is achieved through an ownership culture that encourages such
performance by our executive officers through the use of stock and stock-based
awards. The Committee believes that the use of stock and stock-based awards
offers the best approach to properly achieving our goals. We believe that
stock-based compensation provide the principal method for executive officers to
acquire equity or equity-linked interests in the Company. We have implemented
the LTIP which we will utilize for such a purpose, which has received
shareholder approval.
Rationale
for Paying each Element
Base
compensation and participation in benefit plans are established to provide
employees with appropriate industry competitive terms. Director retainers are
paid partially to compensate directors for their considerable time investment
and to assist directors in covering their indirect operating expenses as
independent contractors. Annual incentive cash bonuses are paid to reward
employees for performance and stockholder value enhancement in the current year,
based upon targets set by the Board for the CEO and his direct reports, with the
CEO establishing the individual targets for all other employees.
LTIP
awards are designed to reward the building of long-term stockholder value, while
providing modest, interim rewards in the pursuit of such longer-term
objectives.
Determination
of Amounts to Pay
Base
salaries, benefits and potential cash bonuses are established based upon current
market conditions. Where needed, outside consultants may be retained to assist
in this process. Benefit plan structures may be evaluated periodically to
determine market competitiveness with similar companies.
Stock-based
awards to be granted are evaluated based upon projected total compensation
levels for participants assuming certain objectives are achieved. Since the
majority of the total potential compensation is based upon performance, our
expectation is that the total projected compensation level be well above
average, because the “at risk” compensation levels generally exceed 2/3 of
anticipated compensation under the assumption that bonus targets are met. The
Committee, taking into consideration management’s recommendations and with
sign-off from all independent directors, will set each year’s goals and
milestones, their weightings, and the formulas for award calculation. For
accounting purposes, cash elements are expensed as earned. LTIP awards are
expensed as provided for under ASC 718, and are further described in the
footnotes to the audited financial statements included in this Annual Report on
Form 10-K.
53
How
the Elements Interact
While
each element is set with certain needs in mind, the Committee also looks at the
total compensation package for each individual to determine that the total
payout is appropriate to the level of responsibility attributable to each
participant. The total compensation package will also include any bonus amounts
and awards to be based on performance targets, when such targets are ultimately
set by the Committee.
Chief
Executive Officer Compensation
The
Compensation Committee uses the same factors in determining the compensation of
our CEO as it does for other senior officers. Mr. Warwick’s annual
base salary for fiscal 2009 was $300,000, pursuant to the terms of his
employment agreement which was entered into effective as of December 1, 2008 and
is described further below under “Employment Agreements.” The terms
of the Mr. Warwick’s employment agreement, a United Kingdom resident, also
entitle Mr. Warwick to a make-whole payment that will restore him to the British
Pound Sterling equivalent that existed on the effective date of the agreement in
the event that the value of the U.S. Dollar relative to the British Pound
Sterling increases such that his base salary is reduced, as a result of such
currency translation, by 10% or more.
Historically,
Mr. Warwick’s salary was set pursuant to his employment agreement that was
entered into with our former parent, ADNW. Following our spinoff from
ADNW, we entered into the employment agreement described below, and used a peer
group for comparison purposes for evaluation of his salary. The peer group was
determined by our independent directors. Our independent directors surveyed
companies whose revenue base and organizational size were consistent with ours
as well as several companies within our industry, which we defined as business
and supply chain management software solutions. The peer group was thus created
from a group of companies that were both similar in size as well as companies
within our industry segment. Finally, we compared the peer group to compensation
for similar companies that were in the midst of a turnaround.
Mr.
Warwick resigned from the Company effective January 31,
2010. Pursuant to the terms of the Separation Agreement entered into
on January 20, 2010 with Mr. Warwick, the Company agreed to pay $300,000 in
termination payments, payable over six months, and additional payments of
$75,000 if certain events occur.
Employment
Agreements
Effective
as of December 1, 2008 (the “Effective Date”), upon the approval of our Board of
Directors, we entered into employment agreements with each of Ian Warwick, our
President and Chief Executive Officer, Charles F. Trapp, our Executive Vice
President and Chief Financial Officer, and Simon Chadwick, our Executive Vice
President and Chief Operating Officer.
The
Company is currently negotiating an employment agreement with the Company’s
interim Chief Executive Officer, Michael Jamieson.
Ian
Warwick Employment Agreement
The
Employment Agreement with Mr. Warwick (the “Warwick Agreement”) is for an
initial term of two and one-half years from the Effective Date, and is
automatically renewable for successive one-year periods unless terminated by Mr.
Warwick or us. Mr. Warwick will receive an annual base salary of $300,000,
payable in U.S. dollars. The annual salary is increased to $350,000 upon our
achievement of a market capitalization goal of $50 million for at least 25
consecutive trading days. The terms of the Warwick Agreement also entitles Mr.
Warwick, a United Kingdom resident, to a make-whole payment that will
restore him to the British Pound Sterling equivalent that existed on the
Effective Date in the event that the value of the U.S. Dollar relative to the
British Pound Sterling increases such that his base salary is reduced, as a
result of such currency translation, by 10% or more (the “Make-Whole
Payment”).
The
Warwick Agreement also provides for an appointment to our Board of Directors, on
which Mr. Warwick already serves.
Mr.
Warwick is eligible for a performance-based annual cash incentive bonus of up to
150% of his base salary in any fiscal year depending on the extent to which the
applicable performance goal(s) of the Company, which are to be established by
our Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Warwick’s potential
incentive bonus for fiscal 2009.
54
In
addition, Mr. Warwick is entitled to participate in all of our benefit plans and
our equity-based compensation plans, which currently consists of our LTIP.
Pursuant to the Warwick Agreement, Mr. Warwick is to be awarded two grants of
3-year performance share unit awards under the LTIP, each for 500,000
performance share units as a base objective, with 30% of the award vesting in
the first year of the grant provided that the base target for that year is
met, 30% of the award vesting in the second year of the grant provided that
the base target for the second year is met, and 40% of the award vesting in the
third and final year of the grant provided that the base target for the third
year is met (“Performance Share Units”). The performance measures for these
awards, which have been set by the Compensation Committee, are based on
increases in our earnings per share (“EPS”) and return on invested capital
(“ROIC”). Further, with respect to both awards in each grant year, (i) if the
Company’s results amount to less than 80% of the established target(s), none of
the awards will vest; (ii) if the Company’s results are equal to 80% of the
established target(s), 50% of the award will vest; (iii) if the Company’s
results are equal to 100% of the established target(s), 100% of the award
will vest; and (iv) if the Company’s results are equal to or better than 120% of
the established target(s), 150% of the award will vest. Results between these
established parameters will be interpolated.
The
Warwick Agreement also entitles Mr. Warwick to be granted options to purchase
300,000 shares of our common stock under the LTIP. These options will vest as to
one-third of the award on each of the first three anniversaries of the grant
date, at a strike price of $0.75, $1.00 and $1.25, respectively. The options
expire ten years from the grant date.
The
Warwick Agreement provides that in the event Mr. Warwick’s employment is
terminated for Good Reason, for any reason other than for Cause, Death or
Disability or for Good Reason during the 30-day period immediately following the
first anniversary of the Effective Date (the “Window Period”), he is entitled
to, among other things, a severance payment equal to his 12 months base salary.
In addition, under such circumstances, all of Mr. Warwick’s stock options, stock
appreciation rights and restricted stock will immediately vest and be payable in
shares of our common stock and all of his performance share units that would
vest in the course of any fiscal year shall vest on a pro rata
basis.
Mr.
Warwick resigned from the Company effective January 31,
2010. Pursuant to the terms of the Separation Agreement entered into
on January 20. 2010 with Mr. Warwick, the Company agreed to pay $300,000 in
termination payments, payable over six months, and additional payments of
$75,000 if certain events occur.
Charles
F. Trapp Employment Agreement
The
Employment Agreement with Mr. Trapp (the “Trapp Agreement”) is for an initial
term of one year from the Effective Date, and is automatically renewable for
successive one-year periods unless terminated by Mr. Trapp or us. Mr. Trapp will
receive an annual base salary of $220,000, payable in U.S. dollars. Mr. Trapp is
eligible for a performance-based annual cash incentive bonus of up to 150%
of his base salary in any fiscal year depending on the extent to which the
applicable performance goal(s) of the Company, which are to be established by
the Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Trapp’s potential incentive
bonus for fiscal 2009.
In
addition, Mr. Trapp is entitled to participate in all of our benefit plans and
equity-based compensation plans, which currently consists of the LTIP. Mr. Trapp
will be awarded two grants of 3-year Performance Share Unit awards under the
LTIP, each for 300,000 performance share units as a base objective, with the
same terms, performance targets and metrics as Mr. Warwick’s Performance Share
Unit awards described above. Mr. Trapp also will be granted options to
purchase 100,000 shares of our common stock under the LTIP. These options will
vest as to one-third of the award on each of the first three anniversaries of
the grant date, at a strike price of $0.75, $1.00 and $1.25, respectively. The
options expire ten years from the grant date.
The Trapp
Agreement provides that in the event Mr. Trapp’s employment is terminated for
Good Reason, for any reason other than for Cause, Death or Disability or for
Good Reason during the Window Period, Mr. Trapp is entitled to, among other
things, a severance payment equal to his 12 months base salary, all of Mr.
Trapp’s stock options, stock appreciation rights and restricted stock shall
immediately vest and be payable in shares of our common stock and all of his
performance share units that would vest in the course of any fiscal year shall
vest on a pro rata basis. The Employment Agreement with Mr. Trapp was
not renewed on November 30, 2009, but Mr. Trapp has continued as Chief Financial
Officer and Vice President, Finance for the Company. The Company is
currently negotiating a new employment agreement with Mr. Trapp.
Simon
Chadwick Employment Agreement
The
Employment Agreement with Mr. Chadwick (the “Chadwick Agreement”) is for an
initial term of two years from the Effective Date, and is automatically
renewable for successive one-year periods unless terminated by Mr. Chadwick or
us. Mr. Chadwick will receive an annual base salary of $225,000, payable in U.S.
dollars. The terms of the Chadwick Agreement also entitles Mr. Chadwick, a
United Kingdom resident, to a Make-Whole Payment consistent with the one awarded
to Mr. Warwick.
The
Chadwick Agreement also provides for an appointment to our Board of Directors,
on which he already serves.
55
Mr.
Chadwick is eligible for a performance-based annual cash incentive bonus of up
to 150% of his base salary in any fiscal year depending on the extent to which
the applicable performance goal(s) of the Company, which are to be established
by the Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Chadwick’s potential
incentive bonus for fiscal 2009.
In
addition, Mr. Chadwick is entitled to participate in all of our benefit plans
and our equity-based compensation plans, which currently consists of the LTIP.
Mr. Chadwick will be awarded two grants of 3-year Performance Share Unit awards
under the LTIP, each for 400,000 performance share units as a base objective,
with the same terms, performance targets and metrics as Mr. Warwick’s and
Mr. Trapp’s Performance Share Unit awards described above. The Chadwick
Agreement also grants Mr. Chadwick options to purchase 200,000 shares of our
common stock under the LTIP. These options will vest as to one-third of the
award on each of the first three anniversaries of the grant date, at a strike
price of $0.75, $1.00 and $1.25, respectively. The options expire ten years from
the grant date.
In the
event Mr. Chadwick’s employment is terminated for Good Reason, for any reason
other than for Cause, Death or Disability or for Good Reason during the Window
Period, Mr. Chadwick is entitled to, among other things, a severance payment
equal to his 12 months base salary, all of Mr. Chadwick’s stock
options, stock appreciation rights and restricted stock shall immediately
vest and be payable in shares of our common stock and all of his performance
share units that would vest in the course of any fiscal year shall vest on a pro
rata basis.
Mr.
Chadwick resigned from the Company effective January 31,
2010. Pursuant to the terms of the Separation Agreement entered into
on January 20. 2010 with Mr. Chadwick, the Company agreed to pay $225,000 in
termination payments, payable over six months, and additional payments of
$50,000 if certain events occur.
Severance
Benefits
As
described above, each of the employment agreements with our officers contains a
severance benefit for that officer if he or she is terminated other than for
cause or the officer leaves the Company after a change in control, provided they
leave for “good reason.” We provide this benefit because we want executives to
focus on the Company’s business and enhancing stockholder value without undue
concern about any possible loss of their job.
Retirement
Plans
We do not
offer retirement plans for our officers.
Change
in Control
Each
officer’s employment agreement contains standard provisions that protect that
officer in the event there is a change in control that has not been approved by
our Board of Directors. In addition, our LTIP provides for acceleration of
vesting in the event of a change in control.
The
precise terms and conditions of each employment agreement is described
above.
Perquisites
We offer
limited perquisites for our executives. We may offer life insurance policies for
our Named Executive Officers, but as of the date of this report, have yet to
establish those policies.
Board
Process
The
Compensation Committee of the Board of Directors approves all compensation and
awards to executive officers, which include the Chief Executive, the Chief
Financial Officer, and Chief Operating Officer, and any other Named Executive
Officers. Generally, on its own initiative the Compensation Committee reviews
the performance and compensation of the Chief Executive, Chief Financial
Officer, and Chief Operating Officer and, following discussions with those
individuals, establishes their compensation levels where it deems appropriate.
For the remaining officers, the Chief Executive Officer makes recommendations to
the Compensation Committee that generally, with such adjustments and
modifications that are deemed necessary or appropriate by the Committee, are
approved. With respect to equity-based compensation awarded to others, the
Compensation Committee grants restricted stock, generally based upon the
recommendation of the Chief Executive Officer.
The
Compensation Committee believes that objectives cannot be established in a
vacuum and thus invites management’s input into the establishment of milestones.
Although Committee meetings are held in executive session, without management’s
presence, the Committee (and from time to time individual members of the
Committee) routinely meets with senior officers of the Company to discuss
objectives, to explain the rationale for certain objectives or milestones, and
to assure that it has management’s input in assessing the consequences of
decisions made in Committee, for instance, the impact that its decisions may
have on our financial statements. The Committee’s interactions with management
seek to achieve a balance between receiving management’s buy-in for objectives
and assuring that management is not actually or effectively establishing the
terms and parameters for its own compensation.
56
Forward-Looking
Statements
Disclosures
in this Compensation Discussion & Analysis may contain certain
forward-looking. Statements that do not relate strictly to historical or current
facts are forward-looking and usually identified by the use of words such as
“anticipate,” “estimate,” “approximate,” “expect,” “intend,” “plan,” “believe”
and other words of similar meaning in connection with any discussion of future
operating or financial matters.
Without
limiting the generality of the foregoing, forward-looking statements contained
in this report include the matters discussed regarding the expectation of
compensation plans, strategies, objectives, and growth and anticipated financial
and operational performance of the Company and its subsidiaries. A variety of
factors could cause the Company’s actual results to differ materially from the
anticipated results or other expectations expressed in the Company’s
forward-looking statements. The risks and uncertainties that may affect the
operations, performance and results of the Company’s business and
forward-looking statements include, but are not limited to those set forth
herein.
Any
forward-looking statement speaks only as of the date on which such statement is
made and the Company does not intend to correct or update any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Summary
Compensation Table for Fiscal Years 2009, 2008 and 2007
The
following table sets forth information for the fiscal years ended June 30, 2009,
2008 and 2007 concerning the compensation paid and awarded to all individuals
serving as (a) our Chief Executive Officer, Ian Warwick, (b) the two most highly
compensated Executive Officers (other than our Chief Executive Officer) of ours
and our subsidiaries at the end of our fiscal years ended June 30, 2009, 2008
and 2007 whose total compensation exceeded $100,000 for these periods, Simon
Chadwick and Charles F. Trapp, and (c) two additional individuals for whom
disclosure would have been provided pursuant to (b) except that they were not
serving as executive officers at the end of such fiscal years. These individuals
may be collectively referred to herein as our “Named Executive
Officers.”
Name and
Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
Non-
qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
Ian
Warwick (1)
|
2009
|
292,828 | — | — | — | — | — | — | 292,828 | |||||||||||||||||||||||||
Chief
Executive Officer,
|
2008
|
349,195 | — | — | — | — | — | — | 349,195 | |||||||||||||||||||||||||
President
and Director
|
2007
|
350,682 | — | — | — | — | — | — | 350,682 | |||||||||||||||||||||||||
Simon
Chadwick (2)
|
2009
|
218,780 | — | — | — | — | — | — | 218,780 | |||||||||||||||||||||||||
Chief Operating Officer
|
2008
|
259,402 | — | — | — | — | — | — | 259,402 | |||||||||||||||||||||||||
and
Director
|
2007
|
260,507 | — | — | — | — | — | — | 260,507 | |||||||||||||||||||||||||
Charles
F. Trapp (3)
|
2009
|
224,166 | 5,775 | (4) | 229,941 | |||||||||||||||||||||||||||||
Vice
President, Finance,
|
2008
|
214,583 | — | 25,500 | (4) | — | — | — | — | 240,083 | ||||||||||||||||||||||||
and
Chief Financial Officer
|
2007
|
N/A | N/A |
(1)
|
Reflects
salary paid to Mr. Warwick for services rendered to us and our
subsidiaries during fiscal 2009, 2008 and 2007 as Aftersoft’s Chief
Executive Officer and President. Salary was paid in British pounds at an
annual salary of 175,000 GPB for each of the 2007 and 2008 fiscal years,
and for the period from July 1, 2008 to November 30, 2008 (or 72,916
GBP). Salary for the period from December 1, 2008 through June
30, 2009 was paid in US dollars at an annual base rate of $300,000 (or
$175,000 for the period), pursuant to the terms of Mr. Warwick’s
employment agreement. The amount shown for 2007 was translated
to US dollars based on a June 30, 2007 currency conversion rate of 1 GBP =
$2.0039. The amount shown for 2008 was translated to US dollars based on a
June 30, 2008 currency conversion rate of 1 GBP = $1.9954. The
portion of Mr. Warwick’s salary for fiscal 2009 which was paid in British
pounds (for the period from July 1, 2008 through November 30, 2008) was
translated to US dollars based on the June 30, 2009 currency conversion
rate of 1 GBP= $1.61593 (or $117,828). Mr. Warwick did not receive any
additional compensation for his services as a director on our Board of
Directors.
|
57
(2)
|
Reflects
salary paid to Mr. Chadwick for services rendered to us and our
subsidiaries during fiscal 2009, 2008 and 2007 as Aftersoft’s Chief
Operating Officer. Salary was paid in British pounds at an annual salary
of 130,000 GPB for each of the 2007 and 2008 fiscal years, and for the
period from July 1, 2008 to November 30, 2008 (or 54,167
GBP). Salary for the period from December 1, 2008 through June
30, 2009 was paid in US dollars at an annual base rate of $225,000 (or
$131,250 for the period), pursuant to the terms of Mr. Chadwick’s
employment agreement. The amount shown for 2007 was translated
to US dollars based on a June 30, 2007 currency conversion rate of 1 GBP =
$2.0039. The amount shown for 2008 was translated to US dollars based on a
June 30, 2008 currency conversion rate of 1 GBP = $1.9954. The
portion of Mr. Chadwick’s salary for fiscal 2009 which was paid in British
pounds (for the period from July 1, 2008 through November 30, 2008) was
translated to US dollars based on the June 30, 2009 currency conversion
rate of 1 GBP= $1.61593 (or $87,530). Mr. Chadwick did not receive any
additional compensation for his services as a director on our Board of
Directors.
|
(3)
|
Mr.
Trapp was appointed Vice President Finance and Chief Financial Officer
effective as of December 1, 2007. For the year ended June 30, 2009, the
amount shown in the table reflects salary in the amount of $95,833 earned
for services in these capacities between July 1, 2008 and November 30,
2008, as well as salary in the amount of $128,333 earned for services
between December 1, 2008 and June 30, 2009 pursuant to the terms of Mr.
Trapp’s employment agreement. The salary for fiscal 2009 also includes
$20,500 that was deferred and contributed by Mr. Trapp to the Company’s
plan established under section 401(k) of the Internal Revenue Code of
1986, as amended. For the year ended June 30, 2008, the amount
shown in the table reflects salary in the amount of $134,167 earned for
services between December 1, 2007 and June 30, 2008, as well as salary in
the amount of $80,416 earned for services as an accountant prior to his
appointment as an officer. The salary for fiscal 2008 also includes
$20,500 that was deferred and contributed by Mr. Trapp to the Company’s
plan established under section 401(k) of the Internal Revenue Code of
1986, as amended.
|
(4)
|
The
amount shown in the “Stock Awards” column reflects the dollar amount
recognized for fiscal 2009 and 2008 financial statement reporting purposes
of the outstanding stock awards held by Mr. Trapp in accordance with FAS
123R. Stock award represent an award on May 13, 2008 of 750,000 shares of
Common Stock with a grant date closing price of $0.10 per share, of which
34% or 255,000 shares vested immediately on the date of grant. The
remaining 66% of the shares or 495,000 shares will vest in three equal
installments of 165,000 shares on each of the first, second and third
anniversaries of the grant date. The shares were not issued pursuant to
any existing compensation plan. Refer to the Company’s Consolidated
Financial Statements for the Fiscal Years Ended June 30, 2008 and 2007,
Note 1 “Stock Based Compensation” and Note 10 “Stockholders Equity”
included in this Annual Report on Form 10-K, with respect to valuation
assumptions for this stock grant. Mr. Trapp held no other stock or option
awards at June 30, 2009 and 2008,
respectively.
|
Other
Compensation
Other
than as described above, there were no post-employment compensation, pension or
nonqualified deferred compensation benefits earned by the executive officers
during the year ended June 30, 2009. We do not have any retirement, pension, or
profit-sharing programs for the benefit of our directors, officers or other
employees. The Board of Directors may recommend adoption of one or more such
programs in the future.
Outstanding
Equity Awards at 2009 Fiscal Year End
The
following table provides information relating to the vested and unvested option
and stock awards held by the named executives as of June 30, 2009. Each award to
each named executive is shown separately, with a footnote describing the award’s
vesting schedule.
58
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(# Exercisable)
|
Number of
Securities
Underlying
Unexercised
Option
(# Unexercisable)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
Or
Other
Rights
That
Have
Not
Vested
($)
|
|||||||||||||||||||||||||||
Ian Warwick
|
||||||||||||||||||||||||||||||||||||
Simon
Chadwick
|
||||||||||||||||||||||||||||||||||||
Charles
F. Trapp
|
— | — | — | — | — | 330,000 | (1) | $ | 33,000 | (2) | — | — |
(1)
|
Stock
awards represent an award on May 13, 2008 to Mr. Trapp of 750,000 shares
of Common Stock with a grant date fair value of $0.10 per share, of which
34%, or 255,000 shares, vested immediately on the date of grant and
165,000 shares valued at $.035 per share vested on May 13, 2009. The
remaining 330,000 shares reflected in the table, will vest in two equal
installments of 165,000 shares, on each of the second and third
anniversaries of the grant date. The shares were not issued pursuant to
any existing compensation plan.
|
(2)
|
Based
on the closing price of $0.10 of the Company’s Common Stock on June 30,
2009.
|
Director
Compensation for Fiscal 2009
During
fiscal 2009, directors who were not officers of the Company received a $10,000
annual retainer, with the exception of the lead director, who received a $35,000
annual retainer. Directors who were not officers of the Company also
received $7,500 for serving as Audit Committee Chairman, $6,000 for serving as
Chairman of the Governance and Nomination or Compensation Committees, and $5,000
for serving as a Committee Member. Directors who are also executive officers of
the Company do not receive any additional compensation for their service on the
Board.
The
following table reflects all compensation awarded to, earned by or paid to the
Company’s directors for the fiscal year ended June 30, 2009.
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards
($)(1)
|
Options
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
||||||||||||||||||||||
Ian
Warwick
|
— | — | — | — | — | — | — | |||||||||||||||||||||
Simon
Chadwick
|
— | — | — | — | — | — | — | |||||||||||||||||||||
Dwight
B. Mamanteo
|
26,000 | (2) | 4,247 | (3) | — | — | — | — | 30,247 | |||||||||||||||||||
Marcus
Wohlrab
|
23,500 | 4,247 | (4) | — | — | — | — | 27,747 | ||||||||||||||||||||
Frederick
Wasserman
|
27,500 | 4,492 | (5) | — | — | — | — | 31,992 | ||||||||||||||||||||
Gerald
M. Czarnecki
|
35,000 | (6) | 8,480 | (7) | — | — | — | — | 43,380 | |||||||||||||||||||
W.
Austin Lewis IV
|
7,200 | (8) | 877 | (9) | — | — | — | — | 8,077 |
|
(1)
|
The
amount shown in the table reflects the dollar amount recognized for fiscal
2009 financial statement reporting purposes of the outstanding stock
awards held by the directors in accordance with FAS 123R. Refer to the
Company’s Consolidated Financial Statements for the Fiscal Years Ended
June 30, 2009 and 2008, Note 1 “Stock Based Compensation” and Note 10
“Stockholders Equity” included in the Company’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2009, with respect to valuation
assumptions for this stock grant. The directors held no other stock or
option awards at June 30, 2009.
|
59
(2)
|
Includes
185,714 shares of Common Stock valued at market price on the date of
issuance, and received in lieu of $6,500 of cash
compensation.
|
|
(3)
|
Includes
25,569 shares valued at market price on the date of issuance, net of
income taxes of $728.
|
|
(4)
|
Includes
34,668 shares valued at market price on the date of
issuance.
|
|
(5)
|
Includes
36,668 shares valued at market price on the date of
issuance.
|
|
(6)
|
Includes
197,512 shares of Common Stock valued at market price on the date of
issuance, net of income taxes of $3,062, and received in lieu of $17,500
of cash compensation.
|
|
(7)
|
Includes
46,850 shares valued at market price on the date of issuance, net of
income taxes of $1,097.
|
|
(8)
|
Includes
102,857 shares of Common Stock valued at market price on date of issuance,
and received in lieu of $3,600 of cash
compensation.
|
|
(9)
|
Includes
10,267 shares valued at market price on the date of
issuance.
|
60
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of July 12, 2010 by (a) each stockholder who is
known to us to own beneficially 5% or more of our outstanding Common Stock; (b)
all directors; (c) our executive officers, and (d) all executive officers and
directors as a group. Except as otherwise indicated, all persons listed below
have (i) sole voting power and investment power with respect to their shares of
Common Stock, except to the extent that authority is shared by spouses under
applicable law, and (ii) record and beneficial ownership with respect to their
shares of Common Stock. Unless otherwise identified, the address of our
directors and officers is c/o MAM Software Group, Inc., Maple Park, Maple Court,
Barnsley, UK S75 3DP.
Name and address of beneficial owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of class of
Common Stock (1)
|
||||||
Wynnefield
Persons (2)
c/o
Wynnefield Capital Inc.
450
Seventh Ave., Suite 509
New
York, NY 10123
|
10,829,479 | (3) | 12.71 | % | ||||
Quillen
Persons (4)
145
East 57th Street, 10th Floor
New
York, NY 10022
|
6,960,112 | (5) | 8.13 | % | ||||
ComVest
Capital LLC
105
S. Narcissus Ave.
West
Palm Beach, FL 33401
|
10,169,949 | (6) | 10.66 | % | ||||
Directors
and Officers:
|
||||||||
Michael
Jamieson
Interim
Chief Executive Officer
|
1,460,000 | (7) | 1.71 | % | ||||
Charles
F. Trapp
Chief
Financial Officer
|
1,213,571 | (8) | 1.42 | % | ||||
Frederick
Wasserman,
Director
|
201,016 | (9) | 0.24 | % | ||||
Dwight
B. Mamanteo,
Director
|
726,419 | (10) | 0.85 | % | ||||
Marcus
Wohlrab,
Director
|
152,472 | (11) | 0.18 | % | ||||
Gerald
M. Czarnecki,
Chairman
|
1,135,953 | (12) | 1.33 | % | ||||
W.
Austin Lewis IV (13)
c/o
Lewis Asset Management Corp.
45
Rockefeller Plaza
New
York, NY 10111
|
10,285,718 | (14) | 12.07 | % | ||||
Directors
and Officers as a group (7 persons)
|
15,175,149 | 16.47 | % | |||||
Former
Officers and Directors:
|
||||||||
Ian
Warwick
Chief
Executive Officer
and
Chairman
|
4,561,452 | 5.35 | % | |||||
Simon
Chadwick
Chief
Operating Officer
|
1,961,084 | 2.30 | % |
61
|
(1)
|
Based
on a total of 85,204,416 shares of Common Stock outstanding as of July 12,
2010. In accordance with Securities and Exchange Commission rules, each
person’s percentage interest is calculated by dividing the number of
shares that person owns by the sum of (a) the total number of shares
outstanding as of July 12, 2010 plus (b) the number of shares such person
has the right to acquire within sixty (60) days of July 12,
2010.
|
|
(2)
|
Comprised
of Wynnefield Partners Small Cap Value, LP (“Wynnefield Partners”) and
Wynnefield Partners Small Cap Value LP I (“Wynnefield Partners I”), and
the general partner of each of these entities, Wynnefield Capital
Management, LLC (“Wynnefield LLC”); Wynnefield Small Cap Value Offshore
Fund Ltd. (“Wynnefield Offshore”) and its investment manager, Wynnefield
Capital, Inc. (“Wynnefield Capital”); Wynnefield Capital, Inc. Profit
Sharing & Money Purchase Plan (the “Plan”); Channel Partnership II, LP
(“Channel”); Nelson Obus, who serves as principal and co-managing member
of Wynnefield Capital Management, LLC, principal executive officer of
Wynnefield Capital, Inc. and general partner of Channel Partnership II,
LP; and Joshua H. Landes, who serves as principal and co-managing member
of Wynnefield Capital Management, LLC and executive officer of Wynnefield
Capital, Inc. (collectively, the “Wynnefield Persons”). Dwight Mamanteo,
one of the Company’s directors, is an investment analyst with Wynnefield
Capital. Mr. Mamanteo exercises neither voting nor dispositive control
over the shares beneficially owned by Wynnefield Capital. The Company has
been informed that Nelson Obus and Joshua H. Landes share voting and
investment control over the shares beneficially owned by Wynnefield
Partners, Wynnefield Partners I, Wynnefield Offshore, Wynnefield LLC,
Wynnefield Capital and the Plan, and that Nelson Obus exercises sole
voting and investment control over the shares beneficially owned by
Channel. Based upon information provided in a Schedule 13D/A
filed with the SEC on April 3, 2009 and a Form 4 filed on May 22,
2009. Note
that the Wynnefield Persons’ shareholdings have been reduced by an
aggregate of 3,125,002 shares to reflect the surrender of the Exchange
Warrants by the Wynnefield Partners Small Cap Value, LP, Wynnefield
Partners Small Cap Value, LP I, Wynnefield SmallCap Offshore Fund, Ltd and
Channel Partnership II, LP to the Company as part of the Company’s
proposed Exchange Offer.
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(3)
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Represents
an aggregate of 10,829,479 shares of common stock, which are beneficially
owned as follows: (i) 3,102,885 shares of common stock are beneficially
owned by Wynnefield Partners; (ii) 2,525,615 shares of common stock are
beneficially owned by Wynnefield Partners I; (iii) 4,559,115 shares of
common stock; (iv) 16,864 shares of common stock are beneficially owned by
the Wynnefield Capital, Inc. Profit Sharing & Money Purchase Plan; and
(v) 625,000 shares of common stock are beneficially owned by
Channel. Based upon information provided in a Form 4 filed with
the SEC on May 22, 2009.
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(4)
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Comprised
of Little Wing, L.P. (“Little Wing”); Quilcap Corp., the general partner
of Little Wing (“Quilcap Corp.”); Tradewinds Fund, Ltd. (“Tradewinds”);
Quilcap Management, LLC, the investment manager of Little Wing and
Tradewinds (“Quilcap Management”); and Parker Quillen, the President of
Quilcap Corp. and the Sole Managing Member of Quilcap Management
(collectively, the “Quillen Persons”). Based upon information
provided in a Schedule 13G/A filed with the SEC on February 13,
2009.
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(5)
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Represents
(i) 5,976,508 shares of common stock and 357,292 shares of common stock
issuable upon exercise of warrants, which are currently exercisable at
$1.00 per share and expire July 2, 2013, owned by Little Wing, with
respect to which Little Wing has the power to vote and dispose, which
power may be exercised by Mr. Quillen, as President of Quilcap Corp and as
Sole Managing Member of Quilcap Management; and (ii) 540,879 shares of
common stock and 59,375 shares of common stock issuable upon exercise of
warrants, which are currently exercisable at $1.00 per share and expire
July 2, 2013, owned by Tradewinds, with respect to which Tradewinds has
the power to vote and dispose, which power may be exercised by Mr.
Quillen, as the Sole Managing Member of Quilcap Management; and (iii)
26,058 shares of common stock with respect to which Mr. Quillen has sole
voting and dispositive power. Based upon information provided
in a Schedule 13G/A filed with the SEC on February 13,
2009.
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62
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(6)
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Includes
the following shares owned by ComVest Capital LLC: (i) 1,000,000 shares
issuable upon exercise of warrants to purchase shares of Common Stock,
which are currently exercisable at $0.1097 per share and expire December
31, 2013; (ii) 2,083,333 shares issuable upon exercise of warrants to
purchase shares of Common Stock, which are currently exercisable at
$0.3595 per share and expire December 31, 2013; (iii) 2,000,000 shares
issuable upon exercise of warrants to purchase shares of Common Stock,
which are currently exercisable at $0.1097 per share and expire December
31, 2013, and (iv) 3,386,616 shares of common stock issuable upon
conversion of the $5,000,000 principal amount of that certain Convertible
Term Note dated December 21, 2007 issued to Comvest Capital LLC, at a
current conversion rate of $1.4764 per share. The Company has been
informed that Comvest Capital Advisors, LLC is the managing entity of
ComVest Capital, LLC, and that Gary Jaggard, managing director of Comvest
Capital, LLC, exercises voting and investment control over the shares
beneficially owned by ComVest Capital, LLC. Also includes 1,700,000 shares
issuable upon exercise of warrants owned by Commonwealth Associates, LP,
an entity affiliated with Comvest Capital, LLC. See “Certain Relationships
and Related Transactions and Director Independence” for additional
detail.
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(7)
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Includes
780,000 vested shares of an award of an aggregate of 1,000,000 restricted
shares of Common Stock granted by the Company on May 13, 2008 for services
previously rendered.
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(8)
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Includes
585,000 vested shares of an award of an aggregate 750,000 restricted
shares of Common Stock granted by the Company on May 13, 2008 for services
previously rendered.
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(9)
|
Includes
(i) 19,500 vested shares of restricted Common Stock of an award for an
aggregate 25,000 shares of restricted Common Stock granted on May 13, 2008
by the Company for services previously rendered; (ii) 73,336 vested shares
of restricted Common Stock out of an award of an aggregate of 110,000
shares of restricted Common Stock granted on October 6, 2008; and (iii)
68,181 vested shares of restricted Common Stock out of an award of an
aggregate of 204,545 shares of restricted Common Stock granted on July 1,
2009.
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(10)
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Includes
(i) 19,500 vested shares of restricted Common Stock of an award for an
aggregate 25,000 shares of restricted Common Stock granted on May 13, 2008
by the Company for services previously rendered; and (ii) 51,137 vested
shares of restricted Common Stock (net of taxes) out of an award of an
aggregate of 104,000 shares of restricted Common Stock granted on October
6, 2008; and (iii) 58,106 vested shares of restricted Common Stock (net of
taxes) out of an award of an aggregate of 236,364 shares of restricted
Common Stock granted on July 1,
2009.
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(11)
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Includes
(i) 19,500 vested shares of restricted Common Stock of an award for an
aggregate 25,000 shares of restricted Common Stock granted on May 13, 2008
by the Company for services previously rendered; (ii) 69,336 vested shares
of restricted Common Stock out of an award of an aggregate of 104,000
shares of restricted Common Stock granted on October 6, 2008; and (iii)
62,936 vested shares of restricted Common Stock (net of taxes) out of an
award of an aggregate of 190,909 shares of restricted Common Stock granted
on July 1, 2009.
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(12)
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Includes
(i) 13,333 vested shares of restricted Common Stock (net of taxes) out of
an award for an aggregate 25,000 shares of restricted Common Stock granted
by the Company for joining the Board of Directors on October 6, 2008; (ii)
79,892 vested shares of restricted Common Stock (net of taxes) out of an
award of an aggregate of 140,000 shares of restricted Common Stock granted
on October 6, 2008; and (iii) 68,940 vested shares of restricted Common
Stock (net of taxes) out of an award of an aggregate of 318,182 shares of
restricted Common Stock granted on July 1,
2009.
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(13)
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W.
Austin Lewis IV is the portfolio manager and general partner of Lewis
Asset Management Corp., the investment manager of Lewis Opportunity Fund,
LP and LAM Opportunity Fund, LTD. Accordingly, Mr. Lewis is deemed to
be the beneficial owner of the shares owned by Lewis Opportunity Fund, LP
and LAM Opportunity Fund, LTD. and beneficially owned by Lewis Asset
Management Corp.
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(14)
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Represents
(i) 3,614,353 shares owned directly by W. Austin Lewis IV, (ii) 5,322,646
shares of common stock owned by Lewis Opportunity Fund, LP; (iii)
1,348,719 shares of common stock owned by LAM Opportunity Fund, LTD.; (iv)
14,000 vested shares of restricted Common Stock out of an award of an
aggregate of 25,000 shares of restricted Common Stock granted on February
20, 2009; (v) 36,935 vested shares of restricted Common Stock out of an
award of an aggregate 80,000 shares of restricted Common Stock granted on
February 20, 2009; and (vi) 60,607 vested shares of restricted Common
Stock out of an award of an aggregate of 181,818 shares of restricted
Common Stock granted on July 1, 2009. Note
that Mr. Lewis’ shareholdings have been reduced by an aggregate of
6,402,999 shares to reflect the surrender of the Exchange Warrants by
Lewis Opportunity Fund, LP and LAM Opportunity Fund Ltd. to the Company as
part of the Company’s proposed Exchange
Offer.
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63
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with Auto Data Network,
Inc.
Prior to
the spin-off of Aftersoft from ADNW on November 24, 2008, Mr. Warwick served as
Chairman and CEO of both companies. Effective immediately following the spinoff,
Mr. Warwick resigned from all positions with ADNW. None of the Company’s other
officers and directors serve as officers or directors of ADNW.
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed a
dividend of the 71,250,000 shares of the Company’s common stock that ADNW owned
at such time in order to complete the previously announced spin-off of
Aftersoft’s businesses. The dividend shares were distributed in the form of a
pro rata dividend to the holders of record as of November 17, 2008 (the
“Record Date”) of ADNW’s common and convertible preferred stock. Each holder of
record of shares of ADNW common and preferred stock as of the close of business
on the Record Date was entitled to receive 0.6864782 shares of Aftersoft's
common stock for each share of common stock of ADNW held at such time, and/or
for each share of ADNW common stock that such holder would own, assuming the
convertible preferred stock owned on the Record Date was converted in
full.
Due to
the nature of the dividend distribution, the ex-dividend date was set by NASDAQ
as Tuesday, November 25, 2008, one day following the Dividend Distribution Date.
No consideration was paid by any ADNW shareholder to receive the distribution of
the dividend shares. Only whole shares were delivered to ADNW shareholders, so
any resulting fractional shares in calculating the dividend were rounded up to
the nearest whole number.
As a
result of Aftersoft’s ownership of certain ADNW securities, Aftersoft received
approximately 13,965,295 shares of its own common stock in connection with the
dividend distribution. On December 31, 2008, Aftersoft retired 13,722,112
of the shares. The remaining 243,183 shares were used by Aftersoft for
rounding of fractional shares issued in respect of the spin-off dividend, to
make adjustments for the benefit of the holders of ADNW’s Series B Convertible
Preferred Stock which received fewer shares in connection with the spin-off than
the number to which they were entitled as a result of a calculation error
relating to the Series B conversion rate, and for other minor
adjustments.
Prior to
the spin-off, ADNW owned approximately 77% of Aftersoft’s issued and outstanding
common stock. Subsequent to and as a result of the spin-off, Aftersoft is no
longer a subsidiary of ADNW.
Transactions
with ComVest Capital LLC and its affiliate, Commonwealth Associates
LP
ComVest
Capital LLC
ComVest
Capital LLC (“ComVest”) is the Company’s senior secured
lender. During fiscal 2008, ComVest extended to the Company a
$1,000,000 secured revolving credit facility and a $5,000,000 term loan pursuant
to the terms of a Revolving Credit and Term Loan Agreement (the “Loan
Agreement”), a Revolving Credit Note and a Convertible Term Note, each dated
December 21, 2007. The material terms of these loans are described
further below. In connection with this transaction, the Company issued to
ComVest warrants to purchase an aggregate of 5,083,333 shares of the Company’s
common stock. The material terms of these warrants are described further
below.
At the
time the loans were made, ComVest was not a party related to the Company. Each
of these loans were made in the ordinary course of business, were made on the
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with persons not related to the
lender and did not involve more than the normal risk of collectibility or
present other unfavorable features. As a result of the issuance of
the Convertible Term Note and the warrants, ComVest became a shareholder of the
Company, and currently may be deemed to have beneficial ownership of
approximately 10.79% of the Company’s common stock (including certain
warrants held by Commonwealth Associates LP, see below).
Credit Facility and
Revolving Credit Note. Pursuant to the terms of the Loan Agreement, the
Credit Facility is available to the Company through November 30, 2009, unless
the maturity date is extended, or the Company prepays the Term Loan (described
below) in full, in each case in accordance with the terms of the Loan Agreement.
The Credit Facility provides for borrowing capacity of an amount up to (at any
time outstanding) the lesser of the Borrowing Base at the time of each advance
under the Credit Facility, or $1,000,000. The borrowing base at any time
will be an amount determined in accordance with a borrowing base report that the
Company is required to provide to the lender, based upon the Company’s Eligible
Accounts and Eligible Inventory, as such terms are defined in the Loan
Agreement. The Loan Agreement provides for advances to be limited to
(i) 80% of Eligible Accounts plus, in ComVest’s sole discretion, (ii) 40% of
Eligible Inventory, minus (iii) such reserves as ComVest may establish from time
to time in its discretion. As of June 30, 2009, the borrowing base
was $1,385,000.
64
In
connection with the Credit Facility, the Company issued a Revolving Credit Note
(the “Credit Note”) on December 21, 2007 payable to ComVest in the principal
amount of $1,000,000, initially bearing interest at a rate per annum equal to
the greater of (a) the prime rate, as announced by Citibank, N.A. from time to
time, plus two percent (2%), or (b) nine and one-half percent (9.5%). The
applicable interest rate will be increased by four hundred (400) basis points
during the continuance of any event of default under the Loan Agreement.
Interest is computed on the daily unpaid principal balance and is payable
monthly in arrears on the first day of each calendar month commencing
January 1, 2008. Interest is also payable upon maturity or
acceleration of the Credit Note. On June 17, 2010, the interest rate
was increased from 9.5% to 13.5% for an event of default under the Loan
Agreement.
During
the Company’s fourth fiscal quarter of 2008, the Company drew down $500,000 of
the Credit Facility, and drew down the remaining $500,000 during the first and
second fiscal quarter of 2009. As a result, as of June 30, 2009, the
outstanding principal due on the credit facility was $1,000,000, and as of June
30, 2009, the entire credit facility had been drawn down. As of June
30, 2009, the Company has not yet repaid any principal. As described
above, this loan currently bears interest at a rate of 13.5%. During
fiscal 2008, the Company paid $2,045 in interest payments, and during fiscal
2009, the Company paid $117,281 including fees of $27,000.
Term Loan and Convertible
Term Note. In addition to the Credit Facility, ComVest
extended a Term Loan, evidenced by a Convertible Term Note (the “Term Note”)
issued on December 21, 2007, in the principal amount of $5,000,000. The Term
Loan was a one-time loan, and unlike the Credit Facility, the principal amount
is not available for re-borrowing. The Term Note bears interest at a
rate of eleven percent (11%) per annum, except that during the continuance of
any event of default, the interest rate will be increased to sixteen percent
(16%). On June 17, 2010, the interest rate was increased to 16% for
an event of default under the Loan Agreement.
Initially,
the Term Note was payable in 23 equal monthly installments of $208,333 each,
payable on the first day of each calendar month commencing January 1, 2009,
through November 1, 2010, with the balance due on November 30,
2010. The amortization schedule was subsequently modified, and was
delayed for one year so that payments will commence on January 1, 2010,
pursuant to an amendment of the Loan Agreement during the quarter ended June 30,
2008 (see below).
The
number of shares issuable upon conversion of the Term Note and the conversion
price may be proportionately adjusted in the event of any stock dividend,
distribution, stock split, stock combination, stock consolidation,
recapitalization or reclassification or similar transaction. In
addition, the number of conversion shares, and/or the conversion price may be
adjusted in the event of certain sales or issuances of shares of the Company’s
common stock, or securities entitling any person to acquire shares of common
stock, at any time while the Term Note is outstanding, at an effective price per
share which is less than the then-effective conversion price of the Term
Note. The principal and interest payable on the Term Note was initially
convertible into shares of the Company’s common stock at the option of ComVest,
at an initial conversion price of $1.50 per share. On July 3, 2008, the
conversion price was reduced to approximately $1.49 per share following the
Company’s subsequent issuance of shares of common stock and warrants at an
effectively lower price. Consequently, the number of shares issuable
upon conversion of the principal amount of the Term Note was increased to
3,361,345 shares from 3,333,333 shares. The Company also may require conversion
of the principal and interest under certain circumstances.
Since
December 21, 2007, the principal amount due on the Term Note has been
$5,000,000. As of June 30, 2009, the Company has not yet repaid any principal.
As described above, this loan currently bears interest at a rate of 16%. During
fiscal 2009 and 2008, the Company paid $842,000 and $290,278, respectively, in
interest payments.
Warrants. In connection with the
Loan Agreement, the Company issued warrants to ComVest to purchase the following
amounts of shares of the Company’s common stock, exercisable after December 21,
2007 and expiring December 31, 2013: a) warrants to purchase 1,000,000 shares of
common stock at an initial exercise price of $0.3125 per share; b)
warrants to purchase 2,000,000 shares of common stock at an initial exercise
price of $0.39 per share; and c) warrants to purchase 2,083,333 shares of the
Company’s common stock at an initial exercise price of $0.3625 per
share. The warrants also contain a cashless exercise
feature. The number of shares of common stock issuable upon exercise
of the warrants, and/or the applicable exercise prices, may be
proportionately adjusted in the event of any stock dividend, distribution, stock
split, stock combination, stock consolidation, recapitalization or
reclassification or similar transaction. In addition, the number of shares
issuable upon exercise of the warrants, and/or the applicable exercise
prices may be adjusted, at any time while the warrants are outstanding, in the
event of certain issuances of shares of the Company’s common stock, or
securities entitling any person to acquire shares of the Company’s common stock,
at an effective price per share which is less than the then-effective exercise
prices of the warrants.
The
exercise prices for 3,000,000 of these warrants were subsequently modified in
connection with waivers the Company received for violations of one of the debt
covenants, as discussed further below.
Debt
Covenants. The Loan Agreement contains customary affirmative
and negative covenants, including:
(a) Maximum
limits for capital expenditures of $600,000 per fiscal year;
(b) Limitation
on future borrowings, other than in certain circumstances, including to finance
capital expenditures;
(c) Limitation
on guaranteeing any obligation, except for obligations in the ordinary course of
business and obligations of the Company’s wholly owned subsidiaries incurred in
the ordinary course of business;
65
(d) Limitation
on entering Sales-Leaseback Transactions with respect to the sale or transfer of
property used or useful in the Company’s business operations;
(e) Limitation
on acquiring securities or making loans;
(f) Limitation
on acquiring real property;
(g) Limitation
on selling assets of the Company or permitting any reduction in the Company’s
ultimate ownership position of any subsidiary;
(h) Limitation
on paying dividends;
(i) Limitation
on selling any accounts receivable; and
(j) Requiring
that, at the end of any quarter of any fiscal year, the ratio of (a) Earnings
Before Interest, Depreciation, and Amortization (“EBIDA”) minus capital
expenditures incurred to maintain or replace capital assets, to (b) debt service
(all interest and principal payments), for the four (4) consecutive quarters
then ended, to be not less than 1.25 to 1.00 (the “EBIDA Ratio
Covenant”).
The Loan
Agreement is collateralized by a pledge of all of the Company’s assets and the
stock of the Company’s subsidiaries.
Amendments to Loan Agreement
and Waivers for Violations of Certain Covenants. Subsequent to
March 31, 2008, the Company notified ComVest that the Company had incurred a
loss of $1,897,000 for the three-month period ending March 31, 2008, and as a
result, the Company had a ratio of EBIDA to debt service of (4.41):1.00,
therefore violating the EBIDA Ratio Covenant described above. ComVest
agreed to grant the Company a waiver for the violation of this loan
covenant. On May 15, 2008, the Company and ComVest entered into
a Waiver and Amendment pursuant to which ComVest granted the waiver, and, in
consideration therefor, the Company reduced the exercise price for 1,000,000
warrants issued to ComVest in connection with the Loan Agreement from $0.3125
per share to $0.11 per share, and recognized the incremental fair value of the
modified warrants of $24,000 as additional interest expense. As
a result of ComVest granting this waiver, the Company was not in violation
of any loan covenants at March 31, 2008.
Subsequent
to June 30, 2008, the Company advised ComVest that the Company had incurred
a loss of $11,664,000 for the six-month period ending June 30, 2008, and that as
a result had again violated the EBIDA Ratio Covenant with an EBIDA to debt
service ratio of (2.26):1.00. ComVest agreed to provide the Company
with another waiver. In connection therewith, the Company and ComVest
entered into a letter agreement amending the Loan Agreement (the “September 23,
2008 Waiver and Amendment”) and modifying the EBIDA Ratio Covenant.
Pursuant to the September 23, 2008 Waiver and Amendment, the EBIDA Ratio
Covenant was waived for the quarter ending September 30, 2008 and was reduced to
0.62:100 from 1.25:1.00 for the quarter ended December 31,
2008. Additionally, the EBIDA Ratio Covenant was reset for future quarters
to 0.71:1.00 for the four quarters ended March 31, 2009; 0.50:1.00 for the four
quarters ended June 30, 2009; and 1.25:1.00 for the four quarters ended
September 30, 2009 and thereafter. Additionally, ComVest agreed to
delay the commencement of the loan amortization related to the Term Note for one
year, from January 1, 2009 to January 1, 2010. In consideration for
these modifications, the Company reduced the exercise price related to 2,000,000
warrants issued to ComVest in connection with the Loan Agreement from $0.39 to
$0.11. The incremental fair value of the modified warrants is
$15,000, which was recorded as an additional debt discount and is being
amortized over the remaining life of the term loan pursuant to EITF 96-19,
“Debtor's Accounting for a Modification or Exchange of Debt
Instruments.” As a result of these amendments, the Company was not in
violation of any loan covenants at June 30, 2008.
Subsequent
to the end of the quarter ended December 31, 2008, the Company advised ComVest
that it had incurred a net loss of $5,349,000 for the six-month period
ended December 31, 2008, and that as a result, the Company’s ratio of EBIDA to
debt service was (1.41):1.00 in violation of the amended EBIDA Ratio
Covenant. ComVest agreed to extend an additional waiver of this
covenant, which was granted on February 10, 2009, under a Waiver and Amendment
#2 letter agreement (the “February 10, 2009 Waiver and
Amendment”). In consideration for the waiver, the Company agreed to
increase the interest rate on the $1,000,000 Credit Facility from 9.5% to
11%. As a result of ComVest granting this waiver, the Company was not in
violation of any loan covenants at December 31, 2008. If the Company restores
compliance with the EBIDA Ratio Covenant as of the close of any quarter ending
on or after March 31, 2009, then the annual interest rate will be restored to
9.5%, effective as of the first day of the calendar month next succeeding the
Company’s demonstrated quarter-end compliance with such covenant. Pursuant to a
waiver and amendment, the annual interest rate was be restored to 9.5% as the
Company became compliant with the covenant as of the close of the quarter ending
on March 31, 2009. Following such modification, the Company is in compliance
with the loan covenants, and accordingly, the interest rate on the Credit
Facility was decreased from 11% to 9.5%, effective April 1, 2009.
After
obtaining the above-described waivers, the Company is not in violation of the
loan covenants at June 30, 2009.
As of March 31, 2010, the Company
did not meet the EBIDA Ratio Covenant of 1.25:1 as required by the Loan
Agreement, and Amendment. Our failure to maintain this ratio
constitutes an event of default under the terms of the Loan Agreement.
Under the terms of the Loan Agreement, if any event of default occurs, the full
principal amount of the Note, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become, at ComVest’s
election, immediately due and payable in cash. The Company currently is in
negotiations to resolve the default with ComVest.
66
Commonwealth
Associates LP
The
Company has engaged Commonwealth Associates LP (“Commonwealth”) as its
consultant and exclusive merger and acquisitions advisor pursuant to a
Consulting Agreement dated June 3, 2008 (the “Consulting Agreement”).
Commonwealth and ComVest are entities that are under common control. The
Consulting Agreement is for an initial term of 24 months, and provides that
Commonwealth will (i) be issued warrants to purchase up to 3,000,000 shares of
the Company’s common stock, which will be exercisable for 5 years at a price of
$0.30 per share, or the effective price for the Company’s shares resulting from
the sale of approximately 28,631,622 shares of ADNW’s common stock with respect
to which Commonwealth may act as placement agent, whichever is lower, and will
contain anti-dilution protection and a cashless exercise feature with respect to
one-half of the warrants; (ii) receive $15,000 per month for 18 months for
its advisory services beginning June 3, 2008 and (iii) receive a fee in
connection with an M&A transaction equal to 5% of the aggregate
consideration paid or received by the Company.
On July
3, 2008, the Company issued to Commonwealth warrants to purchase an aggregate of
1,000,000 shares of the Company’s common stock as compensation for work
performed in connection with the Company’s sale on July 3, 2008 of the 5,231,622
shares of ADNW common stock that it owned, which is further described in the
footnotes. The warrants are currently exercisable at an exercise price of $0.30
per share and expire on July 3, 2013. Additionally, during the year ended June
30, 2009, the Company paid $45,000 to Commonwealth, and recorded a
liability for unpaid fees of $135,000.
On August
3, 2009, the Company amended the financial advisory agreement and agreed to pay
Commonwealth $35,000 in August, and $25,000 in September and October of 2009, in
full satisfaction of the $135,000 liability.
On
December 31, 2009, the Company issued to Commonwealth, in settlement of a
contract, warrants to purchase an aggregate of 700,000 shares of the Company’s
common stock. The warrants are exercisable at $0.08 per share and
expire on December 31, 2014.
Director
Independence
Our
determination of independence of directors is made using the definition of
“independent director” contained in Rule 5605(a)(2) of the Marketplace Rules of
the NASDAQ Stock Market (“NASDAQ”) , even though such definitions do not
currently apply to us because we are not listed on NASDAQ. We have determined
that Dwight B. Mamanteo, Marcus Wohlrab, Frederick Wasserman and Gerald
Czarnecki are “independent” within the meaning of such rules. Michael
Jamieson is not “independent” under these rules, due to his position as our
Interim Chief Executive Officer.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT
LIABILITIES
Section
145 of the Delaware General Corporation Law authorizes us to indemnify any
director or officer under prescribed circumstances and subject to certain
limitations against certain costs and expenses, including attorneys’ fees
actually and reasonably incurred in connection with any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being one of our directors or officers if it
is determined that the person acted in accordance with the applicable standard
of conduct set forth in such statutory provisions.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the “Act”) may be permitted to directors, officers and controlling
persons of Aftersoft pursuant to the foregoing provisions, or otherwise, we have
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
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In
accordance with the Securities Act of 1933, we are filing with the SEC a
registration statement on Form S-1, of which this prospectus is a part, covering
the securities being offered in this offering. As permitted by rules and
regulations of the SEC, this prospectus does not contain all of the information
set forth in the registration statement. For further information regarding both
our Company and the securities in this offering, we refer you to the
registration statement, including all exhibits and schedules, which you may
inspect without charge at the public reference facilities of the SEC’s
Washington, D.C. office, 100 F Street, N.E., Washington, D.C. 20549, on official
business days during the hours of 10am and 3pm, and on the SEC Internet site at
http:\\www.sec.gov. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330.
67
FINANCIAL
STATEMENTS
AFTERSOFT
GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2009 AND 2008
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
|
F–1
|
|
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
F–2
|
|
Consolidated
Statements of Operations and Comprehensive Loss for the years
ended June 30, 2009 and 2008
|
F–3
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended June 30, 2009 and
2008
|
F–4
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2009 and
2008
|
F–5
|
|
Notes
to Consolidated Financial Statements
|
|
F–7
|
AFTERSOFT
GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED
MARCH
31, 2010 AND 2009
(Unaudited)
Index
to Financial Statements
Consolidated
Balance Sheets
|
F-29
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
|
F-30
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
F-31
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
F-33
|
68
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
of
Aftersoft Group, Inc.
We have
audited the accompanying consolidated balance sheets of Aftersoft Group, Inc. (a
Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2009 and
2008 and the related consolidated statements of operations and comprehensive
loss, stockholders’ equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Aftersoft Group, Inc. and
subsidiaries as of June 30, 2009 and 2008, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KMJ
Corbin & Company LLP
KMJ
CORBIN & COMPANY LLP
Costa
Mesa, California
September
25, 2009
F-1
Consolidated
Balance Sheets
(In thousands, except share data)
|
June 30,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 1,663 | $ | 1,964 | ||||
Accounts
receivable, net of allowance of $87 and $202
|
2,154 | 3,233 | ||||||
Inventories
|
318 | 615 | ||||||
Prepaid
expenses and other current assets
|
507 | 690 | ||||||
Total
Current Assets
|
4,642 | 6,502 | ||||||
Property
and Equipment, Net
|
1,028 | 592 | ||||||
Other
Assets
|
||||||||
Goodwill
|
9,548 | 11,878 | ||||||
Amortizable
intangible assets, net
|
3,566 | 4,584 | ||||||
Software
development costs, net
|
1,691 | 1,718 | ||||||
Investments
in available-for-sale securities
|
– | 4,102 | ||||||
Other
long-term assets
|
179 | 426 | ||||||
TOTAL
ASSETS
|
$ | 20,654 | $ | 29,802 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 1,386 | $ | 2,372 | ||||
Accrued
expenses and other
|
3,162 | 3,508 | ||||||
Payroll
and other taxes
|
278 | 933 | ||||||
Current
portion of long-term debt
|
1,598 | 598 | ||||||
Current
portion of deferred revenue
|
482 | 607 | ||||||
Taxes
payable
|
708 | 379 | ||||||
Total
Current Liabilities
|
7,614 | 8,397 | ||||||
Long-Term
Liabilities
|
||||||||
Deferred
revenue, net of current portion
|
748 | 545 | ||||||
Deferred
income taxes
|
880 | 880 | ||||||
Long-term
debt, net of current portion and debt discount
|
4,713 | 4,783 | ||||||
Other
|
199 | 142 | ||||||
Total
Liabilities
|
14,154 | 14,747 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
Equity
|
||||||||
Preferred
stock: Par value $0.0001 per share; 10,000,000 shares authorized, none
issued and outstanding
|
– | – | ||||||
Common
stock: Par value $0.0001 per share; 150,000,000 shares authorized,
83,462,337 and 92,733,220 shares issued and outstanding,
respectively
|
8 | 9 | ||||||
Additional
paid-in capital
|
30,219 | 31,732 | ||||||
Due
from parent company
|
- | (2,850 | ) | |||||
Accumulated
other comprehensive income (loss)
|
(482 | ) | 1,617 | |||||
Accumulated
deficit
|
(23,245 | ) | (15,453 | ) | ||||
Total
Stockholders' Equity
|
6,500 | 15,055 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 20,654 | $ | 29,802 |
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-2
AFTERSOFT
GROUP, INC.
Consolidated
Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
|
For the Year Ended
June 30,
|
|||||||
2009
|
2008
|
|||||||
Revenues
|
$ | 21,119 | $ | 22,463 | ||||
Cost
of revenues
|
9,496 | 10,429 | ||||||
Gross
Profit
|
11,623 | 12,034 | ||||||
Operating
Expenses
|
||||||||
Research
and development
|
2,860 | 3,176 | ||||||
Sales
and marketing
|
2,211 | 2,467 | ||||||
General
and administrative
|
5,651 | 8,438 | ||||||
Depreciation
and amortization
|
1,082 | 1,287 | ||||||
Impairment
of goodwill
|
850 | 8,170 | ||||||
Total
Operating Expenses
|
12,654 | 23,538 | ||||||
Operating
Loss
|
(1,031 | ) | (11,504 | ) | ||||
Other
Income (Expense)
|
||||||||
Interest
expense
|
(1,602 | ) | (874 | ) | ||||
Interest
income
|
21 | – | ||||||
Gain
on sale of investments
|
– | 1,312 | ||||||
Write
Down of investments in available – for – sale securities
|
(4,723 | ) | – | |||||
Litigation
settlement , net
|
– | 76 | ||||||
Other,
net
|
98 | 57 | ||||||
Total
other income (expense), net
|
(6,206 | ) | 571 | |||||
Loss
from continuing operations before provision for income
taxes
|
(7,237 | ) | (10,933 | ) | ||||
Provision
for income taxes
|
386 | 873 | ||||||
Loss
from continuing operations
|
(7,623 | ) | (11,806 | ) | ||||
Income
from discontinued operations, net of tax
|
– | 13 | ||||||
Loss
on sale of discontinued operations, net of tax
|
– | (26 | ) | |||||
Net
Loss
|
(7,623 | ) | (11,819 | ) | ||||
Unrealized
gain (loss) on investments in available-for-sale securities and
reversal of (unrealized (loss) on investments in available–for–sale
securities
|
184 | (184 | ) | |||||
Foreign
currency translation gain (loss)
|
(2,283 | ) | 278 | |||||
Total
Comprehensive Loss
|
$ | (9,722 | ) | $ | (11,725 | ) | ||
Loss
per share attributed to common stockholders - basic and
diluted
|
||||||||
Net
loss from continuing operations
|
$ | (0.09 | ) | $ | (0.15 | ) | ||
Discontinued
operations
|
– | – | ||||||
Net
Loss
|
$ | (0.09 | ) | $ | (0.15 | ) | ||
Weighted
average common shares outstanding basic
and diluted
|
86,272,712 | 87,057,391 |
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-3
AFTERSOFT
GROUP, INC.
Consolidated
Statements of Stockholders’ Equity
(In thousands, except share and per share data)
Common Stock
|
Additional
Paid-in-
|
Due
From
|
Other
Comprehensive
|
Accumulated
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Parent
|
Income (Loss)
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance
as of June 30, 2007
|
80,127,384 | $ | 8 | $ | 26,123 | $ | (264 | ) | $ | 1,523 | $ | (2,616 | ) | $ | 24,774 | |||||||||||||
Common
stock issued for cash Common stock issued for cash
|
5,208,337 | 1 | 2,035 | – | – | – | 2,036 | |||||||||||||||||||||
Common
stock issued to settle litigation
|
1,718,750 | – | 825 | – | – | – | 825 | |||||||||||||||||||||
Litigation
settlement shares returned
|
(1,718,750 | ) | – | (275 | ) | – | – | – | (275 | ) | ||||||||||||||||||
Fair
value of warrants issued to settle litigation
|
– | – | 152 | – | – | 152 | ||||||||||||||||||||||
Fair
value of warrants issued to consultant
|
– | – | 27 | – | – | – | 27 | |||||||||||||||||||||
Fair
value of warrants issued with long-term debt
|
– | – | 910 | – | – | – | 910 | |||||||||||||||||||||
Common
stock and warrants issued for parent company common stock
|
6,402,999 | – | 1,812 | – | – | (1,018 | ) | 794 | ||||||||||||||||||||
Common
stock issued as compensation
|
994,500 | – | 99 | – | – | 99 | ||||||||||||||||||||||
Fair
value of warrants issued to lender
|
– | – | 24 | – | – | – | 24 | |||||||||||||||||||||
Foreign
currency translation adjustment
|
– | – | – | – | 278 | – | 278 | |||||||||||||||||||||
Unrealized
loss on investment in available-for-sale securities
|
– | – | – | – | (184 | ) | – | (184 | ) | |||||||||||||||||||
Advances
to parent company, net
|
– | – | – | (2,586 | ) | – | – | (2,586 | ) | |||||||||||||||||||
Net
loss
|
– | – | – | – | – | (11,819 | ) | (11,819 | ) | |||||||||||||||||||
Balance
June 30, 2008
|
92,733,220 | 9 | 31,732 | (2,850 | ) | 1,617 | (15,453 | ) | 15,055 | |||||||||||||||||||
Sale
of parent company common stock Common stock
|
– | – | 337 | 505 | – | – | 842 | |||||||||||||||||||||
Parent
company common stock issued for parent company liabilities
|
– | – | (53 | ) | 193 | – | (140 | ) | – | |||||||||||||||||||
Common
stock retired
|
(13,722,112 | ) | (1 | ) | (2,122 | ) | 2,152 | – | (29 | ) | – | |||||||||||||||||
Common
stock issued as compensation
|
4,451,229 | – | 310 | – | – | – | 310 | |||||||||||||||||||||
Fair
value of warrants issued to lender
|
– | – | 15 | – | – | – | 15 | |||||||||||||||||||||
Foreign
currency translation adjustment
|
– | – | – | – | (2,283 | ) | – | (2,283 | ) | |||||||||||||||||||
Reversal
of unrealized loss on investment in available-for-sale
securities
|
– | – | – | – | 184 | 184 | ||||||||||||||||||||||
Net
loss
|
– | – | – | – | – | (7,623 | ) | (7,623 | ) | |||||||||||||||||||
Balance
June 30, 2009
|
83,462,337 | $ | 8 | $ | 30,219 | $ | – | $ | (482 | ) | $ | (23,245 | ) | $ | 6,500 |
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-4
AFTERSOFT
GROUP, INC.
Consolidated
Statements of Cash Flows
(In thousands)
|
For the Years Ended
June 30,
|
|||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES :
|
||||||||
Net
loss
|
$ | (7,623 | ) | $ | (11,819 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
1,082 | 1,286 | ||||||
Debt
discount and debt issuance cost amortization
|
699 | 412 | ||||||
Loss
on disposition of property and equipment
|
- | 16 | ||||||
Gain
on sale of investment in non-marketable securities
|
- | (1,312 | ) | |||||
Gain
on write off of liabilities
|
(134 | ) | - | |||||
Write
down of investment in available – for- sale securities
|
4,723 | - | ||||||
Loss
on settlements of amount due from parent company
|
- | 1,091 | ||||||
Loss
on sale of discontinued operations
|
- | 26 | ||||||
Gain
on modification of debt settlement
|
- | (123 | ) | |||||
Fair
value of stock and warrants issued for services and
compensation
|
310 | 126 | ||||||
Fair
value of warrants issued for debt waiver
|
- | 24 | ||||||
Impairment
of goodwill
|
850 | 8,170 | ||||||
Changes
in assets and liabilities (net of the effect of acquisitions and
divestitures):
|
||||||||
Accounts
receivable
|
1,079 | (382 | ) | |||||
Inventories
|
297 | (37 | ) | |||||
Prepaid
expenses and other assets
|
183 | (671 | ) | |||||
Net
advances to parent company relating to operating
activities
|
- | (2,060 | ) | |||||
Accounts
payable
|
(852 | ) | 176 | |||||
Taxes
payable
|
329 | 151 | ||||||
Deferred
revenue
|
78 | 172 | ||||||
Accrued
expenses and other liabilities
|
(804 | ) | 1,884 | |||||
Accrued
litigation costs
|
- | (2,000 | ) | |||||
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
217 | (4,870 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Cash
sold in divestitures
|
- | (157 | ) | |||||
Purchase
of property and equipment
|
(213 | ) | (383 | ) | ||||
Proceeds
from the sale of investment in non-marketable securities
|
- | 2,000 | ||||||
Capitalized
software development costs
|
(276 | ) | (681 | ) | ||||
NET
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
|
(489 | ) | 779 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from sale of parent company stock, net of cash issuance
costs
|
842 | 2,036 | ||||||
Proceeds
from long-term debt, net of cash issuance costs
|
500 | 4,359 | ||||||
Payments
on long-term debt
|
(410 | ) | (1,062 | ) | ||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
932 | 5,333 | ||||||
Effect
of exchange rate changes
|
(961 | ) | 57 | |||||
Net
change in cash and cash equivalents
|
(301 | ) | 1,299 | |||||
Cash
and cash equivalents at beginning of year
|
1,964 | 665 | ||||||
Cash
and cash equivalents at end of year
|
$ | 1,663 | $ | 1,964 |
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-5
AFTERSOFT
GROUP, INC.
Consolidated Statements of Cash
Flows (Continued)
(In thousands)
|
For the Years Ended
June 30,
|
|||||||
2009
|
2008
|
|||||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid during the year for :
|
||||||||
Interest
|
$ | 841 | $ | 438 | ||||
Income
taxes
|
$ | 873 | $ | 873 | ||||
Non-cash
investing and financing transactions during the year for :
|
||||||||
Value of
distributed shares
|
$ | 29 | $ | – | ||||
Value
of retired shares
|
$ | 2,123 | $ | - | ||||
Shares
issued for accrued litigation costs
|
- | 825 | ||||||
Value
of shares returned in revised litigation settlement
|
$ | - | $ | 275 | ||||
Value
of warrants issued in revised litigation settlement
|
$ | - | $ | 152 | ||||
Gain
on sale of Parent company common stock
|
$ | 337 | ||||||
Value
of warrants issued for amended debt covenants
|
$ | 15 | ||||||
Issuance
of debt for property, plant and equipment
|
$ | 403 | $ | – | ||||
Value
of warrants issued related to debt issuance
|
$ | - | $ | 910 | ||||
Shares
exchanged for parent company common stock:
|
||||||||
Shares
of Parent company common stock remitted in exchange for Parent company
obligations
|
$ | 193 | $ | - | ||||
Parent
company obligations assumed by Company
|
(140 | ) | - | |||||
Loss
on settlement of Parent company obligations
|
$ | 53 | $ | - | ||||
Value
of parent company shares received
|
$ | - | $ | 794 | ||||
Deemed
dividend to parent company
|
- | 1,018 | ||||||
Value
of Company shares exchanged
|
$ | - | $ | 1,812 | ||||
Shares
of parent company common stock received in exchange for legal
obligation
|
$ | - | $ | 484 | ||||
Shares
of parent company common stock received in exchange for receivable from
parent company
|
$ | - | $ | 2,372 | ||||
Divestiture
of MMI (see Notes 2 and11):
|
||||||||
Cash
|
$ | 157 | ||||||
Accounts
receivable
|
439 | |||||||
Inventory
|
6 | |||||||
Other
|
27 | |||||||
Current
Assets
|
629 | |||||||
Property
and equipment
|
156 | |||||||
Other
long term assets
|
219 | |||||||
Goodwill
|
723 | |||||||
Intangible
assets
|
2,242 | |||||||
Total
Assets
|
3,969 | |||||||
Liabilities
assumed
|
(1,739 | ) | ||||||
Net
assets divested
|
2,230 | |||||||
Loss
on disposal
|
$ | 2,230 | ||||||
Divestiture
of EXP (see Notes 2 and 11):
|
||||||||
Accounts
receivable
|
$ | 1,050 | ||||||
Investments
in available for sale securities
|
369 | |||||||
Current
Assets
|
1,419 | |||||||
Goodwill
|
1,640 | |||||||
Total
Assets
|
3,059 | |||||||
Liabilities
assumed
|
(1,405 | ) | ||||||
Net
assets divested
|
1,654 | |||||||
Proceeds
received:
|
||||||||
Investments
in available for sale securities
|
2,334 | |||||||
Receivable
from buyer
|
1,707 | |||||||
Gain
on disposal
|
$ | 2,387 |
Divestiture
of note receivable of $865,000 for an investment in available for sale
securities of $682,000 as part of the divestitures of EXP and MMI in fiscal year
2008 (see Note 3).
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-6
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
Aftersoft
Group, Inc. (“Aftersoft” or the “Company”) is a former subsidiary of Auto Data
Network, Inc. (“ADNW”), a publicly traded company, the stock of which is
currently traded on the pink sheets under the symbol ADNW.PK, although it is not
current in its reporting obligations with the US Securities and Exchange
Commission (“SEC”). On November 24, 2008, ADNW distributed a dividend of the
71,250,000 shares of Aftersoft common stock that ADNW owned at such time in
order to complete the previously announced spin-off of Aftersoft’s businesses.
The dividend shares were distributed in the form of a pro rata dividend to the
holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common
and convertible preferred stock. Each holder of record of shares of ADNW common
and preferred stock as of the close of business on the record date was entitled
to receive 0.6864782 shares of Aftersoft's common stock for each share of common
stock of ADNW held at such time, and/or for each share of ADNW common stock that
such holder would own, assuming the convertible preferred stock owned on the
record date was converted in full. Prior to the spin-off, ADNW owned
approximately 77% of Aftersoft’s issued and outstanding common stock. Subsequent
to and as a result of the spin-off, Aftersoft is no longer a subsidiary of
ADNW.
Aftersoft
is a leading provider of business and supply chain management solutions
primarily to automotive parts manufacturers, retailers, tire and service chains,
independent installers and wholesale distributors in the automotive aftermarket.
The Company conducts its businesses through wholly owned subsidiaries with
operations in Europe and North America. MAM Software Limited (“MAM”) is based in
Sheffield, United Kingdom (“UK”) and Aftersoft Network, NA, Inc., (“ASNA”) has
offices in the United States (“US”) in Dana Point, California, Allentown,
Pennsylvania and Wintersville, Ohio. MAM Software Inc. has offices in
Allentown, Pennsylvania.
EXP
Dealer Software Services Limited (“EXP”) is comprised of MMI Automotive Limited
(“MMI”), based in Wiltshire, UK, Anka Design Limited, (“Anka”) based in Chester,
UK, and Dealer Software Services Limited (“DSS”), an inactive company, which
were all sold during fiscal 2008, and are included as Discontinued Operations in
the Consolidated Financial Statements for all periods presented (see Notes 2 and
11).
The
Company operates on a June 30 fiscal year end.
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidated financial
statements.
Concentrations
of Credit Risk
The
Company has no significant off-balance-sheet concentrations of credit risk such
as foreign exchange contracts, options contracts or other foreign hedging
arrangements.
Cash
and Cash Equivalents
The
Company maintains cash balances at financial institutions that are insured by
the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30,
2009 and 2008, the Company did not have balances in excess of the FDIC insurance
limits. For banks outside of the United States, the Company
maintains its cash accounts at financial institutions which it believes to be
credit worthy.
For the
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents to the extent the funds are not being held for investment
purposes.
Customers
The
Company performs periodic evaluations of its customers and maintains allowances
for potential credit losses as deemed necessary. The Company generally does not
require collateral to secure its accounts receivable. Credit risk is managed by
discontinuing sales to customers who are delinquent. The Company estimates
credit losses and returns based on management’s evaluation of historical
experience and current industry trends. Although the Company expects to collect
amounts due, actual collections may differ from the estimated
amounts.
F-7
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
No
customer accounted for more than 10% of the Company’s accounts receivable and
revenue as of and for the years ended June 30, 2009 and 2008.
Segment
Reporting
The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” SFAS No.
131 requires public companies to report selected segment information in their
quarterly and annual reports issued to stockholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. As a result of the divestitures that occurred during fiscal 2008, the
Company operates in only one segment.
Geographic
Concentrations
The
Company conducts business in the US, Canada and the UK. From customers
headquartered in their respective countries, the Company derived 28% of its
revenues from North America, and 72% from its UK operations during the year
ended June 30, 2009 compared to 24% from the US and 76% from the UK for the year
ended June 30, 2008. At June 30, 2009, the Company maintained 61% of its net
property and equipment in the UK with the remaining 39 % in the
US. As of June 30, 2008, the Company maintained 21% of its net
property and equipment in the UK and the remaining 79% in the US.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Significant estimates made by the Company’s
management include, but are not limited to, the collectibility of accounts
receivable, the realizability of inventories, the fair value of investments in
available-for-sale securities, the recoverability of goodwill and other
long-lived assets, valuation of deferred tax assets, and the estimated value of
warrants and shares issued for non-cash consideration. Actual results could
materially differ from those estimates.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist principally of cash and cash
equivalents, investments in marketable securities, accounts receivable, accounts
payable, accrued expenses and debt instruments. The carrying values of such
instruments classified as current approximate their fair values as of June 30,
2009 and 2008 due to their short-term maturities. The difference
between the fair values and recorded values of long-term debt are not
significant due to the lack of significant differential between current
prevailing rates of similar instruments and the rates of the Company’s
non-current instruments.
Effective
July 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”,
for its financial assets and liabilities that require fair value
reporting. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting principles
generally accepted in the U.S. and expands required disclosures about fair value
measurements. SFAS No. 157 establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows:
|
·
|
Level
1 – Fair value based on quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level
2 – Fair value based on significant directly observable data (other than
Level 1 quoted prices) or significant indirectly observable data through
corroboration with observable market data. Inputs would normally be (i)
quoted prices in active markets for similar assets or liabilities, (ii)
quoted prices in inactive markets for identical or similar assets or
liabilities or (iii) information derived from or corroborated by
observable market data.
|
|
·
|
Level
3 – Fair value based on prices or valuation techniques that require
significant unobservable data inputs. Inputs would normally be a reporting
entity’s own data and judgments about assumptions that market participants
would use in pricing the asset or
liability.
|
F-8
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Available-for-Sale
Investments
The
Company accounts for its investments in equity securities with readily
determinable fair values that are not accounted for under the equity method of
accounting under SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities.” Management determines the appropriate classification of such
securities at the time of purchase and re-evaluates such classification as of
each balance sheet date. The specific identification method is used to determine
the cost basis of securities disposed of. Unrealized gains and losses on the
marketable securities are included as a separate component of accumulated other
comprehensive income (loss), net of tax. The Company conducts
periodic reviews to identify and evaluate investments that have indications of
possible other-than-temporary impairment. Factors considered in
determining whether a loss is other-than-temporary include the length of time
and extent to which fair value has been below the carrying value; the financial
condition and near-term prospects of the issuer ; and the Company’s ability and
intent to hold the investment for a period of time sufficient to allow for any
anticipated recovery. During the year ended June 30, 2009, the Company
wrote down its investment in available for sale securities to $0 and recognized
a loss of $4,723,000 because of an other-than-temporary impairment (see Note
4). The recognition of this impairment loss in the statement of operations
resulted in the recognition of the previously unrealized loss of $184,000 for
the year ended June 30, 2009. At June 30, 2008, investments consist of corporate
stock with an unrealized loss of $184,000.
Inventories
Inventories
are stated at the lower of cost or current estimated market value. Cost is
determined using the first-in, first-out method. Inventories consist primarily
of hardware that will be sold to customers. The Company periodically reviews its
inventories and records a provision for excess and obsolete inventories based
primarily on the Company’s estimated forecast of product demand and production
requirements. Once established, write-downs of inventories are considered
permanent adjustments to the cost basis of the obsolete or excess
inventories.
Investment
in Non-Marketable Securities
Non-marketable
securities consist of equity securities for which there were no quoted market
prices. Such investments were initially recorded at their cost, subject to an
impairment analysis. Such investments will be reduced if the Company receives
indications that a permanent decline in value has occurred. Any decline in value
of non-marketable securities below cost that is considered to be “other than
temporary” will be recorded as a reduction on the cost basis of the security and
will be included in the consolidated statement of operations as an impairment
loss.
The
Company owned an 18.18% ownership interest in DCS Automotive Ltd, a non-public
company in the UK, which it acquired for $688,000. During the year ended June
30, 2008, the Company sold its non-marketable investment to a third party for
$2,000,000, generating a gain of $1,312,000.
Property
and Equipment
Property
and equipment are stated at cost, and are being depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the assets
or the related lease terms. Equipment under capital lease obligations is
depreciated over the shorter of the estimated useful lives of the related assets
or the term of the lease. Maintenance and routine repairs are charged to expense
as incurred. Significant renewals and betterments are capitalized. At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the consolidated statement of operations.
Software
Development Costs
Costs
incurred to develop computer software products to be sold or otherwise marketed
are charged to expense until technological feasibility of the product has been
established. Once technological feasibility has been established, computer
software development costs (consisting primarily of internal labor costs) are
capitalized and reported at the lower of amortized cost or estimated realizable
value. Purchased software development cost is recorded at its estimated fair
market value. When a product is ready for general release, its capitalized costs
are amortized using the straight-line method over a period of three years. If
the future market viability of a software product is less than anticipated,
impairment of the related unamortized development costs could occur, which could
significantly impact the recorded net income (loss) of the Company.
Amortizable
Intangible Assets
Amortizable
intangible assets consist of completed software technology, customer
relationships and automotive data services and are recorded at cost. Completed
software technology and customer relationships are amortized using the
straight-line method over their estimated useful lives of 8 to 10 years, and
automotive data services are amortized using the straight-line method over their
estimated useful lives of 20 years.
F-9
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Goodwill
SFAS No.
142, “Goodwill and Other Intangible Assets,” addresses how intangible assets
that are acquired individually or with a group of other assets should be
accounted for in the financial statements upon their acquisition and after they
have been initially recognized in the financial statements. SFAS No. 142
requires that goodwill and intangible assets that have indefinite useful lives
not be amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their useful
lives. In addition, SFAS No. 142 expands the disclosure requirements about
goodwill and other intangible assets in the years subsequent to their
acquisition.
SFAS No.
142 provides specific guidance for testing goodwill and intangible assets that
will not be amortized for impairment. Goodwill will be subject to impairment
reviews by applying a fair-value-based test at the reporting unit level, which
generally represents operations one level below the segments reported by the
Company. An impairment loss is recorded for any goodwill that is determined to
be impaired, which resulted in an impairment charge of $850,000 in fiscal
2009 and $8,170,000 impairment charge in fiscal 2008. The impairment loss
relates to ASNA as a result of continuing operating losses and less optimistic
operating forecasts. The estimated fair value of ASNA was determined using
present value techniques. There can be no assurance, however, that market
conditions will not change or demand for the Company’s products and services
will continue which could result in additional impairment of goodwill in the
future.
Balance
July 1, 2007
|
$ | 20,030,000 | ||
Effect
of exchange rate changes
|
18,000 | |||
Impairment
charges
|
(8,170,000 | ) | ||
Balance
June 30, 2008
|
11,878,000 | |||
Effect
of exchange rate changes
|
(1,480,000 | ) | ||
Impairment
charges
|
(850,000 | ) | ||
Balance
June 30, 2009
|
$ | 9,548,000 |
Long-Lived
Assets
The
Company’s management assesses the recoverability of long-lived assets (other
than goodwill discussed above) upon the occurrence of a triggering event by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. At June 30, 2009 and 2008, the
Company’s management believes there is no impairment of its long-lived assets
(other than goodwill discussed above). There can be no assurance, however, that
market conditions will not change or demand for the Company’s products and
services will continue, which could result in impairment of long-lived assets in
the future.
Issuance
of Equity Instruments to Non-Employees
All
issuances of the Company’s equity instruments to non-employees have been
assigned a per share amount equaling either the market value of the equity
instruments issued or the value of consideration received, whichever
is more readily determinable. The majority of the non-cash consideration
received pertains to services rendered by consultants and others and has been
valued at the market value of the equity instruments on the dates
issued.
The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of Emerging
Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services,” and EITF 00-18, “Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees.” The
measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor’s performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term
of the consulting agreement. In accordance with EITF 00-18, an asset acquired in
exchange for the issuance of fully vested, non-forfeitable equity instruments
should not be presented or classified as an offset to equity on the grantor’s
balance sheet once the equity instrument is granted for accounting
purposes.
F-10
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Stock-Based
Compensation
The
Company adopted the provisions of SFAS No. 123(R) “Share-Based Payment”
requiring it to recognize expense related to the fair value of its share-based
compensation awards over the applicable vesting period, subject to estimated
forfeitures.
For
valuing stock options awards under SFAS No. 123(R), the Company has elected to
use the Black-Scholes valuation model, using the guidance in Staff Accounting
Bulletin (“SAB”) No. 107 for determining its expected term and volatility
assumptions. For the expected term, the Company uses a simple average of the
vesting period and the contractual term of the option. Volatility is a measure
of the amount by which the Company’s stock price is expected to fluctuate during
the expected term of the option. For volatility the Company considers its own
volatility as applicable for valuing its options and warrants. SFAS 123(R)
requires that forfeitures be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. The risk-free interest rate is based on the relevant US Treasury Bill
Rate at the time of each grant. The dividend yield represents the dividend rate
expected to be paid over the option’s expected term; the Company currently has
no plans to pay dividends.
On June
12, 2008, the Company’s shareholders approved the Aftersoft Group Inc. 2007
Long-Term Stock Incentive Plan. The maximum aggregate number of shares of common
stock that may be issued under the plan, including stock options, stock awards,
and stock appreciation rights is limited to 15% of the shares of common stock
outstanding on the first trading day of any fiscal year. The Company issued
restricted shares to management and board members in fiscal 2009 and 2008 under
this plan (see Note 10).
Revenue
Recognition
The
Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position (“SOP”) 97-2, “Software
Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions.”
Accordingly, software license revenue is recognized when persuasive evidence of
an arrangement exists, delivery of the product component has occurred, the fee
is fixed and determinable, and collectability is probable.
If any of
these criteria are not met, revenue recognition is deferred until such time as
all of the criteria are met. In accordance with SOP 98-9, the Company accounts
for delivered elements in accordance with the residual method when arrangements
include multiple product components or other elements and vendor-specific
objective evidence exists for the value of all undelivered elements. Revenues on
undelivered elements are recognized once delivery is complete.
In those
instances where arrangements include significant customization, contractual
milestones, acceptance criteria or other contingencies (which represents the
majority of the Company’s arrangements), the Company accounts for the
arrangements using contract accounting, as follows :
|
1)
|
When
customer acceptance can be estimated, expenditures are capitalized as work
in process and deferred until completion of the contract at which time the
costs and revenues are recognized.
|
|
2)
|
When
customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion
of the contract when customer acceptance is
obtained.
|
The
Company records amounts collected from customers in excess of recognizable
revenue as deferred revenue in the accompanying consolidated balance
sheet.
Revenues
for maintenance agreements, software support, on-line services and information
products are recognized ratably over the term of the service
agreement.
Advertising
Expense
The
Company expenses advertising costs as incurred. For the years ended June 30,
2009 and 2008, advertising expense totaled $125,000 and $126,000,
respectively.
F-11
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Gain
on Extinguishment of Liability
The
Company realized $134,000 of income from the extinguishment of liabilities for
the year ended June 30, 2009 due to the expiration of the statute of limitations
related to such liabilities, which is included in other
income.
Foreign
Currency
Management
has determined that the functional currency of its subsidiaries is the local
currency. Assets and liabilities of the UK subsidiaries are translated into US
dollars at the year-end exchange rates. Income and expenses are translated at an
average exchange rate for the year and the resulting translation gain (loss)
adjustments are accumulated as a separate component of stockholders’ equity,
which totaled $2,283,000 and $278,000 for the years ended June 30, 2009 and
2008, respectively.
Foreign
currency gains and losses from transactions denominated in other than respective
local currencies are included in income. The Company had no foreign currency
transaction gains (losses) for all periods presented.
Comprehensive
Income
Comprehensive
income (loss) includes all changes in equity (net assets) during a period from
non-owner sources. For the years ended June 30, 2009 and 2008, the components of
comprehensive income (loss) consist of foreign currency translation gains
(losses) and unrealized gains (losses) on investments in available-for-sale
securities.
Income
Taxes
The
Company accounts for domestic and foreign income taxes under SFAS No. 109,
“Accounting for Income Taxes.”
Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period the enactment
occurs. Deferred taxation is provided in full in respect of taxation deferred by
timing differences between the treatment of certain items for taxation and
accounting purposes. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109,” which defines the threshold for
recognizing the benefits of tax return positions as well as guidance regarding
the measurement of the resulting tax benefits. FIN 48 requires a company to
recognize for financial statement purposes the impact of a tax position if that
position is “more likely than not” to prevail (defined as a likelihood of more
than fifty percent of being sustained upon audit, based on the technical merits
of the tax position). The Company adopted FIN 48 in its consolidated financial
statements beginning in fiscal 2008 (See Note 8).
Basic
and Diluted Earnings (Loss) Per Share
Basic
earnings (loss) per common share are computed based on the weighted average
number of shares outstanding for the year. Diluted earnings (loss) per share are
computed by dividing net income (loss) by the weighted average shares
outstanding assuming all potential dilutive common shares were issued. During
periods in which the Company incurs losses, common stock equivalents, if any,
are not considered, as their effect would be anti-dilutive. For the year ended
June 30, 2009, a total of 21,798,135 common stock purchase warrants and debt
convertible into 3,361,345 shares were excluded from the computation of diluted
loss per share, as their effect would have been anti-dilutive. For
the year ended June 30, 2008, a total of 20,798,135 common stock purchase
warrants and debt convertible into 3,333,333 shares were excluded from the
computation of diluted loss per share as their effect would have been
anti-dilutive.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings (loss) per share computation for the years ended June
30:
2009
|
2008
|
|||||||
Numerator
for basic and diluted loss per share:
|
||||||||
Net
loss
|
$ | (7,623,000 | ) | $ | (11,819,000 | ) | ||
Deemed
distribution to parent company
|
(169,000 | ) | (1,018,000 | ) | ||||
Net
loss available to common shareholders
|
$ | (7,792,000 | ) | $ | (12,837,000 | ) | ||
Denominator
for basic and diluted Loss per common share:
|
||||||||
Weighted
average number of shares of common stock outstanding
|
86,272,712 | 87,057,391 | ||||||
Net
loss per common share available to common stockholders - basic and
diluted
|
$ | (0.09 | ) | $ | (0.15 | ) |
F-12
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS
No. 141(R) requires acquiring entities in a business combination to recognize
the assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS No. 141(R) is effective in fiscal years
beginning after December 15, 2008. The Company expects to adopt SFAS No. 141(R)
on July 1, 2009. The Company is currently assessing the impact the adoption of
SFAS No. 141(R) will have on its consolidated financial statements.
In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock,” (“EITF 07-5”). EITF
07-5 provides guidance for determining whether an equity-linked financial
instrument, or embedded feature, is indexed to an entity’s own stock. EITF 07-5
is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years, and will be adopted by the Company in
the first quarter of fiscal year 2010. The Company is currently assessing and
believes there will be an impact from the adoption of EITF 07-5 on its
consolidated results of operations and financial condition.
In
April 2009, the FASB issued FSP FAS 107-1 and ABP 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and ABP
28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments”, and ABP Opinion No. 28, “Interim Financial Reporting”, to require
disclosures about fair value of financial instruments in interim and annual
reporting periods. FSP FAS 107-1 and ABP 28-1 is effective for interim reporting
periods ending after June 15, 2009, which for the Company is the first quarter
of fiscal 2010. The Company is currently assessing the impact there will
be from the adoption of FSP 107-1 and ABP 28-1 on its consolidated results of
operations and financial condition.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements.” SFAS No. 160 requires entities to report
noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. SFAS No. 160 is effective in fiscal years
beginning after December 15, 2008. The Company expects to adopt SFAS No. 160 on
July 1, 2009. The Company is currently assessing the impact the adoption of SFAS
No. 160 will have on its consolidated financial statements.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities”
requires entities to provide greater transparency about how and why an entity
uses derivative instruments, how derivative instruments and related hedged items
are accounted for under SFAS No. 133, and how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations, and cash flows. The statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. The Company expects to adopt SFAS No. 161 on July 1, 2009. The
Company is currently assessing the impact the adoption of SFAS No. 161 will have
on its consolidated financial statements.
In
April 2008, the FASB issued FSP No. 142-3, “Determination of the
Useful Life of Intangible Assets” which amends the factors that must be
considered in developing renewal or extension assumptions used to determine the
useful life over which to amortize the cost of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets”. The FSP
requires an entity to consider its own assumptions about renewal or extension of
the term of the arrangement, consistent with its expected use of the asset, and
is an attempt to improve consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS No. 141, “Business
Combinations.” The FSP is effective for fiscal years beginning after
December 15, 2008, and the guidance for determining the useful life of a
recognized intangible asset must be applied prospectively to intangible assets
acquired after the effective date. The FSP is not expected to have a significant
impact on the consolidated financial statements.
In
June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” Under the FSP, unvested share-based payment awards
that contain rights to receive non-forfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years, and is not
expected to have a significant impact on the consolidated financial
statements.
F-13
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments.” This FSP provides
additional guidance designed to create greater clarity and consistency in
accounting and presenting impairment losses on securities. The FSP is intended
to bring greater consistency to the timing of impairment recognition, and
provide greater clarity to investors about the credit and noncredit components
of impaired debt securities that are not expected to be sold. The measure of
impairment in comprehensive income remains fair value. The FSP also requires
increased and more timely disclosures regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses. The FSP is effective
for interim and annual reporting periods ending after June 15,
2009. The Company expects to adopt this standard with its September
30, 2009 interim report and does not expect the standard to have a material
impact on its consolidated financial statements.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” The objective of
this statement is to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The statement is
effective for interim or annual reporting periods ending after June 15,
2009. The Company has evaluated subsequent events through September
25, 2009, which is the date the consolidated financial statements were
issued.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R).” The objective of this statement is to improve financial
reporting by enterprises involved with variable interest
entities. The statement is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009. The Company expects to adopt this standard on July 1, 2010 and
does not expect the standard to have a material impact on its consolidated
financial statements.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™
and the Hierarchy of Generally Accepted Accounting Principles – a Replacement of
FASB Statement No. 162
. ”
The Codification will become the source of
authoritative U.S. GAAP. The statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company expects to adopt this standard with the filing of
its Quarterly Report on Form 10-Q for the period ended September 30, 2009 and
does not expect the standard to have a material impact on its consolidated
financial statements.
NOTE
2. ACQUISITIONS AND DIVESTITURES
EXP
Dealer Software Limited
On
October 30, 2007, the Company divested MMI. Pursuant to the terms of the
agreement, EXP agreed to sell shares of Distal Enterprises (“Distal”), which
owned the shares of MMI, to the original sellers of MMI, in full and final
satisfaction of any and all amounts owed to the original sellers of MMI. Under
the terms of the agreement, the Company, EXP, and ADNW were released from any
and all of its liabilities under the original purchase agreement and any other
agreements between the parties executed prior thereto, upon the completion and
transfer of the entire issued share capital of Distal to the original sellers.
The Company received no further consideration on the sale, and incurred a loss
of $2,230,000 which is included in sale of discontinued operations (see Note
11).
On
November 12, 2007, the Company divested EXP. Pursuant to the terms of the Share
Sale Agreement (the “Agreement”), EU Web Services Limited (“EU Web Services”)
agreed to acquire, and the Company agreed to sell, the entire issued share
capital of EXP it then owned. In consideration of the sale, EU Web Services
agreed to issue to the Company, within twenty-eight days from the Agreement’s
execution, Ordinary 0.01 GBP shares in its parent company, First London
Securities, PLC (“First London Securities”) having a fair market value of
$3,000,000 at the date of issuance of such shares. The Company received
1,980,198 shares and recorded the investment at $2,334,000, which represented
the bid price of the restricted securities received, and discounted the carrying
value by 11%, as the shares cannot be liquidated for at least twelve months. The
shares are included as investment in available for sale securities in the
accompanying consolidated balance sheet (see Note 4). Further, the Agreement
provided that the Company receive additional consideration in the form of: (i)
Ordinary shares in EU Web Services having a fair market value of $2,000,000 as
of the date issuance of, provided that EU Web Services is listed and becomes
quoted on a recognized trading market within six (6) months from the date of the
Agreement; or (ii) If EU Web services does not become listed within the time
period specified, Ordinary shares in EU Web Services’ parent company having a
fair market value of $2,000,000 as of the date of issuance. The Company
originally recorded the receivable at $1,707,000. The Company recorded a gain of
$2,387,000 on the sale of EXP which is included in sale of discontinued
operations (see Note 11). The Company received 1,874,414 shares of First London
Securities as payment for the $2,000,000 receivable.
The
operations of EXP (including MMI, Anka and DSS) for the year ended June 30, 2008
have been reclassified and presented separately in the accompanying consolidated
financial statements (see Note 11).
Dealer
Software and Services Limited
On
November 12, 2007 as part of the sale of EXP, a $865,000 note receivable from
the fiscal 2007 sale of CSC was exchanged for 578,672 shares of First London
Securities common stock having a fair value of $682,000. The transaction
resulted in a loss of $183,000 and is included in sale of discontinued
operations (see Note 11).
F-14
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
NOTE
3. TRANSACTIONS WITH FORMER PARENT COMPANY
From time
to time payments were made by the Company to settle certain obligations of ADNW
and recorded as advances to Parent Company. The advances were non-interest
bearing and due on demand. ADNW had minimal operations, and as of December 31,
2007, agreed to exchange the balance due the Company for 16,000,000 common
shares of ADNW. The Company recorded the net receivable at $2,372,000, which
represented the bid price of the restricted securities to be received as of
December 31, 2007, and discounted the carrying value by 11% or $188,000 because
the shares could not be liquidated until the spinoff of the Company from ADNW
was completed (pursuant to the distribution by ADNW of all of the Company’s
shares it owned to its stockholders) under a registration statement declared
effective by the SEC which, as of December 31, 2007, was expected to take
approximately six months. The spin-off registration statement was declared
effective by the SEC on November 5, 2008. On November 24, 2008 (the
“Dividend Distribution Date”), ADNW distributed the dividend of the 71,250,000
shares of the Company’s common stock that ADNW owned at such time in order to
complete the spin-off of Aftersoft’s businesses. The dividend shares were
distributed in the form of a pro rata dividend to the holders of record as of
November 17, 2008 (the “Record Date”) of ADNW’s common and convertible preferred
stock. Each holder of record of shares of ADNW common and preferred stock as of
the close of business on the Record Date was entitled to receive 0.6864782
shares of the Company’s common stock for each share of common stock of ADNW held
at such time, and/or for each share of ADNW common stock that such holder would
own, assuming the convertible preferred stock owned on the Record Date was
converted in full. Prior to the spin-off, ADNW owned approximately
77% of the Company’s issued and outstanding common stock. Subsequent to and as a
result of the spin-off, the Company is no longer a subsidiary of ADNW (see Note
10).
For the
quarter ended March 31, 2008, the Company reduced the carrying value of amount
due from parent company by $800,000, which represents the reduction of the bid
price of the restricted shares from December 31, 2007 and was recorded in
general and administrative expenses in the consolidated statement of operations
during such period.
ADNW
attempted to settle an old outstanding obligation of ADNW of $775,000 with Mr.
Blumenthal (see Note 9) for 4,400,000 shares of ADNW common stock. The value of
the shares declined and Mr. Blumenthal elected not to accept the ADNW shares as
full compensation, and later demanded that the Company settle ADNW’s liability
with additional or different consideration. In April 2008, the Company accepted
the 4,400,000 shares from ADNW valued at $484,000 in exchange for attempting to
settle ADNW’s liability. The difference between the value of the ADNW shares and
the amount of ADNW’s initial obligation of $291,000 was recorded as general and
administrative expense in the consolidated statement of operations during such
period. Upon further diligence and review of the matter during the quarter ended
December 31, 2008, the Company determined that no contractual or transactional
basis exists which would have resulted in the assumption of any liability in
this regard. Thus, the Company does not believe it has an enforceable
legal obligation to further compensate Mr. Blumenthal.
In August
2009, the Company received correspondence from Mr. Blumenthal (see Note
9).
On June
29, 2007, the Company granted to a holder of 2,124,098 shares of ADNW preferred
stock, which is convertible into 7,231,622 shares of common stock of ADNW,
certain exchange rights. The preferred shareholder agreed to waive anti-dilution
rights it held in ADNW for the right to exchange the preferred shares for
6,402,999 units of the Company, which units were issued as part of the private
placement that closed in July 2007, and contained the same terms as the
securities issued in that offering (see Note 10) - one share of the Company’s
common stock, and a five-year warrant to purchase one share of Company’s common
stock exercisable at $1.00. On April 24, 2008, the Company completed the
exchange transaction and issued the shares and warrants. The difference of
$1,018,000 between the value of the Company units issued ($1,812,000) and the
ADNW shares received ($794,000) was recorded as a distribution in the form of an
increase to accumulated deficit.
As a
result of the above transactions at June 30, 2008, the Company owned
approximately 27.6 million shares of ADNW’s common stock on a fully converted
basis in the aggregate, representing 26.6% of ADNW’s common stock on a fully
diluted basis on that date.
During
the year ended June 30, 2009, the Company liquidated 5,231,622 common shares of
ADNW for net proceeds of $842,000, and issued 2,000,000 common shares of ADNW in
settlement of ADNW obligations (see Note 10). As a result of the Company’s
ownership of certain ADNW securities, the Company received approximately
13,965,295 shares of its own common stock in connection with the spin-off
dividend distribution. On December 31, 2008, the Company retired
13,722,112 of the shares. The remaining 243,183 shares were used by the Company
for rounding of fractional shares issued in respect of the spin-off dividend, to
make adjustments for the benefit of the holders of ADNW’s Series B Convertible
Preferred Stock which received fewer shares in connection with the spin-off than
the number to which they were entitled as a result of a calculation error
relating to the Series B conversion rate, and for other minor
adjustments.
F-15
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
As a
result of the above transaction, the Company no longer owns any shares of ADNW
stock and is no longer owed any monies from ADNW as of June 30,
2009.
NOTE
4. INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES
The
Company received a total of 4,433,284 shares of First London Securities from the
sale of EXP (see Note 2). The shares are listed for trading on the London Plus
Exchange but currently trading has been halted by the company.
The
Company owns approximately 3% of First London Securities, wrote down its
investment and recognized a loss of $4,723,000 because of an
other-than-temporary impairment as of June 30, 2009. The recognition of this
impairment loss in the statement of operations resulted in the reversal in other
comprehensive loss of a previously unrealized loss of $184,000 for
the year ended June 30, 2009. At June 30, 2008, investments consist of corporate
stock with an unrealized loss of $184,000.
Factors
considered in determining whether impairments are other-than-temporary include
(i) the length of time and extent to which fair value has been less than
the amortized cost basis, (ii) the financial condition and near-term
prospects of the investee and (iii) the Company’s intent and ability to
hold an investment for a period of time sufficient to allow for any anticipated
recovery in market value.
In
accordance with SFAS No. 157, the following table details the fair value
measurements within the fair value hierarchy of the Company’s investments in
available-for-sale securities (in thousands) using Level 3 Inputs:
Investment
in available-for-sale securities under Level 3 classification as
of March 31, 2009
|
$ | - | ||
Transfers
into Level 3
|
1,238,000 | |||
Write
down of available – for- sale securities
|
(1,238,000 | ) | ||
Balance
as of June 30, 2009
|
- |
Because
trading in the shares of First London Securities has been halted, the Company
determined that it no longer could value the securities using Level 2, but
required a Level 3 classification. Fair value measurements using
Level 3 inputs in the table above relate to the Company’s investments in
available for sale securities, which are based on the Company’s inability to
obtain current financial statements and the fact that trading in the shares
of First London Securities has been halted.
NOTE
5. PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
June 30, 2009
|
June 30, 2008
|
|||||||
Leasehold
improvements
|
$ | 774,000 | $ | 574,000 | ||||
Computer
and office equipment
|
336,000 | 163,000 | ||||||
Equipment
under capital leases
|
10,000 | 10,000 | ||||||
Furniture
and equipment
|
275,000 | 357,000 | ||||||
1,395,000 | 1,104,000 | |||||||
Less
: Accumulated depreciation and amortization
|
(367,000 | ) | (512,000 | ) | ||||
$ | 1,028,000 | $ | 592,000 |
Depreciation
and amortization expense
on property and equipment for the years ended June 30, 2009 and 2008 was
$180,000 and $118,000, respectively.
F-16
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
NOTE
6. INTANGIBLE ASSETS
Intangible
assets consist of the following:
June 30,
2009
|
June 30,
2008
|
|||||||
Assets
not subject to amortization:
|
||||||||
Goodwill
|
$ | 9,548,000 | $ | 11,878,000 | ||||
Assets
subject to amortization:
|
||||||||
Completed
software technology (9-10 years useful life)
|
$ | 3,109,000 | $ | 3,389,000 | ||||
Customer
contracts / relationships (10 years useful life)
|
3,770,000 | 3,909,000 | ||||||
Automotive
data services (20 years useful life)
|
323,000 | 391,000 | ||||||
7,202,000 | 7,689,000 | |||||||
Less
: Accumulated amortization
|
(3,636,000 | ) | (3,105,000 | ) | ||||
Amortizable
intangible assets, net
|
$ | 3,566,000 | $ | 4,584,000 | ||||
Software
development costs
|
$ | 3,083,000 | $ | 3,263,000 | ||||
Less
: Accumulated amortization
|
(1,392,000 | ) | (1,545,000 | ) | ||||
Software
development costs, net
|
$ | 1,691,000 | $ | 1,718,000 |
For the
years ended June 30, 2009 and 2008, the Company recognized amortization expense
on its software development costs and other amortizable intangible assets of
$902,000 and $1,168,000, respectively.
Estimated
future amortization of software development costs and intangibles is as
follows:
Years
Ending June 30,
|
||||
2010
|
$ | 1,130,000 | ||
2011
|
760,000 | |||
2012
|
760,000 | |||
2013
|
760,000 | |||
2014
|
760,000 | |||
Thereafter
|
1,087,000 | |||
Total
|
$ | 5,257,000 |
NOTE
7. LONG-TERM DEBT
Long-term
debt consists
of the following as of June 30, 2009 and June 30, 2008:
June 30,
2009
|
June 30,
2008
|
|||||||
ComVest
term loan, net of debt discount of $303,000 and
$756,000
|
$ | 4,697,000 | $ | 4,244,000 | ||||
ComVest
revolver
|
1,000,000 | 500,000 | ||||||
Secured
notes
|
388,000 | - | ||||||
McKenna
note
|
150,000 | 497,000 | ||||||
Homann
note
|
63,000 | 125,000 | ||||||
Other
notes
|
13,000 | 15,000 | ||||||
6,311,000 | 5,381,000 | |||||||
Less
current portion
|
(1,598,000 | ) | (598,000 | ) | ||||
Long
term portion
|
$ | 4,713,000 | $ | 4,783,000 |
Future
maturities of long-term debt (excluding debt discount) at June 30, 2009 are as
follows:
Years
Ending June 30,
|
||||
2010
|
$ | 1,598,000 | ||
2011
|
4,832,000 | |||
2012
|
82,000 | |||
2013
|
82,000 | |||
2014
|
20,000 | |||
Total
|
$ | 6,614,000 |
F-17
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
ComVest
Loan Agreement
On
December 21, 2007, the Company entered into a Revolving Credit and Term Loan
Agreement (the “Loan Agreement”) with ComVest Capital LLC (“ComVest”), as
lender, pursuant to which ComVest agreed to extend a $1,000,000 secured
revolving Credit Facility and a $5,000,000 Term Loan. The Loan Agreement
contains customary affirmative and negative covenants, including maximum limits
for capital expenditures per fiscal year, and ratios for liquidity. In
connection with obtaining a waiver for a violation of loan covenants at March
31, 2008, the Company reduced the exercise price from $0.3125 per share to $0.11
per share for one million warrants held by Comvest (see below), recognizing the
incremental fair value of the modified warrants of $24,000 as additional
interest expense.
As of
June 30, 2008, in connection with obtaining a waiver for a violation of loan
covenants, the Company and ComVest amended the loan agreement and modified
certain covenants. The cash flow ratio coverage was reduced and the lender
agreed to extend from January 1, 2009 until January 1, 2010 the start of the
loan amortization. As part of the amendment, ComVest required the Company to
reduce the exercise price from $0.39 to $0.11 for 2,000,000 warrants held by
ComVest (see below). The incremental fair value of the modified warrants is
$15,000, which will be recorded as an additional debt discount and amortized
over the remaining life of the term loan pursuant to EITF 96-19, “Debtor’s
Accounting for a Modification or Exchange of Debt Instruments.”
As of
December 31, 2008, in connection with obtaining a waiver for violation of
certain loan covenants, the Company and ComVest agreed to increase the interest
on the $1,000,000 Credit Facility (described below) from 9.5% to 11%. The
Company reviewed EITF 96-19, and the amendment did not meet the requirements of
a Modification or Exchange of Debt Instruments, therefore no adjustment to the
financial statements was required.
Pursuant
to a waiver and amendment, the annual interest rate was restored to 9.5% as the
Company became compliant with the covenant as of the close of the quarter ended
on March 31, 2009. After obtaining the above waivers, the Company is not in
violation of any loan covenants at June 30, 2009 and June 30, 2008.
Credit Facility and Revolving Credit
Note. Pursuant to the terms of the Loan Agreement, the Credit Facility is
available from December 21, 2007 (the “Closing Date”), through November 30,
2009, unless the maturity date is extended, or the Company prepays the Term Loan
(described below) in full, in each case in accordance with the terms of the Loan
Agreement. The Credit Facility provides for borrowing capacity of an amount up
to (at any time outstanding) the lesser of the borrowing base at the time of
each advance under the Credit Facility, or $1,000,000. The borrowing base at any
time will be an amount determined in accordance with a borrowing base report the
Company is required to provide to ComVest, based upon the Company’s Eligible
Accounts and Eligible Inventory, as such terms are defined in the Loan
Agreement.
In
connection with the Credit Facility, the Company issued a Revolving Credit Note
(the “Credit Note”) payable to ComVest in the principal amount of $1,000,000,
bearing interest at a rate per annum equal to the greater of (a) the prime rate,
as announced by Citibank, N.A. from time to time, plus two percent (2%), or (b)
nine and one-half percent (9.5%). The interest rate as of December 31, 2008 was
increased from 9.5% to 11% in connection with obtaining a waiver from ComVest
for violation of certain loan covenants described
above). As of April 1, 2009, the Company was in compliance with the
loan covenants and the interest was reduced from 11% to 9.5%. The applicable
interest rate will be increased by four hundred (400) basis points during the
continuance of any event of default under the Loan Agreement. Interest will be
computed on the daily unpaid principal balance and is payable monthly in arrears
on the first day of each calendar month commencing January 1, 2008. Interest is
also payable upon maturity or acceleration of the Credit Note.
Effective
April 22, 2009, the Company and ComVest amended the loan agreement and modified
certain covenants relating the the required ratio of (a) Earnings Before
Interest, Depreciation, and Amortization, minus capital expenditures incurred to
(b) debt service (all interest and principal payments) (“Debt Service”) (the
“EBIDA Ratio”) contained in the Loan Agreement (the
“Covenant”). Pursuant to the April 22, 2009 Amendment, the Covenant
requires that the applicable minimum EBIDA Ratio be met as of the end of
the quarter for such quarter. Prior to the April 22, 2009 Amendment,
the Covenant required that the applicable minimum EBIDA Ratio be met as of the
end of each quarter of any fiscal year for the four (4) consecutive quarters
then ended.
The
minimum EBITA Ratios themselves were not modified by the April 22, 2009
Amendment, and remain at 0.50:1.00 for the quarter ended June 30, 2009 and
1.25:1.00 for the quarter ended on or after September 30, 2009.
The
Company has the right to prepay all or a portion of the principal balance on the
Credit Note at any time, upon written notice, with no penalty. The Credit Note
is secured pursuant to the provisions of certain Security
Documents.
The
Company may, at its option, and provided that the maturity date of the Credit
Facility has not been accelerated due to prepayment in full of the Term Loan,
elect to extend the Credit Facility for one additional year, through November
30, 2010, upon written notice to ComVest, provided that no default or event of
default have occurred and are continuing at that time. The Company also has the
option to terminate the Credit Facility at any time upon five business days’
prior written notice, and upon payment to ComVest of all outstanding principal
and accrued interest of the advances on the Credit Facility, and prorated
accrued commitment fees. The Credit Facility commitment also terminates, and all
obligations become immediately due and payable, upon the consummation of a Sale,
which is defined in the Loan Agreement as certain changes of control or sale or
transfers of a material portion of the Company’s assets.
F-18
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
At June
30, 2009 the Company had drawn down the $1,000,000 Credit Facility in
full. The interest rate at June 30, 2009 was 9.5%.
Term Loan and Convertible Term
Note. Pursuant to the terms of the Loan Agreement, ComVest extended to
the Company a Term Loan in the principal amount of $5,000,000, on the Closing
Date. The Term Loan is a one-time loan, and unlike the Credit Facility, the
principal amount is not available for re-borrowing.
The Term
Loan is evidenced by a Convertible Term Note (the “Term Note”) issued by the
Company on the Closing Date, and payable to ComVest in the principal amount of
$5,000,000. The Term Note bears interest at a rate of eleven percent (11%) per
annum, except that during the continuance of any event of default, the interest
rate will be increased to sixteen percent (16%).
As
amended (see ComVest Loan Agreement” above), the Term Note is repayable in 11
equal monthly installments of approximately $208,000, payable on first day of
each calendar month commencing January 1, 2010, through November 1, 2010, with
the balance of $2,708,000 due on November 30, 2010.
The
Company has the option to prepay the principal balance of the Term Note in whole
or in part, at any time, upon 15 days’ prior written notice. The Company will be
required to prepay the Term Loan in whole or part under certain circumstances.
In the event that the Company prepays all or a portion of the Term Loan, the
Company will ordinarily pay a prepayment premium in an amount equal to (i) three
percent (3%) of the principal amount being prepaid if such prepayment is made or
is required to be made on or prior to the second anniversary of the Closing
Date, and (ii) one percent (1%) of the principal amount being prepaid if such
prepayment is made or is required to be made subsequent to the second
anniversary of the Closing Date.
The
principal and interest payable on the Term Note is convertible into shares of
the Company’s common stock at the option of ComVest. In addition, the Company
may require conversion of the principal and interest under certain
circumstances. The initial conversion price was $1.50 per share. The number of
shares issuable upon conversion of the Term Note (the “Conversion Shares”),
and/or the conversion price, may be proportionately adjusted in the event of any
stock dividend, distribution, stock split, stock combination, stock
consolidation, recapitalization or reclassification or similar transaction. In
addition, the number of Conversion Shares, and/or the conversion price may be
adjusted in the event of certain sales or issuances of shares of the Company’s
common stock, or securities entitling any person to acquire shares of common
stock, at any time while the Term Note is outstanding, at an effective price per
share which is less than the then-effective conversion price of the Term
Note.
On July
3, 2008, the conversion price for the Term Note was reduced from $1.50 to $1.49
as a result of certain anti-dilution protection contained therein following the
issuance by the Company of additional shares of common stock and warrants to
purchase common stock. Consequently, the number of shares issuable upon
conversion of the principal amount of the Term Note was increased to 3,361,345
shares from 3,333,333 shares.
The
Company incurred a closing fee of $100,000 in connection with the Term Loan. In
connection with the Credit Facility, the Company has agreed to pay an annual
commitment fee of $15,000, on December 1 of each year, commencing December 1,
2008, and on any termination date (pro-rated, if applicable), that the Credit
Facility is in effect, as well as a collateral monitoring and administrative fee
of $1,500 per month.
The
expenses of this financing were approximately $641,000, which included a
finder’s fee of $300,000, lender fees of $190,000 and professional and due
diligence fees of approximately $151,000. The net proceeds to the Company were
approximately $4,359,000. The fees were allocated between debt issuance costs
and debt discount. The debt issuance costs of $478,000 were recorded on the date
of entering into the agreement in other assets in the accompanying consolidated
balance sheets and are being amortized and charged to interest expense over the
term of the loan using the effective interest method. The balance of the debt
issuance costs was approximately $136,000 as of June 30, 2009. A debt discount
of $163,000 was recorded in the consolidated balance sheet on the date of
entering into the agreement as a reduction in the carrying value of the debt,
and is being amortized and charged to interest expense over the term of the loan
using the effective interest method. The balance of the debt discount was
approximately $48,000 as of June 30, 2009.
F-19
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Warrants. In connection with
the Loan Agreement, the Company issued warrants to ComVest to purchase the
following amounts of shares of the Company’s Common Stock, exercisable after the
Closing Date and expiring December 31, 2013: a) Warrant to purchase 1,000,000
shares of common stock at an exercise price of $0.3125 per share; b) Warrant to
purchase 2,000,000 shares of common stock at an exercise price of $0.39 per
share; and c) Warrant to purchase 2,083,333 shares of common stock at an
exercise price of $0.3625 per share; (each, a “Warrant”) (the 5,083,333 shares
collectively issuable upon exercise of the Warrants are referred to herein as
the “Warrant Shares”). The relative fair value of the Warrants is $868,000 using
a Black Scholes valuation model and also contains a cashless exercise feature.
The warrant valuation was computed using a 3.5% risk-free interest rate, a 99%
volatility and a six-year life. The value of the warrants is included in debt
discount, is recorded in the consolidated balance sheet as a reduction in the
carrying value of the debt, and is being amortized and charged to interest
expense over the term of the loan using the effective interest
method.
The
number of shares issuable upon exercise of the Warrants, and/or the applicable
exercise prices, may be proportionately adjusted in the event of any stock
dividend, distribution, stock split, stock combination, stock consolidation,
recapitalization or reclassification or similar transaction. In addition, the
number of shares issuable upon exercise of the Warrants, and/or the applicable
exercise prices may be adjusted in the event of certain issuances of shares of
the Company’s common stock, or securities entitling any person to acquire shares
of common stock, at any time while the Warrants are outstanding, at an effective
price per share which is less than the then-effective exercise prices of the
Warrants.
The
Company has also granted certain registration rights and piggyback registration
rights to the holder(s) of the securities underlying the Term Note and Warrants.
The registration for the sale of the securities underlying the Term Note and
Warrants was declared effective by the Securities and Exchange Commission on May
1, 2009.
The
Company issued warrants to purchase 250,000 shares of common stock as
compensation for assistance in securing the $5,000,000 Term Loan. The warrants
were valued at $42,000 using a Black Sholes valuation model and are included in
debt issuance cost. The warrant valuation was computed using a 3.5% risk free
interest rate, a 99% volatility and a six-year life.
Amortization
of debt discount was $453,000 and amortization of debt issuance costs was
$246,000 for the year ended June 30, 2009. Amortization of debt discount was
$275,000 and amortization of debt issuance costs was $137,000 for
the year
ended June 30, 2008. The unamortized balance of the debt discount related
to the warrants was $255,000 as of June 30, 2009.
Homann
Note
The
Company has a note payable to Homann Tire LTD (“Homann”) in the original amount
of $125,000, bearing interest at 8% per annum and originally due April 29, 2009
(see Note 9). The terms of the note include interest only payments of $833 per
month. A principal payment of $25,000 was made in April 2007. The remaining
balance of $125,000 was payable in April 2009. On April 3,
2009, the Company amended the payment terms and has agreed to repay the note in
six monthly installments of $21,450 which includes interest at
10%. The Company reviewed EITF 96-19 and the amendment did not meet
the requirements of a Modification or Exchange of Debt Instruments, therefore no
adjustment to the financial statements was required. As of June 30, 2009
the outstanding balance was $63,000.
McKenna
Note
The
Company issued an unsecured note payable to Mr. A. McKenna in the original
amount of $825,000, due July 2009, with interest at 8% per annum, in 24 monthly
installments of $37,313 including interest (see Note 9). The Company is
currently paying $18,650 per month including interest pursuant to the current
payment schedule and the note will be fully paid by March 2010. In
February 2009, the Company orally advised Mr. McKenna that it would reduce the
monthly payment to the current $18,650 per month, but there is no written
amendment to the note between the Company and Mr. McKenna. Since
February 2009, the note holder has accepted the reduced monthly payments, and
has not notified the Company of any violations of the terms and conditions of
the payment agreement. The Company expects to satisfy this obligation from
free cash flow.
Secured
Notes
The
Company has secured notes totaling $388,000 payable over 24 to 60 months with
monthly payments of $4,137 and quarterly payments of $6,278. The
notes bear interest rates of 5.49% to 9.54% and are secured by leasehold
improvements and equipment with a carrying value of $398,000.
NOTE
8. INCOME TAXES
The
Company adopted the provisions of FIN 48 on July 1, 2007. There were no
unrecognized tax benefits as of the date of adoption. As a result of the
implementation of FIN 48, the Company did not recognize an increase in the
liability for unrecognized tax benefits. There is no unrecognized tax benefits
included in the consolidated balance sheets that would, if recognized, affect
the effective tax rate.
F-20
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
The
Company’s practice is to recognize interest and/or penalties related to income
tax matters in income tax expense. The Company had no accrual for interest or
penalties on the Company’s consolidated balance sheets at June 30, 2009 and
2008, and has not recognized interest and/or penalties in the consolidated
statements of operations for the years ended June 30, 2009 and
2008.
The
Company is subject to taxation in the US, UK and various state jurisdictions.
The Company’s tax years for 1993 and forward are subject to examination by the
US and state tax authorities due to the carry forward of unutilized net
operating losses.
The
adoption of FIN 48 did not impact the Company’s financial condition, results of
operations, or cash flows. At June 30, 2009, the Company had net US deferred tax
assets of $4.0 million. Due to uncertainties surrounding the Company’s ability
to generate future US taxable income to realize these assets, a full valuation
allowance has been established to offset the net US deferred tax asset.
Additionally, the future utilization of the Company’s Federal and California net
operating loss credit carry forwards (“NOLs”) to offset future taxable income
maybe subject to an annual limitation, pursuant to Internal Revenue Code
Sections 382 and 383, as a result of ownership changes that may have occurred
previously or that could occur in the future. The Company has not analyzed any
NOLs from the acquired subsidiaries to determine the maximum potential future
tax benefit that might be available, nor has it performed a Section 382 analysis
to determine the limitation of the NOLs. Until these analyses have been
performed, the Company has reduced its deferred tax assets by approximately $5.4
million to only account for NOLs generated in the US since the dates of ADNW’s
acquisitions of the subsidiaries (totaling approximately $8.6 million) in its
deferred tax asset schedule (see below) and has recorded a corresponding
decrease to its valuation allowance. When these analyses are finalized, the
Company plans to update its unrecognized tax benefits under FIN 48. Due to the
existence of the valuation allowance, future changes in the Company’s
unrecognized tax benefits will not impact the Company’s effective tax
rate.
At June
30, 2009, the Company had Federal and California income tax NOLs of
approximately $8.6 million since the date ADNW acquired the subsidiaries. The
Federal and California NOLs expire at various dates through 2029 and 2019,
respectively, unless previously utilized. At June 30, 2009, the Company had UK
income tax NOLs of approximately $1.0 million that can be carried forward
indefinitely until utilized.
The
change in the valuation allowance is primarily attributable to the removal of
the deferred tax assets related to the NOLs, offset by the change in the current
year net deferred tax assets.
The
provision for income taxes consists of the following for the years ended June
30, 2009 and 2008:
US
Federal
|
US
State
|
UK
Corporate
|
Total
|
|||||||||||||
2009
|
||||||||||||||||
Current
|
$ | - | $ | - | $ | 386,000 | 386,000 | |||||||||
Deferred
|
- | - | - | - | ||||||||||||
Total
|
$ | - | $ | - | $ | 386,000 | 386,000 | |||||||||
2008
|
||||||||||||||||
Current
|
$ | - | $ | - | $ | 873,000 | $ | 873,000 | ||||||||
Deferred
|
- | - | - | - | ||||||||||||
Total
|
$ | - | $ | - | $ | 873,000 | $ | 873,000 |
The tax
effects of temporary differences and carry-forwards that give rise to
significant portions of deferred tax assets consist of the following at June 30,
2009 and 2008:
F-21
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
June
30,
2009
|
June
30,
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carry-forwards
|
$ | 3,729,000 | $ | 2,200,000 | ||||
Unrealized
loss on available-for-sale securities
|
1,889,000 | - | ||||||
Deferred
revenue
|
145,000 | 392,000 | ||||||
Reserves
and accruals
|
124,000 | 580,000 | ||||||
Total
deferred tax assets
|
5,887,000 | 3,172,000 | ||||||
Deferred
tax liabilities:
|
||||||||
Other
acquired amortizable intangibles
|
(1,426,000 | ) | (1,558,000 | ) | ||||
Software
development costs
|
(482,000 | ) | (584,000 | ) | ||||
Depreciation
and amortization
|
(116,000 | ) | (100,000 | ) | ||||
State
taxes
|
- | (56,000 | ) | |||||
Total
deferred tax liabilities
|
(2,024,000 | ) | (2,298,000 | ) | ||||
Valuation
allowance
|
(4,743,000 | ) | (1,754,000 | ) | ||||
Net
deferred tax liabilities
|
$ | (880,000 | ) | $ | (880,000 | ) |
The
provision (benefit) for income taxes for the years ended June 30, 2009 and 2008
differs from the amount computed by applying the US federal income tax rates to
net loss from continuing operations before taxes as a result of the
following:
June
30,
|
||||||||
2009
|
2008
|
|||||||
Taxes
at statutory rates applied to loss from continuing operations before
taxes
|
$ | (2,460,000 | ) | $ | (3,717,000 | ) | ||
State
taxes, net of federal effect
|
(462,000 | ) | (180,000 | ) | ||||
Non-deductible
goodwill impairment
|
340,000 | 3,268,000 | ||||||
Other
net
|
82,000 | 2,000 | ||||||
Differential
in UK corporate tax rate
|
(103,000 | ) | (100,000 | ) | ||||
Income
generated in tax-free location
|
- | (446,000 | ) | |||||
Change
in valuation allowance
|
2,989,000 | 2,046,000 | ||||||
Total
adjustments
|
2,846,000 | 4,590,000 | ||||||
Provision
for income taxes
|
$ | 386,000 | 873,000 |
The
Company does not intend to repatriate any earnings from the UK subsidiaries to
the U.S.
NOTE
9. COMMITMENTS AND CONTINGENCIES
Legal
Matters
From time
to time, the Company is subject to various legal claims and proceedings arising
in the ordinary course of business. The ultimate disposition of these
proceedings could have a materially adverse effect on the consolidated financial
position or results of operations of the Company.
|
(1)
|
On
August 1, 2007 the Company and Mr. McKenna entered into an agreement
resolving all outstanding actions by Mr. McKenna against the Company and
its subsidiaries related to the initial action against CarParts
Technologies, Inc., which is now known as ASNA. The agreement provided
that the Company would pay Mr. McKenna $2,000,000 in cash, $825,000 on a
promissory note with an interest rate of 8% amortized in equal payments
over a 24-month period (see Note 7) and in addition would issue Mr.
McKenna 1,718,750 shares of Common Stock of the Company, which represented
an aggregate number of shares of common stock of the Company that the
parties determined fairly represented $825,000 (assuming a price of $0.48
per share of common stock, the closing price of the Company’s common stock
on the date of settlement). Mr. McKenna was also entitled to warrants to
purchase an equivalent number of shares of common stock at the same price,
which was valued at $412,000 (using the Black-Scholes valuation model) and
recorded as an additional litigation cost for the year ended June 30,
2007. Upon entering this agreement all parties agreed to withdraw all
existing litigation and claims. The Company recorded the settlement with
McKenna as of June 30, 2007. The shares were issued in fiscal 2008 (see
Note 10). This settlement was amended during fiscal 2008 (see Note
10).
|
F-22
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
|
(2)
|
Additionally,
the Company entered into a settlement agreement with Mr. Arthur
Blumenthal, a former shareholder of Anderson BDG, Inc. Mr. Blumenthal’s
lawsuit against the Company’s parent ADNW emanated from an agreement Mr.
Blumenthal had with a subsidiary of the Company, ASNA (f/k/a CarParts
Technologies, Inc.) for the purchase of Anderson BDG, that had not been
settled although it was past due. The Company assumed the liability as
part of a plan of spinning off certain businesses into the Company and
renegotiated the agreement with Mr. Blumenthal, the terms of which
required the Company to make a payment of $50,000 cash and the issuance to
Mr. Blumenthal and registration of 300,000 shares of the Company’s common
stock, which were issued in fiscal 2007 and valued at $0.48 per share,
(the closing price of the Company’s common stock on the date of
settlement) or $144,000. The Company subsequently completely settled the
lawsuit with Mr. Blumenthal and repaid his notes in fiscal
2008.
|
On August
21 2009, the Company’s counsel received two notifications on behalf of the
Company from Mr. Blumenthal’s counsel. One letter makes certain
demands on the Company in respect of Mr. Blumenthal’s sale of the software
program VAST to one of the Company’s predecessor organizations, and asserts that
the Company owes Mr. Blumenthal $936,776.20. The second letter
asserts certain rights of Mr. Blumenthal with respect to his employment with the
Company and asserts that the Company owes Mr. Blumenthal approximately
$136,612.00. The Company is currently reviewing the substance of the letters and
has not yet formed a conclusion regarding the merits of Mr. Blumenthal’s claims,
the merits of any defenses that the Company may have or any counterclaims the
Company may have. The Company has begun initial discussions with Mr.
Blumenthal’s attorneys, but is unable to predict how successful such discussions
will be, or whether formal litigation will be filed or the outcome of any
litigation, if filed.
|
(3)
|
Homann
Tire LTD (“Homann”) filed a complaint against the Company’s subsidiary
ASNA (f/k/a CarParts Technologies, Inc.) in California District Court on
August 11, 2005 regarding the Company’s obligations pursuant to a software
license agreement that it entered into with Homann on October 18,
2002.
|
The
Company started to implement the system but full installation was never
completed and Homann moved to another system six months later. During
depositions pursuant to this case, the Company negotiated an agreement with
Homann on March 29, 2007. The terms of the agreement provide for a settlement
payment to Homann of $150,000 bearing interest at 8% per annum. Payment of
$25,000 cash was made in April 2007. The remaining balance of $125,000 was
payable in April 2009. On April 3, 2009, the Company amended the
payment terms and has agreed to repay the note in six monthly installments of
$21,450 which included interest at 10%. The Company expects to be
able to repay this obligation from free cash flow (see Note 7).
|
(4)
|
The
Company was sued by a former officer of W3 Group, Inc. for $37,000 for an
unpaid note and expenses. The Company settled the litigation by paying
$17,500 in fiscal 2008, which was recorded as part of reduction in
litigation settlement in the accompanying consolidated statement of
operations.
|
Indemnities
and Guarantees
The
Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Delaware. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. In
connection with its customers’ contracts the Company indemnifies the customer
that the software provided does not violate any US patent. The duration of the
guarantees and indemnities varies, and is generally tied to the life of the
agreement. These guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying consolidated balance
sheet.
The
Company has agreed to indemnify ComVest and its directors, officers, employees,
attorneys and agents against, and to hold ComVest and such persons harmless
from, any and all losses, claims, damages and liabilities and related expenses,
including reasonable counsel fees and expenses, they may incur, arising out of,
related to, or as a result of, certain transactions or events in connection with
the Credit Facility and Term Loan (See Note 7).
F-23
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
Operating
Leases
The
Company leases its facilities and certain equipment pursuant to month-to-month
and non-cancelable operating lease agreements that expire on various dates
through October 2028. Terms of the leases provide for monthly payments ranging
from $500 to $15,300. For the years ended June 30, 2009 and 2008, the Company
incurred rent expense totaling approximately $586,000 and $573,000,
respectively. Future annual minimum payments under non-cancelable operating
leases are as follows:
Years Ending
June 30,
|
||||
2010
|
$ | 749,000 | ||
2011
|
684,000 | |||
2012
|
403,000 | |||
2013
|
367,000 | |||
2014
|
371,000 | |||
Thereafter
|
3,317,000 | |||
$ | 5,891,000 |
Other
Agreements
The
Company has engaged Commonwealth Associates LP (“Commonwealth”) as its
consultant and exclusive merger and acquisitions advisor pursuant to a
Consulting Agreement dated June 3, 2008 (the “Consulting Agreement”).
Commonwealth and ComVest are entities that are under common control. The
Consulting Agreement is for an initial term of 24 months, and provides that
Commonwealth will (i) be issued warrants to purchase up to 3,000,000 shares of
the Company’s common stock, which will be exercisable for 5 years at a price of
$0.30 per share, or the effective price for the Company’s shares resulting from
the sale of approximately 28,631,622 shares of ADNW’s common stock with respect
to which Commonwealth may act as placement agent (see Note 10), whichever is
lower, and will contain anti-dilution protection and a cashless exercise feature
with respect to one-half of the warrants; (ii) receive $15,000 per month for 18
months for its advisory services beginning June 3, 2008 and (iii) receive a fee
in connection with a Merger or Acquisition transaction equal to 5% of
the aggregate consideration paid or received by the Company. During the year
ended June 30, 2009, the Company paid $45,000 in advisory services to
Commonwealth, and recorded a liability for unpaid fees of $135,000 (see Note
12).
Employment
Agreements
Effective
as of December 1, 2008 (the “Effective Date”), upon the approval of our Board of
Directors, We entered into employment agreements with each of Ian Warwick, our
President and Chief Executive Officer, Charles F. Trapp, our Executive Vice
President and Chief Financial Officer, and Simon Chadwick, our Executive Vice
President and Chief Operating Officer.
Ian
Warwick Employment Agreement
The
Employment Agreement with Mr. Warwick (the “Warwick Agreement”) is for an
initial term of two and one-half years from the Effective Date, and is
automatically renewable for successive one-year periods unless terminated by Mr.
Warwick or us. Mr. Warwick will receive an annual base salary of $300,000,
payable in U.S. dollars. The annual salary is increased to $350,000 upon our
achievement of a market capitalization goal of $50 million for at least 25
consecutive trading days. The terms of the Warwick Agreement also entitles Mr.
Warwick, a United Kingdom resident, to a make-whole payment that will restore
him to the British Pound Sterling equivalent that existed on the Effective Date
in the event that the value of the U.S. Dollar relative to the British Pound
Sterling increases such that his base salary is reduced, as a result of such
currency translation, by 10% or more (the “Make-Whole Payment”).
The
Warwick Agreement also provides for an appointment to our Board of Directors, on
which Mr. Warwick already serves.
Mr.
Warwick is eligible for a performance-based annual cash incentive bonus of up to
150% of his base salary in any fiscal year depending on the extent to which the
applicable performance goal(s) of the Company, which are to be established by
our Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Warwick’s potential
incentive bonus for fiscal 2009.
F-24
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
In
addition, Mr. Warwick is entitled to participate in all of our benefit plans and
our equity-based compensation plans, which currently consists of our LTIP.
Pursuant to the Warwick Agreement, Mr. Warwick is to be awarded two grants of
3-year performance share unit awards under the LTIP, each for 500,000
performance share units as a base objective, with 30% of the award vesting in
the first year of the grant provided that the base target for that year is met,
30% of the award vesting in the second year of the grant provided that the base
target for the second year is met, and 40% of the award vesting in the third and
final year of the grant provided that the base target for the third year is met
(“Performance Share Units”). The performance measures for these awards, which
have been set by the Compensation Committee, are based on increases in our
earnings per share (“EPS”) and return on invested capital (“ROIC”). Further,
with respect to both awards in each grant year, (i) if the Company’s results
amount to less than 80% of the established target(s), none of the awards will
vest; (ii) if the Company’s results are equal to 80% of the established
target(s), 50% of the award will vest; (iii) if the Company’s results are equal
to 100% of the established target(s), 100% of the award will vest; and (iv) if
the Company’s results are equal to or better than 120% of the established
target(s), 150% of the award will vest. Results between these established
parameters will be interpolated.
The
Warwick Agreement also entitles Mr. Warwick to be granted options to purchase
300,000 shares of our common stock under the LTIP. These options will vest as to
one-third of the award on each of the first three anniversaries of the grant
date, at a strike price of $0.75, $1.00 and $1.25, respectively. The options
expire ten years from the grant date.
The
Warwick Agreement provides that in the event Mr. Warwick’s employment is
terminated for Good Reason, for any reason other than for Cause, Death or
Disability or for Good Reason during the 30-day period immediately following the
first anniversary of the Effective Date (the “Window Period”), he is entitled
to, among other things, a severance payment equal to his 12 months base salary.
In addition, under such circumstances, all of Mr. Warwick’s stock options, stock
appreciation rights and restricted stock will immediately vest and be payable in
shares of our common stock and all of his performance share units that would
vest in the course of any fiscal year shall vest on a pro rata
basis.
Charles
F. Trapp Employment Agreement
The
Employment Agreement with Mr. Trapp (the “Trapp Agreement”) is for an initial
term of one year from the Effective Date, and is automatically renewable for
successive one-year periods unless terminated by Mr. Trapp or us. Mr. Trapp will
receive an annual base salary of $220,000, payable in U.S. dollars. Mr. Trapp is
eligible for a performance-based annual cash incentive bonus of up to 150% of
his base salary in any fiscal year depending on the extent to which the
applicable performance goal(s) of the Company, which are to be established by
the Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Trapp’s potential incentive
bonus for fiscal 2009.
In
addition, Mr. Trapp is entitled to participate in all of our benefit plans and
equity-based compensation plans, which currently consists of the LTIP. Mr. Trapp
will be awarded two grants of 3-year Performance Share Unit awards under the
LTIP, each for 300,000 performance share units as a base objective, with the
same terms, performance targets and metrics as Mr. Warwick’s Performance Share
Unit awards described above. Mr. Trapp also will be granted options to
purchase 100,000 shares of our common stock under the LTIP. These options will
vest as to one-third of the award on each of the first three anniversaries of
the grant date, at a strike price of $0.75, $1.00 and $1.25, respectively. The
options expire ten years from the grant date.
The Trapp
Agreement provides that in the event Mr. Trapp’s employment is terminated for
Good Reason, for any reason other than for Cause, Death or Disability or for
Good Reason during the Window Period, Mr. Trapp is entitled to, among other
things, a severance payment equal to his 12 months base salary, all of Mr.
Trapp’s stock options, stock appreciation rights and restricted stock shall
immediately vest and be payable in shares of our common stock and all of his
performance share units that would vest in the course of any fiscal year shall
vest on a pro rata basis.
Simon
Chadwick Employment Agreement
The
Employment Agreement with Mr. Chadwick (the “Chadwick Agreement”) is for an
initial term of two years from the Effective Date, and is automatically
renewable for successive one-year periods unless terminated by Mr. Chadwick or
us. Mr. Chadwick will receive an annual base salary of $225,000, payable in U.S.
dollars. The terms of the Chadwick Agreement also entitles Mr. Chadwick, a
United Kingdom resident, to a Make-Whole Payment consistent with the one awarded
to Mr. Warwick.
The
Chadwick Agreement also provides for an appointment to our Board of Directors,
on which he already serves.
Mr.
Chadwick is eligible for a performance-based annual cash incentive bonus of up
to 150% of his base salary in any fiscal year depending on the extent to which
the applicable performance goal(s) of the Company, which are to be established
by the Compensation Committee or pursuant to a formal bonus plan, are achieved,
subject to any operating covenants in place with respect to outstanding bank
debt. The Compensation Committee established an EBITDA-related target for the
fiscal year ended June 30, 2009, with respect to Mr. Chadwick’s potential
incentive bonus for fiscal 2009.
F-25
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
In
addition, Mr. Chadwick is entitled to participate in all of our benefit plans
and our equity-based compensation plans, which currently consists of the LTIP.
Mr. Chadwick will be awarded two grants of 3-year Performance Share Unit awards
under the LTIP, each for 400,000 performance share units as a base objective,
with the same terms, performance targets and metrics as Mr. Warwick’s and Mr.
Trapp’s Performance Share Unit awards described above. The Chadwick Agreement
also grants Mr. Chadwick options to purchase 200,000 shares of our common stock
under the LTIP. These options will vest as to one-third of the award on each of
the first three anniversaries of the grant date, at a strike price of $0.75,
$1.00 and $1.25, respectively. The options expire ten years from the grant
date.
In the
event Mr. Chadwick’s employment is terminated for Good Reason, for any reason
other than for Cause, Death or Disability or for Good Reason during the Window
Period, Mr. Chadwick is entitled to, among other things, a severance payment
equal to his 12 months base salary, all of Mr. Chadwick’s stock options, stock
appreciation rights and restricted stock shall immediately vest and be payable
in shares of our common stock and all of his performance share units that would
vest in the course of any fiscal year shall vest on a pro rata
basis.
The
Company did not incur an incentive bonus liability for these employment
agreements and did not grant any performance share unit awards or options under
these employment agreements during the year ended June 30, 2009.
NOTE
10. STOCKHOLDERS’ EQUITY
On July
5, 2007, the Company issued 5,208,337 shares of common stock and an equivalent
number of warrants with strike price of $1.00 to investors in connection with a
private placement of common stock and warrants to purchase common stock. The net
proceeds from this transaction amounted to $2,036,000.
On August
1, 2007 the Company issued 1,718,750 shares of common stock and 1,718,750
warrants to purchase shares of common stock at $0.48 per share to Mr. McKenna in
partial settlement of the outstanding litigation costs (see Note 9). These
shares were valued at the issue price of the private placement on the date of
the transaction of $0.48 per share, totaling $825,000, and the warrants were
valued using the Black-Scholes pricing model, totaling $412,000. In November
2007, the parties amended the settlement agreement by having Mr. McKenna return
the 1,718,750 shares and the Company issuing an additional 1,718,750 warrants to
purchase common stock at $0.48 per share. The fair value of the shares received
back was $275,000 and the new warrants were valued at $152,000 using a Black
Scholes valuation model. The warrant valuation was computed using a 3.5% risk
free interest rate, a 99% volatility and a 4.5 year life. The Company realized a
net reduction in litigation settlement expenses of $123,000 for the year ended
June 30, 2008.
On May
13, 2008, the Compensation Committee of the Board of Directors approved
restricted stock awards of an aggregate of 2,985,000 shares of its common stock
to certain employees, a corporate officer and three outside directors in respect
of services previously rendered. The shares vest as follows: 34% of the shares
vested immediately on the date of grant, and the remaining 66% of the shares
will vest in three equal installments on each of the first, second and third
anniversaries of the grant date. The Company issued 994,500 shares of common
stock that were fully vested on the date of grant. The Company did
not receive any consideration and recorded an expense of $99,450. On
May 13, 2009, the Company issued 514,500 additional shares that were fully
vested and recognized an expense of $18,008 based on the market price on the
date of issuance. During the year ended June 30, 2009, the Company
cancelled 396,000 previously-approved restricted stock awards.
On July
3, 2008, the Company sold to an investor group, 5,231,622 shares of ADNW common
stock for $889,000 before fees and expenses. The Company incurred cash expenses
and fees of approximately $48,000 and agreed to issue to Commonwealth five-year
warrants to purchase for $0.30 per share 1,000,000 shares of common stock (see
Note 9). The warrants were valued at $137,978 using a Black-Scholes valuation
model, with a risk free interest rate of 1.84 %, a volatility of 117% and a
five-year life. This transaction resulted in a gain of $337,000, which is
recorded as an increase to additional paid-in capital (see Note 3).
During
the quarter ended September 30, 2008, the Company approved the issuance of
483,000 shares to the non-management members of the Board of Directors under the
Company’s 2007 Long-Term Incentive Plan. The shares will be issued
over a three year period. On October 6, 2008, the Company issued
47,890 shares of these awards, which were valued at $7,184. On
January 6, 2009, the Company issued 31,955 shares of these awards, which were
valued at $2,876. On April 6, 2009, the Company issued 34,639 shares of these
awards, which were valued at $1,386.
F-26
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
During
the quarter ended September 30, 2008, the Company reached an agreement with
three creditors of ADNW, and issued them 2,000,000 shares of ADNW common stock
owned by the Company in satisfaction of certain obligations of ADNW totaling
$140,000. At the time of settlement, the ADNW shares were trading at less than
the carrying value of the shares held by the Company, and the Company incurred a
loss of $53,000 on the settlement, which is recorded as a reduction to
additional paid-in-capital.
On
October 6, 2008, the Company issued 35,000 shares of common stock to a director,
which were valued at $8,750.
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed the
dividend of the 71,250,000 shares of the Company’s common stock that ADNW owned
at such time in order to complete the spin-off of the Company’s businesses. The
dividend shares were distributed in the form of a pro rata dividend to the
holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common
and convertible preferred stock. Each holder of record of shares of ADNW common
and preferred stock as of the close of business on the Record Date was entitled
to receive 0.6864782 shares of the Company’s common stock for each share of
common stock of ADNW held at such time, and/or for each share of ADNW common
stock that such holder would own, assuming the convertible preferred stock owned
on the Record Date was converted in full. Prior to the spin-off, ADNW
owned approximately 77% of the Company’s issued and outstanding common stock.
Subsequent to and as a result of the spin-off, the Company is no longer a
subsidiary of ADNW.
As a
result of the Company’s ownership of certain ADNW securities, the Company
received approximately 13,965,295 shares of its own common stock in connection
with the spin-off dividend distribution. On December 31, 2008, the
Company retired 13,722,112 of the shares. The remaining 243,112 shares were used
by the Company for rounding of fractional shares issued in respect of the
spin-off dividend, to make adjustments for the benefit of the holders of ADNW’s
Series B Convertible Preferred Stock which received fewer shares in connection
with the spin-off than the number to which they were entitled as a result of a
calculation error relating to the Series B conversion rate, and for other minor
adjustments. The value of these shares of approximately $29,000 was
recorded as a distribution.
On May
13, 2009, the Company issued 1,615,370 shares of common stock to certain
directors and officers in lieu of deferred fees and salaries, which were valued
at the $56,538.
On June
30, 2009, the Company issued 2,171,875 shares of common stock to certain
directors and employees in lieu of salaries, which were valued at the
$217,188.
Warrants:
At June
30, 2009, the Company has the following warrants outstanding:
Issuance
of warrants in connection with the ComVest Loan Agreement (see Note
7):
|
||||
ComVest
|
5,083,333
|
|||
Other
|
250,000
|
|||
5,333,333
|
||||
Issuance
of warrants to a service provider (valued at $27,000)
|
155,549
|
|||
Issuance of
warrants in McKenna settlement (see Note 9 and above)
|
3,437,500
|
|||
Issuance of
warrants to investors in private placement (see
above)
|
5,208,337
|
|||
Issuance
of warrants Commonwealth in private placement (see above)
|
1,000,000
|
|||
Issuance
of warrants to placement agent in private placement
|
260,417
|
|||
Issuance
of warrants to Lewis Global Funds (see Note 3)
|
6,402,999
|
|||
Total
issued
|
21,798,135
|
The
outstanding warrants have an exercise price ranging from $0.11 to $1.00 and
remaining life of 2.6 years to 4.9 years. The weighted average exercise
price is $0.70 per share and the weighted remaining life is
4.11 years.
F-27
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
June
30, 2009 and 2008
NOTE
11. DISCONTINUED OPERATIONS
The sale
of MMI resulted in a loss of sale of discontinued operations (in fiscal 2008) as
follows (in thousands):
Cash
|
$
|
157
|
||
Accounts
receivable
|
439
|
|||
Inventories
|
6
|
|||
Other
|
27
|
|||
Current
Assets
|
629
|
|||
Property
and equipment
|
156
|
|||
Other
long term assets
|
219
|
|||
Goodwill
|
723
|
|||
Amortizable
intangible assets, net
|
2,242
|
|||
Total
Assets
|
3,969
|
|||
Liabilities
assumed
|
(1,739
|
)
|
||
Net
assets divested
|
2,230
|
|||
Proceeds
|
-
|
|||
Loss
on disposal
|
$
|
(2,230
|
)
|
The sale
of EXP resulted in a gain on the sale of discontinued operations (in fiscal
2008) as follows (in thousands):
Accounts
receivable
|
$
|
1,050
|
||
Investments
in available-for-sale securities
|
369
|
|||
Current
Assets
|
1,419
|
|||
Goodwill
|
1,640
|
|||
Total
Assets
|
3,059
|
|||
Liabilities
assumed
|
(1,405
|
)
|
||
Net
assets divested
|
1,654
|
|||
Proceeds
- value of shares and receivable (see Note 3)
|
4,041
|
|||
Gain
on disposal
|
$
|
2,387
|
Included
in discontinued operations of the Company are the following results of EXP,
including MMI (in thousands):
For
the
Period
July
1, 2007
until
the
Date
of Sale
|
||||
Revenue
|
$
|
1,670
|
||
Cost
of sales and operating expenses
|
1,657
|
|||
Income
from operations
|
13
|
|||
Other
expense
|
-
|
|||
Income
taxes
|
-
|
|||
Net
income, net of taxes
|
$
|
13
|
NOTE
12. SUBSEQUENT EVENTS
On
July 6, 2009, the Company issued 36,537 shares of common stock to certain
directors, which were valued at the $4,855 and remitted income tax deposits in
the amount of $836 for certain directors.
On August
3, 2009, the Company amended the financial advisory agreement and agreed to pay
Commonwealth $35,000 in August, and $25,000 in September and October of 2009, in
full satisfaction of the $135,000 liability (see Note 9). The August
and September payments have been made and when the final payment for October is
satisfied the Company will record a gain of $50,000 which will be included in
the quarter ending September 30, 2009.
During
the quarter ending September 30, 2009, the Company approved the issuance of
1,131,818 shares to the non-management members of the Board of Directors under
the Company’s 2007 Long-Term Incentive Plan. The shares vest over a
three-year period. No shares have been issued as of September 25,
2009.
On
September 23, 2009, Gerald Czarnecki was appointed to serve as the Company’s
Chairman of the Board following the resignation of Ian Warwick as Chairman on
the same date. Mr. Warwick will continue to serve as the Company’s
Chief Executive Officer and a director on the Company’s Board of
Directors.
F-28
AFTERSOFT
GROUP, INC.
Consolidated
Balance Sheets
(In
thousands, except share data)
|
March 31,
|
June 30,
|
|
|||||
|
2010
|
2009
|
|
|||||
|
(Unaudited)
|
|
||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
1,457
|
$
|
1,663
|
||||
Accounts
receivable, net of allowance of $161 and $87
|
2,445
|
2,154
|
||||||
Inventories
|
337
|
318
|
||||||
Prepaid
expenses and other current assets
|
469
|
507
|
||||||
Total
Current Assets
|
4,708
|
4,642
|
||||||
Property
and Equipment, Net
|
891
|
1,028
|
||||||
Other
Assets
|
||||||||
Goodwill
|
8,924
|
9,548
|
||||||
Amortizable
intangible assets, net
|
2,933
|
3,566
|
||||||
Software
development costs, net
|
1,565
|
1,691
|
||||||
Other
long-term assets
|
64
|
179
|
||||||
Total
Assets
|
$
|
19,085
|
$
|
20,654
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
1,573
|
$
|
1,386
|
||||
Accrued
expenses and other
|
2,970
|
3,162
|
||||||
Payroll
and other taxes
|
279
|
278
|
||||||
Derivative
liabilities
|
305
|
-
|
||||||
Current
portion of long-term debt, net of debt discount
|
5,540
|
1,598
|
||||||
Current
portion of deferred revenue
|
386
|
482
|
||||||
Current
portion of litigation liability
|
699
|
-
|
||||||
Taxes
payable
|
648
|
708
|
||||||
Total
Current Liabilities
|
12,400
|
7,614
|
||||||
Long-Term
Liabilities
|
||||||||
Deferred
revenue, net of current portion
|
295
|
748
|
||||||
Deferred
income taxes
|
710
|
880
|
||||||
Long-term
debt, net of current portion
|
187
|
4,713
|
||||||
Litigation
liability, net of current portion
|
551
|
-
|
||||||
Other
|
183
|
199
|
||||||
Total
Liabilities
|
14,326
|
14,154
|
||||||
Commitments
and contingencies
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock:
|
||||||||
Par
value $0.0001 per share; 10,000,000 shares authorized, none issued and
outstanding
|
-
|
-
|
||||||
Common
stock:
|
||||||||
Par
value $0.0001 per share; 150,000,000 shares authorized, 84,042,708 and
83,462,337 shares issued and outstanding, respectively
|
8
|
8
|
||||||
Additional
paid-in capital
|
29,438
|
30,219
|
||||||
Accumulated
other comprehensive loss
|
(1,027
|
)
|
(482
|
)
|
||||
Accumulated
deficit
|
(23,660
|
)
|
(23,245
|
)
|
||||
Total
Stockholders' Equity
|
4,759
|
6,500
|
||||||
Total
Liabilities and Stockholders' Equity
|
$
|
19,085
|
$
|
20,654
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-29
Consolidated
Statements of Operations and Comprehensive Loss
(Unaudited)
(In
thousands except for share and per share data)
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
$
|
5,550
|
$
|
5,027
|
$
|
18,508
|
$
|
15,877
|
||||||||
Cost
of revenues
|
2,492
|
2,125
|
7,926
|
7,115
|
||||||||||||
Gross
profit
|
3,058
|
2,902
|
10,582
|
8,762
|
||||||||||||
Operating
expenses
|
||||||||||||||||
Research
and development
|
754
|
721
|
2,361
|
2,215
|
||||||||||||
Sales
and marketing
|
493
|
550
|
1,757
|
1,710
|
||||||||||||
General
and administrative
|
1,746
|
1,134
|
4,973
|
4,117
|
||||||||||||
Depreciation
and amortization
|
276
|
253
|
847
|
781
|
||||||||||||
Total
operating expenses
|
3,269
|
2,658
|
9,938
|
8,823
|
||||||||||||
Operating
income (loss)
|
(211
|
)
|
244
|
644
|
(61
|
)
|
||||||||||
Other
income (expense)
|
||||||||||||||||
Interest
expense
|
(314
|
)
|
(413
|
)
|
(1,044
|
)
|
(1,213
|
)
|
||||||||
Write
down of investment available-for-sale securities
|
-
|
-
|
-
|
(3,957
|
)
|
|||||||||||
Interest
income
|
-
|
8
|
-
|
21
|
||||||||||||
Change
in fair value of derivative liabilities
|
(62
|
)
|
-
|
253
|
-
|
|||||||||||
Gain
on settlement of liability
|
-
|
-
|
50
|
-
|
||||||||||||
Other,
net
|
-
|
(2
|
)
|
(1
|
)
|
11
|
||||||||||
Total
other expense, net
|
(376
|
)
|
(407
|
)
|
(742
|
)
|
(5,138
|
)
|
||||||||
Loss
before provision for income taxes
|
(587
|
)
|
(163
|
)
|
(98
|
)
|
(5,199
|
)
|
||||||||
Provision
for income taxes
|
132
|
152
|
778
|
465
|
||||||||||||
Net
Loss
|
(719
|
)
|
(315
|
)
|
(876
|
)
|
(5,664
|
)
|
||||||||
Reversal
of unrealized loss on investments in available-for-sale
securities
|
-
|
281
|
-
|
1,089
|
||||||||||||
Foreign
currency translation loss
|
(437
|
)
|
(458
|
)
|
(545
|
)
|
(4,101
|
)
|
||||||||
Total
comprehensive loss
|
$
|
(1,156
|
)
|
$
|
(492
|
)
|
$
|
(1,421
|
)
|
$
|
(8,676
|
)
|
||||
Loss
per share attributed to common stockholders - basic and
diluted
|
$
|
(0.01
|
)
|
$
|
-
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
|||||
Weighted
average shares outstanding - basic and diluted
|
84,028,138
|
79,123,769
|
83,761,308
|
88,291,870
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-30
AFTERSOFT
GROUP, INC.
Consolidated
Statements of Cash Flows
(Unaudited)
(In
thousands)
For the Nine Months Ended
|
||||||||
March 31,
|
March 31,
|
|||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$
|
(876
|
)
|
$
|
(5,664
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Bad
debt expense
|
127
|
-
|
||||||
Depreciation
and amortization
|
847
|
781
|
||||||
Write
down of investments in available-for-sale securities
|
-
|
3,957
|
||||||
Debt
discount and debt issuance cost amortization
|
428
|
594
|
||||||
Fair
value of stock issued for services
|
51
|
20
|
||||||
Gain
on settlement of liability
|
(50
|
)
|
-
|
|||||
Deferred
income taxes
|
(170
|
)
|
-
|
|||||
Change
in fair value of derivative liabilities
|
(253
|
)
|
-
|
|||||
Warrants
issued for settlement of service agreement
|
36
|
-
|
||||||
Changes
in assets and liabilities
|
||||||||
Accounts
receivable
|
(596
|
)
|
491
|
|||||
Inventories
|
(50
|
)
|
276
|
|||||
Prepaid
expenses and other assets
|
3
|
234
|
||||||
Accounts
payable
|
278
|
(917
|
)
|
|||||
Accrued
expenses and other liabilities
|
1,298
|
89
|
||||||
Deferred
revenue
|
(515
|
)
|
(50
|
)
|
||||
Taxes
payable
|
(5
|
)
|
(218
|
)
|
||||
Net
cash provided by (used in) operating activities
|
553
|
(407
|
)
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
F-31
Consolidated
Statements of Cash Flows (continued)
(Unaudited)
(In
thousands)
Cash flows from investing
activities :
|
||||||||
Purchase
of property and equipment
|
(69
|
)
|
(98
|
)
|
||||
Capitalized
software development costs
|
(69
|
)
|
(185
|
)
|
||||
Net
cash used in investing activities
|
(138
|
)
|
(283
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of Parent company common stock, net of issuance
costs
|
-
|
841
|
||||||
Proceeds
from debt, net of issuance costs
|
-
|
500
|
||||||
Payments
on debt
|
(719
|
)
|
(384
|
)
|
||||
Net
cash (used in) provided by financing activities
|
(719
|
)
|
957
|
|||||
Effect
of exchange rate changes
|
98
|
(1,084
|
)
|
|||||
Net
decrease in cash and cash equivalents
|
(206
|
)
|
(817
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
1,663
|
1,964
|
||||||
Cash
and cash equivalents, end of period
|
$
|
1,457
|
$
|
1,147
|
||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
601
|
$
|
619
|
||||
Income
taxes
|
$
|
414
|
$
|
318
|
||||
Supplemental disclosures of
non-cash investing and financing activities :
|
||||||||
Value
of distributed shares
|
$
|
-
|
$
|
29
|
||||
Value
of retired shares
|
$
|
-
|
$
|
2,126
|
||||
Cumulative
effect to retained earnings due to adoption of accounting
standard
|
$
|
461
|
$
|
-
|
||||
Cumulative
effect to additional paid-in-capital due to adoption of accounting
standard
|
$
|
868
|
$
|
-
|
||||
Cumulative
effect to debt discount due to adoption of accounting
standard
|
$
|
310
|
$
|
-
|
||||
Value
of warrants issued for amended debt covenants
|
$
|
-
|
$
|
15
|
||||
Issuance
of debt for property, plant, and equipment
|
$
|
-
|
$
|
403
|
||||
Gain
on sale of Parent company common stock
|
$
|
-
|
$
|
337
|
||||
Shares
of Parent company common stock remitted in exchange for Parent company
obligations
|
$
|
-
|
$
|
193
|
||||
Parent
company obligations assumed by Company
|
$
|
-
|
$
|
(140
|
)
|
|||
Loss
on settlement of Parent company obligations
|
$
|
-
|
$
|
53
|
F-32
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2010
(Unaudited)
NOTE
1. MANAGEMENT’S
REPRESENTATIONS
The
consolidated financial statements included herein have been prepared by
Aftersoft Group, Inc. (“Aftersoft” or the “Company”), without audit, pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”). Certain information normally included in the consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America has been omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management, all
adjustments (consisting primarily of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating
results for the three and nine months ended March 31, 2010 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2010. It is suggested that the consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended June 30,
2009, which was filed with the SEC on September 25, 2009. The
Company has evaluated subsequent events through the filing date of this
Quarterly Report on Form 10-Q and determined that no subsequent events have
occurred that would require recognition in the condensed consolidated financial
statements or disclosure in the notes thereto, other than as disclosed in the
accompanying notes.
NOTE
2. BASIS OF
PRESENTATION
On
November 24, 2008, Auto Data Network, Inc. (“ADNW”), the former parent of
Aftersoft, distributed a dividend of the 71,250,000 shares of Aftersoft common
shares that ADNW owned at such time in order to complete the previously
announced spin-off of Aftersoft’s business. The dividend shares were
distributed in the form of a pro rata dividend to the holders of record as of
November 17, 2008 (the “Record Date”) of ADNW’s common and convertible preferred
stock. Each holder of record of shares of ADNW common and preferred stock as of
the close of business on the Record Date was entitled to receive 0.6864782
shares of Aftersoft's common stock for each share of common stock of ADNW held
at such time, and/or for each share of ADNW common stock that such holder would
own, assuming the convertible preferred stock owned on the Record Date was
converted in full. Prior to the spin-off, ADNW owned approximately
77% of Aftersoft’s issued and outstanding common stock. Subsequent to and as a
result of the spin-off, Aftersoft is no longer a subsidiary of ADNW (see Note
3).
Aftersoft
is a leading provider of business and supply chain management solutions
primarily to automotive parts manufacturers, retailers, tire and service chains,
independent installers and wholesale distributors in the automotive aftermarket.
The Company conducts its businesses through wholly owned subsidiaries with
operations in Europe and North America. MAM Software Limited (“MAM”) is based in
Barnsley, United Kingdom (“UK”) and Aftersoft Network, NA, Inc. (“ASNA”) and MAM
Software Inc. (“MAM US”) have offices in the United States (“US”) in Dana Point,
California, and Allentown, Pennsylvania.
Going
Concern
At March
31, 2010, the Company had cash and cash equivalents of $1,457,000, a decrease of
$206,000 from June 30, 2009. During the nine months ended March 31, 2010, the
Company had $138,000 of capital expenditures and made payments of $719,000 on
debt. In February 2010, the Company started to make payments on the $5,000,000
Term Note, (see Note 5). The payments are approximately $208,000 per month. The
Company expects to make the monthly payments on this debt and the other
outstanding obligations from operating cash flow. The Company does not expect to
be able to make the $3,125,000 balloon payment due in November 2010 on the Term
Loan or to pay off the $1,000,000 Revolver due at the same time from internally
generated cash flow. The Company is currently seeking debt and/or equity
financing and other activities to raise the necessary capital. There can be no
assurances that such funding will be available on acceptable terms, in a timely
fashion or even available at all.
The
accompanying condensed consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company had an
accumulated deficit of $23.7 million and a working capital deficit of $7.7
million at March 31, 2010. These factors, along with the amounts due on the Term
Loan in November 2010 as discussed above, raise substantial doubt about the
Company’s ability to continue as a going concern.
The
Company’s continuation as a going concern is dependent on its ability to obtain
additional financing. The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.
F-33
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in the consolidated financial
statements.
Concentrations
of Credit Risk
The
Company has no significant off-balance-sheet concentrations of credit risk such
as foreign exchange contracts, options contracts or other foreign hedging
arrangements.
Cash
and Cash Equivalents
The
Company maintains cash balances at financial institutions that are insured by
the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31,
2010 and June 30, 2009, the Company did not have balances in these accounts in
excess of the FDIC insurance limits. For banks outside of the United States, the
Company maintains its cash accounts at financial institutions which it believes
to be credit worthy.
The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents to the extent the funds are not
being held for investment purposes.
Customers
The
Company performs periodic evaluations of its customers and maintains allowances
for potential credit losses as deemed necessary. The Company generally does not
require collateral to secure its accounts receivable. Credit risk is managed by
discontinuing sales to customers who are delinquent. The Company estimates
credit losses and returns based on management’s evaluation of historical
experience and current industry trends. Although the Company expects to collect
amounts due, actual collections may differ from the estimated
amounts.
No
customers accounted for approximately 10% or more of the Company’s revenue for
the three month period ended March 31, 2010. During the nine month period ended
March 31, 2010, one customer accounted for 11.5% of the Company’s
revenue. No such concentration existed during the three and nine
month periods ended March 31, 2009.
No
customers accounted for more than 10% or more of the Company’s accounts
receivable at March 31, 2010 and June 30, 2009.
Segment
Reporting
The
Company operates in one reportable segment. The Company evaluates
financial performance on a Company-wide basis.
Geographic
Concentrations
The
Company conducts business in the US, Canada and the UK. For customers
headquartered in their respective countries, the Company derived 27% of its
revenues from the US, 1% from Canada and 72% from its UK operations during the
three months ended March 31, 2010, compared to 33% of its revenues from the US,
2% from Canada and 65% from the UK for the three months ended March 31,
2009.
The
Company derived 25% of its revenues from the US, 1% from Canada and 74% from its
UK operations during the nine months ended March 31, 2010 compared to 26% of its
revenues from the US, 2% from Canada and 72% from the UK for the nine
months ended March 31, 2009. At March 31, 2010, the Company maintained 62% of
its net property and equipment in the UK and the remaining 38% in the
US.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by the
Company’s management include, but are not limited to, the valuation of
derivative liabilities, collectability of accounts receivable, the realizability
of inventories, the fair value of investments in available-for-sale securities,
the recoverability of goodwill and other long-lived assets, valuation of
deferred tax assets and liabilities, and the estimated value of warrants and
shares issued for non-cash consideration. Actual results could materially differ
from those estimates.
F-34
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Fair
Value of Financial Instruments
The
Company’s financial instruments consist principally of cash and cash
equivalents, investments in available-for-sale securities, accounts receivable,
accounts payable, accrued expenses and debt instruments.
Financial
assets and liabilities that are remeasured and reported at fair value at each
reporting period are classified and disclosed in one of the following three
categories:
|
·
|
Level
1 – Fair value based on quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level
2 – Fair value based on significant directly observable data (other than
Level 1 quoted prices) or significant indirectly observable data through
corroboration with observable market data. Inputs would normally be (i)
quoted prices in active markets for similar assets or liabilities, (ii)
quoted prices in inactive markets for identical or similar assets or
liabilities or (iii) information derived from or corroborated by
observable market data.
|
|
·
|
Level
3 – Fair value based on prices or valuation techniques that require
significant unobservable data inputs. Inputs would normally be a reporting
entity’s own data and judgments about assumptions that market participants
would use in pricing the asset or
liability.
|
Available-for-Sale
Securities
Management
determines the appropriate classification of its investments in equity
securities with readily determinable fair values that are not accounted for
under the equity method of accounting at the time of purchase and re-evaluates
such classification as of each balance sheet date. The specific identification
method is used to determine the cost basis of securities disposed of. Unrealized
gains and losses on the marketable securities are included as a separate
component of accumulated other comprehensive loss, net of tax. At March 31,
2010, investments consist of corporate stock with a carrying value of
$0. During the year ended June 30, 2009, the Company wrote down its
investment in available-for-sale securities to $0, which is now the Company’s
new cost basis in the securities. The Company will not recognize any
gain or loss on the securities unless they are sold.
Inventories
Inventories
are stated at the lower of cost or current estimated market value. Cost is
determined using the first-in, first-out method. Inventories consist primarily
of hardware that will be sold to customers. The Company periodically reviews its
inventories and records a provision for excess and obsolete inventories based primarily on the Company’s estimated forecast
of product demand and production requirements. Once established,
write-downs of inventories are considered permanent adjustments to the cost
basis of the obsolete or excess inventories.
Property
and Equipment
Property
and equipment are stated at cost, and are being depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful lives of the assets
or the related lease terms. Equipment under capital lease obligations is
depreciated over the shorter of the estimated useful lives of the related assets
or the term of the lease. Maintenance and routine repairs are charged to expense
as incurred. Significant renewals and betterments are capitalized. At the time
of retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the consolidated statements of operations. Depreciation
expense was $51,000 and $43,000 for the three months ended March 31, 2010 and
2009, respectively, and $154,000 and $127,000 for the nine months ended March
31, 2010 and 2009, respectively.
F-35
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Software
Development Costs
Costs
incurred to develop computer software products to be sold or otherwise marketed
are charged to expense until technological feasibility of the product has been
established. Once technological feasibility has been established, computer
software development costs (consisting primarily of internal labor costs) are
capitalized and reported at the lower of amortized cost or estimated realizable
value. Purchased software development cost is recorded at its estimated fair
market value. When a product is ready for general release, its capitalized costs
are amortized using the straight-line method over a period of three years. If
the future market viability of a software product is less than anticipated,
impairment of the related unamortized development costs could occur, which could
significantly impact the recorded loss of the Company. Amortization expense was
$47,000 and $25,000 for the three months ended March 31, 2010 and 2009,
respectively, and $153,000 and $110,000 for the nine months ended March 31, 2010
and 2009, respectively.
Amortizable
Intangible Assets
Intangible
assets that have finite useful lives be amortized over their useful lives.
Amortizable intangible assets consist of completed software technology,
customer relationships and automotive data services and are recorded at cost.
Completed software technology and customer relationships are amortized using the
straight-line method over their estimated useful lives of 8 to 10 years, and
automotive data services are amortized using the straight-line method over their
estimated useful lives of 20 years. Amortization expense on amortizable
intangible assets was $178,000 and $185,000 for the three months ended March 31,
2010 and 2009, respectively, and $540,000 and $544,000 for the nine months ended
March 31, 2010 and 2009, respectively.
Goodwill
Goodwill
and intangible assets that have indefinite useful lives are not to be amortized
but rather be tested at least annually for impairment.
Goodwill
is subject to impairment reviews by applying a fair-value-based test at the
reporting unit level, which generally represents operations one level below the
segments reported by the Company. An impairment loss is recorded for any
goodwill that is determined to be impaired, which resulted in an $850,000
impairment charge in fiscal 2009. The impairment related to ASNA as a
result of continuing operating losses and less optimistic operating forecasts.
The estimated fair value of ASNA was determined using present value techniques.
There can be no assurance, however, that market conditions will not change or
demand for the Company’s products and services will continue which could result
in additional impairment of goodwill in the future. The Company performs
impairment testing on all existing goodwill at least annually.
For the
nine months ended March 31, 2010, goodwill activity was as
follows:
Balance,
July 1, 2009
|
$
|
9,548,000
|
||
Effect
of exchange rate changes
|
(624,000
|
)
|
||
Balance,
March 31, 2010
|
$
|
8,924,000
|
Long-Lived
Assets
The
Company’s management assesses the recoverability of long-lived assets (other
than goodwill discussed above) upon the occurrence of a triggering event by
determining whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair value and is charged to operations in the period in which long-lived
asset impairment is determined by management. At March 31, 2010, the Company’s
management believes there is no impairment of its long-lived assets. There can
be no assurance, however, that market conditions will not change or demand for
the Company’s products and services will continue, which could result in
impairment of long-lived assets in the future.
Issuance
of Stock to Non-Employees for Non-Cash Consideration
All
issuances of the Company’s stock to non-employees for non-cash consideration
have been assigned a per share amount equaling either the market value of the
shares issued or the value of consideration received, whichever is more readily
determinable. The majority of the non-cash consideration received pertain to
services rendered by consultants and others.
The
measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor’s performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term
of the consulting agreement. An asset acquired in exchange for the
issuance of fully vested, non-forfeitable equity instruments should not be
presented or classified as an offset to equity on the grantor’s balance sheet
once the equity instrument is granted for accounting purposes.
F-36
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Stock-Based
Compensation
For
valuing stock options awards, the Company has elected to use the Black-Scholes
valuation model. For the expected term, the Company has historically
used a simple average of the vesting period and the contractual term of the
option. Volatility is a measure of the amount by which the Company’s stock price
is expected to fluctuate during the expected term of the option. For volatility
the Company considers its own volatility as applicable for valuing its options
and warrants. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. The risk-free interest rate is based on the relevant US
Treasury Bill Rate at the time each grant. The dividend yield represents the
dividend rate expected to be paid over the option’s expected term; the Company
currently has no plans to pay dividends.
On June
12, 2008, the Company’s shareholders approved the Aftersoft Group Inc. 2007
Long-Term Stock Incentive Plan. The maximum aggregate number of shares of common
stock that may be issued under the plan, including stock awards, and stock
appreciation rights is limited to 15% of the shares of common stock outstanding
on the first trading day of any fiscal year. The Company issued restricted
shares to its management and board members in fiscal 2009 and to
board members in fiscal 2010 under this plan (see Note 7).
Revenue
Recognition
Software
license revenue is recognized when persuasive evidence of an arrangement exists,
delivery of the product component has occurred, the fee is fixed and
determinable, and collectability is probable. If any of these criteria are not
met, revenue recognition is deferred until such time as all of the criteria are
met.
The
Company accounts for delivered elements in accordance with the residual method
when arrangements include multiple product components or other elements and
vendor-specific objective evidence exists for the value of all undelivered
elements. Revenues on undelivered elements are recognized once delivery is
complete.
In those
instances where arrangements include significant customization, contractual
milestones, acceptance criteria or other contingencies (which represents the
majority of the Company’s arrangements), the Company accounts for the
arrangements using contract accounting, as follows:
|
1)
|
When
customer acceptance can be estimated, expenditures are capitalized as work
in process and deferred until completion of the contract at which time the
costs and revenues are recognized.
|
|
2)
|
When
customer acceptance cannot be estimated based on historical evidence,
costs are expensed as incurred and revenue is recognized at the completion
of the contract when customer acceptance is
obtained.
|
The
Company records amounts collected from customers in excess of recognizable
revenue as deferred revenue in the accompanying consolidated balance
sheets.
Revenues
for maintenance agreements, software support, on-line services and information
products are recognized ratably over the term of the service
agreement.
Advertising
Expense
The
Company expenses advertising costs as incurred. For the three months ended March
31, 2010 and 2009, advertising expense totaled $5,000 and $30,000, respectively.
For the nine months ended March 31, 2010 and 2009, advertising expense totaled
$37,000 and $58,000, respectively.
Foreign
Currency
Management
has determined that the functional currency of its subsidiaries is the local
currency. Assets and liabilities of the UK subsidiaries are translated into US
dollars at the period-end exchange rates. Income and expenses are translated at
an average exchange rate for the period and the resulting translation (loss)
adjustments are accumulated as a separate component of stockholders’ equity,
which totaled ($437,000) and ($458,000) for the three months ended March 31,
2010 and 2009, respectively, and ($545,000) and ($4,101,000) for the nine months
ended March 31, 2010 and 2009, respectively.
F-37
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Foreign
currency gains and losses from transactions denominated in other than respective
local currencies are included in income. The Company had no foreign currency
transaction gains (losses) for any period presented.
Comprehensive
Loss
Comprehensive
loss includes all changes in equity (net assets) during a period from non-owner
sources. For the three and nine months ended March 31, 2010, the components of
comprehensive loss consist of changes in foreign currency translation
losses. For the three and nine months ended March 31, 2009,
comprehensive loss also consisted of changes in unrealized loss on investments
in available-for-sale securities.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period the enactment occurs.
Deferred taxation is provided in full in respect of taxation deferred by timing
differences between the treatment of certain items for taxation and accounting
purposes. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
Basic
and Diluted Earnings (Loss) Per Share
Basic
earnings (loss) per common share are computed based on the weighted average
number of shares outstanding for the period. Diluted earnings (loss) per share
are computed by dividing net income (loss) by the weighted average shares
outstanding assuming all potential dilutive common shares were issued. During
periods in which the Company incurs losses, common stock equivalents, if any,
are not considered, as their effect would be anti-dilutive. For the
three and nine months ended March 31, 2010 and 2009, there were no dilutive
shares. A total of 22,498,135 common stock purchase warrants and debt
convertible into 3,386,616 shares were excluded from the computation of diluted
loss per share as their effect would have been anti-dilutive for the three and
nine months ended March 31, 2010. For the three and nine months ended March 31,
2009 a total of 21,798,135 common stock purchase warrants and debt convertible
into 3,361,345 shares were excluded from the computation of diluted loss per
share as their effect would have been anti-dilutive. Had the Company reported
net income in any of these periods, none of these shares would have been
included in the diluted earnings per share.
Recent
Accounting Pronouncements
In
September 2009, the accounting standard regarding multiple deliverable
arrangements was updated to require the use of the relative selling price method
when allocating revenue in these types of arrangements. This method allows
a vendor to use its best estimate of selling price if neither vendor specific
objective evidence nor third party evidence of selling price exists when
evaluating multiple deliverable arrangements. This standard update must be
adopted no later than July 1, 2010 and may be adopted prospectively for
revenue arrangements entered into or materially modified after the date of
adoption or retrospectively for all revenue arrangements for all periods
presented. The Company is currently evaluating the impact this standard update
will have on its consolidated financial statements.
In
September 2009, the accounting standard regarding arrangements that include
software elements was updated to require tangible products that contain software
and non-software elements that work together to deliver the products essential
functionality to be evaluated under the accounting standard regarding multiple
deliverable arrangements. This standard update must be adopted no later than
July 1, 2010 and may be adopted prospectively for revenue arrangements
entered into or materially modified after the date of adoption or
retrospectively for all revenue arrangements for all periods presented. The
Company is currently evaluating the impact this standard update will have on its
consolidated financial statements.
F-38
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
In
January 2010, the Financial Accounting Standards Board issued guidance to amend
the disclosure requirements related to recurring and nonrecurring fair value
measurements. The guidance requires new disclosures on the transfers of assets
and liabilities between Level 1 (quoted prices in active market for identical
assets or liabilities) and Level 2 (significant other observable inputs) of the
fair value measurement hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of activities on
purchases, sales, issuance, and settlements of the assets and liabilities
measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for the Company with the reporting
period beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
the Company with the reporting period beginning July 1, 2011. Other than
requiring additional disclosures, adoption of this new guidance will not have a
material impact on the Company’s consolidated financial statements.
Effective
July 1, 2009, the Company adopted the accounting standard that provides
guidance for determining whether an equity-linked financial instrument, or
embedded feature, is indexed to an entity’s own stock. The standard
applies to any freestanding financial instruments or embedded features that have
the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. As a
result of the adoption, 5,083,333 of the Company’s issued and outstanding common
stock purchase warrants previously treated as equity pursuant to the derivative
treatment exemption were no longer afforded equity treatment. These warrants
have an average exercise price of $0.21 and expiration dates of December 31,
2013. In addition, amounts related to the embedded conversion feature of
convertible notes issued previously treated as equity pursuant to the derivative
treatment exemption were also no longer afforded equity treatment. As such,
effective July 1, 2009, the Company reclassified the fair value of these common
stock purchase warrants and recorded the fair value of the embedded conversion
features, which both have exercise price reset features, from equity to
liability status as if these warrants and embedded conversion features were
treated as a derivative liability since the earliest date of issue in December
2007. On July 1, 2009, the Company reclassified from additional paid-in
capital, as a cumulative effect adjustment, approximately $868,000 to derivative
liabilities, increased the debt discount and derivative liabilities by a gross
amount of approximately $310,000, decreased accumulated deficit by approximately
$619,000 for the change in fair value of derivative liabilities for the period
from December 2007 through June 30, 2009 and increased accumulated deficit by
approximately $158,000 for additional amortization of debt discount for the
period from December 2007 through June 30, 2009. The fair value of the common
stock purchase warrants was approximately $305,000 and the embedded conversion
feature was approximately $0 on March 31, 2010. The total value of
these derivative liabilities declined from $558,000 to $305,000 for the nine
months ended March 31, 2010 and increased from approximately $243,000
to $305,000 for the three months ended March 31, 2010. As such, the Company
recognized approximately $253,000 gain from the change in fair value of the
derivative liabilities for the nine months ended March 31, 2010 and recognized a
loss of $62,000 for the three months ended March 31, 2010.
All
future changes in the fair value of these warrants and embedded conversion
features will be recognized in earnings until such time as the warrants are
exercised or expire and the debt is converted to common stock or repaid. These
common stock purchase warrants and conversion feature do not trade in an active
securities market, and as such, the Company estimates the fair value of these
warrants and conversion feature using the Black-Scholes option pricing model
using the following assumptions:
March 31,
|
July 1,
|
|||||||
2010
|
2009
|
|||||||
Annual
dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
Expected
life (years)
|
0.67
- 4.00
|
4.50
|
||||||
Risk-free
interest rate
|
0.39%-2.65
|
%
|
0.54%-2.51
|
%
|
||||
Expected
volatility
|
85
|
%
|
175
|
%
|
Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using weekly pricing observations for recent periods. The Company
believes this method produces an estimate that is representative of the
Company’s expectations of future volatility over the expected term of these
warrants and conversion features. The Company currently has no reason to believe
future volatility over the expected remaining life of these warrants and
conversion feature is likely to differ materially from historical volatility.
The expected life is based on the remaining term of the warrants and conversion
features. The risk-free rate is based on the US Treasury rate that corresponds
to the expected term of the warrants and conversion feature.
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter. Liabilities measured at fair value on a recurring basis are summarized
as follows (unaudited):
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Fair
Fair value of warrants
|
$
|
-
|
$
|
-
|
$
|
305,000
|
$
|
305,000
|
||||||||
Fair
Fair value of embedded conversion feature related to convertible
notes
|
-
|
-
|
-
|
-
|
||||||||||||
Total
|
$
|
-
|
$
|
-
|
$
|
305,000
|
$
|
305,000
|
F-39
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
The
following table details the approximate fair value measurements within the fair
value hierarchy of the Company’s derivative liabilities using Level 3
Inputs:
Balance
as of June 30, 2009
|
$
|
-
|
||
Cumulative
effect of adoption
|
558,000
|
|||
Change
in fair value
|
(253,000
|
)
|
||
Balance
as of March 31, 2010
|
$
|
305,000
|
The
Company has no assets that are measured at fair value on a recurring basis.
There were no assets or liabilities measured at fair value on a non-recurring
basis during the three and nine months ended March 31, 2010.
NOTE 3. TRANSACTIONS WITH FORMER PARENT
COMPANY
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed the
dividend of the 71,250,000 shares of the Company’s common stock that ADNW owned
at such time in order to complete the spin-off of Aftersoft’s businesses. The
dividend shares were distributed in the form of a pro rata dividend to the
holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common
and convertible preferred stock. Each holder of record of shares of ADNW common
and preferred stock as of the close of business on the Record Date was entitled
to receive 0.6864782 shares of the Company’s common stock for each share of
common stock of ADNW held at such time, and/or for each share of ADNW common
stock that such holder would own, assuming the convertible preferred stock owned
on the Record Date was converted in full. Prior to the spin-off, ADNW
owned approximately 77% of the Company’s issued and outstanding common stock.
Subsequent to and as a result of the spin-off, the Company is no longer a
subsidiary of ADNW.
ADNW
attempted to settle an old outstanding obligation of ADNW of $775,000 with Mr.
Blumenthal (see Note 6) for 4,400,000 shares of ADNW common stock. The value of
the shares declined and Mr. Blumenthal elected not to accept the ADNW shares as
full compensation, and later demanded that the Company settle ADNW’s liability
with additional or different consideration. In April 2008, the Company accepted
the 4,400,000 shares from ADNW valued at $484,000 in exchange for attempting to
settle ADNW’s liability. The difference between the value of the ADNW shares and
the amount of ADNW’s initial obligation of $291,000 was recorded as general and
administrative expense in the consolidated statement of operations during such
period.
In
February 2010, Mr. Blumenthal commenced a civil action against the Company (see
Note 6).
During
the fiscal year ended June 30, 2009, the Company liquidated 5,231,622 common
shares of ADNW for net proceeds of $889,000, and issued 2,000,000 common shares
of ADNW in settlement of ADNW obligations. As a result of the Company’s
ownership of certain ADNW securities, the Company received approximately
13,965,295 shares of its own common stock in connection with the spin-off
dividend distribution. On December 31, 2008, the Company retired
13,722,112 of the shares. The remaining 243,183 shares were used by the Company
for rounding of fractional shares issued in respect of the spin-off dividend, to
make adjustments for the benefit of the holders of ADNW’s Series B Convertible
Preferred Stock which received fewer shares in connection with the spin-off than
the number to which they were entitled as a result of a calculation error
relating to the Series B conversion rate, and for other minor
adjustments.
As a
result of the above transactions, the Company no longer owns any shares of ADNW
stock as of June 30, 2009.
NOTE 4. INVESTMENT IN AVAILABLE -FOR-SALE
SECURITIES
The
Company received a total of 4,433,284 shares of First London PLC (formerly First
London Securities) from the sale of EXP. The shares had been listed for trading
on the London Plus Exchange, but effective September 30, 2009, the shares were
delisted.
The
Company owns approximately 3% of the outstanding shares of First London PLC, and
completely wrote down its investment and recognized a loss of $4,723,000 because
of an other-than-temporary impairment as of June 30, 2009. The recognition of
this impairment loss in the statement of operations resulted in the reversal in
other comprehensive loss of a previously unrealized loss of $184,000 for
the year ended June 30, 2009. At March 31, 2009, investments consist of
corporate stock with an unrealized loss of $932,000. At March 31,
2010, the Company still holds all of the shares received.
F-40
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
Factors
considered in determining whether impairments are other-than-temporary include
(i) the length of time and extent to which fair value has been less than
the amortized cost basis, (ii) the financial condition and near-term
prospects of the investee and (iii) the Company’s intent and ability to
hold an investment for a period of time sufficient to allow for any anticipated
recovery in market value.
NOTE 5. LONG -TERM DEBT
Long-term
debt consists of the following as of March 31, 2010 and June 30,
2009:
March 31,
2010
|
June 30,
2009
|
|||||||
ComVest
term loan, net of debt discount of $141,000 and $303,000
|
$
|
4,443,000
|
$
|
4,697,000
|
||||
ComVest
revolver
|
1,000,000
|
1,000,000
|
||||||
Secured
notes
|
271,000
|
388,000
|
||||||
McKenna
note
|
-
|
150,000
|
||||||
Homann
note
|
-
|
63,000
|
||||||
Other
notes
|
13,000
|
13,000
|
||||||
5,727,000
|
6,311,000
|
|||||||
Less
current portion
|
(5,540,000
|
)
|
(1,598,000
|
)
|
||||
Long
term portion
|
$
|
187,000
|
$
|
4,713,000
|
ComVest
Loan Agreement
On
December 21, 2007, the Company entered into a Revolving Credit and
Term Loan Agreement (the “Loan Agreement”) with ComVest Capital LLC (“ComVest”),
as lender, pursuant to which ComVest agreed to extend a $1,000,000 secured
revolving Credit Facility and a $5,000,000 Term Loan. The Loan Agreement
contains customary affirmative and negative covenants, including maximum limits
for capital expenditures per fiscal year, and ratios for liquidity. In
connection with obtaining a waiver for a violation of loan covenants at March
31, 2008, the Company reduced the exercise price from $0.3125 per share to $0.11
per share for one million warrants held by ComVest (see below), recognizing the
incremental fair value of the modified warrants of $24,000 as additional
interest expense.
As of
June 30, 2008, in connection with obtaining a waiver for a violation of loan
covenants, the Company and ComVest amended the Loan Agreement and modified
certain covenants. The cash flow ratio coverage was reduced and the lender
agreed to extend from January 1, 2009 until January 1, 2010 the start of the
loan amortization. As part of the amendment, ComVest required the Company to
reduce the exercise price from $0.39 to $0.11 for 2,000,000 warrants held by
ComVest (see below). The incremental fair value of the modified warrants is
$15,000, which was recorded as an additional debt discount and is being
amortized over the remaining life of the term loan.
As of
December 31, 2008, in connection with obtaining a waiver for violation of
certain loan covenants, the Company and ComVest agreed to increase the interest
on the $1,000,000 Credit Facility (described below) from 9.5% to 11%. The
amendment did not meet the requirements of a Modification or Exchange of Debt
Instruments, therefore no adjustment to the financial statements was
required.
Pursuant
to a waiver and amendment, the annual interest rate was restored to 9.5% as the
Company became compliant with the covenant as of the close of the quarter ended
on March 31, 2009.
Effective
April 22, 2009, the Company and ComVest amended the loan agreement and modified
certain covenants relating to the required ratio of (a) Earning Before Interest,
Depreciation, and Amortization, minus capital expenditures incurred to (b) debt
service (all interest and principal payments) ("Debt Service") (the "EBIDA
Ratio") contained in the Loan Agreement (the "Covenant"). Pursuant to the April
22, 2009 Amendment, the Covenant requires that the applicable minimum EBIDA
Ratio be met as of the end of the quarter for such fiscal quarter. Prior to the
April 22, 2009 Amendment, the Covenant required that the applicable minimum
EBIDA Ratio be met as of the end of each quarter of any fiscal year for the four
(4) consecutive quarters then ended. The minimum EBIDA Ratios
themselves were not modified by the April 22, 2009 Amendment, and remain at
0.71:1.00 for the quarter ended March 31, 2009; 0.50:1.00 for the quarter ended
June 30, 2009; and 1.25:1.00 for the quarters ended on and after September 30,
2009.
After
obtaining the above waivers, the Company was not in violation and any loan
covenants for the period ending June 30, 2009.
F-41
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
As of
March 31, 2010, the Company did not meet the EBIDA Ratio Covenant of 1.25:1 as
required by the Loan Agreement, and Amendment. Our
failure to maintain this ratio constitutes an event of default under the
terms of the Loan Agreement. Under the terms of the Loan Agreement, if any event
of default occurs, the full principal amount of the Note, together with interest
and other amounts owing in respect thereof, to the date of acceleration shall
become, at ComVest’s election, immediately due and payable in cash. The
Company is in negotiations to resolve the default with ComVest.
Credit Facility and Revolving Credit
Note. Pursuant to the terms of the Loan Agreement, the Credit Facility
became available on December 21, 2007 (the “Closing Date”), and the initial
maturity date was November 30, 2009. The Company had the option of
extending the maturity date of the Credit Facility for one additional year,
through November 30, 2010 upon written notice to ComVest provided that no
default or event of default have occurred and are continuing at that time, and
provided that the maturity date of the Credit Facility has not been accelerated
due to prepayment in full of the Term Loan. On September 9,
2009, the Company notified ComVest of its election to extend the
maturity date of the credit facility to November 30, 2010.
The
Credit Facility provides for borrowing capacity of an amount up to (at any time
outstanding) the lesser of the borrowing base at the time of each advance under
the Credit Facility, or $1,000,000. The borrowing base at any time is an amount
determined in accordance with a borrowing base report the Company is required to
provide to ComVest, based upon the Company’s Eligible Accounts and Eligible
Inventory, as such terms are defined in the Loan Agreement.
In
connection with the Credit Facility, the Company issued a Revolving Credit Note
(the “Credit Note”) payable to ComVest in the principal amount of $1,000,000,
bearing interest at a rate per annum equal to the greater of (a) the prime rate,
as announced by Citibank, N.A. from time to time, plus two percent (2%), or (b)
nine and one-half percent (9.5%). The interest rate, which was 9.5% from the
Closing Date through December 31, 2008, had been increased from 9.5% to 11% in
connection with obtaining a waiver from ComVest for violation of certain loan
covenants as described above. As of April 1, 2009, the
Company had regained compliance with the loan covenants and the interest rate
was reduced from 11% back to 9.5%. The applicable interest rate will be
increased by four hundred (400) basis points during the continuance of any event
of default under the Loan Agreement. Interest is computed on the daily unpaid
principal balance and is payable monthly in arrears on the first day of each
calendar month commencing January 1, 2008. Interest is also payable upon
maturity or acceleration of the Credit Note.
The
Company has the right to prepay all or a portion of the principal balance on the
Credit Note at any time, upon written notice, with no penalty. The Credit Note
is secured pursuant to the provisions of certain Security
Documents.
The
Company also has the option to terminate the Credit Facility at any time upon
five business days’ prior written notice, and upon payment to ComVest of all
outstanding principal and accrued interest of the advances on the Credit
Facility, and prorated accrued commitment fees. The Credit Facility commitment
also terminates, and all obligations become immediately due and payable, upon
the consummation of a Sale, which is defined in the Loan Agreement as certain
changes of control or sale or transfers of a material portion of the Company’s
assets.
At March
31, 2010, the Company had drawn down the $1,000,000 Credit Facility in
full. The interest rate as of March 31, 2010 was 9.5%.
Term Loan and Convertible Term
Note. Pursuant to the terms of the Loan Agreement, ComVest extended to
the Company a Term Loan in the principal amount of $5,000,000, on the Closing
Date. The Term Loan is a one-time loan, and unlike the Credit Facility, the
principal amount is not available for re-borrowing.
The Term
Loan is evidenced by a Convertible Term Note (the “Term Note”) issued by the
Company on the Closing Date, and payable to ComVest in the principal amount of
$5,000,000. The Term Note bears interest at a rate of eleven percent (11%) per
annum, except that during the continuance of any event of default, the interest
rate will be increased to sixteen percent (16%).
As
amended (see ”ComVest Loan Agreement” above), the Term Note is repayable in 10
equal monthly installments of approximately $208,333, payable on first day of
each calendar month commencing February 1, 2010 through November 1,
2010, with the balance of $2,708,333 due on November 30, 2010.
The
Company has the option to prepay the principal balance of the Term Note in whole
or in part, at any time, upon 15 days’ prior written notice. The Company will be
required to prepay the Term Loan in whole or part under certain circumstances.
In the event that the Company prepays all or a portion of the Term
Loan, the
Company will ordinarily pay a prepayment premium in an amount equal to (i) three
percent (3%) of the principal amount being prepaid if such prepayment is made or
is required to be made on or prior to the second anniversary of the Closing
Date, and (ii) one percent (1%) of the principal amount being prepaid if such
prepayment is made or is required to be made subsequent to the second
anniversary of the Closing Date.
F-42
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
The
principal and interest payable on the Term Note is convertible into shares of
the Company’s common stock at the option of ComVest. In addition, the
Company may require conversion of the principal and interest under certain
circumstances. The initial conversion price was $1.50 per
share. The number of shares issuable upon conversion of the
Term Note (the “Conversion Shares”), and/or the conversion price, may be
proportionately adjusted in the event of any stock dividend, distribution, stock
split, stock combination, stock consolidation, recapitalization or
reclassification or similar transaction. In addition, the number of Conversion
Shares, and/or the conversion price may be adjusted in the event of certain
sales or issuances of shares of the Company’s common stock, or securities
entitling any person to acquire shares of common stock, at any time while the
Term Note is outstanding, at an effective price per share which is less than the
then-effective conversion price of the Term Note (see Note
2).
On July
3, 2008, the conversion price for the Term Note was reduced from $1.50 to $1.49
as a result of certain anti-dilution protection contained therein following the
issuance by the Company of additional shares of common stock and warrants to
purchase common stock. Consequently, the number of shares issuable upon
conversion of the principal amount of the Term Note was increased to 3,361,345
shares from 3,333,333 shares, which was accounted for in the change in fair
value of derivative liabilities.
The
Company incurred a closing fee of $100,000 in connection with the Term Loan. In
connection with the Credit Facility, the Company has agreed to pay an annual
commitment fee of $15,000, on December 1 of each year, commencing December 1,
2008, and on any termination date (pro-rated, if applicable), that the Credit
Facility is in effect, as well as a collateral monitoring and administrative fee
of $1,500 per month.
The
expenses of this financing were approximately $641,000, which included a
finder’s fee of $300,000, lender fees of $190,000 and professional and due
diligence fees of approximately $151,000. The net proceeds to the Company were
approximately $4,359,000. The fees were allocated between debt issuance costs
and debt discount. The debt issuance costs of $478,000 were recorded on the date
of entering into the agreement in other assets in the accompanying consolidated
balance sheets and are being amortized and charged to interest expense over the
term of the loan using the effective interest method. The balance of the Debt
issuance costs was approximately $22,000 as of March 31, 2010 and is included in
Other assets in the accompanying consolidated balance
sheet. Amortization of the issuance costs was approximately $25,000
and $114,000 for the three and nine months ended March 31, 2010, respectively,
and $62,000 and $194,000 for the three and nine months ended March 31, 2009,
respectively. A debt discount of $163,000 was recorded in the consolidated
balance sheet on the date of entering into the agreement as a reduction in the
carrying value of the debt, and is being amortized and charged to interest
expense over the term of the loan using the effective interest method. The
Company also issued warrants to ComVest to purchase shares of the Company’s
Common Stock (see below). The relative fair value of these warrants was
approximately $868,000 and recorded in the debt discount. Additionally, due to
the adoption of the accounting standard that provides guidance for determining
whether an equity-linked financial instrument, or embedded feature, is indexed
to an entity’s own stock, the Company recorded an additional $310,000 of debt
discount as if incurred on the date of the agreement (see Note
2). The balance of the debt discount is approximately $141,000 as of
March 31, 2010.
Warrants. In connection with
the Loan Agreement, the Company issued warrants to ComVest to purchase the
following amounts of shares of the Company’s Common Stock, exercisable after the
Closing Date and expiring December 31, 2013: a) Warrant to purchase 1,000,000
shares of common stock at an exercise price of $0.3125 per share; b) Warrant to
purchase 2,000,000 shares of common stock at an exercise price of $0.39 per
share; and c) Warrant to purchase 2,083,333 shares of common stock at an
exercise price of $0.3625 per share; (each, a “Warrant”) (the 5,083,333 shares
collectively issuable upon exercise of the Warrants are referred to herein as
the “Warrant Shares”). The exercise prices of certain of these
warrants were amended, as described under “ComVest Loan Agreement” above. The
relative fair value of the Warrant Shares, at the time of issuance was $868,000
using a Black Scholes valuation model and also contains a cashless exercise
feature. The warrant valuation was computed using a 3.5% risk-free
interest rate, a 99% volatility and a six-year life. The value of the Warrant
Shares is included in debt discount, is recorded in the consolidated balance
sheet as a reduction in the carrying value of the debt, and is being amortized
and charged to interest expense over the term of the loan using the effective
interest method.
The
number of shares issuable upon exercise of the Warrants, and/or the applicable
exercise prices, may be proportionately adjusted in the event of any stock
dividend, distribution, stock split, stock combination, stock consolidation,
recapitalization or reclassification or similar transaction. In addition, the
number of shares issuable upon exercise of the Warrant Shares, and/or the
applicable exercise prices may be adjusted in the event of certain issuances of
shares of the Company’s common stock, or securities entitling any person to
acquire shares of common stock, at any time while the Warrants are outstanding,
at an effective price per share which is less than the then-effective exercise
prices of the Warrants.
F-43
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
The
Company also granted certain registration rights and piggyback registration
rights to the holder(s) of the securities underlying the Term Note and
Warrants. The registration for the sales of the securities underlying
the Term Note and Warrants was declared effective by the SEC on May 1,
2009.
The
Company issued warrants to purchase 250,000 shares of common stock as
compensation to a consultant for assistance in securing the $5,000,000 Term
Loan. The warrants were valued at $42,000 using a Black-Scholes valuation model
and are included in debt issuance cost. The warrant valuation was computed using
a 3.5% risk free interest rate, a 99% volatility and a six-year
life.
Amortization
of debt discount was $114,000 and $123,000, and amortization of debt issuance
costs was $22,000 and $62,000, for the three months ended March 31, 2010 and
2009, respectively. Amortization of debt discount was $314,000 and $400,000, and
amortization of debt issuance costs was $114,000 and $194,000 for the nine
months ended March 31, 2010 and 2009, respectively. The unamortized
debt discount related to the debt issuance costs, the warrants and the
conversion feature was $0, $113,000 and $28,000, respectively.
Homann
Note
The
Company repaid the note payable to Homann Tire LTD (“Homann”) during the three
months ended September 30, 2009. This note in the principal
amount of $125,000, with interest at 8% per annum, had an initial maturity date
of April 29, 2009. The terms of the note included interest only payments of $833
per month. A principal payment of $25,000 was made in April 2007. The remaining
balance of $125,000 was payable in April 2009. On April 3,
2009, the Company amended the payment terms and agreed to repay the note in six
monthly installments of $21,450 which includes interest at 10%. The
amendment did not meet the requirements of a Modification or Exchange of Debt
Instruments, therefore no adjustment to the financial statements was required.
The final payment was made in September 2009.
McKenna
Note
The
Company had issued an unsecured note payable to Mr. A. McKenna in the original
amount of $825,000 with interest at 8% per annum The note was
initially due in July 2009, and was payable in 24 monthly installments of
$37,313 including interest. In February 2009, the Company orally advised Mr.
McKenna that it would reduce the monthly payment to $18,650 per month, but there
was no written amendment to the note between the Company and Mr.
McKenna. Since February 2009, the note holder accepted the reduced
monthly payments, and did not notify the Company of any violations of the terms
and conditions of the payment agreement. The Company repaid the note in
full during the three month period ended March 31, 2010.
Secured
Notes
The
Company has secured notes totaling $289,000 payable over 12 to 48 months with
monthly payments of $4,137 and quarterly payments of $6,278. The
notes bear interest rates of 5.49% to 9.54% and are secured by leasehold
improvements and equipment with a carrying value of $289,000.
NOTE 6. COMMITMENTS AND
CONTINGENCIES
Legal
Matters
From time
to time, the Company is subject to various legal claims and proceedings arising
in the ordinary course of business. The ultimate disposition of these
proceedings could have a materially adverse effect on the consolidated financial
position or results of operations of the Company.
F-44
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
(1)
|
On
August 1, 2007, the Company and Mr. McKenna entered into an agreement that
settled all outstanding actions by Mr. McKenna against the Company and its
subsidiaries related to the initial action against CarParts Technologies,
Inc., which is now known as ASNA. Pursuant to the settlement, the Company
paid Mr. McKenna $2,000,000 in cash, issued him an 8% promissory note in
the principal amount of $825,000, which is payable over 24 months, and
issued Mr. McKenna 1,718,750 shares of the Company’s Common Stock, which
represented $825,000 at a value of $0.48 per share (the closing price of
the Company’s Common Stock on the date of settlement). Mr. McKenna was
also entitled to warrants to purchase an equivalent number of shares of
Common Stock at the same price. Upon entering this agreement all parties
agreed to withdraw all existing litigation and claims. The Company
finalized its agreement with McKenna on December 6, 2007 and revised its
litigation accrual to $3,650,000 to reflect the settlement. The shares
were issued in August 2007. In November 2007, the Company amended the
settlement agreement and issued 1,718,750 warrants to purchase Common
Stock for $0.48 per share. The warrants were issued to replace the Common
Stock included in the settlement agreement. In February 2009, the Company
orally advised Mr. McKenna that it would reduce the monthly payment on the
note to $18,650 per month from $37,313 per month, but there is no written
amendment to the note between the Company and Mr.
McKenna. Since February 2009, the note holder accepted the
reduced monthly payments, and did not notify the Company of any violations
of the terms and conditions of the payment agreement. The Company
repaid the note in full during the three month period ended March 31,
2010.
|
(2)
|
The
Company entered into a settlement agreement with Mr. Arthur Blumenthal, a
former shareholder of Anderson BDG, Inc. Mr. Blumenthal’s lawsuit against
the Company’s parent ADNW emanated from an agreement Mr. Blumenthal had
with a subsidiary of the Company, ASNA (f/k/a CarParts Technologies, Inc.)
for the purchase of Anderson BDG, that had not been settled although it
was past due. The Company assumed the liability as part of a plan of
spinning off certain businesses into the Company and renegotiated the
agreement with Mr. Blumenthal, the terms of which required the Company to
make a payment of $50,000 cash and the issuance to Mr. Blumenthal and
registration of 300,000 shares of the Company’s common stock, which were
issued in fiscal 2007 and valued at $0.48 per share, (the closing price of
the Company’s common stock on the date of settlement) or $144,000. The
Company subsequently completely settled the lawsuit with Mr. Blumenthal
and repaid his notes in fiscal
2008.
|
On
February 17, 2010, Mr. Blumenthal commenced a civil action against the Company,
certain subsidiaries, and current and former officers and directors of the
Company. On April 16, 2010, the Company settled the litigation
with Mr. Blumenthal for $1,250,000. On April 19, 2010, the Company paid Mr.
Blumenthal $350,000. The balance of the settlement amount is payable
through November 2012 in equal monthly payments of $31,750, which includes
interest at 7%. In the event the Company defaults in payment, Mr. Blumenthal may
elect to reinstitute the original litigation.
As of
March 31, 2010 the Company has accrued $1,250,000 for the settlement of this
liability which is included in the consolidated balance sheet of the
accompanying financial statements.
Indemnities
and Guarantees
The
Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Delaware. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. In
connection with its customers’ contracts the Company indemnifies the customer
that the software provided does not violate any US patent. The duration of the
guarantees and indemnities varies, and is generally tied to the life of the
agreement. These guarantees and indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying consolidated balance
sheet.
The
Company has agreed to indemnify ComVest and its directors, officers, employees,
attorneys and agents against, and to hold ComVest and such persons harmless
from, any and all losses, claims, damages and liabilities and related expenses,
including reasonable counsel fees and expenses, they may incur, arising out of,
related to, or as a result of, certain transactions or events in connection with
the Credit Facility and Term Loan (see Note 5).
F-45
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
NOTE 7. STOCKHOLDERS’
EQUITY
On July
3, 2008, the Company sold to an investor group, 5,231,622 shares of ADNW common
stock for $889,000 before fees and expenses. The Company incurred cash expenses
and fees of approximately $48,000 and agreed to issue to the selling agent
five-year warrants to purchase for $0.30 per share 1,000,000 shares of common
stock. The warrants were valued at $137,978 using a Black-Scholes valuation
model, with a risk free interest rate of 1.84 %, a volatility of 117% and a
five-year life. This transaction resulted in a gain of $337,000, which is
recorded as an increase to additional paid-in capital.
During
the quarter ended September 30, 2008, the Company reached an agreement with
three creditors of ADNW, and issued them 2,000,000 shares of ADNW common stock
owned by the Company in satisfaction of certain obligations of ADNW totaling
$140,000. At the time of settlement, the ADNW shares were trading at less than
the carrying value of the shares held by the Company, and the Company incurred a
loss of $53,000 on the settlement, which is recorded as a reduction to
additional paid-in-capital.
During
the quarter ended September 30, 2008, the Company approved the issuance of
483,000 shares to the non-management members of the Board of Directors under the
Company’s 2007 Long-Term Incentive Plan. The shares are being issued over a
three-year period. On October 6, 2008, the Company issued 47,890 shares of these
awards, which were valued at $7,184.
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed the
dividend of the 71,250,000 shares of the Company’s common stock that ADNW owned
at such time in order to complete the spin-off of the Company’s businesses. The
dividend shares were distributed in the form of a pro rata dividend to the
holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common
and convertible preferred stock. Each holder of record of shares of ADNW common
and preferred stock as of the close of business on the Record Date was entitled
to receive 0.6864782 shares of the Company’s common stock for each share of
common stock of ADNW held at such time, and/or for each share of ADNW common
stock that such holder would own, assuming the convertible preferred stock owned
on the Record Date was converted in full. Prior to the spin-off, ADNW
owned approximately 77% of the Company’s issued and outstanding common stock.
Subsequent to and as a result of the spin-off, the Company is no longer a
subsidiary of ADNW.
As a
result of the Company’s ownership of certain ADNW securities, the Company
received approximately 13,965,295 shares of its own common stock in connection
with the spin-off dividend distribution. On December 31, 2008, the
Company retired 13,730,413 of the shares. The remaining 234,882 shares were used
by the Company for rounding of fractional shares issued in respect of the
spin-off dividend, to make adjustments for the benefit of the holders of ADNW’s
Series B Convertible Preferred Stock which received fewer shares in connection
with the spin-off than the number to which they were entitled as a result of a
calculation error relating to the Series B conversion rate, and for other minor
adjustments. The value of these shares of approximately $29,000 was
recorded as a distribution.
On July
6, 2009, the Company issued 36,537 shares of common stock to certain directors,
which were valued at approximately $4,000, and on October 7, 2009, the Company
issued 125,265 shares of common stock to certain directors, which were valued at
approximately $13,000, each under the Company’s 2007 Long-Term Incentive
Plan.
On
September 30, 2009, the Company issued 149,125 shares of common stock to
certain directors in lieu of cash compensation fees, which were valued at
approximately $15,000.
On
December 31, 2009, the Company issued 700,000 warrants exercisable at $0.08 per
share in settlement of a contract. The estimated fair value of the
warrants is $36,000 using the Black-Scholes valuation model and also
contains a cashless exercise feature. The warrant valuation was
computed using a 2.65% risk-free interest rate, a 146.7% volatility and a
four-year life. The value of the warrants is included in general and
administrative expenses in the consolidated statement of operations and
comprehensive loss.
On
January 4, 2010, the Company issued 152,679 shares of common stock to
certain directors in lieu of cash compensation fees, which were valued at
approximately $11,000.
On
January 6, 2010, the Company issued 116,765 shares of common stock to certain
directors, which were valued at approximately $8,000 under the Company’s 2007
Long-Term Incentive Plan.
NOTE
8. SUBSEQUENT EVENTS
On April
7, 2010, the Company issued 186,406 shares of common stock to certain
directors in lieu of cash compensation fees, which were valued
at approximately $15,000.
F-46
AFTERSOFT
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (cont’d)
March
31, 2010
(Unaudited)
On April
6, 2010, the Company issued 122,265 shares of common stock to certain directors,
which were valued at approximately $9,000 under the Company’s 2007 Long-Term
Incentive Plan.
On April
16, 2010, the Company settled a litigation with Mr. Blumenthal for $1,250,000.
On April 19, 2010, the Company paid Mr. Blumenthal $350,000 and the balance is
payable through November 2012 in equal monthly payments of $31,750, which
includes interest at 7%. See note 6.
F-47
You
should rely only on the information contained in this prospectus. We have not
authorized any dealer, salesperson or other person to give you different
information. This prospectus does not constitute an offer to sell nor are they
seeking an offer to buy the securities referred to in this prospectus in any
jurisdiction where the offer or sale is not permitted. The information contained
in this prospectus and the documents incorporated by reference are correct only
as of the date shown on the cover page of these documents, regardless of the
time of the delivery of these documents or any sale of the securities referred
to in this prospectus.
MAM
SOFTWARE GROUP, INC.
51,122,650
Shares
of
Common
Stock
PROSPECTUS
_________,
2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the expenses in connection with the issuance and
distribution of the securities being registered hereby. All such expenses will
be borne by the registrant.
Securities
and Exchange Commission registration fee
|
$
|
[_____
|
] | |
Printing costs
(1)
|
[_____
|
] | ||
Accounting fees and
expenses (1)
|
[_____
|
] | ||
Legal fees and expenses
(1)
|
[_____
|
] | ||
Miscellaneous
(1)
|
[_____
|
] | ||
Total (1)
|
$ | 50,000.00 |
(1)
Estimated.
Item
14. Indemnification of Directors and Officers
Article
Seventh of our Certificate of Incorporation states: “No director shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law, (i) for breach of the director’s duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article Seventh shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.”
Section
145 of the Delaware General Corporation Law authorizes us to indemnify any
director or officer under prescribed circumstances and subject to certain
limitations against certain costs and expenses, including attorneys’ fees
actually and reasonably incurred in connection with any action, suit or
proceedings, whether civil, criminal, administrative or investigative, to which
such person is a party by reason of being one of our directors or officers if it
is determined that the person acted in accordance with the applicable standard
of conduct set forth in such statutory provisions.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of Aftersoft Group,
Inc. pursuant to the foregoing provisions, or otherwise, we have been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
Item
15. Recent Sales of Unregistered Securities
On
July 5, 2007, the Company issued a total of 5,208,333 shares of Common
Stock at $0.48 per share and 5,208,333 warrants to purchase Common Stock
at $1.00 per share to the following entities, who were recognized as
accredited investors, as that term is defined in Rule 501(a) of Regulation
D: 625,000 shares of Common Stock and warrants to Hummingbird Microcap
Value Fund LP; 625,000 shares of Common Stock and warrants to Hummingbird
Value Fund LP; 357,292 shares of Common Stock and warrants to Little Wing
LP; 59,375 shares of Common Stock and warrants to Trade Winds Fund LTD;
208,334 shares of Common Stock and warrants to Alexandra & Christopher
Vulliez; 208,334 shares of Common Stock and warrants to Mary Kanary;
625,000 shares of Common Stock and warrants to Channel Partnership II;
833,334 shares of Common Stock and warrants to Wynnefield SmallCap
Offshore Fund, Ltd.; 833,334 shares of Common Stock and warrants to
Wynnefield Partners SmallCap Value, LP; 833,334 shares of Common Stock and
warrants to Wynnefield Partners SmallCap Value, LP
I.
|
The
Company received $2,500,000 in gross proceeds in cash for these shares of Common
Stock and warrants.
These
transactions were not registered under the Securities Act of 1933, as amended
(the “Securities Act”), in reliance on an exemption from registration set forth
in Section 4(2) thereof and/or Rule 506 of Regulation D promulgated thereunder
as a transaction by the Company not involving any public offering and the
purchasers met the “accredited investor” criteria required by the rules and
regulations promulgated under the Securities Act.
II-1
(2)
|
On
December 21, 2007, in connection with a Revolving Credit and Term Loan
Agreement with ComVest Capital LLC (“ComVest”), the Company issued a
Credit Note, Term Note and Warrants to
ComVest.
|
The
Credit Note is payable to ComVest in the principal amount of $1,000,000, bearing
interest at a rate per annum equal to the greater of (a) the prime rate, as
announced by Citibank, N.A. from time to time, plus two percent (2%), or (b)
nine and one-half percent (9.5%). The applicable interest rate will be increased
by four hundred (400) basis points during the continuance of any event of
default under the Loan Agreement. Interest will be computed on the daily unpaid
principal balance and is payable monthly in arrears on the first day of each
calendar month commencing January 1, 2008. Interest is also payable upon
maturity or acceleration of the Credit Note.
The Term
Note is payable to ComVest in the principal amount of $5,000,000. The Term Note
bears interest at a rate of eleven percent (11%) per annum, except that during
the continuance of any event of default, the interest rate will be increased to
sixteen percent (16%). The Term Note is repayable in 23 equal monthly
installments of $208,333.33 each, payable on first day of each calendar month
commencing January 1, 2009, through November 1, 2010, with the balance due on
November 30, 2010.
The
principal and interest payable on the Term Note is convertible into shares of
the Company’s Common Stock at the option of ComVest, at an initial conversion
price of $1.50 per share. In addition, the Company may require conversion of the
principal and interest under certain circumstances. The number of shares
issuable upon conversion of the Term Note (the “Conversion Shares”), and/or the
conversion price, may be proportionately adjusted in the event of any stock
dividend, distribution, stock split, stock combination, stock consolidation,
recapitalization or reclassification or similar transaction. In addition, the
number of Conversion Shares, and/or the conversion price may be adjusted in the
event of certain sales or issuances of shares of our Common Stock, or securities
entitling any person to acquire shares of our Common Stock, at any time while
the Term Note is outstanding, at an effective price per share which is less than
the then-effective conversion price of the Term Note.
On July
3, 2008, the conversion price for the Term Note was reduced from $1.50 to
$1.4875 as a result of certain anti-dilution protection contained therein
following the issuance by the Company of additional shares of common stock and
warrants to purchase common stock. Consequently, the number of shares issuable
upon conversion of the principal amount of the Tern Note was increased to
3,361,345 shares from 3,333,333 shares.
In
connection with the Revolving Credit and Term Loan Agreement, the Company issued
warrants to ComVest to purchase the following amounts of shares of Common Stock,
exercisable after the Closing Date, December 21, 2007, and expiring December 31,
2013: a) Warrant to purchase 1,000,000 shares of our Common Stock at an exercise
price of $0.3125 per share; b) Warrant to purchase 2,000,000 shares of our
Common Stock at an exercise price of $0.39 per share; and c) Warrant to purchase
2,083,333 shares of our Common Stock at an exercise price of $0.3625 per share;
(each, a “Warrant,”) (the 5,083,333 shares collectively issuable upon exercise
of the Warrants are referred to herein as the “Warrant Shares”). The Warrants
also contain a cashless exercise feature.
On May
15, 2008, the exercise price for the Warrant to purchase 1,000,000 shares of our
Common Stock was reduced from $0.3125 to $0.11, in consideration for a waiver by
the lender of a technical default of loan terms.
On
September 23, 2008, the exercise price for the Warrant to purchase 2,000,000
shares of our Common Stock was reduced from $0.39 to $0.11, in consideration for
a waiver by the lender of a technical default of loan terms, and the lender
agreed to extend the start of the loan amortization from January 1, 2009 to
January 1, 2010.
On July
3, 2008, the exercise price for the Warrant to purchase 1,000,000 shares of our
Common Stock was reduced from $0.3625 to $0.3618, as a result of the issuance of
1,000,000 additional warrants as a placement fee.
The
number of shares issuable upon exercise of the Warrants, and/or the applicable
exercise prices, may be proportionately adjusted in the event of any stock
dividend, distribution, stock split, stock combination, stock consolidation,
recapitalization or reclassification or similar transaction. In addition, the
number of shares issuable upon exercise of the Warrants, and/or the applicable
exercise prices may be adjusted in the event of certain issuances of shares of
Common Stock, or securities entitling any person to acquire shares of Common
Stock, at any time while the Warrants are outstanding, at an effective price per
share which is less than the then-effective exercise prices of the
Warrants.
The
offering of the Credit Note, the Term Note and the Warrants was not registered
under the Securities Act, in reliance upon the exemptions from the registration
requirements of the Securities Act set forth in Section 4(2) thereof and/or Rule
506 of Regulation D promulgated thereunder as a transaction by the Company not
involving any public offering and the purchasers met the “accredited investor”
criteria required by the rules and regulations promulgated under the
Act.
(3)
|
On
July 5, 2007, the Company issued warrants to Quillen Securities to
purchase 260,417 shares of the Company’s Common Stock as compensation in
connection with the Company’s private placement of 2,500,000 shares of
Common Stock and warrants on the same date. The warrants were immediately
exercisable at $1.00 per share and expire July 2,
2013.
|
II-2
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in Section 4(2) thereof and/or Rule 506 of
Regulation D promulgated thereunder as a transaction by the Company not
involving any public offering and Quillen Securities met the “accredited
investor” criteria required by the rules and regulations promulgated under the
Securities Act.
(4)
|
On
February 7, 2008, the Company issued warrants to Quillen Securities to
purchase 250,000 shares of the Company’s Common Stock, which were
immediately exercisable at $1.00 per share and expire July 2, 2013, as
compensation in connection with the ComVest
financing
|
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in Section 4(2) thereof and/or Rule 506 of
Regulation D promulgated thereunder as a transaction by the Company not
involving any public offering and Quillen Securities met the “accredited
investor” criteria required by the rules and regulations promulgated under the
Securities Act.
(5)
|
On
February 7, 2008, the Company issued warrants to Quillen Securities to
purchase 155,549 shares of the Company’s Common Stock as compensation,
which were immediately exercisable at $1.00 per share and expire July 2,
2013, for services rendered.
|
This
transaction was not registered under the Act in reliance on an exemption from
registration set forth in Section 4(2) thereof and/or Rule 506 of Regulation D
promulgated thereunder as a transaction by the Company not involving any public
offering and Quillen Securities met the “accredited investor” criteria required
by the rules and regulations promulgated under the Securities Act.
(6)
|
On
each of August 1, 2007 and November 1, 2007, the Company issued warrants
to Mr. McKenna to purchase 1,718,750 shares of Common Stock, which were
immediately exercisable at $0.48 per share, and expire on January 31,
2012.
|
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in Section 4(2) thereof as a transaction
by the Company not involving any public offering and Mr. McKenna met the
“accredited investor” criteria required by the rules and regulations promulgated
under the Securities Act.
(7)
|
On
May 13, 2008, the Compensation Committee of the Board of Directors of the
Company approved restricted stock awards of an aggregate of 2,985,000
shares of its Common Stock to certain employees, a corporate officer and
three outside directors in respect of services previously rendered. The
shares vest as follows: 34% of the shares vest immediately on the date of
grant. The remaining 66% of the shares will vest in three equal
installments on each of the first, second and third anniversaries of the
grant date. An aggregate of 994,500 shares were fully vested on the date
of grant. The Company did not receive any consideration for these
grants.
|
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in a transaction by the Company not
involving any public offering as the shares were granted as compensation for
services.
(8)
|
On
April 24, 2008, the holder of 2,124,098 shares of ADNW Preferred stock
(which is convertible into 7,231,622 shares of the Company’s common
shares), or 6.97% of the fully diluted shares of ADNW, completed an
exchange of the Preferred shares for 6,402,999 units of the Company, which
consisted of 6,402,999 shares of Common Stock and a six-year warrant to
purchase 6,402,999 shares of the Company’s Common Stock for $1.00 per
share.
|
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in Section 4(2) thereof and/or Rule 506 of
Regulation D promulgated thereunder as a transaction by the Company not
involving any public offering and the purchaser met the “accredited investor”
criteria required by the rules and regulations promulgated under the Securities
Act.
(9)
|
On
July 3, 2008, the Company issued 1,000,000 warrants exercisable at $0.30,
and expiring July 3, 2013 as placement fees for the sale of the 5,231,622
shares of ADNW common stock.
|
This
transaction was not registered under the Securities Act in reliance on an
exemption from registration set forth in Section 4(2) thereof and Rule 506 of
Regulation D promulgated hereunder as a transaction by the Company not involving
any public offering and the purchaser met the “accredited investor” criteria
required by he rules and regulations promulgated under the Securities
Act.
II-3
(10)
|
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed the
dividend of the 71,250,000 shares of the Company’s common stock that ADNW
owned at such time in order to complete the spin-off of the Company’s
businesses. The dividend shares were distributed in the form of a pro rata
dividend to the holders of record as of November 17, 2008 (the “Record
Date”) of ADNW’s common and convertible preferred stock. Each holder of
record of shares of ADNW common and preferred stock as of the close of
business on the Record Date was entitled to receive 0.6864782 shares of
the Company’s common stock for each share of common stock of ADNW held at
such time, and/or for each share of ADNW common stock that such holder
would own, assuming the convertible preferred stock owned on the Record
Date was converted in full. Prior to the spin-off, ADNW owned
approximately 77% of the Company’s issued and outstanding common stock.
Subsequent to and as a result of the spin-off, the Company is no longer a
subsidiary of ADNW.
|
As a
result of the Company’s ownership of certain ADNW securities, the Company
received approximately 13,965,295 shares of its own common stock in connection
with the spin-off dividend distribution. On December 31, 2008, the
Company retired 13,722,112 of the shares. The remaining 243,183 shares were used
by the Company for rounding of fractional shares issued in respect of the
spin-off dividend, to make adjustments for the benefit of the holders of ADNW’s
Series B Convertible Preferred Stock which received fewer shares in connection
with the spin-off than the number to which they were entitled as a result of a
calculation error relating to the Series B conversion rate, and for other minor
adjustments. The value of these shares of approximately $29,000 was
recorded as a distribution.
(11)
|
On
May 13, 2008, the Compensation Committee of the Board of Directors of the
Company approved restricted stock awards of an aggregate of 2,985,000
shares of its common stock to certain employees, a corporate officer and
three outside directors in respect of services previously rendered. The
shares vest as follows: 34% of the shares vest immediately on the date of
grant. The remaining 66% of the shares will vest in three equal
installments on each of the first, second and third anniversaries of the
grant date. An aggregate of 994,500 shares were fully vested and issued on
the date of grant. The Company did not receive any
consideration for these grants and recorded an expense of $99,450 based on
the market price on the date of issuance. On May 13, 2009,
514,500 additional shares vested and were issued. The Company
did not receive any consideration for the issuance of these shares, and
recorded an expense of $18,008 based on the market price on the date of
issuance. During the year ended June 30, 2009, the Company
cancelled 396,000 previously approved restricted stock
awards.
|
(14)
|
During
the quarter ended September 30, 2008, the Company approved the issuance of
483,000 shares to the non-management members of the Board of Directors
under the Company’s 2007 Long-Term Incentive Plan. The shares
will be issued over a three year period. On October 6, 2008,
the Company issued 47,890 shares of these awards, which were valued at
$7,184. On January 6, 2009, the Company issued 31,955 shares of
these awards, which were valued at $2,876. On April 6, 2009, the
Company issued 34,639 shares of these awards, which were valued at
$1,386. On July 8, 2010, the Company issued 126,692 shares of
these awards (net of taxes), which were valued at $10,135. On July 8,
2010, the Company issued 126,692 shares of these awards (net of taxes),
which were valued at $10,135.
|
(15)
|
On
October 6, 2008, the Company issued 35,000 shares of common stock to a
director, which shares were valued at
$8,750.
|
(16)
|
On
May 13, 2009, the Company issued 1,615,370 shares of common stock to
certain directors and officers in lieu of deferred fees and salaries,
which were valued at $56,538.
|
(17)
|
On
June 30, 2009, the Company issued 171,875 shares of common stock to
certain directors in lieu of fees, which were valued
at $17,188.
|
(18)
|
On
June 30, 2009, the Company issued 2,000,000 shares of common stock to
certain employees in lieu of salaries, which were valued
at $200,000.
|
(19)
|
On
July 2, 2010, the Board unanimously approved a proposed exchange offer
(the “Exchange Offer”), whereby the Company would exchange outstanding
warrants to purchase shares of the Company’s common stock, which are
currently exercisable at $1.00 per share and expire either on July 2, 2013
or April 24, 2014 (the “Exchange Warrants”) for a to-be-designated series
of preferred stock, $.0001 par value (the “Series A Preferred
Stock”). Each holder of Series A Preferred Stock will have one
vote per share. Each share of Series A Preferred Stock will be
convertible into one share of common stock, subject to the approval by the
Company’s stockholders of an increase in the Company’s authorized shares
of common stock. In the event that the Company’s
stockholders do not approve an increase in its authorized shares, each
Series A Preferred stockholder will be entitled to a dividend, in an
amount to be determined. As of July 12, 2010, holders of
9,528,001 Exchange Warrants have agreed to exchange their Exchange
Warrants for 1,465,846 shares of Series A Preferred Stock. The
Series A Preferred Stock will be issued in reliance upon the exemption
from registration set forth in Section 3(a)(9) of the Securities Act of
1933, as amended (the “Securities Act”) for any security exchanged by an
issuer exclusively with its existing security holders in a transaction
where no commission or other remuneration is paid or given directly or
indirectly for soliciting such
exchange.
|
II-4
(20)
|
On
July 8, 2010, the Company issued 214,844 shares of common stock (net of
taxes) to certain directors in lieu of fees, which were valued at
$17,188.
|
These
transactions were not registered under the Securities Act in reliance on an
exemption from registration set forth therein, in a transaction by the Company
not involving any public offering as the shares were granted as compensation for
services.
Item
16. Exhibits and Financial Statement Schedules
(a)
Exhibits:
The
following exhibits are filed herewith or incorporated by reference as part of
this Registration Statement.
Exhibit No.
|
Description of Exhibit
|
|
3(i)(a)
|
Certificate
of Incorporation of Aftersoft Group, Inc., as amended (incorporated by
reference to Exhibit 3(i) to the Company’s Registration Statement on Form
S-1/A filed on July 15, 2008).
|
|
3(i)(b)
|
Certificate
of Amendment of Certificate of Incorporation of Aftersoft Group, Inc.,
dated May 5, 2010.
|
|
3(ii)
|
By
laws (incorporated by reference to Exhibit 3(ii) to the Company’s
Registration Statement on Form SB-2 filed on February 16,
2007).
|
|
4.1
|
Form
of Certificate of Common Stock (incorporated by reference to Exhibit 4.1
to the Company’s Registration Statement on Form SB-2 filed on February 16,
2007).
|
|
5.1
|
Opinion
of Gersten Savage LLP regarding the legality of the securities being
registered.*
|
|
10.1
|
Share
Sale Agreement relating to EXP Dealer Software Limited dated August 4,
2006 among Auto Data Network, Inc., Aftersoft Group, Inc. and Aftersoft
Dealer Software Limited (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on August 31,
2006).
|
|
10.2
|
Share
Sale Agreement relating to Dealer Software and Services Limited dated
February 1, 2007 between Aftersoft Group, Inc. and Auto Data Network, Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on February 7, 2007).
|
|
10.3
|
Form
of Securities Purchase Agreement (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.4
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.5
|
Form
of Registration Rights Agreement (incorporated by reference to Exhibit
10.3 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.6
|
Settlement
and Release Agreement between ASNA and Aidan J. McKenna (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
filed August 6, 2007).
|
|
10.7
|
Share
Sale Agreement, dated November 12, 2007, between EU Web Services, Ltd., as
Purchaser, Aftersoft Group, Inc., as Vendor, and EXP Dealer Software Ltd.
(incorporated by reference to Exhibit 99.1 of the Company’s Current Report
on Form 8-K filed November 16,
2007)
|
II-5
10.8
|
Revolving
Credit and Term Loan Agreement dated as of December 21, 2007, by and
between ComVest Capital LLC, as Lender, and Aftersoft Group, Inc., as
Borrower (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed December 31, 2007).
|
|
10.9
|
Revolving
Credit Note dated December 21, 2007 in the principal amount of $1,000,000
(incorporated by reference to Exhibit 10.2 of the Company’s Current Report
on Form 8-K filed December 31, 2007).
|
|
10.10
|
Convertible
Term Note, dated December 21, 2007 in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.3 of the Company’s Current Report
on Form 8-K filed December 31, 2007).
|
|
10.11
|
Collateral
Agreement dated as of December 21, 2007 by and among Aftersoft Group,
Inc., Aftersoft Network, N.A. Inc., MAM Software Ltd., Aftersoft Group
(UK) Ltd., AFS Warehouse Distribution Management, Inc., AFS Tire
Management, Inc. and AFS Autoservice Inc., and ComVest Capital LLC
(incorporated by reference to Exhibit 10.4 of the Company’s Current Report
on Form 8-K filed December 31, 2007).
|
|
10.12
|
Guaranty
Agreement dated December 21, 2007 by Aftersoft Network, N.A. Inc., MAM
Software Ltd., Aftersoft Group (UK) Ltd., AFS Warehouse Distribution
Management, Inc., AFS Tire Management, Inc. and AFS Autoservice Inc., in
favor of ComVest Capital LLC (incorporated by reference to Exhibit 10.5 of
the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.13
|
Form
of Validity Guaranty (incorporated by reference to Exhibit 10.6 of the
Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.14
|
Warrant,
dated as of December 21, 2007, to Purchase 1,000,000 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.7
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.15
|
Warrant,
dated as of December 21, 2007, to purchase 2,000,000 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.8
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.16
|
Warrant,
dated as of December 21, 2007, to purchase 2,083,333 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.9
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.17
|
Registration
Rights Agreement dated as of December 21, 2007 by Aftersoft Group, Inc.
for the benefit of the holders (incorporated by reference to Exhibit 10.10
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.18
|
2007
Long-Term Stock Incentive Plan (incorporated by reference to Exhibit D of
the Company’s revised Definitive Proxy Statement filed on May 19,
2008).
|
|
10.19
|
Employment
Agreement dated as of December 1, 2008 between the Company and Ian Warwick
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K filed December 5, 2008).
|
|
10.20
|
Employment
Agreement dated as of December 1, 2008 between the Company and Charles F.
Trapp (incorporated by reference to Exhibit 10.2 of the Company’s Current
Report on Form 8-K filed December 5,
2008).
|
II-6
10.21
|
Employment
Agreement dated as of December 1, 2008 between the Company and Simon
Chadwick (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed December 5, 2008).
|
|
10.22
|
May
15, 2008 Waiver and Amendment (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.23
|
September
23, 2008 Waiver and Amendment (incorporated herein by reference to Exhibit
10.2 of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.24
|
February
10, 2009 Waiver and Amendment (incorporated herein by reference to Exhibit
10.3 of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.25
|
Consulting
Agreement with Commonwealth Associates LP dated June 3,
2008.
|
|
21
|
List
of subsidiaries (incorporated by reference to Exhibit 21 to the Company’s
Registration Statement on Form S-1/A filed on July 15,
2008).
|
|
23.1
|
Consent
of KMJ Corbin & Company LLP (filed herewith).
|
|
23.2
|
Consent
of Gersten Savage LLP (See Exhibit 5.1).
|
|
99.1
|
Form
of Subscription Certificate*
|
|
99.2
|
Notice
of Guaranteed Delivery*
|
|
99.3
|
Letter
to Shareholders who are Record Holders*
|
|
99.4
|
Letter
to Shareholders who are Beneficial Holders*
|
|
99.5
|
Letter
to Clients of Shareholders who are Beneficial Holders*
|
|
99.6
|
Nominee
Holder Certification Form
|
|
99.7
|
Beneficial
Owner Election Form
|
*To be
filed by amendment.
Item
17. Undertakings
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
|
(ii)
|
To
reflect in the prospectus any facts or events 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 any 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 end 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) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
|
II-7
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities to be offered therein, and the offering of
such securities at that time shall be deemed to be an initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which shall remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act to any
purchaser:
(i)
|
If
the registrant is relying on Rule 430B (Section 230.430B of this
chapter):
|
(A)
|
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
|
(B)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x)
for the purpose of providing information required by section 10(a) of the
Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
|
(ii)
|
If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
|
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
II-8
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant 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 registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant 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 Act and will be governed by the final adjudication of
such issue.
II-9
In
accordance with the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized in Barnsley, UK on July 14,
2010.
MAM
SOFTWARE GROUP, INC.
|
||
A
Delaware corporation, Registrant
|
||
By:
|
/s/ MICHAEL JAMIESON
|
|
MICHAEL
JAMIESON
|
||
Chairman
and Chief Executive Officer
|
||
(Principal
Executive Officer)
|
||
By:
|
/s/ CHARLES F. TRAPP
|
|
CHARLES
F. TRAPP
|
||
Chief
Financial Officer
|
||
(Principal
Accounting Officer)
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
Title
|
Date
|
||
/s/ Michael Jamieson
|
Interim
Chief Executive Officer and Director
|
July
14, 2010
|
||
Michael
Jamieson
|
(Principal
Executive Officer)
|
|||
/s/ Charles F. Trapp
|
Chief
Financial Officer
|
July
14, 2010
|
||
Charles
F. Trapp
|
(Principal
Accounting Officer)
|
|||
/s/ Dwight B. Mamanteo
|
Director
|
July
14, 2010
|
||
Dwight
B. Mamanteo
|
||||
/s/ Marcus Wohlrab
|
Director
|
July
14, 2010
|
||
Marcus
Wohlrab
|
||||
/s/ Frederick Wasserman
|
Director
|
July
14, 2010
|
||
Frederick
Wasserman
|
||||
/s/ Gerald M. Czarnecki
|
Chairman
|
July
14, 2010
|
||
Gerald
M. Czarnecki
|
||||
/s/ W. Austin Lewis IV
|
Director
|
July
14, 2010
|
||
W.
Austin Lewis IV
|
Exhibit No.
|
Description of Exhibit
|
|
3(i)(a)
|
Certificate
of Incorporation of Aftersoft Group, Inc., as amended (incorporated by
reference to Exhibit 3(i) to the Company’s Registration Statement on Form
S-1/A filed on July 15, 2008).
|
|
3(i)(b)
|
Certificate
of Amendment of Certificate of Incorporation of Aftersoft Group, Inc.,
dated May 5, 2010.
|
|
3(ii)
|
By
laws (incorporated by reference to Exhibit 3(ii) to the Company’s
Registration Statement on Form SB-2 filed on February 16,
2007).
|
|
4.1
|
Form
of Certificate of Common Stock (incorporated by reference to Exhibit 4.1
to the Company’s Registration Statement on Form SB-2 filed on February 16,
2007).
|
|
5.1
|
Opinion
of Gersten Savage LLP regarding the legality of the securities being
registered.*
|
|
10.1
|
Share
Sale Agreement relating to EXP Dealer Software Limited dated August 4,
2006 among Auto Data Network, Inc., Aftersoft Group, Inc. and Aftersoft
Dealer Software Limited (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on August 31,
2006).
|
|
10.2
|
Share
Sale Agreement relating to Dealer Software and Services Limited dated
February 1, 2007 between Aftersoft Group, Inc. and Auto Data Network, Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on February 7, 2007).
|
|
10.3
|
Form
of Securities Purchase Agreement (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.4
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.5
|
Form
of Registration Rights Agreement (incorporated by reference to Exhibit
10.3 to the Company’s Current Report on Form 8-K filed July 6,
2007).
|
|
10.6
|
Settlement
and Release Agreement between ASNA and Aidan J. McKenna (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
filed August 6, 2007).
|
|
10.7
|
Share
Sale Agreement, dated November 12, 2007, between EU Web Services, Ltd., as
Purchaser, Aftersoft Group, Inc., as Vendor, and EXP Dealer Software Ltd.
(incorporated by reference to Exhibit 99.1 of the Company’s Current Report
on Form 8-K filed November 16, 2007)
|
|
10.8
|
Revolving
Credit and Term Loan Agreement dated as of December 21, 2007, by and
between ComVest Capital LLC, as Lender, and Aftersoft Group, Inc., as
Borrower (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed December 31, 2007).
|
|
10.9
|
Revolving
Credit Note dated December 21, 2007 in the principal amount of $1,000,000
(incorporated by reference to Exhibit 10.2 of the Company’s Current Report
on Form 8-K filed December 31, 2007).
|
|
10.10
|
Convertible
Term Note, dated December 21, 2007 in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.3 of the Company’s Current Report
on Form 8-K filed December 31,
2007).
|
10.11
|
Collateral
Agreement dated as of December 21, 2007 by and among Aftersoft Group,
Inc., Aftersoft Network, N.A. Inc., MAM Software Ltd., Aftersoft Group
(UK) Ltd., AFS Warehouse Distribution Management, Inc., AFS Tire
Management, Inc. and AFS Autoservice Inc., and ComVest Capital LLC
(incorporated by reference to Exhibit 10.4 of the Company’s Current Report
on Form 8-K filed December 31, 2007).
|
|
10.12
|
Guaranty
Agreement dated December 21, 2007 by Aftersoft Network, N.A. Inc., MAM
Software Ltd., Aftersoft Group (UK) Ltd., AFS Warehouse Distribution
Management, Inc., AFS Tire Management, Inc. and AFS Autoservice Inc., in
favor of ComVest Capital LLC (incorporated by reference to Exhibit 10.5 of
the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.13
|
Form
of Validity Guaranty (incorporated by reference to Exhibit 10.6 of the
Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.14
|
Warrant,
dated as of December 21, 2007, to Purchase 1,000,000 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.7
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.15
|
Warrant,
dated as of December 21, 2007, to purchase 2,000,000 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.8
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.16
|
Warrant,
dated as of December 21, 2007, to purchase 2,083,333 Shares of Common
Stock of Aftersoft Group, Inc. (incorporated by reference to Exhibit 10.9
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.17
|
Registration
Rights Agreement dated as of December 21, 2007 by Aftersoft Group, Inc.
for the benefit of the holders (incorporated by reference to Exhibit 10.10
of the Company’s Current Report on Form 8-K filed December 31,
2007).
|
|
10.18
|
2007
Long-Term Stock Incentive Plan (incorporated by reference to Exhibit D of
the Company’s revised Definitive Proxy Statement filed on May 19,
2008).
|
|
10.19
|
Employment
Agreement dated as of December 1, 2008 between the Company and Ian Warwick
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K filed December 5, 2008).
|
|
10.20
|
Employment
Agreement dated as of December 1, 2008 between the Company and Charles F.
Trapp (incorporated by reference to Exhibit 10.2 of the Company’s Current
Report on Form 8-K filed December 5, 2008).
|
|
10.21
|
Employment
Agreement dated as of December 1, 2008 between the Company and Simon
Chadwick (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed December 5, 2008).
|
|
10.22
|
May
15, 2008 Waiver and Amendment (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.23
|
September
23, 2008 Waiver and Amendment (incorporated herein by reference to Exhibit
10.2 of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.24
|
February
10, 2009 Waiver and Amendment (incorporated herein by reference to Exhibit
10.3 of the Company’s Current Report on Form 8-K filed March 27,
2009).
|
|
10.25
|
Consulting
Agreement with Commonwealth Associates LP dated June 3,
2008.
|
21
|
List
of subsidiaries (incorporated by reference to Exhibit 21 to the Company’s
Registration Statement on Form S-1/A filed on July 15,
2008).
|
|
23.1
|
Consent
of KMJ Corbin & Company LLP (filed herewith).
|
|
23.2
|
Consent
of Gersten Savage LLP (See Exhibit 5.1).
|
|
99.1
|
Form
of Subscription Certificate*
|
|
99.2
|
Notice
of Guaranteed Delivery*
|
|
99.3
|
Letter
to Shareholders who are Record Holders*
|
|
99.4
|
Letter
to Shareholders who are Beneficial Holders*
|
|
99.5
|
Letter
to Clients of Shareholders who are Beneficial Holders*
|
|
99.6
|
Nominee
Holder Certification Form
|
|
99.7
|
Beneficial
Owner Election Form
|
|
*To be
filed by amendment.