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EX-5.1 - MAM SOFTWARE GROUP, INC. | v196543_ex5-1.htm |
EX-23.1 - MAM SOFTWARE GROUP, INC. | v196543_ex23-1.htm |
As filed with the Securities and
Exchange Commission on September 14, 2010
Registration No.
333-167483
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
AMENDMENT NO.
3
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 J. Angelino,
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
|
51,516,111 | $ | 0.065 | $ | 3,348,547 | (2) | $ | 238.75 | (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 $236.93 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. These securities may not be sold 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 SEPTEMBER
14, 2010
PRELIMINARY
PROSPECTUS
MAM SOFTWARE GROUP,
INC.
Up to
51,516,111 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 51,516,111 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 September 7, 2010, 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. 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 $3,348,547. The net proceeds
to the Company, after deducting offering expenses of $50,000, would be
$3,298,547.
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
October 15,
2010 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 August 31, 2010, the bid and ask prices of our
Common Stock were $0.07 and $0.09 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
|
MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES
|
25
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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
|
61
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DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
|
62
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EXECUTIVE
COMPENSATION
|
64
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
|
73
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
76
|
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
|
79
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WHERE YOU CAN GET MORE
INFORMATION
|
79
|
FINANCIAL
STATEMENTS
|
80
|
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 September 7, 2010 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 September 7, 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 September 7, 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 October 15, 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 October 15, 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 22. 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 23.
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. You should not view the intentions of the Wynnefield
Persons as a recommendation or other indication by them that the exercise of the
subscription rights is in your best interests. 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 51,516,111 shares of common stock. In that case, we will have
approximately 137,376,296 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 $3.348 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 $3.348
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:
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 19.
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 41, and the section entitled
Description of Business beginning on page 29, 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 September 7, 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 51,516,111
shares and receive gross proceeds of up to $3.348 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
|
|
September
7, 2010
|
Expiration
Date
|
|
5:00
p.m., New York City time, on October 15, 2010, 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 22.
|
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 25. 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 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, 2010 and 2009 and the consolidated balance sheet
data as of June 30, 2010 and 2009 is derived from our audited consolidated
financial statements included elsewhere in this
prospectus.
Statement of Operations
Data
(In thousands, except per share
data)
|
Fiscal Years Ended
(audited)
|
|||||||
June 30, 2010
|
June 30, 2009
|
|||||||
Total
revenue
|
$
|
24,156
|
$
|
21,119
|
||||
Costs and operating
expenses
|
$
|
24,783
|
$
|
28,742
|
||||
Net loss
|
$
|
(627
|
)
|
$
|
(7,623
|
)
|
||
Loss per share attributed to common
stockholders basic and diluted:
|
||||||||
Net loss per
share
|
$
|
(0.01
|
)
|
$
|
(0.09
|
)
|
||
Weighted average number of shares
- basic and diluted
|
83,970,278
|
86,272,712
|
Balance Sheet Data
(In
thousands)
|
June 30, 2010
|
June 30, 2009
|
||||||
Total
assets
|
$
|
18,559
|
$
|
20,654
|
||||
Cash and cash
equivalents
|
$
|
1,196
|
$
|
1,663
|
||||
Total
liabilities
|
$
|
13,227
|
$
|
14,154
|
||||
Working capital
(deficiency)
|
$
|
(6,735
|
)
|
$
|
(2,972
|
)
|
||
Shareholders’
equity
|
$
|
5,332
|
$
|
6,500
|
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 October 15, 2010, 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 12.61% 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 August 31, 2010, there were 85,860,185 shares of
our common stock and 1,792,662 shares of Series A Preferred 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 August 31, 2010, certain shareholders owned common
stock and warrants to
purchase approximately 29.2% 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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•
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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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•
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different standards for the
development, use, packaging and marketing of our products and
technologies;
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•
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our ability to locate qualified
local employees, partners, distributors and
suppliers;
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15
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•
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the potential burden of complying
with a variety of foreign laws and trade standards;
and
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•
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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. WE HAVE
RECEIVED WAIVERS ON THREE OCCASIONS OF THESE EVENTS OF DEFAULT FROM THE HOLDER
OF THE NOTE.
During the fiscal periods ended March
31, 2008, June 30, 2008 and December 31, 2008, we violated certain covenants
related to cash flow ratios under our senior secured note with ComVest Capital
LLC, dated December 21, 2007. ComVest has provided us a waiver of these events
of default on each occasion. As of March 31, 2009 and June 30, 2009, we were in
compliance with the amended loan covenants.
As of March 31, 2010, we failed to meet
the Earnings Before Interest Depreciation and Amortization (“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. On June 2, 2010 ComVest
charged us a fee of $25,000 and on June 17, 2010 increased the interest rate on
the Term Loan from 11% to 16% and increased the interest rate on the Revolving
Credit Facility from 9.5% to 13.5%. 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 $3,917,000 TO MAKE THE $2,917,000 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 consolidated financial statements as of June 30, 2010 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 $23.4 million and a working capital deficit of $6.7
million at June 30, 2010. These factors, along with the $2,917,000
balloon payment due in November 2010 on the Term Loan and the
$1,000,000 payment due in November 2010 on the Revolving Credit Facility, raise
substantial doubt about the Company’s ability to continue as a going concern
unless we are able to secure additional funds.
We may be
required to pursue sources of additional capital to fund our operations through
various means, which may consist of equity or debt financing, including a rights
offering. 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 August 31,
2010 was approximately $(7,819,000), or $(0.091) per share of our common
stock (based upon 85,860,185 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 51,516,111 shares and after
deducting estimated offering expenses payable by us of $50,000, and the
application of the estimated $3,298,547 of net proceeds from the rights
offering, our pro forma net tangible book value as of August 31,
2010 would have been approximately $(4,520,453) or $(0.033) per
share. This represents an immediate increase in pro forma net
tangible book value to existing shareholders of $0.058 per share and an
immediate dilution to purchasers in the rights offering of $0.098 per
share.
The
following table illustrates this per-share dilution (assuming a fully subscribed
for rights offering of 51,516,111 shares of common stock at the
subscription price of $0.065 per share:
Subscription
price
|
$ | 0.065 | ||
Net tangible book value per
share prior to the rights offering
|
$ | (0.091 | ) | |
Increase per share attributable
to the rights offering
|
$ | 0.058 | ||
Pro forma net tangible book
value per share after the rights offering
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$ | (0.033 | ) | |
Dilution in net tangible book
value per share to purchasers
|
$ | (0.098 | ) |
17
CAPITALIZATION
The following table sets forth our
historical and pro forma cash and cash equivalents and capitalization as of
August 26, 2010. The pro forma information gives
effect to a net assumed $3.298 million equity raise from this rights
offering.
For purposes of this table, we have
assumed that $3.298 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.
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August 26, 2010
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|||||||
|
Actual
|
Pro Forma(1)
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||||||
|
(Dollars in
Thousands)
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|||||||
Cash and cash
equivalents
|
|
$
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1,076
|
|
$
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1,076
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||||||||
Short-term credit
facilities
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$
|
1,000
|
|
$
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1,000
|
|
|
Current portion of long-term bank
debt,
net
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|
4,174
|
|
936
|
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Long-tem bank
debt
|
|
560
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|
560
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|
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Total debt
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|
5,734
|
|
2,496
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Common stock - $0.0001 par value, 150,000,000 shares authorized,
85,860,185 shares and 137,376,296 shares issued on an actual and
pro forma basis, respectively
|
|
8
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|
13
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Additional paid-in
capital
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|
29,532
|
|
32,825
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Accumulated other comprehensive
income
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|
(1,000
|
)
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(1,000
|
)
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Accumulated
deficit
|
|
(23,650
|
)
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(23,710
|
)
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Total stockholders’
equity
|
|
4,890
|
|
8,128
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|
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Total
capitalization
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|
$
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10,624
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|
$
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10,624
|
|
(1)
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Pro forma balance reflects
$3.348 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 August 26, 2010, we have 11,720,134 shares that can be issued pursuant
to outstanding warrants.
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18
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 September 7,
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
October 15, 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 October 15, 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 October 15, 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 October 15, 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:
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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.
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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
considered 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 reviewed 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.
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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 10,829,479
shares equaling approximately $703,916 (it currently holds approximately 12.61%
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 85,860,185 shares of our common stock currently outstanding, and the
potential that MAM may issue as many as 51,516,111 shares pursuant to this
rights offering, 137,376,296 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
60%.
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 will not assert, or that a court will 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 his, her, or 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.
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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 common stockholder who receives a right to acquire shares of common stock
generally will be treated as having received a taxable dividend under the
following circumstances: 1) 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; or 2) the
rights offering affords any shareholder the right to receive cash or other
property in lieu of the right to acquire additional shares. For
purposes of the above, “stockholder” includes holders of warrants, options and
securities which are convertible into common shares. 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 because
the subscription rights are being offered pro-rata to existing holders of common
shares, and no shareholder will be offered cash or other property in lieu of
such rights.
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. Fair
market value is defined as the price at which property would hypothetically
change hands between a willing buyer and a willing seller, where neither is
under any compulsion to buy or sell. Fair market value is a factual
determination which depends on all relevant facts and
circumstances. In determining the fair market value of the
subscription rights, you should consider all relevant facts and circumstances,
including the fact that the rights offered are non
transferrable.
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.
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 assuming
that you hold the shares as a capital asset. 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, however
such rates may be subject to change in the 2011 tax year. 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. Among
other requirements, the new 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 undertake to identify accounts held by certain U.S. persons or
U.S.-owned foreign entities, report annually certain information about such
accounts and withhold 30% on payments to account holders whose actions prevent
it from complying with these 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 sources,
dividends on stock 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
As soon
as practicable after the record date for the rights offering, we will distribute
the rights, rights certificates, and copies of this prospectus to individuals
who owned shares of common stock as of 5:00 p.m., New York time, on September 7,
2010. 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. Furthermore,
in the event that the Wynnefield Persons were to invest in our
shares by participating in this rights offering, we believe that Wynnefield Capital, the advisor to the
Wynnefield Persons, would not be deemed to be an underwriter within the meaning
of Section 2(a)(11) of the Securities Act, because we have confirmed with
representatives of Wynnefield Capital that: (i) they have no intention to
purchase securities from us with the view towards the distribution of those
securities in connection with this rights offering; (ii) they have no intention
to sell or solicit “an offer to buy” for us in connection with the distribution
of securities contemplated by this rights offering; and (iii) they have no
intention to participate in any endeavor described above. We
formulated our belief that Wynnefield Capital’s actions do not rise to the level
of participating in this rights offering based on the fact that the terms of
this rights offering are conventional and do not favor Wynnefield Capital in any
particular manner. In particular, no representative of Wynnefield Capital was a
member of the Special Committee that was charged with the responsibility of
determining the structure of the deal and the offering price, nor did any
representative of Wynnefield Capital seek to influence the deliberations of the
committee. In addition, we have also been advised by representatives
of Wynnefield Capital that it is not a broker-dealer nor is it affiliated with a
broker-dealer.
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
August 31, 2010, the Company had 85,860,185 shares of common stock issued and
outstanding and 1,792,662 shares of Series A 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. and subsidiaries as of June 30, 2010 and 2009 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 includes explanatory
paragraphs relating to the substantial doubt about the Company’s ability to
continue as a going concern and relating 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), 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 $3.0 million in fiscal 2010 on research and
development, with approximately $0.9 million spent by ASNA, $0.3 million by MAM
Software Inc., and $1.8 million by MAM Software Ltd. 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.
35
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, 2010, one customer accounted for 10.1% of the
Company’s total revenues. The Company’s top ten customers collectively accounted
for 18% of total revenues. Some of ASNA’s top customers in North America include
Autopart International, AutoZone, Monro Muffler Brake, Fountain Tire and US Auto
Force. In the UK market, MAM Software’s top customers include Unipart
Automotive, Dingboro Ltd., Allparts Automotive and General Traffic
Service.
No
customers accounted for approximately 10% or more of the Company’s revenue for
the fiscal year ended June 30, 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 164 full-time employees: two at MAM Software Group, Inc., 30 at
ASNA, 8 at MAM Software, Inc., and 124 at MAM Software Ltd. The two
employees in MAM Software Group, Inc. consist of one senior executive
and one accountant. ASNA has 30 employees in the US comprised of two
in management, one in sales and marketing, 10 in research and development,
15 in professional services and support and two in general and
administration. MAM Software, Inc. has eight employees, comprised of one in
senior management, two in sales and marketing, and five in research and
development. MAM Software Ltd. has 124 employees in the UK comprised
of 6 in management, 13 in sales and marketing, 22 in research and development,
75 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 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. The
Company has previously recorded a liability for $817,000 and recorded an
additional expense of $513,000 in the quarter ending March 31,
2010. 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 as partial payment of the settlement amount. The
balance of the settlement amount is payable through November 2012 in equal
monthly payments of $31,250, which includes interest at 7%. In the event the
Company defaults in payment, Mr. Blumenthal may elect to reinstitute the
original litigation. Of the
remaining balance of $851,000 due Mr. Blumenthal, $326,000 is included in the
“Current portion of settlement liability” and $525,000 is included in
“Settlement liability, net of current portion.”
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 August 31, 2010, there were approximately 778 shareholders
and 85,860,185 shares of Common Stock issued and outstanding.
On August
31, 2010 the bid and ask prices of our Common Stock were $0.07 and $0.09 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 | ||||
4th
Quarter ended June 30
|
$ | 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
|
12,729,432
|
|||||
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
|||||
Total
|
0
|
0
|
12,729,432
|
(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 12,729,432
for fiscal 2011.
|
(2)
|
As
of July 1, 2010.
|
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:
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.
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.
Fair Value of
Measurements
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.
|
41
·
|
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.
|
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 $291,000 and the embedded conversion feature was approximately $0
on June 30, 2010. The total value of these derivative liabilities
declined from $558,000 to $291,000 for the year ended June 30, 2010. As such,
the Company recognized approximately $267,000 gain from the change in fair
value of the derivative liabilities for the year ended June 30,
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. The assumptions used to estimate the
fair value of the derivative liability at June 20, 2010 and July 1, 2009 are as
follows:
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 collectibility 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.
42
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.
Goodwill
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 142 expands the disclosure
requirements about goodwill. 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.
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
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. We account 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.
43
In those instances where arrangements
include significant customization, contractual milestones, acceptance criteria
or other contingencies (which represents the majority of our arrangements), we
account 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.
|
We record 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
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.
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, 2010 and 2009, and has not recognized interest and/or
penalties in the consolidated statements of operations for the years ended June
30, 2010 and 2009.
Overview
MAM Software Group Inc. is a company
that operates through two wholly owned subsidiaries based in the US (ASNA) and
the UK (MAM), 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.
44
Management believes that the largest
single issue facing the automotive aftermarket at this time is the downturn of
the global economy, especially the economics in which we operate. The constraint
of credit within the U.S. and U.K. markets is forcing automobile owners to
retain their existing automobiles far longer than they may have previously
planned. This is forcing owners to seek out more economic ways of maintaining
their vehicles, and management believes 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. Management believes 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, management also has 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. Management still believes 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. Management
still believes that the desire of parts manufacturers to produce and control
their own product catalogues, rather than allowing this information to be made
available by third-party catalog suppliers, will present opportunities to the
Company.
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, 2010, we generated revenues of $24,156,000 and recorded an operating profit of $1,111,000; 73% of our revenues come from the UK
market and 27% in the US
market, during our
2010 fiscal year.
In 2009, 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 and incurred operating loss of $181,000; 71%
of our revenues come from the UK market and 29% from the US market, during our 2009 fiscal
year.
Our corporate headquarters are located in Tankersley, Barnsley, UK with additional offices for the US
operating subsidiary in Dana Point, California, and Allentown, Pennsylvania, and, for the UK
operating subsidiary, in Northampton and Wareham in the UK.
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 distribution, the jobber, the installer and
ecommerce. 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 in addition to tire service. 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 ecommerce. This technology allows these three separate business
solutions to connect to each other and/or other 3rd 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.
45
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. 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 U.S.
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. Management has
reviewed the U.S. business’ sales processes and marketing efforts and made what
it feels are significant improvements that will be successful over the next
twelve months. However, management still recognizes that if it is unable to
recruit, train and deploy suitably capable personnel within the market, the
business’ products will be undervalued and its market potential will not be
reached.
The third area of focus relates to the
continued sales and market initiatives tied to the Autopart product 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 continue to lead to significant revenue
increases within the next twelve 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 other
English-speaking markets in auto industry aftermarkets as opposed to focusing on
additional vertical markets that share common characteristics to that of the
automotive market. Management intends to carefully monitor this
expansion as a result of the current state of the global
economy.
Former Subsidiaries
On November 12, 2007, we divested all of
our shares in EXP. Pursuant to the terms of a Share Sale EXP Agreement (the “EXP
Agreement”), EU Web Services Limited (“EU Web Services”) agreed to
acquire, and we agreed to
sell, the entire issued share capital of EXP we then owned.
46
As consideration for the sale of EXP, EU
Web Services agreed to issue to us, within 28 days of the closing, ordinary
shares, 0.01 GBP par value, in its parent company, having a fair market value of
$3,000,000 at the date of issuance of such shares. We 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 the shares could not be liquidated
for at least 12 months. Further, the EXP Agreement provided that we 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 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
EXP 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.
On June 17, 2007, DSS sold all of the
shares of Consolidated Software Capital Limited (“CSC”), its wholly owned
subsidiary, for a note receivable of $865,000. On November 12, 2007, as part of
the sale of EXP, the $865,000 note receivable was exchanged for EU Web Services’
parent company common stock having a fair value of $682,000. The transaction
resulted in a loss to us of $183,000.
Impact of Currency Exchange
Rate
Our net revenue derived from sales in
currencies other than the U.S. Dollar was 73% and 71% for the year ended June
30, 2010 and June 30, 2009, respectively. As the US Dollar
strengthens in relation to the British Pound Sterling (“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. The exchange
rate for MAM’s operating results was US$1.5823 per GBP for the year ended June 30, 2010,
compared with US$1.6159 per
GBP for the year ended June
30, 2009.
Assets and liabilities of our MAM
subsidiary are translated into US dollars at the period-end exchange
rates. The exchange rate used for translating our MAM subsidiary was
US$1.5071 per GBP at June 30, 2010 and US$1.6520
per GBP at June 30, 2009.
Currency translation (loss) and gain
adjustments are accumulated as a separate component of stockholders’ equity,
which totaled ($786,000) and ($482,000) as of June 30, 2010
and 2009, respectively.
Backlog
As of June 30, 2010, we had a backlog of
unfilled orders of business management systems of $3,200,000, compared to a backlog of
$3,424,000 at June 30, 2009. We expect to fill approximately 65% of
such backlog during the next six months.
47
Results of Operations for the Twelve
Months Ended June 30, 2010 Compared to the Twelve Months Ended June 30,
2009
Our results of operations for the fiscal
year ended June 30, 2010 compared with the year ended June 30, 2009 were as
follows:
Revenues.
Revenues increased $3,037,000 or 14% to $24,156,000 for the year ended June 30, 2010,
compared with $21,119,000 for the year ended June 30,
2009. Revenue increased 1,856,000GBP from organic sales growth in data
services and support including an increase of 943,000GBP from
a one time special project in our UK operations. Revenue in our UK business was
11,174,000GBP for the year
ended June 30, 2010 as
compared to 9,318,000GBP for the year ended June 30, 2009
The stronger US dollar resulted in
dollar denominated revenue of $17,681,000 during 2010 as compared to
$15,048,000 during 2009, which is an increase of $2,633,000. US revenue increased
$404,000 to $6,475,000 in 2010 from $6,071,000 in 2009
because of increased sales of software.
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,
|
||||||||||||||||
2010
|
2009
|
$ Variance
|
% Variance
|
|||||||||||||
Research and
development
|
$
|
3,012,000
|
$
|
2,860,000
|
$
|
152,000
|
5.3
|
%
|
||||||||
Sales and
marketing
|
2,181,000
|
2,211,000
|
(30,000
|
)
|
(1.4
|
)%
|
||||||||||
General and
administrative
|
6,462,000
|
5,651,000
|
811,000
|
14.4
|
%
|
|||||||||||
Depreciation and
amortization
|
1,116,000
|
1,082,000
|
34,000
|
3.1
|
%
|
|||||||||||
Impairment of goodwill
|
-
|
850,000
|
(850,000
|
)
|
(100.0
|
)%
|
||||||||||
Total Operating
Expenses
|
$
|
12,771,000
|
$
|
12,654,000
|
$
|
117,000
|
0.9
|
%
|
48
Operating expenses decreased by
$117,000 or 0.9% for the year ended June 30, 2010 compared with the
year ended June 30, 2009. This is due to the following:
Research and
Development Expenses. Research and development expenses increased $152,000 or 5.3% for the year ended June 30, 2010, when
compared with the previous fiscal year. This increase was due to an increase in engineering personnel and
related costs of $421,000 in the UK business which was the result of increased
revenue. The US business experienced a decrease of $269,000 due to a reduction in
engineering staff and related costs.
Sales and Marketing
Expenses. Sales and
marketing expenses decreased by
$30,000 or 1.4% for the year ended June 30, 2010
compared with the year ended June 30, 2009. The US business experienced a net
decrease in expenses of $163,000 from a reduction in sales personnel
which more than offset additional costs associated with increased salaries in the UK operation.
General and
Administrative Expenses. General and administrative expenses increased by $811,000 or 14.4% to $6,462,000 for the year ended June 30, 2010 as
compared to $5,651,000 for the same period in
2009. The increased expenses were primarily the result of a litigation settlement expense of
$533,000 and the associated legal fees of $271,000.
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
increased by $34,000 for the year ended June 30, 2010 as
compared with the same period in 2009. This increase is almost entirely due to increased amortization from the UK operation from the introduction of two
new
products.
Goodwill Impairment.
Following operating
losses at ASNA during fiscal 2009 and after an analysis of goodwill
at ASNA, management recognized an impairment of $850,000 in
2009. There is no impairment in 2010.
Interest Expense.
Interest expense
decreased by $241,000 to $1,361,000 for the year ended June 30, 2010.
The decrease in interest expense is primarily related to our interest associated with
our loan from ComVest Capital LLC, which the Company started to repay in February
2010, This loan was outstanding for the full year in
2009. We accrued interest
under the ComVest loan of $694,000. The remaining ComVest interest of
$513,000 was accounted for in amortization of
debt discount and debt issuance costs, which are included in interest expense.
On June 2, 2010, ComVest
charge the Company a forbearance fee of $25,000. Other smaller loans were repaid
during the year resulting in additional reduced interest
expense.
49
Other Income
(Expenses). Other income
for the year ended June 30, 2010 included an adjustment for the change in fair
value of derivative liabilities of $267,000 and a gain on settlement of
liabilities of $50,000. The results for 2009 included a write down of
$4,723,000 in Available–for
–Sale Securities.
Income Taxes.
Income taxes increased $308,000 to $694,000 for the year ended June
30, 2010 as compared to $386,000 for the year ended June 30, 2009. This
increase was the result of increased profits at MAM
Software Ltd.
Net Loss.
We realized a net loss of
$627,000 for the year ended June 30, 2010
compared with a net loss of $7,623,000 for the year ended June 30,
2009.
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 2011.
During the year ended June 30, 2010 we
repaid approximately $1,017,000 on our ComVest Loan, $116,000 on our secured
notes and $213,000 on our unsecured obligations. We also made
payments of $399,000 for the settlement of litigation. These payments
were made from cash flow generated from operations.
As of June 30, 2010 we owe ComVest
Capital $4,983,000 and are repaying $208,000 per month until November 2010 when
the balance is due.
The Company expects to generate positive
cash flow from operations for 2011, but it will not be sufficient to repay the
ComVest debt in November 2010. The Company is currently seeking
equity financing and a new
debt facility to repay the ComVest Loans in November 2010. There can
be no assurance that such financing will be available on acceptable terms, in a
timely fashion or even at all.
As a
result, there is substantial doubt about the Company’s ability to continue as a
going concern unless we are able to secure additional funds. We have
prepared our consolidated financial statements in this Form S-1 on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
If we are able to refinance our ComVest
debt with favorable terms, we believe that our liquidity will improve throughout
our fiscal year ending June 30, 2011. We believe that this improvement will be a
result of our ongoing cost-cutting initiatives in the US coupled with a
continued improved sales picture in our US operation. Notwithstanding the
improved outlook as a result of our internal initiatives, we remain guarded in
our optimism given the weakness in the US economy, which, should it affect
buying decisions of our target market, will impact our liquidity through reduced
sales in the US.
During the year ended June 30, 2010, we
had material commitments for capital expenditures of $151,000. The purposes of these capital
expenditures were for the purchase of property and equipment for $85,000 and the development of software
products of $66,000. During the course of the next twelve months, we expect that
our capital needs will remain constant. We do not anticipate any off balance
sheet financing arrangements and expect to maintain our current ratio of debt to
equity.
50
We believe that we have addressed all
liabilities of ADNW that we are required to assume and do not expect that we
will need to be responsible for any further liabilities of ADNW. We believe that
the combination of streamlined operations in the US coupled with no further
responsibility for liabilities of ADNW will enable us to generate cash flow from
operations for the next twelve months.
On December 21, 2007, we 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
to us a $1,000,000 secured revolving Credit Facility and a $5,000,000 Term
Loan.
Credit
Facility and Revolving Credit Note. Pursuant to the terms of the Loan
Agreement, the Credit Facility is available to us through November 30, 2009,
unless the maturity date is extended, or we prepay 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 we are required to provide to the
lender, based upon our 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.
In connection with the Credit Facility,
we 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 February
10, 2009, the interest rate was increased from 9.5% to 11% in connection with a
waiver we received for violating one of our debt covenants at December 31,
2008.
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 On June 2, 2010, the
Company paid ComVest a Forbearance Fee of $25,000 to waive the default until
June 20, 2010 and on June 17, 2010 ComVest raised the interest rate from 9.5% to
13.5%.
51
As of
June 30, 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. (discussed below).
We have 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 which we entered into on the same
date.
We have the right, at our option,
and provided that the maturity date of the Credit Facility has not been
accelerated due to our prepayment in full of the Term Loan, to 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 has
occurred and is continuing at that time. We also have 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 our assets.
During our fourth fiscal quarter of
2008, we 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, we have not yet repaid any
principal. As described above, this loan currently bears interest at
a rate of 9.5%. During fiscal 2008, we paid $2,045 in interest
payments, and during fiscal 2009, we paid $117,281 including fees of
$27,000.
Term Loan and Convertible Term Note. In addition to the Credit
Facility, ComVest extended us a Term Loan, evidenced by a Convertible Term Note
(the “Term Note”) we 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%). As of June 17, 2010, the interest rate was increased to
sixteen percent (16%) from eleven percent (11%).
Initially, the Term Note was payable 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 payment 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).
52
We have 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. We will be required to prepay the Term Loan in whole
or part under certain circumstances. In the event that we prepay all or a
portion of the Term Loan, we 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 after December 21,
2009.
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 our 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 our
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 our 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. We also may require
conversion of the principal and interest under certain
circumstances.
As of June 30, 2010, the principal
balance due on the Term Note was and is $3,983,000.
Warrants. In connection with the Loan Agreement,
we issued warrants to ComVest to purchase the following amounts of shares of our
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 exercise price of $0.3125 per share; b) warrants to purchase 2,000,000 shares of
common stock at an exercise price of $0.39 per share; and c) warrants to
purchase 2,083,333 shares of our common stock at an 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 our
common stock, or securities entitling any person to acquire shares of our common
stock, at an effective price per share which is less than the then-effective
exercise prices of the warrants.
53
The exercise prices for 3,000,000 of
these warrants were subsequently modified in connection with waivers we received
for violations of one of our 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 our wholly owned subsidiaries incurred in the ordinary
course of business;
|
(d)
|
Limitation on entering
Sales-Leaseback Transactions with respect to the sale or transfer of
property used or useful in our 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 our 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 principle 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 our assets and
the stock of our subsidiaries. Certain of the loan covenants described above
prohibit us from paying dividends or borrowing additional funds
for working capital requirements. The prohibition on paying dividends may
restrict our ability to raise capital through the sale of shares of preferred
stock that we may designate in the future, because such shares are typically
more marketable with dividend rights. If we were to raise capital
through the sale of shares of our common stock and
those shares were sold for less than the applicable
exercise price(s) of the warrants issued to ComVest, or were issued for less
than the applicable conversion price of the Term Note, then automatically and
without further consideration, the exercise price of the warrant(s) and the
conversion price of the Term Note will be reduced based on a formula based upon
the selling price of the shares and the number of shares sold. We
cannot assure you that we will be able to sell any shares of our common
stock. Even if we were able to sell such shares, we cannot currently
predict the selling price. The sale of any such shares would result
in immediate dilution to our existing shareholders’ interests.
54
May 15, 2008
Waiver and Amendment. Subsequent to March 31, 2008, we
notified ComVest that we had incurred a loss of $1,897,000 for the three-month
period ending March 31, 2008, and as a result, we had a ratio of EBIDA to debt
service of (4.41):1.00, therefore violating the EBIDA Ratio Covenant. ComVest
agreed to grant us a waiver for this violation. On May 15, 2008, we entered into
a Waiver and Amendment (the “May 15, 2008 Waiver and Amendment”) pursuant to
which ComVest granted us the waiver, and in consideration therefor, we reduced
the exercise price for 1,000,000 of the warrants issued to ComVest in connection
with the Loan Agreement from $0.3125 per share to $0.11 per share. As a result
of ComVest granting us this waiver, we were not in violation of any loan
covenants at March 31, 2008.
September
23, 2008 Waiver and Amendment. Subsequent to June 30, 2008, we
advised ComVest that we 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 us with another waiver. In connection therewith, we entered
into a letter agreement amending the Loan Agreement (the “September 23, 2008
Waiver and Amendment”) and
modifying the EBIDA Ratio
Covenants. 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 0.62:1.00 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 on or after September 30, 2009. 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, we reduced the exercise price related to 2,000,000 of the
warrants issued to ComVest in connection with the Loan Agreement from $0.39 to
$0.11. As a result of these amendments, we were not in violation of any loan
covenants at June 30, 2008. 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, we were not in
violation of any loan covenants at June 30, 2008.
February 10,
2009 Waiver and Amendment. Subsequent to the end of the
quarter ended December 31, 2008, we advised ComVest that we had incurred a net
loss of $5,349,000 for the six month period ended December 31, 2008, and that as
a result, our 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, we agreed to increase
the interest rate on the $1,000,000 Credit Facility from 9.5% to 11%. As a
result of ComVest granting us this waiver, we were not in violation of any loan
covenants at December 31, 2008. If we restore 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 our demonstrated quarter-end compliance
with such covenant.
55
April 22,
2009 Amendment. Effective April 22, 2009,
we entered into a letter agreement dated
April 14, 2009 (the “April 22, 2009 Amendment”) with ComVest pursuant to which
we further amended the EBIDA Ratio Covenant. Pursuant to the April
22, 2009 Amendment, the EBIDA Ratio 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 quarter ended on or after September
30, 2009.
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.
Our violations of the EBIDA Ratio
Covenant described above did not and will not have any impact on any other loan
agreements to which we are a party. However, pursuant to the terms of
the Loan Agreement, if we default on any other indebtedness in excess of
$100,000 and such default creates an acceleration of the maturity of such
indebtedness, then we would be in default of our ComVest Loan
Agreement.
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. On June 2, 2010 ComVest
charged the Company a $25,000 forbearance fee and June 17, 2010, increased the
interest rate from 11% to 16%.
As of
June 30, 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, and increased the
interest rate to 13% for the Revolving Credit Note and 16% for the Term
Note. The Company is in negotiations to resolve the default with
ComVest.
Off Balance Sheet
Arrangements
The Company’s only off balance sheet
arrangements are its 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, 2010 and 2009, the Company incurred rent expense totaling
approximately $459,000 and $586,000, respectively.
56
Future annual minimum payments under
non-cancelable operating leases are as follows:
June 30,
|
||||
2011
|
$
|
459,000
|
||
2012
|
375,000
|
|||
2013
|
349,000
|
|||
2014
|
344,000
|
|||
2015
|
326,000
|
|||
Thereafter
|
2,535,000
|
|||
$
|
4,388,000
|
Current 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. Our products and services
include:
·
|
Business management systems
comprised of our proprietary software applications, implementation and
training and third-party hardware and
peripherals;
|
·
|
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, which are used by the different
participants in the automotive
aftermarket;
|
·
|
Online services and products that
connect manufacturers, warehouse distributors, retailers and automotive
service providers via the internet. These products enable electronic data
interchange throughout the automotive aftermarket supply chain among the
different trading partners. They also enable procurement and business
services to be projected over the internet to an expanded business
audience. Some UK clients use our information products on their own
websites and intranets; some clients in North America and the UK use our
systems and branded software to obtain relevant and up-to-date information
via the internet; and
|
·
|
Customer support and consulting services that
provide phone and
online support, implementation and
training.
|
Need for Technology
Solutions
A variety of factors drive the
automotive market’s need for sophisticated technology solutions, including the
following:
57
Inventory Management
Industry sources suggest that
approximately 35% of parts produced are never sold and 30% of parts stocked are
never sold. Approximately 25% of parts sold are eventually returned due to
insufficient knowledge or capability by either the parts supplier counterman or
the auto service provider installer. Clearly, there is substantial inefficiency
in the automotive aftermarket supply chain. This inefficiency results in excess
inventory carrying costs, logistical costs and the over-production of parts and
tires at the manufacturer level. Overcoming these challenges requires the
combination of business systems software, information products, and connectivity
services we offer.
Competition
In the US, the need for technology
solutions has been accelerated by the expansion of large specialty parts
retailers such as Advance Auto Parts, Inc. and large auto service chains like
Monro Muffler and Brake, Inc. This expansion has driven smaller competitors to
computerize or upgrade their existing systems with more modern business
management solutions enabled for information products and online services. Many
of the systems used by smaller competitors today are older, character-based or
systems developed in-house that have a limited ability to integrate current
information products and online services.
Volume and Complexity of
Information
Businesses in the automotive aftermarket
manage large volumes of information from numerous sources with complex
inter-relationships. There are over 4.5 million different stock-keeping units
(“SKUs”) available to parts sellers in the product catalogs used by the US
automotive aftermarket. The numbers of SKUs increase in the order of some 5%
each year. Moreover, manufacturers update product information and product prices
with increasing frequency as they improve their internal processing and try to
keep pace with consumer trends. As a result, most automotive aftermarket
businesses require sophisticated inventory management systems, accurate and
timely information on parts, tires, and repair delivered through online services
to communicate, manage and present this volume of data
effectively.
Customer Service
Requirements
Consumer demand for same-day repair
service and the need to maintain efficient use of repair bays, forces automotive
service providers to demand prompt and accurate delivery of specific parts and
tires from their suppliers. Getting the required product promptly depends on all
the parties having access to timely information about product price and
availability. To meet these demanding customer service requirements
successfully, automotive aftermarket participants need business management
systems, product information and online services that enable workers to reliably
and accurately transact their business between warehouse distributors, parts
stores and automotive service providers.
58
Regional
Efficiencies
The use and availability of a
combination of business management systems, information products and online
services has resulted in the development of regional trading networks among auto
service provider chains, stores and warehouse distributors of parts and tires.
This enables participants to achieve the efficiencies and customer service
levels that are critical to being competitive and successful against the larger
retail and service chains in the automotive aftermarket.
Areas of Growth
We expect growth in the automotive
aftermarket will continue to be driven by:
·
|
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 a slow down in the
economy;
|
·
|
growth in the total number of
miles driven per vehicle per year;
and
|
·
|
increased vehicle
complexity.
|
Plans for Growth
We see opportunities to expand the
breadth of our client base within the automotive industry and diversify into new
industries with similarly complex needs. We plan to offer tailored business
management and distribution software to the wholesale distributor market of the
automotive industry. We have also started to expand and diversify our client and
product mix in the UK to serve the lumber and hardware industries, which we
believe have an unmet need for the efficiency offered by our suite of business software
solutions and services. Our growth plans include adapting and updating our
software products to serve other vertical markets as well as through potential
acquisitions.
Additional Vertical Markets: the Lumber,
Hardware and Wholesale Distributor Markets and Additional
Territories
We have identified that the lumber,
hardware and wholesale distribution industries would benefit from the business
management and distribution systems developed by MAM Software Ltd. for its
customers in the automotive aftermarket. We already have 40 UK clients operating
in the hardlines and lumber market and electrical wholesale distribution market
who are using a derivative of MAM Software Ltd.’s Autopart product, known as
“Trader.” We originally moved the Autopart product into these additional
vertical markets a number of years ago after being approached by companies
operating within these vertical markets who could not find a management solution
that satisfied their requirements. To date, these additional vertical markets
have made only a limited contribution to the revenues of MAM Software
Ltd.
These new market opportunities are made
up of the following: The lumber and hardware market consists of independent
lumber and building materials yards, independent hardware retailers, home
improvement centers, retail nurseries and garden centers. Wholesale distributors
of products, include electrical suppliers, medical suppliers, plumbing, heating
and air conditioning, brick, stone and related materials, and industrial
suppliers, services, machinery and equipment, among others.
59
We have been increasing our promotion of
the “Trader” product to these markets, specifically targeting medium sized
businesses with revenues of between $2 million and $10 million. We are, and
intend to continue, doing this through a number of channels, internet, direct
marketing, advertorials and trade shows. The Internet channel initially focused
on raising awareness of the website and the Trader product through a new website
specifically for the Trader product. This in turn has been tied to advertising
via the internet, by placing banner ads on industry websites such as
Building.co.uk, a UK website aimed at the building trade and EDA.com, which is
the UK Electrical Distributors Association website. These banner ads have been
directing customers to straight through to the Trader website where the benefits
of this system are explained. We have also looked to raise awareness of the
Trader product by placing advertisements in trade journals and will
continue to look to have articles and editorial reviews written about the
product and its advantages for those operating within these markets. We have
also been targeting medium sized businesses within these vertical markets with
direct mail pieces such as product fliers, product demo CDs and case studies
from the small client base we have in this market. These have then been followed
by MAM’s existing internal sales team to generate qualified leads for the
external sales representatives. We recognize that we will need increased
industry experience to sell effectively within these markets and intend to
recruit a suitably experienced and qualified sales manager to lead this
development. In addition to direct marketing we have attended trade shows and
exhibitions that have given us the opportunity to invite businesses that we have
targeted previously while giving us exposure to those businesses that as yet we
haven’t connected with.
We believe that there are many
opportunities in other parts of the world where we could sell our technologies
and services. We are considering expanding into markets such as South Africa,
Australia and India as well as Spanish-speaking nations in Central and South America and may wish to establish
operations in partnership with regional businesses to assist us in both the
sales and administrative aspects of building a global
business.
Strategic Goals
We hope to increase our share of the US
and Canadian markets by (i) increasing the sales and marketing presence of our
Autopart product, (ii), focusing on the service station element of the market
(iii) and establishing OpenWebs™ as the e-commerce standard within the
Automotive market. In the UK and Europe we expect to continue to grow our market
share through (i) moving our supply chain management software into new vertical
markets, (ii) alliances with major manufacturers and national retail chains
within the automotive aftermarket, and (iii) an increased marketing presence. We
believe that our successful experience within the automotive market will
translate well into other vertical markets that have similarly complex supply
chains. By developing specific sales teams with relevant market experience and
supporting with them suitable marketing collateral, we believe that within two
years these teams will generate significant revenue and earnings. The Company
plans, at this stage, to focus only on the UK for these additional vertical
market opportunities.
60
Development Cost
Our plan of operation in the next twelve
months continues a strategy for growth within our existing subsidiaries with an
on-going focus on growing our US operation. We estimate that the operational and
strategic development plans we have identified will require approximately
$11,600,000 of funding. We expect to spend approximately $3,300,000 on research
and development, $5,500,000 in general and administrative expenses and
$2,800,000 on sales and marketing in our growth plan. In addition to using these
funds to grow our core business in the US, we also plan to utilize a portion of
these development costs to adapt our existing products to serve the wholesale
distributor market place in other industries.
We plan to finance the required
$11,600,000 with a combination of cash flow from operations as well as cash
raised through equity and debt financings.
Summary
We expect to see continued growth from
both the US and UK operations during fiscal 2011 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 two quarters, 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 at higher levels and increasingly partner with them
so that together we both will achieve our goals.
Revenues in the UK are continuing to
generate positive cash flow and free cash and the US operations are also
generating free cash flow but corporate expenses resulted in a negative cash flow for the year ended
June 30, 2010. Our current plans still require us to
hire additional sales and marketing staff 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 additional
English-speaking auto industry aftermarkets for our Autopart
product. If we continue to experience negative
cash flow we will be required to limit our growth plan.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURES
None.
61
Our
executive officers, directors and other significant employees and their ages and
positions are as follows:
Name
|
Age
|
Position
|
||
Michael
Jamieson
|
43
|
Chief
Executive Officer and Director
|
||
Charles
F. Trapp
|
60
|
Chief
Financial Officer of the Company
|
||
Dwight
B. Mamanteo
|
41
|
Director
|
||
Marcus
Wohlrab
|
47
|
Director
|
||
Frederick
Wasserman
|
56
|
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 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.
62
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), TeamStaff, Inc., (Chairman of the Board of Directors) and (Chairman-
Audit Committee), 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
|
Frederick
Wasserman** – Chair
|
Marcus
Wohlrab – Chair
|
||
Gerald
M. Czarnecki -ex officio member
|
Gerald
M. Czarnecki -ex officio member
|
Frederick
Wasserman
|
||
W.
Austin Lewis IV
|
W.
Austin Lewis IV
|
Gerald
M. Czarnecki -ex officio
member
|
**
|
The
Board of Directors has determined that Frederick Wasserman is a financial
expert as defined in Regulation S-K promulgated under the Securities
Act.
|
63
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.
64
(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.
65
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 Mr. Warwick’s employment agreement, a United Kingdom resident, also entitled
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 - December 1, 2008
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
then-President and Chief Executive Officer, Charles F. Trapp, our Executive Vice
President and Chief Financial Officer, and Simon Chadwick, our then-Executive
Vice President and Chief Operating Officer.
Ian
Warwick Employment Agreement
The
December 1, 2008 Employment Agreement with Mr. Warwick (the “Warwick Agreement”)
was for an initial term of two and one-half years from the Effective Date, and
was automatically renewable for successive one-year periods unless terminated by
Mr. Warwick or us. Mr. Warwick received an annual base salary of $300,000,
payable in U.S. dollars. The annual salary was to be 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 entitled Mr.
Warwick, a United Kingdom resident, to a make-whole payment that would
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 provided for an appointment to our Board of Directors, on
which Mr. Warwick served.
Mr.
Warwick was 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 were to be established
by our Compensation Committee or pursuant to a formal bonus plan, were 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.
66
In
addition, Mr. Warwick was entitled to participate in all of our benefit plans
and our equity-based compensation plans, which at the time consisted of our
LTIP. Pursuant to the Warwick Agreement, Mr. Warwick was 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 would vest; (ii) if the Company’s results are equal to 80% of the
established target(s), 50% of the award would vest; (iii) if the Company’s
results are equal to 100% of the established target(s), 100% of the award
would vest; and (iv) if the Company’s results are equal to or better than 120%
of the established target(s), 150% of the award would vest. Results between
these established parameters would be interpolated.
The
Warwick Agreement also entitled Mr. Warwick to be granted options to purchase
300,000 shares of our common stock under the LTIP. These options would 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 provided that in the event Mr. Warwick’s employment was
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 was
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 would 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
December 1, 2008 Employment Agreement with Mr. Trapp (the “Trapp Agreement”) was
for an initial term of one year from the Effective Date, and was automatically
renewable for successive one-year periods unless terminated by Mr. Trapp or us.
Mr. Trapp received an annual base salary of $220,000, payable in U.S. dollars.
Mr. Trapp was 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 were 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 was entitled to participate in all of our benefit plans and
equity-based compensation plans, which at the time consisted of the LTIP. Mr.
Trapp was 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 was granted options to
purchase 100,000 shares of our common stock under the LTIP. These options 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 provided that in the event Mr. Trapp’s employment was terminated for
Good Reason, for any reason other than for Cause, Death or Disability or for
Good Reason during the Window Period, Mr. Trapp would be 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
would 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
would 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. On July 13, 2010, the Compensation Committee of the
Board of Directors approved a new employment agreement and bonus plan with Mr.
Trapp, as further described under “Employment
Agreements - July 1, 2010.”
Simon
Chadwick Employment Agreement
The
Employment Agreement with Mr. Chadwick (the “Chadwick Agreement”) was for an
initial term of two years from the Effective Date, and was 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 entitled Mr. Chadwick, a
United Kingdom resident, to a Make-Whole Payment consistent with the one awarded
to Mr. Warwick.
The
Chadwick Agreement also provided for an appointment to our Board of Directors,
on which he served.
Mr.
Chadwick was 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 were to be established
by the Compensation Committee or pursuant to a formal bonus plan, were 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 was entitled to participate in all of our benefit
plans and our equity-based compensation plans, which at the time consisted of
the LTIP. Mr. Chadwick were 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 vested 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.
67
In the
event Mr. Chadwick’s employment was terminated for Good Reason, for any reason
other than for Cause, Death or Disability or for Good Reason during the Window
Period, Mr. Chadwick was 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 would 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 would 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.
Employment
Agreements - July 1, 2010
On July
13, 2010, the Compensation Committee of the Board of Directors approved
employment agreements, including a bonus plan, with each of Michael Jamieson,
our President and Chief Executive Officer and Charles F. Trapp, our Executive
Vice President and Chief Financial Officer. Such employments
agreements and bonus plans were entered into as of July 1, 2010 (the “Effective
Date”), the first day of our 2011 fiscal year.
Michael Jamieson Employment
Agreement
The
Employment Agreement with Mr. Jamieson (the “Jamieson Agreement”) is for an
initial term of three years from the Effective Date, and is automatically
renewable for successive one-year periods unless terminated by Mr. Jamieson or
us. Mr. Jamieson will receive an annual base salary of 150,000 GBP
(approximately US$225,000), payable in British Pounds Sterling.
Mr.
Jamieson is eligible for a performance-based annual cash incentive bonus
depending on the extent to which the applicable performance goal(s) of the
Company, which are to be established by our Compensation Committee of our Board
of Directors (“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, 2011, with respect to Mr. Jamieson’s
potential incentive bonus for fiscal 2011.
In
addition, Mr. Jamieson is entitled to participate in all of our benefit plans
and our equity-based compensation plans, which currently consists of our 2007
Long-Term Incentive Plan (the “LTIP”). Pursuant to the Jamieson Agreement, Mr.
Jamieson is to be awarded 500,000 restricted common shares under the LTIP (the
“Stock Grant”). The shares will vest ratably over a three-year
period, with 20% vesting on the first anniversary of the Stock Grant, 30%
vesting on the second anniversary of the Stock Grant, and 50% vesting on the
third anniversary of the Stock Grant.
The
Jamieson Agreement also entitles Mr. Jamieson to be granted options to purchase
2,109,375 shares of our common stock under the LTIP (the “Option Grant”). These
options will vest on the third anniversary of the grant date, at a strike price
of $0.08 per share, depending on the extent to which certain performance targets
have been met. The options expire ten years from the grant date, if
vested. If the Company’s results: (i) amount to less than 80% of the
established target(s), none of the Option Grant will vest; (ii) are equal to 80%
of the established target(s), 25% of the Option Grant will vest; (iii) are equal
to 100% of the established target(s), 50% of the award will vest; and (iv) are
equal to or better than 120% of the established target(s), 100% of the Option
Grant will vest. Results between these established parameters will be
interpolated. The Option Grant will vest immediately upon a Change of
Control.
The
Jamieson Agreement provides that in the event Mr. Jamieson’s employment is
terminated by the Company other than for Cause or Disability, or Mr. Jamieson
shall terminate his employment for Good Reason, 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. Jamieson’s stock appreciation rights and
restricted stock will immediately vest and all vested stock options and stock
appreciation rights shall be payable in shares of our common stock.
Charles F. Trapp Employment
Agreement
The
Employment Agreement with Mr. Trapp (the “Trapp Agreement”) is for an initial
term of three years 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 $195,000, payable in U.S. dollars. Mr. Trapp is
eligible for a performance-based annual cash incentive bonus 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, 2011, with respect to Mr. Trapp’s
potential incentive bonus for fiscal 2011.
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. Pursuant
to the Trapp Agreement, Mr. Trapp is to be awarded 200,000 restricted common
shares under the LTIP (the “Stock Grant”). The shares will vest
ratably over a three-year period, with 20% vesting on the first anniversary of
the Stock Grant, 30% vesting on the second anniversary of the Stock Grant, and
50% vesting on the third anniversary of the Stock Grant.
The Trapp
Agreement also entitles Mr. Trapp to be granted options to purchase 1,828,125
shares of our common stock under the LTIP (the “Option Grant”). These options
will vest on the third anniversary of the grant date, at a strike price of $0.08
per share, depending on the extent to which certain performance targets have
been met. The options expire ten years from the grant date, if
vested. If the Company’s results: (i) amount to less than 80% of the
established target(s), none of the Option Grant will vest; (ii) are equal to 80%
of the established target(s), 25% of the Option Grant will vest; (iii) are equal
to 100% of the established target(s), 50% of the award will vest; and (iv) are
equal to or better than 120% of the established target(s), 100% of the Option
Grant will vest. Results between these established parameters will be
interpolated. The Option Grant will vest immediately upon a Change of
Control.
The Trapp
Agreement provides that in the event Mr. Trapp’s employment is terminated by the
Company other than for Cause or Disability, or Mr. Trapp shall terminate his
employment for Good Reason, 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. Trapp’s stock appreciation rights and restricted stock
will immediately vest and all vested stock options and stock appreciation rights
shall be payable in shares of our common stock.
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.
68
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.
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 2010, 2009 and 2008
The following table sets forth
information for the fiscal years ended June 30, 2010, 2009 and 2008 concerning
the compensation paid and awarded to all individuals serving as (a) our Chief
Executive Officer, Michael G. Jamieson, as of the end of our fiscal year ended
June 30, 2010, (b) the two most highly compensated executive officers (other
than our Chief Executive Officer) of ours and our subsidiaries who were serving
as executive officers at the end of our fiscal year ended June 30, 2010, whose
total compensation exceeded $100,000 for these periods, Charles F. Trapp, and
(c) up to two additional individuals for whom disclosure would have been
provided pursuant to (b) except that they were not serving as executive officers
at the end of such fiscal years, Ian Warwick and Simon
Chadwick. These individuals may be collectively referred to herein as
our “Named Executive Officers.”
Name and
Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
Non-
qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||||
Michael G. Jamieson,
(1)
Chief Executive
Officer,
President and
Director
|
2010
|
80,428
|
—
|
17,600
|
(5)
|
—
|
—
|
—
|
—
|
98,028
|
|||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||||
Ian Warwick
(2)
|
2010
|
475,000
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
Former Chief Executive
Officer, President
|
2009
|
292,828
|
—
|
—
|
—
|
—
|
—
|
—
|
292,828
|
||||||||||||||||||||||||
and
Director
|
2008
|
349,195
|
—
|
—
|
—
|
—
|
—
|
—
|
349,195
|
||||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||||
Simon Chadwick
(3)
|
2010
|
356,250
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||
Former
Chief Operating
|
2009
|
218,780
|
—
|
—
|
—
|
—
|
—
|
—
|
218,780
|
||||||||||||||||||||||||
Officer and
Director
|
2008
|
259,402
|
—
|
—
|
—
|
—
|
—
|
—
|
259,402
|
||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
Charles F. Trapp
(4)
|
2010
|
220,000
|
—
|
13,200
|
(6)
|
—
|
—
|
—
|
—
|
233,200
|
|||||||||||||||||||||||
Executive Vice
President,
|
2009
|
224,166
|
—
|
5,775
|
(6)
|
—
|
—
|
—
|
—
|
229,941
|
|||||||||||||||||||||||
and Chief Financial
Officer
|
2008
|
214,583
|
—
|
25,500
|
(6)
|
—
|
—
|
—
|
—
|
240,083
|
(1)
|
Reflects salary paid to Mr.
Jamieson for services rendered to us and our subsidiaries during fiscal
2010 as MAM’s Chief Executive Officer and President. Salary was
paid by a subsidiary of the Company in British pounds at an annual salary
of 122,000 GPB per year. Mr. Jamieson became Interim Chief
Executive Officer and Interim President on February 1, 2010 and was paid
50,830 GBP for the period from February 1, 2010 to June 30, 2010 pursuant
to the terms of Mr. Jamieson’s employment agreement with our
subsidiary. The amount shown for 2010 was translated to US
dollars based on a June 30, 2010 currency conversion rate of 1 GBP =
$1.5823 (or $80,428). Mr. Jamieson did not receive any additional
compensation for his services as a director on our Board of
Directors.
|
69
(2) |
Mr. Warwick resigned his position as Chief Executive Officer, President and Director effective as of January 31, 2010. Reflects salary paid to Mr. Warwick for services rendered to us and our subsidiaries during fiscal 2010, 2009 and 2008 as MAM’s Chief Executive Officer and President. The salary for the period from July 1, 2009 to January 31, 2010 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. Pursuant to the terms of Mr. Warwick’s Separation Agreement he was paid $300,000 in six equal monthly installments of $50,000 per month. Mr. Warwick was paid in British pounds at an annual salary of 175,000 GPB for each of the 2008 fiscal year, 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 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.. |
(3)
|
Mr. Chadwick resigned his position as Chief
Operating Officer and Director effective as
of January 31, 2010. Reflects salary paid to Mr.
Chadwick for services rendered to us and our subsidiaries during fiscal
2010, 2009 and 2008 as MAM’s Chief Operating Officer. The
Salary for the period from July 1, 2009 to January 31, 2010 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. Pursuant to the terms of Mr. Chadwick’s Separation
Agreement he was paid $225,000 in six equal monthly installments of
$37,500 per month. Salary was paid in British pounds at an annual salary
of 130,000 GPB for each of the 2008 fiscal year, 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 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.
|
(4)
|
Mr. Trapp was appointed Vice
President Finance and Chief Financial Officer effective as of December 1,
2007. For the year ended June 30, 2010, the amount shown in the table
reflects salary in the amount of $91,667 earned for services in these
capacities between July 1, 2009 and November 30, 2009, pursuant to the
terms of Mr. Trapp’s employment agreement, as well as salary in the amount
of $128,333 earned for services between December 1, 2009 and June 30, 2010
pursuant to a month to month verbal agreement. The salary for fiscal 2010
also includes $22,000 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,
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.
|
(5)
|
The amount shown in the “Stock
Awards” column reflects the dollar amount recognized for fiscal 2010
financial statement reporting purposes of the outstanding stock awards
held by Mr. Jamieson in accordance with FAS 123R. Stock award represent an
award on May 13, 2008 of 1,000,000 shares of Common Stock with a grant
date closing price of $0.10 per share, of which 34% or 340,000 shares
vested immediately on the date of grant. The remaining 66% of the shares
or 660,000 shares will vest in three equal installments of 220,000 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, 2010 and 2009, Note 1 “Stock Based Compensation” and
Note 9 “Stockholders Equity” included in this Annual Report on Form
10-K, with respect to valuation assumptions for this stock grant. Mr.
Jamieson held no other stock or option awards at June 30, 2010 and 2009,
respectively.
|
(6) |
The amount shown in the “Stock
Awards” column reflects the dollar amount recognized for fiscal 2010, 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 $0.10 per share, of which 34% or 255,000
shares vested immediately on the date of grant. The remaining 66% of the
shares or 495,000 shares will vest in three equal installments of 165,000
shares on each of the first, second and third anniversaries of the grant
date. The shares were not issued pursuant to any existing compensation
plan. Refer to the Company’s Consolidated Financial Statements for the
Fiscal Years Ended June 30, 2010 and 20097, Note 1 “Stock Based
Compensation” and Note 9 “Stockholders Equity” included in this
Annual Report on Form 10-K, with respect to valuation assumptions for this
stock grant. Mr. Trapp held no other stock or option awards at June 30,
2010 and 20098,
respectively.
|
70
Other Compensation
Other than as described above, there
were no post-employment compensation, pension or nonqualified deferred
compensation benefits earned by the executive officers during the year ended
June 30, 2010. We do not have any retirement, pension, or profit-sharing
programs for the benefit of our directors, officers or other employees. The
Board of Directors may recommend adoption of one or more such programs in the
future.
Outstanding Equity Awards at 2010
Fiscal Year End
The following table provides
information relating to the vested and unvested option and stock awards held by
the named executives as of June 30, 2010. Each award to each named executive is
shown separately, with a footnote describing the award’s vesting
schedule.
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(# Exercisable)
|
Number of
Securities
Underlying
Unexercised
Option
(# Unexercisable)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
($)
|
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
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
Or
Other
Rights
That
Have
Not
Vested
($)
|
|||||||||||||||||||||||||||
Michael G.
Jamieson
|
—
|
—
|
—
|
—
|
—
|
220,000
|
(1)
|
$
|
17,600
|
(3)
|
—
|
—
|
||||||||||||||||||||||||
Charles F.
Trapp
|
—
|
—
|
—
|
—
|
—
|
165,000
|
(2)
|
$
|
13,200
|
(3)
|
—
|
—
|
||||||||||||||||||||||||
Ian
Warwick
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||
Simon
Chadwick
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1)
|
Stock awards represent an award
on May 13, 2008 to Mr. Jamieson of 1,000,000 shares of Common Stock with a
grant date fair value of $0.10 per share, of which 34%, or 340,000 shares,
vested immediately on the date of grant, 220,000 shares valued at $.035
per share vested on May 13, 2009 and 220,000 shares valued at $.08 per
share vested on May 13, 2010 The remaining 220,000 shares reflected in the
table, will vest on May 13, 2011. The shares were not issued pursuant to
any existing compensation plan.
|
|
(2) |
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 and 165,000 shares valued at $.08 per
share vested on May 13, 2010. The remaining 165,000 shares reflected in
the table, will vest on may 13, 2011. The shares were not issued pursuant
to any existing compensation plan.
|
|
(3)
|
Based on the closing price of
$0.08 of the Company’s Common Stock on June 30,
2010.
|
Director Compensation for Fiscal
2010
During fiscal 2010, directors who
were not officers of the Company received a $10,000 annual retainer, with the
exception of the Chairman of the Board of Directors, 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 $5,000
for serving as a Committee Member. Directors who are also executive officers of
the Company do not receive any additional compensation for their service on the
Board.
71
The following table reflects all
compensation awarded to, earned by or paid to the Company’s directors for the
fiscal year ended June 30, 2010.
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
($)(1)
|
Options
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
||||||||||||||||||||||
Michael G.
Jamieson
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Ian
Warwick
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Simon
Chadwick
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Dwight B.
Mamanteo
|
26,000
|
(2)
|
6,785
|
(3)
|
—
|
—
|
—
|
—
|
32,785
|
|||||||||||||||||||
Marcus
Wohlrab
|
21,000
|
7,987
|
(4)
|
—
|
—
|
—
|
—
|
28,987
|
||||||||||||||||||||
Frederick
Wasserman
|
22,500
|
8,518
|
(5)
|
—
|
—
|
—
|
—
|
31,018
|
||||||||||||||||||||
Gerald M.
Czarnecki
|
35,000
|
(6)
|
8,359
|
(7)
|
—
|
—
|
—
|
—
|
43,359
|
|||||||||||||||||||
W. Austin Lewis
IV
|
20,000
|
(8)
|
8,353
|
(9)
|
—
|
—
|
—
|
—
|
28,353
|
(1)
|
The amount shown in the table
reflects the dollar amount recognized for fiscal 2010 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, 2010 and 2009, Note 1
“Stock Based Compensation” and Note 9 “Stockholders Equity” included in
the Company’s Annual Report on Form 10-K for the fiscal year ended June
30, 2010, with respect to valuation assumptions for this stock grant. The
directors held no other stock or option awards at June 30,
2010.
|
||||
(2)
|
Includes 176,312 shares of
Common Stock valued at market price on the date of issuance, net of income
taxes of $4,550, and received in lieu of $19,500 of cash
compensation.
|
||||
(3)
|
Includes 83,674 shares valued
at market price on the date of issuance, net of income taxes of
$2,433.
|
||||
(4)
|
Includes 98,304 shares valued
at market price on the date of issuance.
|
||||
(5)
|
Includes 104,850 shares valued
at market price on the date of issuance.
|
||||
(6)
|
Includes 280,313 shares of
Common Stock valued at market price on the date of issuance, net of income
taxes of $12,250, and received in lieu of $22,750 of cash
compensation.
|
||||
(7)
|
Includes 102,885 shares valued
at market price on the date of issuance, net of income taxes of
$4,502.
|
||||
(8)
|
Includes 246,429 shares of
Common Stock valued at market price on date of issuance, and received in
lieu of $20,000 of cash compensation.
|
||||
(9)
|
Includes 101,276 shares valued
at market price on the date of issuance.
|
72
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 August 31, 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) | 12.61 | % | ||||
Quillen
Persons (4)
145
East 57th Street, 10th Floor
New
York, NY 10022
|
6,543,445 | (5) | 7.62 | % | ||||
ComVest
Capital LLC
105
S. Narcissus Ave.
West
Palm Beach, FL 33401
|
8,469,949 | (6) | 8.98 | % | ||||
Directors
and Officers:
|
||||||||
Michael
Jamieson
Chief
Executive Officer
|
1,460,000 | (7) | 1.71 | % | ||||
Charles
F. Trapp
Chief
Financial Officer
|
1,869,340 | (8) | 2.18 | % | ||||
Frederick
Wasserman,
Director
|
250,666 | (9) | 0.29 | % | ||||
Dwight
B. Mamanteo,
Director
|
781,866 | (10) | 0.91 | % | ||||
Marcus
Wohlrab,
Director
|
198,923 | (11) | 0.23 | % | ||||
Gerald
M. Czarnecki,
Chairman
|
1,211,983 | (12) | 1.41 | % | ||||
W.
Austin Lewis IV (13)
c/o
Lewis Asset Management Corp.
45
Rockefeller Plaza
New
York, NY 10111
|
10,335,037 | (14) | 12.03 | % | ||||
Directors
and Officers as a group (7 persons)
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16,107,815 | 18.75 | % | |||||
Former
Officers and Directors:
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||||||||
Ian
Warwick
Chief
Executive Officer
and
Chairman
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4,561,452 | 5.31 | % | |||||
Simon
Chadwick
Chief
Operating Officer
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1,961,084 | 2.28 | % |
73
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(1)
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Based
on a total of 85,860,185 shares of Common Stock outstanding as of July 26,
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 26, 2010 plus (b) the number of shares such person
has the right to acquire within sixty (60) days of July 26,
2010.
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(2)
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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 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 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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74
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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. 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)
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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) 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,
and (iv) 49,650 shares which will vest within 60 days of August 11,
2010.
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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,
and (iv) 55,447 shares which will vest within 60 days of August 11,
2010.
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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,
and (iv) 46,451 shares which will vest within 60 days of August 11,
2010.
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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,
and (iv) 76,030 shares which will vest within 60 days of August 11,
2010.
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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,
and (vii) 49,319 shares which will vest within 60 days of August 11,
2010. 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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75
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.
76
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;
77
(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.
78
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
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.
WHERE
YOU CAN GET MORE INFORMATION
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.
79
FINANCIAL
STATEMENTS
MAM
SOFTWARE GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2010 AND 2009
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
|
F–1
|
|
Consolidated
Balance Sheets as of June 30, 2010 and 2009
|
F–2
|
|
Consolidated
Statements of Operations and Comprehensive Loss for the years
ended June 30, 2010 and 2009
|
F–3
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended June 30, 2010 and
2009
|
F–4
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2010 and
2009
|
F–5
|
|
Notes
to Consolidated Financial Statements
|
|
F–7
|
80
Board of Directors and
Stockholders
MAM Software Group,
Inc.
We have audited the accompanying
consolidated balance sheets of MAM Software Group, Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of June 30, 2010 and 2009, 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 MAM Software Group, Inc. and subsidiaries as of June
30, 2010 and 2009, and the results of their operations and their cash flows for
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going
concern. As more fully described in Note 1 to the consolidated financial
statements, the Company has an accumulated deficit of $23.4 million,
a working capital deficit of $6.7 million as of June 30, 2010 and has $5.0
million in borrowings from a credit agreement that matures in November 2010,
which the Company will need additional financing to repay. These items raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
As
described in Note 1 to the consolidated financial statements, on 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.
/s/ KMJ
CORBIN & COMPANY LLP
Costa Mesa,
California
August 31, 2010
F-1
Consolidated Balance
Sheets
(In thousands, except
share and per share data)
June
30,
|
||||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash and cash
equivalents
|
$
|
1,196
|
$
|
1,663
|
||||
Accounts receivable, net of
allowance of $192 and $87
|
2,520
|
2,154
|
||||||
Inventories
|
366
|
318
|
||||||
Prepaid expenses and other current
assets
|
371
|
507
|
||||||
Total Current
Assets
|
4,453
|
4,642
|
||||||
Property and Equipment,
Net
|
856
|
1,028
|
||||||
Other
Assets
|
||||||||
Goodwill
|
8,924
|
9,548
|
||||||
Amortizable intangible assets,
net
|
2,757
|
3,566
|
||||||
Software development costs,
net
|
1,520
|
1,691
|
||||||
Other long-term
assets
|
49
|
179
|
||||||
TOTAL
ASSETS
|
$
|
18,559
|
$
|
20,654
|
||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
1,551
|
$
|
1,386
|
||||
Accrued expenses and
other
|
2,368
|
3,162
|
||||||
Payroll and other
taxes
|
364
|
278
|
||||||
Current portion of settlement
liability
|
326
|
-
|
||||||
Derivative
liabilities
|
291
|
-
|
||||||
Current portion of long-term
debt
|
5,000
|
1,598
|
||||||
Current portion of deferred
revenue
|
641
|
482
|
||||||
Taxes
payable
|
647
|
708
|
||||||
Total Current
Liabilities
|
11,188
|
7,614
|
||||||
Long-Term
Liabilities
|
||||||||
Deferred revenue, net of current
portion
|
345
|
748
|
||||||
Deferred income
taxes
|
642
|
880
|
||||||
Settlement liability, net of
current portion
|
525
|
-
|
||||||
Long-term debt, net of current
portion
|
168
|
4,713
|
||||||
Other
|
359
|
199
|
||||||
Total
Liabilities
|
13,227
|
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, 84,862,880
and 83,462,337 shares issued and outstanding,
respectively
|
8
|
8
|
||||||
Additional paid-in
capital
|
29,503
|
30,219
|
||||||
Accumulated other comprehensive
loss
|
(768
|
)
|
(482
|
)
|
||||
Accumulated
deficit
|
(23,411
|
)
|
(23,245
|
)
|
||||
Total Stockholders'
Equity
|
5,332
|
6,500
|
||||||
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
18,559
|
$
|
20,654
|
The Accompanying Notes Are an Integral
Part of these Consolidated Financial Statements.
F-2
Consolidated Statements of Operations
and Comprehensive Loss
(In thousands, except
share and per share data)
For the Year
Ended
June
30,
|
||||||||
2010
|
2009
|
|||||||
Revenues
|
$
|
24,156
|
$
|
21,119
|
||||
Cost of
revenues
|
10,274
|
9,496
|
||||||
Gross
Profit
|
13,882
|
11,623
|
||||||
Operating
Expenses
|
||||||||
Research and
development
|
3,012
|
2,860
|
||||||
Sales and
marketing
|
2,181
|
2,211
|
||||||
General and
administrative
|
6,462
|
5,651
|
||||||
Depreciation and
amortization
|
1,116
|
1,082
|
||||||
Impairment of
goodwill
|
-
|
850
|
||||||
Total Operating
Expenses
|
12,771
|
12,654
|
||||||
Operating Income (Loss)
|
1,111
|
(1,031
|
)
|
|||||
Other Income
(Expense)
|
||||||||
Interest
expense
|
(1,361
|
)
|
(1,602
|
)
|
||||
Interest
income
|
-
|
21
|
||||||
Change in fair value of derivative
liabilities
|
267
|
–
|
||||||
Write down of investments in
available-for-sale
securities
|
-
|
(4,723
|
)
|
|||||
Other, net
|
50
|
98
|
||||||
Total other expense,
net
|
(1,044
|
)
|
(6,206
|
)
|
||||
Income (loss) before provision for income
taxes
|
67
|
(7,237
|
)
|
|||||
Provision for income
taxes
|
694
|
386
|
||||||
Net Loss
|
(627
|
)
|
(7,623
|
)
|
||||
Unrealized gain on reversal of unrealized loss on investments in
available–for–sale securities
|
-
|
184
|
||||||
Foreign currency translation
loss
|
(286
|
)
|
(2,283
|
)
|
||||
Total Comprehensive
Loss
|
$
|
(913
|
)
|
$
|
(9,722
|
)
|
||
Loss per share attributed to
common stockholders - basic and diluted
|
$
|
(0.01
|
)
|
$
|
(0.09
|
)
|
||
Weighted average common
shares outstanding basic
and diluted
|
83,970,278
|
86,272,712
|
The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements.
F-3
MAM SOFTWARE GROUP,
INC.
Consolidated Statements of Stockholders’
Equity
(In thousands, except share and per
share data)
Common Stock
|
Additional
Paid-in-
|
Due
From
|
Other Accumulated
Comprehensive
|
Accumulated
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Parent
|
Income (Loss)
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance June 30,
2008
|
92,733,220
|
$
|
9
|
$
|
31,732
|
$
|
(2,850
|
)
|
$
|
1,617
|
$
|
(15,453
|
)
|
$
|
15,055
|
|||||||||||||
Sale of parent company 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
|
–
|
–
|
–
|
–
|
(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
|
|||||||||||||||||||
Adoption of new accounting
guidance related to derivative instruments
|
-
|
-
|
(868
|
)
|
-
|
-
|
461
|
(407
|
)
|
|||||||||||||||||||
Common stock issued as
compensation
|
1,400,543
|
-
|
116
|
-
|
-
|
-
|
116
|
|||||||||||||||||||||
Fair value of warrants issued
for services
|
-
|
-
|
36
|
-
|
--
|
-
|
36
|
|||||||||||||||||||||
Foreign currency
translation
|
-
|
-
|
-
|
-
|
(286
|
)
|
-
|
(286
|
)
|
|||||||||||||||||||
Net loss
|
(627
|
)
|
(627
|
)
|
||||||||||||||||||||||||
Balance June 30,
2010
|
84,862,880
|
$
|
8
|
$
|
29,503
|
$
|
-
|
$
|
(768
|
)
|
$
|
(23,411)
|
$
|
5,332
|
The Accompanying Notes Are an Integral
Part of these Consolidated Financial Statements.
F-4
MAM SOFTWARE GROUP,
INC.
Consolidated Statements of Cash
Flows
(In thousands)
|
For the Years Ended
June 30,
|
|||||||
2010
|
2009
|
|||||||
CASH FLOWS FROM OPERATING
ACTIVITIES :
|
||||||||
Net loss
|
$
|
(627
|
)
|
$
|
(7,623
|
)
|
||
Adjustments to reconcile net loss
to net cash provided by operating
activities:
|
||||||||
Bad Debt
Expense
|
177
|
-
|
||||||
Depreciation and
amortization
|
1,116
|
1,082
|
||||||
Debt discount and debt issuance
cost amortization
|
513
|
699
|
||||||
Gain on write off of
liabilities
|
(50
|
)
|
(134
|
)
|
||||
Change in fair value of derivative
liabilities
|
(267
|
)
|
-
|
|||||
Write down of investment in
available - for- sale securities
|
-
|
4,723
|
||||||
Deferred income
tax
|
(238
|
)
|
-
|
|||||
Fair value of stock issued for
services and compensation
|
116
|
310
|
||||||
Warrants issued in settlement of a
service agreement
|
36
|
-
|
||||||
Impairment of
goodwill
|
-
|
850
|
||||||
Changes in assets and
liabilities:
|
||||||||
Accounts
receivable
|
(707
|
)
|
1,079
|
|||||
Inventories
|
(79
|
)
|
297
|
|||||
Prepaid expenses and other
assets
|
105
|
183
|
||||||
Accounts
payable
|
257
|
(852
|
)
|
|||||
Taxes
payable
|
(6
|
)
|
329
|
|||||
Deferred
revenue
|
(196
|
)
|
78
|
|||||
Accrued expenses and other
liabilities
|
515
|
(804
|
)
|
|||||
NET CASH PROVIDED
BY OPERATING ACTIVITIES
|
665
|
217
|
||||||
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||
Purchase of property and
equipment
|
(85
|
)
|
(213
|
)
|
||||
Capitalized software development
costs
|
(66
|
)
|
(276
|
)
|
||||
NET CASH USED IN INVESTING
ACTIVITIES
|
(151
|
)
|
(489
|
)
|
||||
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||
Proceeds from sale of parent
company stock, net of cash issuance costs
|
-
|
842
|
||||||
Proceeds from long-term
debt
|
-
|
500
|
||||||
Payments on long-term
debt
|
(1,346
|
)
|
(410
|
)
|
||||
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES
|
(1,346
|
)
|
932
|
|||||
Effect of exchange rate
changes
|
365
|
(961
|
)
|
|||||
Net change in cash and cash
equivalents
|
(467
|
)
|
(301
|
)
|
||||
Cash and cash equivalents at
beginning of year
|
1,663
|
1,964
|
||||||
Cash and cash equivalents at end
of year
|
$
|
1,196
|
$
|
1,663
|
The Accompanying Notes Are an Integral
Part of these Consolidated Financial Statements.
F-5
Consolidated Statements of Cash
Flows (Continued)
(In thousands)
|
For the Years Ended
June 30,
|
|||||||
2010
|
2009
|
|||||||
Supplemental disclosures of cash
flow information
|
||||||||
Cash paid during the year for
:
|
||||||||
Interest
|
$
|
849
|
$
|
841
|
||||
Income
taxes
|
$
|
463
|
$
|
873
|
||||
Non-cash investing and financing
transactions during the year for :
|
||||||||
Value of distributed
shares
|
$
|
-
|
$
|
29
|
||||
Value of retired
shares
|
$
|
-
|
$
|
2,123
|
||||
Cumulative effect to retained
earnings due to adoption of accounting standard
|
$
|
461
|
$
|
-
|
||||
Cumulative effect to additional
paid – in – capital to adoption of accounting
standard
|
$
|
868
|
$
|
-
|
||||
Cumulative effect to debt discount
due to adoption of accounting standard
|
$
|
310
|
$
|
-
|
||||
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
|
||||
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
|
The Accompanying Notes Are an Integral
Part of these Consolidated Financial Statements.
F-6
MAM SOFTWARE GROUP,
INC.
June 30, 2010 and 2009
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of
Presentation
MAM Software Group, Inc. (“MAM” or the
“Company”), formerly known
as “Aftersoft Group, Inc.,”
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.
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.
MAM 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 Ltd,
(“MAM Ltd.”) is based in
Barnsley, United Kingdom (“UK”) and Aftersoft
Network, NA, Inc., (“ASNA”) has offices in the United States (“US”) in Dana
Point, California, and Allentown, Pennsylvania. MAM has offices in
Allentown, Pennsylvania.
Going
Concern
At June
30, 2010, the Company had cash and cash equivalents of $1,196,000, a decrease of
$467,000 from June 30, 2009. During the year ended June 30, 2010, the Company
had $151,000 of capital expenditures and made payments of $1,346,000 on debt. In
February 2010, the Company started to make payments on the $5,000,000 Term Note
(see Note 6). 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 $2,917,000 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 currently is 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 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 has
recurring losses, an accumulated deficit of $23.4, million and a working
capital deficit of $6.7 million at June 30, 2010. These factors, along with the
amounts due in November 2010 on the Term Loan and Revolver, 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 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.
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.
F-7
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, 2010 and 2009, 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.
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.
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. During the year ended June 30, 2010, one customer accounted for
approximately 10% of the Company’s
revenue. No such concentration existed during the year ended June 30, 2009.
No customers accounted for more than 10%
or more of the Company’s accounts receivable at June 30, 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 North America,
and 73% from its UK operations during the year
ended June 30, 2010 compared to 28% of its revenues from North America, and 72%
from its UK operations for the year ended June 30, 2009.
At June 30, 2010, the Company maintained 62% of its net property and equipment in
the UK with the remaining 38% in the US. At June 30,
2009, the Company maintained 61% of its net property and equipment in
the UK with the remaining 39% 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
liabilities, the valuation of derivative liabilities
and the estimated value of
warrants and shares issued for non-cash consideration. Actual results could
materially differ from those estimates.
F-8
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
Investments
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 June 30, 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 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,
writedowns 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.
F-9
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 on a product-by-product basis. The annual amortization is the
greater of the amounts of: the ratio that current gross revenues for
a product bear to the total of current and anticipated future gross revenues for
that product; and, the straight-line method over the remaining estimated
economic life (a period of three years) of the product including the period
being reported on. 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 financial results 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.
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 was a result of continuing operating losses
and less optimistic operating forecasts. The estimated fair value of ASNA was
determined using both the
projected discounted future
cash flows and the market
approach. 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.
There was no goodwill impairment charge
for the year ended June 30, 2010.
Goodwill activity for the years ending
June 30, 2010 and 2009 are as follows:
$
|
11,878,000
|
|||
Effect of exchange rate
changes
|
(1,480,000
|
)
|
||
Impairment
charges
|
(850,000
|
)
|
||
Balance June 30,
2009
|
$
|
9,548,000
|
||
Effect of exchange rate
changes
|
(624,000
|
)
|
||
Balance June 30,
2010
|
$
|
8,924,000
|
F-10
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, 2010 and 2009, 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 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 not presented or classified as an
offset to equity is
recorded at the market value of the equity once the equity instrument is granted
for accounting purposes.
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 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. 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 MAM Software Group, Inc. 2007 Long-Term Stock Incentive
Plan (“LTIP”). 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
2010 and 2009 under this plan (see Note 9).
F-11
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 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, 2010 and 2009, advertising expense
totaled $94,000 and $125,000,
respectively.
Gain on Extinguishment of
Liability
The Company realized $50,000 of income
from a settlement with a creditor for the year ended June 30, 2010, which is
included in Other Income.
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 loss adjustments are
accumulated as a separate component of stockholders’
equity. The translation loss
adjustment
totaled $286,000 and $2,283,000 for the years ended
June 30, 2010 and 2009, respectively.
F-12
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 loss includes all changes
in equity (net assets) during a period from non-owner sources. For the year
ended June 30, 2010, the components of comprehensive loss consist of foreign
currency translation losses. For the year ended June 30, 2009,
the components of comprehensive loss consists of foreign currency translation
loss and unrealized gain 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.
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, 2010 and 2009, and has not recognized interest and/or
penalties in the consolidated statements of operations for the years ended June
30, 2010 and 2009.
Basic and Diluted Loss Per Share
Basic loss per common share is computed based on the weighted average
number of shares outstanding for the year. Diluted loss per share is computed by dividing net 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
years ended June 30, 2010 and June 30, 2009, there were no dilutive shares.
For the year ended June 30,
2010, a total of 22,498,135 common stock purchase warrants and debt
convertible into 2,698,005 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, 2009, a total of
21,798,135 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. If the
Company had reported net income for the years ended June 30, 2010 and 2009, only
the convertible debt would have been dilutive.
The following is a reconciliation of the
numerators and denominators of the basic and diluted loss per share computation
for the years ended June 30:
2010
|
2009
|
|||||||
Numerator for basic and diluted
loss per share:
|
||||||||
Net loss
|
$
|
(627,000
|
)
|
$
|
(7,623,000
|
)
|
||
Deemed distribution to parent
company
|
-
|
(169,000
|
)
|
|||||
Net loss available to common
shareholders
|
$
|
(627,000
|
)
|
$
|
(7,792,000
|
)
|
||
Denominator for basic and diluted
loss per common
share:
|
||||||||
Weighted average number of shares
of common stock outstanding
|
83,970,278
|
86,272,712
|
||||||
Net loss per common share
available to common stockholders - basic and
diluted
|
$
|
(0.01
|
)
|
$
|
(0.09
|
)
|
F-13
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 will be adopted by the Company effective 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 will be adopted by the Company effective 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.
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 $291,000 and the embedded conversion feature
was approximately $0 on June 30, 2010. The total value of these
derivative liabilities declined from $558,000 to $291,000 for the year ended June 30, 2010. As such, the Company recognized
approximately $267,000 gain from the change in fair value
of the derivative liabilities for the year ended June 30, 2010.
F-14
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. The assumptions used to estimate the fair value of the derivative
liability at June 30, 2010 and July 1, 2009 are as
follows:
June 30,
|
July 1,
|
|||||||
2010
|
2009
|
|||||||
Annual dividend
yield
|
0.0
|
%
|
0.0
|
%
|
||||
Expected life
(years)
|
0.42 - 3.50
|
4.50
|
||||||
Risk-free interest
rate
|
0.39%-2.65
|
%
|
0.54%-2.51
|
%
|
||||
Expected
volatility
|
82% - 137
|
%
|
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:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Fair value of
warrants
|
$
|
-
|
$
|
-
|
$
|
291,000
|
$
|
291,000
|
||||||||
Total
|
$
|
-
|
$
|
-
|
$
|
291,000
|
$
|
291,000
|
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
|
(267,000
|
)
|
||
Balance as of June 30, 2010
|
$
|
291,000
|
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 year ended June 30, 2010.
NOTE 2. TRANSACTIONS WITH FORMER PARENT
COMPANY
On
November 24, 2008 (the “Dividend Distribution Date”), ADNW distributed a
dividend of 71,250,000 shares of the Company’s common stock that ADNW owned at
such time in order to complete the 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 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.
F-15
ADNW
attempted to settle an old outstanding obligation of ADNW of $775,000 with Mr.
Blumenthal (see Note 8) 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 and
in April 2010, a settlement agreement was entered into (see Note
8).
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
9). 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
such 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 and is no longer owed any monies from ADNW as of June 30,
2009.
NOTE 3. 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 Dealer Software Limited
(“EXP”). The shares
had been listed for trading on the London Plus
Exchange but effective
September 30, 2009, the shares were delisted.
The Company 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, 2010, the Company still holds all the shares
received.
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.
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
|
-
|
F-16
Because trading in the shares of First
London PLC 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 PLC has been
halted.
Property and equipment consist of the
following:
June 30, 2010
|
June 30, 2009
|
|||||||
Leasehold
improvements
|
$
|
745,000
|
$
|
774,000
|
||||
Computer and office
equipment
|
370,000
|
336,000
|
||||||
Equipment under capital
leases
|
10,000
|
10,000
|
||||||
Furniture and
equipment
|
258,000
|
275,000
|
||||||
1,383,000
|
1,395,000
|
|||||||
Less: Accumulated depreciation and
amortization
|
(527,000
|
)
|
(367,000
|
)
|
||||
$
|
856,000
|
$
|
1,028,000
|
Depreciation and amortization expense on
property and equipment for the years ended June 30, 2010 and 2009 was $203,000 and $180,000, respectively.
Intangible assets consist of the
following:
June 30,
2010
|
June 30,
2009
|
|||||||
Assets not subject to
amortization:
|
||||||||
Goodwill
|
$
|
8,924,000
|
$
|
9,548,000
|
||||
Assets subject to
amortization:
|
||||||||
Completed software technology
(9-10 years useful life)
|
$
|
2,991,000
|
$
|
3,109,000
|
||||
Customer contracts / relationships
(10 years useful life)
|
3,711,000
|
3,770,000
|
||||||
Automotive data services (20 years
useful life)
|
295,000
|
323,000
|
||||||
6,997,000
|
7,202,000
|
|||||||
Less : Accumulated
amortization
|
(4,240,000
|
)
|
(3,636,000
|
)
|
||||
Amortizable intangible assets,
net
|
$
|
2,757,000
|
$
|
3,566,000
|
||||
Software development
costs
|
$
|
2,953,000
|
$
|
3,083,000
|
||||
Less : Accumulated
amortization
|
(1,433,000
|
)
|
(1,392,000
|
)
|
||||
Software development costs,
net
|
$
|
1,520,000
|
$
|
1,691,000
|
For the years ended June 30,
2010 and 2009, the Company recognized amortization
expense on its software development costs and other amortizable intangible
assets of $913,000 and $902,000, respectively.
F-17
Estimated future amortization of
software development costs and intangibles is as follows:
Years Ending June
30,
|
||||
$
|
865,000
|
|||
2012
|
865,000
|
|||
2013
|
690,000
|
|||
2014
|
588,000
|
|||
2015
|
472,000
|
|||
Thereafter
|
797,000
|
|||
Total
|
$
|
4,277,000
|
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following
as of June 30:
2010
|
2009
|
|||||||
ComVest term loan, net of debt
discount of $71,000 and $303,000
|
$
|
3,912,000
|
$
|
4,697,000
|
||||
ComVest
revolver
|
1,000,000
|
1,000,000
|
||||||
Secured
notes
|
243,000
|
388,000
|
||||||
McKenna
note
|
-
|
150,000
|
||||||
Homann note
|
-
|
63,000
|
||||||
Other notes
|
13,000
|
13,000
|
||||||
5,168,000
|
6,311,000
|
|||||||
Less current
portion
|
(5,000,000
|
)
|
(1,598,000
|
)
|
||||
Long term
portion
|
$
|
168,000
|
$
|
4,713,000
|
Future maturities of long-term debt
(excluding debt discount) at June 30, 2010 are as follows:
Years Years Ending June
30,
|
||||
$
|
5,071,000
|
|||
2012
|
75,000
|
|||
2013
|
75,000
|
|||
2014
|
18,000
|
|||
Total
|
$
|
5,239,000
|
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
was $15,000, which was recorded as an additional debt discount
and is being amortized over the remaining life of
the term loan.
F-18
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 consolidated
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.
As of
March 31, 2010, the Company did not meet 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”) of
1.25:1as required by the amended Loan Agreement. The Company’s 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. On June 2,
2010, the Company paid ComVest a Forbearance Fee of $25,000 to waive the default
until June 20, 2010 and on June 17, 2010 ComVest raised the interest rate from
9.5% to 13.5%, for the Revolving Credit Note and from 11% to 16% for the Term
Note.
As of
June 30, 2010, the Company did not meet the EBIDA Ratio Covenant of 1.25:1 as
required by the amended Loan Agreement. The Company’s failure to maintain this
ratio constitutes an event of default under the terms of the Loan
Agreement. The Company is in negotiations to resolve the default with
ComVest.
The
current interest rate is 13.5%
on the Revolving
Credit Facility and 16% on
the Term Note.
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 had been 9.5% from
the Closing Date through December 31, 2008, was 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.
F-19
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 by subsequently all of the assets of the Company 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 June
30, 2010, the Company had drawn down the $1,000,000 Credit Facility in
full. The interest rate as of June 30, 2010 was13.5%.
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.
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
1).
F-20
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 the Loan Agreement 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 $7,000 as of June 30, 2010 and is included in
Other assets in the accompanying consolidated balance
sheet. Amortization of the issuance costs was approximately $129,000
for the year ended June 30, 2010, and $246,000 for th year ended June
30, 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, effective July 1, 2009, 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 $71,000 as of June 30, 2010.
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.
F-21
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 additional 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
$384,000 and amortization of debt issuance
costs was $130,000 for the year ended June 30,
2010. Amortization of debt discount was
$453,000 and amortization of debt issuance
costs was $246,000 for the year ended June 30,
2009. The unamortized balance of the debt
discount related to the warrants was $54,000 and $257,000 as of June 30, 2010 and 2009, respectively. The unamortized balance of the debt
issuance cost was $0 and $48,000 for June 30, 2010 and 2009, respectively. The
unamortized balance of the discount related to the conversion feature was
$17,000 and $0 for June 30, 2010 and 2009, respectively.
Homann Note
The Company repaid the note payable to
Homann Tire LTD (“Homann”) during the year ended June 30, 2010. 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
included 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 year ended June 30, 2010.
Secured Notes
The Company has secured
notes with unrelated
parties totaling
$243,000 payable over 12 to 48 months with monthly payments of $4,137
and quarterly payments of $6,278 which will mature through
2014. The notes
bear interest rates of 5.49% to 9.54% and are secured by leasehold improvements
and equipment with a carrying value of $332,000.
F-22
NOTE 7. INCOME TAXES
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.
At June 30, 2010, the Company had net US deferred tax
assets of $914,000. 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 formally 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. During the year ended June 30,
2010, the Company estimated the amount of NOLs that would be allowed had a
Section 382 analysis been performed, which resulted in an increase in the NOLs
of $9.3 million and a corresponding increase in its valuation allowance as
future realizability is uncertain. The Company will adjust its net
operating losses to account for any material differences arising between the
estimated amount and the amount determined pursuant to the
study. When a formal analysis is finalized, the Company plans to
update its unrecognized tax benefits. Due to the existence of the valuation
allowance, future changes in the Company’s unrecognized tax benefits will not
impact the Company’s tax provision.
At June 30, 2010, the Company had Federal income tax
NOLs of approximately $23.9 million and a California income tax NOL of
approximately $10.2 million since the date ADNW acquired the
subsidiaries. The Federal and California NOLs expire at various dates through
2030 and 2020, respectively, unless previously
utilized. At June 30, 2010, 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, 2010 and 2009:
US
Federal
|
US
State
|
UK
Corporate
|
Total
|
|||||||||||||
2010
|
||||||||||||||||
Current
|
$
|
-
|
$
|
-
|
$
|
694,000
|
694,000
|
|||||||||
Deferred
|
-
|
-
|
-
|
-
|
||||||||||||
Total
|
$
|
-
|
$
|
-
|
$
|
694,000
|
694,000
|
|||||||||
2009
|
||||||||||||||||
Current
|
$
|
-
|
$
|
-
|
$
|
386,000
|
386,000
|
|||||||||
Deferred
|
-
|
-
|
-
|
-
|
||||||||||||
Total
|
$
|
-
|
$
|
-
|
$
|
386,000
|
386,000
|
F-23
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, 2010 and 2009:
June 30,
2010
|
June 30,
2009
|
|||||||
Deferred tax
assets:
|
||||||||
Net operating loss
carry-forwards
|
$
|
8,378,000
|
$
|
3,729,000
|
||||
Unrealized loss on
available-for-sale securities
|
1,889,000
|
1,889,000
|
||||||
Deferred
revenue
|
151,000
|
145,000
|
||||||
Reserves and
accruals
|
128,000
|
124,000
|
||||||
Deferred rent
|
44,000
|
-
|
||||||
Derivative
liabilities
|
116,000
|
-
|
||||||
Total deferred tax
assets
|
10,706,000
|
5,887,000
|
||||||
Deferred tax
liabilities:
|
||||||||
Other acquired amortizable
intangibles
|
(1,103,000
|
)
|
(1,426,000
|
)
|
||||
Software development
costs
|
(461,000
|
)
|
(482,000
|
)
|
||||
Depreciation and
amortization
|
(86,000
|
)
|
(116,000
|
)
|
||||
State taxes
|
-
|
-
|
)
|
|||||
Total deferred tax
liabilities
|
(1,650,000
|
)
|
(2,024,000
|
)
|
||||
|
||||||||
Valuation
allowance
|
(9,698,000
|
)
|
(4,743,000
|
)
|
||||
Net deferred tax
liabilities
|
$
|
(642,000
|
)
|
$
|
(880,000
|
)
|
The provision (benefit) for income taxes
for the years ended June 30, 2010 and 2009 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,
|
||||||||
2010
|
2009
|
|||||||
Taxes at statutory rates applied
to loss from continuing operations before taxes
|
$
|
23,000
|
$
|
(2,460,000
|
)
|
|||
State taxes, net of federal
effect
|
1,000
|
(462,000
|
)
|
|||||
Non-deductible goodwill
impairment
|
-
|
340,000
|
||||||
Other net
|
(20,000
|
)
|
82,000
|
|||||
Increase in acquired net operating
losses
|
(4,057,000
|
)
|
-
|
|||||
Differential in UK corporate tax
rate
|
(208,000
|
)
|
(103,000
|
)
|
||||
Change in valuation
allowance
|
4,955,000
|
2,989,000
|
||||||
Total
adjustments
|
671,000
|
2,846,000
|
||||||
Provision for income
taxes
|
$
|
694,000
|
386,000
|
The Company does not intend to
repatriate any earnings from the UK subsidiaries to the U.S.
NOTE 8. 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-24
(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. Such amendment was not memorialized in writing, Since
February 2009, Mr. McKenna 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
repaid the note in full during the three month period ended March 31,
2010 (see Note 9).
|
(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 February 17, 2010, Mr.
Blumenthal commenced a civil action against the Company, certain
subsidiaries, and current and former officers and directors of the
Company. The Company has previously
recorded a liability for $817,000 and recorded an additional expense of
$513,000 in the quarter ending March 31, 2010. 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 as partial payment of the
settlement amount. The balance of the
settlement amount is payable through November 2012 in equal monthly
payments of $31,250, which includes interest at 7%. In the event the
Company defaults in payment, Mr. Blumenthal may elect to reinstitute the
original litigation. Of the remaining balance due
Blumenthal of $851,000, $326,000 is included in the “Current portion of
settlement liability” and $525,000 is included “Settlement liability, net
of current portion”.
|
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.
F-25
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 Loan Agreement (See Note 6).
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, 2010 and 2009, the Company incurred rent expense
totaling approximately $459,000 and $586,000, respectively. Future annual
minimum payments under non-cancelable operating leases are as
follows:
Years Ending
June 30,
|
||||
2011
|
$
|
459,000
|
||
2012
|
375,000
|
|||
2013
|
349,000
|
|||
2014
|
344,000
|
|||
2015
|
326,000
|
|||
Thereafter
|
2,535,000
|
|||
$
|
4,388,000
|
Employment
Agreements
On July
13, 2010, the Compensation Committee of the Board of Directors (the
“Compensation Committee”) approved employment agreements, including a bonus
plan, with each of Michael Jamieson, the Company’s President and Chief Executive
Officer and Charles F. Trapp, the Company’s Executive Vice President and Chief
Financial Officer. Such employments agreements and bonus plans were
entered into as of July 1, 2010 (the “Effective Date”), the first day of our
2011 fiscal year.
Michael Jamieson Employment
Agreement
The
Employment Agreement with Mr. Jamieson (the “Jamieson Agreement”) is for an
initial term of three years from the Effective Date, and is automatically
renewable for successive one-year periods unless terminated by Mr. Jamieson or
the Company. Mr. Jamieson will receive an annual base salary of 150,000 GBP
(approximately US$225,000), payable in British Pounds Sterling.
Mr.
Jamieson is eligible for a performance-based annual cash incentive bonus
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, 2011
with respect to Mr. Jamieson’s potential incentive bonus for fiscal
2011.
F-26
In
addition, Mr. Jamieson is entitled to participate in all of the Company’s
benefit plans and our equity-based compensation plans, which currently consists
of the Company’s LTIP. Pursuant to the Jamieson Agreement, Mr. Jamieson is to be
awarded 500,000 restricted common shares under the LTIP (the “Stock
Grant”). The shares will vest ratably over a three-year period, with
20% vesting on the first anniversary of the Stock Grant, 30% vesting on the
second anniversary of the Stock Grant, and 50% vesting on the third anniversary
of the Stock Grant.
The
Jamieson Agreement also entitles Mr. Jamieson to be granted options to purchase
2,109,375 shares of the Company’s common stock under the LTIP (the “Option
Grant”). These options will vest on the third anniversary of the grant date, at
a strike price of $0.08 per share, depending on the extent to which certain
performance targets have been met. The options expire ten years from the grant
date, if vested. If the Company’s results: (i) amount to less than
80% of the established target(s), none of the Option Grant will vest; (ii) are
equal to 80% of the established target(s), 25% of the Option Grant will vest;
(iii) are equal to 100% of the established target(s), 50% of the award will
vest; and (iv) are equal to or better than 120% of the established target(s),
100% of the Option Grant will vest. Results between these established parameters
will be interpolated. The Option Grant will vest immediately upon a
Change of Control.
The
Jamieson Agreement provides that in the event Mr. Jamieson’s employment is
terminated by the Company other than for Cause or Disability, or Mr. Jamieson
shall terminate his employment for Good Reason, 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. Jamieson’s stock appreciation rights and
restricted stock will immediately vest and all vested stock options and stock
appreciation rights shall be payable in shares of our common stock.
Charles F. Trapp Employment
Agreement
The
Employment Agreement with Mr. Trapp (the “Trapp Agreement”) is for an initial
term of three years from the Effective Date, and is automatically renewable for
successive one-year periods unless terminated by Mr. Trapp or the Company. Mr.
Trapp will receive an annual base salary of $195,000, payable in U.S. dollars.
Mr. Trapp is eligible for a performance-based annual cash incentive bonus
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, 2011,
with respect to Mr. Trapp’s potential incentive bonus for fiscal
2011.
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. Pursuant
to the Trapp Agreement, Mr. Trapp is to be awarded 200,000 restricted common
shares under the LTIP (the “Stock Grant”). The shares will vest
ratably over a three-year period, with 20% vesting on the first anniversary of
the Stock Grant, 30% vesting on the second anniversary of the Stock Grant, and
50% vesting on the third anniversary of the Stock Grant.
The Trapp
Agreement also entitles Mr. Trapp to be granted options to purchase 1,828,125
shares of the Company’s common stock under the LTIP (the “Option Grant”). These
options will vest on the third anniversary of the grant date, at a strike price
of $0.08 per share, depending on the extent to which certain performance targets
have been met. The options expire ten years from the grant date, if
vested. If the Company’s results: (i) amount to less than 80% of the
established target(s), none of the Option Grant will vest; (ii) are equal to 80%
of the established target(s), 25% of the Option Grant will vest; (iii) are equal
to 100% of the established target(s), 50% of the award will vest; and (iv) are
equal to or better than 120% of the established target(s), 100% of the Option
Grant will vest. Results between these established parameters will be
interpolated. The Option Grant will vest immediately upon a Change of
Control.
F-27
The Trapp
Agreement provides that in the event Mr. Trapp’s employment is terminated by the
Company other than for Cause or Disability, or Mr. Trapp shall terminate his
employment for Good Reason, 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.
Trapp’s stock appreciation rights and restricted stock will
immediately vest and all vested stock options and stock appreciation rights
shall be payable in shares of the Company’s common stock.
Transactions with ADNW Common
Stock.
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 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.
Stock Awards and
Grants.
During the quarter ended September 30,
2008, the Company approved the issuance of 483,000 shares of common stock to the non-management members of the
Board of Directors under the Company’s 2007 LTIP. 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 6, 2009, the Company issued
36,537 shares of these awards, which were
valued at $4,349. On October 6, 2009, the Company issued
38,621 shares of these awards, which were valued at
$3,862. On January 6, 2010, the Company issued 38,621 shares of these awards, which were valued at
$2,703. On April 6, 2010, the Company issued 38,621 shares of these awards, which were valued at
$2,897.
F-28
On October 6, 2008, the Company issued
35,000 shares of common stock to a director, which were valued at
$8,750.
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
171,875 shares of common stock to certain directors and employees in lieu of
salaries, which were valued at the $17,188.
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.
During the quarter ended September 30,
2009, the Company approved the issuance of
1,156,818 shares of common stock to the non-management members of the
Board of Directors under the Company’s 2007 LTIP. The shares will be issued
over a three year period. On October 6, 2009, the Company issued 86,644 shares of these awards, which were
valued at $8,664, based on the closing market price
of the Company’s common stock. On January 6,
2010, the Company issued 78,144 shares of these awards, which were
valued at $5,470, based on
the closing market price of the Company’s common stock. On April 6, 2010, the Company issued 83,644 shares of these awards, which were
valued at $6,273, based on
the closing market price of the Company’s common stock.
On September 30, 2009, the Company issued 149,125 shares of common stock to certain
directors in lieu of
fees, which were valued at
the $14,912, based on the
closing market price of the Company’s common
stock.
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, based on the closing market
price.
On April 6, 2010, the Company issued
186,407 shares of common stock to certain
directors in lieu of cash compensation fees, which were valued at approximately
$14,900, based on the
closing market price.
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 of the
Company’s common stock 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, recorded an expense of $18,008 based on the
market price on the date of
issuance. On May 13,
2010, 511,500 additional shares vested and were
issued. The Company did not receive any consideration for the
issuance of these shares, and recorded an expense of $51,150 based on the market price on the date
of issuance.
F-29
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 was $36,000 using the Black-Scholes
valuation model and also contains a net share 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.
Warrants:
At June 30, 2010, the Company has the following warrants
outstanding:
Issuance of warrants in connection
with the ComVest Loan Agreement (see Note 6):
|
||||
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
|
3,437,500
|
|||
Issuance of warrants to
investors in private placement
|
5,208,337
|
|||
Issuance of warrants
Commonwealth in
settlement for services offered (see above)
|
700,000
|
|||
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
|
6,402,999
|
|||
Total
issued
|
22,498,135
|
NOTE 10. SUBSEQUENT EVENTS
On July 6, 2010, the Company issued 214,844 shares of common stock to certain
directors in lieu of compensation, which were valued at approximately $17,000.
On July 7, 2010, the Company issued 126,692 shares of common stock to certain
directors, which were valued at approximately $10,000.
On July
13, 2010, the Compensation Committee of the Board of Directors approved
employment agreements, including a bonus plan, with each of Michael Jamieson,
our President and Chief Executive Officer and Charles F. Trapp, our Executive
Vice President and Chief Financial Officer. Such employments
agreements and bonus plans were entered into as of July 1, 2010 (the “Effective
Date”), the first day of our 2011 fiscal year (see note 8).
On July 16, 2010, the Company issued 655,769 shares of common stock to certain
officers in lieu of compensation, which were valued at approximately $52,000.
On July
20, 2010 the Company completed an exchange of 1,792,662 Series A Preferred
Shares for 11,652,301 warrants exercisable at $1.00 and expiring July 2, 2013
through April 24, 2014. The Company recorded an expense of $143,400 in July
2010.
F-30
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.
51,516,111
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
|
$
|
239
|
||
Printing costs
(1)
|
2,000
|
|||
Accounting fees and
expenses (1)
|
12,000
|
|||
Legal fees and expenses
(1)
|
35,000
|
|||
Miscellaneous
(1)
|
761
|
|||
Total (1)
|
$ | 50,000 |
(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 20, 2010, (the closing date
of the Exchange Offer) holders of 11,652,301 Exchange Warrants have
agreed to exchange their Exchange Warrants for 1,792,662 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 (incorporated by reference to Exhibit 3(i)(b) to the
Company’s Registration Statement on Form S-1/A filed on July 14,
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).
|
|
4.2
|
Form of Subscription Rights Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-1/A, filed on September 2, 2010). | |
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.
|
10.26
|
Employment
Agreement effective as of July 1, 2010 between the Company and Michael
Jamieson (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed on July 21, 2010)
|
|
10.27
|
Fiscal
Year 2011 Formal Bonus Plan effective as of July 1, 2010 between the
Company and Michael Jamieson (incorporated by reference to Exhibit 10.2 of
the Company’s Current Report on Form 8-K filed on July 21,
2010)
|
|
10.28
|
Employment
Agreement effective as of July 1, 2010 between the Company and Charles F.
Trapp (incorporated by reference to Exhibit 10.3 of the Company’s Current
Report on Form 8-K filed on July 21, 2010)
|
|
10.29
|
Fiscal
Year 2011 Formal Bonus Plan effective as of July 1, 2010 between the
Company and Charles F. Trapp (incorporated by reference to Exhibit 10.4 of
the Company’s Current Report on Form 8-K filed on July 21,
2010)
|
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.
|
|
23.2
|
Consent
of Gersten Savage LLP (See Exhibit
5.1).
|
99.1
|
Form
of Instruction for Use of Subscription Right Certificate (incorporated by
reference to Exhibit 99.1 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.2
|
Form
of Notice of Guaranteed Delivery (incorporated by reference to
Exhibit 99.2 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.3
|
Form
of Letter to Stockholders who are Record Holders (incorporated by
reference to Exhibit 99.3 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.4
|
Form
of Letter to Nominee Holders Whose Clients are Beneficial Holders
(incorporated by reference to Exhibit 99.4 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.5
|
Form
of Letter to Clients of Nominee Holders (incorporated by reference to
Exhibit 99.5 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.6
|
Form
of Nominee Holder Certification (incorporated by reference to
Exhibit 99.6 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.7
|
Form
of Beneficial Owner Election (incorporated by
reference to Exhibit 99.7 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|
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.
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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 September 14,
2010.
MAM
SOFTWARE GROUP, INC.
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||
A
Delaware corporation, Registrant
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||
By:
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/s/ MICHAEL JAMIESON
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|
MICHAEL
JAMIESON
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||
Chief
Executive Officer
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||
(Principal
Executive Officer)
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||
By:
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/s/ CHARLES F. TRAPP
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CHARLES
F. TRAPP
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||
Chief
Financial Officer
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||
(Principal
Accounting Officer)
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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
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Chief Executive Officer and Director
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September
14, 2010
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||
Michael
Jamieson
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(Principal
Executive Officer)
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|||
/s/ Charles F. Trapp
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Chief
Financial Officer
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September
14, 2010
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||
Charles
F. Trapp
|
(Principal
Accounting Officer)
|
|||
/s/ Dwight B. Mamanteo
|
Director
|
September
14, 2010
|
||
Dwight
B. Mamanteo
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||||
/s/ Marcus Wohlrab
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Director
|
September
14, 2010
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||
Marcus
Wohlrab
|
||||
/s/ Frederick Wasserman
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Director
|
September
14, 2010
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||
Frederick
Wasserman
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||||
/s/ Gerald M. Czarnecki
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Chairman
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September
14, 2010
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||
Gerald
M. Czarnecki
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||||
/s/ W. Austin Lewis IV
|
Director
|
September
14, 2010
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||
W.
Austin Lewis IV
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Exhibit No.
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Description of Exhibit
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|
3(i)(a)
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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).
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|
3(i)(b)
|
Certificate
of Amendment of Certificate of Incorporation of Aftersoft Group, Inc.,
dated May 5, 2010 (incorporated by reference to Exhibit 3(i)(b) to the
Company’s Registration Statement on Form S-1/A filed on July 14,
2010).
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|
3(ii)
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By
laws (incorporated by reference to Exhibit 3(ii) to the Company’s
Registration Statement on Form SB-2 filed on February 16,
2007).
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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).
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|
4.2
|
Form of Subscription Rights Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-1/A, filed on September 2, 2010). | |
5.1
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Opinion
of Gersten Savage LLP regarding the legality of the securities being
registered.
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|
10.1
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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).
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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).
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|
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).
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|
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).
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|
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).
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|
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).
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10.7
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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)
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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).
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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).
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|
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).
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|
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).
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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).
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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).
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|
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).
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|
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).
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|
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).
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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).
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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).
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|
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).
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|
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.
|
10.26
|
Employment
Agreement effective as of July 1, 2010 between the Company and Michael
Jamieson (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed on July 21, 2010)
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|
10.27
|
Fiscal
Year 2011 Formal Bonus Plan effective as of July 1, 2010 between the
Company and Michael Jamieson (incorporated by reference to Exhibit 10.2 of
the Company’s Current Report on Form 8-K filed on July 21,
2010)
|
|
10.28
|
Employment
Agreement effective as of July 1, 2010 between the Company and Charles F.
Trapp (incorporated by reference to Exhibit 10.3 of the Company’s Current
Report on Form 8-K filed on July 21, 2010)
|
|
10.29
|
Fiscal
Year 2011 Formal Bonus Plan effective as of July 1, 2010 between the
Company and Charles F. Trapp (incorporated by reference to Exhibit 10.4 of
the Company’s Current Report on Form 8-K filed on July 21,
2010)
|
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.
|
|
23.2
|
Consent
of Gersten Savage LLP (See Exhibit
5.1).
|
99.1
|
Form
of Instruction for Use of Subscription Right Certificate (incorporated by
reference to Exhibit 99.1 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.2
|
Form
of Notice of Guaranteed Delivery (incorporated by reference to
Exhibit 99.2 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.3
|
Form
of Letter to Stockholders who are Record Holders (incorporated by
reference to Exhibit 99.3 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.4
|
Form
of Letter to Nominee Holders Whose Clients are Beneficial Holders
(incorporated by reference to Exhibit 99.4 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.5
|
Form
of Letter to Clients of Nominee Holders (incorporated by reference to
Exhibit 99.5 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.6
|
Form
of Nominee Holder Certification (incorporated by reference to
Exhibit 99.6 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1/A, filed on September 2,
2010).
|
|
99.7
|
Form
of Beneficial Owner Election (incorporated by
reference to Exhibit 99.7 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1/A, filed on September 2,
2010).
|