Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1998
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_____________
Commission File Number 0-24372
- ------------------------------
THE THORSDEN GROUP, LTD.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0611746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4505 South Wasatch Blvd., Suite 340
Salt Lake City, Utah 84124
(Address of principal executive offices and Zip Code)
(801) 424-0044
(Registrant's telephone number, including Area Code)
Check whether the registrant: (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 February 10, 1999, there were issued and outstanding 21,141,670 shares of
the Company's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
Table of Contents
Page No.
Part I. Financial Information.................................................3
1. Financial Statements
Condensed Consolidated Balance Sheet as of December 31, 1998
(unaudited) and
March 31, 1998 (audited)....................................3
Unaudited Condensed Consolidated Statements of Income for the three and
nine months ended
December 31, 1998 and 1997..................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine
months ended
December 31, 1998 and 1997.................................5
Notes to Unaudited Condensed Consolidated Financial Statements.......6
2. Management's Discussion and Analysis or Plan of Operation............7
Part II. Other Information...................................................15
Page 2 of 18
<PAGE>
PART I
ITEM 1--FINANCIAL STATEMENTS
THE THORSDEN GROUP, LTD.
(A Development Stage Company)
Consolidated Condensed Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1998 1998
----------------------- ------------------
ASSETS
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 620,170 $ 568,612
Marketable Securities 4,680 681,600
Accounts Receivable 12,000 8,313
Prepaid Expenses 6,800 -
----------------------- ------------------
Total Current Assets 643,650 1,258,525
----------------------- ------------------
Property and Equipment 269,494 199,099
Less: Accumulated Depreciation 38,682 6,418
----------------------- ------------------
Property and Equipment, Net 230,812 192,681
----------------------- ------------------
Other Assets
Deposits 147,322 107,246
Intangible Assets 54,918 21,734
----------------------- ------------------
Total Other Assets 202,240 128,980
----------------------- ------------------
TOTAL ASSETS $ 1,076,702 $ 1,580,186
======================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 127,542 $ 93,288
Deferred Income on Maintenance Contracts - 10,417
Equipment Lease Obligations 46,672 30,653
Accrued Liabilities 35,981 70,928
----------------------- ------------------
Total Current Liabilities 210,195 205,286
----------------------- ------------------
Equipment Lease Obligations 24,324 26,319
Other Current Liabilities - -
----------------------- ------------------
Total Liabilities 234,519 231,605
----------------------- ------------------
Stockholders' Equity
Common Stock 20,742 20,133
Additional paid in Capital 3,040,065 2,192,174
Accumulated (Deficit) (2,202,294) (704,716)
Accumulated unrealized loss on investments (16,330) (159,010)
----------------------- ------------------
Total Stockholders' Equity 842,183 1,348,581
----------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,076,702 $ 1,580,186
----------------------- ------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 18
<PAGE>
THE THORSDEN GROUP, LTD.
(A Development Stage Company
Consolidated Condensed Statement of Income (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended From Inception
December 31 December 31 June 11, 1992
------------------------ ------------------------ to Dec 31, 1998
1998 1997 1998 1997 ---------------
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Revenues $ 23,167 $ 135,958 $ 12,000 $ 10,959 $ 167,438
---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of Sales 15,846 852 14,848 852 17,957
Research and Development 762,509 73,164 317,475 55,062 1,047,869
Marketing, Admin & Sales 770,744 244,658 307,629 193,904 1,349,795
---------- ---------- ---------- ---------- ----------
Operating Costs and Expenses 1,549,099 318,674 639,952 249,818 2,415,621
---------- ---------- ---------- ---------- ----------
Operating (Loss) (1,525,932) (182,716) (627,952) (238,859) (2,248,183)
Interest Income 32,830 11,513 14,762 11,344 53,675
Interest Expense (4,468) (1,597) (7,668)
Other Expense (178) (178) (288)
Other Income 170 70 170
---------- ---------- ---------- ---------- ----------
Net (Loss) $(1,497,578) $(171,203) $(614,895) $(227,515) $ (2,202,294)
---------- ---------- ---------- ---------- ----------
Net (Loss) per share $ (0.07) $ (0.01) $ (0.03) $ (0.01) $ (0.11)
---------- ---------- ---------- ---------- ----------
Weighted average number
Of Shares Outstanding 20,742,336 20,000,000 20,742,336 20,000,000 20,742,336
---------- ---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 18
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THE THORSDEN GROUP, LTD.
(A Development Stage Company)
Consolidated Condensed Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Cumulative From
9 Months Ended Inception
-----------------------------
December 31 June 11, 1992
1998 1997 to Dec 31, 1998
----------- --------- ------------------
<S> <C> <C> <C>
Cash Flows (Used By) Operating Activities:
Net (Loss) $ (1,497,578) $ (171,203) $ (2,202,294)
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation 32,264 705 38,684
Changes in Assets and Liabilities:
Increase Accounts Receivable (3,687) (45,125) (12,000)
Prepaid Expenses (6,800) (3,650) (6,800)
Accounts Payable 34,254 59,512 127,543
Deferred Income (10,417) 16,667 0
Accrued Liabilities (34,947) (6,661) 35,982
----------- --------- -----------
Net Cash (Used By) Operating Activities (1,486,911) (149,755) (2,018,885)
----------- --------- -----------
Cash Flows Provided by/(Used for) Investing Activities:
Additions to Equipment (70,395) (113,267) (269,497)
Disposition of Marketable Securities 819,600 - 819,600
Lease Deposits (40,076) - (145,388)
Patent/Trademark Costs (33,184) - (56,853)
----------- --------- -----------
Net Cash Provided by/(Used for) Investing Activities 675,945 (113,267) 347,862
----------- --------- -----------
Cash Flows Provided By Financing Activities:
Proceeds from Private Placement of Shares 848,500 1,105,451 2,219,199
Increase in Lease Obligations 14,024 55,418 70,994
Cash Contribution - - 1,000
----------- --------- -----------
Net Cash Provided By Financing Activities 862,524 1,160,869 2,291,193
----------- --------- -----------
----------- --------- -----------
Net Increase/(Decrease) in Cash and Cash Equivalents 51,558 897,847 620,170
----------- --------- -----------
Beginning Cash Balance 568,612 11,614 -
----------- --------- -----------
Ending Cash Balance $ 620,170 $ 909,461 $ 620,170
----------- --------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 18
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THE THORSDEN GROUP, LTD.
Notes to Consolidated Financial Statements
Preliminary Note
The Company has prepared the accompanying condensed consolidated financial
statements, without audit, according to the applicable regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in those financial statements prepared according to generally accepted
accounting principles have been condensed or omitted. The Company believes that
the following disclosures are adequate to present clear, unequivocal
information. These condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) that, in the
Company's opinion, are necessary to present fairly the financial position and
results of operations of the Company for the periods presented. We suggest that
these condensed consolidated financial statements are read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
Note 1 Concentration
The Company is still in the development stage, and its revenues to date are from
two customers.
Note 2 Intangible Assets
The Company has applied for patent and trademark protection for its proprietary
software and brand names and has expended $45,461 for patent rights and $9,457
for trademark rights. These expenses are primarily for professional services in
connections with the applications. The application for registration of these
patents and trademarks are still in the process of being granted, but recent
communications with the Patent and TradeMark Office suggests a favorable
outcome, although no assurance can be given as to any such outcome. The Company
will begin to amortize these assets upon completion of patent registration or at
the point when the products begin to generate revenue.
Note 3 Subsidiary Company
The Board of Directors created a subsidiary, Qui Vive, Inc., on June 5, 1998,
for the development of a new product. This new entity has required the
restructuring of current management as well as the recruitment of new personnel.
The team members will likely receive equity ownership interests in Qui Vive,
Inc. as part of their compensation for successfully developing the project.
Note 4 Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash on
deposit in the bank and other unrestricted investments with original maturities
of three months or less at the time of purchase to be cash equivalents.
Page 6 of 18
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Item 2 MANAGEMENT'S DISCUSSION and Analysis or
Plan of Operation
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere in this Quarterly
Report on Form 10-QSB.
Overview
The Thorsden Group, Ltd. (the "Company") is a Delaware corporation organized in
1992, originally for the purpose of seeking and acquiring business
opportunities. In October 1997, the Company acquired Arkona, Inc., a Utah
corporation ("Arkona"), through a wholly owned subsidiary corporation in a
reverse triangular merger, accounted for as a purchase. Arkona's predecessor,
Arkona LLC, a Utah limited liability company, was founded in September 1996 and
had limited business operations prior to the acquisition. On June 5, 1998 the
Company formed a new subsidiary company, Qui Vive Inc., in Delaware ("Qui
Vive").
The core business of the Company is developing, marketing, and selling software
products for use in portable and distributed network computing and secure e-mail
applications. Business is conducted through its subsidiaries, Arkona and Qui
Vive.
Arkona
During the quarter ended December 31, 1998, and since that date, the Company's
management has directed much of its efforts and resources in maintaining the
continued capability required to build world class software products. The first
of these products, Universal Update(TM), was beta tested in the quarter ending
December 31, 1998, and the first revenues from this product are expected in
calendar year 1999.
Arkona's enabling technology allows Arkona and its partners to provide dynamic
solutions to a variety of end-user markets. The Company's market strategy
focuses on recruiting and motivating solution partners in key vertical markets.
The first of these partnerships are in place, and solutions for key industries
are being developed.
Distributed Computing
For more than a decade, the computer industry has endeavored to extend the value
of stored information from large enterprise systems to networked desktop
computers. Networked computing allows corporations to empower workers by giving
them direct control of information and applications. As a result, productivity
has skyrocketed. In recent years, the Internet has made it possible for
companies to extend the scope and value of their networks even further. Members
of the Internet's "connected" community can obtain a wide variety of corporate
data.
The Company believes a third iteration of this theme is quietly but forcefully
gaining momentum. Information access is once again being extended further than
ever before--this time to a wave of mobile, disconnected, and geographically
distributed employees, partners, and customers. Organizations that take
advantage of this third wave can finally apply corporate knowledge at its
ultimate and most critical destination--the customer point of service.
Page 7 of 18
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Intelligent Synchronization
Arkona's unique software solutions are helping to bring about this "distributed"
information wave by extending user access to a business's applications and most
critical information--large knowledge databases. These databases are monolithic
in size and complexity, making them inherently poor applications for mobile
workers such as field sales and service representatives. However, field sales
and service personnel and other disconnected employees and partners have an
acute and growing need for immediate access to large corporate databases.
When field personnel visit customers for sales or service calls, it is critical
that they arrive with all pertinent information, including detailed product,
pricing, and contract data and any other information, which might affect the
customer. Traditionally, however, this kind of structured information is ideally
suited for large corporate databases and workhorse computers, but poorly suited
for portable devices. To complicate matters, the information is rarely stored in
a single repository. The result is a complex computing environment, which is
difficult to mobilize for field service professionals.
Efficiently extracting information from larger, disparate databases and
seamlessly synchronizing it upon request from the field is a vital and necessary
requirement for many businesses and professions. The Company believes this
current inability costs corporations millions in lost knowledge, capital, sales,
and customers. The need to resolve this dilemma was the genesis of the Company's
software solutions.
Instead of aiming to displace large corporate databases, which function very
well in the home office environment where there is ample computing power, the
Company extends the value of these databases by cleanly extracting mission
critical information for use at the point of service. The Company's software
thus maximizes existing software investments by working equally well with any of
the widely used database systems, including Oracle, Sybase, Informix,
PeopleSoft, BAAN, SAP, Microsoft, and others.
How the Customer Benefits
The Company's products and services help customers to:
Reduce the High Cost of Information and Application Updates: The Company's
synchronization solutions eliminate data "snapshots" mailed to the field,
costly downtime for application updates, and time-consuming support of
remote installation procedures. Arkona allows customers to simply,
inexpensively, and securely update and synchronize critical information and
distributed applications.
Optimize Synchronization of Data and Applications: Arkona's Universal
Update technology optimizes the process of synchronizing distributed and
mobile data sources. This technology reduces bandwidth requirements by
distributing and reconciling only incremental differences between client
and server data sources. Administrators may also define profiles for
individual users, groups, or other servers. Information is then customized
and distributed based on business logic stored in the user profile.
Simplify the Delivery of Information: End users can update information and
applications with the click of a button, avoiding problems in
data/application reconciliation.
Profit From Flexible Synchronization Solutions: True object design and
reusable code libraries allow the Company to quickly and efficiently create
proven synchronization solutions to a customer's exact specifications.
Arkona's custom solutions take advantage of multiple data sources, data
types, OS platforms, and various mobile devices.
Page 8 of 18
<PAGE>
Leverage and Revitalize Legacy Systems: Arkona's custom solutions easily
integrate with existing corporate information and knowledge systems. The
Company designs distributed applications that extend a company's
information system investments instead of replacing them.
The Arkona Solutions
UNIVERSAL UPDATE(TM)
The Universal Update Client and Server represent Arkona's core technology. These
modules work as embedded components within specific industry solutions.
Customers and solution providers may choose to license the Universal Update
technology for use in their own products, or they can work with Arkona to build
more specific vertical solutions.
ARKONA OnSite(TM) FIELD SERVice
Arkona OnSite Field Service was the Company's first industry solution. It used
an earlier iteration of our Universal Update enabling technology which was
custom designed specifically for one customer's field service engineers to gain
access to critical customer, product, and inventory information even when
disconnected at the customer's site. Using this product, these field service
workers gather data from a legacy database and store a replica of the database
in a laptop at the customer's site. They can then access information with the
OnSite product without being connected to a network. Later, when network
connection is conveniently available, stored reports and other information can
be transmitted. The system is useful where telephones or network ports are not
readily available or where wireless networking technologies are not practical or
permitted (such as hospitals). The OnSite product was developed in collaboration
with OEC Medical Systems, Inc. ("OEC"), an unaffiliated customer of Arkona.
ARKONA OnSite(TM) PUBLISher
Arkona OnSite Publisher is currently being designed in collaboration with an
Arkona solution provider. The Company believes that OnSite Publisher will allow
large reference publishers to eliminate production and distribution of CD ROM
publications in favor of on-line distribution. Electronic titles will be
synchronized automatically with publisher archives and placed directly into a
subscriber's own electronic library solution.
Qui Vive
The digital revolution has evolved around a simple notion: that information
should be permanent. Unlike other media formats, digital information (e-mail)
can be stored forever, recovered at will, copied with ease, and shared anywhere.
Unfortunately, these attributes can also give digital information a more
sinister side. E-mail can just as easily be saved, copied, recovered, and
redistributed by anyone at any time with or without consent and frequently
without knowledge. Once an electronic e-mail message has been sent, an author
loses all control of his or her words. According to industry analyst Esther
Dyson, the challenge is not to keep everything secret, but to limit misuse of
such information.?
Qui Vive is developing a solution to these problems, the purpose of which is to
facilitate communication and give content control back to the author. The
project is presently in the design and architecture phase of developing an
enhanced e-mail product. When the first version of the product is launched, we
expect it to give e-mail users the chance to direct:
o how their words will be released,
Page 9 of 18
<PAGE>
o who can see them,
o how they can be redistributed, and
o if they can be printed, copied, or saved.
We cannot assure that the safeguards of enhanced e-mail will not be abused or
circumvented by someone with the requisite degree of computer sophistication and
a malicious motive. However, subsequent versions of the product will continue to
raise the bar against potential abuse and compromise of security that is so
easily breached, often accidentally, with current systems.
The Company believes that the level of security embedded in the first
implementation will be sufficient to address the needs of approximately 80% of
the market. Enhancements to increase security and further simplify the product`s
usability will be added over time.
Key Features
The first version of the product is expected to include the following key
features:
Content Restrictions. Authors can decide whether their e-mail messages
can be printed, copied, or saved by the recipient
Forwarding Restrictions. Authors can prohibit recipients from forwarding
their e-mail in whole or in part.
Lifespan Limits. Authors can configure messages to self-destruct after a
predefined period or be accessed only at certain times.
Dynamic Self-Destruction. Authors can set messages to destroy themselves
as they are read.
Persistence Limits. Authors can define the number of times any message
can be viewed
PHASE 1 FUNCTIONALITY
The key features listed above will include the following functionality:
E-mail is created using the sender's existing e-mail software.
Currently being designed as an add-on to existing e-mail software,
the enhanced e-mail will be sent from any Java-enabled e-mail
client, including e-mail products from Netscape, Microsoft, Lotus,
and others. Once an e-mail message has been authored, the user
selects appropriate security and auditing options from a simple,
easy-to-use GUI or relies on either the user-preset or embedded
defaults.
The e-mail message is secured. The product's mail server
encapsulates and encrypts the e-mail message. The mail server can
reside within a corporation or with an Internet service provider.
E-mail recipient is notified. The server notifies the e-mail
recipient that a secured e-mail message has been received. Each
notification includes a hypertext link that quickly takes the
recipient to the secured message.
Access is granted using a personal password. Before the recipient
can open a secured e-mail message, the recipient must first be
authenticated. This authentication process will employ industry
standard authentication mechanisms.
Content is controlled through sender-defined options. Even after
access has been granted, secured e-mail continues to be restricted
by the sender-defined options. Recipients cannot forward, save, or
manipulate the original e-mail message in any way forbidden by the
sender.
Page 10 of 18
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FUTURE FUNCTIONALITY
Subsequent versions of the software will include significant
enhancements that will be announced as the products are released.
How the Customer Benefits
The Company expects this product to be a critical solution, which it
believes may well become the legally required standard of care for a
wide variety of industries, professions, and situations. In fact, the
Company believes secured e-mail should be used in any situation
requiring discretion. It is intended as an ideal solution for:
o Legal communications
o Governmental agencies
o Contract negotiations
o Medical information
o Sensitive human resource information
o Communication of non-public corporate information
o Any information which should not be public
Status of Development
The Company anticipates the product will evolve from its initial
implementation, which, as described above, will represent a level of
functionality sufficient to cover most e-mail users' privacy concerns.
However, the Company intends to implement other designs that eliminate
intermediary services, further simplify the functionality and usability
of the product, and simultaneously increase the level of security in the
product.
The ultimate design goal is to meet the most stringent secure messaging
requirements up to and including the standards of the US Department of
Defense. Increasingly rigorous levels of security will be implemented en
route to achieving this final goal. Once the e-mail solution is
successfully launched, implementations beyond e-mail will be designed
and marketed. Markets to be targeted after the initial releases will
include, but not necessarily be limited to: voice mail, pagers,
databases, Usenet newsgroups, and web publishing tools.
The Company is currently seeking additional capital to complete and move
from the design and architecture phase of development, including
securing all intellectual property protections available, to completion
and marketing the first product version.
The Company has engaged engineers, marketers and an administration staff
to support the development of the product for delivery to the
marketplace. However, there can be no assurance that the Company will
successfully complete the project, and that the product will include all
or substantially all of the elements described above, or that any of the
other risks described herein will not adversely affect the outcome of
the project.
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Results of Operations
Three Months Ended December 31,
1998 and 1997
Revenues for the quarter ended December 31, 1998 were $12,000 (1997:
$10,959). Cost of revenues totaled $639,952 in the quarter ended
December 31, 1998 (1997: $249,818). The 1998 expenses included $317,475
in research and development expense (1997: $55,062). The increased
expenses in 1998 reflect the addition of personnel primarily to work on
the enhanced e-mail product. The Company expects that research and
development expenditures will continue to increase during the next
twelve months as development of existing and new products continues. We
expect that adding new personnel in this area will increase these
expenses by approximately 10% in the next quarter.
The Company had $14,762 in interest income during the quarter ended
December 31, 1998 (1997: $11,344). The increase in interest income is
due to increased cash balances maintained in banks following the sale of
the Company's common stock in a private placement. The net loss for the
quarter was $614,895 (or $.03 per share) compared to a loss $227,515 (or
$.01 per share) in 1997.
Revenues for the quarter were provided by a stage payment on a contract
with Cadmus Journal Services, Inc., and cost of sales reflects the costs
associated with delivery of these services. Arkona is currently bidding
for a number of projects utilizing its core technologies, but there is
no assurance it will be the succeeding bidder on any of such projects.
Expenses for the quarter reflect the cost of people, engineering
research, and marketing and selling efforts, which will form the
foundation of future increased revenue and profitability growth.
The primary marketing focus for the quarter continued to be establishing
the Company's identity in the marketplace and building a secure platform
for future growth, including recruiting the key personnel and business
partners required to build end-user solutions.
The Company has entered into a license agreement with OEC Medical
Systems, Inc. (OEC) to whom the Company has agreed to pay a royalty on
revenues generated from the licensing or use of a software product
developed by Arkona in 1997. The royalty is equal to five percent of net
revenues until OEC has recovered $125,000, the amount paid to Arkona to
develop the product. Thereafter, the royalty is two percent of net
revenues thereafter until OEC has been paid $250,000 and one percent of
revenues thereafter. No royalties have been paid by the Company to date
under this arrangement.
Nine Months Ended December 31,
1998 and 1997
Revenues during the nine months ended December 31, 1998 were $23,167
(1997: $135,958). Cost of revenues totaled $1,549,099 during the nine
months ended December 31, 1998 (1997: $318,674). The decline in revenues
is due primarily to time taken to develop the Universal Update product,
which is a generic variant of the product built to specification for OEC
in 1997. The 1998 expenses included $762,509 in research and development
expense (1997: $73,164). The increased expenses in 1998 reflect the
addition of personnel as well as costs (including professional fees)
associated with the merger of the Company with Arkona. The Company
expects that research and development expenditures will continue to
increase during the next 12 months as development of existing and new
products continues.
The Company had $32,830 in interest income during the nine months ended
December 31, 1998 (1997: $11,513). The net loss for the period was
$1,497,578 (or $.07 per share) compared to a loss of $171,203 (or $.11
per share) in 1997.
Page 12 of 18
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Liquidity and Capital Resources
At December 31, 1998, the Company had cash and cash equivalents of
$620,170, as compared to cash and cash equivalents of $568,612 as of
March 31, 1998. Cash was provided during the period through the sale of
stock in a private placement.
Capital spending of $70,395 in the 9 months was primarily for computer
and related equipment used in the Company's operations, including
product development and research.
The Company held marketable securities available for sale at December
31, 1998. Although the Company does not intend to engage in the business
of investing in or buying and selling securities of other companies,
these securities were received as partial consideration in connection
with the sale of the Company's common stock in October 1997. These
marketable securities were 3,000 shares of common stock of Eurogas Corp.
("EUGS").
At December 31, 1998, the sale price of EUGS common stock, as reported
by the over-the-counter ("OTC") electronic bulletin board, was $1.56 per
share. Shares traded in the NASDAQ OTC markets are characterized by
volatile changes in price and thin trading volumes. The relatively low
volume of securities traded and the dramatic effect that sales of even a
few shares can have on the market price of such securities may have an
adverse effect on the Company's ability to liquidate its remaining
holdings or to realize the values similar to those shown above. During
the six months ended September 30, 1998, the Company sold its remaining
shares of InterJetNet Corp. for $5.00 per share.
Management believes that the cash available to the Company from recently
completed and planned sales of marketable securities, proceeds from the
sale of its own securities, and cash provided by operations will be
sufficient to meet the business requirements of the Company for the next
twelve months. If the Company expands its efforts to develop new
products, or the projected revenues do not materialize in the timeframe
anticipated, seeking additional funding through the sale of its
securities or through borrowing may be required. Presently the Company
does not have an established bank line of credit or similar facility.
The sale of equity securities will result in immediate and possibly
substantial dilution of existing shareholders.
Year 2000 Issues
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a
result there is a risk that certain Company's computer programs or
equipment that have date-sensitive software or embedded technology may
recognize a date using "00" as the year 1900, rather than the year 2000.
With the approaching change in the century, this could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, collect payment or engage in similar normal
business activities or complete ongoing development projects.
The Company relies on computer hardware, software and related
technology, together with data, in the operation of its business. Such
technology and data are used in the Company's internal operations, such
as billing and accounting. The Company is currently investigating the
technology and data used in its operations and has yet to determine
whether Year 2000 Issues will affect its business. Based on its
assessment of activities to date, the Company is not aware of a Year
2000 problem with any of its internal systems. The Company intends to
evaluate its technology and data to determine what, if any, remedial
action may be required to address these issues. This includes seeking
and/or requiring remediation of any Year 2000 Issues that are related to
the Company's customers, suppliers and distributors. There is, however,
no assurance that such third parties will successfully remediate their
own Year 2000 Issues over which the Company has no control.
Page 13 of 18
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The Company believes it will substantially complete its evaluation and
remediation prior to the beginning of the year 2000, and that upon
substantial completion of such actions, and assuming that the Company's
customers, suppliers and distributors successfully remediate their own
Year 2000 Issues over which the Company has no control, the Company will
have no material business risk from such issues. The Company has not yet
determined the total cost of such an evaluation and any remediation that
may be required to correct problems identified by this process.
The Company develops its software and designs its products to be Year
2000 compliant. Customers may require the Company to certify that its
products are Year 2000 compliant. If its products were shown to have
been the cause of a Year 2000 problem in a customer's system or
business, the Company could incur liabilities for breaching the
warranty, if any, that it may give its customers concerning the status
of its products under applicable Year 2000 standards.
Outlook
Cautionary Statement Regarding Forward-Looking Statements
The Company considers all forward-looking statements contained in this
Quarterly Report to be covered by and to qualify for the safe harbor
protection provided by Section 21E of the Securities Exchange Act of
1934, as amended. Shareholders and prospective shareholders should
understand that several factors govern whether the results described by
any such forward-looking statement will be or can be achieved. Any one
of those factors could cause actual results to differ materially from
those projected in this Report.
The forward-looking statements contained in this report include plans
and objectives of management for future operations, relating to the
products and the economic performance of the Company. Assumptions
applicable to the foregoing involve judgments with respect to, among
other things, future economic, competitive, and market conditions,
future business decisions, and the time and money required to
successfully complete development projects, all of which are difficult
or impossible to predict accurately and many of which are beyond the
Company's control. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of those
assumptions could prove inaccurate. Therefore, we cannot assure that the
results contemplated in any of the forward-looking statements contained
herein will be realized. The impact of actual experience and business
developments may cause the Company to alter its marketing, capital
expenditure plans, or other budgets, which may in turn affect the
Company's results of operations. In light of the inherent uncertainties
in forward-looking statements, the inclusion of any such statement does
not guarantee that the objectives or plans of the Company will be
achieved. Among other factors to consider is the possible impact of the
following risk factors on the financial condition and results of
operation of the Company.
Development Stage, Accumulated Deficit
The Company is a development stage company and has had only limited
revenues since its inception. There can be no assurance that the Company
will be able to achieve a significant level of sales or attain
profitability. The Company's operations have been limited to developing
software, initial sales and fund raising activities. There can be no
assurance that the Company will be able to grow in the future or attain
profitability. As a result, the Company believes that its prior results
of operation are not necessarily meaningful and should not be relied
Page 14 of 18
<PAGE>
upon as an indication of future performance. The profit potential of
the Company's business is speculative, and to be successful, the
Company must, among other things, develop and market software that is
widely accepted by business customers at prices that will yield a
profit. The Company's software products are in the development stage.
There can be no assurance that the products of the Company will achieve
broad commercial acceptance. The Company's ability to generate future
revenues will depend on a number of factors, many of which are beyond
the Company's control and include, among others, the ability of the
Company to complete its product development activities and to carry on
timely and effective marketing campaigns.
Because of the foregoing factors, among others, the Company is unable to
forecast its revenues or the rate at which it will add new customers
with any degree of accuracy. There can be no assurance that the Company
will be able to increase its sales in accordance with its internal
forecasts or to a level that meets the expectations of investors. There
can also be no assurance that the Company will ever achieve favorable
operating results or profitability.
Part II. Other Information
ITEM 2. CHANGES IN SECURITIES
Unregistered sales of equity securities during quarter (other than
in reliance on Regulation S).
Recent Sales of Unregistered Securities. During the three months ended
December 31, 1998, the Company issued equity securities that were not
registered under the Securities Act of 1933, as amended (the "Act").
Specifically, the Company issued 250,000 shares of common stock and
warrants to purchase 250,000 shares of common stock. Gross proceeds to
the Company of $375,000 were generated by the sale of these securities.
The Company issued such shares without registration under the Act in
reliance on exemptions from registration under the Section 4(2) and/or
3(b), as well as Regulation D promulgated under the Act. The shares of
common stock were (and the shares issueable upon exercise of the
warrants will be) issued as restricted securities and the certificates
representing such shares are or will be stamped with a restrictive
legend to prevent any resale without registration under the Act or
compliance with an exemption. In each case, the purchasers of the
securities were accredited investors, as that term is defined by Rule
501 under the Act, or represented to the Company that they were
sophisticated investors who were experienced in making investments of
this type, either alone or with a purchaser representative, and that
they or their purchaser representatives were otherwise suitable (under
state and federal regulations) and possessed adequate means of providing
for their current needs and personal contingencies and who had no need
for liquidity in an investment in securities such as the Company's
common stock, which are subject to certain risks, including the possible
loss of a person's investment in whole or in part.
The Company's common stock is quoted on the over-the-counter ("OTC")
Nasdaq electronic bulletin board under the symbol TRDG. To date there
has been only limited trading activity in the Company's stock.
In connection with the offer and sale of its common stock, the Company
has issued warrants to purchase 335,081 shares of common stock at a
price of $2.00 per share. These warrants become exercisable throughout
the calendar year 1999. In addition the Company has issued warrants to
purchase 335,081 shares of common stock at a price of $2.00 per share if
exercised in the calendar year 1999 or $3.00 per share if exercised in
the calendar year 2000. If all of these warrants were exercised, the
proceeds to the Company would be between $670,162 and $1,675,405. The
Company cannot require the exercise of these warrants, and there can be
no assurance that the warrants or a significant part of them will ever
Page 15 of 18
<PAGE>
be exercised. In addition, if such warrants are exercised at a time when
the market price of the Company's common stock is significantly higher
than the exercise price of the warrants, the issuance of such shares
will result in significant dilution of existing stockholders and may
result in a decline of the market price of the Company's Securities.
Furthermore, the fact that the warrants have been granted may have an
adverse effect on the price of the Company's stock because of the
potential for dilution.
Page 16 of 18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (previously filed)
Page 17 of 18
<PAGE>
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.
THE THORSDEN GROUP, LTD.
(Registrant)
Date: February 12, 1999 /s/Stephen Russel
-----------------
Stephen Russell,
Chief Executive Officer, and Controller
(Principal Financial and Accounting Officer)
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