UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from to
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Commission File Number: 000-49954
Maximum Dynamics, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1556886
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 North Cascade Avenue, Suite 1100, Colorado Springs, Colorado 80903
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(Address of principal executive offices) (Zip Code)
(719) 381-1728
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(Registrant's Telephone Number, Including Area Code)
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 practical date. As of May 18, 2004 there were
78,285,834 shares of the issuer's no par value common stock issued and
outstanding.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAXIMUM DYNAMICS, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 2004
ASSETS
Current assets:
Cash........................................................ $ 64,068
Accounts receivable......................................... 87,890
Employee advances........................................... 7,668
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Total current assets.......................... 159,626
Investment in E-SAP (Note 7).................................... 203,242
Property and equipment, net..................................... 106,776
Intangible assets:
Intellectual property - Tagnet, net......................... 205,929
Intellectual property - Datalus, net (Note 6)............... 187,056
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$ 862,629
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................... $ 98,538
Notes payable (Note 4)...................................... 33,000
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Total current liabilities..................... 131,538
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Minority interest............................................... 9,197
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Shareholders' equity (Note 5):
Preferred stock, -0- shares issued and outstanding.......... ---
Common stock, 78,285,833 shares issued and outstanding...... 6,187,633
Additional paid-in capital.................................. 579,892
Retained deficit............................................ (6,045,631)
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Total shareholders' equity.................... 721,894
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$ 862,629
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See accompanying notes to condensed financial statements
2
MAXIMUM DYNAMICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
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2004 2003
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Revenue....................................................... $ 264,798 $ 80,374
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Selling, general and administrative........................... 180,512 204,733
Other general expenses:
Stock-based compensation (Notes 2 and 5):
Employee services...................................... 133,000 ---
Consulting services.................................... 831,000 127,250
Advisory Board......................................... 50,000 ---
Contributed services (Note 2)............................. --- 49,375
Depreciation and amortization............................. 47,756 132,705
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Total operating expenses.................. 1,242,268 514,063
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Operating loss............................ (977,470) (433,689)
Non-operating income:
Equity in net income/loss of unconsolidated
subsidiary (Note 7).................................... 3,242 ---
Gain on forgiveness of debt (Note 4)...................... 426,900 ---
Gain on collection of receivables
previously written off................................. 95,500 ---
Interest expense.............................................. (6,309) (48,963)
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Loss before income taxes and
minority interest...................... (458,137) (482,652)
Income tax provision (Note 3)................................. --- ---
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Loss before minority interest............. (458,137) (482,652)
Minority interest in income of
consolidated subsidiaries................................. 9,789 ---
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Net loss.................................. $ (448,348) $ (482,652)
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Basic and diluted loss per share.............................. $ (0.01) $ (0.02)
================== =================
Weighted average common shares outstanding.................... 75,973,784 29,373,333
================== =================
See accompanying notes to condensed financial statements
3
MAXIMUM DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS DEFICIT
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------- --------------- -------------- --------------- ------------
Balance, January 1, 2004.................... 61,809,687 $ 4,542,719 $ 573,225 $ (5,597,283) $ (481,339)
Common stock issued in exchange for
consulting services (Note 5)............ 8,310,000 831,000 --- --- 831,000
Common stock issued in lieu of
compensation to officers and
employees (Note 2)...................... 1,330,000 133,000 --- --- 133,000
Common stock issued in exchange for
Advisory Board services (Note 5)........ 500,000 50,000 --- --- 50,000
Sale of common stock, less offering
costs totaling $2,700 (Note 5).......... 950,000 92,300 --- --- 92,300
Common stock issued to acquire Datalus
technology (Note 6)..................... 2,000,000 200,000 --- --- 200,000
Common stock issued to acquire 20
percent interest in E-SAP (Note 7)...... 2,000,000 200,000 --- --- 200,000
Common stock issued as payment of
debt and related accrued interest
payable (Note 4)........................ 1,386,146 138,614 --- --- 138,614.
Capital contribution by an officer (Note 2). --- --- 6,667 --- 6,667
Net loss.................................... --- --- --- (448,348) (448,348)
--------------- --------------- -------------- --------------- ------------
Balance, March 31, 2004..................... 78,285,833 $ 6,187,633 $ 579,892 $ (6,045,631) $ 721,894
=============== =============== ============== =============== ============
See accompanying notes to condensed financial statements
4
MAXIMUM DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
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2004 2003
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Net cash (used in) provided by
operating activities............................ $ 95,281 $ (129,758)
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Cash flows from investing activities:
Purchases of equipment............................................... (16,326) (2,076)
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Net cash used in
investing activities............................ (16,326) (2,076)
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Cash flows from financing activities:
Capital contribution by an officer (Note 2).......................... 6,667 ---
Proceeds from issuance of notes payable.............................. --- 135,000
Repayment of notes payable (Note 4).................................. (116,667) ---
Payments for offering costs (Note 5)................................. (2,700) ---
Proceeds from sale of common stock (Note 5).......................... 95,000 ---
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Net cash provided by
financing activities............................ (17,700) 135,000
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Net change in cash.............................. 61,255 3,166
Cash, beginning of year.................................................. 2,813 2,813
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Cash, end of year........................................................ $ 64,068 $ 5,979
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Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes...................................................... $ --- $ ---
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Interest.......................................................... $ 19,167 $ ---
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Non-cash investing and financing transactions:
Common stock issued as payment of debt and
accrued interest payable (Note 4).............................. $ 138,614 $ ---
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Common stock issued to acquire Datalus
technology (Note 6)............................................ $ 200,000 $ ---
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Common stock issued to acquire 20 percent
interest in E-SAP (Note 7)..................................... $ 200,000 $ ---
================== =================
See accompanying notes to condensed financial statements
5
MAXIMUM DYNAMICS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its Form 10-KSB with financial
statements dated December 31, 2003, and should be read in conjunction with the
notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim period presented have been made. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the year.
Financial data presented herein are unaudited.
NOTE 2: RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2004, the Company issued 1,330,000
shares of its no par value common stock to officers and employees as
compensation. The shares issued in the transaction were valued based on
contemporaneous stock sales to unrelated third parties, or $.10 per share.
Stock-based compensation expense of $133,000 was recognized in the accompanying
consolidated financial statements for the three months ended March 31, 2004.
During the three months ended March 31, 2004, an officer contributed $6,667 to
the Company to assist in the repayment of promissory notes. The $6,667 is
included in the accompanying condensed consolidated financial statements as an
increase to additional paid-in capital.
Three officers contributed software programming, business development and
administrative services to the Company during the three months ended March 31,
2003. The time and effort was recorded in the accompanying financial statements
based on the prevailing rates for such services, which ranged from $50 to $100
per hour based on the level of services performed. The services are reported as
contributed services with a corresponding credit to additional paid-in capital.
NOTE 3: INCOME TAXES
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses during
all periods presented resulting in a deferred tax asset, which was fully allowed
for; therefore, the net benefit and expense resulted in $-0- income taxes.
NOTE 4: NOTES PAYABLE
During January and February 2004, the Company settled the six promissory notes
that had a total principal balance of $116,666 and accrued interest payable of
$307,031 as of December 31, 2003, for cash payments of $135,834 and the issuance
of 736,146 shares of its common stock. The shares issued in the transaction were
valued based on contemporaneous stock sales to unrelated third parties, or $.10
per share, for a fair value of $73,615. The settlements resulted in a net gain
on the extinguishment of the debt totaling $214,249.
6
On March 15, 2004, the Company renegotiated payment of a $285,000 promissory
note and $25,651 in related accrued interest. Under the terms of the settlement,
the Company agreed to pay the debt holder five monthly payments of $6,600
commencing May 1, 2004 and issue 650,000 shares of our restricted common stock.
The stock was issued on March 31, 2004. The shares issued in the transaction
were valued based on contemporaneous stock sales to unrelated third parties, or
$.10 per share, for a fair value of $65,000. The settlements resulted in a net
gain on the extinguishment of the debt totaling $212,651. The balance owed on
the note settlement totaled $33,000 at March 31, 2004.
Interest expense related to the notes totaled $5,700 for the three months ended
March 31, 2004.
NOTE 5: SHAREHOLDER'S EQUITY
During January and February 2004, the Company continued its private placement
offering commenced in December 2003, whereby it sold 950,000 shares of its
common stock for $.10 per share pursuant to an exemption from registration
claimed under sections 3(b) and 4(2) of the Securities Act of 1933, as amended,
and Rule 506 of Regulation D promulgated thereunder. The Company relied upon
exemptions from registration believed to be available under federal and state
securities laws in connection with the offering. The shares were sold through
the Company's officers and directors. The Company received net proceeds from the
offering totaling $92,300, after deducting offering costs of $2,700.
During the three months ended March 31, 2004, the Company issued 8,310,000
shares of its common stock to unrelated third parties in exchange for software
engineering, marketing, and business development services. The shares issued in
the transaction were valued based on contemporaneous stock sales to unrelated
third parties, or $.10 per share. Stock-based compensation expense of $831,000
was recognized in the accompanying consolidated financial statements for the
three months ended March 31, 2004.
During the three months ended March 31, 2004, the Company issued 500,000 shares
of its common stock in exchange for advisory board services. The shares issued
in the transaction were valued based on contemporaneous stock sales to unrelated
third parties, or $.10 per share. Stock-based compensation expense of $50,000
was recognized in the accompanying consolidated financial statements for the
three months ended March 31, 2004.
NOTE 6: DATALUS TECHNOLOGY
On December 12, 2000, we issued 2,000,000 shares of our common stock in exchange
for a five year license of the Datalus technology. The rights received in the
Datalus license agreement were capitalized and amortized over a period of five
years, the length of the license agreement. On February 4, 2004, we acquired
ownership of the Datalus software system in exchange for 2,000,000 shares of our
common stock. The shares issued in the transaction were valued based on
contemporaneous stock sales to unrelated third parties, or $.10 per share,
resulting in a valuation of $200,000. The Datalus technology has been
capitalized and is currently amortized over a period of three years.
Amortization expense related to the license rights totaled $445 for the period
from January 1, 2004 through February 3, 2004. Amortization expense for the
Datalus technology totaled $12,944 for the period from February 4, 2004 through
March 31, 2004.
NOTE 7: E-SAP PROJECT
On March 4, 2004, we acquired a 20 percent ownership interest in E-SAP Project
Management and Consulting (Proprietary) Limited ("E-SAP"), a South African
company, in exchange for 2,000,000 shares of our restricted common stock. E-SAP
is a 157 person end-to-end products and solutions company that has experience in
diverse business areas and technology domains in the telecommunications,
banking, financial services, insurance and logistics industries. E-SAP has
extensive experience both in the management of large end-to-end engagements and
the development and implementation of complex and sophisticated solutions across
many industries.
The shares issued in the transaction were valued based on contemporaneous stock
sales to unrelated third parties, or $.10 per share, resulting in a valuation of
$200,000.
The investment in E-SAP is accounted for using the equity method of accounting.
The Company reports its investment on the consolidated balance sheet as
"Investment in E-SAP" and its share of E-SAP's earnings or losses as "Equity in
income/loss of unconsolidated subsidiary" on the condensed consolidated
statements of operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICY AND ESTIMATES. Our Management's Discussion and
Analysis of Financial Condition and Results of Operations section discusses our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
consolidated financial statements included in our Quarterly Report on Form
10-QSB for the period ended March 31, 2004.
Background
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Maximum Dynamics, Inc. was incorporated on August 23, 2000 in Colorado. In
August 2000, we secured a five-year exclusive license of a software system from
Europa Global, Inc., or Europa, a non-U.S. technology company in exchange for
2,000,000 shares of Common Stock as an upfront payment for the five-year
exclusive license of the software system. Europa initially developed the
software system before licensing it to us, where we continued development of the
software under the name Datalus. In February 2004, we purchased the Datalus
software from Europa Global, Inc. in exchange for 2,000,000 shares of our common
stock. Included with the software purchase was the platform, all associated
technology and proprietary rights to the Datalus software.
8
We initially designed Datalus to be a web-based software system we would utilize
for the fund administration for fund managers. Because it automates so many
processes, we believe it allows us to provide a service for fund managers with
three critical value propositions: lower overhead, computation and tracking, and
security/control. First, we believe that Datalus can significantly reduce
overhead by generating statements instantly as opposed to paying accountants for
generating statements for one to two months at a time. We believe that the
system has the capability to compute the statements and calculate the assets,
along with redemptions and any compensation to sponsors and/or agents. We
believe our web-based software can also provide our customers on-line access to
their accounts 24 hours, seven days a week. Lastly, the software has numerous
security features built into it. Therefore, we expect that use of our software
will enable fund managers to outsource their entire client side management by
allowing a third party administrator to access their records for administration
purposes while still maintaining control and security.
Because Datalus in essence was a business process management tool, we expected
that it would have applications to other industries where workflow processes
could be automated. Through strategic partnerships and an acquisition of
Unilogic Solutions (Pty), Ltd., we were able to integrate Datalus with
Unilogic's software platform to create a proprietary technology platform that we
believe enables us to manage literally any business process or project.
As exciting opportunities have emerged, we have pursued them and through
partnerships, joint ventures and acquisitions built a large base of
infrastructure, technology solutions, back office services, and business
management resources. As such, we increased our scope and focus to become a
projects management services company. The projects we choose to manage must meet
strict criteria and are managed either by Maximum, one of its subsidiaries,
joint venture or strategic partners.
We currently have 26 projects on which we are working that are organized into
eight primary business units that are managed from our global operations center
in Cape Town, South Africa. When we evaluate a project, we put it through strict
evaluation criteria before it is accepted. The underlying strategy behind our
operations is to take on projects that support other existing projects and that
fall into one of a few critical industries that we target. Our long term goal is
to eventually have between 2% and 10% of market share either directly or
indirectly in the banking, logistics, communications (including
telecommunications), energy and education sectors in the regions where we
conduct business. Since these sectors are crucial to any economy, we believe
that being actively involved in these sectors in the regions where we conduct
business will place us at the hub of business activity and influence.
We aim to penetrate these sectors by selecting projects that will take us to the
center of these segments. In South Africa, for example, we are already actively
engaged in projects that we believe to have the ability to take us to the center
of each of these sectors. These projects include wireless real-time tracking
solutions for mobile logistics (TagNet), mobile commerce using wireless mobile
point of sale solutions (MPOS), village banking, wireless Internet
communications in urban and rural settings, energy and alternative fuel
solutions, business process management, enterprise application integration,
supply chain management and procurement, back office services, commodities
trading, and economic development. We consider TagNet and MPOS two of our
flagship projects, which we will describe in more detail later. We wish to
remind investors, however, that there can be no assurance that these projects
will succeed or if they do succeed that they will take us to the center of the
above mentioned sectors or result in added value to our investors.
What we consider to be one of our greatest intellectual property assets is the
process by which we evaluate, manage and implement business projects. We are
often asked how we manage so many projects without spreading the Company too
thin. Management believes that it is able to accomplish this due to three key
things: 1) our in-house business process management systems and management
mechanisms that have been developed to form a centralized global management
system; 2) our philosophy of utilizing partnerships to provide infrastructure as
opposed to bank rolling the amassing or provision of infrastructure ourselves;
and 3) cross pollination of projects so that efficiencies can be gained by
projects sharing resources and not duplicating work as well as enhancing
revenues by upselling products or services from other projects.
From December 2003 through May 2004, we have been busy building the support and
management mechanisms necessary to successfully manage the jump in growth we
believe we are about to experience. To that end, we have been ramping up our
operational capabilities; securing infrastructure and projects specialists for
our projects through acquisitions, forming joint ventures and securing strategic
partnerships; appointing and structuring relationships with value added
resellers (VARs); generating significant interest in and demand for our various
products and services; and scheduling demonstrations and pilot projects for
products and services.
9
Management believes that we now possess the support and management
infrastructure required to successfully fulfill and deliver to our interested
customers and is moving us towards contract closure mode. Management plans on
working to close select contracts that we are well positioned to fulfill. It is
management's opinion that if we moved to close on all of the demand that has
been generated that we would not be able to effectively manage that level of
growth. Consequently, we are working to secure larger contracts first that would
enable us to finance a higher level of growth. There can be no assurance,
however, that we will secure any contracts or be able to finance growth from any
contracts that are secured.
Acquisitions
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On October 8, 2002, we acquired the assets of Barrington Gap, Inc., a Colorado
corporation and our first customer, for $47,000 in cash and stock. In that
acquisition, we believe we gained extremely effective Internet marketing
software, a sales force, prospecting software, web data integration/sales and
marketing software, maintenance contracts and software development for three (3)
Internet Service Providers (ISPs), customer contracts that generated about
$150,000 in revenue since the date of acquisition, a partnership agreement with
a technology development center in South Africa, and a partnership agreement
with a call center in South Africa.
The acquired software applications from Barrington Gap, Inc. are compatible with
Datalus and were integrated into the system so that a complete package can be
offered or alternatively can be offered as individual product/service offerings.
We believe that the relationship with the technology development and call
centers in South Africa played a large part in us setting up our main base of
operations in Cape Town, South Africa. These two partners helped us to identify
many of the strategic partners, joint venture partners, and subsidiaries that we
have today.
On December 12, 2002, we acquired The Mini-Cap Sector, a group of assets valued
at approximately $2 million. The Mini-Cap Sector includes proprietary trading
models, proprietary research methodologies, published research on more than 100
companies, a mini-cap index, the world's first mini-cap database, a financial
consulting and investment banking service, and fully integrated websites that
contain subscriber bases and access to research reports. The Mini-Cap Sector is
a term used to describe the sector of companies with market capitalizations
under $50 million. Included in the agreement are all pre-existing business
opportunities with numerous mini-cap companies that include investment banking,
management consulting and other consulting opportunities. We decided to acquire
The Mini-Cap Sector because it creates value in three two key areas. First, the
assets contain numerous leads with hedge funds and other investment
professionals that are prospective customers for our fund administration
business. Secondly, we intend to plug the acquired trading models into a
proprietary trading technology we are developing in-house that we intend to
license at some future point. In March 2004, we partnered with a technical
trading company to begin work on this trading technology.
In April 2003, we moved our main operations center to Cape Town, South Africa,
which became operational in September 2003. The operations center in Cape Town
was established to service customers and to provide accounting, back office
administration, client side support and call center services. In order to bring
the operations on-line, we turned to strategic partnerships, joint ventures and
acquisitions to build out our infrastructure. Our first partnership was formed
with Unilogic Solutions (Pty), Ltd. (www.unilogic.co.za) in June 2003. Unilogic
has developed a suite of electronic document management systems (EDMS) and
business workflow software applications that overlap in functionality with
Maximum's software system Datalus. These software applications target other
markets not currently being addressed by Datalus, such as human resource
management, insurance claims processing, corporate procurement and supply chain
management, employee labor relations, debt management, contracts management and
loan application process management.
We decided to acquire Unilogic so that we could have ownership of the
intellectual property and software applications as well as to be able to pursue
some of these other markets not being addressed by us. As such, we acquired 51%
of Unilogic on September 18, 2003 in exchange for $72,000 in cash (payable over
12 months) and 6,000,000 shares of restricted common stock. On January 20, 2004,
we acquired the remaining 49% of Unilogic for 1,000,000 shares of restricted
common stock. In March 2004, we changed Unilogic's name to Maximum Dynamics,
Inc. SA ("Maximum SA"). We have positioned Maximum SA as the central hub for
projects management services and the main back office. Maximum SA's business
process management, workflow automation and EDMS systems represent the glue that
holds our model together. We believe Maximum SA will also be able to utilize
these systems to offer customized technology solutions to other companies in
Africa, the United States, Europe and Asia.
10
From July through October 2003, we focused primarily on securing contracts for
Unilogic's technology solutions because of Unilogic's pre-existing client base
that includes companies such as Old Mutual, Laser Transport Group, Bidvest Group
(Visual Information Systems), Expressed Solutions and the Angolan Government. By
December 2003, Unilogic had submitted more than twenty four proposals with about
fifteen under consideration by potential customers.
Due to the black economic empowerment (BEE) 1 charters in South Africa, most of
these contracts required that we submit our bids through a BEE company that is a
government approved BEE company. Since most of the proposals were for supply
chain management and procurement workflow automation solutions, we had partnered
with IntData (Pty), Ltd., a BEE company that was contributing the workflow
mapping required for supply chain and procurement solutions. In October 2003,
IntData (Pty), Ltd. began experiencing problems that caused us to question the
soundness of utilizing them as a value added reseller (VAR).
In September 2003, we had developed another strategic partnership with a BEE
company called Maseco Systems Integrators (MSI) to be a VAR and assist with
integration and implementation of the Unilogic contracts. After working together
for several months, we signed a Letter of Intent to acquire a 40% equity stake
in MSI on October 9, 2003. We were interested in acquiring MSI for several
reasons. First, MSI is a technology integration and infrastructure support
company which we believe to have strong IT solutions, ERP implementation
projects and systems integration capabilities. These capabilities are exactly
what our management believes is needed to service our Unilogic contracts.
Secondly, MSI was a 66% owner in a $10 million joint venture with Bytes
Technology Networks called Maseco Bytes, which was an infrastructure and systems
integration technology company. We believe that Maseco Bytes had an excellent
reputation as a solid BEE company due to MSI's track record and reputation.
Lastly, MSI was working on developing some cutting edge technology in the mobile
logistics arena.
However, shortly after our LOI, Bytes Technology Networks maneuvered to gain
control of Maseco Bytes, forcing MSI's two managing directors out of the
company. In November 2003, Bytes Technology Networks began a series of legal
maneuvers that resulted in Maseco Byte's liquidation in February 2004.
As a result of our intention to acquire MSI and during the due diligence
process, however, management learned that one of the shareholders of MSI, Maseco
Denmark A/S, owned the intellectual property for a real-time tracking device
called TagNet. After a thorough review of the technology and a feasibility study
of the technology's applications, management became more interested in TagNet
than in MSI. Therefore, on October 31, 2003, we acquired 89% of Maseco Denmark
A/S (which has now been changed to TagNet International A/S) for six million
shares of restricted common stock. Since TagNet International has a 33% stake in
MSI, we felt we "killed two birds with one stone" by obtaining the TagNet
technology as well as a stake in MSI in case it resolved its legal battle with
Bytes Technology Networks.
While MSI sorted through its legal issues with Bytes Technology Networks, we
focused on bringing to market TagNet International's suite of mobile logistics
solutions. Several of these applications have been in use in Demark and parts of
Europe for a number of years. By making some engineering modifications and
slight system redesigns, we were able to introduce what we believe to be a
unique solution called TagNet, which is a system wherein cell phone
communications technology is used to track the location of a small credit card
size devices, or "Tags". In our estimation, these cost effective tag reading
devices and tags can be tracked anywhere where there is cell phone coverage. By
extending the network through other means, the solution can even be tracked
outside of a cell phone network, which our management believes makes the
tracking technology unique. (A more thorough description of TagNet and the
services surrounding the technology is found later)
As a result of MSI's instability coupled with our concern about IntData, we
began working on forming our own BEE company through which we could go back to
these potential customers and submit our proposals under this new company. In
February 2004, we organized and structured Keto Business Solutions as a BEE
company. We contributed distribution rights and infrastructure resources in
exchange for a forty nine (49%) equity stake, which was finalized in April 2004.
In February 2004, Maseco Bytes was liquidated and some of their people joined
Keto, including Maseco Bytes' Executive Director, Motsamai Nduna, who is
currently the managing director of Keto.
1 The government of South Africa has implemented a nationwide charter that
mandates the redistribution of wealth to individuals that were previously
disadvantaged (PDIs) under Apartheid. Companies owned and managed by PDIs and
that conduct skills transfer to other PDIs receive top consideration. When a
company puts a project out to bid, it needs to make sure that at least one BEE
company bids on the project, unless no BEE company exists to bid on the project.
11
Shortly after the formation of Keto, management entered into discussions with
E-SAP Project Management and Consulting (Pty), Ltd. (E-SAP) about an
acquisition. Management had already formed a strategic partnership with E-SAP
and had identified E-SAP as one of the more distinguished infrastructure
companies with whom it had developed partnerships in order to replace IntData
and Maseco Bytes. On March 4, 2004, we acquired a 20% equity stake in E-SAP in
March 2003. That agreement is attached hereto as an exhibit. E-SAP is a 157
person end-to-end products and solutions company that has experience in diverse
business areas and technology domains in the telecommunications, banking,
financial services, insurance and logistics industries. In our estimation, E-SAP
has extensive experience both in the management of large end-to-end engagements
and the development and implementation of complex and sophisticated solutions
across many industries. E-SAP generated revenues of $10,413,692 and net income
of $1,225,617 in fiscal year 2004 (March 1, 2003 through February 28, 2004 at an
exchange rate of US$1 to R6.5).
Management believes that E-SAP's solid reputation as a BEE company and its
background will enable us to not only design effective solutions for customers
but also help in the servicing on any contracts it secures from the 12 proposals
that are now back under consideration. Keto and E-SAP are working closely on
several proposals that are under consideration.
On April 14, 2004, we signed a term sheet to acquire 40% of Intesol Corporation
(Pty) Ltd. ("Intesol"), a 54% South African Black Economic Empowerment (BEE)
technology company. Intesol is comprised of a group of subsidiaries that fall
under the umbrella of Intesol Corporation (referred to collectively as the
Intesol Group of Companies). Intesol specializes in integrated security
solutions, systems design, electronic security, data recovery and erasing,
digital storage, security risk analysis, engineering consulting, radio frequency
identification tag integration, banking security, technology law, Energy Power
Management and other forms of communications.
In addition to being a solid infrastructure company, Intesol Group of Companies
has intellectual property rights and patents that include: ATM access control, a
bank card identification system, a credit card identification system, cell ads,
a vehicle identification system, an asset integrated monitoring identification
system, and information security software. Both parties believe the business
combination will be formidable. First, Intesol has solutions that enhance our
real-time tracking technology (TagNet), mobile point of sale product (M.POS) and
business process management solutions. Secondly, Intesol represents additional
infrastructure we need as we ramps up our world-wide operations to service
orders for our products in the banking, government and commercial sectors.
We are currently busy restructuring the businesses and subsidiaries of Intesol
in order to streamline business units and delivery mechanisms before we close
our acquisition. Once restructured, we believe we can roll in four other
technology companies that Intesol has identified to acquire. The consolidated
revenues for Intesol and its joint ventures for the financial year 2003/2004 are
being prepared and are expected to reveal revenues of over $10,937,500 with a
net income estimated to be over $2,187,500 USD. If we successfully roll in the
four other companies, we estimate that the consolidated revenues of the new
Intesol Group of Companies would be approximately $30 million per year. We wish
to remind investors that there can be no assurance that our acquisition of
Intesol will close or that we will be able to integrate any of the subsidiaries
or identified acquisition candidates.
In April 2004, we signed a term sheet to acquire 40% of Khumo (Pty) Ltd.
("Khumo"), a South African banking technology solutions company. In exchange for
its 40% equity stake, we were to provide the technology solutions, financial
integration systems and software and infrastructure required to service the
banking contracts of Khumo.
As we began to develop the project plan for this initiative, we started working
with the Cooperative Development Agency (CDA), which is a South African Close
Corporation that currently has contracts to provide funds management and banking
infrastructure to over 37 South African community bank branches. It became
evident that our elationship should be with CDA instead of Khumo. So, the CDA is
being restructured to include us and Khumo instead of us acquiring 40% of Khumo.
As such, hawse have signed a letter of intent to acquire up to 40% of CDA and
will act as the project manager for a joint venture with CDA and the village
banks themselves. In this role, we hope that we will develop the technology
platform and banking infrastructure required to monitor and regulate the village
banks so that they can gain access to the financial products and services
offered by the commercial banking sector.
12
We expect that the platform will draw from several off-the-shelf banking systems
and several potential International and well-recognized IT partners to fulfill
the banking requirements. We will also utilize our wireless mobile point of sale
terminal, M.POS2, for some of the banking transactions and as an important piece
of the technology solution being developed.
The eventual goal is to conduct a roll-up of 96 village bank braches nationwide
with which CDA has either contracts or a relationship. With our technology
platform in place, we expect that this roll-up would enable the consolidated
banks to eventually become a licensed, commercial bank. We wish to remind
investors that there can be no guarantee that the acquisition of CDA will be
concluded or that the roll-up of village banks will be successful.
These acquisitions (including the ones being closed) were done in order to
provide us with specific pieces of infrastructure or technology that we needed
in order to manage or implement a project.
Flagship Projects
- -----------------
MPOS
In September 2003, we were introduced to a Hong Kong based company called M.POS
Holdings Limited (http://www.mpos.net), which provides mobile commerce
solutions, through one of the consultants we engaged for business development.
M.POS provides mobile commerce services and products in the People's Republic of
China and Hong Kong. Their flagship product is the M.POS2002, which is a
wireless point of sale (POS) terminal designed to allow merchants to accept
payments by means of debit or credit cards in any location. We believe that
M.POS2002 is capable of processing magnetic cards or smart card payments in real
time from any location. The M.POS terminal can also capture and transmit data
for corporate applications, make voice calls and even offer fingerprint
verification. It has messaging capabilities that include sending, receiving and
printing short message services (SMS), sending and receiving email messages, and
instant text messages. As a result, in our estimation, merchants now are no
longer constrained to the location of their telephone lines, nor the narrow
services on offer from their traditional electronic funds transfer (EFT) POS
terminals. Our management believes that this highly portable device is perfectly
suited to drive payment acceptance, prepaid voucher sales, inventory tracking
and a host of other applications.
After consulting our partners, value added resellers, and Unilogic, we acquired
the exclusive rights to distribute M.POS' communications hardware and
electronics solutions into the continent of Africa with a right of first refusal
for the exclusive distribution rights into the United States and Mexico. As part
of the agreement with M.POS, we now have office space and sharing of human
resources in Hong Kong and Beijing, China. We signed the agreement on October
17, 2003 in exchange for 1,000,000 shares of restricted common stock.
We decided to secure these exclusive rights because we believe that many of
Unilogic's customers and contacts as well as the customers and contacts of our
partners are extremely interested in the M.POS products. Our management believes
that the M.POS2002 fits nicely into our product and service offering in the
banking, supply chain management, mobile commerce and procurement industries
that we now target through Maximum SA, E-SAP, Intesol, Keto and our partners. In
November, we started the process of getting the M.POS2002 certified for the
banking system in South Africa, which we expect means the banks will approve of
the device and its interfacing with the banking gateways in South Africa.
Certification from the banks is also important in South Africa because the
market is largely accustomed to the banks subsidizing the devices or providing
the devices for free, similar to how cell phone companies provide the phone for
free if the cellular service is secured for one year. Therefore, certification
by the banks means that they have approved of the device and will add it to
their list of POS vendors, which management believes will translate into
significant sales of the M.POS unit.
On April 8, 2004, management was informed by Nedbank, which is one of the
largest banks in South Africa, that the M.POS unit will be certified by Nedbank
and that they are interested in ordering units of the M.POS device for
distribution to its customers. Management wishes to remind investors that there
can be no assurance that Nedbank or any bank will order any M.POS units.
2 Maximum owns the exclusive distribution rights in Africa and the right of
first refusal in Mexico and the United States for the suite of mobile commerce
products developed by M.POS Holdings.
13
While we have been pursuing banking certification in South Africa and Mexico, we
have deployed what we believe is a top-down, bottom-up approach. We started at
the top by working on obtaining certification and approval from the banks and
worked our way down the value chain. While we were spending resources and time
on this, we also started at the bottom and went directly to the merchants to
ascertain what types of solutions and services would appeal to them.
As a result of our findings, we have been working with companies to get the
M.POS terminal programmed for applications that will enable the M.POS unit to
sell pre-paid voucher products such as cellular air time, power and loyalty
programs. We believe that we now have applications developed that enable the
device to handle pre-paid cellular air time and pre-paid vouchers for utilities.
We are now also working to partner with companies or form a joint venture with a
company that owns or maintains a switch. Switching is a highly specialized
solution for routing large volumes of transactions from different EFT networks
to their destination EFT networks or financial institution hosts. The barriers
to entry are high in this market segment and companies that are established
guard the access to their switch carefully. However, we are currently exploring
two deals that we estimate would give us access and possibly partial ownership
of a switch. Not only does this enable us to make money off of the back-end
processing of transactions but we hope it will thrust us further into the
banking sector.
With applications and back-end integration in place, M.POS is now ready to be
proactively sold. In fact, management pre-sold the first 450 units it had
ordered and is delivering the first batch at the end of May 2004. We are now
working to secure larger orders and increase the number of applications that can
be loaded onto the device. We are also in the process of implementing a
financing model in conjunction with the banks so that the units can be leased
thereby increasing our revenue per unit by twofold (over the life of the lease).
There can be no assurance, however, that additional sales will be made or that
the financing model will be successful.
We are also very excited about the opportunities surrounding the World Cup in
2010, which was recently awarded to South Africa to be the host country. We
believe that we are positioned very well in South Africa and that having mobile
commerce solutions such as M.POS could generate significant opportunities over
the next six years. We believe that having the back end integration and access
to switches coupled with the applications we are developing could generate
significant revenues as commerce ramps up for this global event.
We also have several other groups in Botswana, Kenya, and Mexico that are
actively working on rolling out sales of M.POS in these regions. With the
exception of Mexico, we expect that the roll-out is on a longer timeline due to
the need to establish maintenance and support partners there. However, it is our
goal over the next few months to take steps towards securing our role in working
with companies associated with M.POS Holdings on the POS terminal upgrade
project in China. This project aims to upgrade merchant POS terminals in China
in anticipation of the 2008 Olympic Games. We wish to remind investors that
there can be no assurance that we will be able to secure a role to participate
in this project.
TagNet
- --------
On October 31, 2003, we acquired 89% of Maseco Denmark A/S (which has now been
changed to TagNet International A/S) for six million shares of restricted common
stock. Since TagNet International has a 33% stake in MSI, we felt we "killed two
birds with one stone" by obtaining the TagNet technology as well as a stake in
MSI in case it resolved its legal battle with Bytes Technology Networks.
14
While MSI sorted through its legal issues with Bytes Technology Networks, we
focused on bringing to market TagNet International's suite of mobile logistics
solutions. Several of these applications have been in use in Demark and parts of
Europe for a number of years. By making some engineering modifications and
slight system redesigns, we were able to introduce what we believe to be a
unique solution called TagNet, which is a system wherein cell phone
communications technology is used to track the location of a small credit card
size devices, or "Tags". In our estimation, these cost effective tag reading
devices and tags can be tracked anywhere where there is cell phone coverage. By
extending the network through other means, the solution can even be tracked
outside of a cell phone network, which our management believes makes the
tracking technology unique.
The technology behind the new device has been used successfully by TagNet
International for a number of years and the customer list includes names like
The Danish Police force, The Danish Civil Defense and the European Commission.
We believe that the new generation of the device offers a substantial
improvement in "total cost of ownership" and has the potential to expand the
number of customers that will get good returns on investments.
In January 2004, we secured a pilot project with the National United Local and
Long Distance Taxi Association (NULLDTA), a 12,000 member organization in South
Africa. In March 2004, NULLDTA began promoting TagNet to its members and is
actively working on securing purchase orders for TagNet devices. Responses from
members have indicated an 80% response rate to TagNet and NULLDTA believes that
at least 2,000 orders will be made this year and possibly as many as 6,000.
Because TagNet devices can communicate with one another, we believe that
NULLDTA's members can use the devices to manage a fleet of taxis more
effectively, optimize route coordination and coverage areas, deter vehicle
theft, reduce the ability for drivers to be unproductive, reduce unreported cab
fares, assist in determining what the cause of an accident may have been, and
monitor engine performance and efficiency.
While NULLDTA has communicated that it has 200 orders already, the association
has been delayed in securing the orders due to organizational restructuring
issues. However, in preparing a demonstration and pilot project for NULLDTA, we
now are able to approach several other taxi associations thereby `killing
several birds with one stone'.
In January 2004, we presented TagNet to the Department of Transportation (DOT)
in Mexico who invited us to do a demonstration of TagNet, which was conducted on
May 19, 2004. The demonstration was successful and we believe that the DOT liked
the technology's potential for substantial cost savings and increased security,
especially compared to other solutions that currently exist. Potential uses for
the technology within the DOT include fleet management, traffic monitoring and
traffic congestion tracking, and asset tracking. After the demonstration, the
DOT requested a pilot project to be implemented as soon as possible. We are now
working on scheduling the start of the pilot project, details of which will be
kept confidential until the pilot project is concluded.
In February 2004, TagNet International received its first order for the
redesigned technology through a VAR in Denmark for 100 TagNet units from
Glipstrup Transport A/S, a trucking company in Denmark. Glipstrup is utilizing
TagNet for fleet and logistics planning and management. In April 2004, Glipstrup
increased its order from 100 business module units (high-end, multi-functional
model) to 100 business module units and 200 base module units (basic Tag reading
unit).
Glipstrup has well established contacts within the transportation industry in
Denmark and has recommended to several trucking associations that TagNet be
selected as the industry standard. As a result of this, the VAR in Denmark has
been receiving more inquiries than it had anticipated and has since tripled its
forecast. There can be no assurance however that sales of TagNet will meet those
forecasts.
In April 2004, we received requests from a large special container distributor
of fresh products, a large train company, and a company focused on applications
in the medical field environments to do demonstrations of the TagNet technology
for specific solutions they each need. The fresh products distributor is looking
to utilize TagNet to track and monitor pallets of fresh product as well as the
temperatures (so as to ensure fresh delivery of produce) as product moves
through the distribution channel. The train company is looking for a solution
that can monitor the trains, track the wagons and the containers on each wagon
to ensure proper delivery, decrease cargo shrinkage through tracking, and
improve goods tracking for billing efficiencies. The medical applications
company is looking to track medical equipment and other assets or critical data
with a solution that will not interfere with medical equipment.
In May 2004, we submitted the technical specifications for the TagNet solution
to the train company and its primary contractor. Both the train company and the
primary contractor believe the specifications meet its requirements and we are
one of two companies short-listed to be the sub-contractor to provide the
solution required by the train company. The other company still has not
submitted its technical specifications, which were due May 13, 2004. Management
expects a decision to be made by early June 2004.
In May 2004, we were approached by a satellite tracking company to form a joint
venture that would be a value added reseller for TagNet. In the estimation of
our management, this company has the capability to enhance the TagNet solution
as well as bring significant contracts from government departments, agricultural
logistics, trucking and shipping companies. Their forecasts for the number of
TagNet units they could sell over the next 12 to 18 months is more than 75,000
tag reading units plus hundreds of thousands of tags. We are in discussions with
this company as to the scope of this joint venture, the level of marketing and
sales support they would provide, and whether or not they will help us set up
our own assembly plant. While TagNet is receiving significant demand and
interest, management wishes to remind investors that there can be no guarantee
that any of these demonstrations, pilot projects, joint ventures or interest
from potential customers will result in secured contracts or revenues.
15
Advisory Board
- --------------
We believe that a large part of our recent business development over the last
two months has been a result of the formation of our Advisory Board. The first
director who joined the board was Mpumelelo Tshume, who is a South African
national. Mr. Tshume recently resigned as the CEO of PetroSA to pursue interests
in the commodities trading industry. Petro SA is South Africa's 5.5 billion
(South African Rand) national oil company that explores for oil and gas in
selected basins around the world, supplies petrochemicals to customers in more
than 40 countries, and boasts of having the largest Gas to Liquids (GTL) plant
in the world. Mr. Tshume has committed to helping us with our business
development and political relations in South Africa and parts of Africa. In
particular, he will be working closely with Maximum to help manage a project
between Maximum and Versa International that will focus on commodities trading
and sourcing products from around the world.
The second director to join our Advisory Board was Dr. Dingindawo Paulus
Shongwe, who is a South African national. Dr. Shongwe is currently the Senior
Manager of Peoples Bank, which is subsidiary of the Nedcor Group. Peoples Bank
is among the top ten banks in South Africa (by assets) and focuses on offering
affordable and understandable products to the emerging market and small and
medium enterprises. As the Senior Manager, Dr. Shongwe is responsible for the
company's customer education and business development in South Africa. Prior to
the Peoples Bank, Dr. Shongwe worked at Standard Bank as the Senior Manager of
Group Public Affairs and assisted in the Public Sector Banking Department. Dr.
Shongwe has committed to helping us with inroads into and knowledge about the
financial community in South Africa and in the African continent. Dr. Shongwe
was instrumental in getting the M.POS certification process started and
short-tracked. He has taken a keen interest in our village banking initiative
and will be helping open doors and provide guidance throughout the project life.
Equally important, Dr. Shongwe shares our vision to help make a difference in
people's lives and will be helping us to implement our corporate responsibility
strategy in South Africa.
The third director to join our Advisory Board was Sindiswa Mzamo, who is a South
African national with vast experience in various roles in the banking industry
and political arena. Ms. Mzamo has also had management and leadership positions
with blue chip companies in the African continent and internationally. She
serves as a board member of Ukulima Mentoring, Niyethu Consulting, Quest Media
Agency Communication Strategies, Economic Youth Consortium, Hinkweru Consortium,
Brand Baro Matrix, Upright Communications Management Strategies, and Emeatech
Energy Africa (Pty) Ltd. As a consultant to The Presidency on `The Status Of
Women', she brings a wealth of knowledge and resources in the political world.
She has already helped us with her knowledge and experience in the business
climate in South Africa, particularly with M.POS and TagNet.
The fourth director to join our Advisory Board was Andile Mbeki, who is a South
African national and emerging leader in South Africa. He was recently appointed
to serve on the board of the South African Broadcasting Corporation (SABC),
which is South Africa's largest broadcasting company with millions of television
and radio subscribers. Mr. Mbeki has thirteen years of experience in training
and development and has been operating at a national level for the last four
years by being instrumental in the national skills development processes for
South Africa. Mr. Mbeki has worked extensively in building relationships
throughout South Africa and held executive positions in various structures in
the political arena, trade unions, youth organisations, non-governmental
organizations (non-profits) and civic societies. Mr. Mbeki has helped us with
political relations and inroads into the key decision makers of business,
political and social agendas at the national level.
LIQUIDITY AND CAPITAL RESOURCES. We have cash of $64,068, accounts receivable of
$87,890 and $7,668 represented by employee advances as of March 31, 2004. Our
total current assets were $159,626 as of March 31, 2004. Our total assets were
$862,629 as of March 31, 2004, of which $203,242 was represented by an
investment in E-SAP (as described herein) $106,776 was represented by property
and equipment. We also had license rights of approximately $205,929 represented
by Tagnet and $187,056 represented by Datalus. Therefore, we believe that our
available cash is sufficient to pay our day-to-day expenditures.
16
Our total current liabilities were approximately $131,538 as of March 31, 2004.
Accounts payable and accrued liabilities represented $98,538 of our total
liabilities and we had $33,000 in notes payable. We also had $9,197 represented
by minority interest. We have no other long term commitments or contingencies.
RESULTS OF OPERATIONS.
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2004, COMPARED TO THE SAME PERIOD
ENDING MARCH 31, 2003.
REVENUES. We have realized revenues of approximately $264,798 from services that
we provided during the three months ended March 31, 2004. This is in comparison
to revenues of $80,374 that we generated during the three month period ended
March 31, 2003. We experienced an increase in revenues because we have increased
our client base and expanded our operations as described herein.
OPERATING EXPENSES. For the three months ended March 31, 2004, our total
operating expenses were approximately $1,242,268. Our selling, general and
administrative expenses were $180,512. Our operating expenses were also
represented by stock based compensation which included $133,000 for employee
services, $831,000 for consulting services and $50,000 for our advisory board
and $47,756 for depreciation and amortization, making our operating loss
$977,470. We also had non-operating income as follows: $3,242 represented by
equity in net income/loss of our unconsolidated subsidiary, $426,900 represented
by gain on forgiveness of debt, $95,500 represented by gain on collection of
receivables previously written off and $6,309 represented by interest expense,
making our loss before minority interest $458,137. With our $9,789 represented
by minority interest, our net loss was $448,348.
This is in comparison to the three month period ended March 31, 2003, where we
experienced a net loss of $482,652. During the period ended March 31, 2003, our
total operating expenses were $514,063. Of this amount, $49,375 was represented
by contributed services, $127,250 was represented by stock based compensation
for consulting expenses, $132,705 in depreciation and amortization and $204,733
in selling, general and other administrative expenses. The increase for the
period ended March 31, 2004 was primarily due to increased levels of operations,
resulting in consulting expenses, depreciation and amortization that we incurred
during that quarter as compared to the same period ended March 31, 2003.
OUR PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS. We have generated $264,798 in
revenues during the quarter ended March 31, 2004, and had $64,068 in cash and
$87,890 in accounts receivable as of that date. We believe that we will be able
to collect those accounts receivable in a timely fashion and that that we will
have sufficient financial resources to meet our obligations for the twelve month
period following March 31, 2004. Should we require their assistance, our
officers are committed to paying our expenses at least through that period.
Due to the increased interest in TagNet and M.POS and the potential revenues
associated with the current demand, our management believes we will need to
devote most of our time and resources on these two projects for the first two
quarters of 2004.
In addition to what we believe to be the two successful demonstrations of TagNet
we have had already, we are also working to submit proposals to the Department
of Labor, the Criminal Justice Department and several companies interested in
asset tracking in South Africa. We also have been approached by several
companies in Mexico interested in seeing proposals for asset tracking and
monitoring solutions. In order to keep up with this demand, we are also working
to establish our VARs for TagNet and their roles with regard to sales,
maintenance and support so that we can expand our capability to generate and
close sales, implement and maintain these potential contracts.
Our management is very excited about the prospects with TagNet and hopes that it
will generate significant revenues over the next twelve months. Several of the
contracts we are currently are pursuing are large enough that should we secure
just one of them the contract would provide us with sufficient financial
resources to meet our obligations for the twelve month period following the
start of the contract.
While we are very confident about our technology, we wish to remind investors
that there can be no guarantee that it will result in the successful procurement
of any contract or that sufficient revenues to meet obligations will be
generated should such a contract be procured.
17
As a project, our management estimates that M.POS is running according to
schedule and is now ready to move into product launch phase. From November
through April, we were focused on developing applications for the M.POS terminal
that would allow the device to interface with the banks in Africa, sell pre-paid
voucher products, and offer other services like loyalty programs. We have also
focused on developing channel partners who can assist in the support and
maintenance of the devices.
On April 8, 2004, management was informed by Nedbank, which is one of the
largest banks in South Africa, that the M.POS unit will be certified by Nedbank
and that they are interested in ordering units of the M.POS device for
distribution to its customers. Management wishes to remind investors that there
can be no assurance that Nedbank or any bank will order any M.POS units.
We are working on banking certification in Mexico and are currently designing
applications for this market. We have met with Inbursa, Banco Azteca and other
companies involved in the banking sector in Mexico. We believe sales of M.POS in
Mexico will lag behind sales in South Africa by a few months since we only began
penetrating the marketing in Mexico in January 2004.
We hope that sales of M.POS and application development over the next few months
will also strengthen our position with our partner in China and our efforts to
roll out some of these solutions there. Our management believes that we are well
positioned to be involved on a large project that involves upgrading merchant
POS terminals in China in anticipation of the 2008 Olympic Games, though there
is no guarantee that we will secure any contracts in China.
Management believes that there is sufficient demand currently to support its
forecasts of at least 100,000 M.POS terminals over the next 12 to 18 months.
Management also believes that sales of 25,000 units would provide us with
sufficient financial resources to meet our obligations for the next twelve month
period. However, there can be no assurance that any sales of M.POS will occur or
that even if sales are generated that it will be sufficient to cover our
obligations.
We are also busy actively implementing our other projects, which to some extent
have moved forward slowly due to the fact that most of our resources to date
have been focused on TagNet and M.POS. We have now staffed up and built the
infrastructure and resources that we anticipate are required to move forward
with almost all of our projects.
Two projects at the top of our list are our village banking and our wireless
communications projects. These two projects are not only exciting business
opportunities but we believe that they also offer a compelling story. In the
context of South Africa (and any developing economy), our management believes
that bringing banking and communications infrastructure to the marginalized is a
story the media are extremely interested in telling. We have already been in
discussions with several media groups and are planning a media and public
relations campaign aimed at telling our story. We believe that these two
projects exemplify the uniqueness of our business model, approach and the
exciting opportunities we are experiencing.
We anticipate that our expenditures will vary with the number of customers that
we engage and the level of revenue that those contracts generate. There are four
important milestones over the next twelve months that we believe are very
important for us to achieve. The first milestone is to close at least one of the
TagNet contracts being demonstrated.
The second milestone is to sell 25,000 units of M.POS. The third milestone is to
successfully manage the roll-up of the 37 village banks we are targeting and
secure an equity stake in that reorganized bank. With that achieved, we believe
we will be able to begin the process of growing the bank and transitioning it to
a commercial bank. We expect that we can then utilize it as a proof of concept
for China where we have received an invitation to manage a similar process with
rural banks there. The fourth milestone is to successfully implement our
wireless communications project where we aim to provide wireless Internet
connectivity in underdeveloped and rural townships. By putting this
infrastructure in place, we believe we can participate in the unrolling of a
host of businesses that require communications infrastructure.
Once we meet the first two milestones, we believe that we will meet the listing
requirements of either the AMEX or NASDAQ stock exchanges. We believe that
reaching the third and fourth milestones will enable us to create significant
awareness about our company that we hope will result in increased credibility,
further cooperation from government and business entities, and position us with
four core business modules with which to duplicate in developing economies
around the world. We also believe that reaching these milestones and the
increased awareness may lead to more investor awareness about our company. This
is important because it is our goal to move from the Over-The-Counter Bulletin
Board (OTCBB) stock exchange to either AMEX or NASDAQ. We believe that these
exchanges offer us more visibility to the financial markets as well as less
volatility in our trading patterns. As such, our management has made it a twelve
month objective to at least start the process of moving to one of these other
exchanges.
18
On April 22, 2004 we entered into a Standby Equity Distribution Agreement with
Cornell Capital Partners, L.P., ("Cornell") a Delaware limited partnership, of
Jersey City, New Jersey. The agreement is attached hereto as an exhibit. Under
the agreement and subject to its terms and conditions, Cornell will purchase
newly issued common shares from us, to a maximum market value of $10 million,
over a 24-month period. The decision to sell common stock to Cornell is entirely
at our discretion, and the agreement does not contain any minimums as to amount
or frequency, except that we can only draw down once every seven trading days.
Our ability to utilize the facility is subject to an effective registration
statement with the United States Securities and Exchange Commission.
If we are unsuccessful in securing customers, we may have to turn to other
sources of financing, which could further dilute the ownership of current
shareholders. If we are unsuccessful in obtaining further financing, we could be
unable to continue operations.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. We maintain controls and
procedures designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed as of March 31,
2004, our chief executive officer and the principal financial officer concluded
that our disclosure controls and procedures were adequate.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1 Standby Equity Distribution Agreement
10.1 E-SAP Acquisition Agreement
31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer.
32.1 Section 1350 Certifications of Chief Executive Officer
32.2 Section 1350 Certifications of Chief Financial Officer.
(b) Reports on Form 8-K
None.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned in the City of Colorado Springs, Colorado, on May 18, 2004.
Maximum Dynamics, Inc.
By: /s/ Eric R. Majors
--------------------------------------------
Eric R. Majors
Its: Chief Executive Officer
President, Secretary, and a director