U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 September 30, 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
---------
INTER-CON/PC, INC.
------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1853972
----------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7667 Equitable Drive, Suite 101
Eden Prairie, MN 55344
----------------------
(Address of principal executive offices)
(952) 975-0001
--------------
(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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 34,149,276 shares of Common
Stock, no par value, outstanding as of November 10, 2000.
1
INTER-CON/PC, INC.
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
September 30, 2000
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Financial Statements
Condensed Balance Sheets at December 31, 1999 and September 30, 2000......3
Condensed Statements of Operations for the three and nine months
ended September 30, 1999 and September 30, 2000 and for the period
of June 17, 1996 to September 30, 2000..................................4
Condensed Statements of Changes in Stockholder's Equity for the nine
months ended September 30, 2000 and the years ended December, 31,
1999, 1998, 1997, and 1996..............................................5
Condensed Statements of Cash Flows for the three and nine months
ended September 30, 1999 and September 30, 2000 and for the period
of June 17, 1996 to September 30, 2000..................................11
Notes to Condensed Financial Statements...................................13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................15
Part II - Other Information
Item 1. Legal Proceedings...................................................18
Item 2. Changes in Securities...............................................19
Item 3. Defaults Upon Senior Securities.....................................19
Item 4. Submission of Matters to a Vote of Security Holders.................19
Item 5. Other Information...................................................19
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 September
31, 1999 30, 2000
------------ ------------
ASSETS:
Current assets
Cash and cash equivalents $ 37,778 $ 171,752
Inventory 0 14,274
Prepaid expenses 881 10,653
------------ ------------
Total current assets 38,659 196,679
------------ ------------
Property and equipment:
Equipment 81,755 85,298
Leasehold improvements 101,887 101,887
Less accumulated depreciation (51,024) (77,967)
------------ ------------
Total property and equipment 132,618 109,218
------------ ------------
Other assets
Investments 50,000 50,000
------------ ------------
Total other assets 50,000 50,000
------------ ------------
Total assets $ 221,277 $ 355,897
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable:
Trade $ 393,107 $ 250,620
Related parties 281,945 275,327
Accrued expenses 252,702 215,550
Deferred revenue 28,130 55,000
Notes payable 370,662 0
------------ ------------
Total current liabilities 1,326,546 796,497
------------ ------------
Stockholders' equity (deficit):
Common stock, no par, authorized 50,000,000 shares,
shares outstanding 34,149,276 4,370,350 6,168,561
Deficit accumulated during the development stage (5,475,619) (6,609,161)
------------ ------------
(1,105,269) (440,600)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 221,277 $ 355,897
============ ============
See Notes to Condensed Financial Statements
3
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months Nine months Three months Three months June 17, 1996
ended Sept ended Sept ended ended Sept (inception) to
30, 1999 30, 2000 Sept 30, 1999 30, 2000 Sept 30, 2000
----------------------------------------------------------------------------------
Operating expenses:
Payroll, contract labor, and related costs $ 306,102 $ 385,260 $ 147,763 $ 138,050 $ 1,817,761
Product development 102,703 170,502 41,824 13,971 1,660,833
General and administrative 541,395 551,023 282,052 149,406 2,978,530
----------------------------------------------------------------------------------
Operating loss (950,200) (1,106,785) (471,639) (301,427) (6,457,124)
----------------------------------------------------------------------------------
Other income (expense):
Interest income 6,365 8,932 354 3,348 54,887
Interest expense (133,215) (37,760) (90,551) (4,749) (261,745)
Miscellaneous income 23,068 2,071 4,575 826 54,821
----------------------------------------------------------------------------------
(103,782) (26,757) (85,622) (575) (152,037)
----------------------------------------------------------------------------------
Net loss $ (1,053,981) $ (1,133,542) $ (557,261) $ (302,002) $ (6,609,161)
==================================================================================
Basic and diluted loss per share $ (.05) $ (.03) $ (.02) $ (.01) $ (.13)
==================================================================================
Weighted average number of shares outstanding,
basic and diluted 32,600,461 37,924,535 24,388,297 34,114,338 13,052,671
==================================================================================
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 Stock during the
---------------------------- subscription development
Shares Amount receivable 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
the Advisory Board Members 101,481 101,481
Fair value of stock options 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 0 (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
Common stock issued for cash and receivable,
January 14, 19 and February 2, 2000,
at $.20 per share
50,000 shares subscribed 1,650,000 330,000 (10,000) 320,000
Common stock issued for cash and receivable,
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
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, 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 $.10 per 1,065,340 100,000 100,000
(share Interest converted
to Common Stock) 6,534 6,534
Common stock issued for cash,
March 15, 2000, at $.75 per share 50,000 37,500 37,500
Subscription receivable collected
June 1, 2000 $ 10,000 10,000
Common Stock issued for
product development costs at
May 31, 2000 at $.10 per share 101,856 10,186 10,186
Common Stock issued for cash,
May 23, 2000 at $.60 per share 1,250,000 750,000 750,000
Common Stock issued for cash,
April 10, 2000 at $.20 per share 25,000 5,000 5,000
Common stock issued for
debt conversion, June 18, 2000
at $.10 per share 324,909 32,491 32,491
Common Stock issued for cash,
July 17, 2000 at $.20 per share 25,000 5,000 5,000
See Notes to Condensed Financial Statements
9
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
------------ ------------ ------------ ------------ ------------
Subscription receivable collected
July 17, 2000 $ 20,000 $ 20,000
Common Stock issued for
Services, September 27, 2000
At .60 per share 16,666 $ 10,000 10,000
Net loss $ (1,133,542) (1,133,542)
------------ ------------ ------------ ------------ ------------
Balance September 30, 2000 34,149,276 $ 6,168,561 $ (0) $ (6,609,161) $ (440,600)
============ ============ ============ ============ ============
See Notes to Condensed Financial Statements
10
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
June 17, 1996
Nine months Nine months (inception) to
ended Sept. ended Sept. Sept. 30,
30, 1999 30, 2000 2000
------------ ------------ --------------
Cash flows from operating activities:
Net loss $ (1,053,981) $ (1,133,542) $ (6,609,161)
Adjustment to reconcile net loss to net
cash flows from operating activities:
Depreciation 21,095 26,943 77,967
Amortization 976 393,231
Allowance on note receivable 87,645
Common stock issued for services and rent 29,211 237,334
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 52,125 (9,772) 4,497
Other assets (14,274) (37,590)
Accounts payable:
Trade (65,485) (142,487) 250,620
Related parties 2,832 (6,618) 172,686
Accrued expenses 91,202 (37,152) 215,550
Deferred revenue 0 26,870 55,000
------------ ------------ ------------
Net cash used in operating activities (951,236) (1,260,821) (4,936,805)
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for:
Property and equipment (115,899) (3,543) (74,292)
Note receivable (100,000)
Investment (50,000)
Repayment received on note receivable 12,355
------------ ------------ ------------
Net cash used in investing activities (115,899) (3,543) (211,937)
------------ ------------ ------------
See Notes to Condensed Financial Statements
11
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
June 17, 1996
Nine months Nine months (inception) to
ended Sept. ended Sept. Sept. 30,
30, 1999 30, 2000 2000
------------ ------------ --------------
Cash flows from financing activities:
Proceeds from:
Notes payable $ 0 $ 0 $ 2,329,852
Related parties 0 102,641
Issuance of common stock and warrants 1,389,103 1,639,000 3,418,886
Repayment of notes payable (317,316) (240,662) (333,602)
Debt placement costs (197,283)
------------ ------------ ------------
Net cash provided by financing activities 1,071,787 1,398,338 5,320,494
------------ ------------ ------------
Net increase in cash and cash
equivalents $ 4,652 $ 133,974 $ 171,752
Cash and cash equivalents:
Beginning $ 3,218 $ 37,778
------------ ------------ ------------
Ending $ 7,870 $ 171,752 $ 171,752
============ ============ ============
Cash paid for interest $ 39,298 $ 26,416 $ 146,501
============ ============ ============
Supplemental disclosure of non-cash investing
and financing activities:
Fair value of warrants and options issued $ 244,461
============
Common stock issued:
For services $ 65,614 $ 29,211 $ 176,194
============ ============ ============
For rent $ 161,139
============
For debt conversion $ 1,221,250 $ 130,000 $ 1,996,250
============ ============ ============
For property and equipment $ 112,892 $ 112,892
============ ============
Contribution by SAC Technologies, Inc. $ 42,621
============
See Notes to Condensed Financial Statements
12
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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. (the "Company") 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 has 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. ("Set Top Box") 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 sold an insignificant number of Set Top Boxes in
preparation for entering into high volume manufacturing. The Company has begun
marketing three different models of its Set Top Box products: (1) the
TOTEBOOK(TM) Model 6001; (2) the TOTEBOOK (TM) Model 2001; and (3) the
TOTEBOOK(TM) Model 1000, which is also being marketed under the Cyberspider(TM)
brandname. The 6001 model features a high speed processor, 10 gigabyte or more
hard drive, and a DVD drive that functions as an interactive multi-media home
entertainment center. The 2001 model features a high speed processor and PCI
slot with a TV Tuner and a 6 gigabyte hard drive. The 1000 model is an internet
access only unit with Disk on Module or Disk on Chip technology. All models are
designed around the X-86 technology platform and are equipped and packaged with
an infra-red wireless keyboard. Some models will also be equipped with a
wireless remote.
INTERIM FINANCIAL STATEMENTS:
The condensed financial statements of the Company for the three- and nine-month
periods ended September 30, 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 September
30, 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, as amended and filed with the Securities and Exchange Commission.
The results of operations for the three and nine-month periods ended September
30, 2000 are not necessarily indicative of the results to be expected in a full
year.
13
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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 and
has sold an insignificant amount of its products, which 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 to commence its principal operations. There is no assurance that the
Company will be able to generate significant sales of its products.
Additionally, as of September 30, 2000, the Company has a deficit accumulated
during the development stage of $6,609,161. 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.
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") that will globally market 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 of 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 on 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.
On May 23, 2000, the Company raised $750,000 through the sale of 1,250,000
shares of common stock to affiliates of NIKKO and Maxwood. The Company believes
that the capital infusion will help cover its 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.
In May 2000, the Company incorporated NIKKO Multi Media. However, neither the
Company nor NIKKO has made the $25,000 capital contribution contemplated in the
Agreement. Although the Agreement is still in effect and has not been terminated
by any of the parties, neither the Company, NIKKO or Maxwood have proceeded with
this joint venture, nor has any action been taken toward the development of
NIKKO Multi Media. The Company is currently in discussion with NIKKO and Maxwood
regarding the status of NIKKO Multi Media.
14
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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 assets 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 the following disputes with vendors that could result
in additional liability:
The Company has a dispute that involves a failure to pay 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. In a recent non-binding
arbitration, the Company was awarded $14,814 plus costs incurred. However,
the vendor is continuing to pursue its claim against the company. 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 plus
additional interest. 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 in the Company's registration statement on Form 10SB, as amended.
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 September 30,
2000, the 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 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.
15
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.
For the nine months ended September 30, 2000, approximately $170,502 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 additional research and development of the Set Top Box. The Company
is currently purchasing set top box units developed and manufactured by an
unrelated company. The units purchased will already have a CE marking, a
non-regulatory certification in the European Union, and have been approved by
the Federal Communiciations Commission. These units are then modified, through
procedures developed by the Company to improve, among others, its heat
disbursement, connectivity, video and graphical display. The modified units are
then repackaged and marketed by the Company under its own brandname.
The Company has purchased and modified a number of set top boxes, which it is
currently marketing under its TOTEBOOK brand name. The Company is marketing
three (3) different models of the Set Top Box, the TOTEBOOK Models 6001, 2001
and 1000 which is also being marketed under the Cyberspider(TM) name. The 6001
model features a high speed processor, 10 gigabyte or more hard drive, and DVD
drive that functions as an interactive, multi-media home entertainment center.
The 2001 model features a high speed processor, PCI slot with TV Tuner and a 6
gigabyte hard drive. The 1000 model is an internet access only unit with Disk on
Module or Disk on Chip technology. All units are equipped with an infra-red
wireless keyboard. Some models are also equipped with a wireless remote.
The Company is currently contemplating engaging this manufacturer to supply it
with set top boxes which it will then modify and bring to market. The Company
has not entered into any agreements with this manufacturer and there can be no
assurances that a supply agreement can be procured on acceptable terms, or if at
all.
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 compensation, with a newer
16
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 has recorded deferred revenues of approximately $55,000, because it had
not yet delivered newer prototype models to the Midlothian School.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and cash equivalents of $171,752
and current assets of $196,679 and total assets of $355,897. During the nine
months ended September 30, 2000, the Company raised a net of $1,639,000 through
the issuance of 5,668,560 shares of common stock. In addition, a total of
$139,025 in convertible debt was converted into 1,390,249 shares of common stock
of the Company at the rate of $.10 per share. The Company also paid $10,186 of
development costs through the issuance of 101,856 shares of common stock at $.10
per share. On September 27, 2000, the Company issued 16,666 shares of common
stock, at $.60 per share, to a former employee in satisfaction of an accrued
payable.
As of September 30, 2000, the Company had current liabilities totaling $796,497.
A significant portion of these liabilities are attributable to notes payables to
related parties and accrued expenses. The Company continues to operate at a
deficit and as of September 30, 2000 had an accumulated deficit of $6,609,161.
Shareholder's equity as of September 30, 2000 was negative $440,600.
For the nine months ended September 30, 2000, the Company had negative cash
flows from operating activities of $1,260,821. This includes expenditures of
$170,502 for research and development and $936,283 on payroll, contract labor
and general and administrative expenses, of which $26,943 was attributable to
non-cash impacting depreciation and amortization. During the nine months ended
September 30, 2000, the Company increased pre-paid expenses by $9,772 and
reduced its accounts payables and accrued expenses by a total of $186,257, of
which $29,211 was paid through the issuance of common stock. The Company also
purchased set top boxes from an unrelated manufacturer and increased its
inventory account by $14,274.
The Company's cash flows from investing activities during the nine months ended
September 30, 2000, consists only of purchases of property and equipment in the
amount of $3,543. During the same period, net proceeds of $1,639,000 were
received from the issuance of common stocks and warrants. The Company also
repaid $240,662 of its notes payable. For the nine months ended September 30,
2000, the Company had positive cash flows of $1,398,338 from its 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 for the Company to continue with its operations and bring the Set Top
Box 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 as of December 31, 1999.
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 as 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 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.
17
ADDITIONAL RISK FACTORS
In addition to the other information contained herein, and the information
contained in the Company's Form 10SB, filed with the Securities and
Exchange Commission on February 10, 2000, as amended by Form 10SB/A filed on
June 28, 2000 and September 12, 2000, the following factors should be carefully
considered when 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 and September 12, 2000, the Company responded to
SEC comments and filed a Form 10SB/A with the SEC. The Company received
additional comments on October 13, 2000 and is currently responding to those
comments. Accordingly, the Company is not yet eligible to have its securities
quoted on the OTCBB. There can be no assurance the 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
The Company's common stock price has experienced and is likely to experience
significant price and volume fluctuations 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. Any issuance of additional securities may dilute the value of the
Company's common stock and may have an adverse impact on its market price.
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. Except as otherwise disclosed in footnote 3 to the financial
statements, which are hereby incorporated by reference, there were no material
developments regarding the Company's legal proceedings.
18
ITEM 2: CHANGES IN SECURITIES
On July 17, 2000, the Company issued 25,000 shares of common stock, at $.20 per
share, to an existing shareholder in exchange for a $5,000 investment.
On September 27, 2000, the Company issued 16,666 shares of common stock, at
$.60, to a former employee in satisfaction of accured payables to such employee.
The Company believes that all of the above transactions were transactions not
involving any public offering within the meaning of Section 4(2) of the
Securities Act of 1933.
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 AVOTE OF SECURITIES HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
None.
19
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: November 14, 2000 By: /s/ Michael P. Ferderer
---------------------------------------------
Michael P. Ferderer, Chief Executive Officer,
Sole Director and Chief Financial Officer
20