pediatric8k060208.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report: (Date of Earliest Event Reported): June 2, 2008
COMMISSION
FILE NO.: 000-51804
PEDIATRIC PROSTHETICS,
INC.
(Exact
Name of Registrant As Specified In Its Charter)
IDAHO
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68-0566694
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(State
Or Other Jurisdiction
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(IRS
Employer Identification No.)
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Of
Incorporation)
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12926 WILLOW CHASE DRIVE,
HOUSTON, TEXAS 77070
(Address
of Principal Executive Offices)
(281)
897-1108
(Issuer
Telephone Number)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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[
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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[
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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ITEM 1.01 ENTRY INTO A
MATERIAL DEFINITIVE AGREEMENT.
On or
about June 2, 2008 (the "Closing"), Pediatric Prosthetics, Inc. (the "Company,"
"we," and "us") entered into a Securities Purchase Agreement
("Purchase Agreement") with New Millennium Capital Partners II, LLC (the
"Purchaser"), pursuant to which the Purchaser agreed to purchase an aggregate of
$150,000 in convertible debt financing. Pursuant to the Securities Purchase
Agreement, we agreed to sell the Purchaser $150,000 in Callable Secured
Convertible Notes (the "Debentures"), which are due and payable on June 2, 2011.
The Debentures can be convertible into our common stock at a discount to the
then trading value of our common stock as described in greater detail below.
Additionally, in connection with the Securities Purchase Agreement, we granted
the Purchaser warrants to purchase an aggregate of 20,000,000 shares of our
common stock at an exercise price of $0.001 per share (the "Warrants"). We also
agreed to grant the Purchaser registration rights in connection with the shares
of common stock which the Debentures are convertible into and the shares of
common stock which the Warrants are exercisable pursuant to a Registration
Rights Agreement. We secured the Debentures pursuant to the Security
Agreement
and Intellectual Property Security Agreement, described
below. Additionally, the amount outstanding under the Debentures was
guarantied by our wholly owned subsidiary, Pediatric Prosthetics, Inc., a Texas
corporation pursuant to a Subsidiary Guaranty.
Agreement
and Intellectual Property Security Agreement, described
below. Additionally, the amount outstanding under the Debentures was
guarantied by our wholly owned subsidiary, Pediatric Prosthetics, Inc., a Texas
corporation pursuant to a Subsidiary Guaranty.
The
$150,000 we received from the Purchaser at the Closing in connection with the
sale of the Debentures is anticipated to be used as follows:
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●
Auditor, Accounting and Attorneys Fees
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$75,000
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Payables to Suppliers of Inventory
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$20,000
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Promotional, Marketing and Travel Costs
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$15,000
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Working Capital
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$40,000
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Total
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$150,000
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CALLABLE
SECURED CONVERTIBLE NOTES
Pursuant
to the Purchase Agreement, we agreed to sell the Purchaser $150,000 in
Debentures, which Debentures bear interest at the rate of six percent (6%) per
annum, payable quarterly in arrears, provided that no interest shall be due and
payable for any month in which the trading value of our common stock is greater
than $0.05 for each day that our common stock trades. Any amounts not paid under
the Debentures when due bear interest at the rate of fifteen percent (15%) per
annum until paid. The conversion price of the Debentures is equal to 40% of the
average of the lowest three (3) Trading Prices (as defined below) for the common
stock during the twenty (20) Trading Day (as defined below) period ending one
Trading Day prior to the date of conversion (the “Conversion Price”). “Trading
Price” means, for any security as of any date, the intraday trading price on the
Over-the-Counter Bulletin Board (the “OTCBB”), or if not traded on the OTCBB or
other exchange or market, the average of the intraday trading prices of any
market makers for such security that are listed in the “pink sheets” by the
National Quotation Bureau, Inc. “Trading Day” shall mean any day on
which the common stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the common
stock is then being traded.
In the
event the Company (i) makes a public announcement that it intends to consolidate
or merge with any other corporation or sell or transfer all or substantially all
of the Company’s assets or (ii) any person, group or entity publicly announces a
tender offer to purchase 50% or more of the Company’s common stock, then the
Conversion Price shall be equal to the lower of the Conversion Price which would
have been applicable for a Conversion occurring on the date of announcement and
the Conversion Price that would otherwise be in effect.
Also
pursuant to the Debentures, the Conversion Price is automatically adjusted if,
while the Debentures are outstanding, we issue or sell, any shares of common
stock for no consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Conversion Price then in effect, with the
consideration paid per share, if any being equal to the new Conversion Price;
provided however, that each Purchaser has agreed to not convert any amount of
principal or interest into shares of common stock, if, as a result of such
conversion, such Purchaser and affiliates of such Purchaser will hold more than
4.99% of our outstanding common stock.
"Events
of Default" under the Debentures include:
1. Our
failure to pay any principal or interest when due;
2. Our
failure to issue shares of common stock to the Purchaser in connection with any
conversion as provided in the Debenture;
3. Our
failure to file a Registration Statement or obtain effectiveness with the
Securities and Exchange Commission of a required Registration Statement in
accordance with the Registration Rights
Agreement, or such Registration Statement lapses in effect (or sales cannot
otherwise be made thereunder effective) for more than ten (10) consecutive days
or twenty (20) days in any twelve month period after the Registration Statement
becomes effective;
4. Our
entry into bankruptcy or the appointment of a receiver or trustee;
5. Our
breach of any covenants in the Debentures or Purchase Agreement, if such breach
continues for a period of ten (10) days after written notice thereof by the
Purchaser, or our breach of any representations or warranties included in any of
the other agreements entered into in connection with the Closing;
6. If any
judgment is entered against us or our property for more than $100,000, and such
judgment is unvacated, unbonded or unstayed for a period of twenty (20) days,
unless otherwise consented to by the Purchaser, which consent will not be
unreasonably withheld;
7. If we
fail to maintain the listing of our common stock on the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or
Upon the
occurrence of and during the continuance of an Event of Default, the Purchaser
can make the Debentures immediately due and payable, and can make us pay the
greater of (a) 130% of the total remaining outstanding principal amount of the
Debenture, plus accrued and unpaid interest thereunder, or (b) the total dollar
value of the number of shares of common stock which the funds referenced in
section (a) would be convertible into (as calculated in the Debenture),
multiplied by the highest closing price for our common stock during the period
we are in default. If we fail to pay the Purchaser's such amount within five (5)
days of the date such amount is due, the Purchaser can require us to pay them in
the number of shares of common stock equal to (b) divided by the Conversion
Price then in effect.
Pursuant
to the Debentures, we have the right, in the event our common stock is trading
at or below $0.10 per share, to prepay the outstanding principal amount of the
Debentures in an amount equal to (i) 120% for prepayments occurring within one
hundred eighty (180) days of the issue date, (ii) 130% for prepayments occurring
between one hundred eighty-one (181) and three hundred sixty (360) days of the
issue date, or (iii) 140% for prepayments occurring after the three hundred
sixtieth (360th) day following the issue date, of the principal amount of the
Debentures plus any unpaid interest, plus any unpaid default interest, plus any
amounts owed pursuant to the Registration Rights Agreement.
Additionally,
pursuant to the Debentures, we have the right, in the event the average daily
price of our common stock for each day of any month the Debentures are
outstanding is below $0.10 per share, to prepay a portion of the outstanding
principal amount of the Debentures equal to 101% of the principal amount of such
Debenture divided by thirty-six (36) plus one month's interest, which payment
will stay all conversions for that month.
At the
Closing, we entered into a Security Agreement and an Intellectual Property
Security Agreement (collectively, the "Security Agreements"), with the
Purchaser, whereby we granted the Purchaser a security interest in, among other
things, all of our goods, equipment, machinery, inventory, computers, furniture,
contract rights, receivables, software, copyrights, licenses, warranties,
service contracts and intellectual property to secure the repayment of the
Debentures.
STOCK
PURCHASE WARRANTS
In
connection with the Closing, we granted an aggregate of 20,000,000 Warrants to
the Purchaser, which warrants are exercisable for shares of our common stock at
an exercise price of $0.001 per share (the "Exercise Price"). Each Purchaser,
however, has agreed not to exercise any of the Warrants into shares of common
stock, if, as a result of such exercise, such Purchaser and affiliates of such
Purchaser will hold more than 4.9% of our outstanding common stock.
The
Warrants expire, if unexercised at 6:00 p.m., Eastern Standard Time on June 2,
2015. The Warrants also include reset rights, which provide for the Exercise
Price of the Warrants to be reset to a lower price if we (a) issue or sell any
shares of common stock for no consideration or for a consideration per share
less than the market price on the date of issuance; (b) issue any warrants or
options (other than in connection with our Stock Option Plans), which have an
exercise price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the exercise price of the warrants or options granted, as
calculated in the Warrants; or (c) issue any convertible securities, which have
a conversion price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the conversion price of the convertible securities, as
calculated in the Warrants.
Pursuant
to the Warrants, until we register the shares of common stock which the Warrants
are exercisable for, the Warrants have a cashless exercise feature, where the
Purchaser can exercise the Warrants and pay for such exercise in shares of
common stock, in lieu of paying the exercise price of such Warrants in
cash.
REGISTRATION
RIGHTS AGREEMENT
Pursuant
to the Registration Rights Agreement entered into at the Closing, we agreed to
provide the Purchaser demand registration rights, exercisable any time after the
expiration of six months from the date of the Closing for the shares of common
stock which the Debentures are convertible into and the shares of common stock
issuable in connection with the exercise of the Warrants (the “Registrable
Securities”), provided however that we are not required to file a registration
statement at any time that the Purchaser can rely on Rule 144 for the sale of
the Registrable Securities. If the Purchaser exercise its demand
registration rights, we are required to file a registration statement on or
prior to thirty (30) days from the date of receipt of written demand of the
Purchaser (the “Filing Date”), to register the number of Registrable Securities
equal to thirty percent (30%) of our then public float.
If the
registration statement is not filed by the Filing Date or declared effective by
the SEC on or prior to one hundred forty-five (145) days from the date of
receipt of written demand of the Purchaser, or after the registration
statement has been declared effective by the SEC, sales of all of the
Registrable Securities cannot be made pursuant to the registration statement, or
the common stock is not listed or included for quotation on the
Over-the-Counter Bulletin Board (the "OTCBB") or any equivalent replacement
exchange, then we are required to make payments to the Purchaser in connection
with their inability and/or delay to sell their securities. The payments are to
be equal to the then outstanding amount of the principal amount of the
Debenture, multiplied by $0.02, multiplied by the number of months after such
one hundred and forty-five (145) day period and/or the date sales are not able
to be effected under the registration statement, pro rated for partial months.
For example, for each month that passes in which we fail to obtain effectiveness
of our registration statement, after the end of the one hundred and forty-five
(145) day period, we would owe the Purchaser and aggregate of $3,000 in penalty
payments, based on $150,000 then outstanding under the Debenture.
In the
event that the Purchaser sells substantially all of the shares then registered
under an effective registration statement, the Company will be required to be
file additional registration statements.
THIRD
WAIVER OF RIGHTS AGREEMENT
In
connection with the Closing, we and AJW Partners, Inc., AJW Partners, LLC, AJW
Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners,
II, LLC (the “Prior Purchasers”) entered into a Third Waiver of Rights Agreement
(the “3rd
Waiver”). Pursuant to the 3rd Waiver,
the Prior Purchasers agreed to waive any and all anti-dilution, reset rights,
rights to prior notice of and/or rights of first refusal in connection with the
Closing and funding, which they may have had pursuant to the $1,500,000 in three
tranches of Callable Secured Convertible Notes (the “Prior Notes”) which we sold
to the Prior Purchasers and 50,000,000 Warrants to purchase shares of our common
stock at an exercise price of $0.10 per share, which we granted the Prior
Purchasers, in connection with a Securities Purchase Agreement entered into on
May 30, 2006. Pursuant to the 3rd Waiver,
the Prior Purchasers also agreed to and approved the Closing and the funding in
connection with the Closing.
ITEM 3.02 UNREGISTERED SALES
OF EQUITY SECURITIES.
As
discussed in “Item 1.01” above, on or about June 2, 2008, we entered into a
Securities Purchase Agreement, with the Purchaser to sell $150,000 in Callable
Secured Convertible Notes, which bear interest at the rate of 6% per annum (the
"Debentures"). We claim an exemption from registration provided by Rule 506 of
Regulation D for the above issuance.
In
connection with the sale of the Debentures, we granted the Purchaser Stock
Purchase Warrants to purchase an aggregate of 20,000,000 shares of our common
stock at an exercise price of $0.001 per share, which warrants expire if
unexercised on June 2, 2015. We claim an exemption from registration provided by
Rule 506 of Regulation D for the issuance of the warrants.
ITEM 9.01 FINANCIAL
STATEMENTS AND EXHIBITS.
Exhibit
No.
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Description
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10.1*
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Securities
Purchase Agreement
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10.2*
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Callable
Secured Convertible Note with New Millennium Capital Partners II,
LLC
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10.3*
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Stock
Purchase Warrant with New Millennium Capital Partners II,
LLC
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10.4*
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Registration
Rights Agreement
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10.5*
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Security
Agreement
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10.6*
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Intellectual
Property Security Agreement
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10.7*
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Subsidiary
Guaranty
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10.8*
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Third
Waiver of Rights Agreement
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*
Attached hereto.
SIGNATURES
Pursuant
to the requirement 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.
PEDIATRIC PROSTHETICS,
INC.
June 11,
2008
/s/ Kenneth W.
Bean
Kenneth
W. Bean,
Vice
President