EXHIBIT 99.1
FORWARD-LOOKING STATEMENTS DISCLOSURE
Certain statements contained in the Management's Discussion and
Analysis of Results of Operations and Financial Condition, information included
or incorporated by reference in our future filings with the SEC, and information
contained in written material, releases and oral statements issued by us, or on
our behalf, are forward-looking statements including, without limitation,
statements with respect to growth plans, projected sales, revenues, earnings and
costs, product development schedules and plans, future cash requirements and
sources and sufficiency of capital resources. Generally, the words
"anticipates," "believes," "expects," "intends" and similar expressions identify
forward looking statements. The Company's actual results may differ materially
from those contained in the forward looking statements identified above. Factors
which may cause such a difference to occur, include, but are not limited to,
those factors set forth below.
OUR ACCOUNTING FIRM'S AUDIT OPINION CONTAINS A "GOING CONCERN"
PARAGRAPH. We had a similar paragraph in our previous year's audited financial
statements. Our financial statements have been prepared assuming that we will
continue as a going concern. The audit opinion notes that we have a working
capital deficiency and shareholders' deficit. It also notes that our convertible
debenture is a current obligation and we do not have long-term credit
availability. The Debenture contains a provision which states that the holder
can accelerate maturity if the Company's common stock is not listed on an
exchange or Nasdaq. The Company's common stock is not so listed. These
conditions raise substantial doubt about our ability to continue as a going
concern. Our financial statements do not reflect any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
OUR LAWSUIT ALLEGING AN ENFORCEABLE STANDSTILL AND BUY-BACK AGREEMENT
RELATING TO OUR DEBENTURE MAY NOT BE SUCCESSFUL. As described in "Item 3 - Legal
Procedures" of a our Form 10-K, we have filed a lawsuit to enforce an agreement
relating to the buy back of our outstanding convertible subordinated debenture
due April 27, 2003. The other party denies that any such agreement exists.
Litigation is an inherently uncertain process, and it is possible that we will
not prevail.
The debenture states that the holder may accelerate the maturity date
if our stock is not listed on the Nasdaq National or Small Cap Markets. Our
stock is not so listed. An agent for three purported transferees of the
debenture have submitted a purported demand for payment. We intend to vigorously
contest this demand. In the event that we are not successful in our lawsuit, we
expect that we could pay the debenture in full over several years but we cannot
pay it in full at this time.
OUR ACCOUNTS RECEIVABLE SALES FACILITY IS DUE TO EXPIRE. In September
1999, we entered into a $3.0 million receivables sale agreement, which has been
our primary source of working capital. The three year initial term has been
extended until January 28, 2003. In addition, the most recent extension provides
that any attempt by the holder of the debenture to accelerate the obligation
shall be deemed an event of default under the receivables sale agreement. The
Company received a purported demand for immediate payment of the debenture, but
intends to vigorously contest the validity of the demand. If the accounts
receivables sales facility is not renewed beyond the current expiration date or
is otherwise terminated, our primary source of additional liquidity will no
longer be available to us. If we lose this source of liquidity and are unable to
replace it, our financial condition would be significantly and adversely
affected.
THE ECONOMIC ENVIRONMENT IN GENERAL AND THE MANUFACTURING SECTOR IN
PARTICULAR ARE WEAK, WHICH HAS AND MAY CONTINUE TO ADVERSELY AFFECT OUR
BUSINESS. Our manufacturing customers produce capital goods, the demand for
which is highly dependent on both disposable income and the attitude of
companies and individuals regarding their economic prospects. Many of these
goods are discretionary leisure expenditures, such as motorcycles, RVs or
snowmobiles. Continued softness in our customers' markets results in fewer new
projects for us.
WE HAVE NOT HAD INCOME IN THE PAST AND WE MAY NOT HAVE INCOME IN THE
FUTURE. Since our organization in 1981, we have experienced net losses in each
fiscal year other than fiscal 2002, resulting in an accumulated deficit of
$99,924,000 at July 31, 2002. We require continued increases in revenues to
sustain a profitable level of operations. There can be no assurance that we will
remain profitable in fiscal 2003 or thereafter.
WE MAY HAVE PROBLEMS RAISING MONEY IN THE FUTURE. Historically, we have
funded our substantial network development costs, acquisitions and negative cash
flow from operations principally from the sale of securities. In recent years we
have generated positive cash flow from operations, but we may need to raise
additional financing in the future in order to continue to make acquisitions or
to increase our investments in areas such as marketing and new product
development. In this event, we may need to obtain additional financing and issue
securities to outside sources with greater rights than those currently possessed
by holders of our common stock. Any additional financing may be dilutive to
existing shareholders or may be on terms that are not favorable to us.
WE ARE SUBJECT TO INTENSE COMPETITION. The market for e-commerce
products and services is highly competitive. Several companies offer electronic
commerce services or software products that are similar to those offered by us.
Moreover, companies within our target markets may develop and implement private
computer-to-computer networks, thereby reducing demand for our network services.
Because the market for Internet products and services lack significant barriers
to entry, new competitors could enter our market relatively easily. Our
competitive environment is characterized by rapid technological changes, dynamic
customer demands and frequent product enhancements and product introductions.
The pace of technological changes, such as developments in Internet commerce, is
so great that new competitors may emerge
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quickly based on new technologies. Many of our current and potential competitors
have greater financial, technical, operational and marketing resources than us,
and we may not be able to compete successfully against these competitors.
OUR SUCCESS DEPENDS ON NEW PRODUCT DEVELOPMENT AND RESPONDING TO
TECHNOLOGICAL CHANGE. The market for our products and services is characterized
by technological advances, changes in customer requirements and frequent new
product introductions and enhancements. Our growth and future financial
performance will depend in part upon our ability to enhance existing products
and services and develop and introduce new products and services that meet
technological advances, respond to evolving customer requirements, respond to
competitive products or announcements and achieve market acceptance. There can
be no assurance that we will be successful in developing and marketing products
or services on a timely basis, or that our products and services will adequately
address the changing needs of the marketplace and achieve market acceptance,
particularly given our financial limitations and workforce reductions. The
e-commerce industry in general is also characterized by evolving standards and
technology. Our ability to anticipate or guide these standards in our targeted
sectors and to fund advances in computer and telecommunications technology and
software will be a significant factor in our ability to grow and remain
competitive. Furthermore, a reduction in our full time equivalent employees may
hurt our ability to compete in the quickly-changing e-commerce industry.
OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER. We expect that
a significant portion of our revenue in the future will be derived from
non-recurring fee income, which consists primarily of revenues from professional
services such as software customization and training, software sales and
one-time network installation fees. The timing of receipt of this revenue is
dependent upon several factors that we cannot predict. These factors include:
o The time required to close large license fee and development
agreements. These agreements can be delayed due to customer
requirements and decision-making processes.
o The seasonality of certain sectors of the equipment industry
in which we operate.
o Delays in the introduction of new products or services and
their acceptance by customers.
o Delays in delivering customized software to our customers.
Recurring revenues are also difficult to estimate. Recurring revenues
from maintenance and subscription fees may be estimated based on the number of
subscribers to our services, but will be affected by the renewal rate which
cannot be determined in advance. Renewal revenues can vary based on:
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o competitive technologies or procedures,
o specific economic conditions in e-commerce and in our target
markets,
o general economic conditions, and
o delays in delivering customized software to our customers.
The emerging nature of commercial use of the Internet makes predictions
concerning our future revenues difficult. We believe that period-to-period
comparisons of our results of operations will not necessarily be meaningful and
should not be relied upon as indicative of our future performance. It is also
possible that in some future quarters our operating results will be below the
expectations of securities analysts and investors, although we do not have any
analysts following our stock at this time. In such circumstances, the price of
our stock may decline.
WE FACE RISKS IN PURSUING OUR GROWTH. Our ability to pursue and sustain
significant revenue growth is affected by many factors including the following:
o our access to financing to fund the growth;
o the growth rate of our selected markets;
o the positioning of our products and services in our selected
markets;
o variations in demand for and cost of customer services and
technical support;
o customer adoption of Internet applications and their
willingness to upgrade from client-server versions of
software;
o our ability to release new software applications and upgrades
on a timely basis;
o our ability to establish and maintain strategic alliances;
o our ability to continue to make acquisitions; and
o our ability to attract and retain a high-performance sales
team.
OUR PRICING MODELS MAY BE NEGATIVELY IMPACTED BY INCREASED COMPETITION.
The market in which we operate has been, and we believe will continue to be,
affected by competitors that sell products and services at very low prices in
order to increase their market share. We may have to lower our prices to levels
which would negatively affect our net income in order to compete with these
competitors and maintain our customer base. Alternatively, we may have to exit
certain market segments and/or product lines if we are unable to provide
products and services at competitive prices.
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WE DEPEND ON MR. DEARING AND THE LOSS OF HIS SERVICES WOULD HARM OUR
BUSINESS. Mr. Dearing is our Chairman of the Board and Chief Executive Officer.
Mr. Dearing is also responsible for development of our business model. If we
lose the services of Mr. Dearing, our business would be harmed substantially.
WE MAY EXPERIENCE DIFFICULTIES IN PURSUING ACQUISITIONS. We have been
forced to postpone our pursuit of acquisitions, given our financial condition
and deprived stock price. Nevertheless, we desire long-term to continue to
expand through the acquisition of businesses, technologies, products and
services from other businesses. Acquisitions involve a number of special
problems, including:
o difficulty in integrating acquired technologies, operations
and personnel with our existing business;
o diversion of management attention in connection with
negotiating the acquisitions and integrating the assets;
o strain on managerial and operational resources as we oversee
larger and/or more geographically dispersed operations;
o exposure to unforeseen liabilities of acquired companies;
o the need to incur or assume additional debt;
o the requirement to record additional future operating costs
for the amortization of goodwill and other intangible assets,
which amounts could be significant; and
o the assumption of contracts which may be unfavorable to us
under which we are obligated to perform.
We may not be able to successfully address these problems. Moreover,
our long-term future operating results will depend to a significant degree on
our ability to successfully manage internal growth and integrate new
acquisitions.
WE HAVE MODIFIED OUR BUSINESS MODEL TO FOCUS MORE ON OUR CORE CATALOGUE
PRODUCTS AND LESS ON OUR COMMUNICATION PRODUCTS. Implementation of this new
business model may be difficult. Implementation may take time. As a result of
the new business plan, costs expended on communication products may not realize
revenues.
WE FACE RISKS WITH OUR INTERNATIONAL STRATEGY. Our business strategy
includes increasing our presence in the non-U.S. equipment markets. This
strategy presents a number of special risks including:
o managing more geographically diverse operations;
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o dealing with currency fluctuations;
o the increased costs of operation;
o only having a small number of employees in these markets;
o our dependence on value-added resellers and contractors to
sell and service our products;
o a much smaller and more concentrated current customer base;
and
o the assumption that U.S. international policy will remain
favorable towards the countries in which we sell our products
and services.
OUR COSTS ARE NOT ENTIRELY PREDICTABLE. We are highly dependent on
software development to obtain new customers and maintain those we already have.
We may substantially underestimate the time and expense necessary to create the
software we sell. Furthermore, competition for skilled software developers may
cause our employee costs to rise more rapidly than planned, even in a slowing
economy as we are now experiencing.
OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ NATIONAL MARKET AND
IS NOW REGULATED AS A PENNY STOCK WHICH, AMONG OTHER THINGS, RESTRICTS THE
ABILITY OF BROKER-DEALERS TO BUY OR SELL OUR SECURITIES. This restriction may
effect the ability of holders to buy or sell our securities in the secondary
market and may also effect the price at which such holders can buy or sell our
securities. The delisting from Nasdaq may cause our stock to be less attractive
to investors and may make it more difficult to raise additional financing in the
future.
OUR STOCK PRICE IS VOLATILE. In recent months the stock market has
experienced significant price and volume fluctuations which have affected the
market prices of equity securities of many companies including those providing
Internet-related products and services. Some of these fluctuations reflect
reaction to world events and appear unrelated or disproportionate to the
operating performance of such companies. Future market movements may adversely
affect the market price of our stock.
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