UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): November 23, 2005
Uphonia, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-28008 13-3750708
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(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification No.)
2250 Butler Pike, Suite 150, Plymouth Meeting, Pennsylvania 19462
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (610) 397-0689
SmartServ Online, Inc.
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(Former Name or Former Address, if Changed Since Last Report)
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:
|_| 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 1.02 Termination of a Material Definitive Agreement
On November 23, 2005, Prima Communications, Inc. ("Prima") gave written
notice of termination of the Master Vendor Agreement, dated January 7, 2005,
pursuant to which the Calling Card Division of the Company (the "Division")
purchased its supply of calling cards. This termination was stated to be
effective December 22, 2005. Notwithstanding this technical notice of
termination, Prima orally assured the Division that Prima would continue to sell
calling cards to the Division pursuant to the terms of such Master Vendor
Agreement and such sales of Calling Cards continued after December 22, 2005 in
accordance therewith. On or about February 11, 2006, Prima ceased supplying
calling cards to the Division.
The Company is in a dispute with Prima as master vendor of calling cards.
Prima is controlled by some or all of the former owners of KPCCD, Inc., from
whom the Company purchased the Division during January, 2005. The Company
alleges that Prima has over charged the Company on sales of calling cards and
other allegations. Prima has asserted that it is owed approximately $4,300,000
by the Division for calling cards.
On November 23, 2005, in connection with the termination of the Master
Vendor Agreement, Nimesh Patel and Kala Patel gave written notice of termination
of their Employment Agreements effective December 23, 2005.
The information contained in Item 8.01 hereof is incorporated herein by
reference.
Item 2.05 Costs Associated with Exit or Disposal Activities
The Division has discontinued its active operations and terminated its two
employees effective March 27, 2006. After the discontinuance of the Division,
the Company will have no ongoing revenues. In connection with such
discontinuance, the Company will incur termination costs relating to the two
employees of the Division of approximately $2,500 and expects to incur contract
termination costs principally with respect to the leased premises used by the
Division. The Company is unable in good faith to make a determination of an
estimate of all of such termination costs. The Company will file an amendment to
this Form 8-K within four business days after it makes a determination of such
estimate or range of estimates.
The information contained in Item 8.01 hereof is incorporated herein by
reference.
Item 2.06 Material Impairments
In connection with shutting down the Division, the Company is reviewing
whether a material charge for impairment, including goodwill relating to the
acquisition of KPCCD, Inc., will be required under generally accepted accounting
principles. No conclusion has been reached as of the date of filing of this Form
8-K. If such conclusion is reached, the Company intends to file an amendment to
this Form 8-K providing the information responsive to Item 2.06 with respect to
such material impairment within four business days after it makes such
conclusion.
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Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Internal Review
In connection with the Company's pending SB-2 Registration Statement
originally filed on September 30, 2005, the Securities and Exchange Commission
has commented as to the appropriate accounting for options and warrants issued
in connection with, and derivative instruments embedded in, our debt agreements
and in our Series A preferred stock. In that regard, the Company has engaged a
consultant experienced in the area of embedded derivatives and the consultant is
assisting the Company in evaluating the appropriate accounting for embedded
derivatives related to the Company's financings in 2003, 2004 and 2005.
The officers of the Company have concluded that as the result of
responding to these comments, that the options and warrants issued will have to
be accounted for as derivative instrument liabilities rather than as equity (as
we have historically treated them), and that the embedded conversion options
related to the debt and series A preferred stock, together with any other
embedded derivative instruments, may need to be bifurcated from the debt and
series A preferred stock hosts and accounted for separately as derivative
instrument liabilities. In periods subsequent to each financing the change in
fair value of these instruments will result in an adjustment of this liability
with the corresponding gain or loss being recorded in the statement of
operations. At the date of conversion of the instrument or the exercise of the
warrants, the corresponding liability will be reclassified to equity.
The Company is continuing its analysis as to the extent that such change
in accounting will be reflected in previously issued financial statements with
respect to 2003, 2004 and 2005. The officers of the Company have concluded that
previously issued financial statements concerning such periods should no longer
be relied upon.
Item 5.02 Departure of Directors or Principal Officers
(b) On March 23, 2006, Mr. Robert Hartnett resigned as a director of the
Company, effective immediately.
Item 8.01 Other Events
The Company is examining matters at the Division level relating to
handling of funds, recordkeeping, pricing and internal control matters. The
Company is also examining at the Division level that financial records appear to
have been altered or are missing.
The Company is developing a plan to evaluate the nature and magnitude of
the foregoing matters, the impact on the Company and the affect on previously
issued financial statements of the Company. As part of such plan the Company
intends to engage a firm to undertake a forensic accounting of the above
matters.
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The Audit Committee of the Company has launched an investigation with
respect to the above-described matters. The Audit Committee has approved the
retention of a firm to undertake forensic accounting of the above-described
matters.
In light of the above-described matters, the Company believes that there
may be material weaknesses in its disclosure controls and procedures. The
Company is reviewing and assessing such disclosure controls and procedures.
The Company's lender CAMOFI Master LDC ("the Lender") has notified
customers of the Division to pay the Lender directly with respect to the
Division's outstanding accounts receivable. The Company is cooperating with the
Lender in collection efforts. The outstanding amount due the Lender as of such
date was approximately $3,000,000 which is secured by, among other things, the
accounts receivable of the Division and $1,000,000 which is on deposit with a
bank as security for a letter of credit issued on the Company's behalf.
The Company expects that it will be late in filing its Form 10-K for its
fiscal year ending December 31, 2005 due to the matters described in Item 4.02
hereof and herein.
Forward-Looking Statements
This current report on Form 8-K contains forward-looking statements that involve
risks and uncertainties. Forward-looking statements in this document and those
made from time-to-time by the Company are made under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements concerning future plans or results are necessarily only estimates and
actual results could differ materially from expectations. Certain factors that
could cause or contribute to such differences are described from time to time in
the Company's filings with the Securities and Exchange Commission, including but
not limited to, the "Risk Factors" described under the heading "Certain Factors
That May Affect Future Results" in the Company's Annual Report on Form 10-KSB/A
for the year ended December 31, 2004 and other SEC filings.
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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.
SMARTSERV ONLINE, INC.
Dated: March 28, 2006 By: /s/ Robert M. Pons
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Robert M. Pons,
Chief Executive Officer
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