U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 1 TO FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED March 31, 2000
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 000-29415
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INTER-CON/PC, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1853972
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7667 Equitable Drive, Suite 101
Eden Prairie, MN 55344
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(Address of principal executive offices)
(952) 975-0001
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(Issuer's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 34,132,610 shares of Common
Stock, no par value, outstanding as of September 8, 2000.
INTER-CON/PC, INC.
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
March 31, 2000
TABLE OF CONTENTS
Part I - Financial Information Page
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Item 1. Financial Statements
Condensed Balance Sheets at December 31, 1999 and March 31, 2000........... 3
Condensed Statements of Operations for the three months
ended March 31, 1999 and March 31, 2000 and for the period of
June 17, 1996 to March 31, 2000.......................................... 4
Condensed Statements of Changes in Stockholder's Equity for the three
months ended March 31, 2000 and the years ended December, 31, 1999,
1998, 1997, and 1996..................................................... 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 2000.................................. 5
Notes to Condensed Financial Statements.................................... 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 14
Part II - Other Information
Item 1. Legal Proceedings...................................................... 18
Item 2. Changes in Securities.................................................. 18
Item 3. Defaults Upon Senior Securities........................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.................... 18
Item 5. Other Information...................................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................... 19
Signature........................................................................... 20
Exhibits............................................................................ 21
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
(UNAUDITED)
December March
31, 1999 31, 2000
------------ ------------
ASSETS:
Current assets
Cash and cash equivalents $ 37,778 $ 185,048
Accounts Receivable 0 0
Prepaid expenses 881 38,652
------------ ------------
Total current assets 38,659 223,700
------------ ------------
Property and equipment:
Equipment 81,755 81,755
Leasehold improvements 101,887 101,887
Less accumulated depreciation (51,024) (60,019)
------------ ------------
Total property and equipment 132,618 123,623
------------ ------------
Other asset
Investments 50,000 50,000
------------ ------------
Total other asset 50,000 50,000
Total assets $ 221,277 $ 397,323
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable:
Trade $ 393,107 $ 273,395
Related parties 281,945 282,953
Accrued expenses 252,702 234,194
Deferred revenue 28,130 45,000
Notes payable 370,662 174,702
------------ ------------
Total current liabilities 1,326,546 1,010,244
------------ ------------
Stockholders' equity (deficit):
Common stock, no par, authorized 50,000,000 shares,
shares outstanding 32,405,845 4,370,350 5,349,350
Deficit accumulated during the development stage (5,475,619) (5,932,271)
Stock subscription receivable 0 (30,000)
------------ ------------
(1,105,269) (612,921)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 221,277 $ 397,323
============ ============
See Notes to Condensed Financial Statements
3
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Three June 17, 1996
months ended months ended (inception) to
March 31, March 31, March 31
1999 2000 2000
------------ ------------ --------------
Operating expenses:
Payroll, contract labor, and related costs $ 61,691 $ 132,528 $ 1,565,029
Product development 12,471 170,040 1,660,371
General and administrative 58,012 152,836 2,580,343
------------ ------------ ------------
Operating loss 132,174 455,404 5,805,743
------------ ------------ ------------
Other income (expense):
Interest income 3,883 2,365 48,320
Interest expense (32,175) (14,452) (238,437)
Miscellaneous income 0 10,839 63,589
------------ ------------ ------------
29,292 (1,248) (126,528)
------------ ------------ ------------
Net loss $ (161,965) $ (456,652) $ 5,932,271)
============ ============ ============
Basic and diluted loss per share $ (.01) $ (.01) $ (.34)
============ ============ ============
Weighted average number of shares
outstanding, basic and diluted 18,902,861 30,597,258 17,322,318
============ ============ ============
See Notes to Condensed Financial Statements
4
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
---------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
Initial sale of common
stock at $0.007 per share 300,000 $ 2,000 $ 2,000
Common stock issued
October 31, 1996, at $0.00
per share in exchange for
contribution of technology:
I-Pad(TM) 5,700,000 0 0
Set Top Box 6,000,000 0 0
Common stock issued in
exchange for rent
November 5, 1996, at
$0.30 per share 333,335 100,000 100,000
Fair value of warrants
issued November 29, 1996,
to debt holders and place-
ment agent 50,763 50,763
Net loss $ (216,836) (216,836)
------------ ------------ ------------ ------------
Balance, December 31,
1996 12,333,335 152,763 (216,836) (64,073)
Common stock issued July 22,
1997, for fair value of services
at $0.35 per share 25,000 8,750 8,750
Fair value of warrants
issued to debt holders,
June and July 1997 7,323 7,323
Common stock issued
August and September
1997, at $0.38 per share 4,375,000 1,650,387 1,650,387
See Notes to Condensed Financial Statements
5
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
---------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
Common stock issued for debt
conversions:
September 29, 1997, at $0.35
per share 414,265 $ 145,000 $ 145,000
October 27, 1997, at $0.30 per
share 1,666,650 500,000 500,000
Contribution by SAC Technologies,
Inc. 42,621 42,621
Net loss $ (1,583,775) (1,583,775)
------------ ------------ ------------ ------------
Balance, December 31, 1997 18,814,250 2,506,844 (1,800,611) 706,233
Common stock issued April 15, 1998,
for fair value of services $0.35 per
share 75,000 26,250 26,250
Fair value of warrants issued to debt
holders June, July and September
1998 29,696 29,696
Net loss (2,015,675) (2,015,675)
------------ ------------ ------------ ------------
Balance, December 31, 1998 18,889,250 2,562,790 (3,816,286) (1,253,496)
Common stock issued February 10,
1999, at $0.70 per share 25,000 17,500 17,500
Common stock issued for fair value
of product development costs, June
1, 1999, at $0.70 per share 69,085 48,359 48,359
Common stock issued to acquire
equipment at historical net book
value from related party, June
7, 1999, at $0.052 per share 250,000 12,892 12,892
See Notes to Condensed Financial Statements
6
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
---------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
Common stock issued for leasehold
improvements at fair value, June
7, 1999, at $0.20 per share 500,000 $ 100,000 $ 100,000
Common stock outstanding of Infopac
Systems, Inc. recorded in connection
with merger June 8, 1999 4,331,600 0 0
Common stock issued for debt
conversion, June 25, 1999, at
$0.835 per share 718,830 600,000 600,000
Common stock issued for debt
conversion, September 12, 1999,
at $0.70 per share 887,500 621,250 621,250
Common stock issued for consulting,
September 30, 1999, at $0.76 per
share 22,473 17,255 17,255
Common stock issued for consulting,
October 1, 1999, at $0.70 per share 10,057 7,040 7,040
Common stock issued for rent,
October 1, 1999, at $0.10 per share 610,000 61,139 61,139
Common stock issued for product
development costs, at October 1,
1999, at $0.56 per share 10,000 5,625 5,625
Common stock issued for cash, at
October 1, 1999, at $0.20 per share 500,000 100,000 100,000
Common stock issued to related
party for cash, at December 15, 1999,
at $0.10 per share 100,000 10,000 10,000
See Notes to Condensed Financial Statements
7
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
---------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
Common stock issued for consulting,
December 31, 1999, at $.70 per share 48,150 $ 33,704 $ 33,704
Fair value of stock options issued
to consultants, lender and board
members 32,052 32,052
Fair value of stock options issued
to the Marketing Advisory Board 4,581 4,581
Fair value of stock options issued
to Advisory Board Members 101,481 101,481
Fair value of warrants issued for
interest during 1999 8,142 8,142
Conversion feature of convertible
debt 26,540 26,540
Net loss $ (1,659,333) (1,659,333)
------------ ------------ ------------ ------------
Balance, December 31, 1999 26,971,945 4,370,350 (5,475,619) (1,105,269)
Common stock issued for cash,
January 13,14 and 18, 2000,
at $.10 per share 1,070,000 107,000 107,000
See Notes to Condensed Financial Statements
8
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
Common stock Deficit
no par, authorized accumulated
50,000,000 shares Stock during the
-------------------------- subscription development
Shares Amount receivable stage Total
----------- ----------- ----------- ----------- -----------
Common stock issued for cash,
January 14, 19 and February 2,
2000, at $.20 per shares;
50,000 shares subscribed 1,650,330 $ 330,000 $ (10,000) $ 320,000
Common stock issued for
cash, January 19, 2000,
at $.20 per share;
100,000 shares subscribed 1,010,000 202,000 (20,000) 182,000
Common stock issued for
cash, January 21, and
March 3, 2000 at $.45
per share 94,444 42,500 42,500
Common stock issued for
cash, February 1, 2000,
at $.34 per share 294,116 100,000 100,000
Common stock issued
for cash, February
16, 2000, at $.30 per share 200,000 60,000 60,000
Common stock issued
for debt conversion,
March 7, 2000,
at $.094 per share 1,065,340 100,000 100,000
Common stock issued
for cash, March 15,
2000, at $.75 per share 50,000 37,500 37,500
Net loss $ (456,652) (456,652)
----------- ----------- ----------- ----------- -----------
Balance March 31, 2000 32,405,845 $ 5,349,350 $ (30,000) $(5,932,271) $ (612,921)
=========== =========== =========== =========== ===========
See Notes to Condensed Financial Statements
9
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Three months June 17, 1996
ended March ended March (inception) to
31, 1999 31, 2000 March 31, 2000
------------ ------------ --------------
Cash flows from operating activities:
Net loss $ (161,965) $ (456,652) $ (5,932,271)
Adjustment to reconcile net loss to net
cash flows from operating activities:
Depreciation 3,007 8,995 60,018
Amortization 98 393,231
Allowance on note receivable 87,645
Common stock issued for services and rent 208,123
Fair value of options and warrants issued
to non-employees 188,876
Conversion feature of convertible debt 26,540
Change in assets and liabilities:
Prepaid expenses 14,790 (37,771) (23,502)
Other assets (23,316)
Accounts payable:
Trade (71,917) (119,712) 273,395
Related parties 2,500 1,008 180,312
Accrued expenses 24,854 (18,508) 234,194
Deferred revenue 0 16,870 45,000
------------ ------------ ------------
Net cash used in operating activities $ (188,633) $ (605,770) $ 4,281,755)
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for:
Property and equipment $ (70,749)
Note receivable (100,000)
Investment (50,000)
Repayment received on note receivable 12,355
------------ ------------ ------------
Net cash used in investing activities $ 0 $ 0 $ (208,394)
------------ ------------ ------------
See Notes to Condensed Financial Statements
10
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
June 17, 1996
Three months Three months (inception) to
ended March ended March March 31,
31, 1999 31, 2000 2000
------------ ------------ --------------
Cash flows from financing activities:
Proceeds from:
Notes payable $ 150,000 $ $ 2,329,852
Related parties 102,641
Issuance of common stock and warrants 117,500 849,000 2,628,887
Repayment on notes payable (9,820) (95,960) (188,900)
Debt placement costs (197,283)
------------ ------------ ------------
Net cash provided by financing activities $ 257,680 $ 753,040 $ 4,675,197
------------ ------------ ------------
Net increase in cash and cash
equivalents $ (2,140) $ 147,270 $ 185,048
Cash and cash equivalents:
Beginning $ 2,758 $ 37,778
------------ ------------ ------------
Ending $ 618 $ 185,048 $ 185,048
============ ============ ============
Cash paid for interest $ 13,815 $ 7,803 $ 127,888
============ ============ ============
Supplemental disclosure of non-cash investing
and financing activities:
Fair value of warrants and options issued $ 244,461
============
Common stock issued:
For services $ 146,983
============
For rent $ 161,139
============
For debt conversion $ 100,000 $ 1,966,250
============ ============
For property and equipment $ 112,892
============
Contribution by SAC Technologies, Inc. $ 42,621
============
See Notes to Condensed Financial Statements
11
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2000
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
The Company, was incorporated in Minnesota in 1996 under the name Infopac
Systems, Inc. and has been a development stage company since inception. On June
8, 1999, Infopac Systems, Inc. acquired all outstanding common stock of
Inter-Con/PC, Inc through a statutory merger of Inter-Con/PC, Inc. into Infopac
Systems, Inc. Immediately after the merger, Infopac Systems, Inc. changed its
name to Inter-Con/PC, Inc. For accounting purposes, the acquisition has been
treated as an acquisition by Inter-Con/PC, Inc. of Infopac Systems, Inc. and as
a recapitalization of Inter-Con/PC, Inc. The historical financial statements
prior to June 8, 1999, are those of Inter-Con/PC, Inc. All share and per share
information have been restated for this transaction.
The Company was formed as a technology-development Corporation whose mission is
to develop, manufacture, and market a set-top-box computer that would facilitate
the convergence of voice, video, data and other technologies and all through the
TV screen. To address the challenges of ever-evolving technologies, the Company
built its convergent set-top-box in the foundation of a full-function personal
computer. This platform is augmented by proprietary technologies designed to
allow the set-top-box to serve as the control center for a myriad of evolving
home and business applications. The Company's products will be targeted towards
and positioned within the consumer electronics and telecommunications
industries. The Company is continuing to develop its set-top-box products, and
has manufactured a small number of prototype units in preparation for entering
into high volume manufacturing. The Company has begun marketing two set-top-box
products; the TOTEBOOK(TM)6000 which features a high speed processor, hard
drive, and DVD drive that functions as an interactive, multi-media home
entertainment center, and the internet access only TOTEBOOK(TM) 1000.
INTERIM FINANCIAL STATEMENTS:
The condensed financial statements of the Company for the three-month periods
ended March 31, 2000 and 1999 have been prepared by the Company without audit by
the Company's independent auditors. In the opinion of the Company's management,
all adjustments necessary to present fairly the financial position, results of
operations, and cash flows of the Company as of March 31, 2000 and for the
periods then ended have been made. Those adjustments consist only of normal and
recurring adjustments.
Certain information and note disclosures normally included in the Company's
annual financial statements have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with a reading
of the financial statements and notes thereto included in the Company's Form
10SB/A filed with the Securities and Exchange Commission.
The results of operations for the three-month period ended March 31, 2000 are
not necessarily indicative of the results to be expected in a full year.
12
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2000
2. DEVELOPMENT STAGE ENTERPRISE AND GOING CONCERN:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company is in the development stage
with no sales of its products and its products are subject to rapid changes in
technology. In January 2000, the Company sold 100 prototype models that are to
be replaced once the units have been updated and the Company is ready for
commencement of its principal operations. There is no assurance that the Company
will be able to generate significant sales of its products. Additionally, the
Company has a deficit accumulated during the development stage of $5,932,271 as
of March 31, 2000. Management anticipates net losses will continue for the
foreseeable future. Additional financing will be required to complete
development and enhancement of the Company's products and bring them to market.
Subsequent to March 31, 2000, the Company raised $750,000 through the sale of
1,250,000 shares of common stock, to affiliates of NIKKO Co. Ltd.
The Company entered into a Joint-Venture Strategic Partnership Agreement (the
"Agreement") with NIKKO Co., Ltd. of Tokyo, Japan ("Nikko), and Maxwood
Technology Ltd. of Hong Kong, China ("Maxwood") on May 12, 2000. Under the terms
of the agreement, the parties plan to collaborate in the production, sales, and
distribution of several of the Company's proprietary set-top-box product
designs. As part of the Agreement, the Company and Nikko will form and equally
own another joint-venture company named NIKKO Multi Media,LLC, ("Nikko Multi
Media") in order to globally market of the Company's set-top-box products. This
entity will be capitalized by Nikko and the Company contributing $25,000 each;
additional funding will be obtained by Nikko providing loans at 8% interest to
the Joint Venture.
The Company will be responsible for ongoing set-top-box development engineering
plus research and development for new products. Maxwood Technology Ltd. will be
responsible for high volume production design, engineering, and manufacturing.
Nikko will provide the financial resources necessary for component purchasing as
well as coordinating with the parties all product sales and distribution through
Nikko Multi Media. The Company will receive ongoing royalty revenue for
set-top-box product sales plus equally share with Nikko, all profits generated
by NIKKO Multi Media.
The Company believes that the amount of capital infusion will help cover the
operating expenses until it realizes revenue from its Joint-Venture Strategic
Partnership Agreement with Nikko, and Maxwood. At the same time the Company
plans to pursue additional financing. The Company anticipates generating revenue
from its Partnership Agreement during the end of the fourth quarter of 2000 and
the first quarter of 2001.
13
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2000
2. DEVELOPMENT STAGE ENTERPRISE AND GOING CONCERN (CONTINUED):
Although the Company has raised additional capital, and management's plans
include raising additional capital and launching the set-top-box, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the Company advancing beyond the development
stage and developing sustained operations. The accompanying financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue in existence.
3. CONTINGENCIES:
The Company is involved in two disputes with vendors that could result in
additional liability to the Company as follows:
The Company has a dispute that involves failure for payment for services
rendered. The vendor alleges the Company has been billed for work completed
for over $250,000. The Company has recorded approximately $108,000 in
accounts payable that had been invoiced to it. The Company has countered
with a claim for breach of contract, fraud and negligence. Management
expects that this dispute will be settled on favorable terms and has not
recorded any additional liability in the financial statements for this
contingency.
The Company has another dispute with a vendor for payment of services
rendered. The vendor has demanded payment for approximately $91,000. The
Company has accrued approximately $75,000 and believes it will have no
further liability.
The Company is also the subject of various claims on a continuing basis,
including general liability claims and claims made by employees and former
employees. Costs for claims not covered by insurance are recognized when
known. In the opinion of management, the amount of any additional liability
will not have a material impact on the financial statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's plan of
operations, liquidity and capital resources. This analysis should be read in
conjunction with the condensed financial statements and the notes thereto
included in Item 1 of this Quarterly Report, and the financial statements and
the notes thereto and Management's Discussion and Analysis and Plan of
Operations the Management's Discussion and Analysis and Plan of Operations
contained in the Company's amended registration statement on Form 10SB/A.
OVERVIEW
Inter-Con/PC, Inc. (the "Company") is a development stage company engaged in the
design, development and marketing of a personal computer device that uses a
television monitor and wireless keyboard rather than a traditional personal
computer monitor and keyboard. From June 17, 1996 (inception) to March 31, 2000,
the
14
Company's activities have primarily been related to attracting employees,
raising capital and research and development of a product it calls the TOTEBOOK
(the "Set Top Box"). The Company has only developed prototype products, and to
date, has sold an insignificant number of these prototype units. The Company
also anticipates developing and marketing complementary and peripheral products
in conjunction with the Set Top Box. The Company has developed two prototype
versions of the Set Top Box, the 6000 model which contains a high speed
processor, hard drive and a CD/DVD drive, and the 1000 model which is an
internet access only unit equipped with a slower processor and no drives.
PLAN OF OPERATIONS
The Company has relied primarily upon private sales of bridge notes, notes
payable, and equity securities to investors, as well as upon capital
contributions and advances from existing shareholders and employees to fund its
operations. The Company does not have adequate funds to commercially produce,
market and sell its products. The Company does not believe that it currently has
sufficient funds available to satisfy its debt obligations and operating needs
for the next twelve months and will need to raise additional funds in order to
support such operations. The Company estimates that its cash flow requirement
for the next twelve months is as follows:
Research & Development $ 200,000
Legal and Accounting Fees $ 118,000
Repayment of current liabilities, interest and obligations $ 312,000
Trade Shows $ 35,000
Payroll $ 516,000
Monthly Operating Expense (rent, utilities, etc.) $ 120,000
Consulting Fees $ 50,000
Capital contribution to NIKKO Multi Media $ 25,000
Travel $ 100,000
Miscellaneous Expenses $ 78,000
----------
Total $1,554,000
For the three months ended March 31, 2000, approximately $170,040 was spent on
research and development. However, additional financing will be required to
complete development and enhancement of the Set Top Box and to bring it to
market. For the next 12 months, the Company anticipates spending approximately
$200,000 on research and development of the Set Top Box, but the Company can
offer no assurances that this amount will be sufficient to bring its products to
market. The Company has commenced pre-production engineering and anticipates,
but offers no assurances, that the Set Top Box will be ready for high volume
manufacturing later this year. The Company hopes, but offers no assurances, that
it will begin generating revenues from the sale of the Set Top Boxes near the
end of fourth quarter 2000 or the beginning of first quarter 2001.
The Company does not anticipate any significant sales or purchases of plant or
equipment that may materially impact its financial condition. The Company may
hire additional personnel, but does not anticipate any significant changes to
the number of its employees.
In December 1999, the Company agreed to sell 100 prototype units to the
Midlothian School in Midlothian, Illinois for approximately $55,000. The
Midlothian School is primarily an evaluation site that will allow the Company to
evaluate the prototype units under normal use. The Company must replace all 100
units, without any additional
15
compensation, with a newer prototype model for evaluation later this year. In
January 2000, the Company delivered 100 prototype units to the Midlothian School
and was paid the remaining balance of the purchase price. For financial
accounting purposes, the Company recorded $10,000 in miscellaneous income in
January 2000 as the sale was of prototype units to an evaluation site, and
recorded deferred revenues of approximately $45,000 because it had not yet
delivered a newer prototype model to the Midlothian School. The Company
estimates that it will cost approximately $450 per unit to upgrade the 100 units
delivered to the Midlothian School and recorded $45,000 in deferred revenues to
reflect such costs.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents of $185,048 and
current assets of $223,700 and total assets of $397,323. During the three months
ended March 31, 2000, the Company raised a net of $849,000 through the issuance
of 4,368,560 shares of common stock. In addition, a total of $100,000 in
convertible debt, along with $6,534 of accrued interest, was converted into
1,065,340 shares of common stock of the Company at the rate of $.10 per share.
As of March 31, 2000, the Company had current liabilities totaling $1,010,244. A
significant portion of these liabilities are attributable to notes payable to
related parties and accrued expenses. The Company continues to operate at a
deficit and as of March 31, 2000 had an accumulated deficit of ($5,932,271).
Shareholder's equity as of March 31, 2000 was negative ($612,921).
For the three months ended March 31, 2000, the Company had negative cash flows
from operating activities of ($605,770). This includes expenditures of $170,040
for research and development and $285,364 on payroll, contract labor and general
and administrative expenses, of which $8,995 was attributable to depreciation
and amortization. During the three months ended March 31, 2000, the Company
increased pre-paid expenses by $37,771 and reduced its accounts payable and
accrued expenses by a total of $137,212.
The Company had no cash flow from investing activities during the three months
ended March 31, 2000. During the three months ended March 31, 2000, net proceeds
of $849,000 were received from the issuance of common stocks and warrants. The
Company also repaid $95,960 of its notes payable. For the three months ended
March 31, 2000, the Company had positive cash flows of $753,040 from financing
activities.
The Company is still in the development stage and its products are subject to
rapid changes in technology. From its inception, the Company has never had any
significant sales of its products and had more expenses than income in each year
of its operations. Management anticipates that net losses will continue in the
foreseeable future. The Company has been able to maintain a positive cash
position solely through financing activities. The Company's total current
liabilities significantly exceed its total assets. Additional financing will be
necessary to complete development of the Company's products and to bring them to
market. As a result, the independent auditor has issued a going concern opinion
and has expressed substantial doubt regarding the Company's ability to continue
as a going concern.
The Company does not believe that it has sufficient funds available to satisfy
its current obligations and to fund its operating expenses for the next twelve
months. The Company anticipates, but can offer no assurances, that it will begin
generating revenues during the end of fourth quarter 2000 or early first quarter
2001. However, such revenues alone will not be sufficient to satisfy its current
liabilities and operating expenses for the next twelve months. Management plans
to continue to pursue additional financing through the issuance of debt or
common stock. It anticipates that this will be accomplished through additional
private placements. There are currently no identifiable sources of funding and
the Company anticipates seeking the assistance of an investment firm to help
secure viable sources of capital. If additional capital is not secured, there is
substantial doubt as to whether the Company will be able to continue as a going
concern for the next 12 months.
Other than as described above, there are no known trends, events or
uncertainties that are likely to have a material impact on the short or long
term liquidity of the Company. The primary source of liquidity in the future
will be additional financing and sales of its products. Other than $25,000 to
capitalize Nikko Multi Media, there are no material commitments for capital
expenditures. Other than stated above, there are no known trends, events or
uncertainties reasonably expected to have a material impact on the revenues or
income from continuing operations
16
of the Company. Any income or loss generated will be from continuing operations
and there are no seasonal aspects to the business of the Company.
SUBSEQUENT EVENTS
On May 12, 2000, the Company entered into a strategic partnership agreement with
Maxwood Technologies, Ltd. of Hong Kong, China ("Maxwood") and Nikko Co., Ltd.
of Tokyo, Japan ("Nikko"). Under the agreement, the Company and Nikko agreed to
form a marketing and distribution company, Nikko Multi Media, LLC ("Nikko Multi
Media"). The Company and Nikko will each own 50% of Nikko Multi Media. The
Company's capital contribution will consist of a $25,000 investment, and a grant
to Nikko Multi Media of an exclusive, world-wide right to manufacture, use and
sell the Set Top Box. Nikko's contribution will consist of a $25,000 investment,
and loans to Nikko Multi Media for operations, the amount of which will be
determined pursuant to a budget prepared by Nikko Multi Media and approved by
Nikko. The loans will bear interest at 8% per annum, and will be repaid to Nikko
from Nikko Multi Media's net profits as agreed by the parties. In addition to
the Set Top Box, Nikko Multi Media may also market and distribute various other
electronic products and services. Any profits generated by Nikko Multi Media,
whether from the sale of the Set Top Box or other products and services will be
shared equally between the Company and Nikko.
Under the agreement, the Company will be responsible for ongoing development
engineering and research and development of new products. Maxwood will be
responsible for high volume production design, engineering and manufacturing.
Maxwood, will seek out and recommend qualified third party manufacturers to
Nikko Multi Media. Both Maxwood and the Company will monitor production and
manufacturing of the Set Top Box. For its services, Nikko Multi Media will pay
to both the Company and Maxwood, a fee equal to 5% of the cost of each Set Top
Box it sells. The Company is still testing and refining the Set Top Box, and can
offer no assurances that it will be able to successfully develop and prepare the
Set Top Box for high volume manufacturing. Further, the Company can offer no
assurances that it, Nikko, Nikko Multi Media or Maxwood will be able to
successfully manufacture the Set Top Box.
The Set Top Box will be sold exclusively by Nikko Multi Media under any brand
names it deems appropriate. However, the Company, Nikko and Maxwood may purchase
the Set Top Box directly from Nikko Multi Media and resell it under any brand
name not used by Nikko Multi Media. This will result in the Company becoming
very dependent upon Nikko Multi Media and Maxwood to manufacture and distribute
the Set Top Box. The agreement may be terminated by any party with at least 12
months prior notice.
ADDITIONAL RISK FACTORS
In addition to the other information contained herein, and the information
contained in the Company's amended Form 10SB/A, the following factors should be
considered carefully in evaluating the Company and its business.
Market for our Shares of Common Stock
In January 2000, the Company's common stock was delisted from the OTC Bulletin
Board (OTCBB) for failure to satisfy eligibility requirements of the National
Association of Securities Dealers. To be eligibility to have its securities
quoted on the OTCBB, an issuer must have filed its latest required annual filing
and any subsequent quarterly filings with the Securities and Exchange
Commission. The NASD has stated that for issuers who file a Form 10 or Form 10SB
with the SEC to register under Section 12(g) of the Act, the registration
statement must be effective and all SEC comments, if any, must be cleared with
the SEC before the issuer's securities can be quoted on the OTCBB. The Company
filed a Form 10SB with the SEC on February, 2000. The Form 10SB became effective
on April, 2000. On June 28, 2000, the Company responded to SEC comments and
filed a Form 10SB/A with the SEC. The SEC has not yet responded to the revised
filing. Accordingly, the Company is not yet eligible to have its securities
quoted on the OTCBB. There can be no assurance the there Company will be able to
receive SEC clearance of all comments in the near future. The Company's common
stock has since been traded on the "Pink Sheets."
Volatility of Stock Price
17
The Company's common stock price has experienced and is likely to experience
significant price and volume fluctuation in the future. Such fluctuations could
adversely affect the market price of the common stock without regard to our
operating performance. In addition, we believe that factors such as the progress
of research and development of the Set Top Box, the ability to commence high
volume manufacturing, the ability to generate sales, changes in technology, as
well as various other factors could cause the price of the Company's common
stock to fluctuated significantly.
Future Sales of Shares of Common Stock
The Company has very limited cash or cash equivalents and requires substantial
additional capital to pursue its operating objectives and continue as a going
concern. Management anticipates that future sales of common stock will be
necessary to raise additional capital needed to satisfy its current debt
obligations and fund its future operations. Management also anticipates hiring
consultants to render services for the development of the Company's business and
to pay such consultants through the issuance of additional shares of common
stock. Such issuances of additional securities may dilute the value of the
Company's common stock and may have an adverse impact on the market price of the
stock.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Legal proceedings involving the Company was previously disclosed under the
section entitled "Legal Proceedings" in Part II, Item 2 of the Company's amended
Form 10SB/A. There were no material developments regarding the Company's legal
proceedings during the three months ended March 31, 2000.
ITEM 2: CHANGES IN SECURITIES
Transactions involving the recent sales of unregistered securities for the three
months ended March 31, 2000 was previously disclosed under the section entitled
"Recent Sales of Unregistered Securities" in Part II, Item 4 of the Company's
amended Form 10SB/A, which the Company hereby incorporates by reference.
DIVIDENDS
The Company has never declared a cash dividend on its common stock and does not
anticipate declaring any cash dividends in the foreseeable future. Under the
Minnesota Business Corporations Act, the Board of Directors cannot declare a
cash dividend unless the Company is able to satisfy all of its debts in the
ordinary course of business after such dividends are declared.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended
March 31, 2000.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTER-CON/PC, INC.
Date: September 8, 2000 By: /s/ Michael P. Ferderer
---------------------------------------------
Michael P. Ferderer, Chief Executive Officer,
sole Director and Chief Financial Officer
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