U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 30, 2000
Commission file no. 0-27769
Power Kiosks, Inc.
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(Name of Small Business Issuer in its Charter)
Florida 65-0522144
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
181 Whitehall Drive
Markham, Ontario, Canada L3R 9T1
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (905) 948-9600
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value per share
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(Title of class)
Copies of Communications Sent to:
Donald F. Mintmire
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
<PAGE>
Indicate by 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
-- --
As of April 30, 2000, there are 4,815,539 shares of voting stock of the
registrant issued and outstanding.
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
Power Kiosks, Inc.
(A Development Stage Enterprise)
Unaudited Condensed Consolidated Balance Sheet
(in U.S. dollars)
April 30, 2000
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<S> <C>
Assets
Current assets:
Cash $ 6,748
Investment tax credits receivable 33,782
Inventories 478,658
Miscellaneous receivable 108,303
Prepaid expenses and deposits 676
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Total current assets 628,167
Property and equipment 49,427
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Total assets $ 677,594
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Liabilities and Shareholders' Deficiency
Current liabilities:
Accounts payable $ 102,748
Accrued liabilities 247,317
Loan payable 945,882
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Due to shareholders 190,105
Convertible notes 40,538
Total current liabilities 1,526,590
Shareholders' deficiency (note 3):
Capital stock 481
Additional paid-in capital 2,012,583
Accumulated other comprehensive losses (33,443)
Deficit accumulated during the development stage (2,828,617)
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Total shareholders' deficiency (848,996)
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Total liabilities and shareholders' deficiency $ 677,594
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</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Power Kiosks, Inc.
(A Development Stage Enterprise)
Unaudited Condensed Consolidated Statements of Operations
(in U.S. dollars)
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Period
from
Three months ended Nine months ended inception to
April 30, April 30, April 30,
------------------------- -------------------------
1999 2000 1999 2000 2000
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<S> <C> <C> <C> <C> <C>
Expenses:
Sales and marketing $ 144,810 $ 209,094 $ 188,748 $ 656,789 $ 1,023,976
Research and development 10,912 - 108,105 9,035 191,396
General and administrative - - - - 479,601
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Loss from operations 155,722 209,094 296,853 665,824 1,694,973
Financing costs - 521,780 - 775,173 775,173
Interest expense - 43,153 - 123,942 358,471
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Loss before provision for income taxes 155,722 774,027 296,853 1,564,939 2,828,617
Provision for income taxes - - - - -
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Loss for the period $ 155,722 $ 774,027 $ 296,853 $ 1,564,939 $ 2,828,617
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Basic and diluted loss per
common share $ (0.06) $ (0.18) $ (0.11) $ (0.45)
========== ========== ========== ===========
Shares used in computing basic and
diluted loss per common share 2,800,878 4,295,872 2,689,116 3,440,284
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</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Power Kiosks, Inc.
(A Development Stage Enterprise)
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in U.S. dollars)
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Period
from
Three months ended Nine months ended inception to
April 30, April 30, April 30,
------------------------- -------------------------
1999 2000 1999 2000 2000
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<S> <C> <C> <C> <C> <C>
Loss for the period $ (155,722) $ (774,027) $ (296,853) $ (1,564,939) $ (2,828,617)
Other comprehensive loss:
Currency translation adjustment (11,021) 18,582 (12,688) (12,531) (33,443)
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Comprehensive loss $ (166,743) $ (755,445) $ (309,541) $ (1,577,470) $ (2,862,060)
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</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Power Kiosks, Inc.
(A Development Stage Enterprise)
Unaudited Condensed Consolidated Statements of Cash Flows
(in U.S. dollars)
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Period
from
Three months ended Nine months ended inception to
April 30, April 30, April 30,
------------------------- -------------------------
1999 2000 1999 2000 2000
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<S> <C> <C> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period $ (155,722) $ (774,027) $ (296,853) $ (1,564,939) $ (2,828,617)
Item not affecting cash:
Amortization - 4,123 - 9,014 9,200
Accretion of interest
on loan payable - - - - 237,862
Financing costs - 521,780 - 775,173 775,173
Stock-based
compensation
expense - - - - 486,450
Change in operating
assets and liabilities:
Investment tax
credits receivable (5,774) - (5,692) - (33,577)
Inventories (84,546) 10,533 (118,688) (130,672) (475,765)
Miscellaneous receivable 517 (84,669) - (82,136) (672)
Prepaid expenses
and deposit (67) 3,425 - 13,115 (107,650)
Accounts payable 130,053 (212,364) 168,068 47,516 102,127
Accrued liabilities (24,269) 80,651 - 179,790 245,822
Due to shareholders 159,089 (37,157) 268,696 21,111 188,956
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Net cash flows provided by
(used in) operating activities 19,281 (487,705) 15,531 (732,028) (1,400,691)
Financing activities:
Issuance of common
shares - 500,000 - 500,000 500,069
Increase (decrease) in bank
indebtedness (5,351) (6,747) - (20,451) -
Loan proceeds - - - 272,394 949,282
Issuance of convertible notes - - - 40,859 40,742
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Net cash flows from financing
activities (5,351) 493,253 - 792,802 1,490,093
Investing activities:
Purchase of property
and equipment (5,333) - (7,094) (51,792) (58,329)
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Cash flows used in investing
activities (5,333) - (7,094) (51,792) (58,329)
Effect of currency translation
of cash balances 220 1,200 380 (2,234) (24,325)
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Increase in cash, being cash,
end of period $ 8,817 $ 6,748 $ 8,817 $ 6,748 $ 6,748
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Supplemental cash flow information:
Interest paid $ - $ - $ - $ - $ -
Income taxes paid - - - - -
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Supplemental disclosure of non-cash financing and investing activities:
Shares issued in connection with
financing costs - 521,780 - 775,173 775,173
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</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Power Kiosks, Inc.
(A Development Stage Enterprise)
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in U.S. dollars)
6
1. Basis of presentation:
The unaudited condensed consolidated financial statements have been
prepared by Power Kiosks, Inc. (formerly Alternate Achievements, Inc.)
(the "Company") and reflect all adjustments (all of which are normal and
recurring in nature) that, in the opinion of management, are necessary
for a fair presentation of the interim financial information. The results
of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year ending July
31, 2000. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted under the Securities
and Exchange Commission's rules and regulations. These unaudited
condensed consolidated financial statements and notes included herein
should be read in conjunction with the Company's audited consolidated
financial statements and notes for the year ended July 31, 1999 (note 3).
2. Going concern:
The Company is in its development stage. Since its inception, the Company
has incurred significant expenditures on the research, development and
marketing of a kiosk digital imaging system and has a deficit of
$2,828,617 as at April 30, 2000. The Company has not generated revenues
and management does not expect to commence generating revenues until
2001. These financial statements have been prepared on the going concern
basis which assumes the realization of assets and liquidation of
liabilities in the normal course of business. The Company has suffered
continuing losses from operations and has a net capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
These unaudited condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The continued application of the going concern concept is dependent on
the Company's ability to obtain adequate sources of financing and to
achieve a level of revenues sufficient to support the Company's
operations. The Company is currently attempting to obtain additional
financing from its existing shareholders and other strategic investors to
continue its operations. However, there can be no assurance that the
Company will obtain additional funds from these sources.
3. Reverse acquisition:
On February 23, 2000, the Company entered into an agreement for the
exchange of common stock with Power Photo Kiosks Inc. ("Power Photo"), a
Canadian corporation. Under the terms of the agreement, the Company
issued 3,000,000 common shares, $0.0001 par value, in
<PAGE>
3. Reverse acquisition (continued):
exchange for all of the issued and outstanding shares of Power Photo.
At the time of the transaction, the Company had nominal net assets.
As the former shareholders of Power Photo control the consolidated
entity, the transaction has been accounted for as a reverse acquisition
whereby, notwithstanding the legal acquisition of Power Photo by the
Company, the transaction has been accounted for as an acquisition of the
Company by Power Photo on February 23, 2000. The unaudited condensed
consolidated financial statements of the combined entity are issued under
the name of the legal parent but are considered the continuation of the
financial statements of the legal subsidiary, Power Photo. As Power Photo
was deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in the consolidated financial statements at
their historical carrying values. The Company has adopted the fiscal year
end of Power Photo, being July 31. The comparative financial statements
for the three month and nine month ended April 30, 1999 and 2000 are
those of Power Photo.
4. Shareholders' equity:
On September 14, 1999 and January 12, 2000, certain shareholders of Power
Photo transferred a total of 55,000 common shares to a lender in
consideration for the extension of the maturity date of a loan. This
transaction was recorded as additional paid-in capital and as a financing
cost of Power Photo based upon the fair value of the common shares
transferred.
On February 24, 2000, the Company issued 350,000 common shares for
proceeds of $300,000, net of issue costs of $50,000. In connection with
the share issuance, warrants were issued to acquire 300,000 common shares
exercisable at a price of $0.01 per share. These warrants expire of
February 24, 2003. A financing cost of $521,780 has been recorded in
connection with the issuance of these common shares, representing the
difference between the fair value of the shares and the proceeds
received.
In April 2000, the Company issued 80,000 common shares for total proceeds
of $200,000.
<PAGE>
5. Recent account pronouncements:
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured
at its fair value. SFAS No. 133, as recently amended, is effective for
the fiscal year ending July 31, 2002. Management believes the adoption
of SFAS No. 133 will not have a material effect on the Company's
financial position or results of operations.
The Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101), on
December 3, 1999. SAB 101 provides additional guidance on the application
of existing generally accepted accounting principles to revenue
recognition in financial statements. The Company does not expect the
guidance of SAB 101 to have a material effect on its financial
statements.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for certain Transactions Involving Stock Compensation (FIN
No. 44), in March 2000. This interpretation clarifies the application
of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, with respect to certain issues in accounting for
employee stock compensation and is generally effective as of July 1,
2000. The Company does not expect FIN 44 to have a material effect on
its financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis
General
In October 1998, Power Photo Enterprises, Inc. n/k/a Power Photo
Kiosks, a Canadian corporation ("PPK"), prior to its acquisition by Power
Kiosks, Inc., a Florida corporation f/k/a Alternate Achievements, Inc. f/k/a
Global Corporate Quality, Inc. (the "Company"), entered into a revised licensing
agreement with Licensing Resource Group, Inc. ("LRG"). Specifically, it revised
prior agreements between PPK and LRG dated March 16, 1998 and July 15, 1998.
PPK, which had been granted a non-exclusive and assignable right to design,
manufacture, distribute and market a Retail Imaging System which produces an
image of the user which is digitally affixed to stock images which the user
selects in order to create a customized keepsake ("Sticket") in the United
States by Sony of Canada, Ltd., granted to LRG the exclusive right to execute
and administer licenses in universities located in the United States for use of
Sticket on products which bear the name, trademark and/or logo of the
universities. For all sales made by LRG, LRG is to receive a commission of $750
per kiosk and $0.05 per Sticket sold. Additionally, LRG received a fully-
diluted five percent (5%) equity position in PPK.
PPK also agreed to make LRG an exclusive distributor. Minimum
performance requirements are to be met by LRG. PPK granted LRG the right of
first refusal regarding the expansion of LRG's exclusive distribution right to
include new market segments. For all sales made by LRG, LRG is to receive a
commission of $750 per kiosk and $0.05 per Sticket sold.
In October 1998, prior to its acquisition by the Company, PPK entered
into a licensing agreement with Titan Sports, Inc. a Delaware corporation
("Titan"), whereby PPK was granted an exclusive license to use the rights of
publicity, trademarks, copyrights and all other proprietary rights relating to
the personnel performing in or at the professional wrestling events produced,
promoted and performed by Titan as well as the events themselves, excluding
comic, cartoon or animated events, characters, characterizations, designs or
visual representations in the United States and Canada (the "License"). Certain
minimum requirements must be met by PPK annually. For such License, PPK paid an
advance royalty of five thousand dollars ($5,000) and agreed to pay a royalty of
six percent (6%) of retail sales which result from the License, not including
kiosk sales. Beginning April 1999 and every quarter thereafter, minimum
royalties of five thousand dollars ($5,000) must be paid by PPK to Titan.
Additionally, PPK must expend a minimum of two percent (2%) of total annual
revenues from sales resulting from the License to advertise the licensed
products. The term of the License is for a period of five (5) years.
In May 1999, prior to its acquisition by the Company, PPK entered into
a manufacturing agreement with Integrated Kiosk, Inc. ("IKI"), whereby PPK
granted IKI an exclusive right to manufacture PPK's photo kiosk which utilizes
digital imaging and manipulation technology, known as the Power Photo Kiosk for
PPK and to assemble the Power Photo Kiosk as well as to supply various hardware
components from time to time, all in accordance with the plans and
specifications supplied or approved by PPK for all such units supplied to or
distributed to the North American market. The term is for a period of five (5)
years, with successive one (1) year renewal terms thereafter. Termination
requires one (1) year notice. The prices are: A) $3,630 for kiosk shell and
<PAGE>
frame; B) $2085 for the computer; and C) $3,260 for integration, which brings
the total cost of manufacturing and integration to $8,975.
In May 1999, PPK, prior to its acquisition by the Company entered into
a loan agreement with MLIC Holdings, Inc., a Canadian corporation ("MLIC"),
whereby PPK borrowed $1,000,000 Canadian at an interest rate of twelve percent
(12%) annually. The loan was originally due upon the earlier of a closing of a
private placement or July 30, 1999. Additionally, PPK issued to MLIC 40,000
shares of its Common Stock with certain anti-dilution rights, which rights did
not preclude capital raising activities. PPK granted MLIC a security interest in
fifty (50) kiosk units and agreed to make specific assignment of accounts
receivable on those units. For such offering, PPK need not have complied with
federal nor state securities laws, as both companies were Canadian.
Since July 1999, the MLIC loan has been extended on two (2) occasions.
The first extension was for a period of thirty-one (31) days and cost PPK $450
Canadian per day and 10,000 additional shares of PPK Common Stock. In September
1999 on the second extension, PPK borrowed an additional $400,000 Canadian,
bringing their total outstanding balance to $1,446,704 Canadian and extended the
loan to December 17, 1999 with interest accruing at a rate of seven hundred
dollars ($700) Canadian per day. Since December 17, 1999, MLIC has agreed not to
declare PPK in default prior to July 31, 2000 (PPK's fiscal year end), with
interest accruing at the same rate.
In September 1999, PPK prior to its acquisition by the Company, entered
into a Master Merchandising License Agreement with Universal Studios Licensing,
Inc. ("Universal"), whereby PPK was granted a non-exclusive license to use
certain characters and artwork owned by Universal. For the use of each set of
character and artwork, PPK must pay to Universal a royalty of five percent (5%)
of retail sales with a guaranteed royalty upon execution of the license and on
January 31, 2000 and must pay additional guaranteed royalties on December 31,
2001. The license expires December 31, 2002.
In November 1999, PPK, prior to its acquisition by the Company, entered
into a Teaming Agreement with Sybase Canada Limited the Canadian subsidiary of
Sybase ("Sybase"), Advanced Kiosk Services, Inc. and Integrated Kiosks, Inc. to
provide a retail kiosk delivery system with fully automated and centrally
monitored and administered kiosk maintenance functionality and image movement
capability. The software is critical to the remote management of the kiosks from
a service and content standpoint, and also provides connectivity over the
complete kiosk network to facilitate advertising initiatives, program "refresh",
transaction monitoring and servicing.
In February 2000, the Company effected a forward split of its Common
Stock at a rate of 2.78 to 1, for holders of record on February 22, 2000, with
distribution effective March 1, 2000.
In February 2000, the Company, PPK and the individual holders of all of
the outstanding capital stock of PPK (the "Holders") consummated a reverse
acquisition pursuant to a share exchange agreement (the "Agreement"). Pursuant
to the Agreement, the Holders tendered to the Company all issued and outstanding
shares of PPK in exchange for 3,000,000 shares (only 2,995,539 shares were
actually issued due to rounding) of Common Stock of the Company. Of the
2,995,539 shares issued, Roanld Terry Cooke is the beneficial owner of 1,359,846
shares and Allan Turowetz is the beneficial owner of 1,103,146 shares. The
reorganization was accounted for as a reverse
<PAGE>
acquisition. For such offering, the Company relied upon Section 4(2) of the
Securities Act of 1933, as amended (the "Act"), Rule 506 of Regulation D
promulgated thereunder ("Rule 506"), Section 451.802(19) of the Michigan Code
and no state exemption for the shares issued to Bahamian or Canadian residents.
The Company relied upon Section 4(2) of the Act and Rule 506 for
several transactions regarding the issuance of its unregistered securities. In
each instance, such reliance was based upon the fact that (i) the issuance of
the shares did not involve a public offering, (ii) there were no more than
thirty-five (35) investors (excluding "accredited investors"), (iii) each
investor who was not an accredited investor either alone or with his purchaser
representative(s) had such knowledge and experience in financial and business
matters that he was capable of evaluating the merits and risks of the
prospective investment, or the issuer reasonably believed immediately prior to
making any sale that such purchaser came within this description, (iv) the
offers and sales were made in compliance with Rules 501 and 502, (v) the
securities were subject to Rule 144 limitations on resale and (vi) each of the
parties was a sophisticated purchaser and had full access to the information on
the Company necessary to make an informed investment decision by virtue of the
due diligence conducted by the purchaser or available to the purchaser prior to
the transaction.
The facts upon which the Company relied for purposes of Section 451.802
of the Michigan Code are: The transaction was incident to a class vote by
shareholders pursuant to the certificate of incorporation or the applicable
corporation statute, on a merger, consolidation, reclassification of securities,
or sale of corporate assets in consideration of the issuance of securities of
another corporation.
Simultaneously with the closing of the Agreement, the then officer and
director of the Company tendered his resignation in accordance with the terms of
the Agreement and tendered his shares (13,900,000) for cancellation. 1,390,000
additional shares were also cancelled in connection with the Agreement. Ronald
Terry Cooke and Allan Turowetz were elected to serve on the Board of Directors
of the Company (the "Board"). The Board subsequently appointed Ronald Terry
Cooke as Chairman of the Board and President and Allan Turowetz as the
Vice-President of the Company. The Company also announced approval of an
amendment to its Articles of Incorporation changing the name of the Company from
Alternate Achievements, Inc. to Power Kiosks, Inc.
In February 2000, the Company sold 350,000 shares of its Common Stock
to one (1) investor for $350,000. The Company actually received $300,000, as
$35,000 was deducted as an agent fee and $15,000 was deducted for legal fees.
The Company also issued warrants to purchase an additional 300,000 shares
exercisable at a price of $0.01 per share for a period of three (3) years in
connection with such sale. Both the shares and the shares underlying the
warrants carry mandatory registration rights.
Since February, both parties have verbally agreed to modify the
agreement, such that 390,000 shares will be sold rather than 350,000 shares for
$390,000 rather than $350,000, with the warrants and the costs remaining the
same. Although the verbal agreement has yet to be memorialized, proceeds for the
full amount has been received by the Company. For such offering, the Company
relied upon Section 4(2) of the Act and Rule 506. No state exemption was
necessary because the investor is a foreign entity located in Canada.
<PAGE>
In April and May 2000, the Company sold 80,000 shares of its Common
Stock to four (4) investors for a total of $200,000. No memorandum was utilized
by the Company in connection with the offering. For such offering, the Company
relied on Section 4(2) and Rule 506. No state exemption was required as all
investors were Canadian residents.
In May 2000, the Company filed a report on Form 8KA1 disclosing that
the Company had dismissed the firm of Dorra Shaw & Dugan and retained KPMG, LLP
as its auditors in connection with the Agreement. The Company also changed its
fiscal year to July 31, that of its subsidiary, PPK.
In February 2000, PPK entered into a licensing agreement with The Ohio
State University ("TOSU"), whereby TOSU granted PPK a non-exclusive right and
license to use designs, trade names, trademarks, and service marks, including
without limitation, the designations depicted on the camera ready sheets of
licensed marks and other designs, seals and symbols in connection with
advertising its products and services in the United States. For such right and
license, PPK agreed to pay a royalty to TOSU quarterly in the amount of eight
percent (8%) of the net sales price. The term is for a period of two (2) years
and is automatically renewable for successive one (1) year terms unless
terminated. A fee of five hundred dollars ($500) must also be paid annually by
PPK to TOSU.
Discussion and Analysis
The Company, Power Kiosks, Inc. is a Florida chartered corporation which
conducts business from its headquarters in Markham, Ontario, Canada. The Company
was incorporated in September1994, as Global Corporate Quality, Inc., changed
its name to Alternate Achievements, Inc. in October 1999 and to Power Kiosks,
Inc. in February 2000 in connection with the Agreement. At such time, it
acquired 100% of the issued and outstanding shares of the common stock of PPK,
in a reverse merger.
The Company is a provider of a network-based, digital imaging kiosk
system that delivers a range of retail consumer products. The kiosk system is
enabled by leading-edge technology in the areas of digital imaging software,
delivery hardware and e-commerce network capabilities.
Each kiosk operates as a fully-functional, stand-alone business unit.
When linked electronically, the kiosks function as a broadcast network that
delivers national and site-specific advertising and marketing programs to any
geographic delivery area.
As part of the ongoing product improvement process, in December 1999,
PPK signed a teaming agreement with Sybase to develop a retail kiosk delivery
system in an attempt to create an interactive "smart" digital kiosk network. The
Company hopes that the result will allow the Company to deliver a broader range
of consumer-based kiosk products and will form the basis of an electronic
network capable of delivering national and site-specific advertising marketing
programs. Sybase is also working with the Company to rewrite the operating
software with a view to enhancing the usability for the consumer while at the
same time making the connection between the kiosk operating system and the
network software seamless.
<PAGE>
The ability of the Company to continue as a going concern is dependent
upon increasing sales and obtaining additional capital and financing. The
Company is currently seeking financing to allow it to continue its planned
operations.
The financial statements have been prepared on the going concern
basis which assumes the realization of assets and liquidation of liabilities in
the normal course of business. The unaudited condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The continued application of the going concern concept is
dependent on the Company's ability to obtain adequate sources of financing and
to achieve a level of revenues sufficient to support the Company's operations.
Results of Operations -For the Three Months Ending April 30, 1999 and April
30, 2000
Financial Condition, Capital Resources and Liquidity
For the 3rd quarter ended April 30, 1999 and 2000 the Company recorded
revenues of $0 and $0 respectively. For the third quarter ended April 30, 1999
and 2000 the Company had sales and marketing expenses of $144,810 and $209,094.
This increase of $64,284 was due to increased operations by the Company.
For the 3rd quarter ended April 30, 1999 and 2000, the Company had on a
consolidated unaudited basis total operating expenses of $155,722 and $209,094.
Net Losses
For the 3rd quarter ended April 30, 1999, 2000, the Company reported a
net loss from operations of $155,722 and $209,094 respectively.
The Company is in its development stage. Since its inception, the
Company has incurred significant expenditures on the research, development and
marketing of a kiosk digital imaging system and has a deficit of $2,828,617 as
at April 30, 2000. The Company has not generated revenues and management does
not expect to commence generating revenues until 2001. The Company has suffered
continuing losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
The Company is currently attempting to obtain additional financing
from its existing shareholders and other strategic investors to continue its
operations. However, there can be no assurance that the Company will obtain
additional funds from these sources.
Employees
At April 30, 2000, the Company employed eight (8) persons. None of
these employees are represented by a labor union for purposes of collective
bargaining. The Company considers its relations with its employees to be
excellent. The Company plans to employ additional personnel as needed upon
product rollout to accommodate its needs.
<PAGE>
Research and Development Plans
The Company believes that research and development is an important
factor in its future growth. The kiosk industry is closely linked to
technological advances, which produce a broader range of kiosk products, enhance
the usability and experience for the consumer and also enable the provider to
monitor use patterns and data through a more sophisticated network of
information. Therefore, the Company must continually invest in ongoing research
to appeal to the public and to effectively compete with other companies in the
industry. No assurance can be made that the Company will have sufficient funds
to compete. Additionally, due to the rapid advance rate at which technology
advances, the Company's equipment and inventory may be outdated quickly,
preventing or impeding the Company from realizing its full potential profits.
Year 2000 Compliance
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company did not experience a materially negative impact during the
Year 2000 date switch-over and it has determined that there will be minimal
impact if any to its business, operations or financial condition since all of
the internal software to be developed and utilized by the Company will be and
has been upgraded to support Year 2000 versions.
There can be no assurance, however, that the systems of other companies
on which the Company's systems may have to rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
affect on the Company's systems. Currently the Company does not rely on other
systems that might have an adverse affect on any Company systems and does not
anticipate any such reliance in the near future.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
finding suitable merger or acquisition candidates, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the
<PAGE>
Company's expectations and predictions is subject to a number of risks and
uncertainties, general economic market and business conditions; the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company; changes in laws or regulation; and other factors, most of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Form 10-QSB are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequence to or effects on the Company or its
business or operations. The Company assumes no obligations to update any such
forward-looking statements.
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2.Changes in Securities and Use of Proceeds
None
Item 3.Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending April 30, 2000,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated
herein by reference, as follows:
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<TABLE>
<S> <C>
Exhibit No. Description
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3(i).1 [1] Articles of Incorporation filed September 9, 1994.
3(i).2 [1] Articles of Amendment filed October 1, 1999.
3(i).3 [3] Articles of Amendment filed March 2, 2000.
3(ii).1 [1] By-laws.
4.1 [2] Share Exchange Agreement between the Company, Power Photo Kiosks, Inc. and the
shareholders of Power Photo Kiosks, Inc. dated February 23, 2000.
4.2 * Loan Agreement between Power Photo Kiosks, Inc. and MLIC Holdings, Inc. dated
May 1999.
4.3 * Loan Extension between Power Photo Kiosks, Inc. and MLIC Holdings, Inc. dated
July 1999.
4.4 * Loan Extension between Power Photo Kiosks, Inc. and MLIC Holdings, Inc. dated
September 1999.
4.5 * Common Stock Purchase Agreement with Thomson Kernaghan & Co., Ltd., as Agent
dated February 2000.
10.1 * Revised Licensing Agreement between Power Photo Enterprises, Inc. and Licensing
Resource Group, Inc. dated October 1998.
10.2 * Licensing Agreement between Power Photo Enterprises, Inc. and Titan Sports, Inc.
dated October 1998.
10.3 * Master Merchandising License Agreement between Power Photo Kiosks, Inc. and
Universal Studios Licensing, Inc. dated September 1999.
10.4 * Teaming Agreement between Power Photo Kiosks, Inc., Sybase Canada Limited,
Advanced Kiosk Services, Inc. and Integrated Kiosks, Inc. dated November 1999.
10.5 * License Agreement between Power Photo Kiosks, Inc. and The Ohio State University
dated February 2000.
10.6 * Manufacturing Agreement between Power Photo Kiosks, Inc. and Integrated Kiosk,
Inc. dated May 1999.
16.1 [4] Letter on change of certifying accountant.
16.2 [4] Letter dated May 1, 2000 from Dorra Shaw & Dugan.
27.1 * Financial Data Schedule.
99.1 [4] Board Resolution dated May 1, 2000 authorizing change in fiscal year of the
Company to July 31.
------------------------------------------------
</TABLE>
<PAGE>
[1] Previously filed with the Company's registration on Form 10SB
[2] Previously filed with the Company's report on Form 8K filed March 9, 2000
[3] Previously filed with the Company's report on Form 10QSB for the period
ending February 29, 2000
[4] Previously filed with the Company's report on Form 8KA1 filed May 2, 2000
* Filed herewith
(b) The Company filed a report on Form 8K on March 9, 2000 in connection with
the Company's acquisition of Power Photo Kiosks, Inc., a Canadian
corporation.
The Company filed a report on Form 8KA1 on May 2, 2000 dismissing Dorra
Shaw & Dugan and retaining KPMG, LLP as its auditors. Additionally, the
Company changed its fiscal year to July 31.
The Company filed a report on Form 8KA2 on May 8, 2000 with the required
financial statements pursuant to its first report on Form 8K dated March 9,
2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Power Kiosks, Inc.
(Registrant)
June 19, 2000 /s/ Ronald Terry Cooke
---------------------------------
Ronald Terry Cooke
Chairman and President
