SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
| X | EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
+---+
| | 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. (PREVIOUSLY KNOWN AS CLASSICS INTERNATIONAL ENTERTAINMENT, 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.)
1350 NORTH LAKE SHORE DRIVE APARTMENT, SUITE 315 SOUTH, CHICAGO, IL 60610
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 664-7852
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE
- ------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
- ----------------------------------------------
(Title of class)
Check whether the Issuer (1) has 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.
YES X NO
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The Issuer's revenues for its most recent fiscal year ended December
31, 1999 were $0.
On March 29, 2000, the aggregate market value of the voting stock of
Classics International Entertainment, Inc. (consisting of Common Stock, $.001
par value) held by non-affiliates of the Registrant was approximately
$142,087,812 (includes all shares) based on the average closing bid and asked
prices for such Common Stock on said date as reported National Quotation Bureau.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
On March 29, 2000, there were 7,546,876 shares of Common Stock, $.001 par
value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
As per Part II, Item 7 and Part IV, Item 13.
<PAGE>
INDEX TO ANNUAL REPORT ON FORM -10KSB
PAGE No.
PART I
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security-Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis or Plan of Operations 9
Item 7. Financial Statements 12
Item 8. Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III.
Item 9. Directors and Executive Officers 13
Item 10. Executive Compensation 14
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 15
PART IV.
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16
This Annual Report on Form 10-KSB 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 - Forward Looking Statements" and elsewhere in the Annual Report on
Form 10-KSB. 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
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
Piranha, Inc. (previously known as Classics International
Entertainment, Inc.) (the "Company") was incorporated under the laws of the
State of Delaware on November 20, 1992. By 1994, the Company had four
subsidiaries: Moondog's, Inc., which on August 5, 1997, filed for protection
under Chapter 7 of the Bankruptcy laws; Dream Factory, Inc., which on May 2,
1996, filed for protection under Chapter 7 of the Bankruptcy Laws; First
Classics, Inc., the holder of a license for the exclusive use of the Classics
Illustrated copyrights, trade names and other intangibles, excluding non-print
media rights; and Classics Media Group, Inc., the exclusive licensee of the
Classics Illustrated properties for non-print media purposes.
The Dream Factory, Inc. and Moondog's, Inc. Bankruptcy cases were brought
to closure in September, 1996 and January, 1997, respectively. First Classics,
Inc. has limited activity, while Classics Media Group, Inc. is currently
dormant.
The Company essentially has been a non-operating entity since it
discontinued its operations at the end of 1996. Beginning with the acquisition
of Zideo on December 8, 1999 and IBP, Inc. on December 30, 1999, each of which
is more fully explained elsewhere in this filing, the Company effectively
changed its business emphasis.
Upon changing its name to Piranha, Inc., the Company has become a
technology company with a line of digital asset management products being
developed for sale and/or licensing. The data compression software products
under the new Piranha(TM) brand are designed to 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 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 advanced
business-to-consumer on-line shopping applications. Piranha(TM) 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 technology will provide the finest video-on-demand solution
for the Internet with full screen (up to 640 x 480), full motion viewing using
only one file for all connections. Products expected to be available in the
spring of 2000 include:
o Piranha Net(TM) - This web based product is expected to allow commercial
web sites to download up to 50 times faster than what is currently
available. A page that currently takes 50 seconds is expected to take as
little as 1 second with the Piranha Net(TM) product. Piranha Net(TM)
utilizes Piranha's proprietary lossless and lossy data compression
algorithms.
o Piranha Byte(TM) - This Streaming FTP lossless data compression product is
used for downloading files to or from a server or user. A multitude of file
types can be delivered for archival or immediate use at compression rates
and data transfer speeds substantially greater than current competitive
products.
o Piranha Stream(TM) - This product is a plug-in or browser-based
full-motion, full-screen video product with several audio codecs available,
including Piranha Audio(TM) featuring low bandwidth and high quality. It is
anticipated that any audio audio codec product can be incorporated into
Piranha Stream(TM). Individual frames are compressed at a measurable ratio
of 692:1 The images are compressed twice utilizing existing player
technology making the decompressed frames broadband suitable.
2
<PAGE>
Products that are expected to debut in the second half of 2000:
o An e-commerce application covering transaction, data mining, and other
e-commerce disciplines.
o A product combining all Piranha(TM) technologies into one suite of tools to
handle enterprise solutions for the largest customer. This product will
include data base interfacing with Oracle and other enterprise data
warehouse software.
o An affordable software rental that offers a variety of solutions from a
full suite of products to a smaller version designed to meet the specific
needs of the customer.
o Increased processing power delivered through custom DSP chip integration
for tailored hardware/software solutions.
All Piranha(TM) software products have been developed on the Linux operating
system and have been successfully ported to Microsoft and Apple operating
platforms.
General Business Developments During Last Fiscal Year
ACQUISITION OF IBP, INC.
On December 30, 1999, the Company acquired all of the capital stock of
IBP through a merger of its subsidiary, Classics Acquisition Corp., Inc. with
and into IBP. As a result of this acquisition, IBP became a wholly-owned
subsidiary of the Company. The two stockholders of IBP received an aggregate of
3,490,000 pre-reverse split shares (1,000,000 post split shares) of Common Stock
in exchange for all of the capital stock of IBP. The IBP acquisition was
intended to qualify as a tax-free exchange pursuant to Section 368 of the
Internal Revenue Code. IBP was a private company owned by two persons, Mr.
Michael Steele and Mr. Carey Lotzer.
The Company's Board of Directors determined to proceed with the
acquisition in order to obtain certain technology owned by IBP and its
shareholders regarding proprietary lossless and lossy data compression
algorithms. None of the technology was subject to a patent or trademark.
In connection with the acquisition, Messrs. Lotzer and Steele entered
into employment agreements with the Company. Mr. Lotzer entered into a two-year
employment contract on November 16, 1999 at an annual salary of $150,000 in year
one and $200,000 in year two. Mr. Lotzer will serve in the capacity of Chief
Scientist and is expected to be appointed to the Board of Directors in an annual
alternation with Mr. Steele at some time in the future. As part of his
employment agreement, the Company committed to grant Mr. Lotzer options to
purchase 200,000 performance based stock options at the strike price of $1.35
per share as well as 100,000 incentive based stock options at a strike price of
$5.00 per share.
Mr. Steele entered into a two-year employment contract on November 16,
1999 at an annual salary of $150,000 per year. Mr. Steele will serve in the
capacity of Chief Information Officer and is expected to be appointed to the
Board of Directors in an annual alternation with Mr. Lotzer at some time in the
future. As part of his employment agreement, the Company committed to grant Mr.
Steele options to purchase up to 200,000 performance based stock options at the
strike price of $1.35 per share as well as 100,000 incentive based stock options
at a strike price of $5.00 per share.
ACQUISITION OF ZIDEO.COM, INC.
On December 8, 1999 the Company acquired all of the capital stock of
Zideo.com, Inc. ("Zideo") for cash. Zideo was a private, wholly-owned subsidiary
of DigiByte Corporation ("DigiByte") of Chicago, Illinois. As a result of the
acquisition, Zideo became a subsidiary of the Company. Through December 31, 1999
DigiByte was paid $350,000 in cash of the total price of $750,000 in exchange
for all of its capital stock of Zideo. The note outstanding at December 31, 1999
in the amount of $400,00 was fully paid in two installments; $250,000 on January
21, 2000 and $150,000 on February 16, 2000.
3
<PAGE>
The Board of Directors determined to proceed with the acquisition in
order to obtain certain licensing rights to technology owned by DigiByte.
Additionally, the Board of Directors determined that the Zideo.com brand, the
potential Internet marketing opportunities associated with Zideo.com and the
acquisition of certain personnel associated with Zideo and its parent, DigiByte,
as a result of the acquisition, would be beneficial to the Company.
FILING OF REPORTS UNDER THE SECURITIES AND EXCHANGE ACT
In November, 1999 the Company filed its Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998 as well as its Quarterly Reports on
Form 10-QSB for the quarters ended March 31, 1999, June 30, 1999 and September
30, 1999. The Company had been delinquent in its filings with the Commission.
CORPORATE NAME CHANGE
The Board of Directors received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the then issued and
outstanding shares) authorizing a change in the name from Classics International
Entertainment Inc. to Piranha, Inc. On January 11, 2000, the Board of Directors
approved an amendment to the Company's Certificate of Incorporation to change
the corporate name, which was subsequently filed with the Delaware Secretary of
State.
The Board believes that the name change will more accurately reflect
the nature of the Company's newly directed business activities. Specifically,
Piranha products constitute a symbolic representation of the intention of the
Company's technology focus to "take a byte out of" data file structures. Data
compression science represents the primary and central focus of the newly
structured company. Furthermore, the Company will be focusing on Internet
commerce. Piranha products are more reflective of Internet names and
representations.
INCREASE IN AUTHORIZED SHARES
The Board of Directors received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the then issued and
outstanding shares) authorizing an increase in the authorized Common Stock from
30,000,000 shares to 100,000,000 shares. On January 11, 2000, the Board of
Directors approved an amendment to the Company's Certificate of Incorporation to
increase the authorized number of shares to 100,000,000 shares.
The Board approved the increase in authorized shares of Common Stock
because it believes that the Company will need additional shares for future
possible transactions such as acquisitions, to issue additional options to
employees, to issue additional convertible securities such as warrants to
consultants, and to have available shares in the event that the Company
determines it should raise additional equity.
REVERSE STOCK SPLIT
The Board of Directors received written consents from stockholders
holding 11,380,291 shares of Common Stock (60.3% of the then issued and
outstanding shares) authorizing a reverse stock split so that each 3.49
outstanding shares were converted into 1 (one) share of Common Stock outstanding
("Reverse Stock Split"). On January 11, 2000, the Board of Directors approved an
amendment to the Company's Certificate of Incorporation to effectuate the
Reverse Stock Split.
No fractional shares of new Common Stock were issued for any fractional
share interest. Rather, each stockholder who would otherwise have received a
fractional new share of Common Stock as a result of the Reverse Stock Split
received the nearest whole share rounded up.
4
<PAGE>
Through February 25, 2000 quotes for the Company's Common Stock were
available under the symbol CIEI. On February 25, 2000, the high and low price of
the Common Stock was $4.00 and $6.0625, respectively, and the closing price was
$3.6875. Effective with the Reverse Stock Split on February 28, 2000, quotes for
the Company's Common Stock were available under the symbol BYTE. On February 28,
2000, the high and low price of the Common Stock was $20.00 and $10.00,
respectively, and the closing price was $13.50.
The Board is considering filing an application with NASDAQ for
inclusion of the Common Stock for listing on the NASDAQ National or SmallCap
Market. The Board believes that if the Common Stock were listed on the NASDAQ it
would be beneficial to both current and future investors because it would
increase liquidity in the Common Stock. Additionally, future acquirers of the
Common Stock would be more willing to accept shares of the Common Stock if it
were traded on a more widely recognized market. The Board believes that the
Company's ability to complete transactions such as acquisitions or mergers in
which a party will be receiving shares of Common Stock will be enhanced if the
Common Stock is listed on NASDAQ.
Under the rules of the SmallCap Market, a company's Common Stock must
have a minimum bid price of $4.00. The rules of the NASDAQ National Market
require a minimum bid price of at least $5.00 per share. As there are certain
other criteria to obtain listing on NASDAQ, including subjective criteria in the
discretion of NASDAQ, there can be no assurance that the Company's application,
if any, to NASDAQ will be accepted.
Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors. No dividends on Common
Stock have ever been paid by the Company, however, and the Company presently
intends to retain all future earnings, if any, for the expansion of its business
and consequently does not presently intend to pay cash dividends.
COMPETITION
The Company is in a highly competitive market. The Company competes
with major software developers as well as numerous smaller companies producing
one or more competitive products. A number of these competitors are
significantly larger than the Company and have significantly greater financial
and other resources at their disposal. The Company's products compete with those
of PKZip, Stuffit, WinZip, Sorensson, MPEG, Real, Cinepak, Indeo and others.
Competition for Internet products and services is intense. As the
market for e-commerce grows, the Company expects that competition will
intensify. Barriers to entry are minimal, and competitors can offer products and
services at a relatively low cost. The Company's financial and operating success
depends, among other things, on the success of its products and services. If
those products and services fail to keep pace with the rapid changes in
technology and customer and supplier demands, the Company may not become or
remain profitable. There can be no assurance that the products and services of
the Company will achieve market acceptance or commercial success, nor that the
Company will be successful.
Furthermore, the market in which the Company competes is subject to
rapid technological change and is significantly affected by new product
introductions and other market activities of industry participants. There are
relatively few barriers to entry in the digital asset management market and the
Company expects competition to persist and intensify in the future. The Company
believes that the principal competitive factors affecting its market include
speed of implementation, price, knowledge of the industry, core technology,
ability to implement a solution with existing technology and financial capacity
of its potential customers. Although the Company believes that its solutions
currently compete favorably with respect to several of these factors, the
Company's market is relatively new and is evolving rapidly. The Company may not
be able to maintain any significant competitive position against current and
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources.
5
<PAGE>
PRODUCT DEVELOPMENT
The Company has become a technology company with a line of digital
asset management products being developed for sale and/or licensing. The data
compression software products under the new Piranha(TM) 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 and high end graphic and text 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 advanced
business-to-consumer on-line shopping applications. Piranha(TM) 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 technology will provide the first real video-on-demand
solution for the Internet with full screen (up to 640 x 480), full motion
viewing using only one file for all connections. Products expected to be
available in the spring of 2000 include:
o Piranha Net(TM) - This web based product is expected to allow commercial
web sites to download up to 50 times faster than what is currently
available. A page that currently takes 50 seconds is expected to take as
little as 1 second with the Piranha Net(TM) product. Piranha Net(TM)
utilizes Piranha's proprietary lossless and lossy data compression
algorithms.
o Piranha Byte(TM) - This Streaming FTP lossless data compression product is
used for downloading files to or from a server or user. A multitude of file
types can be delivered for archival or immediate use at compression rates
and data transfer speeds substantially greater than current competitive
products.
o Piranha Stream(TM) - This product is a plug-in or browser-based
full-motion, full-screen video product with several audio codecs available,
including Piranha Audio(TM) featuring low bandwidth and high quality. It is
anticipated that any audio audio codec product can be incorporated into
Piranha Stream(TM). Individual frames are compressed at a measurable ratio
of 692:1 The images are compressed twice utilizing existing player
technology making the decompressed frames broadband suitable.
Products that are expected to debut in the second half of 2000:
o An e-commerce application covering transaction, data mining, and other
e-commerce disciplines.
o A product combining all Piranha(TM) technologies into one suite of tools to
handle enterprise solutions for the largest customer. This product will
include data base interfacing with Oracle and other enterprise data
warehouse software.
o An affordable software rental that offers a variety of solutions from a
full suite of products to a smaller version designed to meet the specific
needs of the customer.
o Increased processing power delivered through custom DSP chip integration
for tailored hardware/software solutions.
All Piranha(TM) software products have been developed on the Linux
operating system and have been successfully ported to Microsoft and Apple
operating platforms.
6
<PAGE>
Employees
As of December 31, 1999, the Company employed 10 full-time employees, 6
of whom were employed in research and development, and 4 in general and
administrative capacities. None of the Company's employees are subject to
collective bargaining agreements and the Company considers its relationships
with its employees to be good.
ITEM 2. Description of Properties
The Company's principal offices are located at 1350 North Lake Shore
Drive, Suite 315 South, Chicago, IL 60610. Research and development facilities
are located in Dallas, Texas. Sales activities are conducted throughout the
Company's various offices.
ITEM 3. Legal Proceedings
In July 1994, the Company discharged four officers of its Dream Factory
subsidiary. The officers who were discharged commenced an action against the
Company seeking damages arising out of the alleged wrongful termination of their
employment. The Company subsequently settled the claims of two officers for
$600,000. The Company is engaged in settlement negotiations with the remaining
two officers, and has accrued a provision of $700,000 in the accompanying
consolidated financial statements.
The Company was a defendant in the case of Benjamin B. LeCompte, III 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. As of April 3,
2000 this case has been dismissed for a lack of jurisdiction.
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 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 1999.
7
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET
Upon the effectiveness of the Company's initial public offering on
October 19, 1993, the Company's Common Stock commenced trading on the Small Cap
Market of the NASDAQ Stock Market ("NASDAQ") under the symbol "CIEI." Effective
June 30, 1996, the Common Stock was delisted. It has subsequently been traded on
the OTC Bulletin Board. Effective October 20, 1999, the Company was notified by
the OTC of delisting from the Bulletin Board due to non-filing of required
reports under the Securities and Exchange Act of 1934. In November 1999,
Classics filed its 10-KSB and 10-QSB's to become in compliance with reporting
requirements of the Exchange Act. From September 23, 1999 until October 20,
1999, the Company's stock traded under the symbol "CIEIE." Effective January 6,
2000, the Common Stock commenced trading on the OTC Bulletin Board under the
symbol "CIEI," and continued trading under this symbol through the close of
business on February 25, 2000. Effective February 28, 2000 the Common Stock
commenced trading on the OTC bulletin Board under the symbol "BYTE." The
following is the range of high and low bid prices, adjusted for the 1:3.49
reverse stock split, for the Company's stock for the periods indicated below:
COMMON STOCK HIGH LOW
$ $
Fiscal Year 1997:
1st Quarter ........................ .767 .209
2nd Quarter ........................ .366 .175
3rd Quarter ........................ .244 .209
4th Quarter ........................ .279 .140
Fiscal Year 1998:
1st Quarter ........................ .140 .105
2nd Quarter ........................ .105 .070
3rd Quarter ........................ .070 .035
4th Quarter ........................ .035 .017
Fiscal Year 1999:
1st Quarter ........................ 1.012 1.012
2nd Quarter ........................ .820 .558
3rd Quarter ........................ 2.478 2.408
4th Quarter ........................ 13.303 8.404
The above quotations represent prices between dealers; do not include
retail mark-ups, mark-downs, or commissions; and do not necessarily represent
actual transactions.
APRROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The number of record holders of the Company's Common Stock is 132. Such
number of record owners was determined from the Company's stockholder records,
and does not include beneficial owners of the Company's Common Stock whose
shares are held in the names of various security holders, dealers and clearing
agencies. The Company believes there are more than 2,750 beneficial holders of
the Company's Common Stock.
To date, the Company has paid $138,375 of dividends on the Series A
preferred stock, however, the amounts which were due for the quarter ended
December 31, 1995, and all subsequent amounts have not yet been declared or
paid, nor have any amounts to date relating to the Series B and Series C
preferred stock been declared or paid.
The Company intends to retain all earnings, if any, for use in the
Company's business for the foreseeable future. Any future determination as to
declaration and payment of dividends will be made at the discretion of the Board
of Directors, subject to the existence of any covenants restricting the payment
of dividends.
8
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
In November and December 1999, the Company entered into various
subscription agreements with accredited investors for the issuance of 1,288,889
shares of Common Stock. The subscription agreements called for a total
subscription amount of $3,200,00 to be paid, of which $2,400,000 was paid as of
December 31, 1999. The $800,000 stock subscription receivable at December 31,
1999 was fully paid as of the filing of this report.
In connection with the IBP acquisition, the Company issued 1,000,000
shares of stock to the two principals of IBP in exchange for all of their
capital stock of IBP.
In March, 2000, 851,421 shares of Common Stock were issued upon the
exercise of warrants. There are additional warrants outstanding which provide
for the issuance of 500,000 shares, upon exercise, at a price of .14 per share.
These warrants expire in February 2001.
The foregoing shares were offered and sold without registration under
the Securities Act of 1933 as not involving any public offering.
The sale, or availability for sale, of substantial additional amounts
of Common Stock in the public market could materially adversely affect the
market price of the Common Stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities or debt financing.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and the Notes thereto appearing in this report.
OVERVIEW
OUR BUSINESS
Piranha, Inc.(TM) has become a technology company with a line of
digital asset management products being developed for sale and/or licensing. The
data compression software products under the new Piranha(TM) 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'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. Piranha(TM) 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 technology will provide the first real video-on-demand
solution for the Internet with full screen (up to 640 x 480), full motion
viewing using only one file for all connections. Products expected to be
available in the spring of 2000 include:
o Piranha Net(TM) - This web based product is expected to allow commercial
web sites to download up to 50 times faster than what is currently
available. A page that currently takes 50 seconds is expected to take as
little as 1 second with the Piranha Net(TM) product. Piranha Net(TM)
utilizes Piranha's proprietary lossless and lossy data compression
algorithms.
9
<PAGE>
o Piranha Byte(TM) - This Streaming FTP lossless data compression product is
used for downloading files to or from a server or user. A multitude of file
types can be delivered for archival or immediate use at compression rates
and data transfer speeds substantially greater than current competitive
products.
o Piranha Stream(TM) - This product is a plug-in or browser-based
full-motion, full-screen video product with several audio codecs available,
including Piranha Audio(TM) featuring low bandwidth and high quality. It is
anticipated that any audio audio codec product can be incorporated into
Piranha Stream(TM). Individual frames are compressed at a measurable ratio
of 692:1 The images are compressed twice utilizing existing player
technology making the decompressed frames broadband suitable.
Products that are expected to debut in the second half of 2000:
o An e-commerce application covering transaction, data mining, and other
e-commerce disciplines.
o A product combining all Piranha(TM) technologies into one suite of tools to
handle enterprise solutions for the largest customer. This product will
include data base interfacing with Oracle and other enterprise data
warehouse software.
o An affordable software rental that offers a variety of solutions from a
full suite of products to a smaller version designed to meet the specific
needs of the customer.
o Increased processing power delivered through custom DSP chip integration
for tailored hardware/software solutions.
All Piranha(TM) software products have been developed on the Linux operating
system and have been successfully ported to Microsoft and Apple operating
platforms.
PURCHASE ACCOUNTING EFFECTS.
The Zideo and IBP acquisitions were accounted for using the purchase
method of accounting. The aggregate acquisition costs (including assumption of
liabilities and transaction expenses) of approximately $11.5 million have been
allocated to the tangible and intangible assets acquired and liabilities assumed
by us based upon their respective fair values as of the date of acquisition. The
allocation of the purchase price of the assets acquired in the acquisitions will
result in a significant increase in the Company's future annual amortization
expense.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
LOSS FROM CONTINUING OPERATIONS
The loss from continuing operations for the year ended December 31,
1999 was $1,105,327, and is attributable primarily to the change in the
Company's business. The Company discontinued its operations at the end of 1996.
Hence there are no losses from continuing operations in the year ended December
31, 1998.
LOSS FROM DISCONTINUED OPERATIONS
There was no loss from discontinued operations for the year Ended
December 31, 1999, compared to a loss of $21,882 for the year ended December 31,
1998.
EXTRAORDINARY GAIN - EXTINGUISHMNET OF DEBT
The gain resulting from the extinguishment of debt was $51,132 for the
year ended December 31, 1999 and $218,515 for the year ended December 31,1998.
10
<PAGE>
NET GAIN (LOSS)
The net loss was $1,054,195 for the year ended December 31, 1999 compared
to a gain of $196,633 for the year ended December 31, 1998.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
The net loss applicable to common stock was $1,217,995 for the year ended
December 31, 1999 compared to net income of $32,833 for the year ended December
31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had a working capital deficiency of
$1,555,208.
The Company anticipates that its principal use of cash will be to fund
research and development, ongoing operations, and working capital requirements.
Based upon current and anticipated levels of operations, the Company believes
that its cash position, plus the cash due pursuant to executed subscription
agreements, will be adequate to meet the Company's anticipated requirements for
at least the next twelve months. The Company cannot give any assurances,
however, that the business will ultimately generate sufficient cash flow from
operations in the future to enable the Company to sustain operations. As such,
the inability to obtain additional financing could have a materially adverse
impact on the Company.
YEAR 2000 COMPLIANCE
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.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB 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 Annual Report on Form 10-KSB. 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;
11
<PAGE>
(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.
ITEM 7. FINANCIAL STATEMENTS
See attached financial statements.
ITEM 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
12
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
The sole director of the Company is Richard S. Berger, age 66. He holds
office until the next annual meeting of stockholders or until his successor is
elected and qualified.
RICHARD S. BERGER has been the Company's Director since November 1992.
Mr. Berger has previously been a self-employed business consultant in various
industries including: technology, cable television, publishing, production of
animated movies and commercials, plastics manufacturing, machining (tool and die
companies), environmental companies (waste water treatment, contaminated soil
removal, and CFC removal), and retailing (niche retailing such as Big & Tall
men's stores, and pop culture stores).
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
13
<PAGE>
<TABLE>
<CAPTION>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE (1)
========================= ============ ============= ============== ============= ==================================================
LONG TERM COMPENSATION
-------------------------- ------------ ----------
ANNUAL COMPENSATION AWARDS PAYOUTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------- ------------ ------------- -------------- ------------- ------------- ------------ ------------ ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-term
Other Restricted Incentive All Other
NAME AND PRINCIPAL SALARY Annual Stock Options/ Plan Compen-
------
POSITION YEAR ($) BONUS($) COMPEN- AWARD(S)($) SARS(#) PAYOUTS ($) SATION
------------- ---- --- -------- ----- ----------- ------- ----------- ------
SATION($)
---------
========================= ============ ============= ============== ============= ============= ============ ============ ==========
Richard S. Berger, 1999 $ 0 0 0 0 0 0 0
Chairman (1,2) 1998 $ 8,000 0 0 0 0 0 0
1997 $32,000 0 0 0 0 0
========================= ============ ============= ============== ============= ============= ============ ============ ==========
</TABLE>
(1) See also "Certain Relationships and Related Transactions."
(2) No cash compensation has been paid since July, 1996.The unpaid amount
has been accrued and is reflected in the December 31, 1999 financial
statements.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
No options or stock appreciation rights were issued in the last fiscal
year, nor are any outstanding as of December 31, 1999.
Employee Benefit Plans
1992 Employee Stock Option Plan
In November, 1992 the Company adopted the 1992 Employee Stock Option
Plan (the "Option Plan"). The Option Plan was amended in September, 1993 to
include additional options under the Option Plan. The Option Plan provides for
the grant of options to qualified employees (including officers and directors)
of the Company to purchase an aggregate of 1,000,000 shares of Common Stock. The
Option Plan is administered by the Board of Directors or a committee of the
Board of Directors (the "Option Committee") whose members are not entitled to
receive options under the Option Plan. The Option Committee has complete
discretion to select the optionee and to establish the terms and conditions of
each option, subject to the provisions of the Option Plan. Options granted under
the Option Plan may or may not be "incentive stock options" as defined in
Section 422 of the Code ("Incentive Options") depending upon the terms
established by the Option Committee at the time of grant, but the exercise price
of options may not be less than 100% of the fair market value of the Company's
Common Stock as of the date of grant (110% of the fair market value if the grant
is an Incentive Option to an employee who owns more than 10% of the outstanding
Common Stock). Options may not be exercised more than 10 years after the grant.
Options granted under the Option Plan are not transferable and may be exercised
only by the respective grantees during their lifetimes or by their heirs,
executors or administrators in the event of death. Under the Option Plan, shares
subject to cancelled or terminated options are reserved for subsequently granted
options. The number of options outstanding and the exercise price thereof are
subject to adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. No options are outstanding
as of December 31, 1999.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1999,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
shares of Common Stock, (ii) each Director, and (iii) all officers and Directors
as a group:
==================================================================
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
==================================================================
Richard S. Berger 1,472,347 22.0%
1350 North Lake Shore Drive
#315 S.
Chicago, IL 60610
==================================================================
Cary Lotzer 660,000 9.9%
1930 Palace Drive
Grand Prairie, TX 75050
==================================================================
Michael Steele 340,000 5.1%
2602 Palisades Place
Mesquite, TX 75181
==================================================================
All officers and directors 2,472,347 37.0%
as a group (5 person) (1)
==================================================================
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole investment power with respect to all shares of Common Stock
beneficially owned by them.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was previously provided with office and administrative
facilities under an informal arrangement with a principal shareholder. Amounts
charged to operations for such services amounted to $7,500 and $10,500 in 1999
and 1998, respectively.
15
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following financial statements of the Company are attached pursuant
to Part II, Item 7:
PAGE
Index to Financial Statements F-1
Report of Independent Auditor F-2
Consolidated Balance Sheet F-3
December 31, 1999
Consolidated Statement of Operations - F-4
Years ended December 31, 1999 and 1998
Consolidated Statement of Stockholders' F-5
Equity - Years ended December 31, 1999 and 1998
Consolidated Statement of Cash Flows - F-6
Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements F-7 - F-12
Years ended December 31, 1999 and 1998
2. FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
The exhibits designated with an asterisk (*) have previously been filed
with the Commission and are incorporated by reference.
4. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31,
1999. A report on Form 8-k was filed on March 15, 2000.
16
<PAGE>
19
EXHIBIT NO. DESCRIPTION
*3.1.2 Amendment to Certificate of Incorporation of the
Registrant, incorporated by reference to the
Registrant's Form 8-K filed March 15, 2000.
*10.44 Merger Agreement with IBP and Classics Acquisition
Corp., incorporated by reference to the Registrant's
Form 8-K filed March 15, 2000.
*10.45 Acquisition of Zideo.com, Inc. incorporated by
reference to the Registrant's Schedule 14C filed
February 9, 2000.
22.1.2 Subsidiaries of the Registrant
27 Financial Data Schedule
17
<PAGE>
Exhibit 22.1.2
Subsidiaries of the Registrant
NAME STATE OF INCORPORATION
- ---- -----------------------
First Classics, Inc. Delaware
Classics Media Group, Inc. New York
IBP, Inc. Nevada
Zideo.Com, Inc. Delaware
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY:
/S/ Richard S. Berger
Richard S. Berger
Sole Director and
Principal Accounting Officer
Dated: April 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
NAME AND POSITION DATE
April 3, 2000
/S/ Richard S. Berger
Richard S. Berger
Sole Director and
Principal Accounting Officer
19
<PAGE>
PIRANHA, INC.
FORMERLY CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS F-1
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN F-5
STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Piranha, Inc.,
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of Piranha,
Inc., (formerly Classics International Entertainment, Inc.and Subsidiaries)as of
December 31, 1999 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects the financial position of Piranha Inc.,
(formerly Classics International Entertainment Inc. and Subsidiaries) as of
December 31, 1999 and the results of their operations and cash flows for the
years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
/s/ Feldman, Sherb, Horowitz & Co., P.C.
Feldman, Sherb, Horowitz & Co., P.C.
Certified Public Accountants
New York , NY
April 3, 2000
F-2
<PAGE>
PIRANHA, INC, FORMERLY CLASSICS INTERNATIONAL ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 333,879
U.S. Government Securities 1,291,508
Stock subscriptions receivable 800,000
Prepaid expenses 13,395
-----------
TOTAL CURRENT ASSETS 2,438,782
PROPERTY AND EQUIPMENT 48,243
INTANGIBLES 11,538,125
-----------
$ 14,025,150
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,388,225
Dividends payable 652,650
Accrued liabilities 1,125,954
Stockholder loans and other notes payable 827,161
-----------
TOTAL CURRENT LIABILITIES 3,993,990
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $ 2,012,488
Common stock, $.001 par value,
100,000,000 shares authorized;
6,695,455 shares issued and outstanding 6,695
Additional paid-in capital 26,192,299
Stock subscription receivable (44,500)
Accumulated deficit (18,135,822)
------------
TOTAL STOCKHOLDERS' EQUITY 10,031,160
----------
14,025,150
==========
See notes to the consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
PIRANHA, INC, AND SUBSIDIARIES
(FORMERLY CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
------------- -----------
<S> <C> C>
REVENUES $ 0 $ 0
COSTS AND EXPENSES
General and administrative 360,164
Provision for settlement of litigation 700,000
Interest expense - net 44,741
Depreciation 422
------------- ------------
TOTAL COSTS AND EXPENSES 1,105,327 0
Loss from continuing operations (1,105,327) 0
Loss from discontinued operations 0 (21,882)
Extraordinary gain - extinguishment of debt 51,132 218,515
------------- ------------
Net gain (loss) (1,054,195) 196,633
Preferred stock dividends (163,800) (163,800)
------------- ------------
Net income (loss) applicable to common stock $ (1,217,995) $ 32,833
============= ===========
Basic and Diluted Income (Loss) Per Common Share:
Loss from continuing operations $ (0.29) $ (0.04)
Loss from discontinued operations 0.00 0.00
Extraordinary gain - extinguishment of debt 0.01 0.05
------------- ------------
Net income (loss) per common share - basic and diluted $ (0.28) $ 0.01
============= ============
Weighted average common shares outstanding 4,415,577 4,406,566
============= ============
</TABLE>
See notes to the consolidated financial statements
F-4
<PAGE>
PIRANHA, INC. AND SUBSIDIARIES
(FORMERLY CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Common Stock Paid-in Subscription Accumulated
Stock Shares Amount Capital Receivable Deficit Total
---------- ---------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 $ 2,012,488 $15,378,916 $ 15,379 $ 12,495,490 $ (44,500) $ (16,950,660) $ (2,471,803)
Effect of reverse stock split 10,972,350 (10,972) 10,972
Net income 196,633 196,633
---------- ---------- ---------- ----------- ---------- ------------- --------------
Restated - January 1, 1998 2,012,488 4,406,566 4,407 12,506,462 (44,500) (16,950,660) (2,471,803)
Preferred dividends (163,800) (163,800)
Net income 196,633 196,633
---------- ---------- ---------- ----------- ---------- ------------- --------------
BALANCE - DECEMBER 31, 1999 2,012,488 4,406,566 4,407 12,506,462 (44,500) (16,917,827) (2,438,970)
Stock issuances - acquistion 1,000,000 1,000 10,487,125
Stock issuances - cash 1,288,889 1,288 3,198,712 3,200,000
Preferred dividends (163,800) (163,800)
Net loss (1,054,195) (1,054,195)
------------------------------------------------------------------------------------------------
Balance - December 31, 1999 $ 2,012,488 $ 6,695,455 $ 6,695 $26,192,299 $(44,500) $(18,135,822) $10,031,160
========= ========= ===== ========== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
PIRANHA, INC. AND SUBSIDIARIES
(FORMERLY CLASSICS INTERNATIONAL ENTERTAINMENT, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,054,195) $ 196,633
Depreciation 422
Loss from discontinued operations 21,882
Provision for settlement of debt 700,000
Extraordinary gain -extinguishment of debt (51,132) (218,515)
Adjustments to reconcile net income (loss) to net cash used in operations:
Increase in prepaid expenses (13,395)
Increase in accounts payable and accrued liabilities 67,036
---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (351,264) 0
---------------- ----------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (48,665)
Cash payments in connection with acquisitions (400,000)
---------------- ----------------
TOTAL CASH FLOWS USED IN INVESTING ACTIVITIES (448,665) 0
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Investment in U.S. Government Securities (1,291,508)
Increase in stockholder loans and other notes payable 25,316
Proceeds from the sale of common stock 2,400,000
---------------- ----------------
TOTAL CASH FLOWS FROM FINANCING ACTIVITES 1,133,808 0
NET INCREASE IN CASH 333,879 0
CASH AT BEGINNING OF YEAR 0 0
---------------- ----------------
CASH AT END OF YEAR $ 333,879 $ 0
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
No cash paid during the year for interest and income taxes $ 0 $ 0
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Issuance of stock and notes for acquisitions $ 11,138,125 $ 0
================ ================
Issuance of stock for subscriptions receivable $ 800,000 $ 0
================ ================
</TABLE>
See notes to the consolidated financial statements
F-6
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. THE COMPANY
Piranha, Inc. (previously known as Classics International
Entertainment, Inc.) (the "Company") was incorporated under the
laws of the State of Delaware on November 20, 1992. By 1994, the
Company had four subsidiaries: Moondog's, Inc., which on August
5, 1997, filed for protection under Chapter 7 of the Bankruptcy
laws; Dream Factory, Inc., which on May 2, 1996, filed for
protection under Chapter 7 of the Bankruptcy Laws; First
Classics, Inc., the holder of a license for the exclusive use of
the Classics Illustrated copyrights, trade names and other
intangibles, excluding non-print media rights; and Classics Media
Group, Inc., the exclusive licensee of the Classics Illustrated
properties for non-print media purposes.
The Dream Factory, Inc. and Moondog's, Inc. Bankruptcy cases
were brought to closure in September, 1996 and January, 1997,
respectively. First Classics, Inc. has limited activity, while
Classics Media Group, Inc. is currently dormant.
The Company essentially has been a non-operating entity
since it discontinued its operations at the end of 1996.
Beginning with the acquisition of Zideo on December 8, 1999 and
IBP, Inc. on December 30, 1999, the Company effectively changed
its business emphasis.
Upon changing its name to Piranha, Inc.(TM), the Company has
become a technology company with a line of digital asset
management products being developed for sale and/or licensing.
The data compression software products under the new Piranha(TM)
brand are designed to improve Internet speed and to provide image
clarity at high compression rates.
In January, 2000 the Board of Directors received written
consents from a majority of stockholders authorizing (i) a change
in the name from Classics International Entertainment Inc. to
Piranha, Inc., (ii) an increase in the authorized Common Stock
from 30,000,000 shares to 100,000,000 shares, and (iii) a reverse
stock split so that each 3.49 outstanding shares were converted
into one share of Common Stock outstanding.
Through February 25, 2000 quotes for the Company's Common
Stock were available under the symbol CIEI. Effective with the
Reverse Stock Split on February 28, 2000, quotes for the
Company's Common Stock were available under the symbol BYTE.
These financial statements and the notes herein give retroactive
effect to the reverse stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Principles of consolidation - The accompanying
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
b. 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 amounts reported in the financial statements and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from these
estimates.
c. Net Income (Loss) Per Share - Basic income (loss) per
share was computed using the weighted average number of shares of
outstanding common stock. Diluted per share amounts when
applicable also include the effect of dilutive common stock
equivalents from the assumed exercise of stock options.
d. Income Taxes - Income taxes are accounted for under
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", which is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
e. Amortization of Intangibles - Amortization of the
algorithms underlying the acquired intellectual property/trade
secrets, as well as the brand name, and other trade secrets and
intangibles, are recognized over a five year period beginning in
the month of first commercial application.
f. Property and Equipment - Property and equipment is stated
at cost. Depreciation is computed using the straight-line method
over the estimated useful lives. Depreciation expense for the
years ended December 31, 1999 and 1998 was $422 and $0,
respectively.
F-7
<PAGE>
g. Long-lived Assets - The Company reviews long-lived assets
for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be
recovered. At December 31, 1999 the Company believes that there
has been no impairment of its long-lived assets.
h. Stock Based Compensation - The Company accounts for its
stock option plan under APB Opinion No. 25 "Accounting for Stock
Issued to Employees," ("APB 25"). The Company has also adopted
Statement of Accounting Standards No. 123, "Accounting for Stock
Based Compensation," (SFAS 123 ) for disclosure purposes, and has
adopted the proforma disclosure requirements of SFAS 123, which
was not applicable in 1999 and 1998.
3. ACQUISITIONS
a. ACQUISITION OF IBP, INC.
On December 30, 1999, the Company acquired all of the capital
stock of IBP through a merger of its subsidiary with and into IBP. As
a result of the acquisition, IBP became a wholly-owned subsidiary of
the Company. The two stockholders of IBP received an aggregate of
1,000,000 shares of Common Stock in exchange for all of the
outstanding capital stock of IBP. The purchase price of $10,788,125
consisted of the assumption of liabilities in the amount of $100,000
and the issuance of the aforementioned stock, valued at $10,688,125.
In connection with the acquisition, the Company entered into a
two year employment agreement with each of the selling stockholders of
IBP at an annual salary to each individual of $150,000 in the first
year and $200,000 in the second year. In addition, the Company
committed to grant the sellers options to purchase an aggregate of
400,000 performance based stock options at the strike price of $1.35
per share as well as 200,000 incentive based stock options at a strike
price of $5.00 per share. The options, when granted, may result in
compensation expense being recorded to the extent the market price,
when granted, exceeds the excise price.
F-8
<PAGE>
b. ACQUISITION OF ZIDEO.COM, INC.
On December 8, 1999 the Company acquired all of the capital stock
of Zideo.com, Inc. ("Zideo") from DigiByte Corporation ("DigiByte") of
Chicago, Illinois. The purchase price of $750,000 consisted of cash in
the amount of $250,000 and a note for $500,000, of which $100,000 was
paid by December 31, 1999; the balance was paid in full as of February
16, 2000.
The aforementioned acquisitions resulted in the Company
acquiring intangible assets consisting of data compression technology
of approximately $11,5000. The acquired companies had no previous
revenue nor net income or loss and therefore pro forma financial
information as if the companies were combined at the beginning of 1998
are not presented.
4. ACCRUED LIABILITIES
At December 31, 1999, accrued liabilities consisted of the
following:
Consulting fees $ 134,583
Interest 142,900
Provision for settlement of litigation 700,000
Other 148,471
----------
TOTAL $1,125,954
==========
5. STOCKHOLDER'S LOANS AND OTHER NOTES PAYABLE
At December 31, 1999, stockholder loans and other notes
payable consisted of the following:
Stockholder loans, interest free,
unsecured and payable on demand $ 95,161
Notes payable with interest at 12% per annum,
unsecured and payable on demand 332,000
Acquisition note payable with interest
at 4% per annum, secured and payable in two
installments, due in January and February, 2000 400,000
--------
TOTAL $ 827,161
=========
F-9
<PAGE>
6. PREFERRED STOCK
At December 31, 1999, Preferred Stock consisted of 5,000,000
authorized shares of which the following were issued and outstanding:
Common Shares
Issuable on
Preferred Stock Amount Conversion
----------------- ---------- -------------
Series A, 9% cumulative,
convertible, redeemable; 220,000
shares issued and outstanding
$1,100,000 63,038
Series B, 9% cumulative,
convertible, redeemable; 412,500
shares issued and outstanding
529,988 165,445
Series C, 4% cumulative,
convertible, redeemable; 500
shares issued and outstanding
382,500 229,227
--------- -------
TOTAL $ 2,012,488 555,950
========= =======
At December 31, 1999, the Company had 555,950 common shares
reserved for issuance upon conversion of Preferred Stock.
7. EMPLOYEE STOCK OPTION PLAN
In November 1992, the Company adopted the 1992 Employee Stock
Option Plan (the "Option Plan"). The Option Plan provides for the grant
of options to qualified employees (including officers and directors) of
the Company to purchase an aggregate of 1,000,000 shares of Common
Stock. The Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Option Committee") whose
members are not entitled to receive options under the Option Plan. The
Option Committee has complete discretion to select the optionee and to
establish the terms and conditions of each option, subject to the
provisions of the Option Plan. Options granted under the Option Plan
may or may not be "incentive stock options" as defined in Section 422
of the Code ("Incentive Options") depending upon the terms established
by the Option Committee at the time of grant, but the exercise price of
options may not be less than 100% of the fair market value of the
Company's Common Stock as of the date of grant (110% of the fair market
value if the grant is an Incentive Option to an employee who owns more
than 10% of the outstanding Common Stock). Options may not be exercised
more than ten years after the grant. Options granted under the Option
Plan are not transferable and may be exercised only by the respective
grantees during their lifetimes or by their heirs, executors or
administrators in the event of death. Under the Option Plan, shares
subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. No options are outstanding as of December 31, 1999.
F-10
<PAGE>
8. INCOME TAXES
The following is a reconciliation of income taxes and amounts
computed using the U.S. Federal statutory rate and the effective tax
rate for the years ended December 31, 1999 and 1998:
1999 1998
---------- -------
Consolidated pre-tax income (loss) $(1,054,000) $ (197,000)
========== ========
Tax (benefit) at Federal statutory rate 369,000 69,000
Effect of permanent differences 8,000 0
Effect of temporary differences 277,000 6,000
Tax benefit not recognized 654,000 75,000
-------- -------
Taxes per financial statements $ - $ -
======== =======
The Company has adopted Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this standard,
the Company records as an asset its net operating loss carryforward
("NOL") based upon current tax returns, and establishes a valuation
allowance to the extent of any NOL which will not be utilized in the
foreseeable future.
At this time, the Company can not reliably predict future
profitability. Accordingly, the deferred tax asset has been reduced in
its entirety by the valuation allowance.
As of December 31, 1999, the Company had net operating loss
carry forwards of approximately $14,600,000 expiring beginning in the
year 2007. A significant portion of these carry forwards are subject to
limitations on annual utilization due to "equity structure shifts" or
"owner shifts" involving "5 percent stockholders" (as defined in the
Internal Revenue Code), which result in more than a 50 percent change
in ownership.
9. RELATED PARTY TRANSACTIONS
The Company was provided with office and administrative
facilities under an informal arrangement with a principal shareholder.
Amounts charged to operations for such services in 1999 and 1998 were
$7,500 and $10,500, respectively.
F-11
<PAGE>
10. LICENSE AGREEMENTS
The Company has the exclusive and perpetual right to use
certain trade names, copyrights, logos, trademarks and other intangible
property related to Classics Illustrated and Classics Illustrated
Juniors. The Company is obligated to remit royalties ranging from 3
percent to 10 percent, with a minimum of $3,000 per annum, of revenues
derived from such rights.
11. LITIGATION
In July 1994, the Company discharged four officers of its
Dream Factory subsidiary. The officers who were discharged commenced an
action against the Company seeking damages arising out of the alleged
wrongful termination of their employment. The Company subsequently
settled the claims of two officers for $600,000. The Company is
currently engaged in settlement negotiations with the remaining
officers, and has accrued a provision of $700,000 in the accompanying
consolidated financial statements, but will vigorously defend this case
in the absence of a settlement, and believes that it is without merit.
The Company was a defendant in the case of Benjamin B.
LeCompte, III 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. As of
April 3, 2000 this case has been dismissed for a lack of jurisdiction.
12. EXTRAORDINARY GAIN - EXTINGUISHMENT OF DEBT
In January 1998, Moondog's bankruptcy case was closed
resulting in the cancellation of liabilities of $218,515. The
transaction is reflected in the 1998 financial statements as an
extraordinary gain from the extinguishment of debt.
In October 1999, the Company settled certain outstanding
accounts payable for $15,000, resulting in an extraordinary gain of
$51,132 from the extinguishment of debt.
13. STOCK SUBSCRIPTIONS RECEIVABLE
Stock subscriptions receivable at December 31, 1999 of $800,000,
were collected in full as of March 14, 2000.
14. CONCENTRATION OF RISK
The company maintained cash balances in excess of the Federally
insured ("FDIC") limit of $100,000. Such excess approximated $230,000
at December 31, 1999.
15. SUBSEQUENT EVENT
On March 23, 2000, 851,421 shares of Common Stock were issued
upon the exercise of warrants. There are additional warrants
outstanding which provide for the issuance of 143,267 shares, upon
exercise, at a price of $1.74 per share. These warrants expire in
February 2001.
F-12
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