UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest reported): January 24, 2005
MODERN TECHNOLOGY CORP.
(Exact name of registrant as specified in charter)
NEVADA 002-80891 11-2620387
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1420 N. Lamar Blvd., Oxford MS 38655
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (662) 236-5928
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):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
Securities Purchase Agreement
-----------------------------
On January 24, 2005, we entered into a Securities Purchase Agreement with
AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC for the sale of (i) $2,000,000 in secured
convertible notes and (ii) warrants to purchase 3,000,000 shares of our common
stock and (iii) we entered into a Purchase Agreement whereby we purchased a
$1,500,000 Convertible Debenture in exchange for 1,500 Shares of our Series A
Convertible Preferred Stock.
The secured convertible notes bear interest at 8%, mature two years from
the date of issuance, and are convertible into our common stock, at the
investors' option, at the lower of:
o $0.44; or
o 40% of the average of the three lowest intraday trading prices for
the common stock on the Over-The-Counter Bulletin Board for the 20
trading days before but not including the conversion date.
The full principal amount of the secured convertible notes, plus a default
interest rate of 15%, is due upon a default under the terms of secured
convertible notes. In addition, we granted the investors a security interest in
substantially all of our assets, including the assets of our wholly owned
subsidiaries, and intellectual property. We are required to file a registration
statement with the Securities and Exchange Commission within 45 days of closing,
which will include the common stock underlying the secured convertible notes and
the warrants. If the registration statement is not declared effective within 100
days from the date of closing, we are required to pay liquidated damages to the
investors. In the event that we breach any representation or warranty in the
Securities Purchase Agreement, we are required to pay liquidated damages in
shares of our common stock or cash, at the election of the investors, in an
amount equal to three percent of the outstanding principal amount of the secured
convertible notes per month plus accrued and unpaid interest.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $0.40 per share. The investors may exercise the warrants on
a cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, we will not receive any
proceeds. In addition, the exercise price of the warrants will be adjusted in
the event we issue common stock at a price below market, with the exception of
any securities issued as of the date of the warrants or issued in connection
with the secured convertible notes issued pursuant to the Securities Purchase
Agreement.
Upon an issuance of shares of common stock below the market price, the
exercise price of the warrants will be reduced accordingly. The market price is
determined by averaging the last reported sale prices for our shares of common
stock for the five trading days immediately preceding such issuance as set forth
on our principal trading market. The exercise price shall be determined by
multiplying the exercise price in effect immediately prior to the dilutive
issuance by a fraction. The numerator of the fraction is equal to the sum of the
number of shares outstanding immediately prior to the offering plus the quotient
of the amount of consideration received by us in connection with the issuance
divided by the market price in effect immediately prior to the issuance. The
denominator of such issuance shall be equal to the number of shares outstanding
after the dilutive issuance.
The conversion price of the secured convertible notes and the exercise
price of the warrants may be adjusted in certain circumstances such as if we pay
a stock dividend, subdivide or combine outstanding shares of common stock into a
greater or lesser number of shares, or take such other actions as would
otherwise result in dilution of the investors' position.
The investors have agreed to restrict their ability to convert their
secured convertible notes or exercise their warrants and receive shares of our
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.9% of the then issued and outstanding shares of our common stock.
Under a Guaranty and Pledge Agreement, Mr. Anthony Welch, our Chief
Executive Officer agreed (i) to unconditionally guarantee the timely and full
satisfaction of all obligations, whether matured or unmatured, now or hereafter
existing or created and becoming due and payable to AJW Offshore, Ltd., AJW
Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners
II, LLC, their successors, endorsees, transferees or assigns under the
Securities Purchase Agreement and other transaction documents to the extent of
5,500,000 shares of our common stock owned by Mr. Welch, and (ii) to grant to
AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC, their successors, endorsees, transferees or
assigns a security interest in the 5,500,000 shares owned by Mr. Welch as
collateral security for such obligations.
Stock Purchase Agreement
------------------------
On January 24, 2005, we entered into a Stock Purchase Agreement with
sound City, Inc. pursuant to which we purchased 51% of the issued and
outstanding shares of common stock of Sound City, Inc. for an
aggregate purchase price of $1,200,000 and to provide $200,000 in funding
to Sound City, Inc.
Sound City, Inc. is a speciality retailer of consumer electronic (audio,
video, car stereo and home theater and home theater custom installations).
Sound City maintains a broad range of customers, numbering approximately 900,000
including high-end audio and videophiles, company owners, and small businesses.
Sound City operates a retail store in Denville, HJ and a 33,000 square feet
warehouse in Towaco, NJ. It also operates a web site at
http://www.soundcity.com
In connection with the acquisition, we entered into an Employment
Agreement with Kamel Yassin to serve as President of Sound City, Inc.
Pursuant to the Employment Agreement, Mr. Yassin will receive an annual
salary of $200,000, and stock-based commissions, for a period of five years.
The Employment Agreement can be terminated by the Company for just cause, as
defined therein.
Item 2.01 Acquisition of Assets.
We acquired a Convertible Debenture in the amount of $1,500,000.
This Debenture is convertible into Common Stock of DeMarco Energy Systems of
America, Inc.
See Item 1.01 above.
Item 2.03 Creation of a Direct Financial Obligation.
See Item 1.01 above.
Item 3.02 Unregistered Sales of Equity Securities.
See Item 1.01 above.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
1. Audited Financial Statements of Sound City, Inc.
for the year ended December 31, 2004 (to be
filed by amendment).
(b) Pro forma financial information.
Pro forma Financial Information will be filed by amendment.
(c) Exhibits.
Exhibit
Number Description
- --------------------------------------------------------------------------------
4.1 Securities Purchase Agreement, dated January 24, 2005, by and among
Modern Technology Corp., AJW Offshore, Ltd., AJW Qualified
Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners
II, LLC.
4.2 Callable Secured Convertible Note issued to AJW Offshore, Ltd.,
dated January 24, 2005.
4.3 Callable Secured Convertible Note issued to AJW Qualified Partners,
LLC, dated January 24, 2005.
4.4 Callable Secured Convertible Note issued to AJW Partners, LLC, dated
January 24, 2005.
4.5 Callable Secured Convertible Note issued to New Millennium Capital
Partners II, LLC, dated January 24, 2005.
4.6 Stock Purchase Warrant issued to AJW Offshore, Ltd., dated January
24, 2005.
4.7 Stock Purchase Warrant issued to AJW Qualified Partners, LLC, dated
January 24, 2005.
4.8 Stock Purchase Warrant issued to AJW Partners, LLC, dated January
24, 2005.
4.9 Stock Purchase Warrant issued to New Millennium Capital Partners II,
LLC, dated January 24, 2005.
4.10 Registration Rights Agreement, dated as of January 24, 2005, by and
among Modern Technology Corp., AJW Offshore, Ltd., AJW Qualified
Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners
II, LLC.
4.11 Security Agreement, dated as of January 24, 2005, by and among
Modern Technology Corp, AJW Offshore, Ltd., AJW Qualified Partners,
LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC.
4.12 Intellectual Property Security Agreement, dated January 24, 2005, by
and among Modern Technology Corp, AJW Offshore, Ltd., AJW Qualified
Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners
II, LLC.
4.13 Guaranty and Pledge Agreement, dated January 24, 2005, by and among
Modern Technology Corp., Anthony Welch, AJW Offshore, Ltd., AJW
Qualified Partners, LLC, AJW Partners, LLC and New Millennium
Capital Partners II, LLC.
10.1 Stock Purchase Agreement, dated January 24, 2005, by and among
Modern Technology Corp and Sound City, Inc.
10.2 Employment Agreement, dated as of January 24, 2005, by and among
Modern Technology Corp, Sound City, Inc., and Kamel Yassin.
10.3 Purchase Agreement for DeMarco Convertible Debenture, dated
January 24, 2005 by and Modern Technology Corp, AJW Offshore, Ltd.,
AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium
Capital Partners II, LLC.
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 hereunto duly authorized.
MODERN TECHNOLOGY CORP.
Date: January 28, 2005 /s/ ANTHONY K WELCH
---------------------------
Anthony K. Welch, CEO