ITEM 1. FINANCIAL STATEMENTS
TELECONNECT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
PAGE 1 of 2
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46,308
|
|
|
$
|
38,067
|
|
Accounts receivable – trade
|
|
|
35,956
|
|
|
|
29,187
|
|
Inventory, work in process (net of reserve for slow moving inventory of $146,026 and $132,258 at December 31, 2012 and September 30, 2012,respectively)
|
|
|
102,055
|
|
|
|
212,281
|
|
Prepaid taxes
|
|
|
33,236
|
|
|
|
28,931
|
|
Prepaid expenses
|
|
|
23,407
|
|
|
|
50,363
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
240,962
|
|
|
|
358,829
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
2,260,015
|
|
|
|
2,419,386
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Due from Giga Matrix Holding, B.V.
|
|
|
572,492
|
|
|
|
565,044
|
|
Investment in Giga Matrix Holdings B.V.
|
|
|
-
|
|
|
|
-
|
|
Goodwill
|
|
|
410,230
|
|
|
|
402,022
|
|
Patents and tradenames, net
|
|
|
2,626,498
|
|
|
|
2,676,417
|
|
Long-term notes receivable (net of allowance for bad debts of $555,330 and $544,219 at December 31, 2012 and September 30, 2012, respectively)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,110,197
|
|
|
$
|
6,421,698
|
|
The accompanying notes are an integral
part of these financial statements.
TELECONNECT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
PAGE 2 of 2
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December 31,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
158,839
|
|
|
$
|
328,904
|
|
Accounts payable - related parties
|
|
|
359,231
|
|
|
|
305,154
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
869,461
|
|
|
|
669,731
|
|
Other
|
|
|
117,776
|
|
|
|
100,044
|
|
Deferred revenue
|
|
|
1,323
|
|
|
|
56,745
|
|
Notes payable
|
|
|
514,566
|
|
|
|
504,270
|
|
Loans from related parties
|
|
|
9,720,607
|
|
|
|
9,526,106
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,741,803
|
|
|
|
11,490,954
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
Preferred stock; par value of $0.001, 5,000,000 shares authorized, no shares outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock; par value of $0.001, 500,000,000 shares authorized, 9,174,915 and 8,167,415 shares outstanding at December 31, and September 30, 2012, respectively, 67 ($67) and 500,067 ($230,866) shares subscribed and unissued at December 31, 2012 and September 30, 2012, respectively
|
|
|
9,175
|
|
|
|
8,667
|
|
Additional paid-in capital
|
|
|
35,568,586
|
|
|
|
34,944,026
|
|
Accumulated deficit
|
|
|
(38,248,495
|
)
|
|
|
(37,157,926
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,960,872
|
)
|
|
|
(2,864,023
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(5,631,606
|
)
|
|
|
(5,069,256
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
6,110,197
|
|
|
$
|
6,421,698
|
|
The accompanying notes are an integral
part of these financial statements.
TELECONNECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31,
2012 and 2011
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
205,336
|
|
|
$
|
19,385
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
163,024
|
|
|
|
44,018
|
|
|
|
|
|
|
|
|
|
|
GROSS INCOME (LOSS)
|
|
|
42,312
|
|
|
|
(24,633
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
715,385
|
|
|
|
787,380
|
|
Depreciation and amortization
|
|
|
313,652
|
|
|
|
323,327
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,029,037
|
|
|
|
1,110,707
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(986,725
|
)
|
|
|
(1,135,340
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
20
|
|
Loss on investment
|
|
|
(10,096
|
)
|
|
|
(9,585
|
)
|
Other income
|
|
|
-
|
|
|
|
145
|
|
Interest expense - related parties
|
|
|
(93,748
|
)
|
|
|
(94,141
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(1,090,569
|
)
|
|
|
(1,238,901
|
)
|
|
|
|
|
|
|
|
|
|
(INCOME TAXES) BENEFIT FROM INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,090,569
|
)
|
|
$
|
(1,238,901
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE:
|
|
$
|
(0.12
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
|
|
|
9,013,868
|
|
|
|
6,945,833
|
|
|
|
|
|
|
|
|
|
|
THE COMPONENTS OF COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,090,569
|
)
|
|
$
|
(1,238,901
|
)
|
Foreign currency translation adjustment
|
|
|
(146,741
|
)
|
|
|
183,586
|
|
Tax effect on currency translation
|
|
|
49,892
|
|
|
|
(62,419
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
$
|
(1,187,418
|
)
|
|
$
|
(1,117,734
|
)
|
The accompanying notes are an integral
part of these financial statements.
TELECONNECT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,090,569
|
)
|
|
$
|
(1,238,901
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
313,652
|
|
|
|
323,327
|
|
Stock-based compensation
|
|
|
1,500
|
|
|
|
-
|
|
Inventory allowance
|
|
|
10,884
|
|
|
|
11,516
|
|
Loss on equity investments
|
|
|
10,096
|
|
|
|
9,585
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
(6,173
|
)
|
|
|
26,743
|
|
Inventory
|
|
|
103,676
|
|
|
|
(344
|
)
|
Prepaid expenses
|
|
|
27,984
|
|
|
|
(39,106
|
)
|
Prepaid taxes
|
|
|
(3,714
|
)
|
|
|
30,899
|
|
Accounts payable
|
|
|
(128,934
|
)
|
|
|
94,776
|
|
Accrued liabilities and income taxes payable
|
|
|
201,745
|
|
|
|
186,085
|
|
Deferred Revenue
|
|
|
(46,230
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(606,083
|
)
|
|
|
(595,420
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Advances to Giga Matrix
|
|
|
(6,007
|
)
|
|
|
-
|
|
Purchase of fixed assets
|
|
|
(2,054
|
)
|
|
|
(102,038
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,061
|
)
|
|
|
(102,038
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
623,568
|
|
|
|
602,461
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
623,568
|
|
|
|
602,461
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE
|
|
|
(1,183
|
)
|
|
|
7,212
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
8,241
|
|
|
|
(87,785
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
38,067
|
|
|
|
117,145
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
46,308
|
|
|
$
|
29,360
|
|
The accompanying notes are an integral
part of these financial statements.
TELECONNECT
INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31,
2012
1. BASIS OF
PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The accompanying
unaudited condensed consolidated financial statements of Teleconnect Inc. (the “Company”) have been prepared in accordance
with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three
months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the full year.
The condensed
consolidated financial statements include the accounts of Teleconnect Inc. and its subsidiaries PhotoWizz BV (“MediaWizz”),
Wilroot B. V. (Wilroot) and Hollandsche Exploitatie Maatschappij (“HEM”). All significant inter-company balances and
transactions have been eliminated.
The balance sheet
at September 30, 2012 has been derived from the audited financial statements at that date but does not include all of the information
and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial
statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2012.
Revenue Recognition -
The Company recognizes revenue from the
sale of multimedia hardware components in the period in which title has passed and services have been rendered. The Company recognizes
revenue from narrowcasting and age validation services when services have been rendered and realization is assured.
2. LITIGATION
AND CONTINGENT LIABILITIES
In the normal
course of its operations, the Company may, from time to time, be named in legal actions seeking monetary damages. While the outcome
of these matters cannot be estimated with certainty, management does not expect, based upon consultation with legal counsel, that
they will have a material effect on the amounts recorded in the condensed consolidated financial statements.
3. EQUITY TRANSACTIONS
During the three
months ended December 31, 2012 the Company sold 500,000 shares of its common stock for $623,568 to qualified investors.
The purchase agreement
for 150,000 of the shares carries anti-dilution rights for 180 days and the right to purchase up to 150,000 additional shares for
the same price for 180 days from the date of purchase.
During the three
months ended December 31, 2012 the Company issued 7,500 shares of its common stock valued at $1,500 for services.
4. INCOME TAXES
The Company has
not recorded any federal income tax expense or benefit for the three months ended December 31, 2012 and 2011, mainly due to available
net operating loss carryforwards. The Company has recorded an income tax valuation allowance equal to the benefit of any deferred
tax asset because of the uncertain nature of realization.
5. LOSS PER
SHARE
Basic loss per
share amounts are computed based on the weighted average number of shares outstanding on that date during the applicable periods.
There were no stock options outstanding as of December 31, 2012 or 2011.
The following
reconciles the components of the loss per share computation for the years ended December 31 2012 and 2011:
|
|
2012
|
|
|
2011
|
|
Basic and diluted loss per share computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,090,569
|
)
|
|
$
|
(1,238,901
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
9,013,868
|
|
|
|
6,945,833
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
$
|
(0.12
|
)
|
|
$
|
(0.18
|
)
|
6. GIGA MATRIX HOLDING
Giga Matrix Holding,
BV (“Giga”), provides performance of market surveys and the broadcasting of in-store commercial messages using the
age validation equipment between age checks. The Company accounts for its investment in Giga, including amounts due from Giga,
under the equity method. Pursuant to accounting guidance the Company has combined its investment in Giga and amounts due from Giga
for purposes of determining the amount of losses to be recognized under the equity method; accordingly, the Company recognized
$10,096 and $9,585 in losses on its equity investment during the three months ended December 31, 2012 and 2011, respectively. As
of December 31, 2012, the Company’s maximum exposure to further losses is limited to the amount due from Giga of $572,492.
The Company has
analyzed its investment in Giga and determined that, while Giga is a variable interest entity the Company is not the primary beneficiary
due to the fact that the Company has no further financial obligations to support Giga, and therefore it is not required to be consolidated.
Results of operations
of Giga for the three months ended December 31, 2012 and 2011 are as follows:
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net loss
|
|
$
|
(20,604
|
)
|
|
$
|
(19,562
|
)
|
7. GOING CONCERN
The accompanying condensed consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2012, the
Company had a working capital deficit of $11,500,841 and a net loss of $1,090,569 for the three months then ended. These factors
raise substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification
of liabilities that might be necessary in the event that the Company cannot continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon the Company’s ability to attain a satisfactory level of profitability and
obtain suitable and adequate financing. The Company intends to look for additional equity funding to pay debts and for working
capital. However, there is no assurance that such capital will be raised, and the Company may seek bank financing and other sources
of financing to complete the payment of debt and for working capital.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 2012, investors
purchased 275,000 shares of the Company’s common stock for $367,785, (€275,000).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
Caution Regarding Forward-Looking Statements
The following information may contain
certain forward-looking statements that are not historical facts. These statements represent our expectations or beliefs, including
but not limited to, statements concerning future acquisitions, future operating results, statements concerning industry performance,
capital expenditures, financings, as well as assumptions related to the foregoing. Forward-looking statements may be identified
by the use of forward-looking terminology such as “may,” “shall,” “will,” “could,”
“expect,” “estimate,” “anticipate,” “predict,” “should,” “continue”
or similar terms, variations of those terms or the negative of those terms. Forward-looking statements are based on current expectations
and involve various risks and uncertainties that could cause actual results and outcomes for future periods to differ materially
from any forward-looking statement or view expressed herein. Our financial performance and the forward-looking statements contained
in this report are further qualified by other risks including those set forth from time to time in documents filed by us with the
SEC.
INTRODUCTION
The Company’s business model involves
the age validation of consumers when purchasing age restricted products, such as alcohol or tobacco. This age validation business
is at the core of the Company’s strategic direction. Our revenues are derived from the sales and leasing of age validation
equipment, the performance of age validation as well as the sale and maintenance of vending solutions (through Mediawizz), and
the broadcasting of in-store commercial messages using the age validation equipment between age checks (through HEM). Our revenues
and operating results will depend in the future upon government laws and mandates, performance and pricing of our products/services,
relationships with the public and other factors. The Company is not reliant on any one specific customer for revenues.
The changed Alcohol and Catering Act took
effect in The Netherlands as of January 1, 2013. After this date, Dutch law enforcement authorities can temporarily close the alcohol
section of supermarkets when they are repeatedly caught selling alcohol to minors. It is expected that this change will generate
a significant demand for Ageviewers.
Today, our existing revenues may be impacted
by other factors including the length of our sales cycle, the timing of sales orders, budget cycles of our customers, competition,
the timing and introduction of new versions of our products, the loss of, or difficulties affecting, key personnel and distributors,
changes in market dynamics or the timing of product development or market introductions. These factors have affected our historical
results to a greater extent than has seasonality. Combinations of these factors have historically influenced our growth rate and
profitability significantly in one period compared to another, and are expected to continue to influence future periods, which
may compromise our ability to make accurate forecasts.
Cost of sales consists of customer support
costs, training and professional services expenses, and parts for the terminals; which consist of small display screens, metallic
housings, PC’s, switches, small cameras similar to webcams, electronic components, cables, power supplies and software licenses
amongst other items.
Our gross profit will continue to be affected
by a variety of factors, including: the resistance from retailers to migrate from existing inefficient on-site age verification
procedures, possible new competitors entering the market, the mix and average selling prices of products, maintenance and services,
new versions of products, the cost of equipment, component shortages, and the mix of distribution channels to which our products
and services are sold. Our gross profit will be adversely affected if relevant laws and regulations are not readily
adopted by the retail chains or are not enforced by local government.
Selling, general and administrative expenses
consist primarily of salaries and related expenses for executive, finance, accounting, legal and human resources personnel, professional
fees and corporate expenses. We expect general and administrative expenses to increase slightly as the Company expands its points
of sale in Europe as well as when it prepares itself to enter the U.S. market.
Subsequent to December 31, 2012, directors
of the Company have concluded that it is in the best interest of the Company to create an Advisory Board with senior industry members.
At the next Board meeting of the Company, this proposal should be approved and the Advisory Board formally established. Members
of the Advisory Board will be disclosed in an 8K filing.
BALANCE SHEET COMPARISON AT DECEMBER 31, 2012 AND SEPTEMBER
30, 2012
Assets:
Total assets at December
31, 2012 decreased $311,501 or 4.9% to $6,110,197 compared to $6,421,698 at September 30, 2012. This decrease is due
primarily to the sale by Mediawizz of vending units to a specific customer to be placed in airports and train stations for the
sale of travel products during the quarter ended December 31, 2012 which were on hand at fiscal year end as well as a decrease
in prepaid legal expense used during the quarter for work on patents and the use of prepaid expenses in subsidiaries.
Liabilities:
Current liabilities at December 31, 2012 increased $250,849 or 2.2% to $11,741,803 compared to $11,490,954 at September
30, 2012. This increase is due primarily to an increase in accounts payable and accrued liabilities associated to
related parties as well as an increase in other accrued liabilities offset by a decrease in accounts payable. Specifically,
the increase of $54,077 in accounts payable related parties is due to the additional accrual of compensation for officers
and management; the increase in accrued liabilities of $17,732 is due to the accrued expense in Mediawizz related to the
order of vending machines, and the increase of accrued liabilities related parties of $199,730 is related to both the accrued
interest of a related party note and additional unpaid management fees. The decrease in accounts payable trade is due to
payments made using funds raised from sales of stock and sales of vending machines by Mediawizz.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2012 AND
2011
We had net loss of $1,090,569 for the three
months ended December 31, 2012 as compared to net loss of $1,238,901 during the comparable period in 2011, a decrease of 12% or
$148,332. A comparison of revenues and expenses for the two periods is as follows:
REVENUES
Revenues for the three months ended December 31, 2012 were $205,336
as compared to revenues for the same period in 2011 of $19,385; an increase of $185,951 or 959%.
Current revenues were derived from sales of a vending solution
for airports and railway stations. No such sales occurred in the same period of 2011. Revenues for the three months ended December
31, 2011 consisted of primarily of installation and service revenues.
COST OF SALES
Cost of sales for the three month
period ended December 31, 2012 were $163,024 as compared to $44,018 for the same period of 2011; an increase of 270% or
$119,006. The breakdown of 2011 costs consisted of telecommunication costs of $15,731, kiosk support costs of $10,881,
inventory write down of $11,516 and other expenses of $5,890. During three month period ended December 31, 2012, the increase
in cost of sales was primarily due to $135,605 in costs related to the vending solution revenues.
During three month period ended December
31, 2012, the cost of sales included costs derived from maintaining the contracts in relation to its age-validation business which
provide the Company with the technical acceptance, market exposure and credibility required upon which to base the service offering.
The allocation of such costs are in line with the Company’s strategic plan. These expenditures have been efficient in achieving
the results to date in the area of technical adaptation to market requirements, market exposure and user acceptance. The Company
expects its costs of sales to increase in line with the installations of Ageviewers in supermarkets under the new commercial conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses
have decreased by $71,995 or 9.1% to $715,385 during the three months ended December 31, 2012 as compared to $787,380 for the comparable
period in 2011. This decrease in selling, general and administrative expenses is primarily due to a reduction in the
cost of outside professional services.
LIQUIDITY AND CAPITAL RESOURCES
At December 31,
2012 and September 30, 2012, Teleconnect Inc. had negative working capital of approximately $11,501,000 and $11,132,000, respectively. This
decrease of working capital is primarily a result of the change in the Euro/US Dollar exchange rate during the quarter.
The ability of
the Company to satisfy its obligations and to continue as a going concern will depend on raising funds through the sale of additional
shares of its common stock, increase borrowing, and upon its ability to reach a profitable level of operations. The Company’s
financial statements do not reflect adjustments that might result from its inability to continue as a going concern and these adjustments
could be material.
The Company’s
capital resources have been provided primarily by capital contributions from stockholders, stockholders’ loans, the conversion
of outstanding debt into common stock of the Company, and the sale of Common Stock.
The Company intends
to look for additional equity funding to pay debts and for working capital. However, there is no assurance that such capital will
be raised, and the Company may seek bank financing and other sources of financing to complete the payment of debt and for working
capital.