UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to____________
COMMISSION FILE NUMBER 0-28629
MAXXON, INC.
(Name of Small Business Issuer in its charter)
NEVADA 73-1526138
------------------------------------ ------------------------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
8908 SOUTH YALE AVENUE, SUITE 409
TULSA, OKLAHOMA 74137-3545
(Address of principal executive offices and Zip Code)
(918) 492-1257
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No __
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 12,317,349 shares of
Common Stock, $0.001 par value, outstanding as of June 30, 2000.
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<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Balance Sheet at September 30, 2000 (Unaudited) and December 31, 1999........................ 3
Statement of Operations for the period from inception (December 16, 1996) to
September 30, 2000 (unaudited) and for the three months and nine months ended
September 30, 2000 and 1999 (Unaudited)...................................................... 4
Statement of Cash Flows for the period from inception (December 16, 1996) to
September 30, 2000 (Unaudited) and for the nine months ended September 30, 2000
and 1999 (Unaudited)......................................................................... 5
Notes to Financial Statements (Unaudited).................................................... 6
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<TABLE>
<CAPTION>
Maxxon, Inc.
A Development Stage Company
Balance Sheets
September 30, 2000 and December 31, 1999
<S> <C> <C>
September
30, 2000 December
ASSETS (unaudited) 31, 1999
--------- --------
Current assets
Cash $ 11,344 $ 86,104
Notes receivable- related parties (Note 3) 79,556 31,887
Prepaid consulting expenses 2,541 25,705
--------- --------
Total current assets 93,441 143,696
--------- --------
Property and Equipment, net of depreciation 15,954 21,162
Other assets
Investment in Ives Health Company (Note 4) 130,000 640,418
Investment in The Health Club (Note 4) - -
Patent Development and Other Assets,
net of Amortization (Note 5) 11,598 12,946
License Agreement, net of amortization (Note 5) - -
--------- --------
Total other assets 141,598 653,364
--------- --------
TOTAL ASSETS $ 250,993 $ 818,222
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 29,867 $ 34,285
--------- --------
Total current liabilities 29,867 34,285
Long-term debt
Note payable - related parties (Notes 6 and 15) 4,425 44,172
--------- --------
Total liabilities 34,292 78,457
--------- --------
Shareholders' equity
Preferred stock, $0.001 par value,
5,000,000 shares authorized; no shares issued and
outstanding at September 30, 2000 and
December 31, 1999, respectively - -
Common stock, $0.001 par value,
45,000,000 shares authorized;
13,080,125 shares and 12,317,349 shares issued and
outstanding at September 30, 2000 and
December 31, 1999, respectively 13,080 12,317
Paid in capital 5,676,420 5,121,795
Retained earnings (5,472,799) (4,394,347)
--------- --------
Total shareholders' equity 216,701 739,765
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 250,993 $ 818,222
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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<TABLE>
<CAPTION>
Maxxon, Inc.
A Development Stage Company
Statements of Operations
From Inception (December 16, 1996) Through September 30, 2000
and For The Nine Months Ended September 30, 2000 and 1999
and For The Three Months Ended September 30, 2000 and 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
From inception
(December 16, Nine Months Nine Months Three Months Three Months
1996) through Ended Ended Ended Ended
September September September September September
30, 2000 30, 2000 30, 1999 30, 2000 30, 1999
Revenue $ - $ - $ - $ - $ -
Expenses
Research and development 352,446 52,849 - 8,900 -
General and administrative 5,074,960 1,001,179 829,581 706,342 151,182
-------------- ------------ ----------- ------------ -----------
Total operating expenses 5,427,406 1,054,028 829,581 715,242 151,182
-------------- ------------ ----------- ------------ -----------
Operating loss (5,427,406) (1,054,028) (829,581) (715,242) (151,182)
Interest income 15,554 - - - -
Interest expense 28,554 17,868 - 651 -
Depreciation and amortization 32,393 6,556 8,114 2,186 3,036
-------------- ------------ ----------- ------------ -----------
Net loss from operations $ (5,472,799) $ (1,078,452) $ (837,695) $ (718,079) $ (154,218)
Weighted average
shares outstanding (Note 10) 11,985,982 12,452,047 12,219,147 12,452,047 12,317,349
-------------- ------------ ----------- ------------ -----------
Net loss per share (Note 1) $ (0.46) $ (0.09) $ (0.07) $ (0.06) $ (0.01)
</TABLE>
The accompanying notes are an integral part of the financial statements
4
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<TABLE>
<CAPTION>
Maxxon, Inc.
A Development Stage Company
Statements of Cash Flows
From Inception (December 16, 1996) Through September 30, 2000
and For The Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<S> <C> <C> <C>
From inception
(December 16, Nine Months Nine Months
1996) through Ended Ended
September September September
30, 2000 30, 2000 30, 2000
-------------- ----------- -----------
Operating activities
Net loss $ (5,472,800) $ (1,078,453) $ (837,696)
Plus non-cash charges to earnings:
Depreciation and amortization 24,893 6,555 6,240
Common stock issued for services 856,657 -
Expenses paid by third parties 49,634 - -
Contribution of services by officer and employees 699,154 305,000 210,000
Services by officer and employees paid for with non-cash consideration 87,500 - 89,728
Consulting services paid for with non-cash consideration 287,877 - 166,742
Write-off of zero value investments 655,418 510,418 140,000
Compensation costs for stock options
granted to non-employees 1,007,915 - -
Change in working capital accounts:
(Increase) decrease in other receivables (59,669) (47,669) (14,951)
(Increase) decrease in prepaid expenses (2,541) 23,164 (25,705)
(Increase) decrease in receivables from related parties (196,464)
(Increase) decrease in interest receivable - - -
Increase (decrease) in accounts payable and accrued liabilities 86,167 16,223 (5,591)
-------------- ----------- -----------
Total operating activities ` (1,976,259) (264,762) (271,233)
Investing activities
Purchase of equipment (34,719) - (5,771)
Investment in syringe patent development (10,000) - -
Investment in Ives Health Company (251,997) - -
Investment in The Health Club (10,000) - -
-------------- ----------- -----------
Total investing activities (306,716) - (5,771)
Financing activities
Loans from shareholders 8,538 14,000 (25,366)
Repayment of loans from shareholders (5,000) (5,000)
Sale of common stock for cash:
To third-party investors (prior to merger) 574,477 - -
To third-party investors 968,145 181,000 342,425
From exercise of stock options by third-parties 509,900 - 150,000
Less: Issue Costs (16,743) - (16,743)
Convertible debentures issued for cash 355,000 - 0
Payment of exclusive license note payable (100,000) - 0
-------------- ----------- -----------
Total financing activities 2,294,317 190,000 450,316
Change in cash 11,342 (74,762) 173,312
Cash at beginning of period - 86,104 0
-------------- ----------- -----------
Cash at end of period $ 11,342 $ 11,342 $ 173,312
-------------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest and taxes during the period 27,903 17,216 982
Non-cash financing and investing activities:
Common stock issued to founders 7,000 - -
Common stock issued in connection with merger
with Cerro Mining Corporation 300 - -
Common stock issued in Ives merger 346,262 - -
Common stock subscriptions 69,800 - -
Common stock issued in exchange for promissory note 129,000 - -
Common stock issued for convertible debentures 190,660 - 115,660
Common stock issued for services 174,013 - 586
Common stock issued to pay Ives debt 27,000 - -
</TABLE>
The accompanying notes are an integral part of the financial statements
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Maxxon, Inc.
A Development Stage Company
Notes to Financial Statements
September 30, 2000 and 1999
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments which are, in the opinion of management, necessary in
order to make the financial statements not misleading.
Organization and Nature of Operations
Maxxon, Inc. ("Maxxon" or "the Company") is a development stage company
organized to develop and market a safety syringe. The Company has acquired an
exclusive license to develop, manufacture and market a patent pending disposable
safety syringe that retracts the needle into the barrel of the syringe after an
injection has been given.
On May 31, 1997, Cerro Mining Corporation ("Cerro Mining"), a publicly traded
Nevada corporation, acquired all of the outstanding common stock of Maxxon,
Inc., a privately held Oklahoma corporation that was incorporated on December
16, 1996 ("Maxxon-Oklahoma"). For the period from December 16, 1996 to December
31, 1996, there was no activity in Maxxon-Oklahoma. Subsequent to the merger,
Maxxon-Oklahoma ceased to exist and Cerro Mining changed its name to Maxxon,
Inc. For accounting purposes, the merger was treated as a "reverse acquisition",
whereby the financial statements of the acquired entity, Maxxon-Oklahoma, became
those of the Company (See Note 9, "Reorganization"). The combination is a
recapitalization and not a business combination (as defined in APB Opinion No.
16); therefore, pro forma financial information is not presented.
Cash and Cash Equivalents
The Company considers highly liquid investments (those readily convertible to
cash) purchased with original maturity dates of three months or less to be cash
equivalents.
Compensation of Officers and Employees
Currently, the Company's officers and other employees serve without pay or other
non-equity compensation. The fair value of these services is estimated by
management and is recognized as a capital contribution. A $305,000 and $210,000
capital contribution by the officers and other employees was recognized for the
nine months ended September 30, 2000 and 1999, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and complies with the disclosure provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 and the Emerging
Issues Task Force Consensus in Issue No. 96-18.
Income Taxes
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the liability method, deferred taxes are determined based
on the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the years in which the differences
are expected to reverse.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the nine months
ended September 30, 2000 and 1999, the Company operated in a single business
segment engaged in developing and marketing selected healthcare products.
6
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Earnings (Loss) per Share
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provision of SFAS No. 128 and SAB 98 basic net income (loss) per share is
calculated by dividing net income (loss) available to common stockholders for
the period by the weighted average shares of common stock of the Company
outstanding during the period (see Note 9). Diluted net income per share is
computed by dividing the net income for the period by the weighted average
number of common and common equivalent shares outstanding during the period. The
calculation of fully diluted income (loss) per share of common stock assumes the
dilutive effect of stock options outstanding.
During a loss period, the assumed exercise of outstanding stock options has an
anti-dilutive effect. Therefore, these shares are not included in the September
30, 2000 and 1999 weighted average shares of 13,080,106 and 12,317,349 used
respectively in the calculations of loss per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fiscal Year End
The Company's fiscal year ends on December 31.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current period presentation.
Research and Development ("R&D") Costs
The Company is amortizing the $10,000 paid for patent costs pursuant to the
license agreement for a patent pending disposable safety syringe that retracts
the needle into the barrel of the syringe after an injection has been given. The
amortization is for a period of 40 years.
New Accounting Standards
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
during 1998. The Company had no comprehensive income items during 2000 and 1999.
Therefore, net loss equals comprehensive income. The Company operates in only
one business segment. The Company adopted SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities" during 1999. As of September 30,
2000 the Company did not engage in hedging activities or transactions involving
derivatives.
Note 2 - Exclusive License
On November 18, 1999, Maxxon entered into an Exclusive License Agreement with
Wayland J. Rippstein, Jr. and others (the "Rippstein License"), pursuant to
which Maxxon acquired the exclusive worldwide license to manufacture and market
a new proprietary safety syringe invented and being developed by Mr. Rippstein
(the "Maxxon Safety Syringe"). This new syringe is a single-handed,
vacuum-operated safety syringe that retracts the needle into the barrel of the
syringe after use. The vacuum is created at the time of use, not at the time of
manufacture. Pursuant to the Rippstein License, the Company agreed to pay
$10,000 in reimbursable patent costs and $200,000 upon the occurrence of; (1)
the issuance of a U.S. patent covering the syringe, (2) the completion of a
fully functional and working prototype of the syringe, and (3) FDA approval to
sell the syringe in the U.S. The Rippstein License also provides for Maxxon to
pay royalties of 4% of gross sales of syringes and minimum annual royalties
ranging from $10,000 to $20,000 beginning on the 4th anniversary after both a
working prototype syringe is developed and a U.S. patent is issued. Such
royalties continue for the life of the last to expire patent, if issued. Maxxon
also granted Mr. Rippstein, and two others, options to purchase a total of
1,600,000 shares of common stock of Maxxon at $0.50 per share, which was the
closing price of Maxxon's common stock on the day the Rippstein License was
signed. The options expire October 31, 2009 and are subject to certain vesting
conditions.
On November 18, 1999, Maxxon entered into a Technical Consulting Agreement with
Mr. Rippstein, Jr., whereby Maxxon engaged Mr. Rippstein on a non-exclusive
basis to provide technical assistance and consulting services to achieve startup
of production of the new Maxxon Safety Syringe. Maxxon paid Mr. Rippstein
$12,500 upon execution of the Agreement and agreed to pay an additional $37,500
upon the occurrence of various milestones in the development of the syringe.
7
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Note 3 - Receivables from Related Parties
The related party receivable balance at September 30, 2000 and 1999 was $79,556
and $26,400, respectively. Of this amount $14,400 and $26,400 resulted from the
office space that is shared with other companies controlled by the sole officer
and director of the Company. The rent expense (see Note 8) is allocated among
the companies based on their level of activity and recorded as related party
receivable on Maxxon's financial statements. Also, $7,605 and $75,000 were due
to amounts loaned to the officer and certain employees (see Note 14).
Note 4 - Investment in Ives Health Company and The Health Club
On August 15, 1997, the Company completed a stock exchange with Ives Health
Company, Inc. ("Ives") and The Health Club, Inc. ("THC"), whereby Maxxon issued
621,600 shares of its common stock in exchange for all of the outstanding shares
of both companies. Pursuant to this agreement, both Ives and THC became wholly
owned subsidiaries of Maxxon, Inc.
On December 31, 1997, the Company entered into an agreement to spin-off Ives to
a new corporation. Mr. Keith Ives, principal shareholder of Ives, resigned as an
officer of Maxxon and surrendered 275,360 shares of the Company's stock. Maxxon
received 1,700,000 shares of the newly formed Ives Health Company, Inc., par
value, $0.001, which represented 19.5% of the outstanding shares of Ives as of
December 31, 1997.
At September 30, 2000, the Company transferred 700,000 shares of common stock of
Ives to employees of Maxxon as payment for services during 2000. The value of
the 700,000 shares of Ives common stock was $0.13 per share, or $91,000.
At September 30, 2000, the Company reduced the value of its investment in Ives
from cost to market value. At September 30, 2000, the market value of the
1,000,000 shares of common stock of Ives owned by the Company was $0.13 per
share, or $130,000.
Note 5 - Exclusive License, Patent Development and Other Intangible Assets
Exclusive License, Patent Development and Other Intangible Assets consist of the
following at September 30, 2000 and December 31, 1999:
2000 1999
------------- ------------
Patent Development--Kaufhold Syringe $ -- $ 95,000
Less: Accumulated Amortization -- (95,000)
------------- ------------
-- --
------------- ------------
Patent Development--Rippstein License 10,000 10,000
Less: Accumulated Amortization (438) (250)
------------- ------------
$ 9,562 $ 9,750
------------- ------------
Other intangible assets 7,726 7,726
Less: Accumulated amortization (5,690) (4,530)
------------- ------------
Other Intangible Assets, Net $ 2,036 $ 3,196
------------- ------------
Total Exclusive License and Other Intangible
Assets, Net of Amortization $ 11,598 $ 12,946
------------- ------------
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In November, 1999, after more than 2 years of efforts to produce a viable,
usable, working prototype of a safety syringe designed by Mr. Harry Kaufhold,
the Board of Directors determined to discontinue this effort. While the Company
was able to produce a syringe that worked on occasion, it was determined that
the Kaufhold design would not result in a safety syringe that would be
commercially competitive and sufficiently reliable to warrant further
expenditures.
The patent development costs related to the Maxxon Syringe are being amortized
over 40 years and the other intangible assets, which are primarily organization
costs, are being amortized over 5 years, using the straight-line method.
Note 6 - Related Party Payable
During 1998, the Company received $19,539 in loans from a non-affiliated
shareholder. During 1998, the non-affiliated shareholder paid for expenses on
behalf of the Company, and the Company recorded the $49,633 as an expense and a
payable to the non-affiliated shareholder (see Note 14).
Note 7 - Income Taxes
The deferred tax assets and liabilities at June 30, 2000 and December 31, 1999
are as follows:
2000 1999
------------ ------------
Net operating loss carry-forward $ 1,641,840 $ 1,320,000
Less: Valuation allowance $ 1,641,840 $ 1,320,000
------------ ------------
Net Deferred Tax Benefit - - - -
------------ ------------
As of June 30, 2000, the Company had a net operating loss carry-forward of
approximately $5,472,799. Approximately $800,000 will expire in 2012, and the
remaining $3,200,000 will expire beginning in 2013. Deferred taxes reflect a
combined federal and state tax rate of approximately 30%.
Note 8 - Commitments and Contingencies
Future Royalty Obligations Under Exclusive License Agreement
In connection with the exclusive license agreement entered into with Mr.
Rippstein, the Company agreed to pay royalties of 4% of gross sales of syringes
and minimum annual royalties ranging from $10,000 to $20,000 beginning on the
4th anniversary of the date when both a working prototype syringe is developed
and a U.S. patent is issued.
Patents
During the first quarter of 2000, a patent application covering the safety
syringe designed by Mr. Rippstein was filed with the U.S. Patent and Trademark
Office. There is no assurance that a U.S. patent will be issued or, if issued
that it will not infringe on the rights of others. To date, no patent
applications have been filed in foreign countries.
Leases
On March 24, 1997, Maxxon, Inc. executed a five-year lease for office space. The
remaining minimum annual lease payments under the lease are scheduled as
follows:
For the Periods Ended
December 31 Amount
----------- ------
2000 $22,405
2001 $45,587
2002 $11,462
This office space is shared with other companies controlled by the officer and
director of the Company. The value of the minimum lease payments is allocated
among the companies based on their level of activity and recorded as a
receivable to the Company on a quarterly basis.
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Note 9 - Reorganization
On January 1, 1997, Maxxon-Oklahoma changed the par value of its common stock
from $0.01 per share to $0.001 per share and issued 7,000,000 shares of common
stock to its founders. Subsequently, Maxxon-Oklahoma issued 578,000 shares of
its common stock to third-party investors for $574,477 in cash. On May 31, 1997,
Cerro Mining and Maxxon-Oklahoma completed a merger of the companies, whereby
Cerro Mining issued 7,578,000 shares of its common stock for 100% of the issued
and outstanding common stock of Maxxon-Oklahoma. In connection with the merger,
Cerro Mining assigned all mining assets, agreements and assignments to R.F.C.
International ("RFC"), former majority shareholder of Cerro Mining, in return
for 1,725,000 shares of common stock of Cerro Mining owned by RFC. As a result
of the merger, the shareholders of Cerro Mining owned 531,000 shares of common
stock, and Cerro Mining changed its name to Maxxon, Inc.
For accounting purposes, the merger of Cerro Mining and Maxxon-Oklahoma was
treated as a "reverse acquisition" and recapitalization in which the Cerro
Mining deficit of $462,000 was eliminated into paid-in capital. After the
assignment of mining assets, but prior to the issuance of 7,578,000 shares of
its common stock for 100% of the common stock of Maxxon-Oklahoma, Cerro Mining
had $300 in total assets and 531,000 shares of common stock issued and
outstanding.
Note 10 - Earnings (Loss) Per Share
September September
30, 2000 30, 1999
------------ ------------
Common Shares Outstanding 13,080,125 12,317,349
Effect of using weighted average common and
common equivalent shares outstanding ( 1,094,143) ( 98,202)
------------ ------------
Weighted average common shares outstanding 11,985,982 12,219,147
============ ============
Note 11 - Development Stage Operations
The Company was incorporated on December 16, 1996. Since inception, their
primary focus has been raising capital and developing the safety syringe. The
Company had no financial activity prior to January 1, 1997.
Note 12 - Common Stock and Paid-In Capital
Stock Issued
During 1998, the Company sold 50,000 shares of common stock to a third-party
investor for $91,000 in cash, issued 44,827 shares of common stock as payment
for $55,000 in Ives debts, and issued 548,574 shares of common stock upon
conversion of debentures purchased by a third-party investor during 1997 for
$25,000 and during 1998 for $250,000.
In January 1998, the Company entered into an agreement with Stockbroker
Relations, Inc., a third-party investor relations firm, to provide services to
the Company in exchange for 835,042 shares of common stock valued at $448,140.
In January 1998, the Company issued 77,691 to Texas Applied Biotechnology
Services, Inc. (TABS) as payment for $35,660 in services related to the
development of the safety syringe designed by Mr. Kaufhold. During 1998, the
Company also issued 75,274 shares valued at $90,748 as payment for services
rendered by Maxxon's Medical Advisory Board and Com-Med Strategic Alliances,
which coordinated the Board's activities. During 1998, the Company canceled
91,572 shares issued during 1997 for the performance of services by other
third-party vendors. The services were valued at $40,265 during 1997. The
services were not performed, and the Company canceled the shares during 1998.
In January 1998, the Company's Board of Directors (the "Board") granted
1,750,000 options to purchase common stock at exercise prices ranging from $0.50
to $2.00 per share to Stockbroker Relations, Inc. ("SRI"). During 1998, SRI
exercised 500,000 options at prices ranging from $0.50 and $0.75 per share which
resulted in the Company receiving $307,400 in cash and $18,100 in services. In
September 1998, the Board granted 70,000 options to purchase common stock at
$0.75 per share to Morgan-Phillips, Inc., a third-party investor relations firm.
Morgan-Phillips exercised all 70,000 options during 1998, which resulted in the
Company receiving $52,500 in cash.
10
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In June 1998, the Company issued 350,000 shares to Oasis Capital, a founder of
Cerro Mining, as a result of a settlement agreement.
During 1999, the Company sold 390,693 shares of its common stock to third-party
investors for $342,425 in cash, issued 14,069 shares of its common stock to a
non-affiliate as a consulting fee in connection with the sale of common stock,
issued 300,000 shares of its common stock to employees in connection with the
exercise of stock options which resulted in the Company receiving $150,000 in
cash, and issued 150,000 shares of its common stock to Morgan-Phillips, Inc. in
exchange for services valued at $150,000.
During 2000, the Company sold 724,000 shares of its common stock to third-party
investors for $181,000 in cash and issued 38,776 shares of its common stock as
repayment of debt to shareholders (see Note 14).
Maxxon is authorized to issue up to 20,000,000 shares of common stock, $0.001
par value. At September 30, 2000, 13,080,125 shares of common stock were issued
and outstanding.
Voting Rights
Holders of shares of common stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders. Shares of common stock do not
have cumulative voting rights. Therefore, persons voting a majority of the share
vote can elect all members of the Board of Directors. Holders of a majority of
the issued and outstanding shares of common stock may take action by written
consent without a meeting.
Dividend Rights
Holders of record of shares of common stock are entitled to receive dividends
when and if declared by the Board of Directors. To date, the Company has not
paid any dividends on its common stock. Holders of common stock are entitled to
receive such dividends as may be declared and paid from time to time by the
Board of Directors out of funds legally available. The Company intends to retain
any earnings for the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination as to the payment of cash dividends will depend upon future
earnings, results of operations, capital requirements, the Company's financial
condition and such other factors as the Board of Directors may consider.
Liquidation Rights
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of common stock are entitled to receive pro rata all of the assets of the
Company available for distribution to shareholders after liabilities are paid
and distributions are made to the holders of the Company's preferred stock, if
any. There were no preferred shares issued and outstanding at December 31, 1999.
Preemptive Rights
Holders of common stock do not have any preemptive rights to subscribe for or to
purchase any stock, obligations or other securities of the Company.
Note 13 - Stock Options
On January 20, 1998, the Board granted 1,500,000 options to purchase common
stock at an exercise price of $0.50 per share to the sole officer and other
employees of the Company. The exercise price was equal to the price of the
Company's common stock on the date of the grant, therefore compensation cost was
not recognized.
On January 20, 1998, the Board granted 1,750,000 options to Stockbroker
Relations, Inc. ("SRI"), an investor relations firm, at exercise prices ranging
from $0.50 to $2.00 per share as part of an agreement to provide investor
relations services to the Company during 1998. Compensation cost was calculated
using the Black-Scholes option pricing model with the following assumptions:
exercise prices ranging from $0.50 to $2.00 per share; stock price of $0.50 per
share, which was the price of the Company's stock as quoted on the OTC Bulletin
Board on the date of grant; risk-free interest rate of 6.0%; expected dividend
yield of 0.0; expected life of ten years; and estimated volatility of 149%. The
Company recorded $855,255 as compensation cost related to the SRI option grant.
11
<PAGE>
During 1998, SRI exercised 500,000 options with exercise prices ranging from
$0.50 to $0.75 per share which resulted in the Company receiving $307,400 in
cash and $18,100 in services. During 1998, SRI forfeited 1,250,000 options at
exercise prices ranging from $1.00 to $2.00 per share, pursuant to a settlement
agreement.
On September 24, 1998, the Board granted 70,000 options to purchase common stock
at an exercise price of $0.75 per share to Morgan-Phillips, Inc.
("Morgan-Phillips"), an investor relations firm, for their services during 1998.
Compensation cost was calculated using the Black-Scholes option pricing model
with the following assumptions: exercise price of $0.75 per share; stock price
of $1.50 per share, which was the price of the Company's stock as quoted on the
OTC Bulletin Board on the date of grant; risk-free interest rate of 6.0%;
expected dividend yield of 0.0; expected life of ten years; and estimated
volatility of 102%. The Company recorded $62,937 as compensation cost related to
the Morgan-Phillips option grant.
During 1998, Morgan-Phillips exercised all 70,000 options, which resulted in the
Company receiving $52,500 in cash.
On November 18, 1999, the Board granted 1,600,000 options at an exercise price
of $0.50 per share in connection with the execution of the Rippstein License
(See Note 2, Exclusive License) to Wayland Rippstein (800,000 options), Ken
Keltner (400,000 options) and Lynn Carter (400,000 options). The exercise price
was equal to the price of the Company's common stock as quoted on the OTC
Bulletin Board on the date of grant. The options expire October 31, 2009 and are
subject to certain vesting conditions as follows: (1) 20% of the options became
vested and exercisable upon execution of the Rippstein License, (2) 20% of the
options become vested and exercisable when a fully working safety syringe has
been produced and demonstrated to be safe and reliable and meeting the
specifications outlined in the Rippstein License, (3) 20% of the options become
vested and exercisable upon issuance of a U.S. patent covering the syringe
designed by Mr. Rippstein, (4) 20% of the options become vested and exercisable
upon the first article of production of that syringe, and (5) 20% of the options
become vested and exercisable upon FDA approval of the syringe. As of June 30,
2000, 320,000 of their options were exercisable.
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") provides an
alternative method of determining compensation cost for employee stock options,
which may be adopted at the option of the Company. Had compensation cost for the
1,500,000 options granted to employees during 1998 been determined consistent
with SFAS 123, the Company's net loss and earnings per share would have been
reduced to the following pro forma amounts:
Net loss: 2000 1999
---------------- ----------------
As reported $(1,078,452) $( 837,695)
Pro forma $(1,536,105) $(1,295,348)
Basic and diluted EPS:
As reported $ (0.09) $ (0.07)
Pro forma $ (0.12) $ (0.11)
A summary of the status of the Company's stock options at September 30, 2000,
and changes during the nine months then ended is presented below:
Weighted Average
Exercise Price
Shares
--------------- -------------------
Employees:
Outstanding, December 31, 1999 1,200,000 $ 0.50
Granted -- --
Exercised -- --
Forfeited -- --
--------------- -------------------
Outstanding, June 30, 2000 1,200,000 $ 0.50
--------------- -------------------
Exercisable, June 30, 2000 1,200,000 $ 0.50
--------------- -------------------
Weighted average fair
value of options granted -- $0.4921
--------------- -------------------
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<PAGE>
Non-Employees:
Outstanding, December 31, 1999 -- --
Granted 1,600,000 $ 0.50
Exercised -- --
Forfeited -- --
--------------- -------------------
Outstanding, September 30, 2000 1,600,000 $ 0.50
--------------- -------------------
Exercisable, September 30, 2000 320,000 $ 0.50
--------------- -------------------
Weighted average fair
value of options granted -- $0.2804
--------------- -------------------
The following table summarizes information about fixed stock options outstanding
at September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range Outstanding Contractual Exercise Exercisable Exercise
of Exercise Prices at 09/30/00 Life Price at 09/30/00 Price
------------------ ----------- ------------ ---------- ----------- --------
Employees:
$0.50 1,200,000 7.38 Years $0.50 1,200,000 $0.50
Non-Employees:
$0.50 1,600,000 9.09 Years $0.50 320,000 $0.50
</TABLE>
Note 14 - Related Party Transactions
During 1997, the Company issued 108,000 shares of stock through conversion of
common stock warrants by Bryant Investments, a founder of Cerro Mining. Of the
108,000 shares issued, 43,500 shares were issued in exchange for $87,000 in cash
and 64,500 were issued in exchange for a $129,000 promissory note. During 1998,
the Company canceled the promissory note and accrued interest of $4,677 pursuant
to a settlement agreement with Bryant Investments.
During 1997, the Company advanced $34,631 to Sean Stanton, a founder of Cerro
Mining. During 1998, the Company canceled the indebtedness plus accrued interest
of $1,023 and issued 350,000 shares to Mr. Stanton pursuant to a settlement
agreement.
During 1998, the Company received $19,539 in loans from a non-affiliated
shareholder. During 1998, the non-affiliated shareholder paid for expenses on
behalf of the Company. The Company recorded the $49,633 as an expense and a
payable to the non-affiliated shareholder. During 1999, the Company repaid
$25,000 toward the entire amount of the original loan.
During 2000 and 1999, the Company loaned $47,852 each to Rhonda Vincent, an
employee, and Gifford Mabie, sole director of the Company. At September 30,
2000, the balance of these notes was $7,605.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this report which are not historical facts
are forward looking statements, including the information provided with respect
to future business opportunities, expected financing sources and related
matters. These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management, and words such as "expects",
"anticipates", "intends", "believes", "estimates", and similar expressions are
intended to identify such forward looking statements. Since this information is
based on current expectations that involve risks and uncertainties, actual
results could differ materially from those expressed in the forward-looking
statements. We assume no obligation to update any forward-looking statements or
reason why actual results might differ.
PLAN OF OPERATION OVER THE NEXT TWELVE MONTHS
We have no operating history prior to December 16, 1996. We have no
revenues from the sale of products to date and have funded our activities
through the sale of our common stock and through loans by our shareholders.
During 2000, we plan to raise additional capital to complete the
development of the Maxxon Safety Syringe and to fund the gathering of data for
FDA approval, and to seek strategic alliances or business combination partners.
We plan to seek business alliance partners in the pharmaceutical industry
with existing manufacturing, distribution and marketing capabilities. We have no
such partners at this time. There is no assurance that we will be successful in
making acceptable arrangements for business alliances.
CASH REQUIREMENTS
We require substantial additional working capital to finish development of
the Safety Syringe, to begin collecting data, and to commence and complete
clinical trials required for FDA approval. We estimate that we will require
approximately $1.0 million in additional capital through the end of the year
2000. There is no assurance that the additional capital required will be
available to us on acceptable terms when needed, if at all. Any additional
capital may involve substantial dilution to the interests of our then existing
shareholders.
PRODUCT DEVELOPMENT AND RESEARCH PLAN FOR THE NEXT TWELVE MONTHS
The engineering drawings for the Maxxon Safety Syringe have been completed
and the Company is currently negotiating with a manufacturer to produce
prototype syringes. The engineering drawings were completed using a Computer
Aided Design (CAD) system that is compatible with the mold making equipment of
the manufacturer. The prototypes are ready for testing and the data from these
tests will be used as the basis for our preliminary proposal for clinical trials
to the FDA. We do not know how much data the FDA will require and consequently,
how long the clinical trials will take.
EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT
None.
EXPECTED SIGNIFICANT CHANGES IN NUMBER OF EMPLOYEES.
None.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On July 6, 2000, the Company filed suit against Ives Health Company and its
transfer agent to remove the restictive legend on shares of Ives common stock
owned by the Company. The Company believes it has satisfied Rule 144
requirements and is seeking damages caused by the delay in removing the
restriction. On October 31, 2000, the Company and Ives settled this dispute.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27.0 Financial Data Schedule (for electronic filers only)
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAXXON, INC.
/S/ GIFFORD M. MABIE
____________________
President
Date: November 15, 2000
16
