As of November 30, 1998, the Company had $2,500,000 in cash and cash equivalents, compared with approximately $4,991,000 at May 31, 1998. The
Company had working capital of approximately $2,600,000 at November 30, 1998, compared with a working capital of approximately $5,000,000 at May
31, 1998, a decrease in working capital of approximately $2,400,000. The decrease in working capital is primarily attributable to the net loss for six
months of $2,400,000. The Company had long-term debt of $3,500,000 at November 30, 1998 and at May 31, 1998. 

The Company continues to incur significant losses. During the quarter ended November 30, 1998, the Company's operations used approximately $1.2
million in cash, an average of approximately $400,000 per month. The Company's cash expenditures are increasing, primarily due to increases in sales
and marketing personnel. If the Company continues to incur significant losses, the Company's liquidity could be materially and adversely affected. The
Company does not currently have any established bank credit facility, and there can be no assurance that the Company will be able to obtain the
additional capital in the form of debt or equity financing necessary to continue its operations beyond approximately March 31 of 1999 if no significant
sales are realized. 

Due to the Company's dispute with its debenture holders, scheduled interest payments have been accrued but not paid. The non-payments of interest
represent a technical default under the terms of the debenture. If the Company's common stock is delisted from Nasdaq SmallCap, it would constitute
another event of default. A remedy of default includes the holders considering the debt immediately payable. The Company believes that it has
substantial claims against the debenture holders but can not be certain that these claims will be awarded by court. The Company believes that due to
the dispute, the remedies for default are also uncertain and the debt remains classified as long-term.