SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
+---+ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| X | EXCHANGE ACT OF 1934 [FEE REQUIRED]
+---+
For the quarterly period ended March 31, 2001
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+---+
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
+---+ EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission File No. 0-20190
PIRANHA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3859518
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 N. Central Expressway, Suite 480, Richardson, Texas 75080
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(Address of principal executive offices) (Zip Code)
(972) 739-0373
Registrant's telephone number
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 31, 2001, 14,722,909 shares of Common Stock, $.001 par value, were
issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX TO QUARTERLY REPORT ON FORM - 10QSB
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8 - 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3 Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. These
statements involve risks and uncertainties, including those risks discussed in
the section entitled "Item 6, Management's Discussion and Analysis or Plan of
Operations" and elsewhere in the Quarterly Report on Form 10-QSB. The actual
results that the Company achieves may differ materially from the results
discussed or implied in such forward-looking statements due to such risks and
uncertainties. Words such as "believes," "anticipates," "expects," "future,"
"intends," "may" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. The Company undertakes no obligation to revise any of these
forward-looking statements.
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
See attached financial statements.
2
PIRANHA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 12,328
Accounts receivable 79,002
Shareholder receivable 493,059
Prepaid expenses and other current assets 704,492
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TOTAL CURRENT ASSETS 1,288,881
PROPERTY AND EQUIPMENT 1,685,654
INTANGIBLES (net of $15,357 of accumulated amortization) 11,762,202
GOODWILL (net of $236,939 of accumulated amortization) 2,727,468
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$ 17,464,205
=================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,198,731
Dividends payable 230,663
Accrued liabilities 1,733,249
Deferred revenue 500,000
Due to shareholders 264,179
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TOTAL CURRENT LIABILITIES 3,926,822
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock 580,000
Common stock, $.001 par value; 100,000,000 shares
authorized; 14,722,920 shares issued and outstanding 14,722
Additional paid-in capital 118,119,073
Stock subscription receivable (44,500)
Accumulated deficit (105,128,509)
Cumulative translation adjustment (3,403)
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TOTAL STOCKHOLDERS' EQUITY 13,537,383
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$ 17,464,205
=================
See notes to consolidated financial statements.
3
PIRANHA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31
--------------------------------------
2001 2000
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REVENUES $ 188,026 $ -
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COSTS AND EXPENSES:
General and administrative 2,919,338 1,135,888
(exclusive of $7,922,928 of non-cash
compensation and fees reported below)
Non cash compensation and fees 7,922,928 -
Depreciation and amortization 159,940 15,057
----------------- -----------------
TOTAL COSTS AND EXPENSES 11,002,206 1,150,945
----------------- -----------------
LOSS FROM OPERATIONS (10,814,180) (1,150,945)
OTHER INCOME (EXPENSES)
Interest income 35,625 -
Interest expense - net (10,584) (11,320)
Loss on investments (3,944) -
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TOTAL OTHER INCOME (EXPENSES) 21,097 (11,320)
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NET LOSS (10,793,083) (1,162,265)
PREFERRED STOCK DIVIDENDS (13,050) (18,450)
----------------- -----------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (10,806,133)$ (1,180,715)
================= =================
Net loss per common share - Basic and Diluted $ (0.78) $ (0.17)
================= =================
Weighted average common shares outstanding 13,785,517 6,863,868
================= =================
See notes to consolidated financial statements.
4
PIRANHA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
--------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,793,083) $ (1,162,265)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation 81,336 15,057
Amortization 78,604 -
Settlement of debts 93,523 -
Stock issued for services 116,822
Non cash compensation and fees 7,922,928 -
Changes in assets and liabilities:
Accounts receivable (3,260) -
Prepaid expense and other assets (48,125) 1,025
Accounts payable and accrued expenses 368,105 (201,844)
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NET CASH USED IN OPERATING ACTIVITIES (2,183,150) (1,348,027)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of (investment in) securities 20,000 (1,121,545)
Loan to stockholder (18,059) -
Purchase of property and equipment (62,169) (252,470)
Acquisition of business unit - (17,513)
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NET CASH USED IN INVESTING ACTIVITIES: (60,228) (1,391,528)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of stock subscription receivable - 800,000
Repayment of stockholder loans and notes payable (68,805) (400,000)
Proceeds from sale of stock and exercise of options and warrants 2,316,375 5,280,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES: 2,247,570 5,680,000
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NET INCREASE IN CASH 4,192 2,940,445
CASH AT BEGINNING OF YEAR 8,136 333,879
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CASH AT END OF PERIOD $ 12,328 $ 3,274,324
============== ===============
See notes to the consolidated financial statements.
5
PIRANHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
NOTE 1 - THE COMPANY
The Company was formed in 1992. From 1996 through November 1999 the Company
essentially was a non-operating entity. Beginning with the acquisition of
Zideo.com, Inc. on December 8, 1999 and IBP, Inc. on December 30, 1999, the
Company effectively changed its business operations. In February 2000 it changed
its name to Piranha, Inc., effected a 1:3.49 reverse stock split and increased
its authorized Common Stock to 100 million shares.
Piranha is a technology-based company with a line of digital asset management
products and services being developed for sale and/or licensing. Piranha is in
the business of providing enabling technologies in the areas of data
compression, product output routing, universal file format recognition, data
manipulation and custom application feature development in both the lossy data
compression and lossless data compression market segments. Additionally, Piranha
provides digital image acquisition services which are intended to incorporate
its core data compression technologies. Piranha's data compression software
products and digital asset service are designed to enhance digital workflow
processes and improve data transfer speeds across the Internet and to provide
high quality image clarity at compression rates which the Company believes are
higher than those presently available in the marketplace on a variety of
platforms. These compression products are directed to digital images and
Internet applications such as full motion streaming video, lossless image and
text string compression, and highly compressed, high resolution static images.
The Company's products are designed to support business-to-business, e-commerce
and Internet related activities associated with professional digital archival
storage, digital workflow optimization and advanced business-to-consumer on-line
shopping applications.
NOTE 2 - BASIS OF PRESENTATION:
These unaudited financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented. The
results of operations for any interim periods are not necessarily indicative of
the results attainable for a full fiscal year.
These statements have been prepared by the Company and are unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
omitted. As such, these financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000.
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has incurred recurring losses, and had
a working capital deficiency of approximately $2,638,000 at March 31, 2001.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with respect to these matters include,
raising additional working capital through equity or debt financing and
ultimately achieving profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
6
NOTE 3 - ISSUANCES OF STOCK
The following issuances of Common Stock occurred during the quarter ended March
31, 2001:
a. An aggregate of 34,138 additional shares of Common Stock were issued in
connection with the Company's acquisition of JJT, inc. and Comsight
Imaging, Inc. in the year ended December 31, 2000. The Company recorded an
additional valuation of $38,470 relayed to the JJT, Inc. purchase.
b. An aggregate of 2,259,000 shares of Common Stock were sold for $2,259,000
in cash.
c. An aggregate of 178,572 shares of Common Stock were issued in exchange for
cancellation of various debt, notes payable and accrued interest of
$191,076. The Company has realized a loss of $93,523 in connection with the
cancellation of this debt.
d. An aggregate of 73,300 shares of Common Stock were issued for services of
$116,822.
e. An aggregate of 85,423 shares of Common Stock were issued upon exercise
of options and warrants for $57,375 in cash.
NOTE 4 - NON CASH COMPENSATION
During the year ended December 31, 2000, the Company issued options to purchase
shares of common stock, to various officers in connection with their two year
employment agreements. Of the $63,379,250 non-cash compensation attributable to
these options, $31,689,625 was recognized in the year ended December 31, 2000,
$7,922,928 was recognized in the quarter ended March 31, 2001, and the remaining
$23,766,697, will be realized ratably in during the remainder of the year ending
December 31, 2001.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a. In July 1994, the Company discharged four officers of its inactive Dream
Factory subsidiary. The officers who were discharged commenced actions
against the Company seeking damages arising out of the alleged wrongful
termination of their employment. The Company settled the claims of two of
the officers, and has accrued a provision of $700,000 in its financial
statements related to the two remaining officers. A trial has been
scheduled to begin in July, 2001.
b. The Company was a defendant in a case brought by a shareholder in the
United States District Court for the Northern District of Illinois, Eastern
Division. This case involved a claim by the shareholder that the Company
owed him 573,066 shares of Common Stock pursuant to an alleged conversion
of a promissory note into said shares. The note, in the principal amount of
$200,000, and the accrued interest thereon, are included in the Company's
consolidated financial statements. On April 3, 2000, this case was
dismissed for lack of jurisdiction. On April 12, 2000, the shareholder
filed an action against the Company in the Circuit Court of Cook County,
Illinois, asserting substantially the same claims as in the case which was
dismissed. That action was dismissed on October 18, 2000. Subsequently an
amended complaint was filed. Two counts remain of the amended complaint.
The Company believes this action is without merit, has filed another motion
to dismiss and intends to vigorously defend itself in this matter.
7
Item 2. Management's Discussion and Analysis or Plan of Operation
The following Plan of Operations should be read in conjunction with the
Financial Statements and the Notes thereto appearing in this report.
Piranha is a technology-based company with a line of digital asset
management products and services being developed for sale and/or licensing.
Piranha is in the business of providing enabling technologies in the areas of
data compression, product output routing, universal file format recognition,
data manipulation and custom application feature development in both the lossy
data compression and lossless data compression market segments. Additionally,
Piranha provides digital image acquisition services which are intended to
incorporate its core data compression technologies. Piranha's data compression
software products and digital asset service are designed to enhance digital
workflow processes and improve data transfer speeds across the Internet and to
provide high quality image clarity at compression rates which the Company
believes are higher than those presently available in the marketplace on a
variety of platforms. These compression products are directed to digital images
and Internet applications such as full motion streaming video, lossless image
and text string compression, and highly compressed, high-resolution static
images.
The Company is continuously involved in the development of new products and
related technology. The Company's products are designed to support
business-to-business, e-commerce and Internet related activities associated with
professional digital archival storage, digital workflow optimization and
advanced business-to-consumer on-line shopping applications. Piranha technology
and its resulting application developments are expected to provide a methodology
to support the emerging e-commerce market demand for solutions to the
traditional bottlenecks and time delays associated with the e-commerce shopping
experience that the Company believes are superior to those presently available.
The Company believes that its products and services provide measurable
quantitative and qualitative advantages over related products and services.
On April 9, 2001, the Company announced that the Board of Directors
approved the spin-off of its wholly-owned Zideo subsidiary. On May 25, 2001, the
Company announced its intention to initiate the sale of its wholly-owned
subsidiary, Impact Solutions, Inc. The spin off of Zideo, Inc. and the sale of
Impact Solutions, Inc., will significantly reduce the workforce required to
maintain Piranha's operations. Upon completion of the foregoing, Piranha will
focus its efforts entirely on research and development of its science and
related technologies.
The Company may experience rapid growth, which would place a significant
strain on the Company's managerial, financial and operational resources. The
Company is required to manage multiple relationships with numerous outside
parties. These requirements will be exacerbated in the event of further growth
of the Company or in the number of third party relationships, and there can be
no assurance that the Company's systems, procedures or controls will be adequate
to support the Company's operations or that Company management will be able to
manage any growth effectively. To effectively manage its potential growth, the
Company must continue to implement and improve its operational, financial and
management information systems and to expand, train and manage its employee
base.
Liquidity and Capital Resources
As of March 31, 2001, the Company had cash of $12,328 and a working capital
deficiency of $2,637,941.
The Company needs to raise funds in the next twelve months in order to meet
its cash requirements and fund its current operations as well as to engage in
more aggressive brand promotion and more rapid expansion, to develop new or
enhanced products, to respond to competitive pressures or to acquire
complementary businesses or technologies. If additional funds are raised through
the issuance of equity or convertible debt securities, the percentage ownership
of the stockholders of the Company will be reduced, stockholders may experience
dilution and such securities may have rights, preferences or privileges senior
to those of the rights of the Company's Common Stock. There can be no assurance
that additional financing will be available on terms favorable to the Company,
or at all. If adequate funds are not available or not available on acceptable
terms, the Company may not be able to meet its cash requirements and fund its
8
current operations as well as to engage in more aggressive brand promotion and
more rapid expansion, to develop new or enhanced products, to respond to
competitive pressures or to acquire complementary businesses or technologies.
Any such inability would have a material adverse effect on the Company's
business, results of operations and financial condition.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. These
statements involve risks and uncertainties, including the risks discussed in
this section and elsewhere in the Quarterly Report on Form 10-QSB. The actual
results that the Company achieves may differ materially from the results
discussed or implied in such forward-looking statements due to such risks and
uncertainties. Word such as "believes," "anticipates," "expects," "future,"
"intends," "may" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among other things, the
following:
(1) changes in general economic conditions in the United States and
elsewhere;
(2) the Company's failure to develop or otherwise successfully
introduce its products;
(3) decreases in the current or planned levels of spending for
products under development by the Company's anticipated customer
base;
(4) increased competition in the markets in which the Company's
products are intended;
(5) the Company's inability to successfully integrate its products
with those of other software and technology providers;
(6) changes in the regulatory environment; and
(7) various other factors beyond the Company's control.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
and adversely from those expected, estimated or projected. The Company
undertakes no obligation to revise any of these forward-looking statements to
reflect future events or circumstances.
9
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In July 1994, the Company discharged four officers of its Dream Factory
subsidiary. The officers who were discharged commenced actions against the
Company seeking damages arising out of the alleged wrongful termination of their
employment. The Company subsequently settled the claims of two of the officers,
and has accrued a provision of $700,000 in its financial statements related to
the two remaining officers. A trial has been scheduled to begin in July 2001.
The Company was a defendant in the case of Benjamin B. LeCompte, III, a
stockholder, v. Classics International Entertainment, Inc., in the United States
District Court for the Northern District of Illinois, Eastern Division. This
case involved a claim by LeCompte that the Company owed him 573,066 shares of
Common Stock pursuant to an alleged conversion of a promissory note into said
shares. The note, in the principal amount of $200,000, and the accrued interest
thereon, are included in the Company's consolidated financial statements. On
April 3, 2000, this case was dismissed for lack of jurisdiction. On April 12,
2000, LeCompte filed an action against the Company in the Circuit Court of Cook
County, Illinois, asserting substantially the same claims as in the case which
was dismissed. That action was dismissed on October 18, 2000. Subsequently an
amended complaint was filed. Two counts remain of the amended complaint. The
Company believes this action is without merit, has filed another motion to
dismiss and intends to vigorously defend itself in this matter.
The Company is subject to various federal, state and local laws affecting
its business. We believe that we are in material compliance with all applicable
laws and regulations.
Item 2. Changes in Securities
During the period covered by this Report an aggregate of 2,545,010 shares
of Company Common Stock were offered and sold without registration under the
Securities Act of 1933, as amended ("Act"), as not involving any public offering
in reliance upon the exemption from registration contained in Section 4(2) of
the Act.
In January 2001, 10,000 shares of Common Stock were issued to a stockholder
of Comsight Imaging Inc. in connection with the Company's acquisition of this
company.
In January and February 2001, an aggregate of 2,259,000 shares of Common
Stock were sold to twenty eight persons or entities for $2,259,000 in cash.
An aggregate of 73,300 shares of Common Stock were issued for services of
$116,822.
The Company issued an additional 24,138 shares of Common Stock in
connection with the acquisition of JJT, Inc. in November 2000. The Company has
valued these additional shares at $38,470.
An aggregate of 178,572 shares of Common Stock were issued in exchange for
cancellation of various debt, notes payable and accrued interest of $191,076.
In January and February 2001, an aggregate of 22,923 shares of Common Stock
were issued to an individual upon exercise of warrants for $40,000 in cash.
In January and February 2001, an aggregate of 62,500 shares of Common
Stock were issued to an individual upon exercise of options for $17,375 in cash.
10
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable. No matters were submitted to a vote of the Company's
security-holders in the first quarter.
Item 5. Other Information
On May 17, 2001, the Company announced the appointment of Larry E. Greybill
as Chief Executive Officer. Greybill also was been appointed to the Piranha,
Inc. Board of Directors. The Company also announced that Richard S. Berger
stepped down as Chief Financial Officer, but will continue as a member of the
Board of Directors. He will serve in a consulting role for mergers, acquisitions
and funding activities, while Director Michael Steele, who is also the Company's
Chief Information Officer and a former Ernst & Young employee, will serve as
interim CFO.
In addition, on May 17, 2001, two members of the Board of Directors, Barger
Tygart and Joseph Sherrill, resigned. Mr. Tygart noted that he was reducing his
Board activities because of his heavy workload on a few remaining boards. Mr.
Sherrill noted that his other business interests and travel schedule would
interfere with increased time commitments to the Piranha board.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit Number Description
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3.1. Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Form SB-2, File No.
33-62762).
3.2. Amendment to Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of the Registrant's
Form 8-K, filed March 15, 2000).
3.3. Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.4 of the Registrant's Form SB-2, File No.
33-62762).
Reports on Form 8-K:
-------------------
No reports on Form 8-K were filed during the period covered by this
report.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PIRANHA, INC.
Dated: May 31, 2001 /s/ Edward W. Sample
--------------------
Edward W. Sample
Chairman of the Board and
Chief Executive Officer
12