This is in the second file on the above link what do you think RISK FACTORS
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION IN THIS
PROSPECTUS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN OUR SEC
PROSPECTUSES ARE "FORWARD-LOOKING" STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS
AND PERFORMANCE. OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY
PROVE TO BE VERY DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF
THIS PROSPECTUS.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES WHICH WILL COMPEL US TO
SEEK ADDITIONAL CAPITAL.
For the fiscal year ended October 31, 2002, we sustained a loss of approximately
$6,490,465 and for the fiscal year ended October 31, 2001, we sustained a loss
of $6,748,794. Future losses are anticipated to occur. We continue to have
insufficient cash flow to grow operations and we cannot assure you that we will
be successful in reaching or maintaining profitable operations.
WE HAVE A LIMITED PRODUCT RANGE WHICH MUST BE EXPANDED IN ORDER TO EFFECTIVELY
COMPETE.
To effectively compete in our industry, we need to continue to expand our
business and generate greater revenues so that we have the resources to timely
develop new products. We must continue to market our products and services
through our direct sales force and expand our e-commerce distribution channels.
At the present time, we have no other products in the development process. We
cannot assure you that we will be able to grow sufficiently to provide the range
and quality of products and services required to compete.
WE HAVE FEW PROPRIETARY RIGHTS, THE LACK OF WHICH MAY MAKE IT EASIER FOR OUR
COMPETITORS TO COMPETE AGAINST US.
We attempt to protect our limited proprietary property through copyright,
trademark, trade secret, nondisclosure and confidentiality measures. Such
protections, however, may not preclude competitors from developing similar
technologies.
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF
OUR STOCK, WHICH MAY AFFECT THE ABILITY OF HOLDERS OF OUR COMMON STOCK TO SELL
THEIR SHARES.
The Securities and Exchange Commission has adopted regulations that generally
define a "penny stock" to be any equity security that has a market price of less
than $5.00 per share. Our common stock is currently subject to these rules that
impose additional sales practice requirements. For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchase of the common shares and must have received the purchaser's written
consent to the transaction prior to the purchase. The "penny stock" rules also
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the SEC relating to the penny stock market. The broker-dealer must
also disclose:
o the commission payable to both the broker-dealer and the registered
representative, o current quotations for the securities, and o if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks.
These rules apply to sales by broker-dealers to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000, or
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$300,000 together with their spouse), unless our common shares trade above $5.00
per share. Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell our common shares, and may affect the ability to sell the
common shares in the secondary market as well as the price at which such sales
can be made. Also, some brokerage firms will decide not to effect transactions
in "penny stocks" and it is unlikely that any bank or financial institution will
accept "penny stock" as collateral.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY AN AGGREGATE OF $3,796,064 WORTH OF
CONVERTIBLE DEBENTURES WE CURRENTLY HAVE OUTSTANDING, WE WOULD BE REQUIRED TO
DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR RAISE ADDITIONAL FUNDS. OUR
FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF REQUIRED, COULD RESULT IN LEGAL
ACTION AGAINST US, WHICH COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
As of June 9, 2003, we had an aggregate of $3,796,064 worth of convertible
debentures outstanding. We anticipate that the full amount of the convertible
debentures, together with accrued interest, will be converted into shares of our
common stock, in accordance with the terms of the convertible debentures. If we
are required to repay the convertible debentures, we would be required to use
our limited working capital and raise additional funds. If we were unable to
repay the debentures when required, the debenture holders could commence legal
action against us to recover the amounts due which ultimately could require the
disposition of some or all of our assets. Any such action would require us to
curtail or cease operations.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE THE DEBENTURE HOLDERS TO MAKE SHORT SALES OF OUR COMMON
STOCK, WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK AND
COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES.
Our outstanding convertible debentures are convertible into shares of our common
stock at a discount to the trading price of our common stock. The conversion
feature may encourage the debenture holders to make short sales of the common
stock prior to their conversions. Such sales could significantly depress the
price of the common stock, allowing the debenture holders to convert into a
substantially larger number of shares of common stock, which would have a
depressive effect on the market price of our stock.
OUR COMMITMENTS TO ISSUE ADDITIONAL COMMON STOCK MAY DILUTE THE VALUE OF YOUR
STOCKHOLDINGS, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND IMPAIR
OUR ABILITY TO RAISE CAPITAL.
In addition to the shares of common stock included for resale in this
prospectus, we currently have outstanding commitments in the form of convertible
debentures and warrants to issue a substantial number of new shares of our
common stock. Furthermore, the number of shares issuable upon conversion of
these securities is subject to adjustment, depending on the market price of our
common stock. To the extent that the price of our common stock decreases, we
will be required to issue additional shares upon conversion. There is
essentially no limit to the number of shares that we may be required to issue.
An increase in the number of shares of our common stock that will become
available for sale in the public market may adversely affect the market price of
our common stock and, as a result, could impair our ability to raise additional
capital through the sale of our equity securities or convertible securities.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.
In their report dated January 17, 2003, our independent auditors stated that our
financial statements for the year ended October 31, 2002 were prepared assuming
that we would continue as a going concern. Our ability to continue as a going
concern is an issue raised as a result of a loss for the year ended October 31,
2002 in the amount of $6,490,465 and an accumulated deficit of $20,336,150 as of
October 31, 2002. We continue to experience net operating losses. Our ability to
continue as a going concern is subject to our ability to generate a profit
and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from
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various financial institutions where possible. The going concern qualification
in the auditor's report increases the difficulty in meeting such goals and there
can be no assurances that such methods will prove successful.
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