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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 13, 1998
Date of Report (Date of earliest event reported)
NHANCEMENT TECHNOLOGIES INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-21999 84-1360852
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
39420 Liberty Street, Suite 250
Fremont, CA 94538
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(Address of principal executive offices, including zip code)
(510)744-3333
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(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On April 13, 1998, NHancement Technologies Inc. (the "Company") signed
a $3.0 Million Series A Convertible Preferred Stock financing agreement (the
"Agreement"). Under the terms of the Agreement and subject to the related Joint
Escrow Instructions, the Company was paid One Million Two Hundred Fifty Thousand
Dollars ($1,250,000)(less commissions and certain other costs and expenses of
approximately $162,500) upon signing. Subject to satisfaction of certain
conditions specified in the Agreement documentation, the Company will receive an
additional Five Hundred Thousand Dollars ($500,000) sixty (60) days after the
effective date of an S-3 registration statement, Five Hundred Thousand Dollars
($500,000) thirty (30) days thereafter and the final Seven Hundred Fifty
Thousand Dollars ($750,000) thirty (30) days thereafter. The failure by the
Company to comply with certain of the provisions of the Agreement may result in
the Company being assessed amounts payable to the Preferred Stock investors.
Further, the issuance of shares of Preferred Stock, convertible into shares of
Common Stock in excess of 20% of the issued and outstanding shares of Common
Stock of the Company, requires stockholder approval under applicable rules and
regulations promulgated by Nasdaq. The Company plans to seek such approval at a
special meeting of stockholders to be held in June 1998 or such later date as is
determined by the Board of Directors of the Company.
The Preferred Stock bears a 5% cumulative dividend and has a
liquidation preference equal to the original purchase price plus cumulative but
unpaid dividends. If the Company's Common Stock trades for a thirty (30) day
average below Two Dollars ($2.00) or the average daily volume for a thirty (30)
day period falls below twenty thousand (20,000) shares, the Preferred Stock
investors are not required to fund any remaining portion of the $3.0 Million in
excess of the first One Million Two Hundred Fifty Thousand Dollar ($1,250,000)
investment. Further, if the five (5) day average closing bid price of the
Company's Common Stock falls below Two Dollars ($2.00) per share, the Company
has the option to redeem the Preferred Stock at 118% of the original purchase
price plus cumulative but unpaid dividends. Any shares of Preferred Stock
tendered for conversion prior to delivery of the Company's notice of redemption
shall not be affected by the redemption notice and shall be converted into
shares of Common Stock. As to any shares with respect to which such conversion
rights have not been timely exercised, such conversion rights shall terminate
upon delivery by the Company of its notice of redemption. The Preferred Stock is
convertible into Common Stock at the lesser of the five day average closing bid
price as of the April 13, 1998 initial closing date or 75% of the five (5) day
average closing bid price at the time of each conversion.
The Company intends to utilize all or a portion of the proceeds of this
financing to pay a portion of the initial cash payment on the pending
acquisition of Infotel Technologies Pte Ltd; the balance remaining, if any, will
be used to pay amounts owing to certain creditors of the Company and for working
capital.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
Exhibit
Number Description
------- -----------
4.1 Form of Series A Preferred Stock Certificate,
incorporated by reference to Exhibit 4.5 to the
Company's Form 10-KSB, SEC File No. 0-21999, as filed
with the Securities and Exchange Commission on April
15, 1998.
4.2 Registration Rights Agreement, dated as of April
13, 1998, among the Company, The Endeavour Capital
Fund S.A. and AMRO INTERNATIONAL S.A., incorporated
by reference to Exhibit 4.6 to the Company's Form
10-KSB, Sec File No. 0-21999, as filed with the
Securities and Exchange Commission on April 15, 1998.
10.01 Securities Purchase Agreement, dated as of
April 13, 1998, by and among the Company, The
Endeavour Capital Fund S.A. and AMRO INTERNATIONAL
S.A., incorporated by reference to Exhibit 10.29 to
the Company's Form 10-KSB, SEC File No. 0-21999, as
filed with the Securities and Exchange Commission on
April 15, 1998.
10.02 Form of Escrow Instructions related to Securities
Purchase Agreement, dated as of April 13, 1998,
incorporated by reference to Exhibit 10.30 to the
Company's Form 10-KSB, SEC File No. 0-21999, as
filed with the Securities and Exchange Commission on
April 15, 1998.
99.01 The Company's Unaudited Consolidated Balance Sheet
as of April 30, 1998 and Unaudited Consolidated
Statement of Operations for the Four Months Ended
April 30, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
NHANCEMENT TECHNOLOGIES INC.
Dated: May 21, 1998 By: /s/ Douglas S. Zorn
-------------------------------------
Douglas S. Zorn, Executive Vice President,
Treasurer and Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
4.1 Form of Series A Preferred Stock Certificate,
incorporated by reference to Exhibit 4.5 to the
Company's Form 10-KSB, SEC File No. 0-21999, as filed
with the Securities and Exchange Commission on April
15, 1998.
4.2 Registration Rights Agreement, dated as of April
13, 1998, among the Company, The Endeavour Capital
Fund S.A. and AMRO INTERNATIONAL S.A., incorporated
by reference to Exhibit 4.6 to the Company's Form
10-KSB, Sec File No. 0-21999, as filed with the
Securities and Exchange Commission on April 15, 1998.
10.01 Securities Purchase Agreement, dated as of
April 13, 1998, by and among the Company, The
Endeavour Capital Fund S.A. and AMRO INTERNATIONAL
S.A., incorporated by reference to Exhibit 10.29 to
the Company's Form 10-KSB, SEC File No. 0-21999, as
filed with the Securities and Exchange Commission on
April 15, 1998.
10.02 Form of Escrow Instructions related to Securities
Purchase Agreement, dated as of April 13, 1998,
incorporated by reference to Exhibit 10.30 to the
Company's Form 10-KSB, SEC File No. 0-21999, as
filed with the Securities and Exchange Commission on
April 15, 1998.
99.01 The Company's Unaudited Consolidated Balance Sheet
as of April 30, 1998 and Unaudited Consolidated
Statement of Operations for the Four Months Ended
April 30, 1998.
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EXHIBIT 99.01
Unaudited Consolidated Balance Sheet as of April 30, 1998 and Unaudited
Consolidated Statement of Operations for the Four Months Ended April 30, 1998 of
NHancement Technologies Inc. and its Subsidiaries.
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FINANCIAL STATEMENTS.
Certain financial statements, information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although the
Company believes the disclosures made are adequate to make the information
presented not misleading, and, in the opinion of management, all adjustments
have been reflected which are necessary for a fair statement of the information
shown.
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NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
APRIL 30, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT
Cash and cash equivalents $1,257,800
Restricted cash 500,000
Accounts receivable, less allowance for doubtful accounts of $515,000 1,521,900
Notes receivable from stockholders 123,700
Inventory 480,200
Prepaid expenses and other 444,600
Income tax receivable 225,600
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,553,800
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PROPERTY AND EQUIPMENT 1,231,300
Less accumulated depreciation 564,100
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PROPERTY AND EQUIPMENT, net 667,200
- --------------------------------------------------------------------------------------------------------------
Excess of cost over net assets acquired of Voice Plus, Inc., net of accumulated 1,400,000
amortization of $100,000
Excess of cost over net assets acquired of Advantis, net of accumulated amortization 954,000
of $33,100
Long-term portion of notes receivable from stockholders 162,600
Deferred acquisition costs 206,200
Other assets 125,000
- --------------------------------------------------------------------------------------------------------------
$8,068,800
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit 366,900
Accounts payable 817,300
Accrued liabilities 474,300
Payable to affiliates 409,500
Deferred revenue 954,700
Current portion of long-term debt 299,200
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TOTAL CURRENT LIABILITIES 3,321,900
LONG-TERM DEBT, net of current portion 166,700
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TOTAL LIABILITIES 3,488,600
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STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 2,000,000 shares authorized,
30,000 shares issued and outstanding 1,087,500
Common stock, $0.01 par value, 20,000,000 shares authorized,
4,437,000 shares issued and outstanding 44,400
Additional paid-in capital 18,020,600
Accumulated deficit (14,548,800)
Cumulative translation adjustment (23,500)
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TOTAL STOCKHOLDERS' EQUITY 4,580,200
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$8,068,800
==============================================================================================================
</TABLE>
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NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOUR MONTHS ENDED
APRIL 30, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C>
NET SALES $1,724,000
Cost of sales 1,107,700
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GROSS PROFIT 616,300
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OPERATING EXPENSES
Selling, marketing and administrative 1,458,900
Amortization of excess of cost over net assets
acquired 139,400
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TOTAL OPERATING EXPENSES 1,598,300
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INCOME (LOSS) FROM OPERATIONS (982,000)
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OTHER INCOME (EXPENSE)
Interest income 25,800
Interest expense (32,400)
Other 41,100
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34,500
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INCOME (LOSS) BEFORE INCOME TAXES (947,500)
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INCOME TAXES ---
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(947,500)
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PREFERRED STOCK DIVIDEND $(416,700)
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NET LOSS APPLICABLE TO COMMON STOCK $(1,364,200)
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BASIC AND DILUTED NET INCOME (LOSS) PER COMMON
SHARE $(.31)
- ------------------------------------------------------------------------------------------------------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,436,500
OPTIONS AND WARRANTS ---
- ------------------------------------------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,436,500
============================================================================================================
</TABLE>
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NHANCEMENT TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
NHancement Technologies Inc., a Delaware corporation ("NHancement" or
the "Company"), was incorporated in October 1996 as a holding company and
successor to the business of BioFactors, Inc. ("BFI" or "BioFactors"), a
Delaware corporation. On February 3, 1997, prior to the February 4, 1997
consummation of the initial public offering ("IPO") of the Company's Common
Stock, BFI merged with a subsidiary of NHancement whereupon BFI, as the
surviving corporation, became a wholly-owned subsidiary of NHancement (the
"BFI Merger"). Also, on February 3, 1997, the Company acquired Voice Plus,
Inc. ("VPI" or "Voice Plus"), a California corporation, a systems
integrator and national distributor of voice processing equipment. The
acquisition was accounted for as a purchase, and, accordingly, the results
of VPI's operations were included in the Company's consolidated financial
statements commencing February 3, 1997. For financial accounting purposes,
BFI is deemed to be the acquirer of VPI.
Effective November 12, 1997, BioFactors, Inc. was merged with and into
Voice Plus, Inc., in a statutory merger intended to qualify, for federal
income tax purposes, as a reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended. Voice Plus is the surviving corporation
in the merger transaction with BioFactors, and the separate existence of
BioFactors ceased on the effective date of the merger. The operations of
the combined entity are being conducted under the name of "Voice Plus (R),"
which is headquartered in Fremont, California. Voice Plus remains a
wholly-owned subsidiary of NHancement.
On December 15, 1997, NHancement purchased one hundred percent (100%)
of the outstanding shares of Advantis Network & System Sdn Bhd
("Advantis"). As a result of the acquisition, Advantis has become a
wholly-owned subsidiary of NHancement. Advantis is a telecommunications
systems integrator. The operations of the entity are being conducted under
the name of "Advantis Network & System Sdn Bhd," which is headquartered in
Kuala Lumpur, Malaysia. The acquisition was accounted for as a purchase,
and, accordingly, the results of Advantis' operations were included in the
Company's consolidated financial statements commencing December 15, 1997.
The business of NHancement is conducted by its operating company
subsidiaries, Voice Plus, Inc. and Advantis Network & System Sdn Bhd.
10
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2. FINANCIAL STATEMENT PRESENTATION AND NEW STANDARDS
The accompanying consolidated financial statements as of April 30, 1998
and for the four months ended April 30, 1998 are unaudited. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been omitted. These consolidated financial
statements should be read in conjunction with the audited financial
statements and accompanying notes for the year ended December 31, 1997
presented in the Company's latest annual report on Form 10-KSB.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
The consolidated financial statements presented herein reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial condition and results of operations for the
periods presented.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity. Because of a net loss during the four months ended
April 30, 1998, options and warrants to purchase 1,216,600 shares of common
stock and shares of preferred stock convertible into 620,200 shares of
common stock were outstanding but were not included in the computation of
diluted loss per common share because the effect would be antidilutive.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
SFAS No. 130 is effective for financial statements for fiscal years
beginning after December 15, 1997 and requires comparative information for
earlier periods to be restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate the impact, if any,
the standard may have on future statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of this standard.
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In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas
and major customers. SFAS No. 131 defines operating segments as components
of a company about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate the impact, if any,
it may have on future financial statement disclosure. Results of operations
and financial position, however, will be unaffected by implementation of
this standard.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, Employers' Disclosures about Pensions and Other Post Retirement
Benefits. SFAS No. 132 standardizes the disclosure requirements for
pensions and other post retirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer as useful as they were
when previous related accounting standards were issued.
SFAS No. 132 is effective for financial statements for fiscal years
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated unless the information is not readily
available, in which case the notes to the financial statements should
include all available information and a description of the information not
available. Management believes that the Company's current financial
statement disclosures will not need to be modified based upon current
operations. Results of operations and financial position will be unaffected
by implementation of this standard.
3. ACQUISITION AND MERGER TRANSACTIONS
On February 3, 1997, NHancement merged a wholly-owned subsidiary with
and into BFI, whereupon BFI, as the surviving corporation, became a
wholly-owned subsidiary of NHancement, and shares of NHancement Common
Stock were exchanged for all the issued and outstanding common stock of
BFI, in a ratio of three shares of NHancement Common Stock for every four
shares of BFI common stock.
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<PAGE> 8
Also, on February 3, 1997, the Company entered into a stock purchase
agreement with Voice Plus, Inc., pursuant to a transaction by which the
Company merged a wholly-owned subsidiary with and into VPI, whereupon VPI,
as the surviving corporation, became a wholly-owned subsidiary of the
Company. This merger provided for the exchange of (i) the Company's
unsecured promissory note in a principal amount of $1,000,000, bearing
interest at the medium term T-bill rate, with all principal and accrued
interest paid in full during 1997, (ii) the Company's unsecured promissory
note in a principal amount of $500,000, bearing interest at the medium term
T-bill rate, due on the third anniversary of the consummation of the merger
subject to accelerated payment based upon quarterly earnings of Voice Plus,
and (iii) shares of NHancement Common Stock with an estimated fair value of
$4,680,000 (of which, shares valued at $2,400,000 were sold in the IPO, and
the remainder of the shares are subject to restrictions on transferability
under the Securities Act of 1933, as amended, and pursuant to a lock-up
agreement with the underwriter of the IPO), for all the issued and
outstanding common stock of VPI.
On December 15, 1997, the Company consummated the acquisition of
Advantis Network & System Sdn Bhd, a Malaysian corporation and systems
integrator and distributor of communications equipment, pursuant to a
transaction by which Advantis became a wholly-owned subsidiary of
NHancement.
4. STOCK OPTIONS
During the four months ended April 30, 1998, 100,000 additional options
of the Company's Common Stock were granted.
5. PENDING ACQUISITION
On January 16, 1998, the Company entered into a definitive agreement to
acquire all of the issued and outstanding shares of capital stock of
Infotel Technologies Pte Ltd ("Infotel"), a Singapore company which
provides radar system integration, turnkey project management services and
test instrumentation, as well as a wide portfolio of communications
equipment. Consummation of the transaction is contingent upon the Company
obtaining third party financing necessary to complete the acquisition, the
closing of which must occur, if at all, by no later than June 24, 1998. The
basic terms of the acquisition agreement require an initial cash payment of
about $2.3 million, notes payable of approximately $2.0 million (with
payment subject to Infotel achieving certain 1998 and 1999 profitability
targets), and the issuance of 431,000 shares of NHancement's Common Stock.
In the event that the transaction fails to close by June 24, 1998, the
Company is obligated to pay a termination fee in the amount of
approximately $300,000 plus interest.
13
