Liquidity and Plan of Operations
As of December 31, 2002, our liquidity position was extremely precarious. We had current liabilities of $9,276,376, including $5,240,418 in obligations under the lease financing for our virtual reality systems, $1,201,849 in accounts payable, and short-term notes payable of $1,799,355 , some of which were either demand indebtedness or were payable at an earlier date and were in default. As of December 31, 2002, there were only $209,713 in current assets available to meet those liabilities.
To date we have met our capital requirements by acquiring needed equipment under non-cancelable leasing arrangements, through capital contributions, loans from principal shareholders and officers, certain private placement offerings, and through our convertible debenture financing with Dutchess Private Equities Fund, L.P.. For the twelve months ended December 31, 2002, the net loss was $(2,692,755). After taking into account the non-cash items included in that loss, our cash requirements for operations were approximately $245,533. In addition, we made capital expenditures of $52,212, repaid notes in the amount of $250,141, repaid $30,000 in product lease obligations, and repaid a bank overdraft of $33,172, bringing our total cash requirements to $611,058. To cover these cash requirements, we issued notes for $60,000, increased our borrowings from shareholders by $199,500 and issued $450,000 of convertible debentures to Dutchess, leading to a net increase in cash and cash equivalents of $98,442.
The opinion of our independent auditor for each of the last three fiscal years expressed substantial doubt as to our ability to continue as a going concern. We will need substantial additional capital or new lucrative custom application projects to become profitable. In July of 2002, we entered into financial contracts with Dutchess Private Equities Fund, L.P. Under these arrangements, Dutchess is to purchase up to $5 million of our common stock over the next two years under an equity line. The numbers of shares we will be entitled to sell to Dutchess will be based upon the trading volume of our stock. Dutchess and several other investors also participated in a private placement of $450,000 in convertible debentures. As of December 31, 2002, $141,737 in principal amount of the convertible debenture had been converted into common stock. Based on recent increases in the stock's trading volume following our entry into the training/simulation market, management believes that this equity line will allow us to continue our operations for at least the next twelve months. However, operations will require the continued forbearance of the holders of various notes and equipment leases that are currently in default.
