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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 June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 000-24199
ABSOLUTEFUTURE.COM
(Exact name of registrant as specified in its charter)
NEVADA 88-0306099
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
10900 N.E. 8th Street, Bellevue, Washington 98004
(Address of principal executive offices)
(425) 462-6210
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 .
--- ---
At August 14, 2000, 22,173,000 shares of common stock of the Registrant were
outstanding.
Transitional small business disclosure format: Yes No X .
--- ---
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INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements............................................ 1
Condensed Consolidated Balance Sheets....................... 1
Condensed Consolidated Statements of Operations............. 2
Condensed Consolidated Statements of Cash Flows............. 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 6
Results of Operations....................................... 7
Liquidity and Capital Resources............................. 8
Risk Factors and Cautionary Statements...................... 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings............................................... 10
Item 2. Changes in Securities........................................... 10
Item 3. Defaults upon Senior Securities................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Item 5. Other Information............................................... 10
Item 6. Exhibits and Reports on Form 8-K................................ 10
Signatures............................................................... 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
June 30,
Assets 2000
-----------
<S> <C>
Current assets:
Cash $ 251,815
Accounts Receivable 10,905
Prepaid expenses 49,626
-----------
Total current expenses 312,346
Property and equipment, net 67,633
Intangible assets, net of accumulated amortization of $32,167 at June 30, 2000
and $10,834 at December 31, 1999 95,833
Restricted cash 123,077
Deposits 10,251
-----------
Total assets $ 609,140
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 130,241
Accrued liabilities 115,135
Current portion of note payable 150,000
Total current liabilities 395,375
-----------
Contingency and subsequent events
Stockholders' equity:
Preferred stock, $0.001 par value. Authorized 10,000,000 shares;
issued and outstanding no shares. --
Common stock $0.001 par value. Authorized 50,000,000 shares;
issued and outstanding 22,173,000 shares at June 30, 2000 and 14,400,000
shares at December 31, 1999 22,173
Additional paid-in capital 5,318,150
Stock subscriptions receivable (150,000)
Deferred stock compensation (5,964)
Accumulated deficit (4,968,823)
Accumulated comprehensive loss (1,771)
-----------
Total stockholders' equity 213,765
-----------
Total liabilities and stockholders' equity $ 609,140
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Quarters and six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Quarter ended Quarter ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 106,945 74,635 172,405 125,607
Costs of revenue 86,986 60,783 139,868 98,503
-------------- -------------- -------------- -------------
Gross profit 19,959 13,852 32,537 27,104
General, administrative and business development expenses,
including stock compensation expense of $2,303,900 in
the six months ended June 30, 2000 425,527 209,396 3,067,366 332,797
Research and development 59,425 -- 85,196 --
-------------- -------------- -------------- -------------
Loss from operations (464,993) (195,544) (3,120,025) (305,693)
Interest (income) expense, net (249) -- 6,688 --
-------------- -------------- -------------- -------------
Loss before extraordinary item (464,744) (195,544) (3,126,713) (305,693)
Extraordinary item - loss on extinguishment of debt -- -- (803,235) --
-------------- -------------- --------------- ------------
Net loss $ (464,744) (195,544) (3,929,948) (305,693)
============== ============== =============== ============
Basic and diluted net loss per share before extraordinary
item $ 0.02 0.03 0.15 0.07
Basic and diluted net loss per share from extraordinary item 0.00 0.00 0.04 0.00
-------------- -------------- --------------- ------------
Basic and diluted net loss per share 0.02 0.03 0.19 0.07
============== ============== =============== ============
Weighted average shares used to compute basic and diluted
net loss per share 21,383,769 5,861,538 20,856,742 4,438,674
Comprehensive loss:
Net loss (464,744) (195,544) (3,929,948) (305,693)
Foreign currency translation adjustment (1,555) (2,475) 221 (2,337)
-------------- -------------- --------------- ------------
Comprehensive loss (466,299) (198,019) (3,929,727) (308,030)
============== ============== =============== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,929,948) (305,693)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 38,531 11,893
Common stock issued for services under consulting
agreements 2,320,775 --
Loss on extinguishment of debt 803,235 --
Amortization of deferred compensation and discount on notes
payable to stockholders 2,221 --
Changes in certain assets and liabilities:
Accounts receivable (10,905) (22,305)
Prepaid expenses and other current assets (32,573) (5,028)
Accounts payable 42,701 133,695
Accrued liabilities 61,911 39,893
---------------- ----------------
Net cash used in operating activities (704,052) (147,545)
---------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (21,570) (65,063)
Purchase of short-term investment representing restricted cash (52,800) --
Other (2,345) --
---------------- ----------------
Net cash used in investing activities (76,715) (65,063)
---------------- ----------------
Cash flows from financing activities:
Decrease in bank overdraft (28,784)
Proceeds from (payment of) notes payable (121,315) 142,317
Sales of common stock 330,000 40,000
Collection of stock subscriptions receivable 851,000
---------------- ----------------
Net cash provided by financing activities 1,030,901 182,317
---------------- ----------------
Increase (decrease) in cash 250,134 (30,291)
Cash at beginning of period 1,681 152,788
---------------- ----------------
Cash at end of period $ 251,815 122,497
================ ================
Supplemental cash flow information - cash paid during the period
for interest $ 8,500 --
================ ================
Supplemental schedule of non-cash investing and financing activities:
Common stock subscription receivable $ 350,000 --
Common stock issued in connection with issuance of notes payable 350,000 --
Common stock issued in connection with accrued liability 63,000 --
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ABSOLUTEFUTURE.COM
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - Summary of Significant Accounting Policies
a. Description of Business
AbsoluteFuture.com is the surviving corporation resulting from the May
1999 merger of Corporate Tours & Travel, Inc. (CTTI) and Absolut Future Tech,
Inc. (Tech). For financial reporting purposes, the merger was treated as a
recapitalization of Tech, with Tech as the acquirer of CTTI. The historical
financial statements of AbsoluteFuture.com are those of Tech.
AbsoluteFuture.com and subsidiaries (Company) is an information technology
service provider that has developed core competencies in complex
Internet/intranet solutions. The Company's area of expertise is primarily e-
commerce. The Company's services are generally performed on a contract basis to
organizations with complex information technology operations. The Company was
incorporated in November 1998 and has offices in Bellevue, Washington and
Vancouver, British Columbia. The Company left the development stage in the first
quarter of 1999.
b. Basis of Presentation
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the disclosure information and notes required to be
presented for complete financial statements. The accompanying condensed
consolidated financial statements include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented.
The condensed consolidated financial statements and related disclosures
have been prepared with the presumption that users of the interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year. Accordingly, these financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes thereto included in the Company's 1999 Annual Report on Form 10-KSB as
filed with the Securities and Exchange Commission on April 14, 2000.
The consolidated financial statements include the accounts of
AbsoluteFuture.Com and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company was formed as a Nevada corporation on September 23, 1993. Tech
was formed as a Nevada corporation on November 16, 1998 to engage in software
development and consulting.
In May 1999, CTTI purchased all of the outstanding capital stock of Tech
for 3,000,000 shares of common stock. Shortly afterwards, the officers and
directors of CTTI resigned and CTTI sold an additional 4,000,000 common shares
for $40,000 to a group substantially comprised of the former stockholders of
Tech. Upon completion of the purchase, CTTI was renamed AbsoluteFuture.com, and
representatives of Tech assumed the officer and directors positions of
AbsoluteFuture.com.
The transaction was accounted for as a purchase of CTTI by Tech followed by
a recapitalization. CTTI had net liabilities of $4,060, consisting of accounts
payable at the time of the transaction. Because CTTI had no operations
historically and was a shell company, the purchase did not result in goodwill
and the assumption of liabilities resulted in a reduction of additional paid-in
capital.
Tech had 10,000,000 common shares outstanding at the time of the purchase.
The common shares presented herein are those of CTTI, now renamed
AbsoluteFuture.com. Transactions involving the common stock of Tech prior to the
purchase
4
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have been restated to adjust the number of shares by a conversion ratio of 3:10
in order to reflect the number of CTTI common shares received by holders of Tech
common shares resulting from the recapitalization.
The operating results for CTTI have been included in the Company's
operations from the acquisition date. Therefore, the comparative statements of
operations for the quarter and six months ended June 30, 2000 provide prior year
comparison to Tech until the date of the purchase and recapitalization, which
did not occur until May 1999. Pro forma information has not been presented as it
would not be meaningful given the insignificance of CTTI's financial statement
balances for the quarter and six months ended June 30, 1999.
Note 2 - Net Loss Per Share
Basic net loss per share (EPS) is computed based on weighted average shares
outstanding during the period and excludes any potentially dilutive securities.
Diluted EPS reflects potential dilution from the exercise or conversion of
securities into common stock or from other contracts to issue common stock. The
capital structure of the Company includes common stock options and common stock
warrants. At June 30, 2000, there were options outstanding to purchase 671,000
shares of common stock of the Company with exercise prices ranging from $0.60 to
$1.85. Also outstanding at June 30, 2000 were warrants to purchase 2,900,000
shares of common stock with exercise prices ranging from of $0.45 to $2.00 per
share. The assumed conversion and exercise of these securities have been
excluded from the calculation of diluted EPS as their effect is anti-dilutive.
Note 3 - Stockholders' Equity
During the six months ended June 30, 2000 the Company entered into several
transactions involving the issuance of common stock. In January 2000 shares were
issued in satisfaction of commitments made during 1999. The price per share
reflected the price of the stock on the date of the original commitments. The
issuances were as follows:
Number
of Shares Consideration Total Value
--------- -------------- -----------
200,000 For Technology $63,000
180,000 For Services 41,400
2,288,000 Note Conversion 851,160
In addition, the Company sold 1,250,000 shares to a group of investors in
exchange for a stock subscription receivable in the amount of $500,000, of which
$350,000 had been collected as of June 30, 2000. The Company also issued
3,000,000 shares to the same investor group in exchange for consulting services
to be rendered over the twelve months ending December 2000 for total value,
determined using the average of the high and low trading prices during the five
trading days prior to the filing of an S-8 registration statement relating to
the shares on January 20, 2000, of $2,262,500. The cost of these consulting
services was expensed in its entirety during the quarter ended March 31, 2000,
as there were no vesting restrictions on the shares and management does not
believe future services will be rendered during the remainder of the contract
term. See discussion of these consulting contracts in Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
total value of shares issued for services during the six months ended June 30,
2000 was $2,303,900, which is the sum of the $2,262,500 and the $41,400 per the
table above. In addition, 30,000 shares were issued in connection with a short
term loan received by the Company. These shares were valued at $16,875 at the
date of issuance and recorded as a discount on the loan which is being amortized
over the related term.
Included in the 2,288,000 shares issued for note conversions (see table,
above) was the issuance of 748,000 shares in exchange for extinguishment of a
note payable in the amount of $170,000. On the date this transaction was agreed
to, the price of the Company's common stock was $.67 per share, resulting in a
valuation of $501,160, or $331,160 more than the face amount of the note being
extinguished. In addition, warrants to purchase 1,250,000 shares of common stock
at $.45 per share expiring January 13, 2002 were issued to the noteholder, with
a value using the Black-Scholes option pricing model of $472,075, assuming
volatility of 78% and no dividends on common stock. The total excess amount over
the face amount of the note of $803,235 was recorded as an extraordinary loss on
extinguishment of debt during the quarter ended March 31, 2000.
5
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During the quarter ended June 30, 2000, the Company collected $151,000 of
the stock subscriptions receivable that were outstanding as of December 31,
1999. For the six months ended June 30, 2000, the Company collected $501,000 of
the stock subscriptions receivable that were outstanding as of December 31,
1999.
During the quarter ended June 30, 2000 the Company began selling shares in
a combination Regulation D and Regulation S private placement. As of June 30,
2000, 825,000 "units" had been sold for a total of $330,000. Each unit consists
of a share of common stock plus a warrant to purchase a share of common stock at
$1.00 and a warrant to purchase a share of common stock at $2.00. The warrants
have a three year life. The units were priced at $0.40 per share. Subsequent to
June 30, 2000, an additional 875,000 units were sold or subscribed to.
Note 4 - Liquidity
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
The Company has incurred cumulative losses of $4,986,823 through June 30,
2000 and had a working capital deficit of $83,029 as of June 30, 2000.
Management recognizes that in order to meet the Company's capital requirements,
additional financing will be necessary. The Company is evaluating alternative
sources of equity financing to improve its cash position and is undertaking
efforts to raise capital.
Note 5 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends existing accounting standards and is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a component of other comprehensive income depending on the
type of hedge relationship that exists with respect to such derivative. The
Company does not expect the adoption of SFAS No. 133 will have a material impact
on its consolidated financial statements.
In December 1999, the United States Securities and Exchange Commission
(SEC) released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements, which must be adopted by the Company by the fourth quarter
of 2000. SAB No. 101 provides guidance on revenue recognition and the SEC
staff's views on the application of accounting principles to selected revenue
recognition issues. The Company does not expect that the adoption of SAB No. 101
will have a material effect on its consolidated financial statements.
In March 2000, the Financial Accounting Standards Board Issued
Interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions
Involving Stock Compensations, an interpretation of APB Opinion No. 25. FIN No.
44 will be effective July 1, 2000. However, certain of the conclusions included
in the interpretation apply to events occurring after December 15, 1998 or
January 12, 2000. The December 15, 1998 effective date applies prospectively
after July 1, 2000 to the accounting treatment for modifications to the exercise
prices of stock option awards occurring after December 15, 1998 and for the
definition of an employee for purposes of determining eligibility to apply APB
No. 25 and related interpretations to accounting for stock option grants to such
persons where the grant occurred after December 15, 1998. The Company does not
believe the adoption of FIN No. 44 will have a material impact on its financial
position or results of operations.
Note 6 - Geographic segment information
Revenues and expenses of the Canadian operation during the quarters and six
months ended June 30, 2000 and 1999 were not significant.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
6
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Results of Operations for the Three Months Ended June 30, 2000 and June 30, 1999
Total revenues for the quarter ended June 30, 2000 ("2000") increased 43%
to $106,945 from $74,635 in the quarter ended June 30, 1999 ("1999"). The
revenues were all related to consulting services, and reflect increases in this
activity in 2000 compared to 1999.
Gross profit as a percentage of revenues was 19% for the 2000 period
compared to 19% for the 1999 period. There was no change in the Company's gross
profit as a percentage of revenues.
Total operating expenses increased approximately 132% to $484,952 for the
2000 period from $209,396 for the comparable 1999 period. As a percentage of
revenues, total operating expenses increased to 454% for the 2000 period from
281% for the 1999 period. The increase in operating expenses primarily relates
to increased staffing and research and development costs.
The Company incurred a net loss of $464,744 in the quarter ended June 30,
2000, or $0.02 basic and diluted loss per share, compared to a net loss of
$195,544 realized in the 1999 period, or $.03 basic and diluted loss per share.
Results of Operations for the Six Months Ended June 30, 2000 and June 30, 1999
Total revenues for the six months ended June 30, 2000 ("2000") increased
37% to $172,405 from $125,607 in the six months ended June 30, 1999 ("1999").
The revenues were all related to consulting services, and reflect increases in
this activity in 2000 compared to 1999.
Gross profit as a percentage of revenues was 19% for the 2000 period
compared to 22% for the 1999 period. The change in the Company's gross profit
can be attributed primarily to fluctuations in billing rates relative to the
labor costs of consultants.
Total operating expenses increased approximately 847% to $3,152,562 for the
2000 period from $332,797 for the comparable 1999 period. As a percentage of
revenues, total operating expenses increased to 1,829% for the 2000 period from
265% for the 1999 period. The increase in operating expenses primarily relates
to increased staffing and research and development and the $2,303,900 cost of
stock issued in exchange for consulting services during the first quarter of
2000 (see discussion below).
The Company realized a net loss of $3,929,948 in the six months ended June
30, 2000, or $0.19 basic and diluted loss per share, compared to a net loss of
$305,693 realized in the 1999 period, or $.07 basic and diluted loss per share.
The 2000 net loss includes $803,235 ($0.04 per share) loss on extinguishment of
debt, which was recorded as an extraordinary item.
The Company is focusing on the development of SafeMessage, its secure
messaging system. In March 2000, the Company filed two patent applications on
key elements of the SafeMessage technology. The Company released a "Beta" test
version of SafeMessage available in May 2000, and plans a full commercial launch
in the third quarter of 2000.
The Company plans to devote substantial effort to the full commercial
launch and marketing of SafeMessage and intends to seek further equity funds to
finance these activities.
The Company now employs 15 people. Five persons devote the majority of
their time to SafeMessage, four provide consulting services and six have
administrative and marketing responsibilities.
Certain consulting contracts, referred to above and in recent SEC filings
on Form S-8 (filed December 10, 1999, and January 20, 2000) and in the 1999 Form
10-KSB, have failed to result in services rendered per the terms of the
contracts, and the Company took as an expense in the first quarter of fiscal
year 2000, the value of the shares issued per the terms of the contracts.
In a Form S-8 filed December 10, 1999 with the Securities and Exchange
Commission (see Commission File No. 00024199), the Company registered 1,100,000
shares of common stock at a proposed offering and maximum price of $0.25 per
share and proposed maximum aggregate offering price $275,000. These shares were
reported in the Form S-8 as compensation of "Commonwealth Partners NY, LLC," New
York, NY, for "marketing, advertising design and
7
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model/spokesperson services for registrants products." The Form S-8 included as
Exhibit 4 a copy of the "consulting agreement" with Commonwealth Partners, which
set forth additional services to be provided by them during a 12-month period
ending in December 2000, to be compensated for by the 1,100,000 shares of stock
registered and further compensated by monthly payments of $7,000, payable $2,500
in cash and $4,500 in restricted common shares of the Company. To date, the
services rendered pursuant to that consulting agreement with Commonwealth
Partners NY, LLC, have included the introduction of the Company to various
investors, who have committed to stock subscription payments totaling
$1,000,000, of which $850,000 has been received as of June 30, 2000 and have
also included the introduction of other business possibilities and advice of a
general nature. No monthly invoices have been received from Commonwealth
Partners for monthly services rendered since the agreement date of December 10,
1999, and Company management has present reason to doubt any additional services
will be provided pursuant to the agreement. The Company has not located any
documents, other than the "consulting agreement" itself, showing any evidence or
commitment of further work intended to be performed in the future. The $275,000
value of this stock issuance was recorded as an expense in 1999.
In a Form S-8 filed January 20, 2000 with the Securities and Exchange
Commission (see Commission File No. 00024199), the Company registered a total of
3,000,000 shares of common stock at a proposed offering and maximum price of
$0.74 per share and proposed maximum aggregate offering price $2,220,000 (for
accounting purposes, the shares were valued at $2,262,500, which is the average
of the high and low trading prices during the five trading days prior to the
filing of the S-8). These shares were reported in the Form S-8 as compensation
pursuant to "The Consultant Compensation Plan" for services to be rendered by
four consultants: Galton Scott & Goulett, Inc., Middleton, NY (to receive
"Engagement Fee" of 650,000 shares); Dottenhoff Financial Ltd., c/o Monesh
Bakashi, Esq., Middleton, NY (to receive "Engagement Fee" of 700,000 shares);
Berkshire Capital Partners, Inc., c/o of Monesh Bakashi, Esq., Middleton, NY (to
receive "Engagement Fee" of 800,000 shares); and Zimenn Importing and Exporting
Inc., c/o of Monesh Bakashi, Esq., Middleton, NY (to receive "Engagement Fee" of
850,000 shares). The January 20, 2000 Form S-8 included as Exhibits 4.1, 4.2,
4.3, and 4.4 copies of the "consulting agreements" with each of the respective
entities, and each consulting agreement set forth the specific services to be
provided by the respective consultant during a 12-month period ending January
12, 2001. To date, there have been no services rendered pursuant to each of
those four consulting agreements, and Company management has present reason to
doubt any additional services will ever be provided pursuant to the agreements.
The Company has not located any documents, other than the "consulting
agreements" themselves, showing any evidence or commitment of work intended to
be performed in the future.
The Company's Form 10-KSB, filed with the SEC for 1999, made reference to
the above four consulting arrangements to begin in 2000 and the issuance of the
3,000,000 shares of common stock. Relevant to the 10-KSB for 1999, by Press
Release and SEC Form 8-K filed May 1, 2000, the Company notified the public as
stated above, that there have been no services rendered pursuant to each of
those four consulting agreements, that no documents have been located by the
Company, other than the consulting agreements themselves, showing any evidence
of work intended to be performed in the future, and Company management has
present reason to doubt any additional services will ever be provided pursuant
to the agreements.
Company management is investigating its alternatives with respect to these
matters and appropriate action, if any.
Liquidity and Capital Resources
For the six month period ended June 30, 2000, cash used by operating
activities was $763,427. Cash was decreased by the net loss of $3,929,948,
offset by the non-cash expense of issuing shares for services in the amount of
$2,320,775, loss on extinguishment of debt of $803,235 and other minor changes
in current assets and liabilities along with depreciation and amortization
expense. Cash used in investing activities of $76,715 was primarily for the
purchases of property and equipment in the amount of $21,570 and additions to
short term investments representing restricted cash of $52,800. Cash provided by
financing activities of $1,090,276 was from collections of stock subscriptions
receivable of $850,000, sales of stock of $830,000 and additions to notes
payable (net of principal payments) of $121,315 reduced by the elimination of a
bank overdraft of $28,784. For the six month period ended June 30, 2000, cash
and cash equivalents increased by $250,134.
For the six month period ended June 30, 1999, cash used by operating
activities was $147,545. Cash was decreased by the net loss of $305,693 offset
by net changes in current assets and liabilities along with depreciation and
amortization expense. Cash used in investing activities of $65,063 was for the
purchases of property and equipment. Cash provided by financing activities of
$182,317 was from sales of stock of $40,000 and additions to notes payable of
$142,317. For the six month period ended June 30, 1999, cash and cash
equivalents decreased by $30,291.
8
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At June 30, 2000, the Company had a working capital deficit of $83,029. The
Company's present working capital is not expected to adequately meet the
Company's needs for the remainder of 2000.
Using proceeds from the December 1999 and January 2000 stock sales and the
proceeds from the private placement completed in August 2000, the Company plans
to further develop and begin the marketing of the SafeMessage product. The
Company is focused on the development and commercialization of SafeMessage and
related products, as well as the pursuit of corporate partners and potential
acquisition candidates. The primary future needs for capital are for continued
research, development and marketing of products and funding to support strategic
acquisitions. Working capital requirements may vary depending upon numerous
factors including the progress of research and development, competitive and
technological advances, market acceptance of the Company's products and other
factors. The Company anticipates operating with approximately 20 employees by
the end of 2000.
In addition to the proceeds from the aforementioned private placement,
management believes that further increases in capital will be necessary to fund
future activities. Additional funds will be required to continue operations and,
over the longer term, substantial additional funds will be required to maintain
and expand research and development activities and to further commercialize,
with or without corporate partners, any of the Company's proposed products. In
addition, substantial funds may be required to support strategic acquisitions.
Potential sources of liquidity include loans from existing stockholders and
others, as well as additional sales of common stock. No assurance can be given
that satisfactory funding can be arranged on a timely basis to meet the future
needs of the Company or that future revenues and profits will be sufficient to
reduce the Company's long-term funding requirements.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
Company wishes to advise readers that actual results may differ substantially
from such forward-looking statements. Forward-looking statements involve risks
and uncertainties including but not limited to, continued acceptance of the
Company's products in the marketplace, competitive factors, potential changes in
the budgets of federal and state agencies, compliance with current and possible
future FCC or environmental regulations, and other risks detailed in the
Company's periodic report filings with the Securities and Exchange Commission.
Volatility of Stock Price
The market price of the Company's common stock may fluctuate significantly.
The market price of securities in the technology sector have fluctuated
significantly and these fluctuations have often been unrelated to companies'
operating performance. Announcements by the Company or its competitors
concerning technological innovations, new products, proposed governmental
regulations or actions, developments or disputes relating to patents or
proprietary rights, and other factors that affect the market generally could
significantly impact the Company's business and the market price of its
securities. Sales of the Company's securities by existing security holders could
also significantly impact the market price of the Company's securities.
Shares Eligible for Future Sale; Dilution
Sales of substantial numbers of shares of the Company's common stock in the
public market could substantially reduce the prevailing market price of the
stock. As of June 30, 2000, 22,173,000 shares of common stock were outstanding;
111,595 shares of common stock were issuable upon exercise of vested stock
options at exercise prices ranging from $0.60 to $1.85 per share; and an
additional 2,900,000 shares of common stock were issuable upon exercise of
outstanding warrants at exercise prices ranging from $0.45 to $2.00 per share.
Of the outstanding shares of common stock and shares issuable upon exercise of
warrants and options, 13,038,462 shares are freely tradable without restriction.
If these holders sell a large number of shares of common stock in the public
market, such sales could substantially reduce the prevailing market price of the
stock. To the extent that the trading price of the common stock exceeds the
exercise price of the warrants or options at the time such warrants or options
are exercised, such exercise will have a dilutive effect on the other
shareholders.
9
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
This item is not applicable to the Company.
Item 2. Changes in Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended June 30, 2000 the Company held its annual
shareholders meeting. During that meeting, the shareholders elected the
following individuals as directors until the next annual meeting: Graham
Andrews, Michael Foley and Alina Nikolaeva. Also, the shareholders ratified the
selection of KPMG LLP as independent auditors for the Company. And, finally, the
shareholders approved the Company's 1999 Stock Option and Incentive Compensation
Plan, as amended. There were no other matters put to a vote of security holders
during the quarter.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 10-QSB
(A) Exhibit
Exhibit 27.1 Financial Data Schedule
10
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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 thereunto duly authorized.
ABSOLUTEFUTURE.COM
------------------
10900 N.E. 8th Street
Bellevue, WA 98004
Date: August 14, 2000 By /s/ Brian P. Abeel
---------------------------
Brian P. Abeel
Chief Financial Officer
Date: August 14, 2000 By /s/ Graham Andrews
---------------------------
Graham Andrews
President and Chief
Executive Officer
11
