SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
-------------------------
| | 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.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3859518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6060 N. CENTRAL EXPRESSWAY, DALLAS, TEXAS 75206
------ -----------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 800-2835
Registrant's telephone number
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of November 14, 2000, 11,166,614 shares of Common Stock, $.001 par value,
were issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
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 Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
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 these 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.
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIRANHA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 958,147
U.S. Government securities 1,061,343
Marketable securities 167,900
Accounts receivable 943,015
Prepaid expenses and deposits 285,281
------------------
TOTAL CURRENT ASSETS 3,415,686
PROPERTY AND EQUIPMENT, NET 1,843,453
GOODWILL 1,750,000
INTANGIBLE AND OTHER ASSETS 11,555,638
------------------
$ 18,564,777
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 848,316
Dividends payable 207,206
Accrued liabilities 1,030,584
Deferred income 791,667
Stockholder loans and other notes payable 254,579
------------------
TOTAL CURRENT LIABILITIES 3,132,352
------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock 462,500
Common stock, $.001 par value, 100,000,000 shares authorized;
9,478,881 shares issued and outstanding 9,479
Additional paid-in capital 39,324,828
Stock subscription receivable (44,500)
Accumulated deficit (24,319,882)
------------------
TOTAL STOCKHOLDERS' EQUITY 15,432,425
------------------
$ 18,564,777
==================
See notes to the consolidated financial statements
3
<PAGE>
PIRANHA, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------------
2000 1999 2000 1999
------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 290,258 $ $ 338,343 $
------------ ---------- ------------ ------------
COSTS AND EXPENSES
General and administrative 2,393,266 6,184,636
Depreciation 40,848 90,556
------------ ----------- ------------ -----------
Total Costs and Expenses 2,434,114 6,275,192
------------ ----------- ------------ -----------
Loss before other expense (2,143,856) (5,936,849)
Loss on marketable securities, net (203,752) (173,065)
Interest expense (10,260) (31,840)
------------ ----------- ------------ -----------
Loss from continuing operations (2,357,868) (6,141,754)
Loss from discontinued operations 0 (7,139) 0 (21,321)
------------ ----------- ------------ -----------
Net loss (2,357,868) (7,139) (6,141,754) (21,321)
Preferred stock dividends (10,406) (40,950) (42,306) (122,850)
------------ ----------- ------------ -----------
Net loss applicable to common stock $ (2,368,274) $ (48,089) $ (6,184,060) $ (144,171)
============ =========== ============ ===========
Basic and Diluted Loss Per Common Share:
Loss from continuing operations $ (0.25) $ (0.01) $ (0.71) $ (0.02)
Loss from discontinued operations 0.00 0.00 0.00 0.00
Net loss per common share
------------ ----------- ------------ -----------
- basic and diluted $ (0.25) $ (0.01) $ (0.71) $ (0.02)
============ =========== ============ ===========
Weighted average common shares outstanding 9,296,590 4,979,632 8,698,986 4,979,632
============ =========== ============ ===========
</TABLE>
See notes to the consolidated financial statements
4
<PAGE>
PIRANHA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,141,754) $ (21,321)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation 90,556
Loss on sale of securities 173,065
Loss from discontinued operations 21,321
Changes in assets and liabilities:
Increase in accounts receivable (943,015)
Increase in prepaid expenses (271,886)
Decrease in accounts payable and accrued liabilities (463,874)
Increase is deferred revenue 791,667
---------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (6,765,241) 0
---------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (1,885,766)
Investment in marketable securities (378,215)
Proceeds from the sale of U.S. Government securities 267,415
---------------- ---------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (1,996,566) 0
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of stock subscription receivable 800,000
Acquisition of intangibles (17,513)
Payment of stockholder loans and other notes payable (572,582)
Proceeds from issuance of common stock 9,176,170
---------------- ---------------
NET CASH FLOWS FROM FINANCING ACTIVITES 9,386,075 0
---------------- ---------------
NET INCREASE IN CASH 624,268 0
CASH AT BEGINNING OF YEAR 333,879 0
---------------- ---------------
CASH AT END OF PERIOD $ 958,147 $ 0
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,210 $ 0
================ ===============
Cash paid during the period for income taxes $ 0 $ 0
================ ===============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of common stock upon conversion of accounts payable $ 171,405 $ 0
================ ===============
Issuance of common stock for acquisitions $ 1,750,000 $ 0
================ ===============
Issuance of common stock upon conversion of preferred stock $ 2,037,750 $ 0
================ ===============
</TABLE>
See notes to the consolidated financial statements
5
<PAGE>
PIRANHA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying 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, 1999.
NOTE 2 - LITIGATION
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.
The Company has from time to time been engaged in settlement negotiations with
the two remaining officers, a husband and wife, and has accrued a provision of
$700,000 in its consolidated financial statements. No settlement negotiations
are currently taking place and the Company is preparing to go to trial in early
2001. These remaining cases are pending in Connecticut state court.
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 accompanying 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. The Company believes this action is without merit,
and intends to vigorously defend itself in this matter.
The Company is subject to various federal, state and local laws affecting its
business, and believes that it is in material compliance with all applicable
laws and regulations.
6
<PAGE>
NOTE 3 - PREFERRED STOCK
At September 30, 2000 Preferred Stock consisted of 5,000,000 authorized shares
of which the following were issued and outstanding:
Common Shares
Preferred Stock Amount Issuable on
Conversion
------------------------------------------------------ ------------ -----------
Series A, 9% cumulative, convertible, redeemable;
10,000 shares issued and outstanding $ 50,000 2,866
------------------------------------------------------ ------------ ------------
Series B, 9% cumulative, convertible, redeemable;
412,500 shares issued and outstanding 412,500 165,445
------------------------------------------------------ ------------ ------------
TOTAL $ 462,500 168,311
======= =======
NOTE 4 - CHANGES IN COMMON STOCK
During the period covered by this Report an aggregate of 2,783,426 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.
On January 21, 2000, an aggregate of 57,307 shares of Common Stock were issued
on conversion of 200,000 shares of the Company's Series A 9% Convertible
Cumulative Redeemable Preferred Stock.
On February 24, 2000, 89,892 shares of Common Stock, the fair market value of
which was one million dollars ($1,000,000), were issued in exchange for all of
the capital stock of Rogue River Software, Inc., formerly Grand Rapids Science
Group, Inc.
On March 24, 2000, 55,556 shares of Common Stock, the fair market value of which
was seven hundred fifty thousand dollars ($750,000), were issued in exchange for
all of the capital stock of On-Line Marketing, Inc.
During March 2000, an aggregate of 851,421 shares of Common Stock were issued on
exercise of the Company's outstanding Class A and Class B warrants.
On March 31, 2000, an aggregate of 836,000 shares of Common Stock were issued to
various parties pursuant to the receipt of five million two hundred eighty
thousand dollars ($5,280,000) in cash during the quarter.
On March 13, 2000 an aggregate of 2,866 shares of Common Stock were authorized
for issuance on conversion of 10,000 shares of the Company's Series A 9%
Convertible Cumulative Redeemable Preferred Stock.
On March 15, 2000 an aggregate of 10,000 shares of Common Stock were authorized
for issuance to Piranha Propellers in exchange for the domain name
"piranha.com."
On March 15, 2000 an aggregate of 10,500 shares of Common Stock were authorized
for issuance to two individuals for services previously rendered.
In May 2000 an aggregate of 133,333 shares of Common Stock were issued to The
Interpublic Group of Companies, Inc.
On or about June 15, 2000 an aggregate of 324,224 shares of Common Stock were
issued to an individual on conversion of $500,000 of the Company's Series C 4%
Convertible Cumulative Redeemable Preferred Stock.
On June 19, 2000 an aggregate of 19,500 shares of Common Stock were issued to
four persons or entities in exchange for the cancellation of amounts due for
services.
7
<PAGE>
In August, 2000 an aggregate of 20,000 shares of Common Stock were issued in
exchange for $100,000 cash which was received by the Company in May, 2000.
In August, 2000 an aggregate of 372,827 shares of Common Stock were issued to
various parties in exchange for $2,796,170 cash.
NOTE 5 - SUBSEQUENT EVENTS
In October, 2000, the Company acquired all of the capital stock of Comsight
Imaging, Inc. in exchange for 47,733 shares of the Company's common stock, the
fair market value of which was $319,498 and three hundred thousand dollars
($300,000) in cash, of which $150,000 had been paid as a deposit prior to
September 30, 2000. Of the 47,733 shares, 37,733 shares were issued at the time
of this report, and 10,000 shares were authorized for issuance on or about
January 2, 2001.
In connection with the Comsight Imaging, Inc. acquisition, the Company committed
to grant a principal of Comsight performance based stock options to purchase up
to 40,000 shares of Common Stock at a price of $7.50 per share as well as
incentive based stock options to purchase 50,000 shares of common stock at a
price of $5.00 per share, each of which is dependent upon the Company achieving
certain sales volumes.
In October, 2000 the Company issued 1,500,000 shares of Common Stock to Edward
W. Sample, the Company's Chairman and CEO, and 150,000 shares of Common Stock to
two other employees, pursuant to the exercise of non-qualified stock options.
In November, 2000 the Company acquired all of the assets of JJT, Inc. in
exchange for 50,000 shares of the Company's Common Stock, the fair market value
of which was $300,000, and the assumption of JJT's bank debt. The Company has
agreed to repay the bank debt by the issuance of 75,862 shares of Common Stock,
the fair market value of which was $455,172 on the date of the agreement. Such
shares have been authorized for issuance, but have not yet been issued.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Piranha has become a technology-based company with a line of digital asset
management products being developed for sale and/or licensing. The data
compression software products under the Piranha brand are designed to improve
Internet speed and to provide 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 Internet
applications such as full motion streaming video, lossless image and text string
compression and highly compressed, high-resolution static images.
The Company anticipates that if it meets its projected product sales which
commenced the week of June 19, 2000 and receives funds through additional raises
of debt and/or equity, the Company will have sufficient resources to meet its
working capital and capital expenditure needs for the next twelve months.
However, there can be no assurance that the Company will achieve its expected
product sales or receive funds from additional debt and/or equity commitments
and would therefore be unable to meet its near term working capital and capital
expenditure needs. The Company may also need to raise additional funds in the
future in order to fund 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 fund its
expansion, promote its brand names as the Company desires, take advantage of
unanticipated acquisition opportunities, develop or enhance products or respond
to competitive pressures. Any such inability could have a material adverse
effect on the Company's business, results of operations and financial condition.
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
advanced business-to-consumer on-line shopping applications. Products currently
under development 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 Piranha Stream technology will provide the first real video-on-demand
solution for the Internet.
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. The
Company anticipates that the number of its employees will increase significantly
in the next twelve months.
To date, the Company has not incurred any significant problems associated with
the inability of software applications and operational programs not properly
recognizing calendar dates in the year 2000 in the following areas:(1)
accounting and reporting systems, (2) office automation and contact management
software, (3) systems of third party vendors incorporated into the Company's
developmental products, and (4) the Company's developmental products.
9
<PAGE>
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.
The Company has from time to time been engaged in settlement negotiations with
the two remaining officers, a husband and wife, and has accrued a provision of
$700,000 in its consolidated financial statements. No settlement negotiations
are currently taking place and the Company is preparing to go to trial in early
2001. These remaining cases are pending in Connecticut state court.
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 accompanying 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. The Company believes this action is without merit,
and intends to vigorously defend itself in this matter.
The Company is subject to various federal, state and local laws affecting its
business, and believes that it is in material compliance with all applicable
laws and regulations.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this Report an aggregate of 392,827 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 August, 2000 an aggregate of 20,000 shares of Common Stock were issued in
exchange for $100,000 cash received by the Company in May, 2000.
In August, 2000 an aggregate of 372,827 shares of Common Stock were issued to
various parties in exchange for $2,796,170 cash received by the Company in
August, 2000.
ITEM 3 . DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 18, 2000 the Annual Meeting of Stockholders was held at which the
following resolutions were adopted:
o Directors of the Company for the ensuing year: Edward W. Sample, Richard S.
Berger, Michael Steele, Joseph H. Sherrill, Jr., Arthur R. Tauder, and W.
Barger Tygart.
o Independent public accountants for the year ending December 31, 2000:
Feldman Sherb & Co., P.C.
10
<PAGE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits designated with an asterisk (*) have previously been filed with the
Commission and are incorporated by reference.
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K:
During October 2000, a Form 8-K was filed reporting that Edward W. Sample had
purchased 13,000 shares of the Company's Common Stock on the open market for an
aggregate consideration of $88,281.25.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PIRANHA, INC.
SIGNATURE TITLE
/S/ EDWARD W. SAMPLE Chairman of the Board and Chief Executive Officer
-------------------- (Principal Executive Officer)
Edward W. Sample
/S/ RICHARD S. BERGER Chief Financial Officer, Secretary and Director
--------------------- (Principal Financial and Accounting Officer)
Richard S. Berger
/S/ MICHAEL STEELE Director
--------------------
Michael Steele
/S/ JOSEPH H. SHERRILL, JR. Director
-------------------
Joseph H. Sherrill, Jr.
/S/ARTHUR R. TAUDER Director
-------------------
Arthur R. Tauder
/S/ W. BARGER TYGART Director
--------------------
W. Barger Tygart
Dated: November 14, 2000
