U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: December 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from:
Commission File Number 0-24913
BioShield Technologies, Inc.
----------------------------
(Name of small business issuer as specified in its charter)
Georgia 58-2181628
------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
4405 International Blvd.
Suite B-109
Norcross, Georgia 30093
-----------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 925-4302
----------------------
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 15,905,276 shares, as of
February 15, 2001.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
1. Consolidated Balance Sheet as of December 31, 2000 (unaudited) 3
2. Consolidated Statements of Operations for the three month
and six month periods ended December 31, 2000 and 1999
(unaudited) 4
3. Consolidated Statements of Cash Flows for the
six month periods ended December 31, 2000 and 1999 (unaudited) 5
4. Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis
or Plan of Operation 9-11
PART II OTHER INFORMATION
Item 2. Changes in securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2000
ASSETS
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,126
Accounts receivable 232,435
Inventories 151,006
Prepaid expenses and other current assets 170,506
-----------------
Total current assets 555,073
WEB SITE DEVELOPMENT AND OTHER
PROPERTY AND EQUIPMENT, NET 6,185,352
DEPOSITS AND OTHER LONG-TERM ASSETS 396,186
-----------------
$ 7,136,611
=================
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Note payable $ 303,324
Accounts payable 829,592
Officer loan payable 52,000
Accrued liabilities 30,272
-----------------
Total current liabilities 1,215,188
Liabilities Subject to Compromise 4,080,469 (a)
-----------------
Total liabilities 5,295,657
-----------------
MINORITY INTEREST 5,707,492
STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock -
Series B Convertible Preferred Stock 10,000,000
Common stock - no par value; 50,000,000 shares
authorized; 12,451,276 issued and outstanding 25,959,418
Additional paid-in capital 3,492,600
Accumulated deficit (42,781,656)
Less 35,000 shares of common stock in treasury -
at cost (536,900)
-----------------
(3,866,538)
-----------------
$ 7,136,611
=================
(a) Liabilities subject to compromise consist of the following;
Contracts and accounts payable $ 3,160,219
Accrued liabilities 920,250
-----------------
$ 4,080,469
=================
The accompanying notes are an integral part of these statements
3
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended For the six months ended
December 31, December 31,
--------------------------------------------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 104,163 $ 268,954 $ 582,322 $ 413,399
Cost of sales 81,672 158,504 345,717 248,992
-------------- --------------- -------------- ------------
Gross profit 22,491 110,450 236,605 164,407
Operating expenses
Marketing and selling 553,217 1,801,180 2,168,181 2,606,647
General and administrative 1,840,526 2,076,902 7,518,148 5,100,556
Loss on investment 1,500,000 - 1,500,000 -
Research and development 311,440 767,473 556,170 1,401,457
-------------- --------------- -------------- ------------
4,205,182 4,645,555 11,742,498 9,108,660
Loss from operations (4,182,691) (4,535,105) (11,505,893) (8,944,253)
Other income
Interest and dividend income (64,694) 25,065 593 87,036
-------------- --------------- -------------- ------------
Loss before minority interest (4,247,385) (4,510,040) (11,505,300) (8,857,217)
Minority interest in loss of subsidiary 80,132 190,726 218,601 190,726
-------------- --------------- -------------- ------------
NET LOSS (4,167,253) (4,319,314) (11,286,699) (8,666,491)
Other comprehensive earnings (loss)
Unrealized holding loss on subsidiary - - - (15,750)
-------------- --------------- -------------- ------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $ (4,167,253)$ (4,319,314)$ (11,286,699) $ (8,682,241)
============== =============== ============== ============
Net loss per common share
Basic and diluted $ (0.39)$ (0.67)$ (1.17) $ (1.37)
============== =============== ============== ============
Weighted average common shares
outstanding 10,789,670 6,406,578 9,634,534 6,352,802
============== =============== ============== ============
The accompanying notes are an integral part of these statements
4
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
For the six months ended
December 31,
-----------------------------------
2000 1999
---------------- ---------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (11,286,697) $ (8,666,490)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 638,205 39,300
Minority interest in loss of subsidiary (218,601) -
Issuance of stock, stock options and
stock warrants for services rendered 28,000 257,000
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (33,838) 190,052)
Subscription receivable - 4,798,750
Inventories (47,550) (28,000)
Prepaid expenses and other
current assets (14,066) 53,473
Deposits and other assets (300,000) (4,698,361)
Increase (decrease) in:
Accounts payable 1,453,599 4,323,996
Officer loan payable (58,000) -
Accrued liabilities and compensation (1,155,375) 211,590
---------------- ----------------
Net cash used in operating activities (10,994,323) (3,898,794)
---------------- ----------------
Cash flows from investing activities
Capital expenditures (1,045,169) (1,143,041)
Accumulated other income/loss 105,000 (31,500)
Purchase of marketable securities - 31,500
---------------- ----------------
Net cash used in investing activities (940,169) (1,143,041)
---------------- ----------------
Cash flows from financing activities
Proceeds from debt 2,000,000 -
Repayment of debt (1,696,676) -
Contribution of capital - 1,433,087
Proceeds from stock warrants exercised 125,000 -
Proceeds from stock options exercised 542,380 -
Stock issued under stock option plan - 41,568
Proceeds from stock issuances, net 4,792,000 1,445,274
---------------- ----------------
Net cash provided by financing activities 5,762,704 2,919,929
---------------- ----------------
Net decrease in cash (6,171,788) (2,121,906)
Cash at beginning of period 6,172,914 2,500,561
---------------- ----------------
Cash at end of period $ 1,126 $ 378,655
================ ================
The accompanying notes are an integral part of these statements
5
BioShield Technologies, Inc. and Subsidiary
Notes To Consolidated Financial Statements
1. Basis Of Preparation
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial position as
of December 31, 2000, and the results of operations and cash flows for the
period then ended. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes for the fiscal
year ended June 30, 2000.
2. Stock Options and Warrants
During the six months ended December 31, 2000, the following changes occurred
in outstanding employee stock options.
BSTI eMD.com
------- ---------
Options outstanding at June 30, 2000 640,500 6,491,750
Options granted 240,000 949,702
Options cancelled (10,000) (98,454)
Options exercised (35,000) -
-------- ---------
Options outstanding at December 31, 2000 860,000 7,342,998
======== =========
As of June 30, 2000, there were 180,000 options to purchase BSTI stock issued to
advisory board members. During the six months ended December 31, 2000 109,000 of
these options were exercised. No options were granted or cancelled during the
six months ended December 31, 2000 for advisory board members. As of June 30,
2000, there were 8,000 options to purchase BSTI stock issued to a non- employee
for consulting services. No options were granted, cancelled or exercised during
the six months ended December 31, 2000 for consulting services.
As of June 30, 2000, there were 90,000 options to purchase eMD.com stock issued
to members of the eMD.com medical advisory board members. No options were
granted, cancelled or exercised during the six months ended December 31, 2000
for medical advisory board members.
During the six months ended December 31, 2000, the following changes occurred
in outstanding warrants.
BSTI eMD.com
------- ---------
Warrants outstanding at June 30, 2000 882,281 370,098
Warrants granted - 5,720
Warrants cancelled - -
Warrants exercised (25,000) -
-------- ---------
Warrants outstanding at December 31, 2000 857,281 375,818
======== =========
3. Segment Information
The following information is presented in accordance with SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which was
adopted by the Company during 1999.
BSTI operates primarily in the antimicrobial and biostatic products segment.
During 1999, the Company established a subsidiary eMD.com which operates in the
pharmaceutical distribution segment via the internet.
The Company's reportable segments are strategic business units that offer
different products and services. they are managed separately because each
business requires different technology and marketing strategies. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on
gross profit.
6
The following tables provide summarized information concerning the Company's
reportable segments.
Antimicrobial
and Biostatic Pharmaceutical
Products Distribution Total
------------- --------------- -----------
As of December 31, 2000
- -----------------------
Segment assets $ 814,642 $ 6,321,969 $ 7,136,611
Six months ended December 31, 2000
- ----------------------------------
Revenues from products/services $ 550,080 $ 32,242 $ 582,322
Gross profit 312,066 33,651 345,717
Segment profit (loss) 238,014 (1,409) 236,605
Interest income 9,262 23,350 32,612
Interest expense - - -
Depreciation and amortization 40,320 597,885 638,205
Antimicrobial
and Biostatic Pharmaceutical
Products Distribution Total
------------- --------------- -----------
Six months ended December 31, 1999
- ----------------------------------
Revenues from products/services $ 269,954 $ - $ 269,954
Gross profit 110,450 - 110,450
Segment profit (loss) (1,903,022) (2,632,096) (4,535,118)
Interest income 31,745 55,291 87,036
Interest expense - - -
Depreciation and amortization 34,785 4,515 39,300
4. Private Equity Credit Agreements
On June 30, 1999, BSTI entered into an equity agreement with an investor whereby
the Company may issue and sell to the investor, from time to time, up to
$10,000,000 of the Company's common stock.
Pursuant to the agreement, the Company may exercise a put by giving notice to
the investor of the amount the Company requires the investor to purchase. The
number of shares the investor will receive is determined by dividing the
investment amount by the purchase price, determined as the market price of the
common stock on the date that the notice of the put is delivered to the investor
less 10% of the market price. No more than 19.99% of the outstanding common
stock may be issued and sold under this agreement without shareholder approval.
The Company must reserve at all times the maximum number of common shares to
enable the Company to issue a sufficient number of shares having an aggregate
purchase price of the lesser of $10 million or number of shares having an
aggregate purchase price of the lesser of $10 million less the number of shares
actually delivered under this agreement without shareholder approval.
Additionally, the average market bid prices for the twenty trading days
preceding the Company's notice to put the shares to the investor must equal or
exceed $1.00 per share. During the six months ended December 31, 2000, the
Company issued 3,847,743 shares at prices ranging from $1.00 to $10.00 per
share under this agreement.
On June 14, 2000, BSTI entered into another equity agreement with the same
investor whereby the Company may issue and sell to the investor, from time to
time, up to $50 million of BSTI's common stock.
This agreement has terms similar to the $10 million agreement with the following
exceptions. The purchase price for the put is determined as the market price of
the common stock on the date that the notice is delivered to the investor less
10% of the market price. The aggregate average daily trading volume must equal
or exceed 500,000 shares and the average of the market bid prices must equal or
exceed $7.50 per share for the ten trading days immediately preceding both the
date of the Company's notice to put the shares to the investor and the date of
the closing of the sale of shares to the investor. As of December 31, 2000
no shares have been put under this agreement.
The Company has reserved 5,500,000 shares at December 31, 2000 related to these
agreements.
7
5. Litigation
On September 7, 2000, AHT Corporation ("AHT") filed suit against the
Company and certain of its officers and directors in the Superior Court of
Fulton County, Georgia (the "Georgia Action") alleging breach of a June 30, 2000
acquisition agreement and related common laws claims and seeking damages in
excess of $70,000,000. On September 21, 2000, the Company filed its Answer and
Counterclaim. On September 22, 2000, AHT filed, in the U.S. Bankruptcy Court for
the Southern District of New York, a petition for relief under Chapter 11 of the
Federal Bankruptcy Code. Following the filing of its Chapter 11 petition, AHT
filed a motion seeking approval of an asset purchase agreement dated as of
September 22, 2000 (the "APA"), which provided, for the sale of substantially
all of AHT's assets to the Company and AHT Acquisition Corp. for approximately
$15,000,000. Such sale is subject to Bankruptcy Court approval.
Pursuant to a Debtor in Possession ('DIP") Financing, Escrow and
Settlement Agreement dated as of September 22, 2000, which was approved by the
Bankruptcy Court, the Company agreed to provide approximately $1.5 million in
postpetition financing to AHT. That agreement also provided for the dismissal of
the Georgia Action with prejudice, subject to certain conditions contained
therein.
At September 30, 2000, AHT had requested and received $378,338 from the
Company under the DIP financing arrangement. Subsequent to September 30, 2000,
AHT had requested and received an additional $1,121,662 under the DIP financing
agreement.
The Bankruptcy Court had initially scheduled a hearing to approve the
APA for November 8, 2000. However, due to the decline in the Company's stock
price, in early November, the Company notified AHT that it would need additional
time beyond November 8, 2000 to obtain sufficient capital to acquire AHT's
assets. The Bankruptcy Court did not approve the APA on November 8, 2000.
Rather, on November 21, 2000, the Bankruptcy Court approved the sale of
substantially all of AHT's assets to Cybear, Inc.
On November 28, 2000, AHT Acquisition Corp. commenced a new lawsuit (in
its Bankruptcy case) against the Company, as well as the other defendants in the
Georgia Action. The prepetition claims asserted and relief sought in that action
are essentially the same as the claims and relief sought in the Georgia Action.
The lawsuit in the bankruptcy case also alleges breach of the APA and seeks
damages related to the APA, and to equitably subordinate the Company's $1.5
million claim against AHT relating to the postpetition advances made by the
Company to AHT under the DIP Financing, Escrow and Settlement Agreement. On
February 9, 2001, the Company filed an answer and counterclaim and intends to
vigorously defend the action.
6. Subsequent Event
On January 31, 2001, Electronic Medical Distribution, Inc. ("eMD.com") a 99%
owned subsidiary of the Company, filed petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
Northern District of Georgia. Under Chapter 11, certain claims against eMD.com
in existence prior to the filing of the petitions for relief under the federal
bankruptcy laws are stayed while the debtor continues business operations as
Debtor-in-possesion. These claims are reflected in the December 31, 2000,
balance sheet as "liabilities subject to compromise." Additional claims
(liabilities subject to compromise) may arise subsequent to the filing date
resulting from rejection of executory contracts, including leases, and from the
determination by the court (or agreed to by parties in interest) of allowed
claims for contingencies and disputed amounts.
8
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
BioShield Technologies, Inc. ("Bioshield"),is a Georgia corporation
organized in 1995. We historically have been engaged in research and
development, patent filings, regulatory issues and related activities geared
towards the sale of our retail, industrial and institutional products. Due
largely to recent Environmental Protection Agency, ("EPA") approvals, we are
currently selling and marketing primarily cleaning and deodorizing products.
Many of these products provide long-term killing action of microorganisms
responsible for cross contamination and viral contamination, along with
inhibiting and controlling the growth of over 100 viral, bacteria, fungi and
yeast organisms.
In 1999, we created a subsidiary to develop electronic commerce via the
internet called Electronic Medical Distribution, Inc. ("eMD"). eMD integrates
services for healthcare providers with a comprehensive internet-based product
and healthcare website. These services include point of care medication
management, electronic patient charting, pharmaceutical fulfillment and
pharmaceutical care services, clinical services, clinical co-op management and
clinical supplies. On December 7, 2000, the Board of Directors of Bioshield,
elected to shut down eMD and filed for protection under Chapter 7 of the federal
bankruptcy laws. Before the 7 election was completed, the Company elected to
change from chapter 7 to 11, with the intention of selling the high overhead
items and keeping the clinical healthcare service portion of the eMD, with the
further intention of spinning eMD out as a dividend to its public shareholders,
thus creating a new, separately traded public company. On or about December 12,
2000, Bioshield reorganized and restructured the Company, including a change in
all directors, to focus on the core antimcrobial products in which the Company
has received E.P.A approvals. As a result, BioShield currently has eMD in
Chapter 11 in which it is reorganizing and preparing in the near future to spin
out to existing shareholders, and operates, antimicrobial and biostatic products
for use within the retail and institutional markets. BioShield is comprised of
four business divisions for the sale, distribution, and development of
antimicrobial, biostatic, and medical related products, retail, industrial and
institutional, and specialty chemical markets.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the six-month period ended December 31, 2000 were
$582,322, a slight increase over the same period last year. The increase was a
result of increased distribution of the OdorFree(TM) product. Gross profit of
$236,605 for the period ended December 31, 2000 represents 41% of net sales as
compared to $164,407, or 40% of net sales, for the period December 31, 1999. The
increase in gross margin is a result of the change in product mix and packaging,
combined with the continuous improvement in finding new ways to do business. The
Company is now gaining momentum focusing on its core business and has signed
several new distribution agreements in the area of industrial products. The
Company settled its outstanding claim with the EPA related to product labeling
and gained a multiple of EPA approvals of its now two core product am500 and
am1860 in 2000. The Company is awaiting final approval of its third product
am3651, which will allow the Company to begin nationwide distribution in a
multitude of product areas. BioShield continues to make breakthroughs in product
development and testing. These events have bolstered the confidence of our
customers and have prompted a significant increase in the last month, in
agreements and opportunities in our core technology
Cost of sales was $345,717 or 59% of sales and $248,992 or 60% of sales
for the six-month period ended December 31, 2000 and 1999, respectively. The
lower cost of sales for the six-month period ended December 31, 2000 was
attributable to higher sales of the Hypoallergenic OdorFree(TM) product during
the period, partially offset by efficiencies attained in the production of the
Company's antimicrobial products. and continuous improvement in finding new ways
to do business.
The Company's research and development expenses decreased to $556,170
in the six month period ending December 31, 2000 from $1,401,457 for the six
month period ending September 30, 1999. The decreased expenses related primarily
to lower formulation development costs of the Company's antimicrobial products
and other products under development combined with a reduction in development
cost paid to outside parties, and the fact that the Company now has completed a
majority of its initial EPA approvals. All related research and development
expenses for the six-month period ending December 31, 2000 were directly related
to BioShield Technologies, Inc.
9
Total marketing and selling expenses in the six-month period ending
December 31, 2000 were $2,168,181. Marketing and selling expenses related
primarily to the activities of eMD. This slight decrease relates principally to
the eMD halting all marketing and selling activities at the beginning of
December 2000.
Total general and administrative expenses for the six-month period
ending December 2000 was $7,518,148. General and administration expenses for The
Company has been significantly reduced since December 31, 2000 due to the
reorganization and Chapter 11 filing of eMD. There were no borrowings or
interest expense incurred for the six-month period ending December 31, 2000.
General and administrative expenses related to eMD accounted for a significant
portion of al G&A. These higher costs related primarily to an increase in
personnel cost, legal and regulatory fees, consulting services and facility
costs primarily of eMD.
As a result of the reasons set forth above, the Company's operations
generated a net loss of $11,286,699 for the six-month period ending December 31,
2000 compared to a net loss of $8,666,491 for the six-month period ended
December 31, 1999. A majority of the expenses incurred in the six-month period
will not be recurring in future periods due to the filing of Chapter 11 for eMD
and the reorganization of BioShield.
LIQUIDITY
The Company had cash and cash equivalents totaling $1,126 for the
quarter ending December 31, 2000 compared to $2,207,902 for the quarter ending
September 30, 2000. The Company's primary sources of cash included, but was not
limited to drawdowns on the Company's existing equity line. The Company has
elected not to put additional common stock to its existing $50,000,000 equity
line as not to create any more undo pressure on its existing share price. The
terms of those equity credit agreements are currently under renegotiation. We
cannot assure you that we will be able to renegotiate the terms of the equity
credit agreements or obtain additional capital from this or other investors. Our
inability to successfully renegotiate these agreements could cause the company
to dramatically curtail or cease operations. Instead the company began a private
placement of $500,000 in January 2001. This was comprised of selling $0.25 per
share common stock and a promissory note equal to the investment due in twelve
months. The Company has the right to convert the note into common stock at a 25%
discount to market at the then current price of the stock on the twelve month
anniversary of the closing of the private placement. Said offering was completed
by February 15, 2001. It is anticipated that Bioshield will begin another
private placement in the next three months for an amount between $1,000,000 and
$2,000,000, however no assurance can be made that the company will be successful
in these planned private placements.
The Company's primary uses of cash to date have been in operating
activities to fund research and development including EPA studies, and
marketing and selling and general and administrative expenses. As of December
31, 2000, the Company's investment in equipment, website development cost and
leasehold improvement, net of depreciation and amortization was halted due to
the filing of Chapter 11 of eMD. The Company is currently in a work out plan and
has just recently signed a letter of intent to sell off three pieces of eMd
(point of care medication management system, Pharmacy and Lab America) for
$2.000.000 leaving clinical services, lab reporting and supplies. Upon this
conclusion and eMD coming out of Chapter 11 Bioshield will no longer carry the
minority interest liability of$6,405,600 as well as accounts payable of
approximately $3,300,000 attributable to eMD. It is anticipated to take
approximately ninety to one hundred eighty days to complete the potential
spinout of eMD, and the Company has intentions of changing the name of eMD upon
the emergence from Chapter 11.
The Company's ability to fund its operating requirements and maintain
an adequate level of working capital until it achieves positive cash flows will
depend primarily on its ability to borrow, raise capital in the public equity
markets, and generate substantial growth in sales of its antimicrobial products.
In order to raise working capital, the Company is negotiating with potential
equity funding sources. The successful completion of a transaction with one or
more of these sources of working capital is essential to the Company's ability
to maintain operations. We cannot assure you that additional financing will be
available on commercially reasonable terms, or at all. Any inability to obtain
additional financing when needed could require us to significantly curtail or
possibly cease operations. The Company expects to continue to have a need to
fund operating losses. Accordingly, the Company will be required to obtain
additional capital in the near future. The commercialization of the parent
company's antimicrobial products will require additional capital. The Company's
10
failure to generate substantial growth in the sales of its antimicrobial
products; progress in research and development programs; the cost and timing of
seeking regulatory approvals of the Company's product under development; the
Company's ability to manufacture products at an economically feasible cost; cost
in filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights and changes in economic, regulatory, or competitive
conditions or the Company's planned business could cause the Company to require
additional capital prior to obtaining positive cash flows and substantial delay
or reduction of the scope of business. There can be no assurance that the
Company will be successful in its efforts to obtain additional capital, and that
capital will be available on terms acceptable to the Company or on terms that
will not significantly dilute the interests of existing shareholders.
Forward-Looking Statements
- --------------------------
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future economic performance,
plans and objectives of management for future operations and projections of
revenues and other financial items that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words "expect," "estimate," "anticipate," "believe" and
similar expressions are intended to identify forward-looking statements. Those
statements involve risks, uncertainties and assumptions, including industry and
economic conditions, competition and other factors discussed in this and our
other filings with the SEC. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially form those indicated.
11
PART II
OTHER INFORMATION
Items 1. Legal Proceedings
- --------------------------
On September 7, 2000, AHT Corporation ("AHT") filed suit against the
Company and certain of its officers and directors in the Superior Court of
Fulton County, Georgia (the "Georgia Action") alleging breach of a June 30, 2000
acquisition agreement and related common laws claims and seeking damages in
excess of $70,000,000. On September 21, 2000, the Company filed its Answer and
Counterclaim. On September 22, 2000, AHT filed, in the U.S. Bankruptcy Court for
the Southern District of New York, a petition for relief under Chapter 11 of the
Federal Bankruptcy Code. Following the filing of its Chapter 11 petition, AHT
filed a motion seeking approval of an asset purchase agreement dated as of
September 22, 2000 (the "APA"), which provided, for the sale of substantially
all of AHT's assets to the Company and AHT Acquisition Corp. for approximately
$15,000,000. Such sale is subject to Bankruptcy Court approval.
Pursuant to a Debtor in Possession ('DIP") Financing, Escrow and
Settlement Agreement dated as of September 22, 2000, which was approved by the
Bankruptcy Court, the Company agreed to provide approximately $1.5 million in
postpetition financing to AHT. That agreement also provided for the dismissal of
the Georgia Action with prejudice, subject to certain conditions contained
therein.
At September 30, 2000, AHT had requested and received $378,338 from the
Company under the DIP financing arrangement. Subsequent to September 30, 2000,
AHT had requested and received an additional $1,121,662 under the DIP financing
agreement.
The Bankruptcy Court had initially scheduled a hearing to approve the
APA for November 8, 2000. However, due to the decline in the Company's stock
price, in early November, the Company notified AHT that it would need additional
time beyond November 8, 2000 to obtain sufficient capital to acquire AHT's
assets. The Bankruptcy Court did not approve the APA on November 8, 2000.
Rather, on November 21, 2000, the Bankruptcy Court approved the sale of
substantially all of AHT's assets to Cybear, Inc.
On November 28, 2000, AHT Acquisition Corp. commenced a new lawsuit (in
its Bankruptcy case) against the Company, as well as the other defendants in the
Georgia Action. The prepetition claims asserted and relief sought in that action
are essentially the same as the claims and relief sought in the Georgia Action.
The lawsuit in the bankruptcy case also alleges breach of the APA and seeks
damages related to the APA, and to equitably subordinate the Company's $1.5
million claim against AHT relating to the postpetition advances made by the
Company to AHT under the DIP Financing, Escrow and Settlement Agreement. On
February 9, 2001, the Company filed an answer and counterclaim and intends to
vigorously defend the action.
Item 2. Changes in securities and Use of Proceeds
- -------------------------------------------------
- - NONE -
Item 3. Defaults upon Senior Securities
- ---------------------------------------
- - NONE -
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
- - NONE -
Item 5. Other Information
- -------------------------
- - NONE -
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits - NONE -
(b) Reports on Form 8-K Date of report, December 26, 2000 filed
January 4, 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 20, 2001 /s/ Timothy C. Moses
-------------------------
Name:Timothy C. Moses
Title:President and Chief Executive Officer
13