UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 000-27449
RESOURCEPHOENIX.COM
(Exact name of registrant as specified in its charter)
Delaware 52-2190830
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State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
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Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing preceding requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of
November 30, 2000 was 11,799,692.
This Amendment No. 1 to Quarterly Report on Form 10-Q/A is being filed
solely for the purpose of amending Part I, Item 1 in the Company's Quarterly
Report of Form 10-Q for the period ended September 30, 2000, which was filed
with the Securities and Exchange Commission on November 14, 2000 (the "September
30 10-Q") to correct typographical errors in the "Net cash used in operating
activities for the nine months ended September 30, 2000" reported in the
"Condensed Consolidated Statements of Cash Flows" and in footnote 6, "Financing
Arrangements with Torneaux Ltd." contained therein. Item I "Financial
Statements" set forth in the September 30, 10-Q is hereby deleted in its
entirety and the following is substituted therefor.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCEPHOENIX.COM
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,131 $ 15,780
Accounts receivable, net of allowance 1,318 948
Prepaid expenses and other current assets 906 762
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Total current assets 7,355 17,490
Property and equipment 10,331 7,669
Accumulated depreciation (3,271) (1,382)
------------ ------------
Net property and equipment 7,060 6,287
Loan fees 1,716 --
Other assets 516 276
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Total assets $ 16,647 $ 24,053
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,736 $ 1,455
Accrued liabilities 1,913 1,655
Deferred revenue 1,584 306
Other liabilities 411 --
Notes payable - bank 958 --
Notes payable -- affiliate 700 --
------------ ------------
Total current liabilities 8,302 3,416
Notes payable -- affiliate 5,933 --
Deferred revenue 1,216 688
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Total long term liabilities 7,149 688
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Total Liabilities 15,451 4,104
Stockholders' Equity:
Preferred Stock, $.001 par value: 5,000,000 shares -- --
authorized
Class A Common Stock, $.001 par value: 37,800,000 shares 31,903 32,869
authorized, 4,420,359 and 4,028,000 issued and outstanding
at September 30, 2000 and December 31, 1999, respectively
Warrants 3,711 --
Class B Common Stock, $.001 par value: 7,200,000 shares
authorized, 7,172,000 issued and outstanding at September
30, 2000 and December 31, 1999 9,957 9,957
Accumulated deficit (44,375) (22,877)
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Total stockholders' equity 1,196 19,949
------------ ------------
Total liabilities and stockholders' equity $ 16,647 $ 24,053
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
RESOURCEPHOENIX.COM
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue:
Contract service revenue $ 2,092 $ 953 $ 5,124 $ 2,694
Contract service revenue - affiliate 829 800 2,790 1,713
Software revenue 323 557 1,125 2,064
---------- ---------- ---------- ----------
Total revenue 3,244 2,310 9,039 6,471
Operating Expenses:
Cost of providing services 3,273 1,423 10,030 3,829
Cost of providing software revenue 198 231 811 633
General and administrative 2,225 1,470 7,275 2,469
Research and development 259 1,022 2,057 2,373
Client acquisition costs 2,578 1,384 8,308 2,473
Depreciation and amortization 679 251 1,948 479
Stock-related compensation -- (3,335) -- 1,956
---------- ---------- ---------- ----------
Total operating expenses 9,212 2,446 30,429 14,212
Loss from operations (5,968) (136) (21,390) (7,741)
Other income (expense) (169) (27) 21 (11)
---------- ---------- ---------- ----------
Net loss before change in accounting principal (6,137) (163) (21,369) (7,752)
---------- ---------- ---------- ----------
Cumulative effect on prior years -- -- (129) --
---------- ---------- ---------- ----------
Net loss $ (6,137) $ (163) $ (21,498) $ (7,752)
========== ========== ========== ==========
Basic and diluted net loss per share:
Net loss before effect of accounting change $ (0.54) $ (0.02) $ (1.89) $ (1.08)
Cumulative effect of accounting change -- -- (0.01) --
---------- ---------- ---------- ----------
Net loss $ (0.54) $ (0.02) $ (1.90) $ (1.08)
========== ========== ========== ==========
Shares used in computing basic and 11,456 7,200 11,325 7,200
diluted net loss per share
Proforma amounts assuming accounting change had
been in effect during the three and nine months
ended September 30, 1999:
Net Loss $ (6,137) $ (163) $ (21,369) $ (7,752)
---------- ---------- ---------- ----------
Basic and diluted net loss per share $ (0.54) $ (0.02) $ (1.89) $ (1.08)
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
RESOURCEPHOENIX.COM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (21,498) $ (7,752)
Loss on disposal of assets 100 --
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,995 480
Loan fee, discount and prepaid amortization related to 139 --
warrants
Stock compensation expense -- 1,956
Change in operating assets and liabilities:
Accounts receivable, net (370) (391)
Prepaid expenses and other assets (136) (240)
Accounts payable and accrued liabilities 1,539 545
Deferred revenue 1,806 65
Other 411 4,691
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Net cash used in operating activities (16,014) (646)
INVESTING ACTIVITIES
Purchase of equipment, furniture and fixtures (2,810) (2,423)
---------- ----------
Net cash used in investing activities (2,810) (2,423)
FINANCING ACTIVITIES
Proceeds from capital contributions from stockholder -- 2,603
Proceeds from sale of stock 771 --
Offering costs (316) --
Bank credit facility, net 958 --
Notes payable -- affiliate 6,803 --
---------- ----------
Net cash provided by financing activities 8,216 2,603
---------- ----------
Net decrease in cash and cash equivalents (10,649) (466)
Cash and cash equivalents, beginning of period 15,780 503
---------- ----------
Cash and cash equivalents, end of period $ 5,131 $ 37
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Issuance of warrants in connection with affiliate note payable $ 1,924 $--
Issuance of warrants in connection with bank credit facility 149 --
Issuance of warrants in connection with equity financing 2,330 --
Issuance of warrants in connection with a service provider 197 --
Contribution of fixed assets from affiliate -- 1,474
Declaration of dividend -- 1,000
SUPPLEMENTAL DISCLOSURE OF INTEREST PAID IN CASH 102 --
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
RESOURCEPHOENIX.COM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared without audit by ReSourcePhoenix.com (the "Company") in accordance with
generally accepted accounting principles for interim financial statements and
pursuant to the rules of the Securities and Exchange Commission for Form 10-Q.
Certain information and footnotes required by generally accepted accounting
principles for complete financial statements have been omitted. It is the
opinion of management that all adjustments are of a normal and recurring nature.
For further information, refer to the audited financial statements and footnotes
included in the Company's Annual Report on Form 10-K dated December 31, 1999.
Reclassification of certain prior year balances have been made to conform to the
September 30, 2000 presentation.
NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements" which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements filed with the SEC.
Subsequently, the SEC SAB 101A and SAB 101B, which delayed the implementation
date of SAB 101 for registrants with fiscal years that begin after December 15,
1999 to the fourth quarter of their fiscal year. The Company elected to
implement SAB No. 101 the first quarter of 2000, the effect of which is
described as follows:
Effective January 1, 2000, we deferred recognition of implementation
fees for our Financial Outsourcing services and for our S.T.A.R. and M.A.R.S.
hosting services, and will amortize such fees ratably over a three-year period
as client services are performed. Prior to January 1, 2000, implementation fees
were recognized when the work was completed on a percentage of completion basis.
The cumulative effect of the change in the method of recognizing implementation
revenue on prior years' income was a one-time charge of $129,000. Costs related
to client implementation are expensed as incurred.
Set forth below is a comparison of operating results for the nine months
ended September 30, 2000:
<TABLE>
<CAPTION>
Assuming SAB 101
had not been
September 30, 2000 adopted September 30, 2000
------------------ --------------------------
<S> <C> <C>
Revenue $ 9,039 $ 9,917
Operating Expenses 30,429 30,429
Net Loss from Operations (21,343) (20,512)
</TABLE>
NOTE 3. BASIC AND DILUTED NET LOSS PER SHARE
Shares used in computing basic and diluted net loss per share are based
on the weighted average shares outstanding in each period. Basic net loss per
share excludes any dilutive effects of stock options and warrants. Diluted net
loss per share includes the dilutive effect of the assumed exercise of stock
options using the treasury stock method. However, the effect of 2,214,000
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<PAGE>
RESOURCEPHOENIX.COM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
outstanding stock options and 3,361,000 outstanding warrants have been excluded
from the calculation of diluted net loss per share as their inclusion would be
antidilutive.
NOTE 4. LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. We are,
however, party to various legal proceedings and claims from time to time arising
in the ordinary course of business. We do not expect that the results from any
of these legal proceedings will have a material effect on our financial position
or results of operations.
NOTE 5. GOING CONCERN
We believe that we have sufficient capital to fund operations through
December 31, 2000, but will need to raise additional capital to continue
operations beyond that point. In late April, we began to implement a number of
steps aimed at reducing our operating costs, which, prior to that point, had
been predicated on higher anticipated revenue levels. Those steps included,
among other things, staff reductions amounting to approximately 15% of our work
force and cessation of certain development efforts that reduce expenditures for
outside consulting expertise. We recorded a charge of approximately $800,000 in
the second quarter of 2000 related to these reductions. Despite these and
continuing efforts in the third quarter just ended, we will continue to operate
at a significant cash negative level. Absent additional financing, we may not
have sufficient resources to continue as a going concern beyond our current
fiscal year. We may sell additional debt or equity securities or enter into new
credit facilities to meet our cash needs. To that end, we entered into an
agreement with Torneaux Ltd. to provide us with equity financing. During the
third quarter, we raised $300,000 under this facility. (See Note 6 -- Financing
Arrangement with Torneaux Ltd.) Our ability to raise funds through the equity
facility with Torneaux is subject to certain conditions at the time of each sale
of our Class A common stock. Presently, we are unable to sell our Class A common
stock to Torneaux Ltd. because we do not satisfy certain conditions, and we do
not expect to be able to satisfy these conditions in the future. Since we are
unable to draw down under the equity facility, we may need to raise additional
money from other sources in order to continue to fund our operations. Such
alternative funding may not be available.
The factors discussed above create substantial doubt about our ability
to continue as a going concern and an uncertainty as to the recoverability and
classification of recorded asset amounts and the amounts and classification of
liabilities. The accompanying 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
we be unable to continue as a going concern. In connection with filing a
registration statement, our independent auditors, Arthur Andersen LLP, reissued
their auditors' report on our financial statements for the year ended December
31, 1999. They modified their report to reflect their view that we require
additional funding to continue our operations and their view that we may be
unable to continue our operations absent receiving additional funding. More
specifically, the modified opinion, among other things, recognizes substantial
doubt about our ability to continue as a going concern.
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<PAGE>
RESOURCEPHOENIX.COM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 6. FINANCING ARRANGEMENT WITH TORNEAUX LTD.
On June 6, 2000, we entered into a common stock purchase agreement with
Torneaux Ltd. Pursuant to the agreement, we may issue and sell, from time to
time, up to 7,000,000 shares of our Class A common stock, subject to the
satisfaction of certain conditions.
Beginning on August 25, 2000 and continuing for 14 months thereafter, we
may, in our sole discretion sell, or put, shares of our Class A common stock to
Torneaux. The 14-month period is divided into pricing periods, each consisting
of 20 trading days on the Nasdaq National Market.
From time to time during the 14-month term we may make 12 monthly draw downs, by
giving notice and requiring Torneaux to purchase shares of our Class A common
stock, for the draw down amount. Torneaux's purchase price may fluctuate based
upon the daily volume weighted average price over a 20 day trading period. Prior
to each draw down, we will provide Torneaux with a notice that sets forth the
number of shares of Class A common stock we will sell, the commencement date of
the pricing period, and the threshold price, which is the lowest price per share
at which we will issue new shares of Class A common stock. We may issue a draw
down notice for up to $1,500,000 if the threshold price is equal to or exceeds
$1.00, and an additional $500,000 for every $1.00 increase of the threshold
price above $1.00 up to $21.00, for a maximum draw down amount of $11,500,000.
If we set the threshold price between $1.00 and $10.00, then the purchase price
to be paid by Torneaux is 94% of the daily volume weighted average price over
the pricing period. If we set the threshold price between $10.00 and $21.00,
then for each $1.50 increase in the threshold price above $10.00, the purchase
price to be paid by Torneaux is increased by 0.10%. If the daily volume weighted
average price on a given trading day is less than the threshold price set by us,
then the amount that we can draw down will be reduced by 1/20 for that pricing
period. In addition, if trading in our Class A common stock is suspended for
more than three hours in any trading day, then the daily volume weighted average
price for that trading day is deemed to be below the threshold price and,
consequently, reduces the draw down amount by 1/20. We incurred cash expenses of
approximately $516,000 in connection with our sale of shares to Torneaux, and
these costs are being amortized based on dollars raised divided by total dollars
estimated to be raised from the sale of shares to Torneaux. We completed our
first draw down period on September 28, 2000 during which we raised $300,000 in
exchange for 158,279 shares of our Class A common stock. We completed our second
draw down during which we raised $225,000 in exchange for 207,333 shares in
October 2000. Our ability to raise funds through the equity facility with
Torneaux is subject to certain conditions at the time of each sale of our Class
A common stock. In early October, the price of our Class A common stock fell
below $1.00 per share, which prevents us from satisfying the conditions to draw
down under the facility. We will not be able to satisfy these conditions in the
future given our current stock price and the likely delisting of our Class A
common stock from The Nasdaq National Market, discussed below.
On June 6, 2000, we also issued warrants to Torneaux to purchase up to
1,800,000 shares of our Class A common stock at exercise prices ranging from
$2.50 to $7.00 per share. Torneaux may exercise the warrants through June 5,
2003. The first warrant, Warrant A, is immediately exercisable for 125,000
shares of Class A common stock. Thereafter, Warrant A is exercisable in
increments of 125,000 shares upon the sale of the 125,000 shares previously
issued. 500,000 shares of Class A common stock are issuable to Torneaux at $2.50
per share upon the exercise of Warrant A. Once all of the shares issued upon
exercise of Warrant A have been sold, then Warrant B may be exercised in
increments of 125,000 shares upon the sale of the 125,000 shares previously
issued. 500,000 warrant shares are issuable to Torneaux at $4.00 per share upon
the exercise of Warrant B. After the Warrant B shares have been sold, then
Torneaux may exercise Warrant C for up to 400,000 warrant shares at $6.00 per
share. Warrant C may be exercised in increments of 100,000 shares upon the sale
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<PAGE>
RESOURCEPHOENIX.COM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
of the 100,000 shares previously issued. Upon the sale of all shares issued
under Warrant C, then Torneaux may exercise Warrant D for up to 400,000 shares
of Class A common stock at $7.00 per share. Warrant D may be exercised in
increments of 100,000 shares upon the sale of the 100,000 shares previously
issued. The warrants contain provisions that protect Torneaux against dilution
by adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of specified events, such as a merger, stock split, stock
dividend, recapitalization, and additional issuances of common stock. The
exercise price for the warrant shares is payable in cash.
In connection with the Torneaux stock purchase agreement, on June 6,
2000, the Company issued a warrant to Peter Benz ("Benz") to purchase up to
75,000 shares of our Class A common stock at an exercise price of $2.81 per
share.
The value of the warrants, determined at date of issuance using the
Black-Scholes Model, was $2,226,445 and $103,356 for Torneaux and Benz
respectively and are carried in equity. The balances are being amortized as
stock offering cost and are charged against Class A common stock based on
dollars raised divided by total estimated dollars to be raised from the shares
to be sold to Torneaux. The unamortized balance at September 30, 2000 was
$868,313 and $40,308 for Torneaux and Benz respectively.
NOTE 7. DEBT FINANCING
On June 7, 2000, we entered into a line of credit, in the form of a
factoring arrangement, for up to $2,000,000 with Pacific Business Funding, a
division of Cupertino National Bank. Pursuant to the credit agreement, we may
borrow up to 80% against all eligible receivables due within 90 days, and we
will pay interest at a rate of 15% per annum on the average daily balance of the
amount borrowed, and an administration fee of 1/2% of the face amount of each
invoice financed. In addition, we paid a commitment fee of 1% of the commitment
amount. The line of credit is secured by our accounts receivable. Eligible
receivables are expected to yield actual borrowing capacity under the facility
in the $500,000 to $900,000 range over the balance of the calender year.
Borrowings are made against specific receivables and then repaid as the
receivables are collected by the Company. As such, most borrowings are made and
repaid within the same month. The Company had a balance of $0.9 million and $0.2
million outstanding under the facility at September 30, 2000 and October 31,
2000, respectively. In connection with the credit agreement, we issued a warrant
to Pacific Business Funding to purchase up to 85,715 shares of our Class A
common stock at $1.75 per share, which is the average closing price of our Class
A common stock on the Nasdaq National Market, for the five trading days prior to
Pacific Business Funding's credit commitment. The value of the warrants,
determined at date of issuance using the Black-Scholes Model, was $149,000 and
is classified as a loan fee in other current assets on the balance sheet. The
balance is being amortized to interest expense over the one-year term of the
line of credit. The unamortized balance at September 30, 2000 was $102,000.
On June 23, 2000, our wholly owned subsidiary, ReSource/Phoenix, Inc.
entered into a senior loan and security agreement with Lease Management
Associates, Inc., or LMA, an affiliate of Gus Constantin, our Chairman, Chief
Executive Officer and majority stockholder, for a loan in the amount of
$3,000,000. The full amount of the loan was drawn down by the Company on June
23, 2000. During the term of the loan, we will make thirty-six monthly payments
-8-
<PAGE>
RESOURCEPHOENIX.COM
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
of $90,000 and a final payment of $600,000. ReSource/Phoenix, Inc. granted LMA a
security interest in specific equipment, machinery, furniture and fixtures. The
interest rate on the loan is approximately 15% per annum. We issued a guaranty
to LMA in connection with the loan to our wholly owned subsidiary. In addition,
we issued a warrant to LMA to purchase up to 150,000 shares of our Class A
common stock at $2.07 per share. The value of the warrants, determined at date
of issuance using the Black-Scholes Model, was $187,000 and is classified as a
discount to the note payable on the balance sheet. The balance is being
amortized to interest expense over the three-year term of the note. The
unamortized balance at September 30, 2000 was $170,000.
On August 31, 2000, our wholly owned subsidiary, ReSource/Phoenix, Inc.
entered into a senior loan and security agreement with LMA for an additional
credit line facility of $7,000,000. $4,000,000 was drawn under the facility at
September 30, 2000 leaving $3,000,000 of available credit. Amounts borrowed
under the facility earn interest at 12% per annum with the principal due in 60
months. We issued a guaranty to LMA in connection with the loan to our wholly
owned subsidiary. In addition, we issued a warrant to LMA to purchase up to
1,050,000 shares of our Class A common stock at $1.92 per share. The value of
the warrants, determined at date of issuance using the Black-Scholes Model, was
$1,737,000 and is classified as a loan fee on the balance sheet. The balance is
being amortized to interest expense over the five-year term of the note. The
unamortized balance at September 30, 2000 was $1,716,000.
NOTE 8. WARRANTS ISSUED IN CONNECTION WITH A SERVICE AGREEMENT
In addition to the warrants issued in connection with equity and debt
financing, we issued 200,000 warrants on July 6, 2000 to Continental Capital &
Equity Corporation exercisable in increments as follows:
50,000 warrants at $2.50
50,000 warrants at $3.50
50,000 warrants at $4.50
50,000 warrants at $5.50
The value of the warrants, determined at date of issuance using the
Black-Scholes Model, was $197,000 and is classified as a prepaid expense on the
balance sheet. The balance is being amortized to general and administrative
expense over the one-year term of the agreement. The agreement requires certain
performance standards to be met in January 2001. Until that date, the warrants
are revalued at each reporting date to reflect changes in the stock price and
bond rate, with the amortization expense adjusted accordingly. The valuation of
the warrants at September 30, 2000 is $217,000 with an unamortized balance of
$163,000 reflected in the balance sheet.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESOURCEPHOENIX.COM
(Registrant)
DATED: December , 2000 BY: /s/ Neal Divver
----------------- ---------------------------
Neal Divver
Chief Financial Officer
(Principal Accounting Officer)
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