UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(AMENDMENT NO. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 2006
[ ] 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: 333-102740
MANCHESTER INC.
(Exact Name of Small Business Issuer as specified in its charter)
NEVADA 98-0380409
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
100 CRESCENT COURT, 7TH FLOOR
DALLAS, TEXAS 75201
(Address of principal executive offices)
(866) 230-1805
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 33,137,500 shares of $0.001 par value
common stock outstanding as of June 27, 2006.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
Explanatory Note
This Amendment No. 2 to the Quarterly Report on Form 10-QSB/A (this "Report")
for Manchester Inc. is filed in response to comments on Amendment No.1 to the
Quarterly Report on Form 10-QSB for the Fiscal quarter-ended February 28, 2006,
as received by Manchester Inc. from the U.S. Securities and Exchange Commission
(the "Commission"). Only those Items which have been revised in response to the
Commission's comments have been included herein. Readers are directed to
Amendment No. 1 for all other Items. All information contained in this Report
speaks solely as of the fiscal quarter-ended February 28, 2006, except for
information identified as subsequent events. For current information regarding
the business of Manchester Inc., please refer to the periodic reports and
current reports filed by Manchester Inc. with the Commission in respect of dates
after February 28, 2006.
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM BALANCE SHEETS
(UNAUDITED)
(STATED IN U.S. DOLLARS)
FEBRUARY 28, NOVEMBER 30,
2006 2005
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 9,865 $ 777
Refundable deposit 250,000 --
Prepaid expenses 1,330 1,330
-------------------------
261,195 2,107
OFFICE EQUIPMENT, NET 5,746 --
-------------------------
$ 266,941 $ 2,107
================================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 30,933 $ 10,515
Advances payable (Note 4) -- 535
Notes payable (Note 5) 449,292 96,361
-------------------------
480,225 107,411
-------------------------
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK
Authorized:
100,000,000 common shares, par value $0.001 per share
10,000,000 preferred shares, par value $0.001 per share
Issued and outstanding:
33,137,500 common shares 33,138 33,138
Additional paid-in capital 40,312 40,312
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE (286,734) (178,754)
-------------------------
(213,284) (105,304)
-------------------------
$ 266,941 $ 2,107
================================================================================================
The accompanying notes are an integral part of these
interim financial statements
3
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
(STATED IN U.S. DOLLARS)
- -----------------------------------------------------------------------------------------------------
CUMULATIVE
PERIOD FROM
INCEPTION
AUGUST 27
THREE MONTHS ENDED 2002 TO
FEBRUARY 28, FEBRUARY 28,
2006 2005 2006
- -----------------------------------------------------------------------------------------------------
REVENUE $ -- $ -- $ --
EXPENSES
Consulting fees 40,000 -- 72,510
Amortization 342 342
Advertising and promotion -- -- 3,120
Interest on notes payable 3,192 -- 8,627
Mineral property exploration expenditures -- -- 12,000
Mineral property option payments -- -- 10,000
Office and sundry 947 1,316 4,782
Rent 4,763 -- 4,763
Professional fees 53,835 9,649 160,905
Transfer agent and filing fees 3,384 650 14,969
Travel and entertaining 1,560 -- 1,560
--------------------------------------------------
LOSS BEFORE THE FOLLOWING 108,023 11,615 293,578
Interest earned (43) -- (279)
Forgiveness of advances -- -- (6,565)
--------------------------------------------------
NET LOSS FOR THE PERIOD $ 107,980 $ 11,615 $ 286,734
=====================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00)
==================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 33,137,500 33,137,500
==================================================================================
The accompanying notes are an integral part of these
interim financial statements
4
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(STATED IN U.S. DOLLARS)
- ------------------------------------------------------------------------------------------------
CUMULATIVE
PERIOD FROM
INCEPTION
AUGUST 27
THREE MONTHS ENDED 2002 TO
FEBRUARY 28, FEBRUARY 28,
2006 2005 2006
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(107,980) $ (11,615) $(286,734)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Amortization 342 -- 342
Increase in refundable deposit (250,000) -- (250,000)
Decrease in prepaid expenses (Note 6) -- (3,450) (1,330)
Increase (decrease) in accounts payable and
accrued liabilities 20,418 (2,401) 31,034
Increase in accrued interest 3,192 -- 8,627
----------------------------------------
Net cash used in operating activities (334,028) (17,466) (498,061)
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (6,088) -- (6,088)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from notes payable 349,739 1,323 440,564
Advances payable (535) --
Shared capital issued -- -- 73,450
----------------------------------------
Net cash provided by financing activities 349,204 1,323 514,014
----------------------------------------
NET INCREASE (DECREASE) IN CASH 9,088 (16,143) 9,865
CASH AT BEGINNING OF PERIOD 777 65,421 --
----------------------------------------
CASH AT END OF PERIOD $ 9,865 $ 49,278 $ 9,865
===============================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ -- $ -- $ --
Income taxes paid -- -- --
===============================================================================================
The accompanying notes are an integral part of these
interim financial statements
5
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006 AND 2005
(UNAUDITED)
(STATED IN U.S. DOLLARS)
1. BASIS OF PRESENTATION
The unaudited financial information furnished herein reflects all
adjustments, which in the opinion of management are necessary to fairly
state the Company's financial position and the results of its operations
for the periods presented. This report on Form 10-QSB should be read in
conjunction with the Company's financial statements and notes thereto
included in the Company's audited financial statements for the fiscal year
ended November 30, 2005. The Company assumes that the users of the interim
financial information herein have read or have access to the audited
financial statements for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation may be determined
in that context. Accordingly, footnote disclosure, which would
substantially duplicate the disclosure contained in the Company's audited
financial statements for the fiscal year ended November 30, 2005, has been
omitted. The results of operations for the three-month period ended
February 28, 2006 are not necessarily indicative of results for the entire
year ending November 30, 2006.
2. NATURE OF OPERATIONS
a) Organization
The Company was incorporated in the State of Nevada, U.S.A., on
August 27, 2002. The Company currently has limited operations and is
seeking new projects. The Company is a development stage company as
defined by Statement of Financial Accounting Standards ("SFAS") No.
7. The Company had previously been in the exploration stage since
its formation and has not yet realized any revenues from its planned
operations. It was primarily engaged in the acquisition and
exploration of mining properties.
b) Going Concern
The accompanying interim financial statements have been prepared
assuming the Company will continue as a going concern.
As shown in the accompanying interim financial statements, the
Company has incurred a net loss of $286,734 for the period from
August 27, 2002 (inception) to February 28, 2006, and has no sales.
The future of the Company is dependent upon its ability to obtain
financing and upon future profitable operations from the development
of its "Buy-Here Pay-Here" used car sales businesses. Management has
plans to seek additional capital through a private placement and
public offering of its common stock. The interim financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
of and classification of liabilities that might be necessary in the
event the Company cannot continue in existence.
6
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006 AND 2005
(UNAUDITED)
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United
States. Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of interim financial
statements for a period necessarily involves the use of estimates which
have been made using careful judgement.
The interim financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:
a) Organizational and Start Up Costs
Costs of start up activities, including organizational costs, are
expensed as incurred.
b) Office Equipment
Office Equipment is recorded at cost and is depreciated amortized
over its estimated useful life at the following rate:
Computer Equipment 30% straight line
c) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses for the reporting period. Actual
results could differ from these estimates.
7
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006 AND 2005
(UNAUDITED)
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
No. 109 - "Accounting for Income Taxes" (SFAS 109). This standard
requires the use of an asset and liability approach for financial
accounting, and reporting on income taxes. If it is more likely than
not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized
e) Foreign Currency Translation
The Company's functional currency is the U.S. dollar. Foreign
currency balances are translated into U.S. dollars as follows:
i) monetary items at the rate prevailing at the balance sheet
date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the rate in effect at the time of the
transaction.
f) Basic and Diluted Loss Per Share
In accordance with SFAS No. 128 - "Earnings Per Share", the basic
loss per common share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares
outstanding. Diluted loss per common share is computed similar to
basic loss per common share except that the denominator is increased
to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. At February 28, 2006,
the Company has no common stock equivalents that were anti-dilutive
and excluded in the earnings per share computation.
4. ADVANCES PAYABLE
Advances payable are unsecured, bear no interest and have no fixed terms
of repayment. As of February 28, 2006, $nil (2005 - $535) was owing to a
director of the Company.
8
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006 AND 2005
(UNAUDITED)
(STATED IN U.S. DOLLARS)
5. NOTES PAYABLE
As of February 28, 2006, notes payable in the amount of $449,292 were
outstanding, unsecured and bore interest at 6% per annum. One note
payable, dated as of November 24, 2004 (the "2004 Note"), was to Mr.
Robert Sim. Mr. Sim is not a related party of the Company. The 2004 Note
was unsecured, bore interest at 6% per annum and was repayable on December
24, 2005. The Company was in default with respect to the 2004 Note from
December 24, 2005 until June 27, 2006. As of February 28, 2006, the amount
of the principal and accrued interest on the 2004 Note was $97,926.54.
Subsequent to the end of the period covered by this report, the Company
and Mr. Sim have negotiated and executed a new note, dated as of June 27,
2006 (the "Amended and Restated Note"), which replaces the 2004 Note. Mr.
Sim has waived the Company's default of the 2004 Note. See Note 8,
Subsequent Events.
As of February 28, 2006, the Company had three notes outstanding to Brazos
Equities LLC in the amounts of $19,000, $40,000 and $290,000. Brazos
Equities LLC is not a related party to the Company. With accrued interest,
the total amount owed by the Company to Brazos Equities LLC was
$351,365.46. These notes are unsecured, bear interest at 6% and are
payable on demand.
6. REFUNDABLE DEPOSIT
The Company paid a $250,000 refundable deposit (the "Deposit") to Surge
Capital ("Surge") for the purpose of assuring coverage of future fees,
costs, expenses and disbursements expected to be incurred by Surge in
connection with Surge's consideration of providing the Company with a
senior secured revolving financing facility ("Due Diligence Expenses").
The Company may pay such Due Diligence Expenses directly or Surge will
withdraw amounts from the Deposit to cover the Due Diligence Expenses as
such expenses are incurred. In the event Surge does not enter into a
financing facility with the Company for any reason, Surge shall return the
balance of any unused amounts from the Deposit to the Company.
7. COMMITMENTS
On June 10, 2005 the Company entered into an agreement for the development
of a branded suite of collateral, including website, corporate identity
and presentation materials at a cost of $8,988 ($10,700Cdn) with Nextphase
Strategy Marketing Inc.
As of November 30, 2005 the Company has paid $4,449 ($5,300Cdn) of the
amount due pursuant to the contract and certain elements of the contract
have been completed valued at $3,119 ($3,745Cdn). Subsequent to the date
of this report, the Company and Nextphase have agreed that no further work
shall be undertaken by Nextphase on behalf of the Company and no
outstanding amounts due on the contract shall be payable by the Company.
9
MANCHESTER INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006 AND 2005
(UNAUDITED)
(STATED IN U.S. DOLLARS)
8. SUBSEQUENT EVENTS
a) Subsequent to February 28, 2006, the Company entered into a
consulting contract with an individual to provide financial and
administrative services that expires March 31, 2008. Over the term
of the contract the Company will pay a contractual fee of $25,000
per month.
b) Subsequent to February 28, 2006, the Company granted 200,000 stock
options to a consultant of the Company who will become an officer
once directors and officers insurance is in place. The options are
exercisable at $4.39 per share and expire March 13, 2011.
c) Subsequent to February 28, 2006, the Company granted 100,000 stock
options to an officer of the Company. 50,000 of these options will
vest on September 13, 2006, and the remainder will vest on March 13,
2007. The options are exercisable at $4.39 per share and expire
March 13, 2011.
d) Subsequent to February 28, 2006, the Company received additional
advances in the amount of $271,500 which are unsecured and bear
interest at 6% per annum. These additional advances become due on
June 30, 2007.
e) Effective March 1, 2006, the Company adopted the Financial
Accounting Standards Board's revised Statement of Financial
Accounting Standards No. 123 (FAS 123R), "Share-based Payment." FAS
123R that requires compensation costs related to share-based
payments (stock options) to be recognized in the income statement
over the requisite service and vesting periods. The amount of the
compensation cost is to be measured based on the grant-date fair
value of the instrument issued. FAS 123R is effective for awards
granted or modified after the date of adoption.
f) On June 27, 2006 the Company and Mr. Robert Sim executed an
amendment and restatement of the 2004 Note (the "Amended and
Restated Note"). The note payable, dated as of November 24, 2004
(the "2004 Note"), was issued to Mr. Robert Sim. Mr. Sim is not a
related party of the Company. The 2004 Note was unsecured, bore
interest at 6% per annum and was repayable on December 24, 2005. The
Company was in default with respect to the 2004 Note from December
24, 2005 until June 27, 2006. Under the terms of the Amended and
Restated Note, Mr. Sim has waived the Company's default of the 2004
Note. Pursuant to the Amended and Restated Note, all principal under
the 2004 Note, plus Mr. Sim's subsequent loans to the Company shall
be deemed to have accrued interest at an annual rate of 6% through
May 31, 2006, and thereafter all such amounts shall be aggregated
and capitalized into a new note in principal amount of $99,303.73,
which as of June 1, 2006 shall accrue interest at an annual rate of
8%. The capitalized principal amount of $99,303.73, plus all
interest thereon, will be due and payable by the Company on June 30,
2007. In the event of any default under the Amended and Restated
Note, interest due will accrue at an annual rate of 15%. Management
does not believe that the default on the 2004 Note and subsequent
waiver will have an adverse effect on the Company's ability to
finance its operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
The following discussion of the financial condition and plan of operations of
Manchester Inc. (referred to herein as the "Company," and "we") should be read
in conjunction with the financial statements and the related notes thereto
included elsewhere in this quarterly report for the period ended February 28,
2006 (this "Report"). This Report contains certain forward-looking statements
and the Company's future operating results could differ materially from those
discussed herein. Certain statements contained in this Report, including,
without limitation, statements containing the words "believes", "anticipates,"
"expects" and the like, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to announce publicly the results of any revisions of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
PLAN OF OPERATION
The Company commenced operations as an exploration stage company. The Company
ceased pursuing opportunities in that field upon the lapse of certain mineral
rights options in October 2004.
The Company then changed its business plan. The Company intends to acquire and
operate "Buy-Here Pay-Here" used car sales businesses. The Company continues to
be in negotiations to acquire an entity or entities in that field of operations.
In the event of a significant acquisition by the Company, the Company will be
required to borrow funds to cover the purchase price.
RESULTS OF OPERATIONS FOR THE PERIOD ENDING FEBRUARY 28, 2006
We did not earn any revenues during the three-month period ending February 28,
2006. We incurred operating expenses in the amount of $108,023 for the
three-month period ended February 28, 2006, as compared to a loss of $11,615 for
the comparable period of the last fiscal year. The increase in net losses in the
current fiscal year is largely a result of an increase in professional and
consulting fees.
Our operating expenses were comprised of professional fees of $53,835,
consulting fees of $40,000, rent of $4,763, transfer agent and filing fees of
$3,384, interest on notes payable of $3,192, travel and entertaining costs of
$1,560, office and sundry costs of $947, and amortization of $342. We also
realized $43 in interest during the period.
At February 28, 2006, we had total assets of $266,941, consisting of a
refundable deposit of $250,000, cash of $9,865 and prepaid expenses of $1,330.
At the same date, our total liabilities were $480,225.
The Company paid a $250,000 refundable deposit (the "Deposit") to Surge Capital
("Surge") for the purpose of assuring coverage of future fees, costs, expenses
and disbursements expected to be incurred by Surge in connection with Surge's
consideration of providing the Company with a senior secured revolving financing
facility ("Due Diligence Expenses"). The Company may pay such Due Diligence
Expenses directly or Surge will withdraw amounts from the Deposit to cover the
Due Diligence Expenses as such expenses are incurred. In the event Surge does
not enter into a financing facility with the Company for any reason, Surge shall
return the balance of any unused amounts from the Deposit to the Company. The
Company believes that it will close the senior secured revolving financing
facility with Surge very shortly, however, there can be no assurance of closing
until the completion of due diligence by Surge and execution of definitive
documentation by the Company and Surge. The senior secured revolving financing
facility would permit the Company to activate its business plan to acquire and
operate "Buy-Here Pay-Here" automobile businesses.
11
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not a party to any off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried
out under the supervision and with the participation of the Company's
management, including the Company's Acting Chief Executive Officer and Acting
Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Securities and Exchange Act of 1934 (the "Exchange Act"). Based on their
evaluation, the Company's Acting Chief Executive Officer and Acting Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company's management, including the
Company's Acting Chief Executive Officer and Acting Chief Financial Officer, to
allow timely decisions on required disclosures and is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
There have been no changes in the Company's internal controls over financial
reporting during the Company's most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
12
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description of Exhibits
- ----------- -----------------------
Exhibit 10.3 Promissory Note issued by Manchester Inc. to Brazos
Equities LLC in the amount of $19,600.
Exhibit 10.4 Promissory Note issued by Manchester Inc. to Brazos
Equities LLC in the amount of $40,000.
Exhibit 10.5 Promissory Note issued by Manchester Inc. to Brazos
Equities LLC in the amount of $290,000.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
The Company filed a Report on Form 8-K on December 6, 2005, disclosing that on
December 1, 2005, Richard Gaines was appointed as the Corporate Secretary of the
Company.
The Company filed a Report on Form 8-K on February 27, 2006, disclosing that the
Company has appointed Mr. Richard D. Gaines, Esq., to the Company's Board of
Directors in addition to his position as Corporate Secretary. In addition, it
was disclosed that Mr. Paul Minichiello has resigned as a director and officer
of the Company. It was also disclosed that Mr. Norman R. Thoennes, CPA, has been
appointed as a consultant.
13
SUBSEQUENT EVENTS
On March 13, 2006, Mr. Norman Thoennes and the Company entered into an
Employment Agreement (the "Thoennes Employment Agreement") and a Nonqualified
Stock Option Agreement (the "Thoennes Stock Option Agreement").
Pursuant to terms of the Thoennes Employment Agreement, Mr. Thoennes will serve
as a consultant to the Company, until such time as Mr. Thoennes shall obtain
adequate directors and officers' insurance, whereupon Mr. Thoennes will commence
service as the Company's Chief Executive Officer. The initial term (the "Term")
of the Thoennes Employment Agreement is two years, commencing as of March 1,
2006. Mr. Thoennes shall devote at least 50% of his professional working time to
the Company during the Term. Mr. Thoennes will be paid a base salary of $25,000
a month during the Term. In addition, Mr. Thoennes will receive the use of a
Company vehicle, the benefits of the Company's health plan, an annual bonus of
15-25% of his base salary (in accordance with certain performance milestones
determined by the Board) and those stock options described in the Thoennes Stock
Option Agreement, as described below. The Thoennes Employment Agreement contains
provisions protecting the Company's intellectual property, as well as provisions
restricting competition and provisions restricting the solicitation of Company
employees. The Thoennes Employment Agreement provides Mr. Thoennes with the
right to receive certain payments in the event of his termination without cause
or due to a change in control.
Mr. Thoennes has been granted an option (the "Thoennes Option") to purchase
200,000 shares of the Company's common stock at an exercise price of $4.39 per
share. The exercise price was the closing price of the Company's common stock on
the OTC Bulletin Board on the trading day immediately preceding the date of the
grant of the Thoennes Option and the date of the Thoennes Stock Option
Agreement. The Thoennes Option shall vest over the course of one year from the
date of its grant, with 50,000 shares exercisable immediately, an additional
75,000 shares exercisable six months from the date of the grant, and the
remaining 75,000 shares exercisable one year from the date of the grant.
On March 13, 2006, the Company entered into a Nonqualified Stock Option
Agreement with Mr. Richard Gaines (the "Gaines Stock Option Agreement").
Mr. Gaines has been granted an option (the "Gaines Option") to purchase 100,000
shares of the Company's common stock at an exercise price of $4.39 per share.
The exercise price was the closing price of the Company's common stock on the
OTC Bulletin Board on the trading day immediately preceding the date of the
grant of the Gaines Option and the date of the Gaines Stock Option Agreement.
The Gaines Option shall vest over the course of one year from the date of its
grant, with 50,000 shares exercisable six months from the date of the grant and
the remaining 50,000 shares exercisable one year from the date of the grant.
Effective March 1, 2006, the Company adopted the Financial Accounting Standards
Board's revised Statement of Financial Accounting Standards No. 123 (FAS 123R),
"Share-based Payment." FAS 123R that requires compensation costs related to
share-based payments (stock options) to be recognized in the income statement
over the requisite service and vesting periods. The amount of the compensation
cost is to be measured based on the grant-date fair value of the instrument
issued. FAS 123R is effective for awards granted or modified after the date of
adoption.
# # #
14
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.
MANCHESTER INC.
(Registrant)
June 28, 2006
By: /s/ Richard D. Gaines
------------------------------------------
Name: Richard D. Gaines
Title: Acting Principal Executive Officer
Secretary and Director
15