SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): June 29, 2004
MARKLAND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of incorporation or organization)
000-28863 84-1331134
(Commission File Number) (IRS Employer Identification Number)
#207
54 DANBURY ROAD
RIDGEFIELD, CT 06877
(Address of principal executive offices)
(203) 894-9700
(Registrant's telephone number, including area code)
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This report on Form 8-K 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. We intend the forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements in these
sections. All statements regarding our expected financial position, business and
financing plans are forward-looking statements. These statements can sometimes
be identified by our use of forward-looking words such as "may," "will,"
"should," "expect," "anticipate," "project," "designed," "estimate," "plan" and
"continue." Although we believe that our expectations in such forward-looking
statements are reasonable, we cannot promise that our expectations will turn out
to be correct. These forward-looking statements generally relate to plans and
objectives for future operations and are based upon reasonable estimates and
assumptions regarding future results or trends. These forward-looking statements
are subject to certain risks, uncertainties and assumptions relating to Markland
Technologies, Inc. ("Markland", the "Company", "we" or "our"). Factors that
could cause actual results to differ materially from Markland expectations
include the uncertainty regarding Markland's ability to repay existing
indebtedness, lack of continuing operations, possible inability of Markland to
continue in business and other risks detailed from time to time in Markland's
SEC reports. No assurance can be given that investors of Markland will retain
any level of value. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, the Company's
future performance and actual results of operations may vary significantly from
those anticipated, projected, believed, expected, intended or implied. The
Company undertakes no obligation to update any of the forward-looking
statements, which speak only as of the date they were made.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 29, 2004, Markland Technologies, Inc. ("Markland") acquired all of the
outstanding stock of E-OIR Technologies, Inc. ("EOIR") for $8 million in cash
and $11 million in principal amount of five year notes secured by the assets and
stock of EOIR. EOIR is a provider of technology and services to the US Army
Night Vision Laboratories and has expertise in wide area remote sensing using
both electro-optic and infrared technologies. Markland intends to continue to
use the assets of EOIR for this purpose.
In connection with this acquisition, Markland has also adopted a Stock Incentive
Plan pursuant to which Markland has issued options to purchase 9,345,740 shares
of its common stock to key employees of EOIR who are continuing employment
following the acquisition for an exercise price of $.3775 per share These
options will vest in five equal annual installments. Markland also granted to
the other key employees of EOIR who are continuing employment following the
acquisition options to purchase an additional number of shares equal to $471,983
divided by one-half of the market price for the common stock at the date of
vesting. These options will vest in five equal annual installments. Markland has
also agreed to grant options to purchase an additional 5,000,000 shares of
common stock to employees of EOIR in the future.
We expect that these options will vest over five years after the date of grant
and will have an exercise price equal to the fair market value of the common
stock on the date of grant. In connection with this acquisition, Markland also
raised $2 million through a private placement of an additional 3,500 shares of
its Series D Preferred Stock to a single institutional investor. The Series D
preferred stock is convertible at the option of the stockholder at any time. The
number of shares of our common stock into which each share of Series D preferred
is convertible is determined by dividing $1,000 by the discounted bid price. The
"discounted" bid price is the average closing bid price of our common stock
during the five business days immediately preceding the conversion date
multiplied by the applicable discount factor, as set forth below.
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AVERAGE CLOSING BID PRICE (1) DISCOUNT FACTOR
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$15.00 or less 80%
more than $15.00, but less than or equal to $30.00 75%
more than $30.00, but less than or equal to $45.00 70%
more than $45.00 65%
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(1) After an adjustment for a 1-for-60 reverse stock split effective October 27,
2003.
The Series D preferred stock can be converted only to the extent that the Series
D stockholder will not, as a result of the conversion, hold in excess of 9.999%
of the total outstanding shares of our common stock. For a complete description
of the terms and conditions of the Series D Preferred Stock please refer to
Markland's Form 10-K for the fiscal year ended June 30, 2003.
The Stock Purchase Agreement, the forms of Promissory Note, the Security
Agreement, the 2004 Stock Option Plan, the Preferred Securities Purchase
Agreement, the Pledge and Security Agreement and the forms of Stock Options are
included as Exhibits 2.1, 2.2, 2.3, 2.4, 2.5 , 2.6 and 2.7 to this Current
Report on Form 8-K and the foregoing description of the acquisition and related
matters is qualified in its entirety by reference to these documents.
RISKS RELATED TO THE ACQUISITION
WE FACE A VARIETY OF RISKS RELATED TO OUR ACQUISITION OF EOIR. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING US. YOU SHOULD ALSO
CAREFULLY CONSIDER THE RISK FACTORS IN SUPPLEMENT NO. 1 AND IN THE PROSPECTUS
DATED JUNE 21, 2004, AS AMENDED FROM TIME TO TIME. ADDITIONAL RISKS AND
UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY
ALSO IMPAIR OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS COULD BE ADVERSELY AFFECTED. IN THOSE CASES, THE PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE MAY FAIL TO REALIZE SOME OR ALL OF THE ANTICIPATED BENEFITS OF THE
ACQUISITION
Our combined company may fail to realize some or all of the anticipated benefits
and synergies of the transaction as a result of, among other things, lower than
expected order rates from customers of EOIR, unanticipated costs, deterioration
in the U.S. economy and other factors. There can be no assurance that we will
receive orders for up to $406 million under our existing contract with the U.S.
Army Night Vision Laboratories. In addition, the integration of EOIR business
and operations with those of Markland may take longer than anticipated, may be
more costly than anticipated and may have unanticipated adverse results relating
to Markland's or EOIR's existing businesses or customer base.
IF WE ISSUE SUBSTANTIAL SHARES OF OUR COMMON STOCK UPON CONVERSION OF THE
OUTSTANDING SERIES D PREFERRED STOCK, YOU COULD SUFFER SUBSTANTIAL DILUTION OF
YOUR INVESTMENT AND OUT STOCK PRICE COULD DECLINE SIGNIFICANTLY
We are obligated to issue a substantial number of shares of common stock upon
the conversion of our Series D convertible preferred stock. In connection with
the acquisition, we issued 3,500 additional shares of Series D Preferred Stock
to a single institutional investor to fund a portion of the cash purchase price.
Should a significant number of these securities be issued, exercised or
converted, the resulting increase in the amount of the common stock in the
public market could have a substantial dilutive effect on our outstanding common
stock.
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The conversion and exercise of a substantial amount of the aforementioned
securities or the issuance of new shares of common stock may also adversely
affect the terms under which we could obtain additional equity capital. The
price, which we may receive for the shares of common stock, that are issuable
upon conversion or exercise of such securities, may be less than the market
price of the common stock at the time of such conversions or exercise.
WE MAY BE REQUIRED TO SEEK ADDITIONAL FINANCING IN THE NEAR FUTURE. WE MAY BE
UNABLE TO OBTAIN ADDITIONAL CAPITAL REQUIRED TO FUND OUR OPERATIONS AND FINANCE
OUR GROWTH.
The use of a substantial portion of our cash-on-hand and the issuance of
installment debt will place considerable demands on our short-term liquidity and
may negatively impact our access to financing. We may be unable to obtain
additional funds in a timely manner or on acceptable terms, which would render
us unable to fund our operations or expand our business. If we are unable to
obtain capital when needed, we may have to restructure our business or delay or
abandon our development and expansion plans. Although we have been successful in
the past in obtaining financing for working capital and capital expenditures, we
will have ongoing capital needs as we expand our business. If we raise
additional funds through the sale of equity or convertible securities, your
ownership percentage of our common stock will be reduced. In addition, these
transactions may dilute the value of our common stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock. The terms of any additional indebtedness may include restrictive
financial and operating covenants that would limit our ability to compete and
expand.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of the Business Acquired
The Company will file the required financial statements for EOIR for the period
specified in Item 310 of Regulation SB by amendment within the prescribed period
hereof.
(b) Pro Forma Financial Information
Required Pro Forma Financial Information pursuant to Item 310(d) of Regulation
SB will be filed by amendment within the prescribed period hereof.
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(c) Exhibits
Exhibit No. Description
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2.1 Stock Purchase Agreement by and between
Markland and EOIR, dated June 30, 2004.
2.2 Forms of Promissory Note
2.3 Security Agreement by and between EOIR and
sellers of EOIR stock dated June 30, 2004
2.4 2004 Stock Option Plan, adopted June 30, 2004.
2.5 Preferred Securities Purchase Agreement
2.6 Pledge and Security Agreement
2.7 Forms of Stock Options
99.1 Text of the press release dated June 30, 2004.
ITEM 9. REGULATION FD DISCLOSURE.
On June 30, 2004, the Company issued a press release relating to the
transaction described in Item 2. The Company is furnishing a copy of this press
release as Exhibit 99.1 hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 30, 2004
Markland Technologies, Inc.
By: /S/ Kenneth Ducey Jr.
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Name: Kenneth Ducey Jr.
Title: President and Chief Financial
Officer
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Stock Purchase Agreement by and between Markland
and EOIR, dated June 30, 2004.
2.2 Forms of Promissory Note
2.3 Security Agreement by and between EOIR and
sellers of EOIR stock dated June 30, 2004
2.4 2004 Stock Option Plan, adopted June 30, 2004.
2.5 Preferred Securities Purchase Agreement
2.6 Pledge and Security Agreement
2.7 Forms of Stock Options
99.1 Text of the press release dated June 30, 2004.
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