United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999.
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 0-24030
THE PANDA PROJECT, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0323354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
951 Broken Sound Parkway, N.W.
BOCA RATON, FLORIDA 33487
(Address of principal executive offices)
(561) 994-2300
(Registrant's telephone number)
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 requirements for the past 90
days. Yes x No .
Applicable Only to Issuers Involved In Bankruptcy
Proceedings During The Preceding Five Years
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes ___ No ___.
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value -29,698,425 shares as of August 15, 1999.
<PAGE>
THE PANDA PROJECT, INC.
Index
Page
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Condensed Balance Sheets - June 30, 1999
and December 31, 1998
Condensed Statements of Operations - Six
months ended June 30, 1999 and June 30, 1998
Condensed Statements of Cash Flows - Six months
ended June 30, 1999 and June 30, 1998
Notes to Condensed Financial Statements -
June 30, 1999
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 -Quantitative and Qualitative Disclosures About
Market Risk
Part II -Other Information
Item 1 -Legal Proceedings
Item 2 -Changes in Securities
Item 3 -Defaults Upon Senior Securities
Item 4 -Submission of Matters to Vote of Security Holders
Item 5 -Other Information
Item 6 -Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
The Panda Project, Inc.
Condensed Balance Sheets
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 106,625 $ 60,613
Accounts receivable-trade (net of
allowance of $295,292 at June 30,
1999 and at December 31, 1998) 45,387 64,206
Inventory, net 38,634 47,319
Other receivables 34,481 19,273
Prepaid expenses and other current
assets 87,940 637,947
------------- -------------
Total current assets 313,067 829,358
------------- -------------
Property and equipment, net 1,467,967 1,845,939
Restricted cash 80,000 80,000
Other assets 83,739 82,540
------------- -------------
Total assets $ 1,994,773 $ 2,837,837
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,398,458 $ 1,207,662
Notes payable 2,300,000 2,000,000
Accrued expenses and other
current liabilities 1,259,547 1,356,069
------------- -------------
Total current liabilities 4,958,005 4,563,731
------------- -------------
Stockholders' Deficit:
Preferred stock, $.01 par value,
2,000,000 shares authorized: 1,000
shares designated as Series A, 529 shares
issued and outstanding at June 30,
1999 and 420 shares issued and
outstanding at December 31, 1998 4,867,945 3,967,057
Common Stock, $.01 par value, 50,000,000
shares authorized: 29,683,834 shares
issued and outstanding at June 30,
1999 and 16,744,088 shares issued
and outstanding at December 31, 1998 296,838 167,441
Additional paid-in capital 77,508,622 74,479,857
Accumulated deficit (85,686,637) (80,340,249)
------------ ------------
Total stockholders' deficit (3,013,232) (1,725,894)
------------- -------------
Total liabilities and stockholders'
deficit $ 1,944,773 $ 2,837,837
============= =============
See Notes to Condensed Financial Statements.
<TABLE>
The Panda Project, Inc.
Condensed Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 90,284 $ 196,164 $ 403,740 $ 321,918
Licensing fees - - 500,000 -
Contract research and
development revenues - 117,257 - 135,673
----------- ----------- ----------- -----------
Net revenues $ 90,284 $ 313,421 $ 903,740 $ 457,591
Costs and expenses:
Cost of sales 75,700 234,045 194,121 394,452
Research and
development 190,924 1,023,689 571,664 2,028,520
Selling, general
and administrative 1,536,536 2,252,381 2,690,631 4,240,244
Amortization of debt
issuance costs/
accrued penalties 1,393,500 421,000 2,551,542 1,229,514
----------- ----------- ----------- -----------
Total costs and
expenses 3,196,660 3,931,115 6,007,958 7,892,730
----------- ----------- ----------- -----------
Operating loss (3,106,376) (3,617,694) (5,104,218) (7,435,139)
Interest income (268,145) (11,477) (302,717) (42,597)
Other income 22,994 13,132 60,547 50,386
----------- ----------- ----------- -----------
Net loss $ (3,351,527)$(3,616,039) $(5,346,388) $(7,427,350)
============ =========== =========== ===========
Dividends and amortization
of beneficial conversion
feature related to
convertible preferred
stock - (333,403) (54,067) (511,841)
============ =========== =========== ===========
Net loss applicable to
common stock $ (3,351,527)$(3,949,442) $(5,400,455) (7,939,191)
============ =========== =========== ===========
Basic and diluted loss
per common share $ (.13) $ (.32) $ (.24) $ (.65)
=========== =========== =========== ===========
Weighted average shares
outstanding 24,309,104 12,240,684 21,989,513 12,230,798
=========== =========== =========== ===========
See Notes to Condensed Financial Statements.
</TABLE>
The Panda Project, Inc.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1999 1998
------------- -------------
Net cash used in operating activities (1,284,285) (6,184,561)
Cash flows from investing activities:
Additions to property and equipment - (652,936)
Dispositions of property and equipment 115,123 -
------------- -------------
Net cash provided by (used in)
investing activities 115,123 (652,936)
Cash flows from financing activities:
Proceeds from issuance of
convertible preferred stock - 6,000,000
Proceeds from issuance of common stock 915,173 59,612
Proceeds from issuance of notes payable 300,000 2,750,000
Repayment of notes payable - (2,000,000)
Payments of convertible preferred stock - -
issuance costs - (193,013)
------------- -------------
Net cash provided by financing
activities 1,215,174 6,616,599
------------- -------------
Net increase (decrease) in cash
and cash equivalents 46,012 (220,898)
------------- -------------
Cash and cash equivalents at
beginning of period 60,613 619,683
------------- -------------
Cash and cash equivalents at end
of period $ 106,625 $ 398,785
============= =============
See Notes to Condensed Financial Statements.
<PAGE>
The Panda Project, Inc.
Notes to Condensed Financial Statements
June 30, 1999
1. Basis of Presentation
The accompanying condensed financial statements of The Panda Project,
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles on a basis consistent in all material
respects with those applied in the Annual Report on Form 10-K for the
twelve months ended December 31, 1998. The interim financial
information is unaudited, but reflects all normal and recurring
adjustments which are, in the opinion of management, necessary to
provide a fair statement of results of operations for the interim
periods presented. The interim financial statements should be read in
connection with the financial statements in the Annual Report on Form
10-K for the twelve months ended December 31, 1998.
2. Inventory
The inventory as of June 30, 1999 is comprised of the Company's VSPA
raw materials and finished goods of $28,803 and the net realizable
value of the Systems inventory of $9,831 (net of reserves of
$1,573,863). The inventory as of December 31, 1998, is comprised of
the Company's VSPA raw materials and finished goods of $22,320 and the
net realizable value of the systems inventory of $25,000 (net of
reserves of $1,778,837).
Product sales for the six months ended June 30, 1999 includes
approximately $112,000 related to the sale of Systems inventory.
These sales had no related cost of sales as inventory items with
original cost of approximately $218,000 were reserved as of
December 31, 1998.
3. Notes Payable
The Company has outstanding loans from Helix in the aggregate
principal amount of $2,000,000. Such loans bear interest at an annual
rate equal to the prime rate of interest payable by the Royal Bank of
Canada plus 2%, are secured by the Company's intellectual property and
were due and payable on February 15, 1999. As of August 19, 1999,
this principal amount due Helix has not been repaid and is in default.
The inability of the Company to repay the Helix loans when due may
have a material adverse effect on the Company, including possible loss
of rights to its intellectual property through foreclosure which would
cause the Company to cease its operations. In connection with the
Helix loans, the Company has issued to Helix warrants to purchase an
aggregate of 2,850,000 shares of Common Stock at exercise prices
ranging from $1.63 to $2.125 per share (collectively, the "Helix
Warrants"). The Helix Warrants have expiration dates ranging from
December 19, 1999 to August 7, 2000. These warrants have been valued
at an aggregate of approximately $4,324,000 and have been recognized
as debt issuance costs and were fully amortized as of February 15,
1999. This accounting treatment has no impact on the Company's cash
balance. As of June 30, 1999, Helix and its affiliates hold
approximately 4% of the Company's outstanding Common Stock (not
including shares issuable upon exercise of warrants).
On May 14, 1999, the Company, Helix and Silicon Bandwidth, Inc.
("SBI") entered into an agreement ("Helix Agreement") whereas upon the
closing of the acquisition of certain assets of the Company by SBI,
SBI will pay $1,000,000 to Helix. In consideration of such payment,
and the issuance of 1,000,000 shares of Panda common stock to Helix,
Helix releases Panda from payment on all accrued interest on the notes
remaining unpaid as of the date of such payment of $1,000,000. The
remaining $1,000,000 and accrued interest will be paid in eleven
payments by SBI to Helix. (See exhibit 2.3)
On June 11, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company $300,000. In connection
with the loan, the Company has granted to SBI a security interest in
substantially all of the assets of the Company pursuant to the
Security Agreement, dated June 11, 1999, by and between the Company
and SBI. The loan bears an interest rate of 6% per annum and is due
and payable on September 30, 1999. (See Exhibit 4.9).
On July 15, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $325,000
with borrowed amounts totaling $625,000. In connection with the loan,
the Company has granted to SBI a security interest in substantially
all of the assets of the Company pursuant to the Security Agreement,
dated July 15, 1999, by and between the Company and SBI. The loan
bears an interest rate of 6% per annum and is due and payable on
September 30, 1999. (See Exhibit 4.10).
On August 17, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $325,000
with borrowed amounts totaling $950,000. In connection with the loan,
the Company has granted to SBI a security interest in substantially
all of the assets of the Company pursuant to the Security Agreement,
dated August 17, 1999, by and between the Company and SBI. The loan
bears an interest rate of 6% per annum and is due and payable on
September 30, 1999. (See Exhibit 4.11).
4. Common Stock
In January 1999, the Company received approximately $415,000 from the
exercise of warrants to purchase 553,333 shares of the Company's
common stock related to the 1996 private placement. In February 1999,
the Company received $1,000,000 from Samtec, Inc. which includes a
non-refundable upfront license fee related to VSPA and, a purchase of
666,667 shares of the Company's common stock.
On May, 18, 1999, the Company issued 1,000,000 shares of the Company's
common stock to Helix pursuant to the Helix Agreement dated May
14, 1999. The Company recorded $266,000 in loan interest expense related to
the issuance of the shares to Helix. Additionally, the Company issued Mr.
Sarubbi an additional 2,100,000 shares of the Company's common stock pursuant
to an amendment dated June 24, 1999 to the original settlement agreement
between the Company and Mr. Sarubbi dated December 11, 1998. (See Legal
Proceedings). $327,600 was recorded in SG&A related to the issuance of the
additional 2,100,000 shares of the Company's common stock and $375,000 was
recorded related to the 3,750,000 common shares to be issued upon shareholder
approval of additional authorized shares.
5. SERIES A CONVERTIBLE PREFERRED STOCK
On February 11, 1998, the Company issued 600 shares of its Series A
Convertible Preferred Stock ("Series A Preferred") and Common Stock
Purchase Warrants ("Warrants") to purchase an aggregate of 150,000
shares of common stock for a total purchase price of $6,000,000. The
purchase price was allocated to the Series A Preferred and Warrants
based on their relative fair value. The Warrants, which have a term
of five years and an exercise price, subject to adjustment for stock
splits and similar events, of $6.10 per share, were valued at $411,000
using the Black-Scholes option pricing model. Issuance costs of
approximately $193,000 were deducted on a pro rata basis from the
gross proceeds assigned to the Series A Preferred and the Warrants.
Holders of Series A Preferred are entitled to a dividend of 5% per
annum of the purchase price for the shares, payable either in cash or
as an accrual to the purchase price utilized in computing the number
of shares of Series A Preferred issuable upon conversion. Dividends
payable for the quarter ended March 31, 1999 in the amount of $54,067
have been accrued and added to the purchase price of the Series A
Preferred in lieu of a cash payment. Accrued dividends equal 30
shares of the Company's Series A Preferred stock through March 31,
1999.
Shares of Series A Preferred are convertible into shares of common
stock pursuant to a formula whereby the purchase price of the shares
to be converted plus any such dividends is divided by a conversion
price defined as the lower of (i) $3.50 subject to adjustment in the
event of certain dilutive issuances of securities by the Company or
for stock splits or similar events, or (ii) a percentage of the
average closing bid price of the common stock for the five days
immediately preceding conversion equal to 92%, if conversion occurs in
the period beginning 120 days and ending 180 days after issuance of
the Series A Preferred, or 90%, if conversion occurs after 180 days
from issuance of the Series A Preferred. However, On May 14, 1999 the
conversion price was set pursuant to the Exchange Agreement at $.261.
From July 1, 1998 through June 30, 1999, 271.76 shares of Series A
Preferred were converted into an aggregate of 4,637,310 shares of
common stock of the Company.
The Company may require that all unconverted shares of Series A
Preferred be converted at any time if the closing bid price of common
stock is equal to or greater than $12.00 per share for a period of
twenty consecutive trading days. In addition, on February 11, 2003,
the Company may, at its option, require the holders to convert the
Series A Preferred shares which remain outstanding on such date (plus
accrued and unpaid dividends) or redeem such shares of Series A
Preferred. In the event certain conditions are met, the Company has
the right to cause the issuance of an additional 400 shares of Series
A Preferred for an aggregate purchase price of $4,000,000. In such
event, the Company would be required to issue Warrants to the
purchasers of Series A Preferred to purchase an additional 100,000
shares of common stock.
Under the terms of the transaction, as modified on July 2, 1998,
without the prior written approval of the holders of 66 2/3% of the
Series A Preferred shares, the Company shall not (1) consolidate or
merge with another corporation or other entity or person, whereby the
shareholders of the Company own in the aggregate less than 50% of the
ultimate parent or surviving entity, (2) transfer all or substantially
all of the Company's assets to another corporation or other entity or
person, or (3) fix a record date for the declaration of a distribution
or dividend, whether payable in cash, securities or assets (other than
shares of common stock).
In addition, a "Triggering Event" shall be deemed to have occurred
under the following circumstances: (1) the Company does not issue
shares of common stock registered for resale for any reason, including
(a) the Company does not have a sufficient number of shares of common
stock authorized and available, (b) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange or
interdealer quotation system from issuing such shares (including as a
result of the Series A Exchange Cap discussed below) or (c) fails to
have a sufficient number of shares of common stock registered for
resale under a registration statement, and if such condition remains
unremedied for a period of 30 days, (2) suspension for a period of 30
consecutive days of a registration statement covering shares issuable
upon conversion of Series A Preferred, (3) failure of the Common Stock
to be listed, or suspension of trading in the Company's Common Stock
on the NASDAQ National Market or the NASDAQ SmallCap Market for a
period of five consecutive days, or (4) notice by the Company to any
holder of Series A Preferred of its intention not to comply with
proper requests for conversion of Series A Preferred. After a
Triggering Event, the Company is required to pay the holders $100,000
on the first day of each month until the Triggering Event is remedied.
In the event the Company is unable to issue shares of its common stock
pursuant to a request for conversion for any reason, including,
without limitation, because the Company (1) does not have sufficient
number of shares of Common Stock authorized and available, (2) is
otherwise prohibited by applicable law or by the rules or regulations
of any stock exchange from issuing such shares, or (3) fails to have a
sufficient number of shares of Common Stock registered for resale
under a registration statement, and if such condition remains
unremedied for a period of 30 days, the dividend rate for all shares
of Series A Preferred that cannot be converted into shares of Common
Stock pursuant to such limitations will increase on a formula basis
until such securities have been duly converted.
In connection with this transaction, the Company filed a registration
statement on form S-3 (the "form S-3") with the Securities and
Exchange Commission ("SEC") to effect the registration for resale of
2,000,000 shares of Common Stock issuable upon conversion of the
Series A Preferred and 150,000 shares of common stock issuable upon
exercise of the Warrants, plus an additional number of shares of
Common Stock, not to exceed the Exchange Cap, described below, that
may be usable upon conversion of the Series A Preferred as a result of
antidilution provisions. The Form S-3 has been declared effective by
the Securities and Exchange Commission. As of March 31, 1999,
3,650,214 shares of Common Stock issued upon conversion of Series A
Preferred had been sold pursuant to the Form S-3. As of June 30, 1999,
an additional 987,096 shares of common stock were issued upon
conversion of Series A preferred and have been sold pursuant to Rule
144A.
The beneficial conversion feature associated with the Series A
Preferred shares has been recognized and allocated to additional paid-
in capital. The amount of the beneficial conversion feature of
approximately $510,000 was calculated using the most favorable
conversion rate as defined by the terms of the Series A Preferred
stock and was amortized over a period of six months. The amount
of amortization ($54,067 and $178,438 for the second quarter of 1999
and 1998, and for the first 6 months ending June 30, 1999 and 1998
respectively) is reflected, along with accrued dividends, as
an increase to net loss applicable to common stock in the Statement of
Operations. The accounting for this transaction has no effect on
cash.
On May 14, 1999 the Company entered into an Exchange Agreement with
the Series A Preferred Stock Holders ("Holders") to exchange their
preferred shares for the Company's common shares at an exchange rate
of $.261. In connection with this agreement the Company issued an
additional 171 shares of Series A Preferred stock to the Holders in
payment for penalties owed to such holders. The Holders hereby agree
to waive all penalties owed by the Company. Additionally, in
consideration of the Exchange Agreement the Holders have agreed to
enter into a voting agreement in favor of the Company's sale of its
intellectual property portfolio and certain fixed assets related to
the interconnect and semiconductor business. (See Exhibit 2.4).
6. August Private Placement
On August 14, 1998, Panda completed an agreement for the sale of
2,346,626 shares of its Common Stock and 2,346,626 shares of Common
Stock issuable upon the exercise of Common Stock Purchase Warrants in
a private placement to accredited investors with gross proceeds of
approximately $3.8 million of which all but $200,000 has been funded
as of the date hereof (the "Private Placement"). Expenses of the
Private Placement were approximately $230,000. In addition to the
shares of Common Stock purchased by each investor in the Private
Placement, such investor received a warrant (the "Private Placement
Warrants") to purchase an equal number of shares of Common Stock,
subject to adjustment for stock splits and similar events, at an
exercise price of $2.55 per share. Upon exercise of the Private
Placement Warrants, an investor may elect to receive a reduced number
of shares of Common Stock in lieu of tendering the warrant exercise
price in cash. The Private Placement Warrants have a term of five
years expiring August 13, 2003. Issuance of shares of Common Stock
pursuant to exercise of the Private Placement Warrants requires the
approval of Panda's shareholders.
Under the terms of the Securities Purchase Agreement relating to the
Private Placement, if on either the six-month or the one-year
anniversary of the date of closing of the Private Placement (each an
"Anniversary Date"), the average closing bid price of the Common Stock
for the twenty-trading day period ending on the trading day
immediately prior to the applicable Anniversary Date is less than the
closing price ($2.0375) or the prior Anniversary Price in the event
the six-month Anniversary Price is less than the closing price,
respectively, Panda is required to issue a number of shares of Common
Stock within ten days after the Anniversary Date, equal to the product
of (i) (x) the difference between the closing price (or if the
measurement date is the one-year Anniversary Date, the six-month
Anniversary Price if the six-month Anniversary Price is less than the
closing price) and the applicable Anniversary Price, multiplied by
.85, multiplied by (y) the number of shares of Common Stock purchased
by the investors in the Private Placement and not sold or assigned to
non-affiliated third parties, divided by (ii)(x) the applicable
Anniversary Price multiplied by (y) .85. The shares issuable pursuant
to this formula are referred to in this Registration Statement as the
"Fill-Up Shares." Issuance of the Fill-up Shares pursuant to these
provisions requires the approval of Panda's shareholders.
As of the six month anniversary date Panda has issued 4,441,658 shares
of the Company's common stock pursuant to the Fill-Up provision. The
twelve month anniversary was August 15,1999 and if Fill-Up Shares had
been issued, the number of Fill-Up Shares which Panda would have been
required to issue total approximately 6,000,000 shares of the
company s common stock. The Company intends to seek shareholder
approval to increase the number of shares allowed to be issued.
In the event (i) the Common Stock is delisted or suspended from
trading on Nasdaq, (ii) the Fill-Up Shares and shares issuable upon
exercise of the Private Placement Warrants are not issuable or are not
listed with Nasdaq, or (iii) if Panda fails to issue Fill-Up Shares as
required, then Panda shall pay to the initial investors $100,000 for
each full 30-day period that the condition continues. Because the
Common Stock has been delisted from trading on Nasdaq, liabilities
under the Fill-Up Share provisions have been triggered. A portion of
this liability has been waived in an agreement by and between Panda
and the holders of the Series A Preferred whereby such holders have
agreed to waive all amounts due for failure to pay such penalty.
Panda has agreed to file a registration statement with the Commission
to effect the registration for resale of the Common Stock issued in
the Private Placement pursuant to the Fill-Up provisions. If the
registration statement is not declared effective by the Commission
within 90 days after the closing of the Private Placement, Panda may
be liable to investors for penalty payments for each month that such
registration statement has not been declared effective. As of July 9,
1999, the registration statement relating to these shares of Common
Stock has not been declared effective and Panda could be subject to
such penalty payments. Panda shall pay to the holders of the common
stock an amount ranging from 1% to 3% of the purchase price paid for
the common shares issued multiplied by: (i)the number of months
(prorated for partial months) after the end of such 90-day period and
prior to the date the Registration Statement is declared effective by
the Commission exclusive of certain delays which are attributable to
the holders, (ii) exclusive of Allowed Delays (as defined), the number
of months (prorated for partial months) that sales cannot be made
pursuant to the Registration Statement after the Registration
Statement has been declared effective and (iii) exclusive of Allowed
Delays the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the Nasdaq,
NYSE or AMEX or that trading there on is halted after the Registration
Statement has been declared effective.
7. Commitments and Contingent Matters
The Company is involved in various lawsuits from time to time of the
type routinely encountered in the ordinary course of business.
Management aggressively defends these lawsuits and believes that the
ultimate outcome of these lawsuits will not have a material adverse
impact on the Company's financial statements. Following are
litigation matters that management considers to be material in nature
such that disclosure is appropriate.
On October 16, 1998, a complaint was filed against the Company in the
United States District Court for the Southern District of New York by
Promethean Investment Group, L.L.C. The complaint alleges breach of
contract by the Company for failing to proceed with a financing
transaction and seeks damages in an unspecified amount in excess of
$270,000 or a declaration that the Company is required to proceed with
the financing transaction. The Company has filed an answer to the
complaint and the outcome is both immeasurable and undeterminable.
There can be no assurance that the Company will be successful in
defending this litigation.
On December 11, 1998, the Company and Joseph A. Sarubbi ("Sarubbi")
entered into a settlement agreement (the "Settlement Agreement")
relating to litigation in which Sarubbi obtained a judgment against
the Company in the amount of $1,227,041. Under the Settlement
Agreement, the Company agreed to pay Sarubbi total consideration worth
$1,000,000 of which $240,000 has been paid in cash in December 1998
and the remainder is to be satisfied upon the sale of shares of the
Company's common stock which have been delivered to Sarubbi by the
Company. The Company has issued and registered 1,775,000 shares for
Sarubbi pursuant to the S-2 Registration Statement, declared effective
on February 5, 1999. The parties have agreed to petition the Florida
Court of Appeals for the Fourth District to dismiss the litigation
within five business days after the Company's obligations in the
Settlement Agreement have been completed. If such obligations are not
completed, the judgment will remain in effect. This settlement amount
was recorded as a charge against Company earnings for the quarter
ended December 31, 1998. Additionally, the Company and Mr. Sarubbi
have entered into an Amendment to the Settlement Agreement dated
December 11,1998 ( the "Amendment"). The Amendment is dated June 24,
1999. In accordance with the Amendment, the Company has issued Mr.
Sarubbi an additional 2,100,000 shares to be registered pursuant to an
S-2 that was filed with the SEC . In addition, the Company has agreed
to propose a vote to the shareholders to issue additional shares. If
approved, Mr. Sarubbi would receive an additional 3,750,000 shares.
No further compensation, regardless of the total proceeds would be
required if all shares are issued. The 2,100,000 shares were issued in the
Second Quarter 1999 and were recorded as an expense to SG&A at the closing
price of .$156 totaling $327,600. In addition, $375,000 has been charged to
SG&A related to the 3,750,000 common shares to be issued upon shareholder
approval of the increase in authorized shares. Currently the S-2 which was
filed has not been deemed effective and is still under review by the SEC.
The Company is in technical default of the Amendment, since the Registration
Statement had not been declared effective by July 31, 1999. Any further
action taken by Mr. Sarubbi may be material to the Company.
On July 18, 1999, a complaint was filed against the Company in Palm
Beach County, Florida by Liberty Property Limited Partnership
("Liberty"). The complaint alleges breach of contract by the Company
for non monetary default of its lease agreement for the premises at
951 Broken Sound Parkway, Boca Raton, Florida. Liberty seeks
acceleration of future rent payments in the amount of approximately
$809,000. The Company has filed an answer to the complaint and the
outcome is both immeasurable and undeterminable. There can be no
assurance that the Company will be successful in defending this
litigation and the outcome to this litigation could have a material adverse
effect if the Company is unsuccessful.
8. Subsequent Events
On July 15, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $325,000
with borrowed amounts totaling $625,000. In connection with the loan,
the Company has granted to SBI a security interest in substantially
all of the assets of the Company pursuant to the Security Agreement,
dated July 15, 1999, by and between the Company and SBI. The loan
bears an interest rate of 6% per annum and is due and payable on
September 30, 1999. (See Exhibit 4.10).
On August 17, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $325,000
with borrowed amounts totaling $950,000. In connection with the loan,
the Company has granted to SBI a security interest in substantially
all of the assets of the Company pursuant to the Security Agreement,
dated August 17, 1999, by and between the Company and SBI. The loan
bears an interest rate of 6% per annum and is due and payable on
September 30, 1999. (See Exhibit 4.11).
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview:
Statements in this Report on Form 10-Q, that are not statements of
historical fact, are to be regarded as forward-looking statements
which are based on information available to the Company as of the date
hereof and involve a number of risks and uncertainties. Among the
important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are delays in
product development, competitive pressures, general economic
conditions, risks of intellectual property and other litigation, and
the factors detailed below under "Certain Factors That May Affect
Future Results" or elsewhere herein or set forth from time to time in
the Company's periodic reports and registration statements filed with
the Securities and Exchange Commission.
The Company is a technology company engaged in the design,
development, manufacture, licensing and sale of interconnect solutions
to generate greater throughput from silicon to board to system. These
technologies are embodied in VSPA, a three-dimensional semiconductor
package, and the Compass Connector, a board-to-board interconnect
solution (collectively the "Technology Products"). VSPA has received
JEDEC JC-11 Committee designation and has passed Mil Std. 883. In
addition, in September 1998, the Compass Connector received Bellcore
approval.
In September 1998, the Company announced a streamlining of operations
that included a significant reduction of operations related to the
development of the Archistrat line of computers and the Rock City line
of desktop computers (collectively the "Systems") and any upgradable
mother board development related to the Systems. Due to further cash
constraints in November 1998, the Company elected to exit its Systems
business entirely. The Company continues to focus its efforts on the
Technology Products.
Results of Operations -Quarter and Six Months Ended June 30, 1999 and
1998
Net revenues decreased during the quarter ended June 30, 1999 ("Second
Quarter of 1999") to approximately $90,000 as compared to $313,000 for
the quarter ended June 30, 1998 ("Second Quarter of 1998"). The net
revenue decrease for the quarter was attributable to the cessation of
operations of the computer systems business including Rock City
products. Net revenues for the six months ended June 30, 1999 were
approximately $904,000 compared to approximately $458,000 for the same
period last year as a result of increased technology revenues,
including a one time licensing fee of $500,000.
Research and development ("R&D") expenses decreased to approximately
$191,000 for the Second Quarter of 1999 as compared to approximately
$1,023,000 for the Second Quarter of 1998. R&D for the first six
months of 1999 was approximately $571,000 attributable to new custom
VSPA designs for specific customer applications and the refinement of
the existing VSPA Flex automation machines. R&D for the first six
months of 1998 was $2,028,000. This decrease is primarily due to
ceasing operations relating to Systems activity, including the Rock
City computers, and the completion of the cooperative development
agreement with the US government.
Consistent with management's focus on decreasing fixed costs, selling,
general and administrative ("SG&A") expenses decreased for the Second
Quarter 1999 to approximately $1,537,000 compared to approximately $2,252,000
for the Second Quarter 1998. The average number of employees has decreased
from 70 at June 30, 1998 to 20 full time employees as of June 30, 1999. The
decrease in full-time employees is directly related to ceasing operations
related to Systems activity and the need to reduce on going operational costs.
Payroll and related expenses decreased to approximately $465,000 for the
quarter ended June 1999 as compared to $1,134,000 for the quarter ended June
1998.
For the six months ending June 30,1999 SG&A decreased to approximately
$2,691,000 compared to $4,240,000 for the same period in 1998. The
average number of full-time employees decreased to 20 from 70. The
decrease in full-time employees is directly related to ceasing
operations related to the systems activity and the need to reduce
operational costs. Payroll and related expenses decreased
approximately $1,293,000 for the six months ended June 30, 1999
compared to the same period in 1998. In addition, a non-cash charge
of $327,600 related to the issuance of 2,100,000 shares and $375,000 related
to the 3,750,000 shares to be issued pursuant to the Sarubbi settlement is
recorded in SG&A.
Total debt issuance costs associated with short-term borrowings from
Helix, including the value of the warrants issued in connection with
such borrowings, charged to amortization expense during the quarter
ended June 30, 1999, amounted to zero, however for the Second Quarter
1998, $421,000 was charged to amortization expense. For the six
months ending June 30, 1999 approximately $525,000 and for the six
months ending June 30, 1998 approximately $1,200,000 was charged to
amortization expense. The valuation of the warrants and related
amortization expense, represents a non-cash transaction.
Additionally, in the Second Quarter 1999, 171 Preferred penalty shares
at $1,710,000; pursuant to the Exchange Agreement (Exhibit 2.4), will
be converted at a fixed conversion price of $.261. At today's market
prices of approximately $.15 per share the value of the common stock
shares would be valued at approximately $982,000. The penalty shares
were issued related to the Series A Preferred Convertible transaction
and the 1998 common stock private placement holders of the Series A
Preferred Convertible in lieu of any accrued or future penalties.
There were no such penalties as of the first quarter of 1998.
Interest expense increased for the quarter and six months ended June 30, 1999
to $268,145 and $302,717, respectively as compared to the quarter and six
months ended June 30, 1998 $11,477 and $42,597, respectively. The increase is
related to a non-cash charge of $266,000 related to the issuance of 1,000,000
common shares to Helix pursuant to the Helix Agreement dated May 14, 1999.
(See exhibit 2.3).
For purposes of determining net loss applicable to common stock for
the second Quarter 1999 and the second Quarter 1998, accrued dividends
payable in the amount of approximately $54,000 and $178,000,
respectively, and amortization of the beneficial conversion feature
related to the issuance of the Series A Preferred Stock have been
added to the net loss. Both amounts represent non-cash transactions.
Basic and diluted loss per share has been calculated on the basis of
net loss applicable to common stock.
YEAR 2000 COMPLIANCE
Like many other companies, Year 2000 computer issues create certain
risks for us. If our financial, operational and information systems do
not correctly recognize the process date information beyond the year
1999, it could have a significant adverse impact on Panda's ability to
process information, which could create significant potential
liability for Panda. To address potential Year 2000 issues with its
internal systems, we have evaluated these systems. The initial
assessment indicated that certain internal systems should be upgraded
or replaced as part of a solution to the Year 2000 problem. The costs
incurred to date related to these programs have not been material. The
estimated cost to be incurred by us in the future is not expected to
exceed $20,000. These estimates do not include potential costs related
to any customer or other claims or the cost of internal software and
hardware replaced in the normal course of business. These estimates
are based on our current assessment of the projects and may change as
the project progresses.
The Company believes that its potential liability related to its System and
Technology products is not expected to exceed $5,000. The System's products
including Rock City, 5R, 5S are deemed year 2000 compliant. The Company
checked the BIOS with a specific software program designed for solely this
purpose. The 4S may not be year 2000 compliant, depending on the operating
system used, make the transition automatically. Specifically, the 4S with a
Pentium 100 or Pentium 166 processors. Once the systems are manually reset,
by changing the date and time in the BIOS, the system is year 2000 compliant.
The Company estimates that only 100 4S were sold with this potential problem.
The VSPA semiconductor package and the Compass V interconnect products are
sold as individual components as opposed to completed products and therefore
there is no liability associated with the year 2000 issue.
We are also working with key suppliers of products and services to
monitor their progress toward Year 2000 compliance. The failure of a
major supplier to become Year 2000 Compliant on a timely basis could
materially adversely affect our business, financial condition and
operating results.
We have begun internal discussions concerning contingency, planning to
address potential problem areas with internal systems and with
suppliers and other third parties. We expect assessment, remediation
and contingency planning activities to continue throughout the year
1999 with the goal of resolving all material internal and external
systems and third-party issues. While Panda has not completed its
detail plans with regards to this uncertainty, our management
believes, based on discussions with vendors of its major business
applications and Year 2000 Compliance certificates received from the
related software developers, that the financial impact of making the
required systems changes, if any, will not be material to Panda's
financial position, results of operations or cash flows.
We deem "Year 2000 Compliant" to mean software that can individually,
and in combination with all other systems, products or processes with
which the software is designed to interface, continue to operate
successfully (both in functionality and performance in all material
respects) over the transition into the twenty-first century when used
in accordance with the documentation relating to such software. Year
2000 Compliance includes being able to, before, on and after January
1, 2000, substantially conform to the following:
- use logic pertaining to dates which allow users to identify
and/or use the century portion of any date fields without
special processing;
- respond to all date elements and ate input to resolve any
ambiguity as to century in a disclosed, defined and pre-
determined manner; and
- provide date information in ways which are unambiguous as to
century.
This may be achieved by permitting or requiring the century to be
specified or where the date element is represented without a century,
the correct century in unambiguous for all manipulations involving
that element.
Liquidity and Capital Resources
- -------------------------------
During February 1998, the Company completed a private placement of
$6.0 million of Series A Preferred Stock and received net proceeds of
approximately $5.8 million. The shares of preferred stock are
convertible into common stock at the lower of $3.50 per share (in
accordance with the revised terms effective July 2, 1998) or a
floating conversion price. Through June 30, 1998, 271.76 shares of
preferred stock were converted into an aggregate of 4,637,310 shares
of the Company's common stock. As of June 30, 1999, 529.24 preferred
shares are outstanding including dividends.
The Company may require that all unconverted shares of Series A
Preferred Stock be converted at any time if the closing bid price of
the Company's common stock is equal to or greater than $12.00 per
share for a period of twenty consecutive trading days. In addition,
on February 11, 2003, the Company may, at its option, require the
holders to convert the Series A Preferred shares which remain
outstanding on such date (plus accrued and unpaid dividends) or redeem
such shares of Series A Preferred Stock. The terms of the Series A
Preferred Stock, as revised on July 2, 1998, provide that upon the
occurrence of certain Triggering Events, as defined, the Company may
be required to pay the holders $100,000 per month until such time that
the Triggering Event has been remedied. Any requirement that the
Company pay such amounts could have a material adverse impact on the
Company in the event the Triggering Event causing such payment is not
remedied on a timely basis. On December 16, 1998, a triggering event
occurred related to the delisting of the Company's common stock from
the Nasdaq National Market to the OTC Bulletin Board. As of April 14,
1999, no payments have been made to the Holders. The Company has
reached an agreement with the Series A Preferred Holders in connection
with the Triggering Event and has agreed to issue an additional 171
Preferred A shares. (See Exhibit 2.4)
On August 14, 1998, the Company completed the sale of 2,254,602 shares
of its Common Stock and warrants in a private placement to accredited
investors with gross proceeds of $3.675 million. Upon exercise of
certain warrants, the investors may elect to receive a reduced number
of shares of common stock in lieu of tendering the warrant exercise
price in cash. The warrants have a term of five years. The Company
issued approximately 4,400,000 additional shares associated with the
fill-up provision. The Company is required to issue approximately
6,000,000 additional shares of the Company's common stock as of August
15, 1999 in accordance with the Fill-up provision.
During May, June and July 1998, the Company borrowed an aggregate of
$2 million from Helix PEI Inc. ("Helix"). The loans are secured by
the Company's intellectual property and were due August 7, 1998.
During August 1998, Helix agreed to extend the maturity date of all
the outstanding loans payable to February 15, 1999, from their
original due date in August 1998, in exchange for the issuance of a
warrant to purchase up to 2,000,000 shares of the Company's common
stock at an exercise price equal to the fair market value of the
Company's common stock at the date of issuance ($2.125). The loans
bear interest at the Royal Bank of Canada prime rate plus 2 percentage
points per annum (9.40% at June 30, 1999) payable monthly. The
warrant has a term of two years. The Company is currently in default
on the Helix Loans since the Company did not repay the loan in
February 1999.
On May 14, 1999, the Company, Helix and Silicon Bandwidth, Inc.
("SBI") entered into an agreement whereas upon the closing of the
acquisition of certain assets of the Company by SBI, SBI will pay
$1,000,000 to Helix. In consideration of such payment, and the
issuance of 1,000,000 shares of Panda common stock to Helix, Helix
releases Panda from payment on all accrued interest on the notes
remaining unpaid as of the date of such payment of $1,000,000. The
remaining $1,000,000 and accrued interest will be paid in eleven
payments by SBI to Helix. (See Exhibit 2.3)
On December 15, 1998, the Company reduced the exercise price of
certain common stock purchase warrants if the warrant holders
accelerate the expiration date of their warrants from July 11, 2001 to
January 5, 1999. The exercise price was reduced from $11.00 to $0.75
per share. In January 1999, warrants representing 553,333 shares were
exercised at this reduced price, and the Company received net proceeds
of $415,000 upon such exercise. In February 1999, the Company received
$1,000,000 from Samtec, Inc. which includes a non-refundable upfront license
fee related to VSPA and, a purchase of 666,667 shares of the Company's common
stock.
In the second quarter 1998, the Company's payables were segmented into the
following categories: operational, professional, Systems and Technology.
Payables in the second quarter 1999 of approximately $1,400,000 as compared to
the second quarter 1998 of approximately $1,500,000 increased or decreased as
follows: Operations 14.5% versus 13%, professional fees 67.1% versus 34%,
System 11.3% versus 35%, and Technology 7.0% versus 17%, respectively.
Payables related to operations increased slightly as a result of liquidity and
delayed payments to vendors. Professional fees increased as a result of
increasing legal fees which were not current due to liquidity. The decrease
in payables related to systems was a result of ceasing operations related to
the systems business and the decrease in technology payables is a result of
most vendors requiring advance payment for goods and services. Accounts
receivables (net of the allowance for doubtful accounts for all System related
receivables) related to the second quarter of 1999 of approximately $45,000
represent Technology related receivables whereas accounts receivables related
to the second quarter 1998 of approximately $166,000 are approximately 80%
related to Computer Systems.
The Company has been able to obtain short-term financing through secured
promissory notes (see Exhibit 4.9, 4.10, and 4.11) totaling $925,000 through
August 19, 1999, these funds have allowed the Company to fund certain monthly
obligations as well as certain payables. Additionally, the Company has
settled certain obligations through the issuance of common stock. It is
anticipated that SBI will continue to lend money, although it has no
obligation to do so, to the Company through the end of September. In the
event that the SBI transaction does not close, the Company will seek
additional financing from other alternatives. The Company does not anticipate
any additional liquidity from the letter of intent, which expired May 1999,
entered into by and between the Company and Roundstone. Since the Company's
current working capital is insufficient to operate the Company. Since, the
Company's current working capital is insufficient to operate the Company in
the event that the Company cannot seek additional financing, it will be forced
to cease operations.
The Company has entered into an agreement with SBI to sell its
intellectual property portfolio as well as the fixed assets related to
its interconnect and semiconductor business. As part of the sale, the
Company has restructured its outstanding loans with Helix that have
been in default since February 15, 1999. SBI will assume such Helix
loans upon closing. Additionally, the Company has entered into an
agreement with the Convertible Preferred A Holders for conversion of
the outstanding preferred shares into 21,333,333 common shares at a
fixed price of $.261. The restructuring of both agreements is partially
contingent upon the closing of the sale to SBI The transaction is
subject to customary closing conditions, including the approval of the
Company' shareholders. Helix, Joseph Sarubbi, and the Convertible Preferred A
Holders have entered into a Voting Agreement with SBI and such holders own
sufficient shares, approximately 52%, to assure the approval of the
transaction by the Company's shareholders. The Company will receive a 10%
ownership interest in SBI which will initially be capitalized with $6,000,000.
In June, July and August, 1999, the Company entered into agreement
with SBI pursuant to which SBI has loaned the Company $950,000. In
connection with the loan, the Company has granted to SBI a security
interest in substantially all of the assets of the Company pursuant to
the Security Agreement, dated August 17, 1999, by and between the
Company and SBI. The loan bears an interest rate of 6% per annum and
is due and payable on September 30, 1999.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
RISK ASSOCIATED WITH OUR FINANCIAL POSITION.
WE HAVE A HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES.
We are a development stage company with limited operating revenue. We
have incurred losses in each year since our inception in 1992. As of
August 19, 1999, we had an accumulated deficit of approximately $6
million. We expect to continue to experience substantial losses for
the foreseeable future. We are unable to predict the extent of any
future losses or the time required to achieve profitability.
WE LACK SOURCES OF ADDITIONAL FUNDING.
We require substantial working capital to fund our business. We have
had significant operating losses and negative cash flow from
operations since inception and expect to continue to do so for the
foreseeable future. We have depended upon proceeds of sales of our
securities to fund our operations since our inception. Panda has been
unable to secure additional sources of capital to fund our business.
This continued inability to secure capital will cause us to be unable
to(i) develop or enhance our products, (ii) take advantage of future
opportunities or (iii) respond to competitive pressures without
additional funding. These limitations placed on Panda due to our
inability to secure additional funding could materially adversely
affect Panda's business, financial condition and operating results. In
addition, Panda s working capital is insufficient to operate Panda.
Panda is currently in default under different leases due to breaches
of insolvency covenants. In the event that the proposed sale of
Panda's assets to SBI is not consummated and Panda cannot obtain
additional financing, Panda may be forced to cease operations.
WE CANNOT REPAY OUTSTANDING INDEBTEDNESS:
Panda has outstanding loans from Helix in the aggregate principal
amount of $2,000,000. The loans bear interest at an annual rate equal
to the prime rate of interest payable by the Royal Bank of Canada plus
2%,are secured by Panda's intellectual property and were due and
payable on February 15, 1999. As of August 19, 1999, this principal
amount due Helix has not been repaid and we are in default under the
provisions of this loan. The inability of Panda to repay the Helix
loans when due may have a material adverse effect on Panda, including
possible loss of rights to its intellectual property through
foreclosure, and could cause Panda to be unable to implement its
business strategy or force Panda to otherwise significantly curtail or
cease its operations. Our obligations under the Helix loans would be
assumed by SBI upon consummation of the Proposed Sale.
BUSINESS FACTORS THAT MAY ADVERSELY AFFECT OUR OPERATIONS.
WE FACE THE PRESSURES OF A COMPETITIVE INDUSTRY.
Panda operates in markets that are subject to intense competitive
pressures that could affect prices or demand for Panda's products and
services. The effect of competition on prices and demand may result
in reduced profit margins and/or loss of market opportunity. Some
competitors of Panda dominate their industries and have the financial
resources to enable them to withstand substantial price competition or
downturns in the market for semiconductor packages, related
technologies and/or computers. Panda faces the possibility (1) that we
will not be able to compete successfully, (2) that our competitors or
future competitors will develop technologies or products that render
Panda's products and technology obsolete or less marketable or (3)
that we will not be able to successfully enhance our products or
technology or adapt them satisfactorily.
WE HAVE RISKS INVOLVED WITH OUR INTERNATIONAL SALES.
Conducting business outside of the United States is subject to
particular risks, including: - changes in regulatory requirements and
tariffs; - reduced protection of intellectual property rights; -
difficulties in distribution; - the burden of complying with a variety
of foreign laws; and - political or economic constraints on
international trade or instability. In addition, all of our
international sales are currently priced in U.S. dollars, but future
sales or licensing of our products or technologies outside the United
States may be subject to the risks associated with fluctuations in
currency exchange rates.
WE CANNOT BE SURE THE MARKET WILL ACCEPT OUR PRODUCT.
The products and technologies currently being sold or developed by
Panda utilize newly developed designs. We believe that our existing
and proposed technology and products represent significant
advancements in semiconductor packaging technology. Demand for Panda's
existing and proposed products, however, is subject to a high degree
of uncertainty. Such high degrees of uncertainty are typical in the
case of newly developed products. Achieving marketing acceptance for
Panda's technology and existing and proposed products will require
substantial marketing efforts and expenditure of significant funds to
educate potential purchasers as to the distinctive characteristics and
anticipated benefits of Panda's proposed products and technologies.
Potential purchasers may be inhibited from doing business with Panda
due to their commitment to their existing products. In addition, many
potential purchasers maybe reluctant to use Panda's products and
technologies until a sufficient number of other potential purchasers
have already committed to do so. We have hired sales and marketing
personnel for its VSPA semiconductor package and Compass Connector.
Panda's marketing efforts may not be successful. If we are unable to
market our products successfully, our business, financial condition
and operating results will be materially adversely affected.
OUR PRODUCT IS VERY COMPLEX.
Panda's success will depend in part upon its products and technology
meeting acceptable cost and performance criteria, and upon timely
introduction of our products and technology into the marketplace.
There can be no assurance (1) that Panda's products and technology
will satisfactorily perform the functions for which they are designed,
(2) that they will meet applicable price or performance objectives or
(3) that unanticipated technical or other problems will not occur
which would result in increased costs or material delays in their
development or commercialization. In addition, technology as complex
as that which will be incorporated into Panda's proposed products may
contain errors which become apparent subsequent to widespread
commercial use. Remedying such errors could delay Panda's plans and
cause us to incur additional costs which would have a material adverse
effect on Panda.
WE ARE DEPENDENT ON MANUFACTURERS AND SUPPLIERS.
Panda has developed the ability to manufacture the VSPA semiconductor
package. We have also made arrangements with third-party manufacturers
to produce certain versions of the VSPA semiconductor package. Despite
these existing production arrangements, Panda may not be able to
produce sufficient quantities of VSPA to meet demand. Any inability
to meet the demand for our products would have a material adverse
effect on Panda's business, financial conditions and operating
results.
WE DEPEND ON KEY PERSONNEL.
Because of the specialized technical nature of our business, we are
highly dependent upon qualified scientific, technical and managerial
personnel. The competition for qualified personnel in the technology
field is intense. We may not be able to attract and retain the
qualified personnel necessary for the development of our business. The
loss of the services of existing personnel, as well as the failure to
recruit additional key scientific, technical and managerial personnel
in a timely manner, would be detrimental to our research and
development programs and to our business. Panda may not be able to
continue to hire additional qualified personnel or retain such
necessary personnel. The failure to attract and retain the necessary
personnel could materially adversely affect our business, financial
condition and operating results. We maintain "key man" life insurance
on Mr. Crane's life in the amount of $2,000,000.
WE ARE DEPENDENT ON OUR INTELLECTUAL PROPERTY.
Trademarks, patents, copyrights, trade secrets and other intellectual
property are critical to our success, and we rely on trademark, trade
secret protection and confidentiality and/or license agreements with
our employees, clients, partners and others to protect our proprietary
rights. We seek to protect our proprietary position by, among other
methods, filing United States and foreign patent applications related
to our proprietary technology, inventions and improvements that are
important to the development of our business. Proprietary rights
relating to our technologies will be protected from unauthorized use
by third parties only to the extent that they are covered by valid and
enforceable patents or copyrights or are effectively maintained as
trade secrets. As of June 7, 1999, Panda had obtained 19 United States
patents and an aggregate of 43 foreign patents. We currently have a
total of 17 patent applications pending in the United States and 30
foreign patent applications. Pending patent applications may not
result in patents being issued. In addition, the laws of some foreign
countries do not protect our intellectual property rights to the same
extent as do the laws of the United States. The patent position of
high technology companies involves complex legal and factual questions
and, therefore, we cannot predict their validity and enforceability
with certainty. Even if issued, our patent applications may be
challenged, invalidated, held unenforceable or circumvented. Further,
rights granted under future patents may not provide proprietary
protection or competitive advantages to us against competitors with
similar technology. Others may independently develop similar
technologies or duplicate technologies developed by us. Effective
trademark and trade secret protection may not be available in every
country in which our products and services are made available online.
The steps we have taken to protect our proprietary rights may not be
adequate, and third parties may infringe upon or misappropriate our
trade secrets, trademarks, trade dress and similar proprietary rights.
Others may independently develop substantially equivalent intellectual
property. Any significant failure to protect our intellectual property
in a meaningful manner could materially adversely affect our business,
financial condition and operating results. In addition, litigation may
be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of management and technical
resources, which could materially adversely affect our business,
financial condition and operating results.
OTHER FACTORS THAT MAY ADVERSELY AFFECT OUR RESULTS
WE HAVE THREE PENDING LITIGATION MATTERS.
On October 16,1998, a complaint was filed against Panda in the United
States District Court for the Southern District of New York by
Promethean Investment Group, L.L.C. The complaint alleges breach of
contract by Panda for failing to proceed with a financing transaction
and seeks damages in an unspecified amount in excess of $270,000 or a
declaration that Panda is required to proceed with the financing
transaction. The outcome is both immeasurable and undeterminable. We
may not be successful in defending this litigation. Even if Panda is
successful in defending itself in such litigation, the diversion of
critical resources involved in defending and settling these actions
could have a substantial material adverse effect on Panda.
On December 11, 1998, Panda and Joseph A. Sarubbi ("Sarubbi")entered
into a settlement agreement (the "Settlement Agreement")relating to
litigation in which Sarubbi has obtained a judgment against Panda in
the amount of $1,227,041. Under the Settlement Agreement, Panda has
agreed to pay Sarubbi total consideration worth $1,000,000 of which
$240,000 has been paid in cash and the remainder is to be satisfied
upon the sale of Panda Project shares which have been delivered to
Sarubbi by Panda. Panda will register those shares for Sarubbi
pursuant to the Registration Statement of which this prospectus is a
part. The parties have agreed to petition the Florida Court of Appeals
for the Fourth District to dismiss the litigation within five business
days after Panda's obligations in the Settlement Agreement have been
completed. If such obligations are not completed, the judgment will
remain in effect. This settlement amount will be recorded as a charge
against Company earnings for the quarter ended December 31, 1998.
Additionally, the Company and Mr. Sarubbi have entered into an
Amendment to the Settlement Agreement dated December 11,1998 (the
"Amendment"). The Amendment is dated June 24, 1994. In accordance
with the Amendment, the Company has issued Mr. Sarubbi an additional
2,100,000 shares to be registered pursuant to an S-2 that was filed
with the SEC . In addition, the Company has agreed to propose a vote
to the shareholders to issue additional shares. If approved, Mr.
Sarubbi would receive an additional 3,750,000 shares. No further
compensation, regardless of the total proceeds would be required if
all shares are issued. Currently the S-2 which was filed has not been
deemed effective and is still under review by the SEC. The Company is
in technical default of the Amendment. Any further legal action brought
by Mr. Sarubbi may be material.
On July 18, 1999, a complaint was filed against the Company in Palm
Beach County, Florida by Liberty Property Limited Partnership
("Liberty"). The complaint alleges breach of contract by the Company
for non monetary default of its lease agreement for the premises at
951 Broken Sound Parkway, Boca Raton, Florida. Liberty seeks
acceleration of future rent payments in the amount of approximately
$809,000. The Company has filed an answer to the complaint and the
outcome is both immeasurable and undeterminable. There can be no
assurance that the Company will be successful in defending this
litigation.
WE CANNOT ENSURE YEAR 2000 COMPLIANCE.
Panda believes that computer systems of Panda and its suppliers are
able to process date information beyond the year 1999. Panda is
working to monitor the progress of its key suppliers to achieve Year
2000 compliance. The failure of a major supplier to become Year 2000
compliant would materially adversely affect Panda's business
operations.
OTHER FACTORS THAT MAY ADVERSELY AFFECT OUR COMMON STOCK
WE HAVE BEEN DELISTED FROM NASDAQ NATIONAL MARKET.
Panda was delisted from the Nasdaq National Market, effective December
16,1998, due to its inability to meet the requirements necessary to be
listed on that exchange. On December 17, 1998, Panda began trading on
the NASD OTC Electronic Bulletin Board system or in what is commonly
referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of Panda's securities or to obtain accurate
quotations as to the price of, such securities. In addition, delisting
may affect our ability to issue additional securities or to secure
additional financing.
WE HAVE EXISTING OBLIGATIONS TO SOME PANDA SECURITYHOLDERS.
Holders of Common Stock received in the August 1998 private placement
have the right to receive $383,500 in penalty payments from Panda due
to unfulfilled obligations. Some of the holders have agreed to waive
this penalty.
ANTI-TAKEOVER STATUTES.
Certain provisions of our Amended and Restated Articles of
Incorporation and Florida law could make a merger, tender offer or
proxy context involving Panda more difficult, even if such events
could be beneficial to the interests of the shareholders. Such
provisions could limit the price that certain investors might be
willing to pay in the future for shares of the common stock. See
"DESCRIPTION OF CAPITAL STOCK Florida Law and Certain Anti-takeover
Charter Provisions."
POSSIBLE LACK OF RESOURCES OF SELLING SECURITYHOLDER.
The Selling Security holder may be deemed to be an Underwriter
pursuant to the Securities Act. As Underwriters, they may become
liable to the purchasers of the Common Stock offered under this
prospectus pursuant to the terms of the Securities Act if certain
provisions of the Securities Act are not complied with by them. The
Selling Security holder may not have the financial resources to
discharge any such liability.
Item 3 -Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is subject to changing
interest rates. The Company's policy is to manage interest rate risk
through the use of floating rate debt instruments. The Company has
loans with an unrelated lender totaling two million at June 30, 1999.
The interest rate on these loans is the Royal Canadian prime rate plus
2%. An immediate increase of 10% in interest rates would not be
material.
Part II -Other Information
Item 1. Legal Proceedings
On October 16, 1998, a complaint was filed against the Company in the
United States District Court for the Southern District of New York by
Promethean Investment Group, L.L.C. The complaint alleges breach of
contract by the Company for failing to proceed with a financing
transaction and seeks damages in an unspecified amount in excess of
$270,000 or a declaration that the Company is required to proceed with
the financing transaction. The Company has filed an answer to the
complaint and the outcome is both immeasurable and undeterminable.
There can be no assurance that the Company will be successful in
defending this litigation.
On December 11, 1998, the Company and Joseph A. Sarubbi ("Sarubbi")
entered into a settlement agreement (the "Settlement Agreement")
relating to litigation in which Sarubbi obtained a judgment against
the Company in the amount of $1,227,041. Under the Settlement
Agreement, the Company agreed to pay Sarubbi total consideration worth
$1,000,000 of which $240,000 has been paid in cash in December 1998
and the remainder is to be satisfied upon the sale of shares of the
Company's common stock which have been delivered to Sarubbi by the
Company. The Company has registered 1,775,000 shares for Sarubbi
pursuant to the S-2 Registration Statement, declared effective on
February 5, 1999. The parties have agreed to petition the Florida
Court of Appeals for the Fourth District to dismiss the litigation
within five business days after the Company's obligations in the
Settlement Agreement have been completed. If such obligations are not
completed, the judgment will remain in effect. Additionally, the
Company and Mr. Sarubbi have entered into an Amendment to the
Settlement Agreement dated December 11,1998 (the "Amendment"). The
Amendment is dated June 24, 1994. In accordance with the Amendment,
the Company has issued Mr. Sarubbi an additional 2,100,000 shares to
be registered pursuant to an S-2 that was filed with the SEC . In
addition, the Company has agreed to propose a vote to the shareholders
to issue additional shares. If approved, Mr. Sarubbi would receive
an additional 3,750,000 shares. No further compensation, regardless
of the total proceeds would be required.
On July 18, 1999, a complaint was filed against the Company in Palm
Beach County, Florida by Liberty Property Limited Partnership
("Liberty"). The complaint alleges breach of contract by the Company
for non monetary default of its lease agreement for the premises at
951 Broken Sound Parkway, Boca Raton, Florida. Liberty seeks
acceleration of future rent payments in the amount of approximately
$809,000. The Company has filed an answer to the complaint and the
outcome is both immeasurable and undeterminable. There can be no
assurance that the Company will be successful in defending this
litigation. If the Company is not successful in defending this litigation it
will have a material adverse effect and the Company may be forced to cease
operations.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
The Company has outstanding loans from Helix in the aggregate
principal amount of $2,000,000. Such loans bear interest at an annual
rate equal to the prime rate of interest payable by the Royal Bank of
Canada plus 2%, are secured by the Company's intellectual property and
were due and payable on February 15, 1999. As of August 19, 1999,
this principal amount due Helix has not been repaid and is in default.
The inability of the Company to repay the Helix loans when due may
have a material adverse effect on the Company, including possible loss
of rights to its intellectual property through foreclosure which would
cause the Company to cease its operations. In connection with the
Helix loans, the Company has issued to Helix warrants to purchase an
aggregate of 2,850,000 shares of Common Stock at exercise prices
ranging from $1.63 to $2.125 per share (collectively, the "Helix
Warrants"). The Helix Warrants have expiration dates ranging from
December 19, 1999 to August 7, 2000. These warrants have been valued
at an aggregate of approximately $4,324,000. A total of $4,324,000
has been charged to amortization expense for these warrants through
February 15, 1999. This accounting treatment has no impact on the
Company's cash balance. As of August 15, 1999, Helix and its
affiliates hold approximately 3.3% of the Company's outstanding Common
Stock (not including shares issuable upon exercise of warrants).
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) See the Exhibit Index included immediately preceding the
Exhibits to this report, which is incorporated herein by reference.
(b) Reports on Form 8-K:
The Company has filed the following reports on Form 8-K `since
January 1, 1999:
January 4, 1999 The Panda Project, Inc. (the "Company") has
engaged Grant Thornton LLP as the Company's
independent accountants to audit the Company's
financial statements. The engagement is
effective as of January 4, 1999.
May 18, 1999 The Panda Project, Inc. has entered into an
agreement with Silicon Bandwidth, Inc. to sell
its intellectual property portfolio as well as
the fixed assets related to its interconnect and
semiconductor business.
June 18,1999 The Panda Project has entered into a loan agreement
with Silicon Bandwidth, Inc. in the amount of
$300,000 secured by the Company's assets.
August 11, 1999 The Panda Project, Inc. has entered into a Loan
agreement for an additional $325,000 totalling
$625,000 secured by the Company's assets.
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.
THE PANDA PROJECT, INC.
Date: October 12, 1999
By: /s/ MELISSA F. CRANE
-------------------------------
Melissa F. Crane
Acting Chief Financial Officer
(On behalf of the Registrant and
as Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Description of Exhibit
- ------- ----------------------
2.1 Letter of Intent by Silicon Bandwidth, Inc. dated May 18,
1999. (Incorporated herein by reference to exhibit 2.1 to the Company's
8-K filed on May 18, 1999).
2.2 Voting Agreement. (Incorporated herein by reference to exhibit 2.2 to
the Company's 8-K filed on May 18, 1999).
2.3 Agreement between Helix (PEI), Inc., The Panda Project, Inc.
and Silicon Bandwidth, Inc. (Incorporated herein by reference to exhibit
2.3 to the Company's 8-K filed on May 18, 1999).
2.4 The Exchange Agreement between Panda Project inc. and the
Convertible Preferred A Holders. (Incorporated herein by reference
to exhibit 2.4 to the Company's 8-K filed on May 18, 1999).
3.1 Amended and Restated Articles of Incorporation of the
Company, as amended (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-3 filed November 3, 1997 (File No. 333-39287) (the "Form
S-3, File No. 333-39287")).
3.2 Amended and Restated By-Laws of the Company (incorporated
herein by reference to Exhibit 3.2 to the Form S-3, File No.
333-39287).
3.3 Fourth Articles of Amendment of Amended Restated Articles of
Incorporation (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K filed
February 23, 1998).
3.4 Fifth Articles of Amendment of Amended Restated Articles of
Incorporation (incorporated herein by reference to Exhibit 3.1 to
the Company's Quarterly Report of Form 10-Q for the period ended March
31, 1998).
3.5 Sixth Articles of Amendment of Amended Restated Articles of
Incorporation (incorporated herein by reference to Exhibit 3.2 to the
Company's amended Quarterly Report of Form 10-Q for the period ended
March 31, 1998 filed July 2, 1998).
3.6 Seventh Articles of Amendment of Amended Restated Articles of
Incorporation (incorporated herein by reference to Exhibit 3.5 to
the Registrant's Quarterly Report of Form 10-Q for the period ended June
30, 1998).
4.1 Warrant Agreement dated May 16, 1994 between the Company and
Whale Securities Co., L.P. (incorporated herein by reference
to Exhibit 4.4 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (File No. 33-76694-A)
(the "Form SB-2")).
4.2 Form of Warrant issued in Private Placement Financing
(incorporated herein by reference to Exhibit 99.3, filed as
part of the Company's Registration Statement on Form S-3
(File No. 333-14931) (the "Form S-3, File No. 333-14931")).
4.3 Form of SRP Warrant (incorporated herein by reference to
Exhibit 99.4, filed as part of the Form S-3, File No.
333-14931).
4.4 Form of 4% Subordinated Convertible Debentures of the
Company (incorporated herein by reference to Exhibit 4.1,
filed as part of the Registrant's Form 8-K filed April 21,
1997).
4.5 Form of Common Stock Purchase Warrant Issued to Dusseldorf
Securities LTD (incorporated herein by reference to Exhibit
4.2, filed as part of the Registrant's Form 8-K filed April
21, 1997).
4.6 Form of Common Stock Purchase Warrant (incorporated herein
by reference to Exhibit 99.2, filed as part of the
Registrants Form 8-K filed February 11, 1998).
4.7 Form of Common Stock Purchase Securities Agreement
(incorporated herein by reference to Exhibit 10.1 as part of the
Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1998).
4.8 Form of Common Stock Purchase Warrant (incorporated herein by
reference to Exhibit 4.1 as part of the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1998).
4.9 Promissory Note dated June 11, 1999 by and between The
Panda Project, Inc. (the "Company") and Silicon Bandwidth,
Inc. ("SBI"). (incorporated herein by reference to Exhibit 10.1 to the
Company's 8-K filed on June 18, 1999).
4.10 Promissory Note dated July 15, 1999 by and between The
Panda Project, Inc. (the "Company") and Silicon Bandwidth,
Inc. ("SBI"). (incorporated herein by reference to Exhibit 2.1 to the
Company's 8-K filed on August 11, 1999.
4.11 Promissory Note dated August 17, 1999 by and between The
Panda Project, Inc. (the "Company") and Silcon Bandwidth,
Inc. ("SBI"). Incorporated herein by reference to Exhibit 4.11 as
part of the Registrant's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1999.
10.1 Amended and Restated Employment Agreement between the
Company and Stanford W. Crane, Jr., dated February 22, 1994
(incorporated herein by reference to Exhibit 10.1 filed as
part of the Form SB-2).@
10.2 1993 Performance Incentive Plan, dated December 29, 1993
(incorporated herein by reference to Exhibit 10.6 filed as
part of the Form SB-2).@
10.3 Amended and Restated Nonemployee Director Stock Option
Plan (incorporated herein by reference to Exhibit 99.1
filed as part of the Registrant's Quarterly Report on Form
10-Q filed for the quarter ended September 30, 1997).@
10.4 1995 Employee Stock Incentive Plan, dated November 2, 1995
(incorporated herein by reference to Exhibit 4.4 filed as
part of the Company's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on
November 7, 1995 (Registration No. 33-99058)).@
10.5(a)Lease Agreement between the Company and Fairfax Boca '92
L.P., dated March 2, 1994 (incorporated herein by
reference to Exhibit 10.9(a) filed as part of the Form
SB-2).
10.5(b) Amendment dated April 1, 1995, to Lease Agreement dated
March 2, 1994, between the Company and Fairfax Boca '92,
L.P. (incorporated herein by reference to Exhibit 10.5(b)
filed as part of the Registrant's Form 10-K for the year
ended March 31, 1996).
10.5(c) Amendment dated as of July 1, 1995, to Lease Agreement dated
March 2, 1994, between the Company and Fairfax Boca '92, L.P.
(incorporated herein by reference to Exhibit 10.98 filed as
part of the Registrant's Form 10-KSB for the year ended March
31, 1995 (Commission File No. 0-24030)).
10.5(d) Lease Agreement dated October 24, 1995, between the Company
and Fairfax Boca '92, L.P. (incorporated herein by reference
to Exhibit 10.5(d) filed as part of the Registrant's Annual
Report on Form 10-K for the year ended March 31, 1996 filed on
June 27, 1996).
10.5(e) Fourth Amendment dated as of November 27, 1996, to Lease
Agreement dated October 24, 1995, between the Company and
Fairfax Boca '92, L.P. (incorporated herein by reference to
Exhibit 10.5(e) filed as part of the Registrant's Annual
Report on Form 10-K for the year ended March 31, 1997).
10.5(f) Fifth Amendment dated as of March 13, 1997, to Lease Agreement
dated October 24, 1995, between the Company and Fairfax Boca
'92, L.P. (incorporated herein by reference to Exhibit 10.5(f)
filed as part of the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1997).
10.6 Form of Indemnification Agreement between the Company and its
directors, dated December 29, 1993 (incorporated herein by
reference to Exhibit 10.10 filed as part of the Form SB-2).
10.7 Offshore Securities Subscription Agreement dated April 2, 1997
(incorporated herein by reference to Exhibit 99.1, filed as
part of the Registrant's Form 8-K filed April 21, 1997).
10.8 License Agreement, dated as of August 17, 1996, among Stanford
W. Crane, Jr., the Company and Sun Precision Works, Pvt. Ltd.
(incorporated herein by reference to Exhibit 99.5 filed as
part of the Form S-3, File No. 333-14931).
10.9 Registration Rights Agreement dated February 11, 1998
(incorporated herein by reference to Exhibit 99.2, filed as
part of the Registrant's Form 8-K filed February 11, 1998).
10.10 Warrant dated September 10, 1996 issued by the Company to
Mallory Factor (incorporated herein by reference to Exhibit
99.7 filed as part of the Form S-3, File No. 333-14931).
10.11 License Agreement, dated as of August 18, 1996, between the
Company and Pantronix Corporation (incorporated herein by
reference to Exhibit 99.8 filed as part of the Form S-3, File
No. 333-14931).
10.12 License Agreement, dated as of September 30, 1996, among
Stanford W. Crane, Jr., the Company and LG Cable & Machinery
Ltd. (incorporated herein by reference to Exhibit 99.9 filed
as part of the Form S-3, File No. 333-14931).
10.13 Registration Rights Agreement, dated as of July, 1996, among
the Company and the Purchasers named therein (incorporated
herein by reference to Exhibit 10.1 filed as part of the
Registrant's Quarterly Report on Form 10-Q filed for the
quarter ended June 30, 1996).
10.14 License Agreement dated January 19, 1996 between the Company
and Stanford W. Crane, Jr. (incorporated herein by reference
to Exhibit 10.1 filed as part of the Registrant's Quarterly
Report on Form 10-Q filed on February 14, 1996).
10.15 Agreement dated March 25, 1996, between the Company and
Parametric Technology Corporation. (incorporated herein by
reference to Exhibit 10.15 filed as part of the Registrant's
Annual Report on Form 10-K filed for the fiscal year ended
March 31, 1997).
10.16 License Agreement dated June 7, 1996 among the Company, AMP
Incorporated, The Whitaker Corporation and Connectware Inc.
(incorporated herein by reference to Exhibit 10.16 filed as
part of the Registrant's Annual Report on Form 10-K filed for
the fiscal year ended March 31, 1997).
10.17 Cooperative Agreement, dated October 22, 1996, between the
Company and the United States of America, U.S. Air Force, Air
Force Material Command (incorporated herein by reference to
Exhibit 99.10 filed as part of the Form S-3).
10.18 Reseller Agreement, dated November 1996, between the Company
and Siemens Nixdorf Information Systems, Inc. (incorporated
herein by reference to Exhibit 99.11 filed as part of the Form
S-3).
10.19 License Agreement, executed as of July 15, 1997, between the
Company and LG Cable & Machinery Ltd. (incorporated herein by
reference to Exhibit 10.1 filed as part of the Registrant's
Quarterly Report on Form 10-Q filed for the quarter ended June
30, 1997).
10.20 Standard Industrial Lease Agreement, dated as of July 16,
1997, between the Company and IBG Huntwood Associates
(incorporated herein by reference to Exhibit 10.2 filed as
part of the Registrant's Quarterly Report on Form 10-Q filed
for the quarter ended June 30, 1997).
10.21 Secured Promissory Note dated December 19, 1997 issued to
Helix (PEI) Inc. (incorporated herein by reference to Exhibit
10.1, filed as part of the Registrant's Form 8-K filed January
14, 1998).
10.22 Secured Promissory Note dated January 12, 1998 issued to Helix
(PEI) Inc. (incorporated herein by reference to Exhibit 10.1,
filed as part of the Registrant's Form 8-K filed January 14,
1998).
10.23 Subscription Agreement dated February 11, 1998 with purchasers
of Series A Preferred (incorporated herein by reference to
Exhibit 99.1, filed as part of the Registrant's Form 8-K filed
February 11, 1998).
10.24 Secured Promissory note dated May 28, 1998 issued to Helix
(incorporated herein by reference to Exhibit 10.1 filed as part of the
Registrant's quarterly report on amended Form 10-Q/A for the quarter
ended June 30, 1998.
10.25 Registration Rights Agreement, dated as of February 6, 1998
(incorporated herein by reference to Exhibit 99.2 to the Company's 8-K
filed on February 23, 1998).
10.26 Secured Promissory note dated June 28, 1998 issued to Helix
(incorporated herein by reference to Exhibit 10.2 filed as part of the
Registrant's quarterly report on amended Form 10-Q/A for the quarter
ended June 30, 1998.
10.27 Secured Promissory note dated July 17, 1998 issued to Helix
(incorporated herein by reference filed as part of the Company's
8-K filed on July 30, 1999.)
21 Subsidiaries of the Company.
27 Financial Data Schedule.
________________
@ - Management contracts and compensatory plans and arrangements
<TABLE>
<S> <C>
[ARTICLE] 5
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] JUN-30-1999
[CASH] 106,625
[SECURITIES] 0
[RECEIVABLES] 79,868
[ALLOWANCES] 0
[INVENTORY] 38,634
[CURRENT-ASSETS] 313,067
[PP&E] 1,467,967
[DEPRECIATION] 156,457
[TOTAL-ASSETS] 1,944,773
[CURRENT-LIABILITIES] (4,958,005)
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY](1,944,773)
[SALES] (403,740)
[TOTAL-REVENUES] (903,740)
[CGS] 194,121
[TOTAL-COSTS] 194,121
[OTHER-EXPENSES] 6,202,079
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 302,717
[INCOME-PRETAX] (5,346,388)
[INCOME-TAX] 0
[INCOME-CONTINUING] (5,346,388)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (5,346,388)
[EPS-BASIC] (.24)
[EPS-DILUTED] (.24)
</TABLE>
EXHIBIT 4.11
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAWS. IT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNDER
CIRCUMSTANCES THAT WOULD RESULT IN A VIOLATION OF THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR
SUCH OTHER LAWS.
AMENDED AND RESTATED SECURED PROMISSORY NOTE
U.S. $ 950,000 Dated: August 17, 1999
FOR VALUE RECEIVED, the undersigned, THE PANDA PROJECT, INC., a
Florida corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES
TO PAY to the order of SILICON BANDWIDTH, INC., a Delaware corporation
(the "Lender"), the principal sum of NINE HUNDRED FIFTY THOUSAND
UNITED STATES DOLLARS (U.S. $950,000), on September 30, 1999 (the
"Maturity Date"). This Amended and Restated Secured Promissory Note
replaces the Secured Promissory Note of the Borrower dated June 14,
1999.
The Borrower further promises to pay interest on the outstanding
principal amount of this Promissory Note (this "Note") from June 14,
1999 until maturity (with respect to $300,000 of the outstanding
principal amount hereof), from July 15 until maturity (with respect to
$325,000 of the outstanding principal amount hereof) and from the date
hereof until maturity (with respect to $325,000 of the outstanding
principal amount hereof) at a rate per annum equal at all times to six
percent (6%) per annum. Accrued interest shall be payable on the
Maturity Date. In the event that any amount of principal or interest,
or any other amount payable hereunder, is not paid in full when due
(whether at stated maturity, by acceleration or otherwise), the
Borrower shall pay interest on such unpaid principal, interest or
other amount, from the date such amount becomes due until the date
such amount is paid in full, payable on demand, at a rate per annum
equal at all times to ten percent (10%) per annum. All computations
of interest shall be made on the basis of a year of 365 or 366 days,
as the case may be, for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such
interest is payable.
This Note is secured by certain collateral more specifically
described in the Security Agreement dated as of June 14, 1999 between
Borrower and Lender (the "Security Agreement"). Capitalized terms not
otherwise defined in this Note shall have the meanings ascribed to
them in the Security Agreement.
All payments hereunder shall be made in lawful money of the
United States of America and in same day or immediately available
funds, to the Lender, at 1001 Bayhill Drive, Suite 140, San Bruno,
California 94066, or to such other office and account of the Lender as
it from time to time shall designate in a written notice to the
Borrower.
Whenever any payment hereunder shall be stated to be due, or
whenever any interest payment date or any other date specified
hereunder would otherwise occur, on a day other than a Business Day
(as defined below), then, except as otherwise provided herein, such
payment shall be made, and such interest payment date or other date
shall occur, on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of payment
of interest hereunder. As used herein, "Business Day" means a day (i)
other than Saturday or Sunday, and (ii) on which commercial banks are
open for business in New York, New York.
All payments shall be made hereunder unconditionally in full
without deduction, setoff, counterclaim or other defense, including,
without limitation, any deduction or setoff arising out of or in
connection with the Letter of Intent dated as of May 14, 1999 by and
between Lender and Borrower (the "Letter of Intent"), and the Asset
Purchase Agreement by and between Lender and Borrower to be executed
pursuant to the Letter of Intent (the "Asset Purchase Agreement");
provided, however, that no payment hereunder shall be deemed to be a
waiver of any right or claim that the Borrower may have under such
agreements. The Borrower represents and warrants to the Lender that,
to the best of Borrower's knowledge, there is no claim, defense,
counterclaim or set-off which could be asserted by or is available to
the Borrower against the Lender.
The Borrower shall pay all amounts due under this Note free and
clear of, and without reduction for or on account of, any present and
future taxes, levies, imposts, duties, fees, assessments, charges,
deductions or withholdings and all liabilities with respect thereto
(collectively "Taxes"). If any Taxes shall be required by law to be
deducted or withheld from any payment, the Borrower shall increase the
amount paid so that the Lender receives when due (and is entitled to
retain), after deduction or withholding for or on account of such
Taxes (including deductions or withholdings applicable to additional
sums payable under this paragraph), the full amount of the payment
provided for in this Note.
If the Lender is required by law to make any payment on account
of Taxes, or any liability in respect of any Tax is imposed, levied or
assessed against the Lender, the Borrower shall indemnify the Lender
for and against such payment or liability, together with any
incremental taxes, interest or penalties, and all costs and expenses,
payable or incurred in connection therewith, including Taxes imposed
on amounts payable under this paragraph whether or not such payment or
liability was correctly or legally asserted. A certificate of the
Lender as to the amount of any such payment shall, in the absence of
manifest error, be conclusive and binding for all purposes.
Anything herein to the contrary notwithstanding, if during any
period for which interest is computed hereunder, the amount of
interest computed on the basis provided for in this Note, together
with all fees, charges and other payments which are treated as
interest under applicable law, as provided for herein or in any other
document executed in connection herewith, would exceed the amount of
such interest computed on the basis of the Highest Lawful Rate, the
Borrower shall not be obligated to pay, and the Lender shall not be
entitled to charge, collect, receive, reserve or take, interest in
excess of the Highest Lawful Rate, and during any such period the
interest payable hereunder shall be computed on the basis of the
Highest Lawful Rate. As used herein, "Highest Lawful Rate" means the
maximum non-usurious rate of interest, as in effect from time to time,
which may be charged, contracted for, reserved, received or collected
by the Lender in connection with this Note under applicable law.
Any of the following events which shall occur shall constitute
an "Event of Default":
(a) The Borrower shall fail to pay when due any amount of
principal or interest on this Note or any other amount payable under
this Note, the Security Agreement or any other Document.
(b) Any representation or warranty by the Borrower under or
in connection with this Note, the Security Agreement or any other
Document shall prove to have been incorrect in any material respect
when made or deemed made.
(c) The Borrower shall fail to perform or observe any other
term, covenant or agreement contained in this Note, the Security
Agreement or any other Document on its part to be performed or
observed and any such failure shall remain unremedied for a period of
10 days from the occurrence thereof.
(d) The Borrower shall fail to make payment when due on any
other indebtedness for money borrowed with an aggregate principal
amount outstanding of $ 10,000.00 or more, or otherwise fails to
perform any covenant in or otherwise breaches the terms of any
instrument relating to such indebtedness which failure or breach
permits the holder of such indebtedness to accelerate the maturity of
such indebtedness.
(e) Any levy upon, seizure or attachment of the Collateral or
any part thereof, or any material impairment in the value of the
Collateral or the priority of the Lender's lien thereon.
(f) The Borrower or any other Person shall challenge the
validity of this Note, or the Security Agreement, or the grant of the
security interest thereunder.
(g) The Borrower shall (i) liquidate, wind up or dissolve (or
suffer any liquidation, wind-up or dissolution), (ii) suspend its
operations other than in the ordinary course of business, or (iii)
take any corporate action to authorize any of the actions or events
set forth above in this paragraph (g).
(h) A final judgment or order for the payment of money in
excess of $10,000.00 (excluding the settlement of the lawsuit between
Borrower and Promethean LLC for up to $35,000.00) which is not fully
covered by third-party insurance shall be rendered against the
Borrower; or any non-monetary judgment or order shall be rendered
against the Borrower which has or would reasonably be expected to have
a material adverse effect upon the operations, properties, business or
condition (financial or otherwise) of the Borrower; and in each case
there shall be any period of 20 consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
(i) The Borrower shall merge with or consolidate into or
acquire all or a substantial part of the assets of another Person or
sell, lease, transfer or otherwise dispose of all or a substantial
part of its assets.
(j) The Borrower shall form any subsidiaries, alter its
capital structure, declare or pay any dividends or purchase, redeem or
retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, return capital to its shareholders or
distribute assets to its shareholders; provided, however, that the
Borrower may, pursuant to the terms and conditions of its existing
stock option and stock purchase agreements between the Borrower and
its employees and consultants, issue stock options and repurchase
unvested shares of common stock of the Borrower.
If any Event of Default shall occur, the Lender may (i) by
notice to the Borrower, declare the entire unpaid principal amount of
this Note, all interest accrued and unpaid hereon and all other
amounts payable hereunder to be forthwith due and payable, whereupon
all unpaid principal under this Note, all such accrued interest and
all such other amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower, and (ii)
whether or not the actions referred to in clause (i) have been taken,
exercise any or all of the Lender's rights and remedies under the
Security Agreement and proceed to enforce all other rights and
remedies available to the Lender under applicable law.
No amendment or waiver of any provision of this Note, nor any
consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be in writing and signed by the
Lender and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which
given.
All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including by
facsimile) and mailed, sent or delivered to the respective parties
hereto at or to the following addresses or facsimile numbers (or at or
to such other address or facsimile number as shall be designated by
any party in a written notice to the other parties hereto):
If to the Lender: Silicon Bandwidth, Inc.
1001 Bayhill Drive, Suite 140
San Bruno, CA 94066
Attn: Chief Executive Officer
Facsimile: (650) 869-6078
If to the Borrower: The Panda Project, Inc.
951 Broken Sound Parkway
Boca Raton, FL 33487
Attn: Chief Executive Officer
Facsimile: (561) 994-0191
All such notices and communications shall be effective (i) if
delivered by hand, upon delivery; (ii) if sent by mail, upon the
earlier of the date of receipt or five Business Days after deposit in
the mail, first class (or air mail, with respect to communications to
be sent to or from the United States), postage prepaid; and (iii) if
sent by facsimile, when sent.
No failure on the part of the Lender to exercise, and no delay
in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Note are
cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to the Lender.
Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this
Note shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be
deemed modified to conform to the minimum requirements of such law or
regulation, or, if for any reason it is not deemed so modified, it
shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions
of this Note, or the validity or effectiveness of such provision in
any other jurisdiction.
The Borrower agrees to pay on demand all costs and expenses of
the Lender, and the fees and disbursements of counsel (including the
allocated costs of internal counsel), in connection with (i) any
amendments, modifications or waivers of the terms hereof, (ii) any
Event of Default, (iii) the enforcement or attempted enforcement of,
and preservation of any rights under, this Note, and (iv) any out-of-
court workout or other refinancing or restructuring or in any
bankruptcy case, including, without limitation, any and all losses,
costs and expenses sustained by the Lender as a result of any failure
by the Borrower to perform or observe its obligations contained
herein. In addition, the Borrower agrees to indemnify the Lender
against and hold it harmless from any and all present and future
stamp, transfer, documentary and other such taxes, levies, fees,
assessments and other charges made by any jurisdiction by reason of
the execution, delivery, performance and enforcement of this Note.
This Note shall be binding upon, inure to the benefit of and be
enforceable by the Borrower, the Lender and their respective
successors and assigns.
The Borrower shall not have the right to assign its rights and
obligations hereunder or any interest herein without the prior written
consent of the Lender. The Lender may sell, assign, transfer or grant
participations in all or any portion of the Lender's rights and
obligations hereunder. In the event of any such assignment the
assignee shall be deemed the "Lender" for all purposes of this Note
and any other documents and instruments relating hereto with respect
to the rights and obligations assigned to it. The Borrower agrees
that in connection with any such grant or assignment, the Lender may
deliver to the prospective participant or assignee financial
statements and other relevant information relating to the Borrower and
its Subsidiaries.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
THE BORROWER AND LENDER HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS NOTE, THE SECURITY AGREEMENT OR
ANY OTHER DOCUMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTIES THERETO. THE BORROWER
AND LENDER HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING
THE FOREGOING, THE BORROWER AND LENDER FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
PARAGRAPH AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH
SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS NOTE, THE SECURITY AGREEMENT OR ANY OTHER
DOCUMENT OR ANY PROVISION THEREOF.
IN WITNESS WHEREOF, the Borrower has duly executed this
Note, as of the date first above written.
THE PANDA PROJECT, INC.
By
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