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 June 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 34,132,610 shares of Common
Stock, no par value, outstanding as of August 4, 2000.
1
<PAGE>
INTER-CON/PC, INC.
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
June 30, 2000
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Financial Statements
Condensed Balance Sheets at December 31, 1999 and June 30, 2000...........3
Condensed Statements of Operations for the three months and six months
ended June 30, 1999 and June 30, 2000 and for the period of
June 17, 1996 to June 30, 2000..........................................4
Condensed Statements of Changes in Stockholder's Equity for the Six
months ended June 30, 2000 and the years ended December, 31, 1999,
1998, 1997, and 1996....................................................4
Condensed Statements of Cash Flows for the six months
ended June 30, 1999 and June 30, 2000 and for the period of
June 17, 1996 to June 30, 2000..........................................5
Notes to Condensed Financial Statements...................................12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................14
Part II - Other Information
Item 1. Legal Proceedings...................................................17
Item 2. Changes in Securities...............................................17
Item 3. Defaults Upon Senior Securities.....................................18
Item 4. Submission of Matters to a Vote of Security Holders.................18
Item 5. Other Information...................................................18
Item 6. Exhibits and Reports on Form 8-K....................................19
Signature.....................................................................19
Exhibits......................................................................20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December June
31, 1999 30, 2000
------------ ------------
ASSETS:
<S> <C> <C>
Current assets
Cash and cash equivalents $ 37,778 $ 486,967
Accounts Receivable 0 0
Note receivable, net of allowance $87,645 0 0
Prepaid expenses 881 11,771
------------ ------------
Total current assets 38,659 498,738
------------ ------------
Property and equipment:
Equipment 81,755 83,883
Leasehold improvements 101,887 101,887
Less accumulated depreciation (51,024) (68,986)
------------ ------------
Total property and equipment 132,618 116,784
------------ ------------
Other assets, Investments
Investments 50,000 50,000
------------ ------------
Total other asset 50,000 50,000
------------ ------------
Total assets $ 221,277 $ 665,522
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable:
Trade $ 393,107 $ 249,655
Related parties 281,945 280,975
Accrued expenses 252,702 218,481
Deferred revenue 28,130 45,000
Notes payable 370,662 35,009
------------ ------------
Total current liabilities 1,326,546 829,120
------------ ------------
Stockholders' equity (deficit):
Common stock, no par, authorized 50,000,000 shares,
shares outstanding 34,107,610 4,370,350 6,153,561
Stock subscription receivable 0 (20,000)
Deficit accumulated during the development stage (5,475,619) (6,297,159)
------------ ------------
(1,105,269) (163,598)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 221,277 $ 665,522
============ ============
</TABLE>
See Notes to Condensed Financial Statements
3
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Six months Three months Three months June 17, 1996
ended June ended June ended June ended June (inception) to
30, 1999 30, 2000 30, 1999 30, 2000 June 30, 2000
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Payroll, contract labor, and related costs $ 168,966 $ 247,210 $ 120,551 $ 114,682 $ 1,679,711
Product development 60,880 156,531 48,409 (13,509) 1,646,862
General and administrative 248,715 401,617 177,428 249,259 2,829,124
---------------------------------------------------------------------------------
Operating loss (478,561) (805,358) (446,388) (350,432) (6,155,697)
---------------------------------------------------------------------------------
Other income (expense):
Interest income 4,278 5,584 894 3,626 51,539
Interest expense (42,664) (33,011) (9,488) (18,459) (256,996)
Miscellaneous income 23,229 11,245 23,229 406 63,995
---------------------------------------------------------------------------------
(15,157) (16,182) 14,635 (14,427) (141,462)
---------------------------------------------------------------------------------
Net loss $ (493,718) $ (821,540) $ (331,753) $ (364,859) $ (6,297,159)
=================================================================================
Basic and diluted loss per share $ (.03) $ (.03) $ (.02) $ (.01) $ (.34)
=================================================================================
Weighted average number of shares outstanding,
basic and diluted 19,541,834 31,837,164 19,547,497 33,009,467 18,291,843
=================================================================================
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
----------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
----------------------------- development
Shares Amount stage Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Condensed Financial Statements
6
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Deficit
no par, authorized accumulated
50,000,000 shares during the
------------------------ development
Shares Amount stage Total
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Condensed Financial Statements
7
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Deficit
no par, authorized accumulated
50,000,000 shares Stock during the
----------------------------- subscription development
Shares Amount receivable stage Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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,
January 14, 19 and February 2, 2000,
at $.20 per share 1,650,000 330,000 330,000
Common stock issued for cash,
January 19, 2000, at $.20 per share;
100,000 shares subscribed 1,010,000 202,000 $ (20,000) 182,000
Common stock issued for cash,
January 21, and March 3, 2000, at
$.45 per share 94,444 42,500 42,500
</TABLE>
See Notes to Condensed Financial Statements
8
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Deficit
no par, authorized accumulated
50,000,000 shares Stock during the
---------------------------- subscription development
Shares Amount receivable stage Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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 share 1,065,340 100,000 100,000
(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
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
Net loss $ (821,540) (821,540)
------------ ------------ ------------ ------------ ------------
Balance June 30, 2000 34,107,610 $ 6,153,561 $ (20,000) $ (6,297,159) $ (163,598)
============ ============ ============ ============ ============
</TABLE>
See Notes to Condensed Financial Statements
9
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
June 17, 1996
Six months Six months (inception) to
ended June 30, ended June 30, June 30,
1999 2000 2000
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (496,720) $ (821,540) $ (6,297,159)
Adjustment to reconcile net loss to net
cash flows from operating activities:
Depreciation 3,007 17,962 68,985
Amortization 98 393,231
Allowance on note receivable 87,645
Common stock issued for services and rent 19,211 227,334
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 30,440 (10,890) 3,379
Other assets (23,316)
Accounts payable:
Trade (212,457) (143,452) 249,655
Related parties 347 (970) 178,334
Accrued expenses 20,855 (34,221) 218,481
Deferred revenue 0 16,870 45,000
------------ ------------ ------------
Net cash used in operating activities (654,430) (957,030) (4,633,015)
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for:
Property and equipment (2,128) (72,877)
Note receivable (100,000)
Investment (50,000)
Repayment received on note receivable 12,355
------------ ------------ ------------
Net cash used in investing activities 0 (2,128) (210,522)
------------ ------------ ------------
</TABLE>
See Notes to Condensed Financial Statements
10
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
June 17, 1996
Six months Six months (inception) to
ended June 30, ended June 30, June 30,
1999 2000 2000
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from:
Notes payable $ 110,547 $ $ 2,329,852
Related parties 102,641
Issuance of common stock and warrants 763,710 1,614,000 3,393,887
Repayment of notes payable (17,500) (205,653) (298,593)
Debt placement costs (197,283)
------------ ------------ ------------
Net cash provided by financing activities 856,757 1,408,347 5,330,504
------------ ------------ ------------
Net increase in cash and cash
equivalents $ 80,441 $ 449,189 $ 486,967
Cash and cash equivalents:
Beginning $ 2,758 $ 37,778
------------ ------------ ------------
Ending $ 83,199 $ 486,967 $ 486,967
============ ============ ============
Cash paid for interest $ 25,524 $ 39,293 $ 159,378
============ ============ ============
Supplemental disclosure of non-cash investing
and financing activities:
Fair value of warrants and options issued $ 244,461
============
Common stock issued:
For services $ 19,211 $ 166,194
============ ============
For rent $ 161,139
============
For debt conversion $ 130,000 $ 1,996,250
============ ============
For property and equipment $ 85,000 $ 112,892
============ ============
Contribution by SAC Technologies, Inc. $ 42,621
============
</TABLE>
See Notes to Condensed Financial Statements
11
<PAGE>
INTER-CON/PC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 of the outstanding common stock of
Inter-Con/PC, Inc. through a statutory merger of Inter-Con/PC, Inc. into Infopac
Systems, Inc. Immediately after the merger, Infopac Systems, Inc. changed its
name to Inter-Con/PC, Inc. For accounting purposes, the acquisition has been
treated as an acquisition by Inter-Con/PC, Inc. of Infopac Systems, Inc. and as
a recapitalization of Inter-Con/PC, Inc. The historical financial statements
prior to June 8, 1999, are those of Inter-Con/PC, Inc. All share and per share
information has been restated to reflect 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 a
television screen. To address the challenges of ever-evolving technologies, the
Company built its convergent set-top-box in the foundation of a full-function
personal computer. This platform is augmented by proprietary technologies
designed to allow the set-top-box to serve as the control center for a myriad of
evolving home and business applications. The Company's products will be targeted
towards and positioned within the consumer electronics and telecommunications
industries. The Company is continuing to develop its set-top-box products, and
has manufactured a small number of prototype units in preparation for entering
into high volume manufacturing. The Company has begun marketing two prototype
set-top-box products; the TOTEBOOK(TM) 6000 which features a high speed
processor, hard drive, and DVD drive that functions as an interactive,
multi-media home entertainment center, and the internet access only TOTEBOOK(TM)
1000.
INTERIM FINANCIAL STATEMENTS:
The condensed financial statements of the Company for the three- and six-month
periods ended June 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 June 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/A filed with the Securities and Exchange Commission.
The results of operations for the three- and six-month periods ended June 30,
2000 are not necessarily indicative of the results to be expected in a full
year.
12
<PAGE>
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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
with no sales of its products and its products are subject to rapid changes in
technology. In January 2000, the Company sold 100 prototype models that are to
be replaced once the units have been updated and the Company is ready for
commencement of its principal operations. There is no assurance that the Company
will be able to generate significant sales of its products. Additionally, the
Company has a deficit accumulated during the development stage of $6,297,159 as
of June 30, 2000. Management anticipates net losses will continue for the
foreseeable future. Additional financing will be required to complete
development and enhancement of the Company's products and bring them to market.
On May 12, 2000, the Company entered into a Joint-Venture Strategic Partnership
Agreement with NIKKO Co. Ltd of Toyko, Japan ("Nikko") and Maxwood Technology
Ltd. of Hong Kong, China ("Maxwood"). Under the terms of the agreement, the
parties plan to collaborate in the production, sales, and distribution of
several of the Company's proprietary set-top-box product designs. As part of the
Agreement, the Company and Nikko will form and equally own another joint-venture
company named NIKKO Multi Media,LLC, ("Nikko Multi Media") in order to globally
market the Company's set-top-box products. This entity will be capitalized by
Nikko and the Company contributing $25,000 each; additional funding will be
obtained by Nikko providing loans at 8% interest to the Joint Venture.
The Company will be responsible for ongoing set-top-box development engineering
plus research and development for new products. Maxwood Technology Ltd. will be
responsible for high volume production design, engineering, and manufacturing.
Nikko will provide the financial resources necessary for component purchasing as
well as coordinating with the parties all product sales and distribution through
Nikko Multi Media. The Company will receive ongoing royalty revenue for
set-top-box product sales plus equally share with Nikko, all profits generated
by NIKKO Multi Media.
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 operating expenses until it realizes
revenue from its Joint-Venture Strategic Partnership Agreement with Nikko and
Maxwood. At the same, time the Company plans to pursue additional financing. The
Company anticipates generating revenue from its Partnership Agreement during the
end of the fourth quarter of 2000 or the first quarter of 2001.
13
<PAGE>
INTER-CON/PC, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 asset amounts shown in the accompanying
balance sheet is dependent upon the Company advancing beyond the development
stage and developing sustained operations. The accompanying financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue in existence.
3. CONTINGENCIES:
The Company is involved in two disputes with vendors that could result in
additional liability to the Company as follows:
The Company has a dispute that involves failure 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. Management expects that this
dispute will be settled on favorable terms and has not recorded any
additional liability in the financial statements for this contingency.
The Company has another dispute with a vendor for payment of services
rendered. The vendor has demanded payment for approximately $91,000. The
Company has accrued approximately $75,000 and believes it will have no
further liability.
The Company is also the subject of various claims on a continuing basis,
including general liability claims and claims made by employees and former
employees. Costs for claims not covered by insurance are recognized when
known. In the opinion of management, the amount of any additional liability
will not have a material impact on the financial statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's plan of
operations, liquidity and capital resources. This analysis should be read in
conjunction with the condensed financial statements and the notes thereto
included in Item 1 of this Quarterly Report, and the financial statements and
the notes thereto and Management's Discussion and Analysis and Plan of
Operations contained in the Company's amended registration statement filed with
the Securities and Exchange Commission on Form 10SB/A.
OVERVIEW
Inter-Con/PC, Inc. (the "Company") is a development stage company engaged in the
design, development and marketing of a personal computer device that uses a
television monitor and wireless keyboard rather than a traditional personal
computer monitor and keyboard. From June 17, 1996 (inception) to June 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 only developed prototype products, and to
date, has sold an insignificant number of these prototype units. The Company
also anticipates developing and marketing complementary and peripheral products
in conjunction with the Set Top Box. The Company has developed two prototype
versions of the Set Top Box, the 6000 model which contains a high speed
processor, hard drive and a CD/DVD drive, and the 1000 model which is an
internet access only unit equipped with a slower processor and no drives.
JOINT-VENTURE STRATEGIC PARTNERSHIP
On May 12, 2000, the Company entered into a strategic partnership agreement with
Maxwood Technologies, Ltd. of Hong Kong, China ("Maxwood") and Nikko Co., Ltd.
of Tokyo, Japan ("Nikko"). Under the agreement, the Company and Nikko agreed to
14
<PAGE>
form Nikko Multi Media, LLC ("Nikko Multi Media"), a marketing and distribution
company. The Company and Nikko will each own 50% of Nikko Multi Media. The
Company's capital contribution will consist of a $25,000 investment, and a grant
to Nikko Multi Media of an exclusive, world-wide right to manufacture, use and
sell the Set Top Box. Nikko's contribution will consist of a $25,000 investment,
and loans to Nikko Multi Media for operations, the amount of which will be
determined pursuant to a budget prepared by Nikko Multi Media and approved by
Nikko. The loans will bear interest at 8% per annum, and will be repaid to Nikko
from Nikko Multi Media's net profits as agreed by the parties. In addition to
the Set Top Box, Nikko Multi Media may also market and distribute various other
electronic products and services. Any profits generated by Nikko Multi Media,
whether from the sale of the Set Top Box or other products and services will be
shared equally between the Company and Nikko.
Under the agreement, the Company will be responsible for ongoing development
engineering and research and development of new products. Maxwood will be
responsible for high volume production design, engineering and manufacturing.
Maxwood, will seek out and recommend qualified third party manufacturers to
Nikko Multi Media. Both Maxwood and the Company will monitor production and
manufacturing of the Set Top Box. For its services, Nikko Multi Media will pay
to both the Company and Maxwood, a fee equal to 5% of the cost of each Set Top
Box it sells. The Company is still testing and refining the Set Top Box, and can
offer no assurances that it will be able to successfully develop and prepare the
Set Top Box for high volume manufacturing. Further, the Company can offer no
assurances that it, Nikko, Nikko Multi Media or Maxwood will be able to
successfully manufacture the Set Top Box.
The Set Top Box will be sold exclusively by Nikko Multi Media under any brand
names it deems appropriate. However, the Company, Nikko and Maxwood may purchase
the Set Top Box directly from Nikko Multi Media and resell it under any brand
name not used by Nikko Multi Media. This will result in the Company becoming
very dependent upon Nikko Multi Media and Maxwood to manufacture and distribute
the Set Top Box. The agreement may be terminated by any party with at least 12
months prior notice.
PLAN OF OPERATIONS
The Company has relied primarily upon private sales of bridge notes, notes
payable, and equity securities to investors, as well as upon capital
contributions and advances from existing shareholders and employees to fund its
operations. The Company does not have adequate funds to commercially produce,
market and sell its products. The Company does not believe that it currently has
sufficient funds available to satisfy its debt obligations and operating needs
for the next twelve months and will need to raise additional funds in order to
support such operations. The Company estimates that its cash flow requirement
for the next twelve months is as follows:
Research & Development $ 200,000
Legal and Accounting Fees $ 118,000
Repayment of current liabilities, interest and obligations $ 312,000
Trade Shows $ 35,000
Payroll $ 516,000
Monthly Operating Expense (rent, utilities, etc.) $ 120,000
Consulting Fees $ 50,000
Capital contribution to NIKKO Multi Media $ 25,000
Travel $ 100,000
Miscellaneous Expenses $ 78,000
----------
Total $1,554,000
For the six months ended June 30, 2000, approximately $156,531 was spent on
research and development. However, additional financing will be required to
complete development and enhancement of the Set Top Box and to bring it to
market. For the next 12 months, the Company anticipates spending approximately
$200,000 on research and development of the Set Top Box, but the Company can
offer no assurances that this amount will be sufficient to bring its products to
market. The Company has commenced pre-production engineering and anticipates,
but offers no assurances, that the Set Top Box will be ready for high volume
manufacturing later this year. The Company hopes, but offers no assurances, that
it will begin generating revenues from the sale of the Set Top Boxes near the
end of fourth quarter 2000 or the beginning of first quarter 2001.
15
<PAGE>
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 prototype model for
evaluation later this year. In January 2000, the Company delivered 100 prototype
units to the Midlothian School and was paid the remaining balance of the
purchase price. For financial accounting purposes, the Company recorded $10,000
in miscellaneous income in January 2000 because the sale is of prototype units
to an evaluation site, and has recorded deferred revenues of approximately
$45,000 since it had not yet delivered a newer prototype model to the Midlothian
School. The company estimates that it will cost approximately $450 per unit to
upgrade the 100 units delivered to the Midlothian School and recorded 45,000 in
deferred revenues to reflect such costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents of $486,967 and
current assets of $498,738 and total assets of $665,522. During the six months
ended June 30, 2000, the Company raised a net of $1,614,000 through the issuance
of 5,643,560 shares of common stock. In addition, a total of $130,000 in
convertible debt, along with accrued interest of $9,025 was converted into
1,390,249 shares of common stock of the Company at the rate of $.10 per share.
As of June 30, 2000, the Company had current liabilities of $829,120. A
significant portion of these liabilities are attributable to notes payables to
related parties and accrued expenses. On May 31, 2000, the Company paid $10,186
of its current liabilities by issuing 101,856 shares of common stock to the
vendor. The Company continues to operate at a deficit and as of June 30, 2000,
had an accumulated deficit of ($6,297,159). Shareholder's equity as of June 30,
2000 was negative ($163,598).
For the six months ended June 30, 2000, the Company had negative cash flows from
operating activities of ($957,030). This includes expenditures of $156,531 for
research and development and $648,827 on payroll, contract labor and general and
administrative expenses, of which $17,962 was attributable to depreciation and
amortization. During the six months ended June 30, 2000, the Company increased
pre-paid expenses by $10,890 and reduced its accounts payable and accrued
expenses by a total of $178,643, of which $19,211 was paid through the issuance
of common stock.
The Company's cash flow from investing activities during the six months ended
June 30, 2000 consists only of purchases of property and equipment in the amount
of $2,128. During the same period, net proceeds of $1,614,000 were received from
the issuance of the Company's common stock and warrants. The Company also repaid
$205,653 of its notes payable. For the six months ended June 30, 2000, the
Company had positive cash flows of $1,408,347 from financing activities.
The Company is still in the development stage and its products are subject to
rapid changes in technology. From its inception, the Company has never had any
significant sales of its products and had more expenses than income in each year
of its operations. Management anticipates that net losses will continue in the
foreseeable future. The Company has been able to maintain a positive cash
position solely through financing activities. The Company's total current
liabilities significantly exceed its total assets. Additional financing will be
necessary to complete development of the Company's products and to bring them to
market. As a result, the independent auditor has issued a going concern opinion
and has expressed substantial doubt regarding the Company's ability to continue
as a going concern.
The Company does not believe that it has sufficient funds available to satisfy
its current obligations and to fund its operating expenses for the next twelve
months. The Company anticipates, but can offer no assurances, that it will begin
generating revenues during the end of fourth quarter 2000 or early first quarter
2001. However, such revenues alone will not be sufficient to satisfy its current
liabilities and operating expenses for the next twelve months. Management plans
to continue to pursue additional financing through the issuance of debt or
common stock. It anticipates that this will be accomplished through additional
private placements. There are currently no identifiable sources of funding and
the Company anticipates seeking the assistance of an investment firm to help
secure viable sources of capital. If additional capital is not secured, there is
substantial doubt as to whether the Company will be able to continue as a going
concern for the next 12 months.
Other than as described above, there are no known trends, events or
uncertainties that are likely to have a material impact on the short or long
term liquidity of the Company. The primary source of liquidity in the future
will be additional financing and sales of its products. Other than $25,000 to
capitalize Nikko Multi Media, there are no material commitments for capital
expenditures. Other than 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.
16
<PAGE>
SUBSEQUENT EVENTS
On August 11, 2000, the Company adopted the Inter-Con/PC, Inc. 2000 Non-employee
Directors and Consultants Stock Option Plan (the "Plan"). The purpose of the
Plan is to retain and attract qualified consultants who contribute to the
development of the Set Top Box and the Company's success by enabling such
individuals to participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company.
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, the following factors should be carefully considered in evaluating the
Company and its business.
Market for our Shares of Common Stock
In January 2000, the Company's common stock was delisted from the OTC Bulletin
Board (OTCBB) for failure to satisfy eligibility requirements of the National
Association of Securities Dealers. To be eligibility to have its securities
quoted on the OTCBB, an issuer must have filed its latest required annual filing
and any subsequent quarterly filings with the Securities and Exchange
Commission. The NASD has stated that for issuers who file a Form 10 or Form 10SB
with the SEC to register under Section 12(g) of the Act, the registration
statement must be effective and all SEC comments, if any, must be cleared with
the SEC before the issuer's securities can be quoted on the OTCBB. The Company
filed a Form 10SB with the SEC on February 10, 2000. The Form 10SB became
effective in April 2000. On June 28, 2000, the Company responded to SEC comments
and filed a Form 10SB/A with the SEC. The Company received comments to Form
10SB/A from the SEC on the afternoon of August 14, 2000. The Company is quickly
working to respond to these comments as soon as possible. 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 fluctuation in the future. Such fluctuations could
adversely affect the market price of the common stock without regard to our
operating performance. In addition, we believe that factors such as the progress
of research and development of the Set Top Box, the ability to commence high
volume manufacturing, the ability to generate sales, changes in technology, as
well as various other factors could cause the price of the Company's common
stock to fluctuated significantly.
Future Sales of Shares of Common Stock
The Company has very limited cash or cash equivalents and requires substantial
additional capital to pursue its operating objectives and continue as a going
concern. Management anticipates that future sales of common stock will be
necessary to raise additional capital needed to satisfy its current debt
obligations and fund its future operations. Management also anticipates hiring
consultants to render services for the development of the Company's business and
to pay such consultants through the issuance of additional shares of common
stock. Such issuances of additional securities may dilute the value of the
Company's common stock and may have an adverse impact on the market price of the
stock.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Legal proceedings involving the Company were previously disclosed under the
section entitled "Legal Proceedings" in Part II, Item 2 of the Company's amended
Form 10SB/A. There were no material developments regarding the Company's legal
proceedings.
ITEM 2: CHANGES IN SECURITIES
On April 10, 2000, the Company issued 25,000 shares of common stock, at $.20 per
share, to an investor in exchange for a $5,000 investment. On the same day,
pursuant to its stock option plan, the Company granted an employee options to
purchase 3,640 shares of common stock at an exercise price of $.87.
On May 23, 2000, in conjunction with the Joint-Venture Strategic Partnership
Agreement, the Company received an additional investments of $375,000 each from
the Chairman of the Board of Dircects of Nikko and the President of Maxwood. The
Company issued a total of 1,250,000 shares of common stock at $.60 per share, to
Mr. Yamashita and Mr. Ichioka for their investments.
17
<PAGE>
On May 31, 2000, the Company issued to a vendor, at $.20 per share, 101,856
shares of common stock as payment of an accrued liability. The transaction was
valued at $10,186.
On June 18, 2000, the Company issued 324,909 shares of common stock, at $.10 per
share, to a principal shareholder for conversion of a $30,000 note payable plus
accrued interest of $2,491.
The Company believes that all of the above transactions were either transactions
not involving any public offering within the meaning of Section 4(2) of the
Securities Act of 1933 or transactions with existing securities holders pursuant
to section 3(a)(9) 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 A VOTE 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.
18
<PAGE>
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: August 14, 2000 By: /s/ Michael P. Ferderer
---------------------------------------------
Michael P. Ferderer, Chief Executive Officer,
sole Director and Chief Financial Officer
19
