From the filing
New loan for $240K due 12/23/04
As of September 30, 2004, our liquidity position was extremely precarious. We had current liabilities of $10,079,270, including $6,612,076 in obligations under the lease financing for the old Ferris Productions virtual reality systems, $827,494 in accounts payable, and short-term notes payable of $1,787,852, some of which were either demand indebtedness or were payable at an earlier date and were in default. As of September 30, 2004, there was only $494,511 in current assets available to meet those liabilities.
To date we have met our capital requirements by acquiring needed equipment under the Ferris non-cancelable leasing arrangements, through capital contributions, loans from principal shareholders and officers, certain private placement offerings, and through our convertible debenture and equity line financing with Dutchess Private Equities Fund, L.P.
For the nine months ended September 30, 2004, our net loss was $(1,275,379). After taking into account the non-cash items included in that loss, our cash requirements for operations were $964,645. In addition, we made capital expenditures of $78,649 and repaid notes in the amount of $140,901. To cover these cash requirements, we used existing cash, borrowed $240,000 on a promissory note, and issued 3,437,607 shares of our common stock under the Dutchess equity line, for net cash proceeds of $932,609.
The opinion of our independent auditor for the year ended December 31, 2003 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 a financial contract with Dutchess Private Equities Fund, L.P. Under this arrangement, Dutchess is to purchase up to $5 million of our common stock over the next two years under an equity line. The number of shares we may sell to Dutchess is 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, which has been repaid in full. We recently borrowed an additional $240,000 from Dutchess on a promissory note, to be repaid in full on or before December 23, 2004. 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. On November 9, 2004, we forwarded to the holders of our old Ferris equipment leasing arrangements, and to our old GameCom promissory noteholders, an exchange offer, under which these leaseholders and noteholders may convert their leases and notes to shares of our common stock. If our proposal is accepted by 85 percent in interest of these leaseholders and noteholders, it would eliminate approximately $7,800,000 of liability from our balance sheet, save us approximately $225,000 in accrued interest per quarter, and make it much more likely that we could conclude on acceptable terms an offering of our common shares in the public market, or attract investment capital on acceptable terms.
However, there can be no assurance that we will achieve the required 85 percent approval by the exchange offer's stated termination date of November 30, 2004.
AI
