Filed Pursuant to Rule 424(b)(3)
Registration No. 333-34512
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED DECEMBER 22, 2000)
MAGNITUDE INFORMATION SYSTEMS, INC.
19,467,160 Shares of
Common Stock
of
Magnitude Information Systems, Inc. (the "Company")
The Prospectus, dated December 22, 2000 (the "Prospectus"), relating to
the offering for resale of up to 19,467,160 shares of the Company's common
stock, which were issued and sold in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended, is hereby supplemented
as set forth below.
1. The notice entitled "THIS INVESTMENT INVOLVES CERTAIN HIGH RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8" appearing on page 2 of the Prospectus is
hereby supplemented by the attached revised page 2, which substitutes the
page number "10" with the page number "8", and is intended to replace the
existing page 2 of the Prospectus.
2. The subsection entitled "Risk Factors" appearing on page 8 of the
Prospectus is hereby supplemented by updating and substituting the phrase
"nine month period" for the phrase "six month period" and by substituting
the page reference to page "8" for the page reference "10" and this
subsection appearing on the attached page 7 is intended to replace this
section on existing page 8 of the Prospectus.
3. The risk factor entitled "Substantial Losses-Lack of Profitability"
appearing on page 9 of the Prospectus is hereby supplemented by updating
and substituting the phrase "nine month period" for the phrase "six month
period"; in addition, the risk factor entitled "Additional Financing
Requirements" also appearing on page 9 of the Prospectus is hereby
supplemented by updating and substituting (a) the date "December 18, 2000"
for the date "July 18, 2000" and (b) the name "Torneaux Fund Ltd." for the
name "Torneaux Ltd." and these sections appearing on the attached page 8
are intended to replace these sections found on existing page 9 of the
Prospectus.
4. The risk factors entitled "Limited Operating History" and "Uncertainty of
Market Acceptance" appearing on page 10 of the Prospectus are hereby
supplemented by updating and substituting the phrases "nine month period"
for the phrases "six month period" and these risk factors appearing on the
attached page 9 are intended to replace these risk factors found on
existing page 10 of the Prospectus.
The date of this Prospectus Supplement No. 1 is January 17, 2001
<PAGE>
5. The risk factor entitled "Dependence Upon Key Personnel" appearing on page
11 of the Prospectus is hereby supplemented by updating the title of Steven
D. Rudnik from "President and Chief Executive Officer" to "Chief Executive
Officer" and by adding Mr. John Duncan, the Company's current President, to
this section and this section appearing on the attached page 10 is intended
to replace this sectrion found on the existing page 11 of the Prospectus.
6. The section "DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES"
appearing on page 28 of the Prospectus is hereby supplemented by (a)
updating the titles of Steven D. Rudnik by deleting the title "President"
and the titles of John C. Duncan by deleting the title "Executive Vice
President" and substituting the titles "President, Chief Operating
Officer"; (b) updating the title of Steven D. Rudnik in the section
"Resumes" by deleting the title "President" and by inserting the new
sentence "Subsequently, pursuant to Mr. Rudnik's initiative, the Board of
Directors appointed John Duncan President and Chief Operating Officer in
October, 2000" and this section appearing on the attached page 29 is
intended to replace this section found on existing page 28 of the
Prospectus.
7. The section "John C. Duncan" appearing on page 29 of the Prospectus is
hereby supplemented by updating the titles of John C. Duncan by (a)
deleting the title "Executive Vice President" and substituting the titles
"President, Chief Operating Officer" and (b) inserting the new sentence "
In October, 2000, the Board of Directors appointed Mr. Duncan President and
Chief Operating Officer of the Company." and this section found on the
attached page 30 is intended to replace this section found on the existing
page 29 of the Prospectus.
8. The section "Employment Agreements" appearing on page 32 of the Prospectus
is hereby supplemented by (a)updating Mr. Steven D. Rudnik's title,
substituting the phrase " its current Chief Executive Officer" in place of
the phrase "its current President and Chief Executive Officer" and (b)
inserting the new sentence " In October, 2000 and pursuant to Mr. Rudnik's
initiative, the Board of Directors appointed John Duncan President and
Chief Operating Officer of the Company." found in the first paragraph of
this section; (c) updating Mr. John Duncan's title, substituting the phrase
"its current President and Chief Operating Officer" in place of the phrase
"its current Executive Vice President" and (d) inserting the new sentence
"In October, 2000, the Board of Directors appointed Mr. Duncan President
and Chief Operating Officer" found in the last paragraph of this section
and this section found on the attached page 32 is intended to replace this
section found on existing page 32 of the Prospectus.
2
<PAGE>
9. The section "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" appearing on page 32 of the Prospectus is hereby supplemented
by (a) updating Mr. Steven Rudnik's title, substituting the designation
"CEO" in place of the the titles "Pres., CEO" and (b) updating Mr. John
Duncan's title, substituting the title designations "Pres., COO" in place
of the title "Exec. VP" and this section appearing on the attached page 33
is intended to replace this section found on the existing page 32 of the
Prospectus.
10. The last paragraph of the section "Liquidity and Capital Resources"
appearing on page 47 of the Prospectus is hereby supplemented by (a)
updating the date of the signing of the new Common Stock Purchase
Agreement, substituting the date "December 18, 2000" in place of the date
"July 18, 2000" and (b) changing the name of the contract party to
"Torneaux Fund Ltd." from "Torneaux Ltd." and this paragraph appearing on
the attached page 47 is intended to replace this paragraph found on the
existing page 47 of the Prospectus.
3
<PAGE>
You may contact Magnitude at Magnitude's principal executive offices
located at 401 State Route 24, Chester, New Jersey 07930 or by phone at
(908)879-2722. Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
---------------
THIS INVESTMENT INVOLVES CERTAIN HIGH RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
---------------
The date of this prospectus is December 22, 2000
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
2
<PAGE>
Risk Factors An investment in the Company's Common Shares is
highly speculative and any purchasers will suffer
substantial dilution per Common Share compared to
the purchase price. The Company has suffered losses
for the nine month period ended September 30, 2000 of
$1,594,527, losses of $2,391,948 during 1999 and
$2,530,909 during 1998. The Company will need
additional funding. No person should invest in the
Common Shares of the Company who cannot afford to
risk the loss of his or her entire investment.
See "Risk Factors" at page 8.
FORWARD LOOKING STATEMENTS
When used in this Prospectus, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"projected," "intends to" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including but not limited to economic conditions, changes in laws
or regulations, the Company's history of operating losses, demand for its
software products and services, newly developed technologies and software,
regulatory matters, protection of technology, lack of industry standards, the
ability to obtain contracts and licensing sales, the effects of competition and
the ability of the Company to obtain additional financing. Such factors, which
are discussed in "Risk Factors," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the notes to
consolidated financial statements, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with undue reliance
on any such forward-looking statements, which speak only as of the date made.
See "Risk Factors," "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below when evaluating
your ownership of the Magnitude common stock. The risks and uncertainties
described below are not the only ones Magnitude faces. Additional risks and
uncertainties we are presently not aware of or that we currently consider
immaterial may also impair Magnitude's business operations.
If any of the following risks actually occurs, Magnitude's business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of the Magnitude common stock could
decline significantly.
Substantial Losses - Lack of Profitability.
We have a history of losses and if we do not achieve profitability we may
not be able to continue our business in the future. We have incurred substantial
operating losses since our inception, which has resulted in an accumulated
deficit of approximately $11,298,013 as of December 31, 1999 of which
approximately $7 million are attributable to its discontinued hardware product
line. For the fiscal years ended December 31, 1999 and 1998, we incurred losses
of $2,391,948 and $2,530,909, respectively. For the nine month period ended,
September 30, 2000, we had additional losses of $1,594,527. We have financed our
operations primarily through the sales of equity and debt securities. Our
expense levels are high and our revenues are difficult to predict. We anticipate
incurring additional losses until we increase our client base and revenues. We
may never achieve or sustain significant revenues or profitability. If we are
unable to achieve increased revenues, we will continue to have losses and may
not be able to continue our operations.
Additional Financing Requirements.
We could be required to cut back or stop operations if we are unable to
raise or obtain needed funding. Our ability to continue operations will depend
on our positive cash flow, if any, from future operations or our ability to
raise additional funds through equity or debt financing. In February, 2000 we
received a firm commitment for private financing of $3.0 million of equity in
order to obtain the working capital necessary to continue to finance our
operations and execute our business plan. Although we anticipate that future
revenues and our current cash balance will be sufficient to fund our current
operations and capital requirements for the current fiscal year, we cannot give
you any assurance that we will not need additional funds before such time. On
December 18, 2000, we signed an agreement with Torneaux Fund Ltd., a Bahamian
Island based company that may permit us to sell between $1.2 million and $4.2
million worth of our common shares, at our option and at discounts ranging from
9.5% to 12% of the average market price of our common shares, depending upon our
successful registration of additional Company common shares under federal
securities laws and depending upon the prevailing market price of our common
stock. Other than this possibility to sell additional equity and obtain funds,
we have no current arrangements for additional financing and we may not be able
to obtain additional financing on commercially reasonable terms, if at all. We
could be required to cut back or stop operations if we are unable to raise or
obtain funds when needed.
8
<PAGE>
Limited Operating History.
We have a limited operating history as a software product company and have
made only limited sales of our products. Our total revenues for software sales
and licenses for the years ended December 31, 1999 and 1998 were approximately
$260,703 and $72,486, respectively. For the nine month period ended September
30, 2000 we have revenues of only $348,003.
Uncertainty of Market Acceptance.
Our revenues depend on sales of our specialized software products and we
are uncertain whether there will be broad market acceptance of these products.
Our revenue growth for the foreseeable future is largely dependent upon
increased sales of our ErgoManagerTMsuite of software products. Since the
introduction of our ErgoManagerTM software products in November, 1998 and
through December 31, 1999 revenue from our software products has been
approximately $270,000 (prior to this time, we had sales of approximately
$63,000 based upon a predecessor version of the ErgoManagerTM software}. For the
nine month period ended September 30, 2000, we had revenues from the sales of
software product licenses of $329,342. Our future financial performance will
depend upon the successful introduction and customer acceptance of our
ErgoManagerTM software products as well as the development of new and enhanced
versions of this product as well as other related software products that may be
developed in the future. Revenue from products such as ErgoManagerTM depend on a
number of factors, including the influence of market competition, technological
changes in the ergonomic workplace market, our ability to design, develop and
introduce enhancements on a timely basis and our ability to successfully
establish and maintain distribution channels. If we fail to achieve broad market
acceptance of our ErgoManagerTM products, it would have a material adverse
effect on our business, operating results and financial condition.
Lack of Distribution Network and Strategic Relationships.
Inability to enter into strategic relationships with indirect channel
partners could have a material adverse effect on us. As part of our sales and
marketing efforts, we are seeking to develop strategic relationships with
indirect channel partners, such as original equipment manufacturers and
resellers. We have limited financial, personnel and other resources to undertake
extensive marketing activities ourselves. Therefore, our software products will
depend on our ability to develop and maintain strategic marketing relationships
with indirect channel partners and their ability to market and distribute our
software products. If we are unable to enter into and maintain such arrangements
or if such arrangements do not result in the successful commercialization of our
software products, then this could have a material adverse effect on our
business, operating results and financial condition.
Possible Loss of Entire Investment.
The common stock offered hereby is highly speculative, involves a high
degree of risk and should not be purchased by any person who cannot afford the
loss of his entire investment. A purchase of our common stock in this offering
would be unsuitable for a person who cannot afford to sustain such a loss.
9
<PAGE>
Dependence Upon Key Personnel.
We are substantially dependent upon the continued services of Steven D.
Rudnik, our Chief Executive Officer, and John Duncan, our President. The loss of
the services of either Mr. Rudnik or Mr. Duncan through incapacity or otherwise
would have a material adverse effect upon our business and prospects. To the
extent that their services become unavailable, we will be required to retain
other qualified personnel, and there can be no assurance that we will be able to
recruit and hire qualified persons upon acceptable terms. We do, however,
maintain key person life
insurance on the life of Mr. Rudnik in the amount of $1 Million.
In addition, we believes that our future prospects will depend in large
part upon our ability to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel. However, competition for personnel in
the software industry is intense, and, at times, we have had difficulty locating
candidates with appropriate qualifications within various desired geographic
locations, or with certain industry-specific expertise. If our competitors
increase their use of non-compete agreements, the pool of available technical
personnel may further narrow in certain jurisdictions, even if the non-compete
agreements are ultimately unenforceable. The failure to attract, train, retain
and manage productive sales and sales support personnel would have a material
adverse effect on our business, financial condition and results of operations.
If we lose the services of one or more of our key employees, our business,
operating results, financial condition or business prospects could be materially
adversely affected. We have several programs in place to retain key personnel,
including granting of stock options that vest annually over four or five years.
A number of key employees have vested stock options with exercise prices lower
than our current stock price. These potential gains provide these employees the
economic freedom to explore personal objectives both within and outside of our
Company, which may result in the loss of one or more key employees during the
coming years.
It is widely recognized that the software industry in which we compete is
at or beyond a condition of full employment. We may not be able to attract,
train and retain the personnel it requires to develop, market, sell and support
new or existing software or to continue to grow. Also, to penetrate successfully
key vertical markets, we must attract, train and retain personnel with
industry-specific expertise.
Penny Stock Regulations
The Securities Enforcement Penny Stock Act of 1990 requires specific
disclosure to be made available in connection with trades in the stock of
companies defined as "penny stocks". The Commission has adopted regulations that
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. Such exceptions
include any equity security listed on NASDAQ and any equity security issued by
an issuer that has (I) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for three years; (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years; or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for less than three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risk associated therewith aswell as
the written consent of the purchaser of such security prior to engaging in a
penny stock transaction. The regulations on penny stocks may limit the ability
of the purchasers of our securities to sell their securities in the secondary
marketplace. Our common stock is currently considered a penny stock.
There is Intense Competition in the Industry
The market for ergonomic application software is expected to become
intensely competitive. Although we are not aware of any ergonomic software that
competes with our ErgoManagerTM software products currently, competitors will
certainly enter this marketplace. Although we believe our success will be due in
part to our early entry into the computer workplace market, we expect other
software product manufacturers to develop and sell similar products.
Intense competition could lead to increased price competition in the
market, forcing us to reduce prices. As a result, our gross margins may decline
and we may lose our first-to-market advantage which, in turn, could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we may be unable to compete successfully with any new
competitors.
10
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The names and ages of all directors and executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Positions Term Served (Expires)
<S> <C> <C>
Steven D. Rudnik Director (Chairman Jan. 8, 1999 (2001)
of the Board),
Chief Executive Feb. 2, 1998 (March 2, 2003)
Officer
John C. Duncan Director May 17, 1999 (2001)
President, Chief Operating July 1, 1999 (July 1, 2004)
Officer
Joerg H. Klaube Vice President, Secretary, Jul.31, 1997 (April 15, 2002)
Chief Financial Officer
Steven L. Gray Director May 18, 2000 (2001)
Ivano Angelastri Director May 18, 2000 (2001)
Joseph J. Tomasek Director Dec. 23, 1999 (2001)
</TABLE>
There are no family relationships among the Company's Officers and
Directors.
All Directors of the Company hold office until the next annual meeting of
the shareholders and until successors have been elected and qualified. Executive
Officers of the Company are appointed by the Board of Directors at meetings of
the Company 's Directors and hold office until they resign or are removed from
office.
Resumes:
Steven D. Rudnik , Age 40 - Chief Executive Officer and Director. Mr.
Rudnik joined the Company in February 1998 with the acquisition of Rolina
Corporation, co-founded by Mr. Rudnik in 1996 and at that time, was appointed
President and CEO of Proformix Software. Mr. Rudnik was appointed President and
Chief Executive Officer, and elected to the Board of the Company, in January
1999. Subsequently, pursuant to Mr. Rudnik's initiative, the Board of Directors
appointed John Duncan President and Chief Operating Officer in October, 2000.
Mr. Rudnik has extensive experience in software product development and an
operational background in software companies extending over the past 20 years.
In 1983, Mr.Rudnik joined Randall-Helms International, Inc. Over the next 13
years, he conceived and developed four independent families of stock market
modeling software products aimed at the worldwide Institutional Investor market.
Over this time, these product families generated over $25 million in sales, to
more than 400 clients in 23 countries. Mr. Rudnik was Executive VP Development
and Partner at the time Randall-Helms was sold in 1995.
29
<PAGE>
John C. Duncan , Age 42 - President, Chief Operating Officer and Director.
Until January 1999, Mr. Duncan was the Director of the Department of Industrial
Relations (DIR) of the State of California. In that capacity, he was the
principal advisor to Governor Pete Wilson on labor and employment issues and
served in his cabinet. In October, 2000, Board of Directors appointed Mr. Duncan
President and Chief Operating Officer of the Company. Mr. Duncan was
instrumental in California becoming the first state to enact ergonomic
regulations to help protect workers from repetitive stress injuries. As Director
of the California DIR, Mr. Duncan supervised the Cal/OSHA program and eleven
other divisions of the State government, including the Labor Commissioner's
Office and the Division of Workers Compensation. He was responsible for the
supervision of 3,000 State employees and an annual budget of $220 Million.
Joerg H. Klaube , Age 58 - Chief Financial Officer. Joined Magnitude, Inc.
in December 1994 as Vice President Finance & Administration. From 1993 to 1994
he was Vice President Administration for Comar Technologies Inc., a computer
retail firm, and from 1983 to 1993 Chief Financial Officer for Unitronix
Corporation, a publicly traded software design and computer marketing firm.
Prior to that, Mr.Klaube was employed for 16 years with Siemens Corp., the US
subsidiary of Siemens AG, where he served most recently as Director of Business
Administration for its Telecommunications Division. He graduated from the
Banking School in Berlin, Germany, and holds an MBA degree from Rutgers
University.
Steven L. Gray, age 51 years, is a resident of Venice, Florida. For the
past 3-1/2 years, Mr. Gray has served as the President and is a shareholder of a
private Florida corporation engaged in the retail distribution of nutritional
products. This corporation has a customer base in nine countries. Prior to that
time, Mr. Gray ran his own real estate development company, specializing in the
design and construction of multi-family housing.
Ivano Angelastri, age 37 years, is a resident of Zurich, Switzerland. Mr.
Angelastri has served as Managing Director of T&T Capital Trading, a securities
brokerage firm located in Zug, Switzerland, since January, 1999, offering to
select and institutional clients financial advisory and portfolio management
services. Prior to his current position, Mr. Angelastri served as Managing
Director of Megan Services where he also performed financial advisory and
portfolio management services.
Joseph J. Tomasek , Age 53 - Director. Mr. Tomasek was appointed a director
in February 2000. He has been engaged in the private practice of corporate and
securities law in his own law firm for the last ten years. Mr. Tomasek was
appointed to serve as general counsel for the Company in 1999. In addition to
his work with the Company, Mr. Tomasek represents several other clients in the
United States and Europe in corporate finance matters.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company is not subject to the reporting requirements of Section 16(a)
of the Securities Exchange Act of 1934.
32
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2000, the record
and beneficial ownership of Common stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially, or of record, five percent or more of the
outstanding shares of the Company:
<TABLE>
<CAPTION>
Title Name and Address of Amount and Nature of Percent
of Class Beneficial Owner Title Beneficial Ownership (1) of Class
<S> <C> <C> <C>
Common Steven D. Rudnik, CEO, Director 2, 302,778 (2) 12.45%
Stock John C. Duncan, Pres., COO, Director 510,000 (3) 3.05%
Joerg H. Klaube, CFO, 110,000 (4) **
Howard G. Siegel, VP 1,057,166 (7) 6.13%
Joseph J. Tomasek, Director 50,000 (3) **
Ivano Angelastri, Director 1,050,000(11) 6.09%
Steven Gray, Director 537,000(12) 3.21%
Address of all persons above: c/o the Company.
All Directors and Officers 5,606,824 25.72%
as a Group (8 persons)
Michael G. Martin 1,750,000 (8) 9.75%
12 Tillman Ct., Bridgewater, NJ
Schuerch Asset Management 1,578,500 (9) 8.88%
Tellstrasse 21, St.Gallen, Switzerland
Viviana Partners, L.P. 1,260,000 (10) 7.22%
1 Sansome Str., San Francisco, CA
Liechtensteinische 2,167,280 (13) 11.80%
Landesbank
Zurich, Switzerland
</TABLE>
** less than 1%
----------------------------
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of March 28, 2000. For purposes of
computing the percentage of outstanding shares of Common Stock held by each
person or group of persons named above, any security which such person or
persons has or have the right to acquire within such date is deemed to be
outstanding but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except as indicated
in the footnote to this table and pursuant to applicable community property
laws, the Company believes based on information supplied by such persons,
that the persons named in this table have sole voting and investment power
with respect to all shares of Common Stock which they beneficially own.
(2) Includes deferred compensation of 150,000 shares, options to acquire
1,325,000 shares and conversion rights for appr.750,000 shares..
(3) Represents options to acquire the same number of shares.
(4) Includes options to acquire 100,000 shares.
(5) Includes 22,222 shares held by an affiliate and options to acquire 20,000
shares.
(6) Includes options to acquire 129,866 shares and conversion rights for
approx. 194,926 shares.
(7) Includes warrants for 424,000 shares and 141,666 shares issuable for past
services..
(8) Includes options for 750,000 shares and preferred stock convertible into
1,000,000 shares.
(9) Includes options and warrants for 1,023,900 shares.
(10) Includes warrants for 600,000 shares.
33
<PAGE>
To further augment available financial resources, the Company on December
18, 2000, entered into a Common Stock Purchase Agreement with Torneaux Fund
Ltd., an investment fund headquartered in the Commonwealth of The Bahamas (the
"Fund"), which provides for an Equity Draw Down facility which may be utilized
by the Company at its option and whereby the Fund during a period of 14 months
if and when called upon by the Company will purchase newly to be issued and
registered common stock of the Company at discounts ranging from 9.5% to 12% of
average market prices, up to an aggregate total amount of between $1.2 Million
and $4.2 Million, depending upon certain market price and other criteria. Owing
to the current market price of the Company's common stock, the terms of the
agreement preclude utilization of the facility at this time, however, management
believes that funds from the above described capital transactions will provide
for adequate liquidity and financial resources, sufficient to cover present and
anticipated future operations during the current and well into the next fiscal
year.
Fiscal Year Ended December 31, 1999, Compared to Fiscal Year Ended December
31, 1998
The selected financial information presented below under the captions
"Statement of Operations" and "Balance Sheet" for the years ended December 31,
1999 and 1998 is derived from the audited financial statements of the Company
and should be read in conjunction with the financial statements and notes
thereto.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Balance Sheet December 31,
1999 1998
--------- --------
<S> <C> <C>
Total assets .............................. $ 2,220,223 $ 2,098,207
Current liabilities ....................... 4,465,413 2,718,240
Long-term debt ............................ 35,755 1,441,839
Working capital (deficit) ................. (3,541,257) (2,145,611)
Shareholders' Equity (deficit) ............ $ (2,280,945) $ (2,061,872)
Statement of Operations For The Year Ended December 31,
1999 1998
---------- ----------
Hardware revenues ......................... $ 2,850 $ 2,853,969
Software revenues ......................... 260,703 72,486
Total revenues ............................ $ 263,553 $ 2,926,455
Operating loss ............................ (2,642,989) (2,588,762)
Loss before extraordinary items ........... (2,882,322) (3,130,621)
Net loss .................................. (2,391,948) (2,530,909)
Net loss per common share ................. $ (0.28) $ (0.58)
Number of shares used in computing
per share data ............................ 8,486,443 4,324,292
</TABLE>
47
<PAGE>
