UNITED STATES
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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NO. 000-29245
ASHLIN DEVELOPMENT CORPORATION
------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA
-------
(State or other jurisdiction of incorporation or organization)
65-0452156
----------
(I.R.S. Employer Identification Number)
4400 NORTH FEDERAL HIGHWAY, SUITE 210, BOCA RATON, FLORIDA 33431
----------------------------------------------------------------
(Address of principal executive offices)
(561) 391-6196
--------------
(Issuer's telephone number)
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 [ ]
There were 4,549,813 shares of common stock, $0.001 par value, of the
registrant outstanding at March 31, 2005.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
ASHLIN DEVELOPMENT CORPORATION
------------------------------
INDEX
-----
PAGE
----
Facing Sheet Cover Page
Index ii
Part I - Financial Information
Item 1. Condensed Financial Statements.........................................1
Condensed Balance Sheet as of March 31, 2005 (Unaudited)...............1
Condensed Statements of Operations for the three months ended
March 31, 2005 and 2004 (Unaudited)....................................2
Condensed Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 (Unaudited)....................................3
Notes to Condensed Financial Statements..............................4-7
Item 2. Management's Discussion and Analysis or Plan of Operations.............8
Item 3. Controls and Procedures...............................................12
Item 4. Submission of Matters to a Vote of Security Holders...................12
Part II - Other Information
Item 1. Legal Proceedings.....................................................12
Item 6. Exhibits..............................................................12
Signature...............................................................................13
ii
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. CONDENSED FINANCIAL STATEMENTS
ASHLIN DEVELOPMENT CORPORATION
CONDENSED BALANCE SHEET
(UNAUDITED)
ASSETS
------
MARCH 31, 2005
--------------
Current assets:
Cash $ 256,832
---------
Total assets $ 256,832
=========
STOCKHOLDERS' EQUITY
--------------------
Stockholders' deficit:
Common stock, $0.001 par value, authorized 30,000,000
shares; 4,549,813 shares issued and outstanding 4,550
Additional paid-in capital 911,892
Accumulated deficit (659,610)
---------
Total stockholders' deficit $ 256,832
=========
See accompanying notes to condensed financial statements.
- 1 -
ASHLIN DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
2005 2004
----------- -----------
Revenue $ -- $ --
Cost of sales -- --
----------- -----------
Gross profit -- --
----------- -----------
Operating expense:
General and administrative expense 167,781 --
----------- -----------
Loss from continuing operations (167,781) --
----------- -----------
Loss from discontinued operations (155,701) (90,740)
Gain on sale, net of income taxes 1,794,893
Income (loss) before income taxes 1,471,411 (90,740)
----------- -----------
Benefit (provision) for income taxes -- --
----------- -----------
Net income (loss) $ 1,471,411 $ (90,740)
=========== ===========
Net loss per share from continuing operations -
basic and diluted $ (0.04) --
Net loss per share from discontinued operations -
basic and diluted $ (0.04) --
Net income (loss) per share - basic and diluted $ (0.37) $ (0.02)
=========== ===========
Weighted average number of shares -
basic and diluted $ 3,995,400 $ 3,832,813
=========== ===========
See accompanying notes to condensed financial statements.
- 2 -
ASHLIN DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
2005 2004
----------- ------------
Cash flow from operating activities:
Net income $ 1,471,411 $ (90,740)
Adjustments to reconcile net earnings to
net cash from operating activities:
Gain from sale of operating assets
and assumption of liabilities (1,794,893) --
Common stock issued for services 54,000 --
Decrease in assets and liabilities
Accounts receivable 138,581 237,895
Prepaid assets 73,124 (34,970)
Depreciation and amortization -- 5,896
Inventory 22,437 158,216
Accounts payable (124,228) (25,133)
Accrued expenses (33,721) (66,658)
----------- -----------
Net cash provided by operating activities $ (193,289) $ 184,506
=========== ===========
Cash flows from investing activities:
Proceeds from sale of assets and liabilities 350,000 --
Purchases of property and equipment -- --
----------- -----------
Net cash used in investing activities 350,000 --
----------- -----------
Cash flow from financing activities:
Repayments on notes payable (27,175) (133,326)
----------- -----------
Net cash used in financing activities (27,175) (133,326)
----------- -----------
Net increase (decrease) in cash 129,536 51,180
Cash, beginning of period 127,296 7,406
----------- -----------
Cash, end of period $ 256,832 $ 58,586
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Conversion of accounts payable to notes payable $ -- $ 700,000
=========== ===========
See accompanying notes to condensed financial statements.
- 3 -
ASHLIN DEVELOPMENT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited condensed financial statements of Ashlin Development
Corp. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the results for the
interim periods presented have been included.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's Annual Financial Statements for the year ended December 31,
2004. Operating results for the three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005.
It is recommended that the accompanying condensed financial statements be read
in conjunction with the financial statements and notes for the year ended
December 31, 2004, found in the Company's Form 10-KSB.
The Company's financial statements in the three months ended March 2005 are not
comparative to the financial statements for the three months ended March 2004.
The effective date of the Company's plan of reorganization was January 28, 2005.
On January 25, 2005, pursuant to a plan of reorganization approved by the
Bankruptcy Court under Chapter 11 of the Federal Bankruptcy Act, the Company
completed a plan to divest its core operations by selling substantially all of
its assets. As part of that sale the buyer assumed substantially all of its
liabilities. The results of operations and financial position are shown in the
accompanying financial statements as discontinued operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. There are no cash
equivalents at December 31, 2004 and 2003.
Use of Estimates
----------------
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Revenue Recognition
-------------------
In connection with the Company's "Discontinued Operations," the company
recognized revenue when
o Persuasive evidence of an arrangement existed
o Shipment had occurred or price was fixed or determinable, and
o Collectability was reasonably assured
4
Subject to these criteria, except with respect to customers that purchased our
products on "pay on scan terms," we recognized revenue at the time of shipment
of the relevant merchandise. "Pay on Scan" sales were treated as consignment
sales by the Company. In the case of these consignment sales, we recorded
revenues, and removed the items from inventory when the customer reported the
sales to the Company. Normally the Company was notified of the customer's sales
through periodic sales reports, payments, or when the customer reorders the
relevant product.
Basic Earnings Per Share
------------------------
Basic income per common share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted Earnings Per Share
--------------------------
Diluted earnings per share reflect the potential dilution that could occur if
dilutive securities (stock options and stock warrants) to issue common stock
were exercised or converted into common stock that then shared in the earnings
of the Company.
Stock Compensation
------------------
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 encourages the
use of a fair-value-based method of accounting for stock-based awards, under
which the fair value of stock options is determined on the date of grant and
expensed over the vesting period. Under SFAS 123, companies may, however,
measure compensation costs for those plans using the method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees." Companies that apply APB No. 25 are required to include
pro forma disclosures of net earnings and earnings per share as if the
fair-value-based method of accounting had been applied. The Company elected to
account for such plans under the provisions of APB No. 25. The Company accounts
for stock options granted to consultants under SFAS 123.
Had the compensation expense for the stock option plan been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for Stock
Based Compensation," at March 31, 2005 the Company's net income and earnings per
share would not have been effected, as indicated below:
MARCH 31, 2005
--------------
Net income
As reported $ 1,471,411
===========
Pro forma $ 1,471,411
===========
Earnings per share
As reported $ 0.37
===========
Pro forma $ 0.37
===========
All but 55,000 options expired 30 days after January 27, 2005, the date of the
sale of substantially all of the operating assets and liabilities.
5
NOTE 3 - GOING CONCERN
----------------------
The Company's condensed financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has ceased it's Health
and Nutrition business effective January 26th, 2005. The Company is currently
exploring its options which may include acquiring or otherwise entering into a
new business or merging with an as yet unidentified company or companies.
On October 15, 2004 the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code. The Company has operated under the Chapter 11
guidelines since October 15, 2004 and under a plan of reorganization filed by
the Company. The effective date of the company's plan of reorganization was
January 28, 2005.
There remains substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
NOTE 4 - EQUITY
---------------
During the three months ended March 31, 2005, 300,000 shares of common stock
were issued to the Company's chief executive officer as per his employment
agreement. These shares were valued at $0.04 per share of common stock and the
Company recorded compensation expense of $12,000.
On March 3, 2005, the Company issued 320,000 shares of common stock to the
Company's chief executive officer in recognition of performance. These shares
were valued at $0.10 per share and the Company recorded compensation expense of
$32,000.
On March 3, 2005, the Company entered into a consulting contract with a
consultant and issued 100,000 shares of common stock as part of this contract.
These shares were valued at $0.10 per share of common stock and $10,000 was
recorded as compensation expense.
NOTE 5 - INCOME TAXES
---------------------
The Company's evaluation of the tax benefit of its net operating loss carry
forward is presented in the following table. At March 31, 2005 and December 31,
2004, the tax amounts have been calculated using the 34% federal and 5.5% state
income tax rates.
Reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate is as follows:
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Income tax (benefit) consists of:
Current $ -- $ --
Deferred -- --
----------- -----------
Provision (benefit) for income taxes $ -- $ --
=========== ===========
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Taxes computed at combined federal and state tax rate $ 425,000 $ (412,937)
Non-deductible expenses 1,190 12,203
State income taxes, net of federal income tax benefit 45,502 (42,784)
(Increase) Decrease in deferred tax asset
valuation allowance (471,692) (443,518)
----------- -------------
Provision (benefit) for income taxes $ -- $ --
============ ============
6
The components of the deferred tax asset were as follows at March 31, 2005 and
December 31, 2004:
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Deferred tax asset:
Net operating loss carryforward $ 183,345 $ 566,933
Allowance for receivables -- 24,743
Allowance for inventory -- 45,019
Stock based compensation 20,320 --
Gain on sale of assets 17,884 --
Accrued compensation -- 39,108
--------- ---------
Total deferred tax assets 221,549 675,803
--------- ---------
Deferred tax liabilities
Depreciation (2,837)
Accrued compensation (14,603) --
--------- ---------
Net deferred tax assets 204,109 675,803
--------- ---------
Valuation allowance:
Beginning of year (675,803) (232,285)
(Increase) Decrease during the year 471,694 (443,518)
Ending balance (204,109) (675,803
--------- ---------
Net deferred taxes $ -- $ --
========= =========
As of March 31, 2005, the Company had an unused net operating loss carryforward
of approximately $487,231 available for use on its future corporate income tax
returns. This net operating loss carryforward begins to expire in December 2022.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of any
of the Company's net operation loss and credit carry forwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period.
NOTE 6 - LEGAL MATTERS
----------------------
We were involved in litigation with J.C. Herbert Bryant, III, a former officer,
director and one of our shareholders, and KMS-Thin Tab 100, Inc., which was
settled in September 2002. As part of the settlement, we entered into a
distribution agreement with Mr. Bryant, beginning on September 26, 2002 and
ending on September 25, 2007, permitting Mr. Bryant to purchase certain products
from us and to exclusively distribute those products in Florida from Orlando
south. In October 2003, we terminated the distribution agreement with KMS based
on KMS's breach of material terms of the agreement. On December 1, 2003, we
filed suit against KMS-Thin Tab 100, Inc. in the Palm Beach County Circuit Court
(Case No. 2003CA012757XXCDAN) for breach of contract, trademark infringement and
for a declaration of rights that the distribution agreement is terminated and of
no further force and effect. KMS answered the complaint and filed its own
counterclaim for fraud in the inducement, trademark infringement, dilution and
fraudulent misrepresentation; the fraud-based counterclaims were dismissed with
prejudice by the Court on summary judgment. KMS subsequently amended its
counterclaim to allege a breach of contract under the distribution agreement. In
January 2005, the State Court in Florida ruled that neither party should
prevail, and rejected a request for attorney's fees by KMS-Thin Tab 100 Inc.,
thus adjudicating the matter. KMS-Thin Tab 100 Inc. subsequently filed a notice
of appeal.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This quarterly report on Form 10-QSB contains forward-looking statements. Any
statements that are not statements of historical fact should be regarded as
forward-looking statements. For example, the words "intends," "believes,"
"anticipates," "plans," and "expects" are intended to identify forward-looking
statements. There are a number of important factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements. These factors include without limitation those factors contained in
our Form 10-KSB filed with the Securities and Exchange Commission. We do not
undertake any obligation to update any such factors or to publicly announce the
result of any revision to any of the forward looking statements contained herein
to reflect future events or developments.
The following discussion of our results of operations and financial condition
should be read together with our unaudited Financial Statements contained in
Part I, Item 1 and the related Notes in this Form 10-QSB and our audited
Financial Statements and the related Notes contained in our Form 10-KSB filed
with the Securities and Exchange Commission.
Critical Accounting Estimates
-----------------------------
Financial Reporting Release No. 60, which was released by the U.S. Securities
and Exchange Commission, encourages all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our financial statements include a summary of the significant
accounting policies and methods used in the preparation of our financial
statements.
Management believes the following critical accounting policies affect the
probable returns, significant judgments and estimates used in the preparation of
the financial statements. These policies relate specifically to discontinued
operations, as the Company closed on the sale of substantially all of its assets
and liabilities on January 25, 2005. Since our current business plan is to
acquire or otherwise enter into a new business or merge with an as yet
unidentified company or companies, each of the following policies are subject to
change.
Revenue Recognition
-------------------
As it relates to revenues recorded with respect to operations discontinued on
January 25, 2005, the Company recognized revenue when:
o Persuasive evidence of an arrangement existed
o Shipment had occurred
o Price was fixed or determinable, and
o Collectability was reasonably assured
Subject to these criteria, except with respect to customers that purchased our
products on "pay on scan terms," we recognized revenue at the time of shipment
of the relevant merchandise. "Pay on scan" sales were treated as consignment
sales by us. In the case of these consignment sales, we recorded revenues, and
removed the items from inventory when the customer reported the sales to us.
Normally we were notified of the customer's sales through periodic sales
reports, payments or when the customer recorded the relevant product.
Use of Estimates
----------------
Management's discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis,
8
management evaluates these estimates, including those related to valuation
allowance for the deferred tax asset, estimated useful life of fixed assets and
the carrying value of long-lived assets, intangible assets and allowances for
sales returns, doubtful accounts, and obsolete and slow moving inventory and
reserve for customer liabilities. Management bases these estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Recent Developments
-------------------
On October 15, 2004, the Company filed in the southern district of Florida a
plan of reorganization under Chapter 11 of the United States bankruptcy code.
This culminated a lengthy effort by management and the Board of Directors to
find alternatives to enhance shareholder value in the face of deteriorating
operating performance. The Court confirmed the Company's plan of reorganization
on January 10, 2005 and the plan was declared effective on January 28, 2005. We
formally emerged from bankruptcy protection on April 29, 2005.
As part of the plan:
(1) TeeZee, Inc., a company formed by our former Chief Executive
Officer, Christopher Tisi, purchased substantially all of the assets of the
Company, including the rights to the name "Health & Nutrition Systems
International, Inc." in exchange for $350,000 in cash and assumption of
approximately $1,841,000 in liabilities. Although allowed for under the plan no
other bids were submitted.
(2) The Company entered into an employment agreement with Mr. James
Brown, which provides for:
o Salary of $9,200 per month until May 29, 2005, and thereafter
at a rate of $7,000 per month; and
o The issuance by the Company to Mr. Brown of 300,000 shares of
its Common Stock, which are shares subject to repurchase by
the Company if Mr. Brown terminates his employment with the
Company for any reason at any time prior to the first
anniversary of the agreement, or his employment with the
Company is terminated by the Company for cause;
(3) TeeZee, Inc. assumed the secured claim of Garden State Nutritionals
(GSN), a division of Vitaquest International, Inc.; GSN retained its
pre-existing lien on substantially all of the transferred assets;
(4) TeeZee, Inc. assumed the secured claim of SunTrust Bank on the
Company's 2004 Honda Element on the effective date; SunTrust retained its
pre-existing lien on the vehicle;
(5) TeeZee, Inc. assumed most unsecured claims, including those of
trade and employee creditors, together with any unsecured deficiency claims of
GSN and SunTrust. The unassumed unsecured claims of the Company were paid, pro
rata, from a fund which did not exceed $50,000;
(6) A permanent injunction was issued barring the Company and the
purchaser from violating Window Rock Enterprises, Inc.'s trademarks for
"CortiSlim" and the Company agreed not to challenge Window Rock's trademark for
this product; and
(7) All holders of the Company's common stock retained their shares.
Since the effective date of the Plan, the Company has continued to exist as a
separate incorporated entity. The present directors of the Company have
continued as directors of the Company, and Mr.
9
Brown has continued to serve as Chief Executive Officer and Chairman of the
Board of Directors. He is the sole officer of the Company.
The Company has been engaged in the business of seeking suitable commercial
activities or a strategic alliance with an operating entity.
From inception through the effective date of our Plan of Reorganization, we
developed, marketed and sold weight management, energy and sport nutrition
products to national and regional, food, drug, health, pharmacy, mass-market
accounts, and independent health and pharmacy accounts. Our product formulations
were not proprietary.
OVERVIEW
--------
The Company, effective January 28, 2005, completed the sale of the assets and
liabilities to TeeZee, Inc. The Company had operating activities in January that
have been reported as discontinued operations in the Statement of Operations for
the three months ended March 31, 2005. The discontinued operations produced a
loss of $155,701.
There was no revenue for the three months ended March 31, 2005, not attributable
to discontinued operations; this compared to revenue for the three months ended
March 31, 2004 of $1,489,377, all attributable to discontinued operations.
Total operating expenses from continuing operations for the three months ended
March 31, 2005 were $167,781 which primarily consisted of general and
administrative expenses. Total operating expenses from discontinued operations
for the three months ended March 31, 2005 were $155,701 which primarily
consisted of general and administrative expenses. Operating expenses for the
three months ended March 31, 2004 were $930,182.
The loss from operations for the three months ended March 31, 2005 attributable
to continued operations was $167,781. The loss from operations for the three
months ended March 31, 2005 attributable to discontinued operations was
$155,701. These losses represent the full amount of our operating expenses for
the period. This compared to a net loss for the three months ended March 31,
2004 of $90,740.
During the three months ended March 31, 2005, we recorded a one-time gain of
$1,794,893 on the sale of substantially all of our assets and the assumption by
the buyer of substantially all of our liabilities.
For the three months ended March 31, 2004, we recorded an expense for interest
of $9,999.
Net income for the three months ended March 31, 2005 was $1,471,411,
attributable to the gain from the sale of substantially all of our assets and
the assumption by the buyer of substantially all of our liabilities less the
loss from our continued operations and from our discontinued operations during
such period, compared to a loss of $90,740 for the three months ended March 31,
2004, representing the loss from our continued operations during such period.
Employees
---------
As of March 31, 2005, the Company had one employee, Mr. Brown, our Chairman,
Chief Executive Officer and Secretary. Since all other employees employment was
terminated at the closing all except 55,000 stock options granted to the
directors of the Company were cancelled 30 days after January 27, 2005.
Liquidity and Capital Resources
-------------------------------
At March 31, 2005, the Company had working capital of $256,832, compared to a
working capital deficit of $55,701 at March 31, 2004.
10
Net cash provided by operating activities for the three months ended March 31,
2005, was ($193,289) compared to $184,505 for the three months ended March 31,
2004. The improvement in working capital and net cash is based on the sale of
substantially all of our assets and the assumption by the buyer of substantially
all of our liabilities.
Going Concern Qualification
---------------------------
Because of uncertainties as to our future ability to secure capital, our
independent auditors' report on our financial statements for the year ended
December 31, 2004 contains an explanatory paragraph about our ability to
continue as a going concern.
There is substantial doubt about the Company's ability to continue as a going
concern. We currently have no business operations or revenues, as our current
business plan is to acquire or merge with an unidentified company or companies.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
As of the end of the period, the Company carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done by our
President, our sole executive officer and employee. Based upon that evaluation,
he concluded that the Company's disclosure controls and procedures are effective
in gathering, analyzing, and disclosing information needed to satisfy our
disclosure obligations under the Exchange Act.
Change in Internal Controls
---------------------------
There were no changes in the Company's internal controls or in other factors
that could significantly affect those controls since the most recent evaluation
of such controls.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Our plan of reorganization was submitted to a vote of our securityholders on
January 3, 2005. All of our creditors entitled to vote on the plan of
reorganization voted in favor of the plan, other than Window Rock Enterprises,
Inc., which did not file a ballot. Shareholders holding a total of 1,674,103
shares, representing 98% of the shares voted in respect of the plan, voted in
favor of the plan. Two shareholders holding a total of 35,600 shares,
representing 2% of the shares voted in respect of the plan, voted against the
plan.
The plan was declared effective by the Bankruptcy Court on January 28, 2005.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
We were involved in litigation with J.C. Herbert Bryant, III, a former officer,
director and one of our shareholders, and KMS-Thin Tab 100, Inc., which was
settled in September 2002. As part of the settlement, we entered into a
distribution agreement with Mr. Bryant, beginning on September 26, 2002 and
ending on September 25, 2007, permitting Mr. Bryant to purchase certain products
from us and to exclusively distribute those products in Florida from Orlando
south. In October 2003, we terminated the distribution agreement with KMS based
on KMS's breach of material terms of the agreement. On December 1, 2003, we
filed suit against KMS-Thin Tab 100, Inc. in the Palm Beach County Circuit Court
(Case No. 2003CA012757XXCDAN) for breach of contract, trademark infringement and
for a declaration of rights that the distribution agreement is terminated and of
no further force and effect. KMS answered the complaint and filed its own
counterclaim for fraud in the inducement, trademark infringement, dilution and
fraudulent misrepresentation; the fraud-based counterclaims were dismissed with
prejudice by the Court on summary judgment. KMS subsequently amended its
counterclaim to allege a breach of contract under the distribution agreement. In
January 2005, the State Court in Florida ruled that neither party should
prevail, and rejected a request for attorney's fees by KMS-Thin Tab 100 Inc.,
thus adjudicating the matter. KMS-Thin Tab 100 Inc. subsequently filed a notice
of appeal.
The disclosure set forth under "Item 2. Management's Discussion and Analysis or
Plan of Operation - Recent Developments" is incorporated herein by reference.
11
ITEM 6. EXHIBITS.
Exhibit 31.1 Certification Pursuant to Item 601(b)(31) of Regulation S-B,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished pursuant to Item 601(b)(32) of Regulation S-B).
12
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 16, 2005 ASHLIN DEVELOPMENT CORPORATION
By: /s/James A. Brown
-------------------------------
James A. Brown
Chief Executive Officer,
President, and Secretary
(Principal executive officer
and duly authorized officer)
13
EXHIBIT INDEX
-------------
Exhibit Description
Number
31.1 Certification Pursuant to Item 601(b)(31) of Regulation S-B, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to
Item 601(b)(32) of Regulation S-B).