PIRANHA INTERACTIVE PUBLISHING, INC.
BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,032,276
Accounts receivable, net of allowance for returns
of $255,749 and doubtful accounts of $5,000 1,013,069
Inventories 246,250
Prepaid royalties 194,921
Other prepaid expenses 103,687
-----------
Total current assets 2,590,203
Property and equipment, net 101,394
Other assets 4,293
-----------
Total assets $ 2,695,890
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 306,145
Payroll related accruals 21,387
Other accrued liabilities 20,140
-----------
Total current liabilities 347,672
Notes payable - officers 42,243
Other liabilities 6,568
-----------
Total liabilities 396,483
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
Common stock, $.001 par value; 20,000,000 shares
authorized; 3,200,000 shares issued and outstanding 3,200
Additional paid-in capital 5,901,339
Accumulated deficit (3,605,132)
-----------
Total stockholders' equity 2,299,407
-----------
Total liabilities and stockholders' equity $ 2,695,890
===========
The accompanying notes are an integral part of these financial statements.
3
PIRANHA INTERACTIVE PUBLISHING, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $1,012,783 $ 9,949 $ 1,217,303 $ 67,656
Cost of goods sold 439,678 45,306 544,156 73,401
---------- --------- ----------- ----------
Gross profit (loss) 573,105 (35,357) 673,147 (5,745)
Selling, general and
administrative expenses 970,690 386,499 1,735,803 720,568
---------- --------- ----------- ----------
Loss from operations (397,585) (421,856) (1,062,656) (726,313)
Other income (expense):
Interest income 17,961 - 49,373 -
Interest expense (1,030) (113,687) (2,036) (225,533)
---------- --------- ----------- ----------
16,931 (113,687) 47,337 (225,533)
Net loss $ (380,654) $(535,543) $(1,015,319) $ (951,846)
========== ========= =========== ==========
Net loss per common share $ (0.19) $ (1.43) $ (0.51) $ (2.54)
========== ========= =========== ==========
Shares used in computing
net loss per common share 1,975,000 375,000 1,975,000 375,000
========== ========= =========== ==========
The accompanying notes are an integral part of these financial statements.
4
PIRANHA INTERACTIVE PUBLISHING, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
Cash flows from operating activities:
Net loss $ (380,654) $ (535,543) $(1,015,319) $ (951,846)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 8,720 5,712 17,031 11,244
Amortization 54 70,099 107 139,429
Interest on notes payable - officers 1,030 934 2,036 1,844
Reserve for obsolescence (31,282) (693) (45,986) 1,330
Net changes in current assets and liabilities:
Accounts receivable (825,770) 3,747 (976,169) (8,206)
Inventory 31,981 (17,564) (60,256) (50,531)
Prepaid expenses 161,599 58,332 62,012 25,945
Accounts payable 98,197 34,949 147,103 251,577
Accrued liabilities (9,109) 52,698 (11,093) 109,626
Other liabilities (950) (653) (1,900) (1,306)
------------ ------------- ----------- -----------
Net cash used in operating activities (946,184) (327,982) (1,882,434) (470,894)
------------ ------------- ----------- -----------
Cash flow used in investing activities:
Purchase of property and equipment (4,689) - (19,042) (10,748)
------------ ------------- ----------- -----------
Net cash used in investing activities (4,689) - (19,042) (10,748)
------------ ------------- ----------- -----------
Cash flows from financing activities:
Proceeds from accounts and notes payable -
officers - 16,000 - 22,000
Proceeds from notes payable - 410,000 - 410,000
Payments related to initial public offering - (71,423) - (155,129)
Repayment of accounts and notes payable -
officers - (16,000) - (16,000)
------------ ------------- ----------- -----------
Net cash used in financing activities - 338,577 - 260,871
------------ ------------- ----------- -----------
Net decrease in cash and cash equivalents (950,873) 10,595 (1,901,476) (220,771)
Cash and cash equivalents, beginning of period 1,983,149 15,366 2,933,752 246,732
------------ ------------- ----------- -----------
Cash and cash equivalents, end of period $ 1,032,276 $ 25,961 $ 1,032,276 $ 25,961
============ ============= =========== ===========
The accompanying notes are an integral part of these financial statements.
5
PIRANHA INTERACTIVE PUBLISHING, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
Interim Financial Information
The unaudited interim financial statements of Piranha Interactive Publishing,
Inc., a Nevada corporation (the "Company"), include all adjustments, consisting
of only normal recurring adjustments which, in the opinion of management, are
necessary for their fair presentation. The results of operations for the interim
periods are not necessarily indicative of the operating results for the full
year. These financial statements have been prepared in accordance with the
instructions to Form 10-QSB and do not contain certain information required by
generally accepted accounting principles. These statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Form 10-KSB on file with the
Securities and Exchange Commission.
LOSS PER SHARE DISCLOSURES
Basic loss per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted loss per share is computed giving effect to all potentially
dilutive common shares that were outstanding during the period. Potentially
dilutive common shares consist of the incremental common shares issuable upon
exercise of stock options, warrants and the unit purchase option.
A reconciliation of the numerator and denominator of basic loss per share is
provided as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
Numerator - Basic and Diluted loss per share:
Net loss $ (380,654) $ (535,543) $ (1,015,319) $ (951,846)
============ ============= ============ ===========
Denominator - Basic and Diluted loss per share:
Weighted average common shares outstanding 3,200,000 1,600,000 3,200,000 1,600,000
Less shares of common stock in escrow (1,225,000) (1,225,000) (1,225,000) (1,225,000)
------------ ------------- ------------ -----------
1,975,000 375,000 1,975,000 375,000
============ ============= ============ ===========
Basic and Diluted loss per share $ (0.19) $ (1.43) $ (0.51) $ (2.54)
============ ============= ============ ===========
Outstanding warrants, unit purchase options, and stock options totaling
2,717,500 in 1998 and 766,000 in 1997 are not included in the computations of
diluted loss per share as their effect would be antidilutive. An aggregate of
6
1,225,000 shares of outstanding common stock are currently held in escrow. As
the conditions for release of the escrowed shares have not been met nor will
they be met upon the mere passage of time, the escrowed shares have been
considered to be contingently issuable and, accordingly, have been excluded from
the weighted average number of common shares outstanding used for the
calculation of the basic and dilutive net loss per share.
REVENUE RECOGNITION
The Company sells its products to original equipment manufacturers,
distributors, and retailers. Revenues are recognized upon delivery. The
Company's agreements with distributors and retailers allow for stock rotation.
Reserves are provided for stock rotation and returns based on industry and past
experience. These reserves are established at the time of shipment and reduce
gross sales to arrive at net sales as presented in the accompanying statement of
operations. These reserves are reflected as an allowance for returns. It is the
policy of the Company's customers to offset any returns as reductions against
payments on accounts receivable.
Prior to the second quarter of 1998, the Company had a distribution agreement
with a distributor which permitted the distributor to delay payment until the
product was sold by its retail customers. Consequently, the Company's revenue
recognition for such sales was deferred until receipt of payment from the
distributor. During the second quarter of 1998, the Company entered into a new
agreement, a copy of which is filed as an exhibit to this report, with this
distributor and as a result, the Company's revenue recognition for such sales is
recognized upon product delivery. This resulted in the recognition of
approximately $200,000 in additional revenue, net of estimated sales returns and
allowances, for the Company during the second quarter related to product shipped
in prior quarters. Additionally, during the second quarter of 1998, the Company
recognized approximately $160,000 in net sales on shipments made in the second
quarter under the new distribution agreement which would not have been
recognized under the previous agreement.
MANAGEMENT'S PLANS
On September 23, 1997, the Company was successful in completing its initial
public offering (the "Offering") of 1,600,000 units, each consisting of one
share of common stock and one Class A warrant, at a price to the public of $5.00
per unit; however, the Company continues to experience difficulty in generating
sufficient cash flows from its operations. As a result of its working capital
deficiency prior to the Offering, the Company's net sales for 1997 were
materially hampered by its inability to acquire, launch and market new products.
The Company's revenues were substantially improved for the three month period
ended June 30, 1998 as compared to the comparable quarter of 1997. Management
expects, but cannot assure, cash flows to improve based on these improved sales
expectations and to continue operations through sales, marketing and
distribution of eight software titles it has licensed since the Offering, one
title licensed prior to the Offering but not yet released, and other titles it
is currently pursuing.
7
The Company's expenditures have continued to exceed its revenues. If substantial
cash flows from operations do not materialize during the third and fourth
quarter of 1998 as anticipated by management, the Company will need to seek
additional debt or equity financing to continue operations. In such case, there
is no assurance that such funds can be obtained on terms acceptable to the
Company, or at all.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT PURELY HISTORICAL ARE
"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, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR
STRATEGIES REGARDING THE FUTURE GENERALLY, THE COMPANY'S GROWTH STRATEGY, FUTURE
SALES AND ANTICIPATED TRENDS IN THE COMPANY'S BUSINESS. ALL FORWARD LOOKING
STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION KNOWN TO THE
COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
SUCH FORWARD LOOKING STATEMENTS. IT IS IMPORTANT TO NOTE THAT ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF A NUMBER OF FACTORS, MOST OF WHICH ARE OUT OF THE CONTROL OF THE
COMPANY, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S EARLY STAGE OF
DEVELOPMENT, INTENSE COMPETITION IN VARIOUS ASPECTS OF ITS BUSINESS, THE
SEASONAL NATURE OF ITS BUSINESS, ITS DEPENDENCE ON THIRD PARTY AUTHORS AND KEY
PERSONNEL, THE RISING COST OF ACQUIRING A TITLE WHICH CAN SUCCESSFULLY COMPETE
IN AN INCREASINGLY COMPETITIVE RECREATIONAL SOFTWARE MARKET AND THE RISKS
ASSOCIATED WITH BRINGING ITS SOFTWARE TITLES TO MARKET, INCLUDING BUT NOT
LIMITED TO, THE DIFFICULTY OF ACCURATELY FORECASTING FUTURE CONSUMER
PREFERENCES, FINDING REASONABLY PRICED AVAILABLE TITLES TO MEET THE FORECAST
PREFERENCES AND PUBLISHING THOSE TITLES IN A TIMELY MANNER IN ORDER TO TAKE
ADVANTAGE OF THE ANTICIPATED MARKET. ADDITIONAL FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE COMPANY'S FORWARD LOOKING
STATEMENTS ARE DESCRIBED IN THE COMPANY'S DOCUMENTS FILED FROM TIME TO TIME WITH
THE U.S. SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THESE AND OTHER RISKS
AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD LOOKING
INFORMATION CONTAINED IN THIS DOCUMENT WILL IN FACT TRANSPIRE OR PROVE TO BE
ACCURATE. READERS SHOULD REVIEW THE INFORMATION SET FORTH HEREIN IN THE CONTEXT
OF THE OTHER INFORMATION, INCLUDING, BUT NOT LIMITED TO, INFORMATION IDENTIFIED
AS "RISK FACTORS" AND THE COMPANY'S FINANCIAL INFORMATION MADE PUBLICLY
AVAILABLE BY THE COMPANY IN THE COMPANY'S REGISTRATION STATEMENT ON FORM SB-2,
AS WELL AS THE INFORMATION CONTAINED IN THE COMPANY'S REPORTS ON FORM 10-QSB,
8-K, 10-KSB, AND OTHER REPORTS PUBLICLY FILED FROM TIME TO TIME BY THE COMPANY
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
The Company publishes interactive multimedia software products for the home
personal computer ("PC") market with an emphasis on "edutainment" titles, which
combine entertainment and educational content, as well as games and other titles
which it determines to have market potential. The Company was founded in
November 1994 and has published titles in several categories, including
entertainment, early childhood education, reference and personal productivity.
The Company's management team has worked closely together for the past four to
seven years and all have prior software publishing experience. During its first
year of operations, the Company's primary focus was devoted to developing
infrastructure and obtaining titles for publication. The Company's first four
titles were published in the fall of 1995. Thereafter, the Company published
only one title in 1996 as a result of its working capital deficiency during
1996, which continued through the closing date of its initial public offering on
September 23, 1997. This deficiency prevented the Company from acquiring,
launching and marketing new products in time to realize significant sales in
9
1997 as well as the first quarter of 1998. Consequently, the Company believes
that the comparisons below in "Results of Operations" may not be meaningful or
representative of future results or trends.
On September 23, 1997, the Company completed a public offering of 1,600,000
units, each consisting of one share of common stock and one Class A warrant, at
a price to the public of $5.00 per unit. The net proceeds of the offering to the
Company, after deducting all associated costs, were approximately $6,400,000.
The home education and entertainment software business is highly seasonal.
Typically, net sales are highest during the third and fourth calendar quarters
(which includes the holiday buying season), decline in the first calendar
quarter and are lowest in the second calendar quarter. This seasonal pattern is
due primarily to the increased demand for home education and entertainment
software titles during the year-end holiday buying season.
To date in 1998, the Company has released four educational software titles,
including REDSHIFT 3, the sequel to the popular REDSHIFT astronomy series, and,
additionally, the combat strategy game, EXTREME TACTICS. The adventure game
title, MORPHEUS, and the 3-D action game, DEAD RECKONING, are planned for
introduction in the second half of 1998 in time for the 1998 fourth quarter
holiday buying season.
The Company sells its products to original equipment manufacturers,
distributors, and retailers. Revenues are recognized upon delivery. The
Company's agreements with distributors and retailers allow for stock rotation.
Reserves are provided for stock rotation and returns based on industry and past
experience. These reserves are established at the time of shipment and reduce
gross sales to arrive at net sales as presented in the accompanying statement of
operations. These reserves are reflected as an allowance for returns. It is the
policy of the Company's customers to offset any returns as reductions against
payments on accounts receivable.
Prior to the second quarter of 1998, the Company had a distribution agreement
with a distributor which permitted the distributor to delay payment until the
product was sold by its retail customers. Consequently, the Company's revenue
recognition for such sales was deferred until receipt of payment from the
distributor. During the second quarter of 1998, the Company entered into a new
agreement with this distributor which allows for revenue to be recognized upon
product delivery. This resulted in the recognition of approximately $200,000 in
additional revenue, net of estimated sales returns and allowances, for the
Company during the second quarter from product shipped in prior quarters.
Additionally, during the second quarter of 1998, the Company recognized
approximately $160,000 in net sales on shipments made in the second quarter
under the new distribution agreement which would not have been recognized under
the previous agreement.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
NET SALES
The Company's net sales for the three month period ended June 30, 1998 were
$1,012,783, which represents a $1,002,834 or approximately 10,000% increase from
the comparable 1997 period. Net sales for 1997 were adversely affected by the
10
Company's working capital deficiency. This deficiency, which continued through
September 23, 1997, the date of the Company's initial public offering, prevented
the Company from acquiring, launching and marketing new products in time to
begin realizing significant net sales until the second quarter of 1998.
The Company's net sales for the second quarter of 1998 were the highest for any
quarter since its initial public offering in September 1997, and were realized
in what is typically the slowest quarter for the consumer software industry. The
Company anticipates net sales to increase during the 1998 third and fourth
quarter holiday buying season as a result of increased sales of its existing
products and the sale of new products planned for introduction during the second
half of 1998; however, the Company is unable to predict whether its existing
products will continue to generate sales and whether its planned future products
will receive market acceptance.
GROSS PROFIT
The Company experienced a gross profit of $573,105, or 57% of net sales during
the three month period ended June 30, 1998 as compared to a gross loss of
$(35,357), or (355%) of net sales during the three month period ended June 30,
1997. The gross loss during the three month period ended June 30, 1997 is
primarily attributable to insufficient net sales to offset the cost of goods
sold.
The Company anticipates, but cannot assure, increased gross profits in the
future due to higher sales volumes of new and future titles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to approximately $971,000
during the three month period ended June 30, 1998, compared with approximately
$386,000 during the corresponding 1997 period. The increase was primarily
attributable to the Company's expanded marketing efforts related to new and
future products, including participation in the most significant trade show of
the year for the Company, during the three months ended June 30, 1998,
additional administrative costs related to operating as a publicly-traded
company, and the hiring of additional personnel subsequent to June 30, 1997.
Selling, general and administrative expenses as a percentage of net sales
decreased from 3,885% during the three month period ended June 30, 1997 to 96%
during the three months ended June 30, 1998. Management expects, but cannot
assure, that such expenses will continue to decrease as a percentage of net
sales as the Company's revenues from product sales continue to increase.
INTEREST EXPENSE
Interest expense decreased to approximately $1,000 during the three month period
ended June 30, 1998, compared to approximately $114,000 during the corresponding
1997 period. Interest expense in the 1997 period was primarily attributable to
amortization of deferred financing costs and interest expense related to the
bridge notes issued in the fourth quarter of 1996. These notes were repaid in
September of 1997 out of proceeds from the initial public offering.
11
NET LOSS
Due primarily to the Company's inability to generate sufficient net sales to
offset selling, general and administrative expenses, the Company had a net loss
for the three month period ended June 30, 1998 of $(380,654) or $(0.19) per
share, compared to a net loss of $(535,543) or $(1.43) per share for the three
month period ended June 30, 1997.
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
NET SALES
The Company's net sales for the six month period ended June 30, 1998 were
$1,217,303, which represents a $1,149,647 or 1,699% increase from the comparable
1997 period. Net sales for 1997 were adversely affected by the Company's working
capital deficiency during such period. This deficiency, which continued through
September 23, 1997, the closing date of the Company's initial public offering,
prevented the Company from acquiring, launching and marketing new products in
time to begin realizing significant net sales until the second quarter of 1998.
The majority of the Company's net sales for the six month period ended June 30,
1998 were concentrated in the second quarter, typically the slowest for the
consumer software industry. The Company anticipates net sales to increase during
the 1998 third and fourth quarter holiday buying season as a result of increased
sales of its existing products and the sale of new products planned for
introduction during the second half of 1998; however, the Company is unable to
predict whether its existing products will continue to generate sales and
whether its planned future products will receive market acceptance.
GROSS PROFIT
The Company experienced a gross profit of $673,147, or 55% of net sales during
the six month period ended June 30, 1998 as compared to a gross loss of
$(5,745), or (8%) of net sales during the six month period ended June 30, 1997.
The gross loss during the six month period ended June 30, 1997 is primarily
attributable to insufficient net sales to offset the cost of goods sold.
The Company anticipates, but cannot assure, increased gross profits in the
future due to higher sales volumes of new and future titles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to approximately
$1,736,000 during the six month period ended June 30, 1998, compared with
approximately $721,000 during the corresponding 1997 period. The increase was
primarily attributable to the Company's expanded marketing efforts related to
new and future products, including participation in the most significant trade
show of the year for the Company, during the six months ended June 30, 1998,
additional administrative costs related to operating as a publicly-traded
company, and the hiring of additional personnel subsequent to June 30, 1997.
Selling, general and administrative expenses as a percentage of net sales
decreased from 1,065% during the six month period ended June 30, 1997 to 143%
during the six months ended June 30, 1998. Management expects, but cannot
assure, that such expenses will continue to decrease as a percentage of net
sales as the Company's revenues from product sales continue to increase.
12
INTEREST EXPENSE
Interest expense decreased to approximately $2,000 during the six month period
ended June 30, 1998, compared to approximately $226,000 during the corresponding
1997 period. Interest expense in the 1997 period was primarily attributable to
amortization of deferred financing costs and interest expense related to the
bridge notes issued in the fourth quarter of 1996. These notes were repaid in
September of 1997 out of proceeds from the initial public offering.
NET LOSS
Due primarily to the Company's inability to generate sufficient net sales to
offset selling, general and administrative expenses, the Company had a net loss
for the six month period ended June 30, 1998 of $(1,015,319) or $(0.51) per
share, compared to a net loss of $(951,846) or $(2.54) per share for the six
month period ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity during 1997 was the sale of securities
in connection with the Company's initial public offering and cash generated from
the issuance of various notes payable.
The Company's cash and cash equivalent balance totaling $1,032,276 as of June
30, 1998, is invested primarily in an investment grade money market fund which
is available to fund immediate cash needs.
The Company's long-term debt consists primarily of notes payable to officers in
the aggregate amount of $42,243, including interest accrued through June 30,
1998, which are due August 1, 1999.
The Company's expenditures have continued to substantially exceed its revenues.
The Company's cash used in operating activities was $1,882,434 during the six
month period ended June 30, 1998, while revenues for the same period were
$1,217,303. The Company anticipates that its actual expenditures will continue
to increase in the aggregate as it attempts to expand its business by acquiring
new products and increasing sales and marketing efforts and other operations.
The Company expects to continue to incur losses until such time as it is able to
sell a sufficient volume of products at prices that provide adequate gross
profit to cover operating costs. The Company's working capital requirements will
depend upon numerous factors, including payment cycles for its shipped products,
credit arrangements with suppliers, the scale-up of its sales and marketing
resources, acquisition of new products and the terms upon which such products
are acquired, competitive factors including costs associated with obtaining
adequate levels of retail shelf space, and marketing activities.
Generally, the Company is obligated to pay its vendors within 30 days of
shipment, although the Company's customers' payment terms are often much longer,
generally from between 45 to 60 days. Previously, this discrepancy in payment
cycles has resulted in inconsistent cash flows and reduced working capital for
the Company, which condition may recur in the future. In addition, the Company
has entered into a new agreement with a distributor which provides payment
within 45 days of shipment, rather than when the distributor sells the product.
13
The Company does not currently have a credit facility or other commitment for
additional financing. The Company may require additional financing in the future
to further expand its product offerings, or to make strategic acquisitions, and
will require additional financing to continue operations in the event the
Company does not realize anticipated revenues during the third and fourth
quarters of 1998. There can be no assurance that such additional financing will
be available, or that, if available, such financing will be obtainable on terms
favorable to the Company or its stockholders.
YEAR 2000 RISKS
Some computer applications were originally designed to recognize calendar years
by their last two digits. As a result, calculations performed using these
truncated fields will not work properly with dates from the year 2000 and
beyond. The Company has determined that the sensitivity of its internal computer
applications and software products to the Year 2000 issue will not have a
material impact on its business, operations or financial condition. As required
by an interpretive release recently issued by the Securities and Exchange
Commission, the Company has undertaken to confirm in writing whether the
internal business operations of third parties with whom it has it has a material
relationship will be affected by the Year 2000 issue. Although the Company
believes that the computer applications of these third parties are Year 2000
compliant, the Company's assessment is not yet complete. The Company anticipates
that such assessment will be completed prior to December 31, 1998.
14
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 18, 1997, the Company's Registration Statement on Form SB-2 (File
No. 333-18605) (the "Form SB-2"), was declared effective by the U.S. Securities
and Exchange Commission. The Form SB-2 was prepared in connection with an
initial public offering by the Company of 1,600,000 units, each consisting of
one share of common stock and one Class A Warrant. The units and the components
thereof were each separately tradable upon issuance. Each Class A Warrant
entitles the holder to purchase one share of the Company's Common Stock at an
exercise price of $6.50 at any time prior to September 18, 2002. The offering of
units pursuant to the Form SB-2 commenced on September 18, 1997 and terminated
September 23, 1997, the date on which all of the units were sold. The offering
was underwritten by D.H. Blair Investment Banking Corp. on a firm commitment
basis. The units were offered to the public at a price of $5.00 per unit, or
$8,000,000 in the aggregate for all 1,600,000 units offered, all of which were
sold as of the date the offering terminated.
The Company's actual expenses incurred in connection with the issuance and
distribution of the units registered pursuant to the Form SB-2 equaled
approximately $1,600,000 in the aggregate, which consisted of the following: (i)
$760,000 in aggregate underwriting discounts and commissions, (ii) $240,000 in
expenses paid to or for the underwriter and (iii) $600,000 in other expenses.
None of the $600,000 in other expenses consisted of direct or indirect payments
to the Company's officers, directors, holders of at least 10% of any class of
the Company's outstanding securities or other affiliates (collectively
"Affiliates").
After deducting the foregoing expenses, the offering resulted in approximately
$6,400,000 in net proceeds to the Company. Since the offering, the Company used
approximately $2,245,000 of the net proceeds for the repayment of indebtedness,
approximately $450,000 toward acquisition of software programs, approximately
$1,100,000 toward marketing and sales and approximately $1,400,000 for working
capital. Approximately $60,000 was paid to affiliates for payment of accrued
salaries. The preceding discussion of the Company's use of net proceeds reflects
reasonable estimates of amounts paid by the Company. The Company's use of
proceeds from the offering, as described herein, does not represent a material
change from that described in the prospectus included in the Form SB-2.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
Exhibit
Number Description
------- -----------
10.1 -- Computer Software Distribution Agreement between Ingram
Micro, Inc. and the Registrant dated June 30, 1998 *
27.1 -- Financial Data Schedule
* The Company has requested confidential treatment for certain
portions of this agreement. This document to be filed by an
amendment.
(B) REPORTS ON FORM 8-K.
None.
16
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.
PIRANHA INTERACTIVE PUBLISHING, INC.
Date: August 5, 1998 /s/ Timothy M. Brannan
----------------------- -------------------------------------------
Timothy M. Brannan, Chief Executive Officer
Date: August 5, 1998 /s/ Keith P. Higginson
----------------------- -------------------------------------------
Keith P. Higginson, Chief Financial Officer
17
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND NOTES.
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