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: March 31, 2001
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: 14,401,276 shares, as of
March 31, 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 March 31, 2001 (unaudited) 3
2. Consolidated Statements of Operations for the three month
and nine month periods ended March 31, 2001 and 2000
(unaudited) 4
3. Consolidated Statements of Cash Flows for the
nine month periods ended March 31, 2001 and 2000 (unaudited) 5
4. Notes to Consolidated 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
MARCH 31, 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 108,677
Accounts receivable 398,868
Prepaid expenses and other current assets 161,539
----------
Total current assets 669,084
WEB SITE DEVELOPMENT AMD OTHER
PROPERTY AND EQUIPMENT, NET 4,170,819
DEPOSITS AND OTHER LONG-TERM ASSETS 396,186
----------
$ 5,236,089
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable $ 303,324
Accounts payable 1,043,800
Officer loan payable 52,000
Accrued liabilities 29,078
---------
Total current liabilities 1,428,202
LIABILITIES SUBJECT TO COMPROMISE 4,080,469
----------
Total liabilities 5,508,671
MINORITY INTEREST 5,658,977
STOCKHOLDERS' DEFICIT:
Series B Convertible Preferred Stock 10,000,000
Common stock - no par value; 50,000,000 shares
authorized; 14,401,276 issued and outstanding 26,446,668
Stock subscription receivable (10,000)
Addional paid-in capital 3,455,100
----------
39,891,768
Accumulated other comprehensive loss
Accumulated deficit (45,286,427)
Less 35,000 shares of common stock in treasury -
at cost (536,900)
----------
(5,931,559)
----------
$ 5,236,089
==========
(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 Nine Months Ended
March 31, March 31,
------------------------- -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales $ 415,471 $ 323,783 $ 997,793 $ 737,182
Cost of sales 238,305 162,665 584,022 411,657
-------- -------- -------- --------
Gross profit 177,166 161,118 413,771 325,525
-------- -------- -------- --------
Operating expense:
Marketing and selling 264,059 1,459,034 2,142,913 4,065,681
General and administrative 778,479 2,442,410 8,782,264 7,542,966
Loss on impairment 1,751,343 - 1,751,343 -
Loss on investment - - 1,500,000 -
Research and development 17,428 955,688 377,287 2,357,145
--------- --------- ---------- ----------
2,811,309 4,857,132 14,553,807 13,965,792
--------- --------- ---------- -----------
Loss from operations (2,634,143) (4,696,014) (14,140,036) (13,640,267)
Other income
Interest and dividend
income 32,293 21,606 32,886 108,642
Other income 48,564 - 48,564 -
--------- --------- ---------- ----------
80,857 21,606 81,450 108,642
--------- --------- ---------- ----------
Loss before minority
interest (2,553,287) (4,674,408) (14,058,587) (13,531,625)
Minority interest in loss
of subsidiary 48,513 52,107 267,114 242,833
--------- --------- ---------- ----------
NET LOSS (2,504,774) (4,622,301) (13,791,473) (13,288,792)
Other comprehensive
earnings (loss)
Unrealized holding loss
on subsidiary - (9,618) - (25,368)
--------- --------- ---------- ----------
LOSS APPLICABLE TO
COMMON SHAREHOLDERS $ (2,504,774) $(4,631,919) $(13,791,473) $(13,314,160)
=========== ========== =========== ===========
Net loss per common share
Basic $ (0.23) $ (0.66) $ (1.03) $ (1.93)
Weighted averaage common
shares outstanding 10,898,135 7,034,085 13,415,962 6,885,046
The accompanying notes are an integral part of these statements
4
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
March 31,
-------------------------
2001 2000
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(13,791,473) $(13,288,791)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 668,365 458,565
Minority interest in loss of subsidiary (267,116) (242,833)
Issuance of stock, stock options and
stock warrants for services rendered - 2,029,400
Loss on impairment 1,751,343 -
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (200,271) (262,070)
Inventories 103,456 (79,168)
Prepaid expenses and other
current assets (5,099) (51,922)
Deposrts and other assets (300,000) 14,829
Increase (decrease) in:
Accounts payable 1,676,808 56,061
Officer loan payable (58,000) -
Accrued liabilities and compensation (1,165,565) 690,484
----------- ------------
Net cash used in operating activities (11,587,552) (10,675,445)
----------- ------------
Cash flows from investing activitities:
Capital expenditures (812,139) (4,258,234)
Accumulated other income/(loss) 105,000 -
----------- ------------
Net cash used in investing activities (707,139) (4,258,234)
----------- ------------
Cash flows from financing activities:
Proceeds from debt 303,324 -
Contributions of capital - 326,687
Proceeds from stock warrants exercised 125,000 7,337,819
Proceeds from stock options exercised 542,380 -
Stock issued under stock option plan - 15,000
Proceeds from stock issuances, net 5,259,750 9,768,750
----------- ------------
Net cash provided by financing activities 6,230,454 17,448,256
----------- ------------
Net increase (decrease) in cash (6,064,237) 2,514,577
Cash at beginning of period 6,172,914 2,500,561
----------- ------------
Cash at end of period $ 108,677 $ 5,015,138
=========== ============
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 March 31, 2001, 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 nine months ended March 31, 2001, 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 March 31, 2001 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 nine months ended March 31, 2001, 109,000 of
these options were exercised. No options were granted or cancelled during the
nine months ended March 31, 2001 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 nine months ended March 31, 2001 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 nine months ended March 31, 2001 for
medical advisory board members.
During the nine months ended March 31, 2001, 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 March 31, 2001 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 March 31, 2001
- -----------------------
Segment assets $ 882,248 $ 4,353,841 $ 5,236,089
Nine months ended March 31, 2001
- --------------------------------
Revenues from products/services $ 965,551 $ 32,242 $ 997,793
Gross profit 415,181 (1,410) 413,771
Segment profit (loss) (6,151,742) (7,639,731) (13,791,473)
Interest income 9,536 23,350 32,886
Interest expense - - -
Depreciation and amortization 70,480 597,885 668,365
Antimicrobial
and Biostatic Pharmaceutical
Products Distribution Total
------------- --------------- -----------
Nine months ended March 31, 2000
- ---------------------------------
Revenues from products/services $ 700,212 $ 36,970 $ 737,182
Gross profit 316,427 9,098 325,525
Segment profit (loss) (3,353,457) (9,960,703) (13,314,160)
Interest income 53,351 55,291 108,646
Interest expense - - -
Depreciation and amortization 91,710 366,855 458,565
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 nine months ended March 31, 2001, 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 March 31, 2001
no shares have been put under this agreement.
The Company has reserved 5,500,000 shares at March 31, 2001 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. eMD.com Bankruptcy
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 March 31, 2001,
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. In addition capitalized Website
Development costs were written down to their net realizable value of $2 million.
8
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 Bio-technical, industrial and institutional products.
Due largely to recent Environmental Protection Agency, ("EPA") approvals, we are
currently licensing and the using distributors for the sale and marketing,
primarily for use in all fields which need and use Antimicrobial and anti-viral
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, and has recently moved to a liquidating 11, formed
a new subsidiary Healhcare Network Solutions (HNS). On or about December 12,
2000, Bioshield reorganized and restructured the Company, including a change in
all directors, to focus on the core Bio-Technical antimcrobial products in which
the Company has received E.P.A approvals. As a result, BioShield currently has
eMD in liquidating Chapter 11 , formed HNS, and operates, antimicrobial and
biostatic products for use within the Bio-technical and institutional markets.
BioShield is comprised of two business divisions. Biotechnology products and HNS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the nine-month period ended March 31, 2001 were
$997,793 a slight increase over the same period last year. The
increase was a result of the change in the Companies business model in December
2000 which increased revenue by $415,471 in the third quarter , which was our
highest producing quarter in our short history of selling. Gross profit of
$413,771 for the period ended March 31, 2001 represents 41% of net sales as
compared to $325,525, or 44% of net sales, for the period March 31, 1999. The
increase in gross margin is a result of the change in the business model of
licensing and distribution. The Company is now gaining momentum focusing on its
core business and has signed several new distribution and licensing 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 quarter, in agreements and opportunities in our core
technology
Cost of sales was $584,022 or 59% of sales and $411,657 or 56% of sales
for the nine-month period ended March 31, 2001 and 2000, respectively. The
Company took a one time charge off of discontinued retail operations of $264,059
which would have shown a significant increase in gross profit if it were not for
the charge down.
The Company's research and development expenses decreased to $377,287
in the nine- month period ending March 31, 2001 from $2,357,145 for the
nine-month period ending March 30, 2000. 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, and the discontinuation of
eMD.com
9
Total marketing and selling expenses in the three-month period ending
March 31, 2001 were $264,059 which was a complete one time charge off of
slotting fees associated with discontinued retail operations. Marketing and
selling expenses related soley to this one time charge off of discontinued
operations. This constitutes a decrease in Marketing and Selling of 100% as the
Company has changed its business model to licensing and the use of
distributors.
Total general and administrative expenses for the three-month period
ending March 2001 was $ 778,479. General and administration expenses for
the Company has been significantly reduced since December 31, 2000 due to the
Chapter 11 liquidation filing of eMD. There were no borrowings or interest
expense incurred for the nine-month period ending March 31, 2001. General and
administrative expenses related to legal and accounting, accounted for a
significant portion of G&A.
As a result of the reasons set forth above, the Company's operations
generated a net loss of $2,504,774 for the three-month period ending March 31,
2001 compared to a net loss of $4,631,919 for the three-month period ended March
31, 2000. A majority of the expenses incurred in the nine-month period will not
be recurring in future periods due to the filing of liquidating Chapter 11 for
eMD and the reorganization of BioShield.
LIQUIDITY
The Company had cash and cash equivalents totaling $108,677 for the
quarter ending March 31, 2001 compared to $5,015,138 for the quarter ending
December 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 completed a
private placement of $500,000 in March 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 month 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 a liquidating Chapter 11 of eMD. The Company 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, which is
being handled by a court appointed truste leaving clinical services, lab
reporting and supplies.
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
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.
10
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, January 10, 2001 filed
January 18, 2001.
Date of report, February 6, 2001 filed
February 6, 2001.
12
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: May 21, 2001 /s/ Timothy C. Moses
-------------------------
Name:Timothy C. Moses
Title:President and Chief Executive Officer
13