sec document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 20, 2002
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ESSENTIAL REALITY, INC.
(Exact name of registrant as specified in its charter)
Nevada 000-32319 33-0851302
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
49 West 27th Street, Suite 7E, New York, New York 10001
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(Address of principal executive offices)
Registrant'stelephone number, including area code: 212-244-3200
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JPAL, INC.
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(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
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(a) Description of the Transaction. Essential Reality, Inc. (f/k/a
JPAL, Inc.) (the "Company") entered into an Amended Contribution Agreement (the
"Contribution Agreement"), dated as of April 24, 2002, with Essential Reality,
LLC ("ER LLC"), Martin Abrams, John Gentile, Anthony Gentile and LCG Capital
Group, LLC, whereby all of the members of ER LLC contributed their membership
interests in ER LLC to the Company in exchange for an aggregate of 9,600,000
shares of the Company's common stock (the "Exchange"). The Contribution
Agreement was amended as of June 14, 2002 to change the maturity date of certain
bridge notes. Following the Exchange, ER LLC, then a wholly-owned subsidiary of
the Company, was merged with and into the Company. The Exchange was consummated
on June 20, 2002. The Company financed the transaction with shares of its common
stock having a market value of approximately $29,000,000.
(b) The Business. The Company now operates the business of ER LLC.
The following is a brief description of such business:
This description contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this description, the
words "estimate," "project," "anticipate," "expect," "intend," "believe,"
"seek," "plan," as well as variations of such words and similar expressions, are
intended to identify forward-looking statements. While management of the Company
believes these statements are reasonable, it is being noted that such
forward-looking information involves risks and uncertainties that could
significantly affect results in the future particularly in view of the Company's
early stage operations and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those set forth
in the section "Risk Factors" below.
General
Founded in 1999, ER LLC is a developer of real-time tracking and
sensory technologies. The Company will focus on combining these technologies
into products that enhance the interaction between human beings and personal
computers, game consoles, computer tablets and other related devices
(collectively referred to as "Computer Platforms").
The Company expects to have its first product, the P5(TM), available
for sale during the second half of 2002. The P5(TM) is a glove-like peripheral
device that could substantially improve the way individuals interact with
Computers Platforms. The P5(TM), which can be offered at a mass market price
point, addresses technological limitations of current input devices. The Company
expects the P5(TM) to be suitable for multiple applications including:
o Electronic Gaming - games produced for play on PCs, game consoles
and location-based entertainment sites;
o Commercial Applications - such as animation, computer aided design
(CAD), simulation training, disability and education; and
o Other Computer Interactions - Internet browsing and navigation, and
general computer interaction.
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The P5(TM) Product Family
Since the advent of the mouse, relatively little has changed in the
way of computer input devices, despite the fact that computers and applications
have changed dramatically, growing increasingly complex and specialized.
Applications, particularly in the electronic gaming and commercial markets, have
migrated from flat two-dimensional (2D) interfaces to intuitive,
three-dimensional (3D) environments. However, input devices continue to be
dominated by 2D products including mouse controllers and gaming-specific
peripherals such as joysticks, steering wheels, proprietary console controllers
and the like.
The P5(TM) is based on the Company's patented and several
patent-pending technologies, one of which was incorporated in the "Power Glove."
The Power Glove was introduced to the market in the late 1980s as an alternative
controller for use only with the 8-bit Nintendo Entertainment System, part of
the first generation of game consoles sold to the mass market. The product
eventually sold approximately one million units in the United States, Europe and
Japan. Subsequent to a decline in consumer demand for first-generation gaming
consoles in the early 1990s, such Nintendo system ceased sales. Therefore, the
Power Glove technology was not used nor further developed awaiting the return of
Computer Platforms and applications that could benefit from its utility.
With the significant increase in sales of Computer Platforms and
applications in the late 1990s, ER LLC engaged developers in 1999 to create a
peripheral device based on ER LLC's belief that the consumer and commercial
markets were ripe for a product with the capabilities of the P5(TM). The P5(TM)
is a glove-like peripheral that has been engineered to capture five-finger bend
sensitivity enabling gesture recognition, combined with an optical tracking
technology that will capture the movement of the hand in 3D space with six
degrees of freedom (X, Y, Z, yaw, pitch and roll), without the use of the mouse,
joystick, keyboard or the like.
The P5(TM) is a lightweight and comfortable peripheral, which is a
Universal Serial Bus (USB) based product that will allow for direct "plug and
play" in personal computers as well as the Sony PlayStation2 game console. The
Company anticipates compatibility with additional Computer Platforms, such as
the Microsoft Xbox, in the future. According to a Dataquest Inc. market study,
100% of PC shipments in 2001 were USB-compatible units, with an installed base
of over 500 million PC units. There are approximately 27 million computer
peripherals that are USB-compatible and the growth of these products is
anticipated to reach over 400 million by the year 2003.
Research & Product Development
Currently, product research and development is conducted via an
exclusive arrangement between the Company and a Canadian based entity that
currently employs a team of eleven technicians who spend all of their time
working on Company products. The Company has planned for future products that
will take the initial P5(TM) through several stages of evolution, which may
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include a wireless product, a two-handed version, the ability to incorporate
biometrics, and a product with tactile feedback. The Company is also seeking to
develop other products, of which several are currently in initial phases of
development, that will utilize one or more of the Company's technologies. The
combination of future generations of the P5(TM) and the creation of new products
will increase the commercial opportunities for the Company in both existing and
new markets.
Sales and Marketing
The Company has identified numerous sales and marketing channels to
build a brand and capture a mass market for the P5(TM), as well as other planned
products. The Company anticipates that the sales distribution of the P5(TM) will
initially utilize an electronic gaming market retail strategy, expanding into an
OEM and direct sales effort for penetration of commercial and other markets. The
Company plans to sell the P5(TM) into multiple channels, including but not
limited to domestic and international retail, e-commerce outlets, direct
marketing and OEM/private label partnerships.
The P5(TM) was formally introduced at the 2000 Electronic
Entertainment Expo (E3, May 2000) to enthusiastic responses from game developers
and publishers. As of this date, the P5(TM) has appeared, and in some cases been
featured, in over 125 print/online publications and on over 25 television, radio
and online segments. In recent months alone, the P5(TM) has been covered by
publications including CNN, Wired Magazine, Popular Science, MAC World,
MACAddict, Kiplingers, The History Channel, KTLA's Curt The Cyberguy, Discovery
Channel (Canada), Newsweek (Japan) and the Regis and Kelly Show.
The Company has signed 20 letters of intent with various software
development firms to incorporate the P5(TM) into applications including
electronic gaming and commercial markets. These letters of intent, however, only
represent expressions of interest and are not binding commitments. There can be
no assurance that any definitive agreements with such developers will be
finalized or that the Company will realize any revenues from such relationships.
Furthermore, ER LLC briefly advertised the availability of a limited
number of software development kits (SDKs) to the developer community, and in
less than one month received in excess of 450 SDK applications from game
developers and from numerous commercial software developers, including in the
areas of 3D Animation, CAD, education and research, Internet/multimedia,
military and other commercial markets. The Company has begun to selectively
respond to those applications by beginning to offer SDKs to the most promising
software developers, including premier electronic game development companies.
However, there can be no assurance that any developers will want to integrate or
create content that is P5(TM) compatible.
Lastly, the Company has received multiple indications of significant
interest from major retailers to begin shipping during the second half of 2002.
While there have been no definitive final agreements with any such retailers,
the Company expects to start receiving actual purchase orders, pending the
successful completion of vendor integration and the final contractual
negotiations with the respective retailers. Such process has already commenced
with several key retailers. The Company continues to solicit other retailers
and/or distributors, both domestically and internationally, for P5(TM) volume
commitments.
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(c) Risk Factors. The following risk factors relate to the Company's
business:
LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
To date, ER LLC's operations have consisted primarily of
organizational activities and product development. Accordingly, there is very
limited operating history upon which an evaluation of our prospects and future
performance can be based. There can be no assurance that we will be able to
develop our products as we envision, raise additional capital to develop our
business, generate revenues or become a viable business. Our prospects must be
considered in the light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, such as electronic
gaming.
WE REQUIRE ADDITIONAL FINANCING.
ER LLC has no revenues to date. The Company anticipates, based on
currently proposed plans and assumptions relating to the implementation of its
business plan (including the timetable of costs and expenses associated with,
and success of, its marketing efforts), that the net proceeds of ER LLC's recent
securities offering (the "Offering"), together with projected revenues from
operations, will be sufficient to satisfy the Company's operations and capital
requirements for approximately six months. There can be no assurance, however,
that such funds will not be expended prior thereto due to unanticipated changes
in economic conditions or other unforeseen circumstances. In the event the
Company's plans change or its assumptions change or prove to be inaccurate (due
to unanticipated expenses, difficulties, delays or otherwise) or the net
proceeds of the Offering and projected revenues otherwise prove to be
insufficient to fund the implementation of the Company's business plan or
working capital requirements, the Company could be required to seek additional
financing sooner than currently anticipated. The Company has no current
arrangements with respect to any additional financing. Consequently, there can
be no assurance that any additional financing will be available to the Company
when needed, on commercially reasonable terms or at all. Any inability to obtain
additional financing when needed could have a material adverse effect on the
Company, requiring it to curtail and possibly cease its operations. In addition,
any additional equity financing may involve substantial dilution to the
interests of the Company's then existing security holders.
WE EXPECT TO INCUR OPERATING LOSSES AND NEGATIVE CASH FLOW FOR THE FORESEEABLE
FUTURE.
We expect to incur significant net losses and to experience negative
cash flow for the foreseeable future. Our success depends on the further
development of our products, establishing and strengthening our brand, as well
as establishing distribution channels for our products and relationships with
retailers. Accordingly, we intend to make significant capital expenditures to
market, promote, manufacture and develop our products and to execute our
business model. As a result of such expenditures, we will need to generate
significant revenues to achieve profitability. There can be no assurance that
the Company will ever achieve revenues or profitable operations.
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WE NEED TO MANAGE OUR GROWTH EFFECTIVELY.
We believe that our growth through the development and
implementation of our business plan will result in an increase in
responsibilities on our management team and will place added pressures on our
operating and financial resources. To manage this anticipated growth, we must
implement systems and train, manage and integrate our employees as we expand our
employee base. We cannot assure you that we have made adequate allowances for
the costs and risks associated with this growth, that our procedures or controls
will be adequate to support our operations, or that our management will be able
to successfully offer and expand our products. If we are unable to manage our
growth effectively, our business could be materially adversely affected.
IF CONTENT DEVELOPERS DO NOT INTEGRATE OUR CODE AND THE CONSOLE COMPANIES DO NOT
ACCEPT US FOR LICENSING OR SUPPORT, THE FULL CAPABILITIES OF THE P5TM MAY NOT BE
REALIZED.
The full capabilities of the P5TM cannot initially be realized on
their own. However, it is anticipated that PC or Mac users will be able to
achieve mouse and joystick default. In order to achieve the full P5TM
experience, a content developer must integrate our code into their content. We
also must be accepted into a console-licensing program, and we may need to make
hardware and/or software modifications based on the consoles specifications, in
order for the P5TM to achieve compatibility with such consoles. Certain content
developers can receive our code as part of our software developer kit. Once they
integrate our code, we will need to be technologically compatible with the
various consoles. The Company has applied for participation in certain licensing
programs. There can be no assurance that the content developers will integrate
our code, that we will be accepted into the various console licensing/support
programs or that the P5TM will be able to achieve compatibility with such
consoles.
RAPIDLY CHANGING TECHNOLOGY COULD HURT OUR OPERATING RESULTS.
The electronic gaming market, the computer peripherals market, as
well as other commercial markets such as education, design and web browsing,
generally are associated with rapidly changing technology and frequent new
product introductions, which often leads to obsolescence and significant price
erosion over the life of a product. The introduction of new technologies can
render existing products obsolete or unmarketable. In addition, a broad range of
competing and incompatible emerging technologies may lead consumers to postpone
buying decisions until a particular platform gains widespread acceptance. As a
result, our products developed for such platforms may not generate sufficient
sales to make such products profitable. Obsolescence of software or platforms
could leave us with increased inventories of unsold products, which would have a
material adverse effect on our operating results.
We need to anticipate technological changes and continually adapt
our new products to emerging industry standards to remain competitive in terms
of price and performance. The development of new, technologically-advanced
products and enhancements is a complex and uncertain process requiring high
levels of innovation as well as the anticipation of technology and market
trends. We may not be able to identify, develop, manufacture, market, sell, or
support new products and enhancements successfully, new products or enhancements
may not achieve market acceptance, or we may not be able to respond effectively
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to technology changes, emerging industry standards or product announcements by
competitors. In addition, some of our competitors may have patents or
intellectual property rights that prevent us from being able to respond
effectively to new or emerging technologies and changes in customer
requirements. New product announcements by us could cause our customers to defer
purchases of existing products or cause distributors to request price protection
credits or stock rotations. Any of these events could materially harm our
business, financial condition and results of operations.
THE ELECTRONIC GAMING MARKET IS CYCLICAL, AND THE COMPANY MAY FAIL TO ANTICIPATE
CHANGING CONSUMER PREFERENCES.
Our business is subject to all of the risks generally associated
with the electronic gaming markets, which have been cyclical in nature. Our
future operating results will depend on numerous factors beyond our control that
change rapidly and cannot be predicted, including:
o The popularity and timing of new games and software being
released and distributed that are compatible with our products;
o International, national and regional economic conditions,
particularly economic conditions adversely affecting
discretionary consumer spending;
o Changes in consumer demographics;
o The availability of other forms of entertainment;
o Critical reviews and public tastes and preferences;
o Acceptance of the P5TM code by global content companies, gaming
and other secondary market developers; and
o The Company's inability to expand its product mix beyond the
P5(TM) rapidly enough to diversify and insulate its revenue
model from a premature downturn in the computer gaming industry.
We must anticipate and respond to rapid changes in consumer tastes
and preferences. A decline in the popularity of video and computer games
requiring 3D-software manipulation could cause sales of our product to decline
dramatically.
3D ENVIRONMENTS, ON WHICH WE HAVE BASED OUR FIRST PRODUCT LAUNCH AND NEAR-TERM
BUSINESS FOCUS, MAY NOT ACHIEVE SIGNIFICANT MARKET ACCEPTANCE.
Our development efforts with respect to the P5(TM) may not lead to
marketable products that generate sufficient revenues to recover their
development and marketing costs, especially if games using the 3D environment do
not reach a significant level of market acceptance. This risk may increase in
the future, as continuing increases in development costs require corresponding
increases in net sales in order for us to maintain profitability.
We have devoted and will continue to devote significant development
and marketing resources on products designed for USB-compatible systems. If such
systems do not achieve wide acceptance by consumers or such manufacturers are
unable to ship a significant number of such units in a timely fashion, or if the
sale of our product fails to meet our expectations, we will experience lower
than expected sales.
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THE COMPANY'S QUARTERLY OPERATING RESULTS MAY VARY SIGNIFICANTLY, WHICH COULD
CAUSE THE PRICE OF THE COMPANY'S SECURITIES TO DECLINE.
The Company may experience wide fluctuations in quarterly operating
results. The electronic gaming market is highly seasonal, with sales of games
and related devices typically higher during the holiday buying season. Our
failure or inability to produce products on a timely basis to meet seasonal
fluctuations in demand will harm our business and operating results. These
fluctuations could also cause the price of our securities to decline. Other
factors that cause fluctuations include, but are not limited to:
o Volume and timing of orders received during the quarter;
o Timing of new product introductions by us and our industry and their
acceptance by the market;
o Impact of competition on our average selling prices and operating
expenses;
o Our inventory levels or inventory levels in the distribution
channels;
o Product returns from customers; and
o Changes in technologies and their acceptance by the market.
Our expense levels are based, in part, on our expectations regarding
future sales and therefore, our operating results would be harmed by a decrease
in sales or a failure to meet our sales expectations. The uncertainties
associated with peripheral devices design, development and manufacturing make it
difficult to predict the quarter in which our products will be shipped and
therefore, may cause us to fail to meet financial expectations. In future
quarters our operating results may fall below the expectations of securities
analysts and investors. In this event, the trading price of our securities could
significantly decline.
THE PERIPHERAL INPUT DEVICE MARKET IS HIGHLY COMPETITIVE.
The market for peripheral input devices, including mouses and
joysticks, is very competitive. In addition, Microsoft, Sony and Nintendo, who
currently dominate the interactive entertainment hardware and software industry,
may determine to develop their own 3D peripheral port device or limit the
functionality of input devices utilizing their USB ports, and have the financial
resources to withstand significant price competition and to implement extensive
advertising campaigns. Many of our competitors have far greater financial,
technical, personnel and other resources than we do, and many are able to carry
larger inventories and adopt more aggressive pricing policies. Prolonged price
competition or reduced operating margins would cause our profits to decrease
significantly.
INCREASED COMPETITION FOR LIMITED SHELF SPACE AND PROMOTIONAL SUPPORT FROM
RETAILERS COULD AFFECT THE SUCCESS OF OUR BUSINESS AND REQUIRE US TO INCUR
GREATER EXPENSES TO MARKET OUR PRODUCTS.
Retailers typically have limited shelf space and promotional
resources, and competition is intense among an increasing number of newly
introduced interactive entertainment software products and related items for
adequate levels of shelf space and promotional support. Competition for retail
shelf space is expected to increase, which may require us to increase our
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marketing expenditures. Competitors with more extensive lines, popular products
and financial resources frequently have greater bargaining power with retailers.
Accordingly, we may not be able to achieve the levels of support and shelf space
that such competitors receive.
PRODUCT RETURNS THAT EXCEED OUR ACCRUALS OR PRODUCTS DELIVERED BUT NOT SOLD MAY
SIGNIFICANTLY IMPACT OUR FINANCIAL RESULTS.
As a manufacturer of consumer products, we are exposed to the risk
of product returns, either through the exercise by customers of contractual
return rights or as a result of our assistance in balancing inventories of
retailers and distributors, as well as the risk of products delivered to
retailers not being sold to consumers. A portion of our net sales may result in
increased inventory at our distributors and resellers, which could lead to
reduced orders by these customers in future periods. Overstocking by our
distributors and retailers may lead to higher than normal returns or a deduction
based on the amount of product not sold. The difficulty in predicting future
sales increases the risk that new product introductions, price reductions or
other factors affecting the electronic gaming market would result in significant
product returns. In addition, we intend to introduce product upgrades,
enhancements and improved packaging, and thus may experience higher rates of
return on our older products.
We expect to recognize revenue upon product shipment, less amounts
for estimated returns. We expect that amounts provided for returns will be
estimated based upon historical and anticipated experience and our assessment of
inventory in the channels. Although we believe that we will provide adequate
amounts for projected returns, from time to time we may experience return levels
in excess of amounts provided and our amounts provided may not be sufficient for
actual returns in future periods.
OUR PRODUCTS ARE SUSCEPTIBLE TO ERRORS THAT CAN HARM OUR FINANCIAL RESULTS AND
REPUTATION.
The technology incorporated into our products may contain defects or
errors that do not become apparent until after commercial introduction.
Remedying such errors may delay our plans, cause us to incur additional costs
and adversely affect our operations. The technological advancements of new
platforms also allow more complex software products. As software products become
more complex, the risk of undetected errors in our products when first
introduced increases. If, despite testing, errors are found in our products
after shipments have been made, we could experience a loss of or delay in timely
market acceptance, product returns, loss of revenues and damage to our
reputation.
OUR BUSINESS IS DEPENDENT ON THIRD-PARTIES CREATING CONTENT FOR WHICH OUR
PRODUCTS WILL BE NEEDED.
Our success depends on our ability to identify and support the
P5(TM) enabled specific games and other type of content. We have non-binding
letters of intent with several companies and we are currently reviewing several
potential agreements, but have not yet entered into binding agreements with any
third parties to develop games that are specific to our products and therefore
there can be no assurance that a sufficient number of such games shall be
developed. To the extent that such games are not created in a timely fashion, it
could have a material adverse affect on the Company's ability to promote its
products and/or achieve its planned selling price.
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WE ARE DEPENDENT ON THIRD-PARTY DEVELOPERS TO COMPLETE OUR PRODUCTS.
We rely on third-party developers for the development of our
products' technology. Quality third-party developers are continually in high
demand. Due to the lack of control that we exercise over them, as well as
technical difficulties, these developers may not be able to complete the
products for us on a timely basis or within acceptable quality standards, if at
all. Also, if developers experience financial difficulties, additional costs or
unanticipated development delays, we will not be able to sell our products
according to our schedule and may incur losses.
WE RELY ON SUPPLIERS OF COMPONENTS USED IN OUR PRODUCTS.
Certain key components used in the manufacture of our products, as
well as certain products, are currently purchased by us from single or limited
sources that specialize in these components or products. At present,
single-sourced components include certain of our application-specific integrated
circuits, sensors (also known as bend sensors) and components. We generally do
not have long-term agreements with our single or limited sources of supply. Lead
times and prices for materials and components ordered by us or our contract
manufacturers can vary significantly and depend on factors such as the specific
supplier, contract terms and demand for a component at a given time. From time
to time we may experience supply excesses, shortages and fluctuation in
component prices. Shortages or interruptions in the supply of components or
subcontracted products, or our inability to procure these components or products
from alternate sources at acceptable prices in a timely manner, could delay
shipment of our products or increase our productions costs, which could decrease
our revenue or gross margin. Delays could also adversely affect our business
relationships.
OUR SUCCESS WILL DEPEND ON THE CONTINUED VIABILITY AND FINANCIAL STABILITY OF
OUR DISTRIBUTORS AND RESELLERS, AS WELL AS CONTINUED DEMAND BY THESE CUSTOMERS
FOR OUR PRODUCTS.
We plan on selling our products not only directly, but also through
a domestic and/or international network of distributors, sales representatives,
retailers and resellers, and our success will depend on the continued viability
and financial stability of these customers, as well as continued demand by these
customers for our products. The distribution and reseller industries have been
historically characterized by rapid change, including periods of widespread
financial difficulties and consolidations, and disruptions from the emergence of
alternative distribution channels. Our distributor, retailer and reseller
customers generally offer products of several different companies, including
products competitive with our products. Accordingly, there is a risk that these
distributors, retailers and resellers may give higher priority, including
greater retail shelf space, to products of other suppliers, which would reduce
demand for, and sales of, our products.
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WE RELY ON ARRANGEMENTS WITH INDEPENDENT THIRD PARTIES FOR THE DELIVERY AND
MANUFACTURING OF OUR PRODUCTS.
We rely on a number of independent third parties for the manufacture
and delivery of our products, ranging from manufacturing, shipping, fulfillment,
and customer and technical support. The termination of our arrangements with one
or more of these independent companies, or the failure or inability of one or
more of these independent companies to timely complete their duties could
adversely affect our results of operations.
WE ARE SUBJECT TO THE RISK THAT OUR INVENTORY VALUES MAY DECLINE.
The electronic gaming market is subject to rapid technological
change, new and enhanced generations of products, and evolving industry
standards. These changes may cause inventory to decline substantially in value
or to become obsolete.
WE ARE SUBJECT TO CREDIT AND COLLECTION RISKS.
Our sales will typically be made on credit and letters of credit,
with terms that vary depending upon the country and the customer. As a result,
we are subject to credit risks, particularly in the event that any of our
receivables represent sales to a limited number of customers or are concentrated
in foreign markets. If we are unable to collect on accounts receivable as they
become due and such accounts are not covered by insurance, it could adversely
affect our financial condition.
OUR INABILITY TO SECURE PURCHASE ORDER FINANCING OR FACTOR OUR RECEIVABLES WOULD
HAVE AN ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
We anticipate obtaining purchase order financing to finance up to
100% of the letters of credit required to order product from the factory. In
addition, we expect to factor up to 80% of our accounts receivable. In the event
we were unable to obtain such financing or factoring arrangements on reasonable
terms, or at all, that would have a material adverse effect on our cash flow
from operations and would require us to obtain alternative sources of funds in
order to implement our business plan.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS OR AVOID CLAIMS THAT WE
INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS.
We attempt to protect our technology and production techniques under
copyright, trademark and trade secret laws as well as through contractual
restrictions on disclosure, copying and distribution. However, unauthorized
third parties may be able to copy or to reverse engineer our technology. In
addition, our competitors could independently develop technologies substantially
equivalent or superior to our technologies.
As the type of peripherals to computer and game consoles increases
and the functionality of the products overlap, we believe that peripherals will
increasingly become the subject of claims that such technology infringes the
copyrights or patents of others. Although we believe that our technologies and
the technologies of third-party developers with whom we have contractual
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relations do not and will not infringe or violate proprietary rights of others,
it is possible that infringement of proprietary rights of others may occur. Any
claims of infringement, with or without merit, could be time-consuming, costly
and difficult to defend.
WE ARE DEPENDENT UPON OUR KEY EXECUTIVES AND HIRING ADDITIONAL PERSONNEL.
Our success is largely dependent on the personal efforts of certain
key personnel and the hiring of additional management personnel. The Company is
currently attempting to hire a full-time chief executive officer and a full-time
chief financial officer. The loss of the services of one or more of these key
employees, or the inability to hire additional management, could adversely
affect our business and prospects. Our success is also dependent upon our
ability to hire and retain additional qualified operating, marketing, technical
and financial personnel. Competition for qualified personnel in the electronic
gaming market is intense, and we may have difficulty hiring or retaining
necessary personnel in the future. If we fail to hire and retain necessary
personnel as needed, our business will be significantly impaired.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statement of Business Acquired. Audited financial
statements of Essential Reality, LLC for the years ended December
31, 2001 and 2000 and for the period from June 1, 1999 (date of
commencement) to December 31, 2001, including the report thereon of
Deloitte & Touche LLP, Independent Auditors. (Incorporated herein by
reference from Exhibit D to the Company's Schedule 14A filed May 21,
2002)
(b) Pro Forma Financial Information. Pursuant to Items 7(b)(2) and
7(a)(4) of Form 8-K, the financial statements required by Item 7(b)
will be filed no later than September 3, 2002.
(c) Exhibits.
2.1 Amended Contribution Agreement, dated as of April 24, 2002, by
and among Essential Reality, LLC, the Company (f/k/a JPAL,
Inc.), Martin Abrams, John Gentile, Anthony Gentile and LCG
Capital Group, LLC. (Incorporated herein by reference from
Exhibit A to the Company's Schedule 14A filed May 21, 2002)
2.2 Amendment to Amended Contribution Agreement by and among
Essential Reality, LLC, the Company (f/k/a JPAL, Inc.), Martin
Abrams, John Gentile, Anthony Gentile and LCG Capital Group,
LLC, dated as of June 14, 2002.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESSENTIAL REALITY, INC.
Dated: July 3, 2002 By: /s/ Humbert B. Powell, III
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Name: Humbert B. Powell, III
Title: Chief Executive Officer (Acting)
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EXHIBITS
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2.1 Amended Contribution Agreement, dated as of April 24, 2002, by and
among Essential Reality, LLC, the Company (f/k/a JPAL, Inc.), Martin
Abrams, John Gentile, Anthony Gentile and LCG Capital Group, LLC.
(Incorporated herein by reference from Exhibit A to the Company's
Schedule 14A filed May 21, 2002)
2.2 Amendment to Amended Contribution Agreement by and among Essential
Reality, LLC, the Company (f/k/a JPAL, Inc.), Martin Abrams, John
Gentile, Anthony Gentile and LCG Capital Group, LLC, dated as of
June 14, 2002.
14