I can certainly see why you guys and the ineffable Cav thought this one could be a winner:
Risk Factors
Need for Additional Capital; Uncertainty as a Going Concern. As of June 30, 1998, the Company had (i)never achieved operating profits, (ii) had negative working capital of $769,483 and cash on hand of $66,359 (iii) total short term indebtedness of $803,619, and long term indebtedness of $160,661, (iv) ceased development of new titles pending the generation of additional working capital or the implementation of subcontractor relationships on terms that permit payments to be made by the Company when it has cash available to make such payments, (v) curtailed its Internet gaming services, (vi) closed one of its business offices, (vii) significantly reduced marketing and public relations efforts, and (viii) reduced its total number of employees to five. Revenues from the Company's Emergency Room and derivatives thereof are continuing to decrease, and revenues from the D.A. Pursuit of Justice title have been lower than expected. The Company has incurred net losses since inception and expects to continue to operate at a loss during 1998. The Company's prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets. The Company's ability to maintain operations in the near term and to achieve positive cash flow in the future depends on a variety of factors. Given the Company's current working capital deficiency and lack of cash resources, should the Company be unable to obtain additional funding to supply its near-term cash requirements, there is substantial doubt as to the Company's ability to continue as a going concern. The Company is exploring several options including the issuing of additional equity securities, combining its operations with another entity and selling a significant portion of its assets.
On February 26, 1998. the Company was notified by The Nasdaq Stock Market, Inc. ("NASDAQ") that the Company is not in compliance with the net tangible assets/market capitalization/net income requirement(s), pursuant to NASD Marketplace Rule(s) 4310(c )(02) and the minimum bid price requirement, pursuant to NASD Marketplace Rule 4310(c )(04) both of which became effective on February 23, 1998. Non-compliance with these and other rules adopted by NASDAQ at that date, will result in the Company's stock being delisted from the NASDAQ Small Cap Exchange. On July 20, 1998 NASDAQ notified the Company continuing failure to comply with the rules would result in delisting of the Company's stock on July 28, 1998. The Company filed an appeal for an oral hearing on a date to be determined by NASDAQ to stay the delisting. To date the Company has not received notice of such a hearing. Based on instructions provided by NASDAQ the Company has initiated steps to maintain compliance. There can be no assurance that the Company will be successful in maintaining compliance with the new NASDAQ requirements and if it does maintain compliance that, in its current financial condition, it can continue to be in compliance.
Ability to Timely Consummate a Combination. The Company's ability to continue as a going concern may be dependent on its ability to consummate a combination. However, the Company's ability to consummate a combination may be impaired by the rules that require stockholder approval for certain combinations. Obtaining stockholder approval is a time-consuming process that includes sending out notification to brokers, preparing a disclosure document and sending out the disclosure document to stockholders to review and vote upon. The Company may not have the financial resources to survive this process. Failure to consummate a combination may have a material adverse effect on the Company's business, financial condition and results of operations.
Dependence on Alpha Software Corporation for Substantially All the Company's Revenues. For the six months ended June 30, 1998, approximately 71% of the Company's total revenue was derived from
Alpha Software on royalty revenue generated by the D.A. Pursuit of Justice and Emergency Room Intern titles. The royalty revenue from the Emergency Room title, a DOS-based product, diminished significantly over the course of 1997, as it faced increased competition from Windows-based products, and the royalty revenue from the D.A. Pursuit of Justice and Emergency Room Intern titles increased as these products entered the market in larger numbers. The Company and IBM have terminated their co-development relationship with respect to future RealPlay(TM) titles, including, but not limited to, the D.A. Pursuit of Justice title and the Company will terminate its Agreement with Alpha Software on March 31, 1999. If the Company is unable to develop other CD-ROM titles or other services, if the Company cannot find alternative distribution arrangements for its present or future titles, or if the Company's other products and services, if any, do not receive market acceptance, there will be a material adverse effect on the Company's business, financial condition and resultsof operations. The agreement with Alpha Software terminates on March 31, 1999. The Company's revenues will be significantly reduced if the Company is unable to enter into an agreement with other distributors due to its dependence on Alpha Software. The termination of the distribution agreement with Alpha Software may have a material adverse effect on the Company's business, financial condition and results of
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