CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This
report on Form 8-K contains “forward-looking
statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the
“Securities
Act”)
and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”).
We
intend the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All statements
regarding our expected financial position, business and financing plans are
forward-looking statements. These statements can sometimes be identified
by our
use of forward-looking words such as “may,” “will,” “should,” “expect,”
“anticipate,” “project,” “designed,” “estimate,” “plan” and “continue.” Although
we believe that our expectations in such forward-looking statements are
reasonable, we cannot promise that our expectations will turn out to be correct.
These
forward-looking statements are subject to certain risks, uncertainties and
assumptions relating to Global Matrechs, Inc. (the “Company”).
Should one or more of these risks or uncertainties materialize, or should
the
assumptions underlying our forward-looking statements prove incorrect, our
future performance and actual results of operations could vary significantly
from those anticipated, projected, believed, expected, intended or implied.
We
undertake no obligation to update any of the forward-looking statements in
this
Report, which speak only as of the date they were made.
PURPOSE
OF THIS AMENDMENT
On
September 15, 2006, the Company filed a Current Report on Form 8-K announcing
that the Company and Brittany Capital Management Limited had agreed to terminate
the
parties’ Private Equity Credit Agreement and Registration Rights Agreement,
dated January 10, 2006, and enter into a new Private Equity Credit Agreement
and
Registration Rights Agreement dated September 14, 2006.
As
described under the heading “Put Shares” below, the Private Equity Credit
Agreement entered into on September 14, 2006 has a minimum draw down amount
equal to one hundred thousand dollars. This Current Report on Form 8-K/A
is
being filed to amend the Current Report on Form 8-K filed on September 15,
2006
in order to change a statement suggesting that the minimum draw down amount
was
equal to an amount greater than one hundred thousand dollars. In this Form
8-K/A, this statement reads “based
on
our current assessment of our financing needs, we intend to draw in excess
of
the one hundred thousand dollar minimum.”
This
Form
8-K/A amends, replaces and supersedes the Current Report on Form 8-K filed
by
the Company on September 15, 2006 in its entirety.
ITEM
1.01. ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT.
ITEM
1.02. TERMINATION
OF A MATERIAL DEFINITIVE AGREEMENT.
On
September 14, 2006, the Company and Brittany Capital Management Limited
(“Brittany”)
agreed
to terminate the parties’ Private Equity Credit Agreement and Registration
Rights Agreement, dated January 10, 2006 (collectively referred to as the
“January
Agreements”),
and
enter into a new Private Equity Credit Agreement and Registration Rights
Agreement with terms substantially similar to the January Agreement
(collectively referred to as the “September
Private Equity Agreements”).
The
reasons for terminating the January Agreements and entering into the September
Private Equity Agreements included the parties’ decision to decrease the number
of shares which were required to be registered pursuant to the January
Registration Rights Agreement and to change certain mechanics relating to
the
exercise of put options. A description of the material terms of the September
Private Equity Credit Agreement is provided below. Copies of the September
Private Equity Agreements are attached to this current report as Exhibits
10.1
and 10.2 and are incorporated into these items by reference.
Description
of September Private Equity Agreements
Summary.
The
September Private Equity Credit Agreement provides that we may draw up to
$15
million from Brittany, from time to time at our discretion, in exchange for
shares of our common stock, subject to conditions outside of the control
of
Brittany further described below.
Put
Shares.
Each
draw under the September Private Equity Credit Agreement is structured as
a put
option, wherein we require Brittany to purchase a number of shares of our
common
stock after a discount to the market price is applied. For a given put, we
must
deliver a notice to Brittany indicating the dollar amount we wish to draw
down.
Five trading days after delivery of this notice, Brittany must deliver this
amount in two equal installments, one each on the fifth and tenth trading
day
following the delivery of the notice. In exchange, we must issue to Brittany,
in
the case of the first installment, the number of shares of common stock obtained
by dividing the amount of the installment by 92% of the average of the three
closing bid prices immediately preceding the installment date, and in the
case
of the second installment, the number of shares obtained by dividing the
amount
of the installment by 92% of the average of the three lowest closing bid
prices
during the ten trading day period immediately preceding the installment date.
We
refer to the shares we sell under the agreement as “put shares.” The issuance of
put shares to Brittany are to take place from time to time, at our discretion,
over the course of a commitment period extending 36 months after the effective
date of this registration statement covering the shares we may issue under
the
agreement.
We
are
required to draw down a minimum of one hundred thousand dollars. If we draw
a
lesser amount, we must pay Brittany an amount equal to eight percent of the
difference between that amount and the minimum. Based on our current assessment
of our financing needs, we intend to draw in
excess
of the one hundred thousand dollar minimum.
Registration
of Shares.
The
September Registration Rights Agreement requires us to register the resale
of
7,334,996 shares of our common stock to be issued by us to Brittany pursuant
to
the September Private Equity Credit Agreement. We intend to file a registration
statement
on Form SB-2 immediately after the filing of this current report for this
purpose. All costs of filing the registration statement with the SEC will
be
paid by the Company.
Blackout
Shares. If
we
suspend sales of common stock pursuant to the registration statement covering
the resale of the shares we issue under September Private Equity Agreements,
we
must, within 15 trading days of a sale of common stock to Brittany and our
stock
price declines during the suspension period, issue that number of additional
shares of our common stock which, when combined with the shares purchased
during
the 15 trading days immediately preceding the suspension, will equal the
number
of shares Brittany would have received had the purchase been made at the
conclusion of the suspension period (at the lower per share price). Any
obligation to deliver blackout shares arising under the September Private
Equity
Agreements would be irrevocable, and Brittany would have no discretion regarding
whether or not to receive them.
Fees.
We are
required to pay Southridge Investment Group, LLC (formerly Greenfield Capital
Partners, LLC), a registered broker-dealer, a finder’s fee, in cash, equal to 1%
of the amounts we draw down from the equity line as consideration for services
related to the establishment of the September Private Equity Agreements.
Number
of shares issuable under the Private Equity Credit Agreement.
We
cannot
predict the actual number of shares of common stock that may be issued under
the
Private Equity Credit Agreements, in part because the purchase price of the
shares will fluctuate based on prevailing market conditions and we have not
determined the total amount of cash advances we intend to draw. However,
for
illustrative purposes, we have calculated the number of shares we would have
to
issue in connection with a hypothetical draw amount of $50,000 based on the
assumptions set forth below:
Shares
Issuable Under September Private Equity Agreement for $50,000 Draw at Various
Market Prices
|
Hypothetical
Market
Price
|
Discounted
Market
Price
|
Shares
to be
issued
|
|
$0.025
|
$0.0230
|
2,173,913
|
|
$0.020
|
$0.0187
|
2,717,391
|
|
$0.015
|
$0.0138
|
3,623,188
|
|
$0.010
|
$0.0092
|
5,434,783
|
|
$0.005
|
$0.0046
|
10,869,565
|
Dilution.
The
issuance and sale of shares under the September Private Equity Agreements
will
have a significant dilutive impact on our stockholders for the following
reasons:
| · |
As
described above, the lower our stock price is, the more shares we
would
have to issue for a given draw down amount, and the more shares we
issue,
the greater the extent of dilution to the ownership interest of our
current stockholders.
|
| · |
Because
the shares we may issue under the September Private Equity Agreements
are
discounted, the issuance of these shares will also have a financially
dilutive impact on our current
stockholders.
|
| · |
The
Brittany’s sale of material amounts of our common stock into the market
may result in significant downward pressure on the price of the common
stock as the supply of freely tradable shares increases. Furthermore,
this
downward pressure may encourage short sales, which could further
depress
on the price of the common stock.
|
At
the
market price of our common stock as of September 14, 2006, it would require
543,478,260 shares to draw down the full $15,000,000 available under the
agreement. We have approximately 875,550,012 shares of common stock available
for issuance as of September 14, 2006.
The
discussion in this current report is only a summary and is qualified in its
entirety by reference to the September Private Equity Agreement and the
Registration Rights Agreement which are included as Exhibits 10.1 and 10.2
to
this current report on Form 8-K and incorporated by reference in these
Items.
Future
Events - Registration of Common Stock to be Issued in Connection with the
September Private Equity Credit Agreement.
On
September 15, 2006, we filed a request with the SEC to withdraw our registration
statement on Form SB-2 (No. 333-135377) which was filed in connection with
our
obligation to register shares of our common stock to be sold by us pursuant
to
the January Agreement.
We
intend
to immediately file a new registration statement with the SEC to register
for
resale the shares of our common stock which may be issued by us in connection
with the September Private Equity Agreements. Pursuant to the September
Registration Rights Agreement, we are required to register the resale of
7,334,996 shares of our common stock with the SEC.
ITEM
9.01. FINANCIAL
STATEMENTS AND EXHIBITS.
(d)
Exhibits
| 10.1. |
Private
Equity Credit Agreement by and between Global Matrechs, Inc. and
Brittany
Capital Management Limited, dated September 14,
2006.
|
| 10.2. |
Registration
Rights Agreement by and between Global Matrechs, Inc. and Brittany
Capital
Management Limited, dated September 14,
2006.
|