YP Corp 10-K/A 9-30-2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
___________
FORM
10-K/A
Amendment
No. 1
ANNUAL
REPORT
PURSUANT
TO SECTIONS 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark
one)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended September 30, 2005
o TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
Transition period from ________ to ____________
Commission
File Number: 0-24217
YP
CORP.
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
Nevada
|
|
85-0206668
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS
Employer
Identification No.)
|
4840
East Jasmine Street, Suite 105,
|
|
|
Mesa,
Arizona
|
|
85205
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (480) 654-9646
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 Par Value
(Title
of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
Nox
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
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2).
Yes
o
No
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
The
aggregate market value of the common stock held by non-affiliates computed
based
on the closing price of such stock on March 31, 2005 was approximately
$17,306,846
The
number of shares outstanding of the registrant’s classes of common stock, as of
January 25, 2006, was 48,106,594
shares.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
YP
CORP.
FORM
10-K/A
For
the year ended September 30, 2005
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-K/A (this “Amendment”) amends our company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2005, which we
originally filed on December 19, 2005 (the “Original Report”). We are filing
this Amendment to include the information required by Part III of Form 10-K
because we will not file the definitive proxy statement for our 2006 Annual
Meeting of Stockholders within 120 days of the end of our fiscal year ended
September 30, 2005. In addition, in connection with the filing of this Amendment
and pursuant to the rules of the Securities and Exchange Commission, we are
including with this Amendment certain currently dated certifications.
Except
as
described above, no other changes have been made to the Original Report. This
Amendment continues to speak as of the date of the Original Report, and our
company has not updated the disclosures contained therein to reflect any events
that occurred at a date subsequent to the filing of the Original Report. The
filing of this Form 10-K/A is not a representation that any statements contained
in items of Form 10-K other than Part III are true or complete as of any date
subsequent to the filing date of the Original Report.
PART
III
ITEM
10. Directors and Executive Officers of the Registrant
Board
of Directors
Our
board
of directors currently consists of the following persons:
Name
|
|
Class
(1)
|
|
Current
Term
(1)
|
|
Age
|
|
Position
|
Daniel
L. Coury, Sr.
|
|
II
|
|
2007
|
|
52
|
|
Chairman
of the Board
|
Joseph
Cunningham
|
|
I
|
|
2006
|
|
57
|
|
Director
|
Elizabeth
Demarse
|
|
I
|
|
2006
|
|
51
|
|
Director
|
____________________
|
|
|
|
|
|
|
|
|
(1) Mr.
Bergmann will not stand for re-election at our 2006 annual meeting
of
stockholders.
|
Daniel
L. Coury, Sr. has
served as a director of our company since February 2000 and as our Acting Chief
Executive Officer since January 2006. Since 1990, Mr. Coury has served as
President and Chairman of Mesa Cold Storage, Ltd., which owns and operates
the
largest cold storage facilities in Arizona. Before Mr. Coury purchased Mesa
Cold
Storage, he had experience in international trade, real estate development,
real
estate exchanges and serving as a consultant to various family businesses,
including General Motors dealerships, numerous commercial and residential
developments and mortuary services.
Joseph
Cunningham.
Mr.
Cunningham has served as a director of our company since January 2006 and as
Chairman of the Audit Committee since January 8, 2006. Mr. Cunningham founded
and has been the President and Chief Executive Officer of Liberty Mortgage
Acceptance Corporation since 1992. Liberty Mortgage Acceptance Corporation
is a
nationwide mortgage lender. From March 1985 to 1992, Mr. Cunningham was the
Chief Executive Officer of Socal Mortgage Corporation. From March 1984 to
February 1985, Mr. Cunningham was the Chief Operating Officer of Colwell
Financial Corporation and from January 1980 to February 1984, was the Executive
Vice President and Chief Financial Officer of Granite Financial Corporation.
Mr.
Cunningham received a B.S. in Accounting from Boston College in
1969.
Elizabeth
Demarse.
Ms.
Demarse has served as a directory of our company since January 8, 2006. Ms.
Demarse was the Chief Executive Officer and President of Bankrate, Inc. from
April 2000 until July 2004. From January 1999 to May 2000 Ms. Demarse was an
Executive Vice President at Hoover’s Inc. From October 1998 to January 1999 Ms.
Demarse was President of Newco, a private equity firm. Ms. Demarse received
a
degree in History from Wellesley College in 1976 and an M.B.A. from Harvard
Business School in 1980.
Executive
Officers
The
following persons currently serve as executive officers of our
company:
Name
|
|
Age
|
|
Position
|
Daniel
L. Coury Jr.
|
|
52
|
|
Acting
Chief Executive Officer
|
W.
Chris Broquist
|
|
48
|
|
Chief
Financial Officer and Corporate Secretary
|
John
Raven
|
|
41
|
|
Chief
Operating Officer
|
Daniel
L. Coury Jr.
Mr.
Coury, has served as a director of our company since February 2000 and as our
Acting Chief Executive Officer since January 2006. Since 1990, Mr. Coury has
served as President and Chairman of Mesa Cold Storage, Ltd., which owns and
operates the largest cold storage facilities in Arizona. Before Mr. Coury
purchased Mesa Cold Storage, he had experience in international trade, real
estate development, real estate exchanges and serving as a consultant to various
family businesses, including General Motors dealerships, numerous commercial
and
residential developments and mortuary services.
W.
Chris Broquist
has
served as our Chief Financial Officer since August 2004 and as our Corporate
Secretary since November 2004. Prior to joining our company, Mr. Broquist was
employed as Vice President and CFO of GBD Graphics, Inc. from May 2003 to August
2004. Prior to May 2003, Mr. Broquist served as Corporate Treasurer of Century
Media, Inc. from February 2000 to December 2002. Between December 2002 and
May
2003, Mr. Broquist was an independent consultant.
John
Raven
has
served as our Chief Operating Officer since June 2005. Mr. Raven served as
our
Chief Technology Officer from September 2003 until June 2005. Mr. Raven has
over
ten years experience in the technology arena and 16 years of overall leadership
experience working with companies such as Perot Systems (PER), where he worked
in 2003 and managed 640 staff members, Read-Rite Corp (RDRT), where he worked
from 2000 to 2003, and as Cap Gemini Ernst & Young (CAPMF), where he worked
from 2000 to 2002. Mr. Raven also served as Director of Information Technology
at Viacom’s ENG Network division, where he worked from 1996 to 1999. Mr. Raven
has experience in software engineering, data and process architecture, systems
development, and database management systems. At NASA’s Jet Propulsion
Laboratory, where he worked from 1993 to 1996, Mr. Raven was a team member
and
information systems engineer for the historic 1997 mission to Mars conducted
with the Pathfinder space vehicle and the Sojourner surface rover. Mr. Raven
received his Bachelors of Science in Computer Science from the California
Institute of Technology in 1991. His certifications include Cisco Internetwork
Engineer, Project Management from the Project Management Institute, Certified
Project Manager from Perot Management Methodology Institute, Microsoft Certified
System Engineer, and Certified Novel Engineer.
Audit
Committee
The
purpose of the Audit Committee is to assist our board of directors in overseeing
(i) the integrity of our company’s accounting and financial reporting processes,
the audits of our financial statements, as well as our systems of internal
controls regarding finance, accounting, and legal compliance; (ii) our company’s
compliance with legal and regulatory requirements; (iii) the qualifications,
independence and performance of our independent public accountants; (iv) our
company’s financial risk; and (v) our company’s internal audit function. In
carrying out this purpose, the Audit Committee maintains and facilitates free
and open communication between the board, the independent public accountants,
and our management. Mr. Cunningham currently is the sole member of our
Audit Committee. Mr. Cunningham. The Chairman of the Audit Committee is
independent in accordance with Section 121A of the Amercian Stock Exchange
Company Guide. Mr. Cunningham serves as the committee’s chairman and is the
“audit committee financial expert” as defined under Item 401(h) of Regulation
S-K. Our Audit Committee reports its findings directly to the full board. The
board of directors has adopted a charter for the Audit Committee, a copy of
which was attached as Appendix
A
to the
proxy statement for our 2005 annual meeting of stockholders.
Policies
and Procedures with Respect to Securityholder Nominations of Candidates to
serve
as Directors
Our
board
of directors has adopted a policy that the Governance and Nominating Committee
will consider director candidates who are nominated by stockholders of our
company. The Governance and Nominating Committee is currently discussing what
the appropriate procedures are to be for the nomination of directors by
stockholders.
Code
of Ethics
We
have
adopted a code of ethics that applies to all directors, officers, and employees
of our company, including the Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, and Chief Technical Officer. We have filed our code
of
ethics as an exhibit to our annual report on Form 10-K for the year ended
September 30, 2005. In addition, our code of ethics is posted under “Investor
Relations” on our Internet website at www.yp.com. We will mail a copy of our
code of ethics at no charge upon request submitted to YP Corp., Attention:
Investor Relations, 4840 East Jasmine Street, Suite 105, Mesa, Arizona,
85205-3321. If we make any amendment to, or grant any waivers of, a provision
of
the code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller where such
amendment or waiver is required to be disclosed under applicable SEC rules,
we
intend to disclose such amendment or waiver and the reasons therefor on Form
8-K
or on our Internet website at www.yp.com.
Section
16(a) Beneficial Ownership ReportingCompliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (“SEC”). Based solely on
our review of the copies of such forms filed under the SEC during the year
ended
September 30, 2005, we believe that during such year our executive officers,
directors and ten percent stockholders complied with all such filing
requirements except for Matthew and Markson Ltd. and Morris & Miller Ltd.,
who filed several reports late.
ITEM
11. Executive Compensation
Executive
Compensation Summary
The
following table sets forth the total compensation for the fiscal years ended
September 30, 2005, 2004, and 2003 paid to or accrued for our Chief
Executive Officer and our other executive officers who earned more than $100,000
in salary and bonus during fiscal 2005. Additionally, we have included the
compensation for one former executive officer who departed during the last
fiscal year and whose compensation actually paid would have placed her among
our
executive officers who earned more than $100,000 in salary and bonus during
fiscal 2005. These executive officers are collectively referred to as the “Named
Executive Officers.”
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
Annual
Compensation
|
|
Long
Term Compensation
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual Compensation($)
|
|
Restricted
Stock Awards($)(1)
|
|
All
Other Compensation($)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
J. Bergmann (3)
|
|
|
2005
|
|
$
|
220,833
|
|
$
|
130,000
|
|
|
-
|
|
$
|
85,000
|
|
$
|
18,500
|
|
Chairman,
Chief Executive
|
|
|
2004
|
|
|
50,000
|
|
|
181,796
|
|
|
-
|
|
|
1,777,250
|
|
|
37,800
|
|
Officer,
President
|
|
|
2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W.
Chris Broquist (4)
|
|
|
2005
|
|
$
|
156,867
|
|
|
-
|
|
|
-
|
|
$
|
42,500
|
|
|
-
|
|
Chief
Financial Officer
|
|
|
2004
|
|
|
18,000
|
|
|
-
|
|
|
-
|
|
|
153,500
|
|
|
-
|
|
and
Secretary
|
|
|
2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Raven (5)
|
|
|
2005
|
|
$
|
211,500
|
|
$
|
30,000
|
|
|
-
|
|
$
|
21,250
|
|
|
-
|
|
Chief
Technology Officer
|
|
|
2004
|
|
|
151,888
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
2003
|
|
|
8,654
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penny
Spaeth (6)
|
|
|
2005
|
|
$
|
102,083
|
|
$
|
1,000
|
|
|
-
|
|
$
|
21,250
|
|
|
-
|
|
Chief
Operating Officer
|
|
|
2004
|
|
|
114,245
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
___________________
(1)
|
The
amounts under the Restricted Stock Awards column represent the dollar
value of shares of restricted stock issued to the Named Executive
Officers
under our 2003 Stock Plan. The holders of these shares of restricted
stock
receive dividends on such shares when and if declared and paid on
shares
of our common stock. At September 30, 2005, the number of shares
of
restricted stock held by each of the Named Executive Officers and
the
value of such shares, based on a closing price of $0.880 per share
on that
date, was as follows: Mr. Bergmann: 1,300,000 shares ($1,144,000);
Mr.
Broquist: 150,000 shares ($132,000); Mr. Raven: 125,000 shares ($110,000);
and Ms. Spaeth: 0 shares ($0.).
|
(2)
|
The
amounts shown for fiscal 2005 reflect Directors fees paid to Mr.
Bergmann
during the year.
|
(3)
|
Mr.
Bergmann served as our President, Chief Executive Officer and Chairman
from May 2004 until December 2005. Mr. Bergmann’s compensation
arrangements are described below under “Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
(4)
|
Mr.
Broquist was appointed Chief Financial Officer in August 2004. Mr.
Broquist’s compensation arrangements are described below under
“Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
(5)
|
Mr.
Raven joined our company in August 2003. Mr. Raven’s compensation
arrangements are described below under “Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
(6)
|
Ms.
Spaeth served as our Chief Operating Officer from April 2004 until
July
2005. Ms. Spaeth’s compensation arrangements are described below under
“Certain
Relationships and Related Transactions - Agreements with Executive
Officers.”
|
Compensation
Pursuant to Stock Options
Our
company did not grant any options to any of the Named Executive Officers during
the fiscal year ended September 30, 2005. As of September 30, 2005, there were
no outstanding stock options. Also during such fiscal year, no long-term
incentive plans or pension plans were in effect with respect to any of our
officers, directors or employees.
Compensation
Committee Interlocks and Insider Participation
There
were no interlocking relationships between our company and other entities that
might affect the determination of the compensation of our executive
officers.
Compensation
of Directors
The
directors receive $2,500 per meeting for their service on the board. All
directors were awarded 50,000 shares of common stock upon their appointment
to
the board. The shares awarded were earned monthly for director services
performed.
In
addition to regular compensation provided our directors, we have an arrangement
with one of our outside directors, Mr. Coury, whereby we have agreed to pay
an
additional $10,000 per month for board and committee services to DLC Consulting,
Inc., an entity owned by Mr. Coury, instead of paying Mr. Coury
directly.
In
fiscal
2005, our directors received the following compensation for their service as
directors:
Director
|
|
Cash
|
Alistair
Johnson-Clague
|
|
0
|
Paul
Gottlieb
|
|
23,500
|
DeVal
Johnson
|
|
18,500
|
John
T. Kurtzweil
|
|
34,500
|
Daniel
L. Coury, Sr.
|
|
140,000
|
Peter
Bergmann
|
|
18,500
|
Compare
5-Year Cumulative Total Return
Among
YP Corp., Wilshire 5000 Index
And
Dow Jones Internet Index
Assumes
$100 Invested on September 30, 2000
Assumes
Dividends, if any, Reinvested
Fiscal
Year Ended September 30, 2005
|
|
9/30/2000
|
|
9/30/2001
|
|
9/30/2002
|
|
9/30/2003
|
|
9/30/2004
|
|
9/30/2005
|
|
YP
Corp
|
|
$
|
100.00
|
|
$
|
34.38
|
|
$
|
23.44
|
|
$
|
518.75
|
|
$
|
346.03
|
|
$
|
287.41
|
|
Wilshire
5000 Index
|
|
$
|
100.00
|
|
$
|
70.25
|
|
$
|
57.10
|
|
$
|
70.88
|
|
$
|
80.04
|
|
$
|
90.27
|
|
Dow
Jones Internet Services Index
|
|
$
|
100.00
|
|
$
|
9.33
|
|
$
|
4.40
|
|
$
|
9.37
|
|
$
|
9.22
|
|
$
|
11.82
|
|
ITEM
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of January 25, 2006, with respect to (i) each Named Executive
Officer and each director of our company; (ii) all Named Executive Officers
and
directors of our company as a group; and (iii) each person known to our company
to be the beneficial owner of more than 5% of our company’s common stock. The
information as to beneficial ownership was furnished to us by or on behalf
of
the persons named. Unless otherwise indicated, the business address of each
person listed is 4840 East Jasmine Street, Suite 105, Mesa, Arizona
85205.
Name
|
|
Shares
Beneficially Owned
|
|
Percentage
of Shares Outstanding (1)
|
|
|
|
|
|
W.
Chris Broquist
|
|
150,000
|
|
*
|
John
Raven
|
|
125,000
|
|
*
|
Daniel
L. Coury, Sr. (2)
|
|
350,000
|
|
*
|
Joseph
Cunningham
|
|
0
|
|
0
|
Elizabeth
Demarse
|
|
0
|
|
0
|
Costa
Brava Partnership III, L.P. (7)
|
|
2,469,200
|
|
5.1%
|
Ewing
& Partners (8)
|
|
2,801,943
|
|
5.8%
|
Grand
Slam Asset Management (6)
|
|
3,745,880
|
|
7.8%
|
Mathew
and Markson Ltd. (3)
|
|
4,060,062
|
|
8.4%
|
Morris
& Miller Ltd. (3)
|
|
3,711,434
|
|
7.7%
|
Angelo
Tullo (4)
|
|
4,066,580
|
|
8.4%
|
Sunbelt
Financial Concepts, Inc.(5)
|
|
4,066,580
|
|
8.4%
|
|
|
|
|
|
All
executive officers and directors as a group (5 persons).
|
|
1,725,000
|
|
3.6%
|
_________________________
*
Represents less than one percent of our issued and
outstanding common stock.
(1)
|
Based
on 48,106,594 shares outstanding as of January 25, 2006.
|
(2)
|
Of
the number shown, (i) 55,000 shares are owned by Children’s Management
Trust (the “Coury Trust”), of which Mr. Coury is a co-trustee, and (ii)
10.093 shares are owned by DLC & Associates Business Consulting, Inc.
(“DLC”), of which Mr. Coury is the President. Mr. Coury disclaims
beneficial ownership of the shares owned by the Coury Trust and
DLC except
to the extent of any of his proportionate interest therein, if
any.
|
(3)
|
Address
is Woods Centre, Friar’s Road, P.O. Box 1407, St. John’s, Antigua, West
Indies. Ilse Cooper is the control person for both Mathew and Markson
and
Morris & Miller.
|
(4)
|
Of
the number shown, 3,616,580 shares are owned by Sunbelt Financial
Concepts, Inc., See footnote 5. Mr. Tullo is the President of Sunbelt
and
has dispositive power over the shares of Common Stock owned by
Sunbelt.
Mr. Tullo disclaims beneficial ownership of the shares owned by
Sunbelt
except to the extent of any proportionate interest therein. Mr.
Tullo’s
address is 4710 E. Falcon Drive, #209, Mesa, Arizona
85215.
|
(5)
|
Hickory
Management is the owner of Sunbelt and J.C. McDaniel, Esq. is the
control
person of Hickory Management. Sunbelt’s address is 4710 E. Falcon Drive,
#209, Mesa, Arizona 85215.
|
(6)
|
Address
is One Bridge Plaza, Ft. Lee, New Jersey
07024
|
(7)
|
Address
is 420 Boylston St., Boston Massachusetts
02116
|
(8)
|
Address
is 4514 Cole Avenue, Suite 808, Dallas Texas 75205 (Cayman) Limited,
36C
Bermuda House, British American Center, Dr. Roy’s Drive, P.O. Box 513GT,
George Town, Grand Cayman, Cayman Islands, B.W.I. The address of
Asset
Management is One Bridge Plaza, Fort Lee, New Jersey 07024. The
information set forth above is based upon the Schedule 13D/A filed
by
Master Fund and Asset Management on December 23,
2005.
|
Equity
Compensation Plan Information as of Fiscal Year End
We
maintain the 2003 Stock Plan pursuant to which we may grant equity awards to
eligible persons. The following table sets forth certain information about
equity awards under our 2003 Stock Plan, as well as an individual equity
compensation arrangement with our Chief Executive Officer, as of September
30,
2005:
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants
and rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column (a))
|
|
Equity
compensation plans approved by security holders (1)
|
|
|
2,943,000 (2)
|
|
|
N/A
|
|
|
2,057,000
|
|
Equity
compensation plans not approved by security holders
|
|
|
1,000,000 (3)
|
|
|
N/A
|
|
|
0
|
|
Total
|
|
|
3,943,000
|
|
|
N/A
|
|
|
2,057,000
|
|
___________________
(1)
|
The
2003 Stock Plan was approved by written consent of a majority of
our
company’s stockholders on July 21,
2003.
|
(2)
|
This
number represents the number of shares of restricted stock granted
to
eligible persons under the 2003 Stock
Plan.
|
(3)
|
This
number represents shares of restricted stock that were granted to
Peter J.
Bergmann, our Chairman and Chief Executive Officer, pursuant to a
restricted stock agreement dated June 6, 2004. These shares were
not
granted under our 2003 Stock Plan. These shares of restricted stock
vest
in accordance with a performance-based vesting schedule. As of September
30, 2004, none of these shares is vested. For a description of this
equity
compensation arrangement, see Note 14 in the notes to our financial
statements in Item 7 of this Form
10-KSB.
|
Our
2003 Stock Plan
During
the year ended September 30, 2002, our stockholders approved the 2002 Employees,
Officers & Directors Stock Option Plan (the “2002 Plan”), which was intended
to replace our 1998 Stock Option Plan (the “1998 Plan”). The 2002 Plan was never
implemented, however, and no options, shares or any other securities were issued
or granted under the 2002 Plan. There were 3,000,000 shares of our common stock
authorized under the 2002 Plan. On June 30, 2003 and July 21, 2003,
respectively, our Board of Directors and a majority of our stockholders
terminated both the 1998 Plan and the 2002 Plan and approved our 2003 Stock
Plan. The 3,000,000 shares of common stock previously allocated to the 2002
Plan
were re-allocated to the 2003 Stock Plan.
In
April
2004, our stockholders and our Board of Directors approved an amendment to
the
2003 Stock Plan to increase the aggregate number of shares available thereunder
by 2,000,000 shares in order to have an adequate number of shares available
for
future grants.
ITEM
13. Certain Relationships and Related Transactions
Agreements
with Executive Officers
Mr.
Bergmann was appointed our President, Chief Executive Office, and Chairman
of
the Board in May 2004. Mr. Bergmann previously had been an independent director
of our company since May 2002. In connection with Mr. Bergmann’s appointment, we
entered into an employment agreement with him. The employment agreement had
a
three year term. Under the employment agreement, Mr. Bergmann was entitled
to an annual base salary of $200,000, subject to annual increases to $225,000
during the second year and $275,000 during the third year of the employment
agreement, in addition to performance bonuses of our company’s common stock
issued out of our 2003 Stock Plan. In connection with the execution of the
employment agreement, Mr. Bergmann received 1,000,000 shares of restricted
common stock of our company. Mr. Bergmann also was entitled to housing and
automobile allowances and reimbursement for all business expenses incurred
by
him in connection with his employment.
On
November 3, 2005, Mr. Bergmann resigned as Chairman and President of our company
and we entered into a separation agreement with Mr. Bergmann. In connection
with
the separation agreement, on November 3, 2005, our company and Mr. Bergmann
terminated his employment agreement and his restricted stock agreement. Pursuant
to the separation agreement, Mr. Bergmann resigned as our Chief Executive
Officer immediately upon the filing of our Annual Report on Form 10-K and Mr.
Bergmann will continue to serve as a director of our company until the 2006
Annual Meeting of Stockholders.
In
consideration of a waiver of all rights to severance and certain other covenants
and a general release of all claims by Mr. Bergmann, the separation agreement
provided for the continued payment of Mr. Bergmann’s monthly salary until his
resignation as CEO. We also paid to Mr. Bergmann 18 months of his current salary
in one payment of $337,500 on or before January 2, 2006. We also will continue
to provide Mr. Bergmann with health insurance for 12 months or until he is
employed elsewhere with a company that offers an insurance program.
Pursuant
to the separation agreement, Mr. Bergmann forfeited all shares of our common
stock and any other unvested capital stock or options to purchase such stock
received by Mr. Bergmann, or an affiliated party, while employed by our company
except for (i) 50,000 shares granted to Mr. Bergmann in 2002 that were fully
vested, (ii) 600,000 shares of the total 1,000,000 shares granted to Mr.
Bergmann under a restricted stock agreement and (iii) 100,000 shares granted
to
Mr. Bergmann in April 2005. The parties agreed that the shares set forth in
(ii)
and (iii) above will remain subject to contractual restrictions on transfer
for
18 months, or until a change of control or our stock price achieving certain
sustained levels.
On
August
3, 2004, we hired W. Chris Broquist as our Chief Financial Officer and entered
into an employment agreement with him. The employment agreement has a three
year
term. Under the employment agreement, Mr. Broquist is entitled to an annual
base salary of $144,000, subject to annual increases to $160,000 in the second
year and $176,000 in the third year, in addition to performance bonuses of
our
company’s common stock issued out of our 2003 Stock Plan. In connection with the
execution of the employment agreement, Mr. Broquist received 100,000 shares
of
restricted common stock. Mr. Broquist also is entitled to housing and automobile
allowances and reimbursement for all business expenses incurred by him in
connection with his employment.
On
September 21, 2004, we entered into a two-year employment agreement with
John Raven, who now serves as our Chief Operating Officer. Under the employment
agreement, Mr. Raven is entitled to an annual base salary of $165,000,
subject to an increase to $185,000 in the second year, in addition to a $35,000
signing bonus and performance bonuses of restricted stock. This agreement was
amended August 10, 2005 resulting in an immediate increase in Mr. Raven’s salary
to $181,500 effective July 1, 2005, an additional $30,000 cash performance
bonus
and 25,000 shares under the 2003 Employee Stock Plan.
On
November 1, 2004, we entered into a two-year employment agreement with
Penny Spaeth, who served as our Chief Operating Officer from April 2004
until July
2005. Under the agreement, Ms. Spaeth was entitled to an annual base salary
of $137,500, subject to an increase to $151,020, in addition to performance
bonuses of 25,000 shares of restricted stock. Ms. Spaeth was entitled to receive
$400 per month allowance for automobile usage and $100 per month allowance
for
cellular phone charges. Under the terms of Ms. Spaeth’s separation agreement,
she received severance payments totaling $80,000 and received health benefits
for six months.
Other
Relationships and Related Transactions
Termination
Agreements with Former Executive Officers
Prior
to
fiscal 2004, our company entered into executive consulting agreements with
(i)
an entity controlled by Angelo Tullo, our then-President, Chief Executive
Officer, and Chairman of the Board; (ii) an entity controlled by David Iannini,
our then-Chief Financial Officer; (iii) an entity controlled by Gregory Crane,
a
former director of our company; and (iv) an entity controlled by DeVal Johnson,
our then-Vice President, Secretary, and a director of our company. The
agreements called for fees to be paid to those entities for the services
provided by those individuals as officers of our company, as well as their
respective staffs. During fiscal 2004, our company terminated the executive
consulting agreements with the entities controlled by Messrs. Tullo, Iannini
and
Crane. In fiscal 2005, our company
terminated the remaining executive consulting agreement with Mr. Johnson.
The
termination agreements provided for cash payments totaling $2,145,000 in
exchange for consulting services and non-compete agreements. In the fourth
quarter of fiscal 2005, however, we concluded all matters with respect to these
parties and made all remaining payments owed under the termination agreements.
Shareholder
Agreements
Prior
to
and during fiscal 2004 we advanced funds to our two largest stockholders, Morris
& Miller, Ltd. and Mathew and Markson, Ltd. (together, the “Stockholders’).
We terminated the line of credit agreement with the Stockholders effective
April
9, 2004. During the fiscal year ended September 30, 2004, the Stockholders
made
accelerated principal reductions of $1.6 million almost three years in advance
of their maturity.
On
April
1, 2005, our company and the Stockholders entered into a Transfer and Repayment
Agreement. Under the agreement, the Stockholders satisfied all of their
outstanding debt obligations to our company as follows:
|
·
|
The
Stockholders agreed to surrender and deliver to our company 1,889,566
shares of common stock previously owned by the Stockholders;
|
|
·
|
The
Stockholders forgave $115,865 of debt and all related accrued interest
owed by our company to the Stockholders;
|
|
·
|
The
Stockholders released any liens they previously had on any shares
of our
company’s common stock;
|
|
·
|
The
Stockholders assigned certain intellectual property to our company;
and
|
|
·
|
The
Stockholders agreed to a non-compete and non-solicitation agreement
whereby the Stockholders and their affiliates agree not to compete
with
our company or solicit any customers for a period of five years.
|
Related
Party Transaction Policy
Our
general policy requires adherence to Nevada corporate law regarding transactions
between our company and a director, officer or affiliate of our company.
Transactions in which such persons have a financial interest are not void or
voidable if the interest is disclosed and approved by disinterested directors
or
stockholders or if the transaction is otherwise fair to our company. It is
our
policy that transactions with related parties are conducted on terms no less
favorable to our company than if they were conducted with unaffiliated third
parties. During the fiscal year ended September 30, 2005, there were no related
party transactions except as described above.
ITEM
14. Principal Accountant Fees and Services
Epstein,
Weber & Conover, P.L.C., certified public accountants, examined our annual
consolidated financial statements for our fiscal year ending September 30,
2005.
We have paid or expect to pay the following fees to Epstein, Weber &
Conover, P.L.C. for work performed in 2004 and 2005 or attributable to Epstein,
Weber & Conover, P.L.C.’s audit of our 2004 and 2005 consolidated financial
statements:
|
|
2004
|
|
2005
|
|
Audit
Fees
|
|
$
|
70,574
|
|
$
|
75,842
|
|
Audit-Related
Fees
|
|
|
10,840
|
|
|
573
|
|
Tax
Fees
|
|
|
0
|
|
|
0
|
|
All
Other Fees
|
|
|
0
|
|
|
0
|
|
In
January 2003, the SEC released final rules to implement Title II of the
Sarbanes-Oxley Act of 2003 (the “Sarbanes-Oxley Act”). The rules address auditor
independence and have modified the proxy fee disclosure requirements. Audit
fees
include fees for services that normally would be provided by the accountant
in
connection with statutory and regulatory filings or engagements and that
generally only the independent accountant can provide. In addition to fees
for
an audit or review in accordance with generally accepted auditing standards,
this category contains fees for comfort letters, statutory audits, consents,
and
assistance with and review of documents filed with the SEC. Audit-related fees
are assurance-related services that traditionally are performed by the
independent accountant, such as employee benefit plan audits, due diligence
related to mergers and acquisitions, internal control reviews, attest services
that are not required by statute or regulation, and consultation concerning
financial accounting and reporting standards.
The
audit
committee has reviewed the fees paid to Epstein, Weber & Conover, P.L.C. and
has considered whether the fees paid for non-audit services are compatible
with
maintaining Epstein, Weber & Conover, P.L.C.’s independence. The audit
committee also adopted policies and procedures to approve audit and non-audit
services provided in fiscal 2005 by Epstein, Weber & Conover, P.L.C. in
accordance with the Sarbanes-Oxley Act and rules of the SEC promulgated
thereunder. These policies and procedures involve annual pre-approval by the
audit committee of the types of services to be provided by our independent
auditor and fee limits for each type of service on both a per-engagement and
aggregate level. Additional service engagements that exceed these pre-approved
limits must be submitted to the audit committee for further pre-approval. The
audit committee may additionally ratify certain de minimis services provided
by
the independent auditor without prior audit committee approval, as permitted
by
the Sarbanes-Oxley Act and rules of the SEC promulgated thereunder.
PART
IV
ITEM
15. Exhibits and Financial Statement Schedules
(1)
|
Financial
Statements are listed on the Index to Consolidated Financial Statements
on
page 40 of this Annual Report.
|
(2)
|
There
are no financial statement schedules required to be filed with this
Annual
Report.
|
(3)
|
The
following exhibits are filed with or incorporated by reference into
this
Amendment.
|
Exhibit
Number
|
Description
|
Previously
Filed as Exhibit
|
|
|
|
|
Certification
pursuant to SEC Release No. 33-8238, as adopted pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002
|
Attached
hereto
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
Attached
hereto
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated:
January 30, 2006
|
|
/s/
W. Chris Broquis
|
|
|
W.
Chris Broquist
|
|
|
Chief
Financial Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
W. Chris Broquist
|
|
Chief
Financial Officer
|
|
January
30, 2006
|
W.
Chris Broquist
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Daniel L. Coury, Sr.
|
|
Acting
Chief Executive Officer
|
|
January
30, 2006
|
Daniel
L. Coury, Sr.
|
|
(Principal
Executive Officer) & Director
|
|
|
|
|
|
|
|
/s/
Joseph Cunningham
|
|
Director
|
|
January
30, 2006
|
Joseph
Cunningham
|
|
|
|
|
|
|
|
|
|
/s/
Elizabeth Demarse
|
|
Director
|
|
January
30, 2006
|
Elizabeth
Demarse
|
|
|
|
|