SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended September 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission File Number 000-28115
INTELLIWORXX, INC.
------------------
(Name of Small Business Issuer in its Charter)
Florida 59-3336148
------- ----------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1819 Main Street, 11th Floor Sarasota, Florida 34236
----------------------------------------------------
(Address of principal executive offices, including zip code)
(941) 365-7790
--------------
(Issuer's Telephone Number)
N/A
----------------------------------------------------
(Former name, address and fiscal year, if changes since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 registrant's classes of
common equity, as of the latest practicable date: As of November 14, 2000,
16,059,217 shares of common stock, no par value (the registrant's only class of
voting stock) were outstanding.
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statement of Stockholders' Equity (Deficit) 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
2
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ALESSANDRI & ALESSANDRI, P.A.
Certified Public Accountants
--------------------------------------------------------------------------------
Independent Auditors' Report
Intelliworxx, Inc.
Sarasota, Florida
We have reviewed the accompanying balance sheet of Intelliworxx, Inc.
("Company") as of September 30, 2000 and the related condensed statements of
operations, and cash flows for the period then ended and the statement of
stockholders' equity for the period from inception (February 12, 1998) to
September 30, 2000, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Intelliworxx, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 2 to the condensed financial statements, certain
conditions indicate that there is substantial doubt about the Company's ability
to continue as a going concern. The accompanying condensed financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Alessandri & Alessandri, P.A.
November 14, 2000
3
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<TABLE>
<CAPTION>
INTELLIWORXX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
------------------------------------------------------------------------------------------------------------
ASSETS
September 30,
-------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 867,430 $ 21,849
Accounts receivable-trade 1,184,888 500,615
Inventory (at acquisition cost-not in excess of market) 1,611,787 820,139
Other receivables and prepaid expenses 236,933 56,615
------------ ------------
Total Current Assets 3,901,038 1,399,218
------------ ------------
EQUIPMENT AND FURNITURE
Equipment and furniture, at cost
(net of depreciation of $338,472 and
$149,000, respectively) 406,867 316,003
------------ ------------
OTHER ASSETS
Capitalized software 563,081 --
Software license and license deposits,
at cost (net of amortization of
$31,592 and $19,250, respectively) 189,838 185,750
Employee notes receivable and other 81,872 154,210
------------ ------------
Total Other Assets 834,791 339,960
------------ ------------
TOTAL $ 5,142,696 $ 2,055,181
============ ============
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and capitalized leases payable $ 1,653,002 $ 1,607,905
Accounts payable 2,135,534 648,968
Wages and related taxes payable 1,482,722 934,588
Other 82,491 249,192
Accrued litigation (net of restricted
donated capital of $2,000,000) 700,001 --
------------ ------------
Total Current Liabilities 6,053,750 3,440,653
------------ ------------
LONG-TERM LIABILITIES:
Notes and capitalized leases payable
(less current portion of $ 27,502 and
$24,837, respectively 19,281 20,385
------------ ------------
Total Liabilities 6,073,031 3,461,038
------------ ------------
MINORITY INTEREST 445,462 --
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - no par value;
25,000,000 shares authorized; none issued
Common stock - no par value;
100,000,000 shares authorized; shares
issued and outstanding 16,059,217 and
15,199,166 respectively 8,955,155 1,929,848
Donated capital (restricted) 2,000,000 --
Retained earnings (deficit) (12,330,952) (3,335,705)
------------ ------------
Total Stockholders' Equity (1,375,797) (1,405,857)
------------ ------------
TOTAL $ 5,142,696 $ 2,055,181
============ ============
See Notes to Consolidated Financial Statements.
4
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INTELLIWORXX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES $ 1,279,489 $ 308,124 $ 3,130,100 $ 1,917,682
COST OF REVENUES 937,160 335,525 2,353,589 1,272,838
------------ ------------ ------------ ------------
GROSS PROFIT 342,329 (27,401) 776,511 644,844
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 562,833 302,417 1,910,820 827,066
Sales and marketing 534,874 265,626 1,355,394 653,028
Research and development 368,727 415,371 1,231,682 723,545
Depreciation and amortization 52,509 36,076 148,504 101,450
------------ ------------ ------------ ------------
Total Operating Expenses 1,518,943 1,019,490 4,646,400 2,305,089
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (1,176,614) (1,046,891) (3,869,889) (1,660,245)
OTHER INCOME & EXPENSE
Interest and miscellaneous income (866) 799 11,738 8,607
Interest expense (39,133) (105,800) (165,674) (230,827)
Minority interest 54,538 -- 54,538 --
Litigation expense (700,000) -- (2,700,000) --
------------ ------------ ------------ ------------
NET LOSS $ (1,862,075) $ (1,151,892) $ (6,669,287) $ (1,882,465)
============ ============ ============ ============
Loss per share $ 0.11 $ 0.08 $ 0.40 $ 0.13
Weighted average number of shares 16,992,457 15,199,166 16,781,701 15,029,276
See Notes to Consolidated Financial Statements.
5
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INTELLIWORXX, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (February 12, 1998) TO SEPTEMBER 30, 2000
---------------------------------------------------------------------------------------------------------------------
Retained
Common Stock Earnings
Shares $ (Deficit)
---------- ----------- ------------
Issuance of founders shares 999,900
Shares issued to reflect reverse
purchase acquisition 12,000,000 $ 564,748
Proceeds from issuance of common stock 1,000,100 250,100
Common stock issued for liabilities 66,666 100,000
Net Income (Loss) $ (1,453,240)
------------ ------------ ------------
Balance, December 31, 1998 14,066,666 914,848 (1,453,240)
Issuance of shares for notes payable 132,500 265,000
Sale of common stock 1,000,000 750,000
Net Income (Loss) (4,208,425)
------------ ------------ ------------
Balance, December 31, 1999 15,199,166 1,929,848 (5,661,665)
Issuance of shares for notes payable 1,127,047 3,944,734
Sale of common stock 863,558 2,982,574
Shares issued for services rendered (restricted) 31,286 133,519
Exercise of option by individuals 38,160 114,480
Donated capital-(restricted) -- 2,000,000
Repurchase of common stock from founder (1,200,000) (150,000)
Net Income (Loss) (6,669,287)
------------ ------------ ------------
Balance, September 30, 2000 16,059,217 $ 10,955,155 $(12,330,952)
============ ============ ============
See Notes to Consolidated Financial Statements.
6
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INTELLIWORXX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDING SEPTEMBER 30, 2000 AND 1999
-----------------------------------------------------------------------------------------------------------
Nine Months Ended
------------------------------------------
September 30, 2000 September 30, 1999
------------------ ------------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net Loss From Operations: $(6,669,287) $(1,882,465)
Add: Non-Cash Items
Depreciation, amortization and allowance 148,504 101,450
Litigation expense 2,000,000 --
Services rendered and exercise of options 247,999 (10,308)
Minority Interest (54,538) --
Changes in Assets and Liabilities:
Accounts receivable (1,045,817) (261,769)
Inventory (563,236) (610,011)
Prepaid expenses and other assets (206,094) (312,666)
Accounts payable 1,471,353 208,156
Wages and related taxes 520,970 662,389
Accrued interest and other liabilities 504,407 81,646
----------- -----------
Net Cash To Operating Activities (3,645,739) (2,023,578)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Acquisition of equipment, furniture and software licenses (731,244) (146,347)
Proceeds from payment of notes receivable 109,700 --
Notes receivable (12,124) --
----------- -----------
Net Cash To Investing Activities (633,668) (146,347)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings 2,215,813 1,753,248
Repayment of borrowings (1,012,838) (388,000)
Proceeds from sale of common stock 2,982,574 750,000
Proceeds from sale of minority interest of subsidiary 500,000 --
----------- -----------
Net Cash From Financing Activities 4,685,549 2,115,248
----------- -----------
Increase (decrease) in Cash 406,142 (54,677)
Cash Balance, Beginning 461,288 76,526
----------- -----------
Cash Balance, Ending $ 867,430 $ 21,849
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 412,071 $ 12,793
Supplemental Disclosures of Non Cash Transactions:
Common stock issued for services rendered (restricted) $ 133,519 $ --
Exercise of option by individuals $ 114,480 $ --
See Notes to Consolidated Financial Statements.
7
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<PAGE>
INTELLIWORXX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. HISTORY AND OPERATIONS
-------------------------
Intelliworxx, Inc. (the "Company"), was organized on February 12, 1998 under the
laws of the State of Florida. Since inception, its primary business has been the
development of mobile computer hardware and related software and Internet
applications.
The Company has two majority owned subsidiaries, Mediworxx, Inc.
("Mediworxx(TM)") and Comworxx, Inc. ("Comworxx(TM)"), formed as Florida
corporations in April and May 2000 respectively. Financial statements of
Mediworxx and Comworxx have been consolidated with those of the Company.
Mediworxx intends to provide high quality, secure information systems to support
medical delivery and the billing process, which will assist providers in
reducing costs, eliminating waste and ensuring quality while complying with the
complex rules and regulations applicable to the healthcare industry. Comworxx
intends to provide telematics services, which is the combination of wireless
telecommunications (cellular and GPS) and information technology networks
(internet), and hardware to the automotive marketplace. This technology enables
the development and marketing of online services for mobile users on a client
specific basis.
2. BASIS OF ACCOUNTING
----------------------
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries, and has been
prepared in accordance with generally accepted accounting principles for interim
financial information. All significant intercompany accounts have been
eliminated. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all material adjustments
considered necessary for a fair presentation have been made. Operating results
for the three and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
The financial statements of the Company as of September 30, 2000 and 1999 and
for the three-month and nine-month periods then ended have been prepared on the
basis that the Company is a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. For the
period from inception (February 12, 1998) to September 30, 2000, the Company has
incurred losses totaling $12,330,952, which has significantly impacted the
liquidity and capital resources of the Company, and raises substantial doubt
about the ability of the Company to continue as a going concern. No adjustments
have been recorded in the financial statements of the Company to reflect the
uncertainty of the going concern and the related realization of assets and
satisfaction of liabilities. Since inception (February 12, 1998) to September
30, 2000, the Company met its cash needs primarily from short-term borrowings
from individuals, private placements of its common shares, and from revenues
from operations. Management expects to achieve its future cash needs from a
combination of sales of its equity securities and borrowings, pending attainment
of profitable operations.
8
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3. INVENTORIES
--------------
At September 30, 2000, inventories were comprised as follows:
Raw material $1,270,945
Work in process 74,860
Finished product 265,982
----------
Total $1,611,787
==========
4. COMMON STOCK
---------------
The Company is authorized to issue 100,000,000 shares of common stock. Dividends
are available when declared by the Company. At September 30, 2000, there were
16,059,217 common shares outstanding.
In January and February 2000, the Company sold, in accordance with Regulation D
of the United States Securities Act of 1933, 863,558 common shares and 114,116
warrants for $2,982,574, net of expenses. The warrants grant the holder the
right to purchase common shares at $3.00 per share and are exercisable during
the five-year period from date of issuance. In connection with the sale of the
shares and warrants, the Company agreed to include the common shares and
warrants in a registration statement with the Securities and Exchange Commission
during 2000.
In March 2000, the Company converted $3,944,734 of notes payable and accrued
interest into equity (1,127,047 common shares of the Company and warrants to
purchase 65,724 common shares of the Company at $3.00 per share until February
2005). In June 2000, the Company issued 18,000 restricted shares of common stock
as partial payment for services to be provided under a consulting agreement with
an investor relations firm.
In July 2000, the Company issued 13,286 restricted shares of common stock in
lieu of a cash payment to an employee for incentive compensation. The shares
were valued at $3.514 per share, which represents the current market value
adjusted for restrictions. The total amount of the transaction was charged to
expense during the current period. Also in July, a co-founder and former
officer/director of the Company resigned. Under a prior agreement between the
Company and its founders, the parties agreed to an arrangement whereby the
Company would repurchase a certain number of shares of the Company's common
stock from any founder leaving the employ of the Company. As a result of this
resignation, the Company agreed to repurchase 1.2 million shares of the common
stock for $150,000, payable in twelve (12) equal monthly payments of $12,500,
beginning in September 2000.
9
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5. REVENUES
-----------
The Company recorded consolidated revenues of $3,130,100, which consisted of
$2,172,265 from product sales, $886,097 from engineering and development project
revenues and $71,738 from services for the nine months ended September 30, 2000.
Revenues of $1,279,489, consisting of $971,077 from product sales, $236,674 from
engineering and development project and $71,738 from services were recorded for
the three months ended September 30, 2000. Sales to a customer during the three
and nine months ended September 30, 2000 totaled approximately 45% and 70%
respectively.
6. LEGAL
--------
On November 2, 2000, the Company entered into a settlement agreement amongst the
parties to settle a federal court judgment. Under the terms of the agreement,
the Company will pay $700,000 on or before December 15, 2000, and will make
available for sale a maximum of 1,500,000 of its common shares on certain dates,
with the proceeds from the sale of the shares payable to the plaintiff.
As discussed below, certain officers/directors of the Company previously
contributed 571,430 of their common shares of the Company as indemnification of
the judgment. In accordance with the settlement agreement, and an escrow
agreement, 570,000 of such shares will be placed in escrow. A sufficient number
of such shares are to be released from escrow for sale on November 2, 2001 to
provide proceeds up to a maximum of $2,275,000 payable to the plaintiff. The
Company will also make available an additional 330,000 common shares, or
portions thereof, on such date in the event the proceeds from the sale of the
570,000 shares is less than $2,275,000. On November 2, 2002, any of the unsold
570,000 shares, or, if necessary, any of the unsold 330,000 common shares, plus
additional common shares up to a maximum of 600,000, will be made available by
the Company to realize proceeds of $2,275,000 payable to the plaintiff. The
Company will retain any unsold shares, and also has the option to pay the
aforementioned amounts at any time.
In May 2000 a Federal civil jury rendered a verdict against parties, including
the Company, in a case involving interference with a certain prospective
customer relationship of the plaintiff. Enforcement of the judgment, which to
the Company totaled $12 million, was stayed pending a hearing to set aside or
limit the judgment to an amount consistent with the legal principles governing
the case. On July 18, 2000 the Federal court, as a result of post-trial motions,
ordered a new trial with respect to the damages amount, and urged the parties to
engage in settlement discussions. The trial, absent settlement, is scheduled for
February 2001.
10
<PAGE>
In an effort to mitigate any effect the judgment could have upon the Company,
certain officers/directors had previously entered into an indemnification
agreement with the Company. Accordingly, certain officers/directors have
surrendered to the Company, as restricted contributed capital, 571,430 common
shares of the Company. The certain officers/directors and the Company have also
agreed to place decisions concerning the liquidation of shares in satisfaction
of or to raise capital to pay such liabilities in a committee consisting solely
of the outside members of the board of directors.
For financial reporting purposes, the 571,430 contributed shares have been
valued at $3.50 per share (approximately $2,000,000). The discounted per share
value reflects the restricted nature of the shares, the daily trading volume of
the Company's shares, and the value per share reflected in the most recent
private placement offering and conversion of debt into common shares. Because
proceeds from the contributed shares are restricted to liquidation of any
liability to the Company from the legal action, the value ascribed to the
contributed shares has been offset against the liability.
7. EARNINGS (LOSS) PER SHARE
----------------------------
Earnings (loss) per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share is not
presented because the outstanding options and warrants to purchase common shares
would cause an anti-dilutive affect upon the diluted earnings (loss) per share.
8. SUBSEQUENT EVENTS
--------------------
On October 16, the Board of Directors of the Company accepted the resignation of
Kevin B. Rogers as Chairman of the Board, Director, Senior Vice President and
Chief Technical Officer. Also on that date, the Board of Directors elected Oscar
J. Williams as Chairman.
9. RECLASSIFICATIONS
--------------------
Certain amounts for the three and nine month periods ended September 30, 1999
have been reclassified to conform to the three and nine-month periods ended
September 30, 2000 presentation.
11
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Introduction
------------
This discussion summarizes the significant factors affecting the operating
results, financial condition and liquidity/cash flow of the Company during the
three and nine month periods ending September 30, 2000 and 1999. This item
should be read in conjunction with the consolidated financial statements and
notes to the consolidated financial statements included herewith.
Results of Operations
---------------------
Revenues for the three-month period ended September 30, 2000 exceeded $1.2
million, which was approximately $900,000 more than revenues in the comparable
quarter of the prior year, or an increase of approximately 300%. Revenues for
the three-month period ended September 30, 2000 from engineering and Mentoring
project contracts ("Development Contracts") totaled approximately $237,000.
Product sales totaled approximately $971,000, while revenues from the Company's
majority owned subsidiary Mediworxx totaled approximately $71,000 for the same
period. Revenues for the three-month period ended September 30, 1999 totaled
approximately $308,000 consisting primarily of Development Contracts. Revenues
for the nine months ended September 30, 2000 were approximately $3,130,000 or a
63% increase over the same period last year.
Cost of revenues for the three months ended September 30, 2000 totaled
approximately $937,000, as compared to approximately $336,000 for the same
period in 1999. Gross Profit as a percentage of sales increased from negative 9%
for the three months ended September 30, 1999 to 27% for the three months ended
September 30, 2000. For the nine months ended September 30, 2000 cost of
revenues totaled approximately $2,354,000 as compared $1,273,000 for the same
period last year. For the first nine months of 2000 and 1999, gross profit, as a
percentage of sales were 25% and 34% respectively. The decrease in gross profit
reflects the Company's change from higher margin Development Contracts to lower
margin production products.
Selling, general and administrative expenses for the nine months ended September
30, 2000 totaled approximately $3,266,000, an increase of 121% over the same
period last year ($1,480,000). This increase reflects the continued buildup of
the Company's infrastructure to support expected growth. Research and
Development expenses for the three-month period ended September 30, 2000 totaled
approximately $369,000, a decrease of 11% from the same period last year
($415,000). This decrease in Research and Development expense reflects the
Company's focus on internal research and development efforts related to new and
existing products. For the nine months ended September 30, 2000, the Company's
Research and Development expenses totaled approximately $1,232,000 compared to
approximately $724,000 for the same period last year.
12
<PAGE>
Included in Other Income and Expense for the three and nine months ended
September 30, 2000 was a $700,000 and $2,700,000 charge for the settlement of
certain litigation. See Part II, Item 1. Without settlement expenses related to
the litigation, net loss would have been $(1,162,151) compared to a net loss of
$(1,151,892) for the three month period ending one year earlier, an increase of
only $10,259 or 1%.
Liquidity and Capital Resources
-------------------------------
The Company has financed its operations and capital expenditures primarily
through short-term credit facilities, the sale of the Company's common stock and
cash flow from operations. The Company has also used long-term, capitalized
lease transactions to finance capital expenditures. For the nine-month period
ending September 30, 2000, the Company's primary source of cash was from the
sale of common stock in a private placement offering in which proceeds to the
Company totaled approximately $2,983,000, net of expenses, from the sale of
863,558 shares of its common stock and warrants to purchase 114,116 shares of
the Company's common stock. Cash was also provided through other financing
activities totaling $2,196,000 and cash from collection of receivables totaling
approximately $2,516,000.
During the nine months ended September 30, 2000, promissory note holders
converted approximately $3,945,000 in short-term debt in exchange for 1,127,047
shares of common stock and warrants to purchase 65,725 shares of the Company's
common stock. Simultaneously, the Company repaid certain other promissory note
holders resulting in a reduction of approximately $1,400,000 in short-term debt.
As a result of the conversions and debt repayment the Company greatly reduced
its monthly interest payments. Although there can be no assurance of continued
debt and/or equity financing, the Company expects to be able to meet its debt
obligations and to finance operations and capital expenditures through
internally generated funds, future borrowing, capital lease transactions and
additional sales of common stock.
The Company's cash totaled approximately $867,000 on September 30, 2000. Capital
expenditures for the nine months ended September 30, 2000 totaled approximately
$731,000, including approximately $527,000 of capitalized software costs
relating to Mediworxx, with the balance spread between the manufacturing
departments, the research and development departments and the general and
administration departments.
On November 2, 2000, the Company entered into a settlement agreement amongst the
parties to settle a federal court judgment. Under the terms of the agreement,
the Company will pay $700,000 on or before December 15, 2000, and will make
available for sale a maximum of 1,500,000 of its common shares on certain dates,
with the proceeds from the sale of the shares payable to the plaintiff. In
accordance with the settlement agreement, and an escrow agreement, 570,000 of
such shares will be placed in escrow. A sufficient number of such shares are to
be released from escrow for sale on November 2, 2001 to provide proceeds up to a
maximum of $2,275,000 payable to the plaintiff. The Company will also make
available an additional 330,000 common shares, or portions thereof, on such date
in the event the proceeds from the sale of the 570,000 shares is less than
$2,275,000. On November 2, 2002, any of the unsold 570,000 shares, or, if
necessary, any of the unsold 330,000 common shares, plus additional common
shares up to a maximum of 600,000, will be made available by the Company to
realize proceeds of $2,275,000 payable to the plaintiff. The Company will retain
any unsold shares, and also has the option to pay the aforementioned amounts at
any time.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL
From time to time, the Company is a party to litigation, which arises, in the
normal course of business. There is no litigation pending, or to the Company's
knowledge, threatened that, if determined adversely, would have a material
adverse effect upon the business or financial condition of the Company.
On November 2, 2000, the Company entered into a settlement agreement amongst the
parties to settle a federal court judgment. Under the terms of the agreement,
the Company will pay $700,000 on or before December 15, 2000, and will make
available for sale a maximum of 1,500,000 of its common shares on certain dates,
with the proceeds from the sale of the shares payable to the plaintiff.
As discussed below, certain officers/directors of the Company previously
contributed 571,430 of their common shares of the Company as indemnification of
the judgment. In accordance with the settlement agreement, and an escrow
agreement, 570,000 of such shares will be placed in escrow. A sufficient number
of such shares are to be released from escrow for sale on November 2, 2001 to
provide proceeds up to a maximum of $2,275,000 payable to the plaintiff. The
Company will also make available an additional 330,000 common shares, or
portions thereof, on such date in the event the proceeds from the sale of the
570,000 shares is less than $2,275,000. On November 2, 2002, any of the unsold
570,000 shares, or, if necessary, any of the unsold 330,000 common shares, plus
additional common shares up to a maximum of 600,000, will be made available by
the Company to realize proceeds of $2,275,000 payable to the plaintiff. The
Company will retain any unsold shares, and also has the option to pay the
aforementioned amounts at any time.
In May 2000 a Federal civil jury rendered a verdict against parties, including
the Company, in a case involving interference with a certain prospective
customer relationship of the plaintiff. Enforcement of the judgment, which to
the Company totaled $12 million, was stayed pending a hearing to set aside or
limit the judgment to an amount consistent with the legal principles governing
the case. On July 18, 2000 the Federal court, as a result of post-trial motions,
ordered a new trial with respect to the damages amount, and urged the parties to
engage in settlement discussions. The trial, absent settlement, is scheduled for
February 2001.
In an effort mitigate any effect this legal action could have upon the Company,
certain officers/directors had previously entered into an indemnification
agreement with the Company. Accordingly, the certain officers/directors have
surrendered to the Company, as restricted contributed capital, 571,430 common
shares of the Company. The certain officers/directors and the Company have also
agreed to place decisions concerning the liquidation of shares in satisfaction
of or to raise capital to pay such liabilities in a committee consisting solely
of the outside members of the board of directors.
14
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Item 5. OTHER INFORMATION
On October 16, the Board of Directors of the Company accepted the resignation of
Kevin B. Rogers as Chairman of the Board, Director, Senior Vice President and
Chief Technical Officer. Also on that date, the Board of Directors elected Oscar
J. Williams as Chairman.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
Exhibit Description of Document
------- -----------------------
None
REPORTS ON FORM 8K
None
15
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SIGNATURES
In accordance with the requirements the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTELLIWORXX, INC.
Date: November 14, 2000 by: /s/ Oscar J. Williams
----------------------- -------------------------
Oscar J. Williams, President and
Chief Executive Officer
