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 September 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 29,683,834 shares as of November 12,
1999.
<PAGE>
THE PANDA PROJECT, INC.
Index
Page
Part I - Financial Information
Item 1 - Financial Statements (unaudited)
Condensed Balance Sheets - September 30, 1999
and December 31, 1998
Condensed Statements of Operations - Nine
months ended September 30, 1999 and September 30, 1998
Condensed Statements of Cash Flows - Nine months
ended September 30, 1999 and September 30, 1998
Notes to Condensed Financial Statements -
September 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
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 80,535 $ 60,613
Accounts receivable-trade (net of
allowance of $295,292 at September 30,
1999 and at December 31, 1998) 8,496 64,206
Inventory, net 24,167 47,319
Other receivables 289,618 19,273
Prepaid expenses and other current
assets 43,128 637,947
------------- -------------
Total current assets 445,944 829,358
------------- -------------
Property and equipment, net 1,171,853 1,845,939
Restricted cash 80,000 80,000
Other assets 85,104 82,540
------------- -------------
Total assets $ 1,782,901 $ 2,837,837
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 1,182,648 $ 1,207,662
Notes payable 2,950,000 2,000,000
Accrued expenses and other
current liabilities 2,282,584 1,356,069
------------- -------------
Total current liabilities 6,415,232 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 September 30,
1999 and 420 shares issued and
outstanding at December 31, 1998 4,864,137 3,967,057
Common Stock, $.01 par value, 50,000,000
shares authorized: 29,698,425 shares
issued and outstanding at September 30,
1999 and 16,744,088 shares issued
and outstanding at December 31, 1998 296,985 167,441
Additional paid-in capital 76,931,972 74,479,857
Accumulated deficit (86,725,425) (80,340,249)
------------ ------------
Total stockholders' deficit (4,632,331) (1,725,894)
------------ ------------
Total liabilities and stockholders'
deficit $ 1,782,901 $ 2,837,837
============= =============
See Notes to Condensed Financial Statements.
<TABLE>
The Panda Project, Inc.
Condensed Statements of Operations (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 101 $ 193,268 $ 403,841 $ 515,186
Licensing fees 250,000 - 750,000 -
Contract research and
development revenues - - - 135,673
Less returns and
Allowances - (3,239) - (3,239)
----------- ----------- ----------- -----------
Net revenues $ 250,101 $ 190,029 $ 1,153,841 $ 647,620
Costs and expenses:
Cost of sales 11,933 169,152 206,060 563,604
Research and
development 182,988 803,722 754,652 2,832,242
Selling, general
and administrative 858,127 2,076,024 3,582,071 6,316,268
Amortization of debt
issuance costs/
accrued penalties 177,000 1,246,000 2,695,500 2,475,514
Cost associated with
asset impairments 167,223 - 167,223 -
----------- ----------- ----------- -----------
Total costs and
expenses 1,397,217 4,294,898 7,405,506 12,187,628
----------- ----------- ----------- -----------
Operating loss (1,147,170) (4,104,869) (6,251,665) (11,540,008)
Interest income (expense) (599) 21,299 (302,938) (21,298)
Other income 105,287 (3,075) 111,059 47,311
Gain on Sale/
Disposal of Assets 3,695 - 58,368 -
----------- ----------- ----------- -----------
Net loss $(1,038,787) $(4,086,645) $(6,385,176)$(11,513,995)
============ =========== =========== ===========
Dividends and amortization
of beneficial conversion
feature related to
convertible preferred
stock - (177,872) (54,067) (689,713)
============ =========== =========== ===========
Net loss applicable to
common stock $(1,038,787)$(4,264,517) $(6,439,243) (12,203,708)
============ =========== =========== ===========
Basic and diluted loss
per common share $ (.04) $ (.31) $ (.26) $ (.95)
=========== =========== =========== ===========
Weighted average shares
outstanding 24,323,537 13,850,943 24,587,384 12,779,174
=========== =========== =========== ===========
See Notes to Condensed Financial Statements.
</TABLE>
The Panda Project, Inc.
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
1999 1998
------------- -------------
Net cash used in operating activities (1,925,453) (9,274,041)
Cash flows from investing activities:
Additions to property and equipment - (647,601)
Dispositions of property and equipment 80,200 -
------------- -------------
Net cash provided by (used in)
investing activities 80,200 (647,601)
Cash flows from financing activities:
Proceeds from issuance of
convertible preferred stock - 6,000,000
Proceeds from issuance of common stock 915,175 3,778,465
Proceeds from issuance of notes payable 950,000 3,000,000
Repayment of notes payable - (2,000,000)
Payments of convertible preferred stock - -
issuance costs - (193,013)
------------- -------------
Net cash provided by financing
activities 1,865,175 10,585,452
------------- -------------
Net increase in cash
and cash equivalents 19,922 663,810
------------- -------------
Cash and cash equivalents at
beginning of period 60,613 619,683
------------- -------------
Cash and cash equivalents at end
of period $ 80,535 $ 1,283,493
============= =============
See Notes to Condensed Financial Statements.
<PAGE>
The Panda Project, Inc.
Notes to Condensed Financial Statements
September 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 September 30, 1999 is comprised of the Company's
VSPA raw materials and finished goods of $14,365 and the net
realizable value of the Systems inventory of $9,802 (net of reserves
of $1,557,934). 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 approximately $1,778,837).
Product sales for the nine months ended September 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 $234,000 were reserved as of December 31, 1998.
3. Other Receivables
Other receivables consists of a $250,000 one time licensing fee with
Aju Exim, a Korean lead frame manufacturer. On October 27, 1999, the
company received payment of $250,000 related to the one time licensing
fee.
4. Property and Equipment
During the three months ended September 30, 1999, the Company
determined that certain long-lived assets were impaired as a result of
changes in the functional use of the equipment. As a result, the
Company recorded charges totaling $167,223, related to certain
manufacturing equipment.
5. Accounts Payable
During the three months ended September 30, 1999, the Company settled
various trade receivables with vendors for less than the amount
originally expensed. This difference of $105,287 was recorded in
other income.
6. 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 November 1, 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 September 30, 1999, Helix and its affiliates hold
approximately 3.4% 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 February 24, 2000. (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
February 24, 2000. (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
February 24, 2000. (See Exhibit 4.11)
On October 1, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $300,000
with borrowed amounts totaling $1,250,000. 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 October 1, 1999, by and between the Company
and SBI. The loan bears an interest rate of 6% per annum and is due
and payable on February 24, 2000. (See Exhibit 4.12)
7. 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 $585,000 was recorded
related to the 3,750,000 common shares to be issued upon shareholder
approval of additional authorized shares.
8. 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 September 30, 1999, 272.14 shares of Series
A Preferred were converted into an aggregate of 4,666,492 shares of
common stock of the Company. As of September 30, 1999, 528.85 shares
of Series A Preferred (including 171 penalty shares) have not been
converted. However, these shares will be converted five days prior to
the record date into 20,262,681 Common shares calculated as (528.85 x
10,000 / .261).
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
inter-dealer 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 September 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. In the quarter
ending September 30, 1999 there was no additional amortization
expense.
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)
8. 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 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 the Company is
required to issue approximately 6,000,000 additional shares of Panda
common stock. As of the current date these shares have not been
issued. The Company intends to seek shareholder approval to increase
the number of shares allowed to be issued to fulfill its obligation.
Accordingly, the Company recorded $600,000 as part of accrued
expenses.
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.
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.
9. Commitments and Contingent 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. Panda has filed an answer to the complaint. At the
present time, the outcome of this litigation is both immeasurable and
undeterminable. There can be no assurance that Panda will be
successful in defending this litigation.
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. Sarubbi entered into a consulting agreement
with Panda in 1992. Sarubbi also later served as a director and
general manager of Panda. Under this consulting arrangement, Sarubbi
received 91,000 options to purchase shares of Panda Common Stock.
Sarubbi also served as a director of Panda in 1995 and 1996. In 1996,
Sarubbi notified Panda of his desire to exercise all of his options
and to sell all of the Panda Common Stock received upon the exercise
of such options. A Florida district court held Panda liable for
certain losses Sarubbi alleged he incurred in connection with the sale
of his Panda Common Stock and for fees for his previous service as
director. The court granted a judgment of $1,227,041 in favor of
Sarubbi. 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 in December 1998 and the remainder is to be
satisfied upon the sale of shares of Panda's Common Stock which have
been delivered to Sarubbi by Panda. Panda has registered 1,775,000
shares for Sarubbi pursuant to a 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 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
was recorded as a charge against Company earnings for the quarter
ended December 31, 1998. On April 14, 1999, Panda received a Notice
of Default on the Settlement Agreement. Sarubbi claimed that his
inability to sell the stock that he received in the settlement creates
a breach under the Settlement Agreement. Panda believes that it is in
full compliance with the Settlement Agreement and that no breach
exists. On June 25, 1999, the Settlement Agreement was amended to
allow Panda to extend its time to satisfy its obligations under the
Settlement Agreement (the "Amended Settlement Agreement"). Under the
Amended Settlement Agreement, the Company issued Sarubbi 2,100,000
shares of Panda Common Stock in the second quarter of 1999 and such
shares were recorded as an expense to SG&A at the closing price of
$0.156 totaling $327,600. Panda also agreed to issue Sarubbi an
additional 3,750,000 shares upon the increase in the number of shares
of Panda Common Stock authorized under Panda's Articles of
Incorporation. Panda will have 90 days to register such shares of
Panda Common Stock with the Securities and Exchange Commission after
the approval of the authorization of such shares. $585,000 has been
recorded in Panda's financial statements as part of SG&A for the
planned issuance of the additional 3,750,000 shares of Panda Common
Stock. The Amended Settlement Agreement imposed a deadline of
September 1, 1999 for satisfaction of Panda's obligation to register
the 2,100,000 shares of Panda Common Stock with the Securities and
Exchange Commission. Panda has not satisfied its obligations under
the Amended Settlement Agreement. On November 2,1999, as stated in
form 8-K dated November 9,1999 Mr. Sarubbi alleged that the Company
was in default of the Letter Agreement dated June 24, 1999. Mr.
Sarubbi demanded payment within 10 days of approximately $505,000 in
exchange for the 2,100,000 shares previously issued as well as, the
3,750,000 shares which would be issued upon shareholder approval. As
a result, Mr. Sarubbi may assert remedies that he feels are available
to him under Florida law which may include a writ of execution as well
as levying on real property of 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.
Panda from time to time is involved in disputes that may lead to
litigation in the future. Panda cannot determine the impact of those
potential lawsuits at the current time. The disputes are not expected
to be material.
10. Subsequent Events
On October 1, 1999, the Company entered into an agreement with SBI
pursuant to which SBI has loaned the Company an additional $300,000
with borrowed amounts totaling $1,250,000. 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 October 1, 1999, by and between the Company
and SBI. The loan bears an interest rate of 6% per annum and is due
and payable on February 24, 2000. (See Exhibit 4.12)
On November 9, 1999, the Company filed an 8-K stating Mr. Sarubbi has
alleged that the Company was in default of the Letter Agreement dated
June 24, 1999.. Mr. Sarubbi demanded payment within 10 days of
approximately $505,000 in exchange for the 2,100,000 shares previously
issued as well as, the 3,750,000 shares which would be issued upon
shareholder approval. As a result, Mr. Sarubbi may assert remedies
that he feels are available to him under Florida law which may include
a writ of execution as well as levying on real property of the
Company.
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 Nine Months Ended September 30,
1999 and
1998
Net revenues increased during the quarter ended September 30,
1999 ("Third Quarter of 1999") to approximately $250,000 as compared
to $190,000 for the quarter ended September 30, 1998 ("Third Quarter
of 1998"). The net revenue increase for the quarter was attributable
to a one time license fee to be paid by Aju Exim, a Korean lead frame
manufacturer. In addition, the third quarter of 1998 revenue was
solely recognized from product sales of remaining Rock City inventory
and VSPA sales for prototype, pre-production and production orders.
In the third quarter of 1999 no such product sales were realized.
Net revenues for the nine months ended September 30,1999 were
approximately $1,154,000 compared to approximately $648,000
for the same period last year as a result of increased technology
revenues, including two one time, up front licensing fees totaling
$750,000. In addition, in 1998 approximately $138,000 of revenue was
recorded related to contract research and development from DARPA which
was successfully completed in April of 1998.
Research and development ("R&D") expenses decreased to approximately
$183,000 for the Third Quarter of 1999 as compared to approximately
$804,000 for the Third Quarter of 1998. R&D for the first nine months
of 1999 was approximately $755,000 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 nine months
of 1998 was approximately $2,832,000. 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 Third Quarter 1999 to approximately $858,000 compared to
approximately $2,076,000 for the Third Quarter 1998. The average
number of employees has decreased from 40 at September 30, 1998 to 17
full time employees as of September 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 $345,600 for
the quarter ended September 1999 as compared to $1,054,000 for the
quarter ended September 1998.
For the nine months ending September 30,1999 SG&A decreased to
approximately $3,582,000 compared to $6,316,000 for the same period in
1998. The average number of full-time employees decreased to 17 from
40. The decrease in full-time employees is directly related to
ceasing operations related to the Systems activity and the need to
reduce on going operational costs. Payroll and related expenses
decreased approximately $2,001,000 for the nine months ended September
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
$585,000 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 September 30, 1999, amounted to zero, however for the Third
Quarter 1998, $1,246,000 was charged to amortization expense. For the
nine months ending September 30, 1999 approximately $525,000 and for
the nine months ending September 30, 1998 approximately $2,476,000 was
charged to amortization expense. The valuation of the warrants and
related amortization expense represents a non-cash transaction.
In the Third Quarter 1999,$177,000 of liquidating damages are recorded
in accrued penalties related to the 1998 common stock private
placement. For the nine months ended September 30, 1999 accrued
penalties totaling $2,170,000 related to the Series A Preferred
Convertible transaction and the 1998 common stock private placement
were recorded. 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
$.12 per share the value of the common stock shares would be valued at
approximately $205,000. 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. In addition, $460,500 of
liquidating damages related to the remaining 1998 common stock private
placement holders which did not receive penalty shares is recorded in
accrued penalties. There were no such penalties as of the third
quarter of 1998.
Interest expense increased for the nine months ended September 30,
1999 to $302,000 as compared to $21,000 for the same period last year.
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)
Other income increased in the third quarter of 1999, approximately
$108,000 from the same period last year related to the settlement of
various trade receivables for less than the amount originally
expensed.
YEAR 2000 COMPLIANCE
Like many other companies, Year 2000 computer issues create certain
risks for the Company. 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 the
Company's ability to process information, which could create
significant potential liability for the Company. 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
products for Year 2000 compliance is not expected to exceed $5,000.
The Systems products Rock City, 5R, and 5S are year 2000 compliant.
The 4S may not, depending on the operating system used, make the
transition automatically. Specifically, 4S systems using the Pentium
100 and Pentium 166 Intel processors. Once the systems are assisted
by changing the date and time in the Bios, then the system is year
2000 compliant. The Company estimates that approximately 100 4S
computers with this potential problem were sold. The Semiconductor
and interconnect products are sold as 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
have a material adverse affect on 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 the Company has not completed
its detail plans with regards to this uncertainty, 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 the
Company'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 date 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 be 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 September 30, 1998, 271.76 shares
of preferred stock were converted into an aggregate of 4,637,310
shares of Panda Common Stock. As of September 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
Panda 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 shares of Series A Preferred Stock 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 in the Panda
Articles, 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 Panda Common Stock from the NASDAQ National Market to the
OTC Bulletin Board. 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)
On August 14, 1998, the Company completed the sale of 2,254,602 shares
of Panda 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 Panda 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 Panda Common Stock at an
exercise price equal to the fair market value of Panda 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
September 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 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 released 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.
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
up-front license fee related to VSPA and a purchase of 666,667 shares
of Panda Common Stock.
In the third quarter 1999, the Company's payables were segmented into
the following categories: operational, professional, Systems and
Technology. Payables in the third quarter 1999 of approximately
$1,183,000 as compared to the second quarter 1998 of approximately
$1,208,000 increased or decreased as follows: Operations 15% versus
17%, professional fees 75% versus 21%, System 1% versus 34%, and
Technology 9% versus 29%, respectively. Payables related to
operations decreased slightly as a result of negotiated settlement
payments to vendors. Professional fees increased as a result of
increasing legal fees that were not current due to liquidity. The
decrease in payables related to systems was a result of ceasing
operations related to the systems business as well as successful
negotiations to settle outstanding accounts. The decrease in
technology payables is a result of our continued focus on technology
products, increasing customer interest and vendors requiring payments
on a COD basis. Accounts receivables (net of the allowance for
doubtful accounts for all System related receivables) related to the
Third Quarter of 1999 of approximately $8,500 represent Technology
related receivables whereas accounts receivables related to the Third
Quarter 1998 of approximately $64,600 are approximately 80% related to
Computer Systems.
The Company has been able to obtain short-term financing through
secured promissory notes totaling $1,250,000 through October 1, 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 Panda Common
Stock. 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, 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 Series A Preferred shareholders for the exchange
and conversion of the outstanding preferred shares into 22,995,919
common shares at a fixed price of $.261. The restructuring of these
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's shareholders. Helix, Sarubbi and the
Series A Preferred shareholders 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, August and October 1999, the Company entered into
agreements with SBI pursuant to which SBI has loaned the Company
$1,250,000. 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 October 1, 1999, by
and between the Company and SBI. The loan bears an interest rate of
6% per annum and is due and payable on February 24, 2000 pursuant to
Amendment 2 to The Asset Purchase Agreement. (See Exhibit 4.12)
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
RISK ASSOCIATED WITH OUR FINANCIAL POSITION.
WE ARE DEPENDENT UPON THE TRANSACTION WITH SBI CLOSING
We require approximately $300,000 monthly to fund the Company's
operations. We are dependent upon SBI for working capital each month
in order to fund our operations until the completion of the sale of
the intellectual property and certain fixed assets. If SBI ceases to
advance funds monthly or if the transaction is not completed prior to
February 24,2000, the Company will be forced to file bankruptcy.
WE LACK SOURCES OF ADDITIONAL FUNDING.
We require substantial working capital to fund our business. In
addition, the auditors report expressed substantial doubt regarding
the Company's ability to continue as a going concern. 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 allegedly currently in non-monetary default under the lease
at 951 Broken Sound Parkway, Boca Raton, Florida. It is argued that
this alleged breach is of the lease 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 November 15, 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 it's
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.
In June, July, August and October 1999, the Company entered into
agreements with SBI pursuant to which SBI has loaned the Company
$1,250,000. 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 October 1, 1999, by
and between the Company and SBI. The loan bears an interest rate of
6% per annum and is due and payable on February 24, 2000 pursuant to
Amendment 2 to The Asset Purchase Agreement. (See Exhibit 4.12)
BUSINESS FACTORS THAT MAY ADVERSELY AFFECT OUR OPERATIONS AND THE
CLOSING OF THE SBI TRANSACTION.
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. 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 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 it's 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. Any change in our third party manufacturing may impact the
closing of the SBI transaction.
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, operating results, as well as the closing of the
SBI transaction.
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. Panda has filed an answer to the complaint. At the
present time, the outcome of this litigation is both immeasurable and
undeterminable. There can be no assurance that Panda will be
successful in defending this litigation.
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. Sarubbi entered into a
consulting agreement with Panda in 1992. Sarubbi also later served as
a director and general manager of Panda. Under this consulting
arrangement, Sarubbi received 91,000 options to purchase shares of
Panda Common Stock. Sarubbi also served as a director of Panda in 1995
and 1996. In 1996, Sarubbi notified Panda of his desire to exercise
all of his options and to sell all of the Panda Common Stock received
upon the exercise of such options. A Florida district court held
Panda liable for certain losses Sarubbi alleged he incurred in
connection with the sale of his Panda Common Stock and for fees for
his previous service as director. The court granted a judgment of
$1,227,041 in favor of Sarubbi. 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 in December 1998 and the
remainder is to be satisfied upon the sale of shares of Panda's Common
Stock which have been delivered to Sarubbi by Panda. Panda has
registered 1,775,000 shares for Sarubbi pursuant to a 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
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 was recorded as a charge against
Company earnings for the quarter ended December 31, 1998. On April
14, 1999, Panda received a Notice of Default on the Settlement
Agreement. Sarubbi claimed that his inability to sell the stock that
he received in the settlement creates a breach under the Settlement
Agreement. Panda believes that it is in full compliance with the
Settlement Agreement and that no breach exists. On June 25, 1999, the
Settlement Agreement was amended to allow Panda to extend its time to
satisfy its obligations under the Settlement Agreement (the "Amended
Settlement Agreement"). Under the Amended Settlement Agreement, the
Company issued Sarubbi 2,100,000 shares of Panda Common Stock in the
second quarter of 1999 and such shares were recorded as an expense to
S,G&A at the closing price of $0.156 totaling $327,600. Panda also
agreed to issue Sarubbi an additional 3,750,000 shares upon the
increase in the number of shares of Panda Common Stock authorized
under Panda's Articles of Incorporation. Panda will have 90 days to
register such shares of Panda Common Stock with the Securities and
Exchange Commission after the approval of the authorization of such
shares. $585,000 has been recorded in Panda's financial statements for
the additional 3,750,000 shares of Panda Common Stock. The Amended
Settlement Agreement imposed a deadline of September 1, 1999 for
satisfaction of Panda's obligation to register the 2,100,000 shares of
Panda Common Stock with the Securities and Exchange Commission. Panda
has not satisfied its obligations under the Amended Settlement
Agreement. On November 2,1999, as stated in form 8-K dated November
9,1999 Mr. Sarubbi alleged that the Company was in default of the
Letter Agreement dated June 24, 1999. Mr. Sarubbi demanded payment
within 10 days of approximately $505,000 in exchange for the 2,100,000
shares previously issued as well as, the 3,750,000 shares which would
be issued upon shareholder approval. As a result, Mr. Sarubbi may
assert remedies that he feels are available to him under Florida law
which may include a writ of execution as well as levying on real
property of 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.
Panda from time to time is involved in disputes that may lead to
litigation in the future. Panda cannot determine the impact of those
potential lawsuits at the current time. The disputes are not expected
to be material.
WE CANNOT ENSURE YEAR 2000 COMPLIANCE.
Panda believes those 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 $460,500 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 September 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 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. Panda has filed an answer to the complaint. At the
present time, the outcome of this litigation is both immeasurable and
undeterminable. There can be no assurance that Panda will be
successful in defending this litigation.
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. Sarubbi entered into a consulting agreement
with Panda in 1992. Sarubbi also later served as a director and
general manager of Panda. Under this consulting arrangement, Sarubbi
received 91,000 options to purchase shares of Panda Common Stock.
Sarubbi also served as a director of Panda in 1995 and 1996. In 1996,
Sarubbi notified Panda of his desire to exercise all of his options
and to sell all of the Panda Common Stock received upon the exercise
of such options. A Florida district court held Panda liable for
certain losses Sarubbi alleged he incurred in connection with the sale
of his Panda Common Stock and for fees for his previous service as
director. The court granted a judgment of $1,227,041 in favor of
Sarubbi. 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 in December 1998 and the remainder is to be
satisfied upon the sale of shares of Panda's Common Stock which have
been delivered to Sarubbi by Panda. Panda has registered 1,775,000
shares for Sarubbi pursuant to a 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 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
was recorded as a charge against Company earnings for the quarter
ended December 31, 1998. On April 14, 1999, Panda received a Notice
of Default on the Settlement Agreement. Sarubbi claimed that his
inability to sell the stock that he received in the settlement creates
a breach under the Settlement Agreement. Panda believes that it is in
full compliance with the Settlement Agreement and that no breach
exists. On June 25, 1999, the Settlement Agreement was amended to
allow Panda to extend its time to satisfy its obligations under the
Settlement Agreement (the "Amended Settlement Agreement"). Under the
Amended Settlement Agreement, the Company issued Sarubbi 2,100,000
shares of Panda Common Stock in the second quarter of 1999 and such
shares were recorded as an expense to S,G&A at the closing price of
$0.156 totaling $327,600. Panda also agreed to issue Sarubbi an
additional 3,750,000 shares upon the increase in the number of shares
of Panda Common Stock authorized under Panda's Articles of
Incorporation. Panda will have 90 days to register such shares of
Panda Common Stock with the Securities and Exchange Commission after
the approval of the authorization of such shares. $585,000 has been
recorded in Panda's financial statements for the additional 3,750,000
shares of Panda Common Stock. The Amended Settlement Agreement
imposed a deadline of September 1, 1999 for satisfaction of Panda's
obligation to register the 2,100,000 shares of Panda Common Stock with
the Securities and Exchange Commission. Panda has not satisfied its
obligations under the Amended Settlement Agreement. On November
2,1999, as stated in form 8-K dated November 9,1999 Mr. Sarubbi
alleged that the Company was in default of the Letter Agreement dated
June 24, 1999. . Mr. Sarubbi demanded payment within 10 days of
approximately $505,000 in exchange for the 2,100,000 shares previously
issued as well as, the 3,750,000 shares which would be issued upon
shareholder approval. As a result, Mr. Sarubbi may assert remedies
that he feels are available to him under Florida law which may include
a writ of execution as well as levying on real property of 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.
Panda from time to time is involved in disputes that may lead to
litigation in the future. Panda cannot determine the impact of those
potential lawsuits at the current time. The disputes are not expected
to be material.
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 November 15, 1999, Helix and its
affiliates hold approximately 3.4% 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 totaling
$625,000 secured by the Company's assets.
September 9, 1999 The Panda Project, Inc. has amended the Asset
Purchase Agreement with Silicon Bandwidth, Inc. to
extend the expiration date from October 31, 1999 to
December 30, 1999.
October 21, 1999 The Panda Project, Inc. has amended the Form 8-K of
September 9, 1999 to include exhibits.
October 28, 1999 Promissory Note dated October 1, 1999 by and
between The Panda Project, Inc. (the "Company") and
Silcon Bandwidth, Inc. ("SBI"). Incorporated
herein by reference to Exhibit 4.12 as part of the
Registrant's Quarterly Report on Form 8-K dated
October 28, 1999.
November 9, 1999 Form 8-K stating that the Company received notice
that Mr. Sarubbi has alleged that the Company is in
default of the Letter Agreement dated June 24,
1999.
December 13, 1999 The Panda Project, Inc. has amended the Form 8K
update of October 21, 1999 to include Exhibit D.
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: December 14, 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 September 30, 1999).
4.12 Promissory Note dated October 1, 1999 by and between The
Panda Project, Inc. (the "Company") and Silcon Bandwidth,
Inc. ("SBI") (incorporated herein by reference to Exhibit 4.12
as part of the Registrant's Quarterly Report on Form 8-K dated
October 28, 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] 9-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] SEPT-30-1999
[CASH] 80,535
[SECURITIES] 0
[RECEIVABLES] 303,789
[ALLOWANCES] (295,292)
[INVENTORY] 24,167
[CURRENT-ASSETS] 445,944
[PP&E] 1,171,853
[DEPRECIATION] 422,938
[TOTAL-ASSETS] 1,782,901
[CURRENT-LIABILITIES] 6,415,232
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 4,867,945
[COMMON] 296,839
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 1,782,901
[SALES] (403,740)
[TOTAL-REVENUES] (1,153,841)
[CGS] 206,060
[TOTAL-COSTS] 206,060
[OTHER-EXPENSES] 6,989,446
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 302,938
[INCOME-PRETAX] (6,385,176)
[INCOME-TAX] 0
[INCOME-CONTINUING] (6,385,176)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (6,385,176)
[EPS-BASIC] (.26)
[EPS-DILUTED] (.26)
</TABLE>
