<PAGE>
U.S. 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: September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the transition period from to
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Commission File Number: 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
incorporation or organization) identification number)
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 .
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Shares of common stock of the Registrant were outstanding: 23,048,000 at
November 10, 2000
Transitional small business disclosure format: Yes No X .
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INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements ......................................... 3
Condensed Consolidated Balance Sheet .................... 3
Condensed Consolidated Statements of Operations ......... 4
Condensed Consolidated Statements of Cash Flows ......... 5
Notes to Condensed Consolidated Financial Statements .... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 9
Results of Operations ................................... 9
Liquidity and Capital Resources ......................... 10
Risk Factors and Cautionary Statements .................. 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 14
Item 2. Changes in Securities ........................................ 14
Item 3. Defaults upon Senior Securities .............................. 14
Item 4. Submission of Matters to a Vote of Security Holders .......... 14
Item 5. Other Information ............................................ 14
Item 6. Exhibits and Reports on Form 8-K ............................. 14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
September 30, 2000
<TABLE>
<CAPTION>
September 30,
2000
Assets -------------
<S> <C>
Current assets:
Cash $ 78,077
Accounts Receivable 49,810
Prepaid expenses 33,917
-------------
Total current assets 161,804
Property and equipment, net 106,666
Intangible assets, net of accumulated amortization of $42,834 85,166
Restricted cash 123,077
Deposits 10,251
-------------
Total assets $ 486,964
=============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 191,718
Accrued liabilities 134,510
Current portion of note payable 150,000
-------------
Total current liabilities 476,228
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 23,048,000 shares 23,048
Additional paid-in capital 7,051,545
Stock subscriptions receivable (150,000)
Deferred stock compensation (4,964)
Accumulated deficit (6,907,369)
Cumulative comprehensive loss (1,524)
-------------
Total stockholders' equity 10,736
-------------
Total liabilities and stockholders' equity $ 486,964
=============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Quarter and Nine Months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Nine Months
Quarter ended Quarter ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 131,822 37,651 304,227 163,258
Costs of revenue 100,123 43,668 239,991 142,171
------------- ------------- ------------- -------------
Gross profit (loss) 31,699 (6,017) 64,236 21,087
General, administrative and business development expenses, including
stock compensation expense of $1,384,270 for the quarter
and $3,705,045 for the nine months ended September 30, 2000 1,907,139 186,306 4,974,505 498,256
Research and development expense 61,976 26,281 147,172 26,281
------------- ------------- ------------- -------------
Loss from operations (1,937,416) (218,604) (5,057,441) (503,450)
Interest expense, net 1,131 10,305 7,819 32,080
------------- ------------- ------------- -------------
Loss before extraordinary item (1,938,547) (228,909) (5,065,260) (535,530)
Extraordinary item - loss on extinguishment of debt - - (803,235) -
------------- ------------- ------------- -------------
Net loss $ (1,938,547) (228,909) (5,868,495) (535,530)
============= ============= ============= =============
Basic and diluted net loss per share before extraordinary item $ (0.09) (0.02) (0.24) (0.03)
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 (0.09) (0.02) (0.28) (0.03)
============= ============= ============= =============
Weighted average shares used to compute basic and diluted net loss
per share 22,599,087 11,100,000 21,444,391 6,683,516
Comprehensive Loss:
Net loss $ (1,938,547) (228,909) (5,868,495) (535,530)
Foreign currency translation adjustment 247 (77) 468 (2,414)
------------- ------------- ------------- -------------
Comprehensive loss $ (1,938,300) (228,986) (5,868,027) (537,944)
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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ABSOLUTEFUTURE.COM
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,868,495) (535,530)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 59,680 18,018
Common stock and warrants issued for services under consulting
agreements 3,705,045 -
Loss on extinguishment of debt 803,235 -
Amortization of deferred compensation and discount on notes
payable to stockholders 3,468 -
Changes in certain assets and liabilities:
Accounts receivable (49,810) (7,426)
Prepaid expenses and other current assets (16,864) 3,136
Accounts payable 104,178 94,626
Accrued liabilities 81,286 36,142
------------- -------------
Net cash used in operating activities (1,178,277) (391,034)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (71,083) (75,462)
Acquisition of intangible asset - (65,000)
Purchase of short-term investment representing restricted cash (52,800) -
Other (2,345) -
------------- -------------
Net cash used in investing activities (126,228) (140,462)
------------- -------------
Cash flows from financing activities:
Bank overdraft (28,784) -
Proceeds from (payment of) notes payable (121,315) 420,480
Sales of common stock 680,000 40,000
Collection of stock subscriptions receivable 851,000 -
------------- -------------
Net cash provided by financing activities 1,380,901 460,480
------------- -------------
Increase (decrease) in cash 76,396 (71,016)
Cash at beginning of period 1,681 152,188
------------- -------------
Cash at end of period $ 78,077 81,173
============= =============
Supplemental cash flow information - cash paid during the period
for interest $ 13,000 -
============= =============
Supplemental schedule of non-cash investing and financing activities:
Common stock subscription receivable $ 350,000 -
Net liabilities assumed in acquisition of Corporate Tours and Travel, Inc. - 4,060
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 condensed consolidated financial statements.
5
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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 (Company) is the holding corporation resulting from the
May 1999 acquisition of Absolut Future Tech, Inc. (Tech) by Corporate Tours &
Travel, Inc. (CTTI), in a stock-for-stock exchange. For financial reporting
purposes, the transaction 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. AFTI was incorporated in Nevada in
November 1998 for the purpose of carrying out a software consulting business in
the State of Washington. A subsidiary, Absolut Future Tech Inc., was formed
under the laws of Canada in November 1998 to assist in finding recruits for the
consulting service.
The 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. On September 20, 2000 the
Company introduced SafeMessage, a secure messaging product, which it has begun
marketing on a subscription basis. To date, the Company's revenues have been
from services 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. 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 condensed consolidated 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.
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 director 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 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.
6
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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 nine months ended September 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 nine months ended
September 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 September 30, 2000, there were options outstanding to purchase
1,465,000 shares of common stock of the Company with a weighted average exercise
price of $1.10 per share. Also outstanding at September 30, 2000 were warrants
to purchase 6,650,000 shares of common stock with a weighted average exercise
price of $.97 per share. At September 30, 1999, options to purchase 200,000
shares of the Company's common stock were outstanding with a weighted average
exercise price of $.60 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 nine months ended September 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:
<TABLE>
<CAPTION>
Number
of Shares Consideration Total Value
--------- ------------- -----------
<S> <C> <C>
200,000 For Technology $ 63,000
180,000 For Services 41,400
2,288,000 Note Conversion 851,160
</TABLE>
In addition, the Company sold 1,250,000 shares to a group of investors in
January 2000 in exchange for a stock subscription receivable in the amount of
$500,000, of which $350,000 had been collected as of September 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 nine
months ended September 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 was 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 of the
consideration paid 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.
During the quarter ended September 30, 2000, the Company did not collect
the stock subscriptions receivable that were outstanding as of December 31,
1999. For the nine months ended September 30, 2000, the Company collected
$501,000 of the stock subscriptions receivable that were outstanding as of
December 31, 1999.
During the quarter ended September 30, 2000, the Company completed a
financing involving the sale of shares in a combination Regulation D and
Regulation S private placement. During the quarter, 875,000 "units" were sold in
addition to 825,000 "units" which had been sold during the quarter ended June
30, 2000. The total amount raised in the offering was $680,000. Each unit
consisted of a share of common stock plus a warrant to purchase a share of
common stock at $1.00 and a
7
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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.
During the quarter ended September 30, 2000, the Company engaged an
investment banker to assist in arranging financing and to provide other business
guidance. One of the principals of that firm, Mr. Michael Gales, also took a
seat on the Board of Directors of the Company. In connection with the investment
banking relationship, the Company issued to the investment banker a total of
2,000,000 warrants at $0.40 per share, expiring in July 2005, of which 900,000
were issued to Mr. Gales. The value of the 2,000,000 warrants using the Black-
Scholes option-pricing model is $1,384,270, assuming volatility of 78% and no
dividends on common stock. The total cost was recorded as expense during the
quarter. Mr. Gales also received options to purchase 100,000 shares of the
Company's common stock at $1.25 per share as compensation for his capacity as a
director.
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 $6,907,369 through September
30, 2000 and had a working capital deficit of $314,424 as of September 30, 2000.
Management recognizes that in order to meet the Company's operating cash
requirements, additional financing will be necessary. The company received
$90,000 from the exercise of warrants and $25,000 from a sale of common stock
under Regulation D subsequent to September 30, 2000. 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 which became 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 adoption of FIN
No. 44 did not have a material impact on the Company's financial position or
results of operations.
Note 6 - Geographic segment information
Revenues and expenses of the Canadian operation during the quarters and
nine months ended September 30, 2000 and 1999 were not significant.
8
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note: This Form 10-QSB contains forward-looking statements. In some cases, you
can identify forward-looking statements by terminology such as "may", "will",
"should", "could", "expects", "plans", "intends", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of such
terms and other comparable terminology. Our forward-looking statements include,
without limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. The information set forth under the headings "Description of
Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", identify important additional factors that could
materially adversely affect our actual results and performance. All forward-
looking statements attributable to us are expressly qualified in their entirety
by the foregoing cautionary statement. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
undertake no obligation to publicly update any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future. We claim the protection of the safe harbor for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995.
Overview
--------
AbsoluteFuture.com (the "Company") is an information technology service
provider that is developing core competencies in complex Internet/intranet
solutions. The Company is currently focusing on the development of SafeMessage,
its secure messaging system, based on its LHD Technology. The Company released
the beta version of SafeMessage in May 2000, and released the commercial version
in September 2000. The Company is targeting its SafeMessage marketing and sales
efforts at corporations, professional service firms, and resellers to consumers
and small businesses. Key elements of the SafeMessage technology are subject to
two patent applications filed by the Company in March 2000, and a third patent
application filed in September 2000.
The Company plans to devote substantial effort to the continued launch and
marketing of SafeMessage and intends to seek additional equity funds to finance
these activities. No revenues were recognized during third quarter 2000 which
related to SafeMessage.
The Company's offices are in Bellevue, Washington. The Company employs 17
people: five in SafeMessage development, four in SafeMessage marketing and
sales, four in consulting services to third-parties, and four in administration.
AbsoluteFuture.com (p.k.a. Corporate Tours & Travel, Inc.) is a holding
company that was incorporated in Nevada in 1993. In May 1999, the Company
acquired Absolut Future Tech, Inc. ("AFTI") as its U.S. subsidiary and operating
entity, in a stock-for-stock exchange. To date, the Company's revenues have been
generated by software development and consulting performed by AFTI, as the
Company had been an inactive shell prior to acquiring AFTI. AFTI was
incorporated in Nevada in November 1998 for the purpose of carrying out a
software consulting business in the State of Washington. A subsidiary, Absolut
Future Tech Inc., was formed under the laws of Canada in November 1998 to assist
in finding recruits for the consulting service. The subsidiary is now dormant.
Results of Operations
---------------------
Three Months Ended September 30, 2000 and September 30, 1999
Total revenues for the quarter ended September 30, 2000 increased 250% to
$131,822 from $37,651 in the quarter ended September 30, 1999. The revenues were
all related to consulting services, and reflect increased activity in 2000
compared to 1999.
Gross profit as a percentage of revenues was 24% for the 2000 period
compared to -16% for the 1999 period. In 1999 the Company experienced an end to
a major contract while costs associated with that contract continued, resulting
in a negative profit margin.
9
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Total operating expenses increased approximately 826% to $1,969,115 for the
2000 period from $212,587 for the comparable 1999 period. As a percentage of
revenues, total operating expenses increased to 1,494% for the 2000 period from
565% for the 1999 period. The increase in operating expenses primarily relates
to the fair value determined using the Black Scholes option pricing model of
warrants to purchase common stock issued during the 2000 quarter to the
Company's investment banker valued at $1,384,270 (see note 3 to condensed
consolidated financial statements.) and increased staffing and research and
development costs as the Company moved closer to the launch of its SafeMessage
product.
The Company incurred a net loss of $1,938,547 in the quarter ended
September 30, 2000, or $0.09 basic and diluted loss per share, compared to a net
loss of $228,909 in the 1999 period, or $.02 basic and diluted loss per share.
Nine Months Ended September 30, 2000 and September 30, 1999
Total revenues for the nine months ended September 30, 2000 increased 86%
to $304,227 from $163,258 in the nine months ended September 30, 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 21% for the 2000 period
compared to 13% for the 1999 period. The change in the Company's gross profit
can be attributed primarily to increases in billing rates relative to the labor
costs of consultants, and the continuing costs of a consultant after termination
of a contract that reduced the gross profit as a percentage of revenues in the
nine months ended September 30, 1999.
Total operating expenses increased approximately 876% to $5,121,677 for the
2000 period from $524,538 for the comparable 1999 period. As a percentage of
revenues, total operating expenses increased to 1,684% for the 2000 period from
321% for the 1999 period. The increase in operating expenses primarily relates
to increased staffing and research and development, a $2,303,900 non-cash charge
related to the cost of stock issued in exchange for consulting services during
the first quarter of 2000 (see "Consulting Contracts", below), and a non-cash
charge of $1,384,270 for the fair value of warrants issued during the third
quarter of 2000 to the Company's investment banker (see note 3 to condensed
consolidated financial statements).
The Company incurred a net loss of $5,868,495 in the nine months ended
September 30, 2000, or $0.28 loss per basic and diluted share, compared to a net
loss of $535,530 in the 1999 period, or $0.03 per basic and diluted share. The
2000 net loss includes a loss on extinguishment of debt of $803,235, or $0.04
per share, which was recorded as an extraordinary item (see note 3 to condensed
consolidated financial statements).
Liquidity and Capital Resources
-------------------------------
Nine Months Ended September 30, 2000 and September 30, 1999
For the nine month period ended September 30, 2000, cash used by operating
activities was $1,178,277. Cash was decreased by the net loss of $5,868,495,
offset by the non-cash expenses of issuing shares and warrants for services in
the amount of $3,705,045, the loss on extinguishment of debt of $803,235,
depreciation and amortization and other minor changes in current assets and
liabilities. Cash used in investing activities of $126,228 was primarily for the
purchases of property and equipment in the amount of $71,083 and additions to
short term investments representing restricted cash of $52,800. Cash provided by
financing activities of $1,380,901 was from collections of stock subscriptions
receivable of $851,000, sales of common stock of $680,000 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 nine month period ended September 30, 2000,
cash and cash equivalents increased by $76,396.
For the nine month period ended September 30, 1999, cash used by operating
activities was $391,034. Cash was decreased by the net loss of $535,530 offset
by net changes in current assets and liabilities along with depreciation and
amortization expense. Cash used in investing activities of $140,462 was for the
purchases of property and equipment and the rights to Internet Interview. Cash
provided by financing activities of $460,480 was from sales of stock of $40,000
and additions to notes payable of $420,480. For the nine month period ended
September 30, 1999, cash and cash equivalents decreased by $71,016.
At September 30, 2000, the Company had a working capital deficit of
$314,424, up 504% from a working capital deficit of $52,061 as September 30,
1999. The Company's present working capital is not expected to adequately meet
the Company's needs for the remainder of 2000.
Further Capital Requirements
----------------------------
10
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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, enhancement 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 placements,
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 current and 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.
Consulting Contracts
--------------------
Commonwealth Partners
On December 10, 1999, the Company entered into a one-year consulting
agreement with Commonwealth Partners NY, LLC ("Commonwealth"). In that
agreement, Commonwealth agreed to provide various financial advisor services,
introduction and capital raising activities in exchange for (a) an up-front fee
consisting of 1,100,000 shares of common stock (the "Commonwealth Shares") at
$0.25 per share, an aggregate value of $275,000, which were to be registered on
a Form S-8 Registration Statement, and (b) monthly payments of $2,500 in cash
and $4,500 in the Company's restricted common stock. The Company recorded the
$275,000 value of the Commonwealth Shares as an expense in fiscal 1999.
In December 1999 and January 2000, William F. Palla, one of Commonwealth's
members, introduced the Company to five investors, who subsequently purchased
$850,000 of the Company's restricted common stock. Commonwealth also introduced
the Company to other business possibilities and provided financial advice of a
general nature. However, Commonwealth has not provided any services under the
agreement since that time and has never invoiced the Company for any monthly
payments. The Company has not located any documents, other than the consulting
agreement, showing any evidence or commitment of further work intended to be
performed in the future. Company management believes that the value of the
Commonwealth Shares was commensurate with the value of the services actually
provided by Commonwealth, but has present reason to doubt that any additional
services will be provided pursuant to the agreement.
Other Consultants
In January 2000, Commonwealth introduced the Company to four potential
investors in the Company (a) Galton Scott & Goulett, Inc., (b) Dottenhoff
Financial Ltd., (c) Berkshire Capital Partners, Inc. and (d) Zimenn Importing
and Exporting Inc. On January 12, 2000, the Company also entered into one-year
consulting agreements with those investors. In those consulting agreements, the
investors agreed to provide various technical software development activities,
marketing material preparation, financial market analysis and surveys,
acquisition target identification and transaction structuring advice, in
exchange for up-front fees consisting of a aggregate of 3,000,000 shares of
common stock (the "Consultants' Shares") at $0.74 per share, an aggregate value
of $2,220,000, which were also to be registered on a Form S-8 Registration
Statement. 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 Form S-8. The Company recorded the $2,262,500 value
of the Consultants' Shares as an expense in the quarter ended March 31, 2000.
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
showing any evidence or commitment of work intended to be performed in the
future.
Form S-8 Registration Statements
The Company filed with the SEC a Form S-8 Registration Statement covering
(a) the Commonwealth Shares on December 10,1999, and (b) the Consultants' Shares
on January 20, 2000. The Commonwealth Form S-8 inaccurately stated
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that the Commonwealth Shares were compensation for marketing, advertising design
and model/spokesperson services for registrants products. Both Form S-8's were
prepared by Company's then-counsel and included his opinion that those shares
could be registered on Form S-8. To the Company's knowledge, all of those shares
were sold into the market by Commonwealth and the four consultants in first
quarter fiscal 2000.
The Company subsequently became aware that Form S-8 in fact was not
available to register either the Commonwealth Shares or the Consultants' Shares,
and that those shares had therefore been issued in violation of Section 5 of the
Securities Act of 1933 and possibly of certain state securities laws. The
Company is currently determining the availability of any state exemptions from
registration, or whether it will need to conduct rescission offers in the
affected states.
Subsequent Events
In May 2000, the Company became aware that Mr. Palla has been the subject
of multiple SEC investigations for securities fraud, including the SEC's
"microcap" fraud investigation, and was recently indicted with members of
organized crime families in New York for securities fraud. In addition, one of
Commonwealth's other partners, Roger M. DeTrano, has been charged with
securities fraud in New York.
Company management believes that the Commonwealth consulting agreement and
the other four consulting contracts were part a scheme by Commonwealth to
defraud the Company. The Company is determining what recourse, if any, it has in
this regard.
Recent Events
-------------
See note 4 to Condensed Consolidated Financial Statements.
Risk Factors
------------
We have a limited history of current operations.
We have a very limited operating history and are subject to the risks and
uncertainties frequently encountered by early stage companies in new and rapidly
evolving markets. Our business strategy may be unsuccessful and we may be unable
to address the risks we face in a cost-effective manner, if at all. Our
inability to successfully address these risks would cause significant harm to
our business, financial condition and results of operations.
We have a history of losses and we expect losses for the near future.
Since our inception, we have incurred significant losses, including losses
from the development of SafeMessage. Since inception, these losses have resulted
primarily from costs related to developing or acquiring technologies to be used
in our business, and general corporate overhead. As of September 30, 2000, we
have generated no revenues from our SafeMessage product. We expect to continue
incurring net losses and negative operating cash flow through the end of fiscal
2001, as we plan to invest in: the continued development of SafeMessage, other
products based on the LHD Technology, and the marketing and sales of those
products.
We believe these expenditures are necessary to enhance our products, and to
generate greater revenues. If our revenue growth is slower than we anticipate or
our operating expenses exceed our expectations, our losses will be significantly
greater and it will take longer to achieve positive operating cash flow and
profitability. We may never achieve or sustain profitability.
Our future revenues are unpredictable.
Our revenues for the foreseeable future will derive primarily from
SafeMessage and related product sales. Our revenues will depend primarily on:
effectively bringing the SafeMessage product to market, competitive products
already in the marketplace or being developed, the ability to generate the
required working capital to fund the product development and the ability to
enter into strategic partnerships.
In addition, because the market for our services and products are
relatively new and changing rapidly, it is difficult to predict future financial
results. Our business expenditures are partially based on our predictions
regarding certain developments for the need to secure messaging products like
SafeMessage. To the extent that these predictions prove inaccurate, our
operating results may be negatively affected and fluctuate significantly.
Because of these and other factors, we
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believe that period-to-period comparisons of our results of operations are not
good indicators of our future performance. If our operating results fall below
the expectations of investors and other market participants in some future
periods, then our stock price may decline.
We are growing rapidly, and effectively managing our growth may be difficult.
We are currently experiencing a period of expansion. In order to execute
our business plan, we must continue to grow. This growth will strain our
personnel, management, systems, policies and procedures and other resources. To
manage our growth, we must implement operational and financial systems and
controls and recruit, train and manage new employees. If we do not implement
adequate systems and controls, recruit, integrate and retain necessary personnel
or otherwise manage growth effectively, our business, results of operations and
financial condition will be materially and adversely affected.
Since our stock is subject to the penny stock rules, investors may find it
difficult to sell their stock.
Our common stock is subject to penny stock rules promulgated by the
Securities and Exchange Commission. The penny stock rules require a broker-
dealer, prior to a transaction in a penny stock, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for our common stock and make it more difficult
to sell our common stock.
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 September 30, 2000, 23,048,000 shares of common stock were
outstanding; 267,662 shares of common stock were issuable upon exercise of
vested stock options at a weighted average exercise price of $1.12 per share;
and an additional 6,650,000 shares of common stock were issuable upon exercise
of outstanding warrants at a weighted average exercise price of $0.97 per share.
Of the outstanding shares of common stock and shares issuable upon exercise of
warrants and options, 14,880,667 shares are or will be 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims which
may have a material adverse effect on our business. We are not aware of any
current legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
During the period from June 2000 to August 2000, the Company sold
unregistered securities to eight investors under Regulation D and Regulation S.
Total proceeds from the offering were $680,000. The Company sold 1,700,000
units, each unit consisting of one share of common stock of the Company along
with one warrant to purchase one share of common stock at $1.00 and one warrant
to purchase one share of common stock at $2.00. The warrants have a life of
three years. Proceeds from the offering were used for working capital purposes.
No commissions were paid pursuant to this offering, which closed in August 2000.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended September 30, 2000 no matters were put to a vote
of security holders.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 27.1 Financial Data Schedule
(B) Reports on Form 8-K
None.
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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 as of November 13, 2000.
ABSOLUTEFUTURE.COM
By /s/ Brian P. Abeel
--------------------------------
Brian P. Abeel
Chief Financial Officer
By /s/ Graham Andrews
--------------------------------
Graham Andrews
President and Chief Executive Officer
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