LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $5,519,000 in fiscal 2001, $3,556,000 in fiscal 2000 and $800,000 in fiscal 1999. We had approximately $295,000 in cash at October 31, 2001.
Our operations over the last three years have been financed principally through private sales of common stock, loans and the issuance of convertible notes. Net proceeds from financing activities amounted to approximately $5,642,000 in fiscal 2001, $4,071,000 in fiscal 2000 and $863,000 in fiscal 1999. In fiscal 2001 and fiscal 2000, proceeds from the exercise of options and warrants amounted to $100,000 and $165,000, respectively.
Stock was issued in payment of expenses amounting to approximately $3,559,000 in fiscal 2001, $3,259,000 in fiscal 2000 and $1,106,000 in fiscal 1999. In addition, stock valued at $1,000,000 was issued in connection with a litigation settlement in fiscal 2001.
In April 2000, we entered into a joint venture production agreement to produce a feature length film for theatrical distribution. Under the agreement, we are providing the funding for the production in the amount of $2,250,000 and, in exchange, will receive a 50% share in all net profits from worldwide distribution and merchandising. Prior to that division of net profits, we are entitled to recover funds equal to our initial investment of up to $2,250,000. As of October 31, 2001, we had funded approximately $1,913,000 of the production costs towards this project. The film is nearing completion and is expected to be released in the summer of 2002.
In October 2001, we raised a total of $615,000 through the issuance of convertible promissory notes. We agreed to pay the principal and an amount equal to 50% of the principal if we reach certain milestones from the distribution of our feature length film currently in production. The promissory notes are convertible at any time, in whole or in part, into shares of our common stock at a conversion price of $0.40 per share. In December 2001, we raised an additional $250,000 through the issuance of convertible notes on these terms.
In June 2000, we entered into five credit facilities, pursuant to which we borrowed $756,886. We repaid $500,000 of these borrowings during fiscal 2001. The remaining principal and interest at 6% per annum will be due in June 2003.
Research and development expenses related to the operations of our NV Technology subsidiary totaled $839,000 for fiscal 2001 and $815,000 for 2000.
Management believes funds on hand and available sources of financing will enable us to meet our liquidity needs for at least the next three months. We need to raise additional cash, however, in order to continue to meet our liquidity needs, satisfy our proposed business plan and expand our operations. Management is presently investigating potential financing transactions that management believes can provide additional cash for our operations and be profitable in both the short and long-term. Management also intends to attempt to raise funds through private sales of our common stock and borrowings. Although management believes these efforts will enable us to meet our liquidity needs in the future, there can be no assurance that these efforts will be successful.
GOING CONCERN CONSIDERATION
We have continued losses in each of our years of operation, negative cash flow and liquidity problems. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of reported assets or liabilities should we be unable to continue as a going concern.
We have been able to continue based upon our receipt of funds from the issuance of equity securities and borrowings, and by acquiring assets or paying expenses by issuing stock. Our continued existence is dependent upon our continued ability to raise funds through the issuance of our securities or borrowings, and our ability to acquire assets or satisfy liabilities by the issuance of stock. Management's plans in this regard are to obtain other debt and equity financing until profitable operation and positive cash flow are achieved and maintained. Although management believes, based on the fact that it raised approximately $8,576,000 through sales of common stock and $1,372,000 from borrowings in the last two fiscal years, that it will be able to secure suitable additional financing for the company's operations, there can be no guarantee that such financing will continue to be available on reasonable terms, or at all.
(Voluntary Disclosure: ST Rating- Strong Sell; LT Rating- Strong Sell)
