LIQUIDITY AND CAPITAL RESOURCES
The Company has a working capital deficiency, incurred an operating loss and had negative cash flows from operations during the nine months ended December 31, 2003. While the service agreements with Affiliated Practices had provided revenues and corresponding cash flows, all of those service agreements from our legacy business have terminated and therefore we will not receive any further revenues and cash flow from our dental segment. The Company currently does not have existing working capital and does not generate positive cash flows from operations. As a result, we may not have sufficient financial resources to satisfy our obligations as they come due in the near term. These matters, among others, including our limited operating history as a provider of Web conferencing and Web collaboration software, raise substantial doubt about the Company's ability to continue as a going concern. Our plan with regard to these matters includes the continued development, marketing and licensing of our iLinc suite of products and services through both internal sales efforts and through external channel partnerships. We plan to expand where appropriate with external growth by acquisition, with those acquisitions including providers of audio conferencing as well as Web conferencing products and services. Although we continue to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient revenues from its Web collaboration and e-Learning products and services to provide adequate cash flows to sustain our operations. Our continuation as a Company is therefore may be dependent on our ability to raise additional equity or debt capital, to continue to increase sales and revenues, to generate positive cash flows from operations and ultimately to achieve profitability.
In order to increase its liquidity, the Company intends to restructure or extend existing obligations to reduce cash outflows for debt service, seek if necessary additional funding from the placement of debt or equity securities, invest in further marketing and sales efforts that result in the sale of the Company's high margin software products and services. However, there can be no assurance that the Company's plans will be achieved or that the Company will be able to acquire additional sums.
As of December 31, 2003, the Company had a working capital deficit of $1.4 million. Current assets included $227,000 in cash, $1.7 million in accounts receivable, $252,000 in notes receivable and $123,000 in prepaid and other current assets. Current liabilities consisted of $975,000 of deferred revenue, $677,000 of current maturities of long-term debt and capital leases and $2.0 million in accounts payable and accrued liabilities.
Cash used in operating activities was $1.1 million during the nine months ended December 31, 2003 and $1.6 million during the nine months ended December 31, 2002. Cash used in operating activities during the nine months ended December 31, 2003 was primarily attributable to a net loss of $910,000, settlement of debt and other obligations of $632,000 and increases in accounts receivable and prepaid expenses of $893,000 and $110,000, respectively. These items were offset by $379,000 of depreciation and amortization expenses, discount accretion on debt of $210,000, an increase in deferred revenue of $150,000 and an increase in accounts payable and accrued liabilities of $818,000. Cash used in operating activities during the nine months ended December 31, 2002 was primarily attributable to a net loss of $1.7 million, increases in accounts receivable of $406,000, and decreases in deferred revenue and accounts payable and accrued liabilities totaling $740,000 and $399,000, respectively. These items were partially offset by $1.5 million of depreciation and amortization expense.
Cash provided by investing activities was $157,000 and $1.3 million for the nine months ended December 31, 2003 and December 31, 2002, respectively. Cash provided by investing activities for the nine months ended December 31, 2003 was primarily due to $334,000 from the repayment of notes receivable, proceeds received from practice terminations of $91,000 offset by $227,000 of acquisition related royalty expenses. Cash provided by investing activities during the nine months ended December 31, 2002 was primarily due to proceeds received from practice terminations of $1.1 million.
Cash provided by financing activities was $774,000 during the nine months ended December 31, 2003, while cash used in financing activities was $816,000 during the nine months ended December 31, 2002. Cash provided by financing activities during the nine months ended December 31, 2003 was due to the net proceeds of $1,288,000 related to the issuance of convertible preferred stock and warrants which was partially offset by repayment of debt and capital leases of $469,000. Cash used in financing activities during the nine months ended December 31, 2002 was primarily attributable to the repayment of debt and capital leases totaling $835,000.
