U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ______________ to ______________
Commission file number 000-30468
CELEXX CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 65-0728991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7251 West Palmetto Park Road,
Suite 208
Boca Raton, Florida
(Address of principal executive offices)
561-395-1920
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
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 ___
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $ 680,989
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 31, 2000 was approximately $26,217,000 (based on the
last sale price as reported on the Over-The-Counter Bulletin Board).
The number of shares outstanding of each of the issuer's classes of common
equity as of March 31, 2000: Common Stock, $.001 Par Value - 12,912,613 shares
DOCUMENTS INCORPORATED BY REFERENCE :
(1) Form 10SB12G/A filed on February 11, 2000.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
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Index to Form 10-KSB
CELEXX CORPORATION
Part I
Item 1. Description of Business............................................. 3
Item 2. Description of Property............................................ 11
Item 3. Legal Proceedings.................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders................ 11
Part II
Item 5. Market for Common Equity and Related Stockholder Matters........... 12
Item 6. Management's Discussion and Analysis or plan
of Operations...................................................... 12
Item 7. Financial Statements............................................F1-F14
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure........................................... 16
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.................. 17
Item 10. Executive Compensation............................................. 19
Item 11. Security Ownership of Certain Beneficial Owners and
Management......................................................... 23
Item 12. Certain Relationships and Related Transactions..................... 23
Part IV
Item 13. Exhibits and Reports on Form 8-K................................... 24
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Part I
Item 1. Description of Business
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE
BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT
ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. THESE
RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED BELOW UNDER "BUSINESS - RISK
FACTORS" ON PAGES 10 THROUGH 13 AND ELSEWHERE IN THIS FORM 10-KSB. UNLESS
REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY REVIEW THE FACTORS
DISCUSSED IN OTHER REPORTS OR DOCUMENTS THAT THE COMPANY FILES FROM TIME TO TIME
WITH THE SECURITIES AND EXCHANGE COMMISSION, PARTICULARLY THE QUARTERLY REPORTS
ON FORM 10-QSB AND ANY CURRENT REPORTS ON FORM 8-K.
OVERVIEW
CeleXx Corporation ("CeleXx", the "Company" or "we") was organized
under the laws of the State of Nevada on February 19, 1997, under the name,
"Spectrum Ventures, Inc." In February 1999, the Company merged with Cobra
Technologies International, Inc., a Delaware corporation with the Company
surviving. The name of the surviving corporation was changed to Cobra
Technologies, Inc. and in August 1999 and November 1999 was further changed to
CobraTec, Inc. and CeleXx Corporation, respectively.
On February 18, 1999, the shareholders of Spectrum Ventures, Inc. voted to
acquire all of the outstanding common stock of Cobra Technologies International,
Inc., a newly-formed Delaware corporation ("Cobra International"), pursuant to
an Agreement and Plan of Reorganization in exchange for 4,500,000 of the
Company's stock.
Effective May 25, 1999, the Company acquired all of the outstanding common
stock of Pinnacle East, Inc. a South Carolina corporation ("Pinneast"), pursuant
to an Agreement and Plan of Reorganization for a value of $900,000. Payment
consisted of 500,000 shares of CeleXx common stock and $100,000 in cash. Payment
of the cash portion was deferred for one year. Stephen Lounsberry and Mitchell
N. Smith, President and Vice President of Pinneast, respectively, also owning
100% of the outstanding capital stock of Pinneast, received 275,000 and 225,000
common shares of CeleXx, respectively.
CeleXx Corporation has a short operating history, and since its inception
has generated losses from operations on a consolidated basis amounting to
$2,222,518. At present, the only material business that has been successfully
combined with the Company is Pinneast.com, Inc. While the Company intends to
acquire existing businesses in accordance with its business plan, there can be
no assurances that the Company will be successful in its acquisition plans or in
securing financing to acquire such operating companies.
To date, the Company has not earned a profit and can give no assurances if
and when it will turn a profit. Similarly, because of its limited operating
history and accumulated losses, the Company's ability to attract desirable
businesses for acquisition will be severely limited. Moreover, there can be no
assurance that such acquisition candidates, if found, could be acquired under
terms acceptable to the Company. Consequently, failure to complete planned
acquisitions will severely limit the Company's ability to grow.
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GENERAL
CeleXx Corporation is positioning itself as an acquirer and
consolidator of Information Technology (IT)businesses. In general, these
businesses provide services such as engineering design and layout for the
installation of network systems, Web site development, computer hardware and
software integration, and training and ongoing technical support to client
companies. In certain situations, however, computer hardware and software may be
sold as part of the overall service solution.
CeleXx completed its first acquisition in May of 1999 of Pinneast, a
six-year-old Columbia, South Carolina based company. Since then, Pinneast's
revenues and contracts for future business have increased substantially. We are
projecting revenues of approximately $3 million for the year 2000. The basis for
these projections is the current backlog of services for which Pinneast holds
signed contracts.
Meanwhile, Pinneast is steadily making inroads into the corporate
training market. In December 1999, for example, Pinneast signed an open-ended
contract to host Dow Chemical's worldwide computer based training programs.
Under the terms of the agreement, Dow can cancel the balance of the agreement at
any time if, in the opinion of Dow, Pinneast is in breach of the terms of the
agreement and fails to live up to acceptable standards of performance under the
agreement. Nevertheless, Pinneast will be required to complete all
work-in-progress, without regard to the date of cancellation of the open-ended
contract. Furthermore, under the agreement Dow must make a twenty-five percent
(25%) non-refundable cash deposit with Pinneast on all purchase orders issued by
Dow and accepted by Pinneast. In addition, Pinneast is negotiating to jointly
produce books in text and video. If the pilot programs currently being conducted
are successful, Pinneast will convert books and educational programs into CDs
and Internet deliverable format for the publisher.
The acquisition of a second company, Computer Marketplace, Inc. (CMI)
was completed on April 11, 2000., pursuant to an Agreement and Plan of
Reorganization for a value of $ 5,000,000. Payment consisted of 1,400,000 shares
of CeleXx common stock, payment of $1,500,000 in cash and a promissory note for
$1 million at 6%, payable in equal installments at the first and second
anniversaries. David Burke. Sr. and five (5) other key employees retained their
positions in CMI pursuant to 3 year employment contracts and received a total of
200,000 common shares of CeleXx . CMI, located in Tewksbury, Massachusetts, is a
sixteen-year-old network solution and systems design company, founded in 1983.
CMI focuses on providing Fortune 1000 companies, government agencies and
educational institutions with networking solutions, systems integration, and
computer telephony integration.
CeleXx operates within the broad market of Information Technology (IT),
which has grown in tandem with the worldwide proliferation of computerization
over the last two decades and has expanded the rate of growth with the
commercialization of the Internet and corporate Intranets over the last five
years. Several sources, including International Data Corporation (IDC), concur
that the number of online users will grow from about 150 million worldwide now
to about 500 million by 2003. This projected growth is expected, in turn, to
fuel the demand for new computer products and services and create new market
opportunities in this field. IDC is a leading provider of information technology
data, industry analysis and strategic and tactical guidance to builders,
providers and users of information technology. IDC is based in Framingham,
Massachusetts and maintains offices in more than 40 countries around the world.
With the acquisition of CMI, in addition to its core competencies in
networking and telephony, CeleXx will become involved in the delivery of systems
that use voice over IP technology. Voice over IP is an emerging technology that
allows customers voice transmission over the Internet at a fraction of the cost
of current telephone technologies. At the present time, approximately 50% of
CMI's revenues are derived from the general area of telephony, that is, the use
of computers in telephonic communications. At this time, we are unable to
forecast what impact, if any, the predicted growth in this market will have upon
CMI or the Company as a whole.
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Finally, through its ownership of Pinneast, CeleXx is operating within
the general market of business-to-business e-commerce by building websites and e
commerce platforms for clients that facilitate the transfer of goods and
services over the Internet. Electronic commerce (or e-commerce, as it is better
known) is a relatively new area within general commerce. This area has
proliferated with the growing use of the Internet and involves the transfer of
goods, services, and funds from one point to another using the Internet.
E-commerce is divided into business-to-business and business-to-consumer
segments.
According to IDC, business-to-business e-commerce is one of fastest
growing sectors of e-commerce and is expected to exceed $179 billion by 2001. To
capitalize on this growth, many businesses are expanding and upgrading their
Internet and networking infrastructures. The industry is highly competitive and
is characterized by numerous small companies, many offering proprietary products
and services. Although there are a few significant players, such as IBM and
Cisco, as yet, no clear leader has emerged. Currently, Pinneast holds a
negligible market share in this field, and currently has neither the capital nor
technical resources to capture meaningful market share. Nevertheless, revenues
from this source are growing.
MANAGEMENT AND STRATEGY
The core management of CeleXx is composed of individuals experienced in
finance, accounting, and Information Systems. Members of our management team
have been employed by or have been consultants to startup companies and
multinational corporations such as IBM, Mc Graw-Hill and Xerox for more than two
decades, Our current president and our Chief Financial Officer have both been
involved in the financial and business aspects of mergers and acquisitions, as
well as with the investigation and business analysis of prospective acquisitions
at Xerox and McGraw-Hill and for smaller entrepreneurial firms. The core
strategy of the CeleXx management team is to acquire complementary businesses in
the information technology industry that add value by increasing market share,
revenues, or profits, or by reducing operating costs, or by enhancing the
Company's ability to perform in the market place. We must caution, however, that
the achievement of these targets is highly dependent upon current management as
well as upon the Company's ability to attract new capital. There can be no
assurance that the Company will be in a position to attract sufficient capital
or that such capital will be available to the Company on favorable and desirable
terms. If the Company is unsuccessful in its attempt to raise growth and working
capital at rates that are acceptable to the Company, its prospects for growth
could be greatly diminished.
To date, CeleXx has focused on service companies that provide customers
with systems and network integration and computer and web based training.
Companies in systems engineering, systems design, e-commerce platform
development, and network consulting are the most desired potential acquisition
candidates for CeleXx. Through the acquisition of CMI, CeleXx is also becoming
involved in developing and delivering telecommunications systems such as
telephone routers, networked e-mail systems, and remote telephone diagnostic
systems. Telecommunications is an area that the Company expects to become even
more involved with over the next several years.
One important criterion for acquisition is the potential synergy of the
business to be acquired with those that already exist within the CeleXx
structure. CMI and Pinneast, for example, share a number of their larger
clients. CMI provides hardware, systems, and services to several of these
clients while Pinneast provides training to assure that users understand and
take full advantage of the systems that CMI has provided. CeleXx generally looks
for companies that will add $5 million to $15 million, or more to revenue;
and/or companies that have been profitable on a pretax, pre-interest basis.
Acquisition valuations are often based on an EBIT multiple of four (4) to six
(6). In addition, the companies must have at least a three-year history with
recently audited financial information and a strong management team. CeleXx
requires top management to stay with the company after the acquisition and ties
a portion of the final purchase price to future performance. In any event,
CeleXx reserves the right to negotiate the purchase price and terms of an
acquisition, and may, from time to time, elect to acquire a business with a
history of losses if, in the opinion of the management and the board of
directors of the Company, such an acquisition might add value to the Company
and/or holdings under the CeleXx umbrella.
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PINNEAST.COM, INC.
Pinneast was formed in January 1994 in order to capitalize on the growing
demand for computer-based alternatives to instructor lead training. The company
provides its customers, mainly Fortune 500 companies, with customized
interactive (i.e., can be controlled by the user) multimedia (i.e., combining
text, graphics and motion) training design and development services. Toward this
end, Pinneast evaluates the specific practices and procedures a client might be
using, and then details a plan for developing training programs that address the
client's specific requirements. For the most part, these training programs are
designed to fill specific needs; for example, to help employees improve
performance (productivity); to help employees gain awareness of certain issues,
their causes, and cures (e.g., sexual harassment); to help employees avoid
common accidents or to comply with certain governmental regulations such as
OSHA; to teach new skills (e.g., how to operate a certain machine); or to teach
general skills (e.g., computing). Pinneast also develops and produces marketing
tools (e.g., promotional material, video demonstrations, etc.) for customers to
distribute in the form of CD ROMS or via the Internet.
Today, Pinneast's clients include a broad base of industrial companies,
banks, financial institutions, government agencies and educational institutions.
Prominent among its clients are Dow Chemical, for which Pinneast produces and
hosts (maintains the site for) world-wide Web-based training programs; The US
Army, for which Pinneast develops a wide array of training programs related to
the proper use and maintenance of weapons systems; Delta Airlines, for which
Pinneast designs and produces safety training programs; and Nations Bank, for
which Pinneast develops financial training programs. All of Pinneast's programs
are high in multimedia (text, video, graphics and motion) content and delivered
to the end user via CD ROMs, the Internet (World Wide Web), or private corporate
intranets (Internet based links for a specific company or group).
Pinneast generated about $200,000 in revenue during its first year,
primarily from its first customer, Fleet Mortgage, and from a local grocery
chain, Harris Teeter Grocers. During the company's second year, it established a
two-year, $800,000 contract with Hoechst Chemical to provide OSHA mandated
training to its employees. Pinneast also continued to expand within the
financial community by generating contracts with several banks and insurance
companies.
In 1996, Pinneast became a pioneer in web-based training as it
delivered an Internet accessed medical support program, called Learners Toolkit
for Open Time, for the Thomas Jefferson University Hospital. By 1998, the
Company had expanded its revenue base to more than $800,000 and established
contracts with companies throughout a variety of industries and government
organizations. In 1999, Pinneast signed an open-ended contract to host Dow
Chemical's worldwide computer based training programs.
While Pinneast has been particularly successful with companies in a few
key industries such as finance, insurance, transportation and manufacturing, the
scope of its services can be applied to most businesses and government
organizations. Generally, however, its customers need to be large enough to have
ongoing training and training support programs for their employees. Pinneast
maintains a customer retention rate in excess of 80%.
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Pinneast products fall into two categories: training and marketing.
Training products include custom computer-based training (CBT) programs, custom
web-based training (WBT) programs, instructional design, instructor-lead
training and consultation. Pinneast's marketing products include: interactive
marketing CD-ROMs, corporate web page development, e-commerce systems, site
development, and consultation.
In developing and producing training programs for its clients, Pinneast
combines business performance consulting, instructional design, graphic design
and animation, computer methodologies and media technologies to meet the
specific performance improvement (productivity) needs of its clients. The
solutions and training programs are delivered via CD-ROM or the Web.
Furthermore, the Company markets and distributes its products and services
through trade sources, customer referrals and direct marketing.
Pinneast's instructional design philosophy and approach focus on
helping clients improve employee performance through training. The interactive
nature of the program permits the user (learner) to stop, start, or repeat any
portion of the program he or she may desire, at any time. Pinneast's approach to
interactive multimedia design addresses multiple learning styles in an attempt
to more effectively reach the diverse audiences for which these programs are
intended. Secondly, our interactive multimedia programs engage the learner with
simulated performance-based routines, enhanced by corrective feedback that is
directly applicable to the learner's real world performance responsibilities.
The instructional material is designed to engage or link the learner to
interactive multimedia so that real world knowledge, skills and methodologies
are practiced and developed and, thus, become directly transferable to
on-the-job performance. In addition to designing from the learner's performance
perspective and needs, Pinneast.com designs training programs within the context
of the client's business objectives and priorities so that individual
performance improvements are relevant: they impact overall business performance.
For the year 1999, Pinneast.com employed 16 full-time employees and 10
part-time employees.
COMPUTER MARKETPLACE, INC.
The acquisition of Computer Marketplace, Inc. (CMI) was completed on
April 11, 2000., pursuant to an Agreement and Plan of Reorganization for a value
of $ 5,000,000. Payment consisted of 1,400,000 shares of CeleXx common stock,
Payment of $1,500,000 in cash and a promissory note for $1 million at 6%,
payable in equal installments at the first and second anniversaries. David
Burke. Sr. and 5 other key employees retained their positions in CMI pursuant to
3-year employment contracts and received a total of 200,000 common shares of
CeleXx .
CMI, located in Tewksbury, Massachusetts, is a sixteen-year-old network
solution and systems design company, founded in 1983. CMI focuses on providing
Fortune 1000 companies, government agencies and educational institutions with
networking solutions, systems integration, and computer telephony integration.
CMI has a broad and diversified client list ranging from major
telecommunications companies to public school systems throughout North America.
CMI's customers include: America On-Line, Lucent Technologies, AT&T, J.C. Penny,
Bell Canada, The Prudential Insurance Companies, the Boston Public Schools,
Sprint Corp., IBM Global Services, USA Group, USA Bank, and Hewlett Packard Co.,
among many others. CMI services these customers by designing, installing and
implementing local area network (LAN) and wide area network (WAN) systems, by
customizing software on clients' existing computer network allowing the client
the transmission of telephone conversation via the internet for long distance
calls and computer related maintenance functions. In 1998, CMI reported $16.7
million in revenues, with pretax earnings of approximately $922,000. For the
fiscal year ending, February 2000, CMI is forecasting revenues in excess of $ 16
million and pretax earnings of $1 million.
CMI started in 1983 as a retail operation and rapidly grew to five store
locations. In 1990, management undertook a major restructuring in order to
capitalize on the growing demand for software, systems and solutions rather than
just hardware. CMI also recognized the opportunity to utilize this new focus to
expand its market nationwide and establish an international presence.
Consequently, CMI shifted its focus from individuals and small operations to a
purely corporate focus. CMI achieved this shift in focus by eliminating the
retail side of the business. It did this by closing its retail stores and moving
all its operations into a single location. In addition CMI developed new
marketing strategies focusing on system integration, services and Fortune 1000
companies. Within the last several years, CMI expanded its network solutions
business and entered into the growing field of telecommunications. The company
is divided into two basic divisions: Networking and Telephony.
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CMI provides its customers with complete, ready-to-run networks using
Novell and Windows NT platforms. CMI assesses a customer's needs, determines the
appropriate configuration, purchases the necessary software and hardware and
then assembles and tests the components at the customer's site. While certain
large installations can run as high as $1 million or more, the average order for
a network solution is about $200,000. CMI takes care of all aspects of the
installation, from delivery and setup to completing the necessary licensing and
warranty procedures. CMI also provides its customers with systems operation
training, vendor updates and upgrades, as well as a 24-hour Help Service.
Over the last few years, CMI has also expanded its services to include a
trademarked "Share-A-CNE" program, which provides customers with the benefits of
an on-call Certified Network Engineer who can work closely with the customers'
Information Services (IS) department but does not need to be employed on a
fulltime basis. The Share-A-CNE program is a cost-effective way for the small
customer to receive the technical benefits that their larger counterparts
receive.
CMI is also engaged in helping its customers capitalize on the capabilities
of the Internet. More specifically, CMI is helping customers implement voice
over IP (Internet Protocol) technology, which is a low cost alternative to
standard telephone service. The company does this through the design and
implementation of customized software on a client's existing computer network,
or a newly implemented network, allowing the client the transmission of
telephone conversation via the Internet for long distance calls. Network
contracts represent approximately 50% of the company's revenues.
CMI provides its customers with systems and solutions for their
telecommunications needs. The telephony division was formed about three years
ago to help some of its major telecommunications systems providers, such as
AT&T, Cisco, Lucent, Qwest and Sprint, in assisting their clients to more
effectively manage their call routing systems. The company brings in the
relevant equipment, prepares all the networking functions in terms of software
and hardware, installs the necessary telephony software, conducts in-depth
testing of the systems, and finally ships a ready to use system to the end-user
site. End customers include airlines, banks, insurance companies, investment
firms and customer oriented organizations across the US and Canada. Orders
average about $400,000 and are usually fulfilled within 4 weeks. Occasionally,
orders are received from Europe and the typical user is a Fortune 500 company.
On April 7, 2000, the Company completed a financing agreement with Birch
Circle LLC ("Birch"), a private investment banking firm, based in Connecticut
and raised $3,500,000 for the Company through the sale of shares of the
Company's Series A Convertible Preferred Stock ("Preferred Shares").
Approximately $1.6 million of the net proceeds (including accounting and
attorney's fees) had been earmarked for the acquisition of CMI.
The Preferred Shares will pay dividends at the rate of 6% per annum, and
the dividend may be paid in cash or common shares of the Company, at the option
of the Company. If the Company elects to pay dividends on the Preferred Shares
in common shares, the number of common shares shall be determined by dividing
the cash amount of the dividend by the conversion price of the Preferred Shares.
The conversion price means the lower of: (a), the average closing bid price on
the day immediately preceding the closing of the transaction or (b), 80 % of the
5-day trading average closing bid price of the common shares prior the date of
conversion.
Within 45 days of the closing, the Company will be required to file a
registration statement with the Securities & Exchange Commission (SEC) covering
the resale of the common shares upon conversion, to permit their resale without
restriction.
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The Company will have the right, in its sole discretion, to redeem, in
cash, in whole or in part, the number of shares submitted for conversion. The
redemption price shall be 125% of the average closing bid price for the day
immediately preceding the date of redemption multiplied by the number of shares
of common stock issued upon conversion. In addition, the Company may, in its
sole discretion, redeem in cash, and in whole or in part, all unconverted shares
at the rate of 125% of the principal amount. However, the Company must give
investors 30 days notice prior to such redemption.
Risk Factors
IN ADDITION TO OTHER INFORMATION IN THIS FORM 10-KSB, THE FOLLOWING
RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A
SIGNIFICANT IMPACT ON THE COMPANY'S BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-KSB AS A RESULT OF THE RISK
FACTORS DISCUSSED BELOW AND ELSEWHERE IN THIS FORM 10-KSB.
Uncertainty of Future Profitability; Need for Additional Funds
The Company's recent operations during the year ended December 31, 1999
and from July 10, 1998 (inception) to December 31, 1998, have consumed
substantial amounts of cash and have generated net losses of $ 1,906,397 and $
316,121, respectively, and accumulated a deficit of $ 2,222,518 at December 31,
1999. The Company believes that it will require additional cash infusions from a
private placement or other equity financing to meet the Company's projected
working capital, projected acquisitions and other cash requirements in 2000.
The sale or issuance of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders.
There can be no assurance that additional financing, if required, will be
available when needed or, if available, will be on terms acceptable to the
Company. Any inability to satisfy the Company's operating cash needs or the
inability to finance the purchase of goods sold to others could have a material
adverse effect on the Company's business, financial condition and results of
operation.
Potential Fluctuations in Operating Results
Since the Company recognizes IT services revenue only when personnel
are engaged on client projects, the relative utilization of such personnel
directly affects the Company's operating results. In addition, a majority of the
Company's IT operating expenses, particularly personnel and related costs, are
substantially fixed in advance of any particular period. As a result, variations
in utilization of personnel may materially affect the Company's operating
results. Termination or completion of engagements in the Company's IT services
business or failure to obtain additional engagements in its IT services business
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes that future operating results will also be subject
to fluctuations due to a variety of factors, many of which are beyond the
Company's control. Such factors may include, but are not limited to, demand for
the Company's technology or services, availability of skilled sales and
technical personnel, introduction or enhancement of technologies or services by
the Company or its competitors, market acceptance of new technology or service
offerings, technological changes, increased competition, litigation costs,
results of litigation, and general economic conditions.
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Management of Acquired Businesses
The Company's acquisitions have placed, and are expected to continue to
place, a significant strain on its managerial and operational resources. To
manage these acquired businesses and others that may be acquired in the future,
the Company must continue to implement and improve its operational, management
and financial systems and to train and manage its employee base. The Company
expects that its operational, management and financial systems will face
additional strains as a result of possible acquisitions in the future.
Integration of Acquisitions
As part of its business strategy, the Company may seek out business
combinations with other Internet or IT Services companies. Such business
combinations involve a number of risks, including, without limitation,
difficulty assimilating the operations and personnel, expenditure of management
time, expenses associated with the transactions, additional expenses associated
with amortization of acquired intangible assets, the implementation and
maintenance of standards, controls, procedures, and policies, the impairment of
relationships with employees and customers as a result of the integration of new
management personnel, and potential unknown liabilities associated with acquired
businesses. To the extent that any of the companies that the Company acquires
fail, the Company could be required to write-off the amount of the investment.
There can be no assurance that the Company will be successful in addressing
these risks or any other problems encountered in connection with such business
combinations.
Dependence on Key Personnel
The Company's performance is substantially dependent on the performance
of its senior management and key sales and technical personnel. In particular,
the Company's success depends substantially on the continued efforts of its
senior management team. The Company does not carry key person life insurance on
any of its senior management personnel. The loss of the services of any of its
executive officers or other key employees could have a material adverse effect
on the business, financial condition and results of operations of the Company.
The Company's future success also depends on its continuing ability to attract
and retain highly-qualified sales, technical and managerial personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to retain its key managerial, sales and technical employees
or that it will be able to attract and retain additional highly-qualified sales,
technical and managerial personnel in the future. The inability to attract and
retain the necessary sales, technical and managerial personnel could have a
material adverse effect upon the Company's business, financial condition, and
results of operation.
Concentration of Stock Ownership
As of March 31, 2000, the present directors, executive officers,
greater than 5% stockholders, and their respective affiliates beneficially owned
approximately 22.65% of the outstanding common stock of the Company ("Common
Stock"). As of March 31, 2000, Doug H. Forde, the Company's Chairman and CEO,
and Lionel Forde, Director and Vice President, together beneficially own
approximately 11% of the outstanding Common Stock of the Company. As a result of
their ownership, the directors, executive officers, greater than 5%
stockholders, and their respective affiliates collectively are able to control
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of the Company.
Volatility of Stock Price
The trading price of the Company's Common Stock has been and may
continue to be subject to wide fluctuations in response to a number of events
and factors, such as quarterly variations in operating results, changes in
financial estimates and recommendations by securities analysts, the operating
and stock price performance of other companies that investors may deem
comparable to the Company, and news reports relating to trends in the Company's
markets. In addition, the stock market, in general, and the market prices for IT
companies, in particular, have experienced volatility that often has been
unrelated to the operating performance of such companies. These broad market and
industry fluctuations may adversely affect the trading price of the Company's
Common Stock, regardless of the Company's operating performance.
10
<PAGE>
Risks Relating to Small Company Stocks
The Company's Common Stock trades on the Over-The-Counter Bulletin
Board under the symbol "CLXX". The Securities and Exchange Commission has
adopted regulations which generally define a penny stock to be any security that
has a market price (as defined) of less than $5.00 per share, subject to certain
exceptions including listing on the NASDAQ SmallCap Market. The shares of our
common stock may be deemed to be penny stocks and thus will become subject to
rules that impose additional sales practice requirements on brokers/dealers who
sell such securities to persons other than established customers and accredited
investors. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell the common stock and may affect the ability of purchasers
to sell the common stock in a secondary market.
Item 2. Description of Property
The Company currently leases approximately 3,000 square feet of office
space located at 7251 West Palmetto Park Road, Boca Raton, Florida as its
corporate headquarters. Early in the year 2000, the Company plans to relocate
from its current Boca Raton location to its new corporate headquarters,
consisting of approximately 5,000 square feet, in Coral Springs, Florida. The
terms and conditions of our lease include our move to the new location.
Presently, the monthly rent is $5,900 and the lease terminates in 2004.
Pinneast leases building space at 1221 Sunset Blvd., West Colombia, South
Carolina under a three 3 year lease that requires minimum annual payments
totaling $24,672.
Item 3. Legal Proceedings
The Company was not at party to any legal proceeding at March 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.
11
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
SINCE NOVEMBER 4, 1999 our Common Stock has traded on the
Over-The-Counter Bulletin Board under the symbol "CLXX", and commenced its
trading on October 16, 1998. prior to November 4, 1999 our common stock traded
under the symbol "CBRA". The following table sets forth, for the period since
October 1998, the high and low bid quotations for our Common Stock for the
periods indicated as reported by the OTC Bulletin Board. The quotations
represent prices between dealers and do not include retail mark-up, mark-down or
commissions or necessarily represent actual transactions.
PERIOD HIGH LOW
October 16, 1998 - December 31, 1998 $.625 $0.06
January 1, 1999 - March 31, 1999 $6.00 $.875
April 1, 1999 - June 30, 1999 $1.53 $.875
July 1, 1999 - September 30, 1999 $1.15 $0.63
October 1, 1999-December 31, 1999 $0.83 $0.45
January 1, 2000- March 31, 2000 $4.13 $0.56
The transfer agent for the Company's Common Stock is American Registrar
& Transfer Company, 342 East 900 South Street, Salt Lake City, Utah 84111.
We have never paid cash dividends on our Common Stock. We presently
intend to retain future earnings, if any, to finance the expansion of our
business and do not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
The approximate number of record holders of the Common Stock as of
March 31, 2000, were 249. The Company estimates that there are approximately 7
beneficial holders of its Common Stock.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following is Management's discussion and analysis of the
consolidated financial condition and results of operations of the Company. It
should be read in conjunction with the audited consolidated financial statements
and related notes included elsewhere in this Form 10-KSB. When used in this
discussion, the words "estimate," "project," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected, including, but not limited to, those discussed
in "Item 1 - Description of Business - Risk Factors" and elsewhere in this Form
10-KSB and from time to time in the Company's periodic reports. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to those forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
12
<PAGE>
Overview
CeleXx Corporation is positioning itself as an acquirer and consolidator of
Information Technology (IT)businesses. In general, these businesses provide
services such as engineering design and layout for the installation of network
systems, Web site development, computer hardware and software integration, and
training and ongoing technical support to client companies. In certain
situations, however, computer hardware and software may be sold as part of the
overall service solution.
The Company's recent operations have consumed substantial amounts of cash
and have generated net losses and an accumulated deficit. The Company believes
that it will require a cash infusion from a private placement or other equity
financing to meet its projected working capital and other cash requirements.
Absent such additional cash infusion from a private placement or other equity
financing, the Company's continued existence is in substantial doubt. The sale
of additional equity or other securities could result in additional dilution to
the Company's stockholders. There can be no assurance that such additional
financing can be obtained on acceptable terms, if at all.
Results of Operations
Comparison of Fiscal Year 1999 to Fiscal Year 1998
The Company's total revenue increased $ 680,989, or 100%, from $ 0 in 1998
to 1999 as a result of its first acquisition of Pinneast in May 1999.
Gross profit increased to 48% in 1999 from 0% in 1998. This increase is a
result of an increase in the percentage of IT revenue derived from its sole
operating unit.
Selling, general, and administrative ("SG&A") expenses increased by
$1,758,171 or 556% to $ 2,074,292 in 1999 from $ 316,121 million in 1998. As a
percentage of sales, SG&A expenses were 304% of total sales in 1999 compared
with no sales in 1998. The increase in SG&A expenses is primarily due to
increases in salaries, professional expenses and non-cash transaction costs
associated with on-going acquisitions and capital raising efforts, along with an
increase in consulting and travel expenses.
Depreciation and amortization expenses for 1999 was $125,920. The Company
had no depreciation and amortization expenses in 1998. The depreciation and
amortization expenses is primarily due to the acquisition of Pinneast.com, Inc.
In 1999, the Company recorded no income tax expenses. At December 31, 1999,
the Company has a federal and state net operating loss carryforward of
$2,223,000.
Future Assessment of Recoverability and Impairment of Goodwill
In connection with its various acquisitions, the Company recorded goodwill
and other intangibles, that are being amortized on a straight-line basis over a
periods of 7 to 10 years, its estimated period that the Company will be
benefited by such intangible assets. At December 31, 1999, the unamortized
goodwill and other intangibles combined was $ 1,114,579 (which represented 75%
of total assets and 148% of stockholders' equity). Goodwill arises when an
acquirer pays more for a business than the fair value of the tangible and
separately measurable intangible net assets. For financial reporting purposes,
goodwill and all other intangible assets are amortized over the estimated period
benefited. The Company has determined the life for amortizing goodwill based
upon several factors, the most significant of which are the relative size,
historical financial viability and growth trends of the acquired companies and
the relative lengths of time such companies have been in existence.
13
<PAGE>
Management of the Company periodically reviews the Company's carrying
value and recoverability of unamortized goodwill and other intangibles. If the
facts and circumstances suggest that the goodwill and other intangibles may be
impaired, the carrying value of such assets will be adjusted which will result
in an immediate charge against income during the period of the adjustment and/or
the length of the remaining amortization period may be shortened, which will
result in an increase in the amount of amortization during the period of
adjustment and each period thereafter until fully amortized. Once adjusted,
there can be no assurance that there will not be further adjustments for
impairment and recoverability in future periods. Of the various factors to be
considered by management of the Company in determining whether goodwill and
other intangibles is impaired, the most significant will be (i) losses from
operations, (ii) loss of customers and (iii) industry developments, including
the Company's ability to maintain its market share, development of competitive
products or services and imposition of additional regulatory requirements.
Liquidity and Capital Resources
In the fiscal year ended December 31, 1999, the Company satisfied its
cash requirements primarily from private equity issuance's and loans from
certain officers and shareholders. At December 31, 1999, the Company had
$137,682 in cash.
During the fiscal year ended December 31, 1999, net cash provided by
investing and financing activities of $1,191,110 exceeded cash used in operating
activities of $1,053,428, resulting in a $137,682 increase in cash.
The Company's operating entity, Pinneast.com, has three working capital
credit lines with a U.S. bank totaling approximately $300,000. The three lines
are secured by substantially all of the Company's assets and mature in the years
2000 and 2003. The Company is currently evaluating the replacement of these
lines with alternative asset financing.
On April 7, 2000, the Company completed a financing agreement with
Birch Circle LLC ("Birch"), a private investment banking firm, based in
Connecticut and raised $3,500,000 for the Company through the sale of shares of
the Company's Series A Convertible Preferred Stock ("Preferred Shares").
Approximately $1.6 million of the net proceeds (including accounting and
attorneys fees) had been earmarked for the acquisition of CMI.
The Preferred Shares will pay dividends at the rate of 6% per annum,
and the dividend may be paid in cash or common shares of the Company, at the
option of the Company. If the Company elects to pay dividends on the Preferred
Shares in common shares, the number of common shares shall be determined by
dividing the cash amount of the dividend by the conversion price of the
Preferred Shares. The conversion price means the lower of: (a), the average
closing bid price on the day immediately preceding the closing of the
transaction or (b), 80 % of the 5-day trading average closing bid price of the
common shares prior the date of conversion.
Factors Affecting Operating Results
The Company's recent operations during the years ended December 31,
1999 and 1998 have consumed substantial amounts of cash and have generated net
losses of $1,906,397 and $ 316,121, respectively, and accumulated a deficit of
$2,222,518 at December 31, 1999. The Company believes that it will require
additional cash infusions from a private placement or other equity financing to
meet the Company's projected working capital and other cash requirements in
2000.
Since the Company recognizes IT services revenue only when personnel
are engaged on client projects, the relative utilization of such personnel
directly affects the Company's operating results. Variations in utilization of
personnel may materially affect the Company's IT services business or failure to
obtain additional engagements in its IT services business could have a material
adverse effect on the Company's business, financial condition and results of
operations.
14
<PAGE>
The Company's acquisitions have placed, and are expected to continue to
place, a significant strain on its managerial and operational resources. To
manage these acquired businesses and others that may be acquired in the future,
the Company must continue to implement and improve its operational, management
and financial systems and to train and manage its employee base. As part of its
business strategy, the Company may seek out additional business combinations
with other Internet or IT Services companies. To the extent that any of the
companies that the Company acquires fail, the Company could be required to write
off the amount of the investment.
Year 2000 Compliance
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Absent
corrective actions, programs with date sensitive logic may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The total cost associated with required modifications to become Year
2000 compliant has not been material to our financial position to date. Our
internal operations and business are also dependent upon the computer-controlled
systems of third parties such as our suppliers, clients and other service
providers. While problems may arise in the future and we cannot assure you that
we will not have a Year 2000 problem, we are unaware of any material impact on
our business caused by a Year 2000 problem either in our systems or those of
third-parties. The above description of the Year 2000 issue contains
forward-looking statements including, without limitation, statements relating to
our expectations that are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Readers are cautioned that
forward-looking statements contained in the Year 2000 Issue should be read in
conjunction with the Company's disclosures under the heading: "CAUTIONARY
STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995" as stated in the forefront of this
filing.
15
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
CELEXX CORPORATION
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidateds Financial Statements F-7 - F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CeleXx Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of CeleXx
Corporation and Subsidiary, as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year ended December 31, 1999 and the period ended July 10, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CeleXx Corporation
and Subsidiary, as of December 31, 1999, and the consolidated results of their
operations and their cash flows for the year ended December 31,1999 and the
period ended July 10, 1998 (inception) through December 31, 1998, in conformity
with generally accepted accounting principles.
/s/Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
April 14, 2000
F-2
<PAGE>
CELEXX CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS:
Cash $ 137,682
Accounts receivable 76,923
Advances to employees 18,245
-----------
TOTAL CURRENT ASSETS 232,850
-----------
FURNITURE AND EQUIPMENT, net 39,575
GOODWILL, net 94,167
INTANGIBLE ASSETS, net 1,020,412
OTHER ASSETS 93,250
----------
$ 1,480,254
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 270,000
Note payable related party 100,000
Line of credit short term portion 178,247
Advances from shareholder 9,013
DEFERRED REVENUE 87,384
-----------
TOTAL CURRENT LIABILITIES 644,644
-----------
LINE OF CREDIT long term portion 80,295
COMMITMENTS -
STOCKHOLDERS' EQUITY:
Preferred stock, $001 par value,
1,000,000 share authorized; none issued -
Common stock, $.001 par value,
20,000,000 shares authorized;
10,907,058 shares issued and outstanding 10,907
Additional paidin capital 3,216,926
Deferred financing costs (250,000)
Accumulated deficit (2,222,518)
-----------
TOTAL STOCKHOLDERS' EQUITY 755,315
-----------
$ 1,480,254
==========
See notes to consolidated financial statements.
F3
<PAGE>
CELEXX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 10, 1998
Year Ended (Inception) to
December 31, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
REVENUE $ 680,989 $ -
COST OF REVENUE 353,140 -
------------------ -----------------
GROSS PROFIT 327,849 -
OPERATING EXPENSES 2,074,292 316,121
------------------ -----------------
LOSS FROM OPERATIONS (1,746,443) (316,121)
OTHER EXPENSES:
Interest expense 68,754 -
Settlement of litigation 91,200 -
------------------ -----------------
TOTAL OTHER EXPENSES 159,954 -
------------------ -----------------
NET LOSS $ (1,906,397) $ (316,121)
================== ==================
================== ==================
NET LOSS PER COMMON SHARE - basic and diluted $ (0.21)$ (0.07)
================== ==================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic and diluted 8,361,171 4,500,000
================== ==================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CELEXX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Additional Total
Number of Paid-in Deferred Accumulated Stockholders'
Shares Amount Capital Financing Costs Deficit Equity (Deficit)
--------- --------- --------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 10, 1998 (Inception) 4,500,000 $ 4,500 $ (4,500) - $ - $ -
Capital contribution - - 216,121 - - 216,121
NET LOSS - - - - (316,121) (316,121)
--------- --------- --------- -------------- ---------- ----------------
Balance, December 31, 1998 4,500,000 4,500 211,621 - (316,121) (100,000)
Shares issued in conjunction with merger 200,000 200 (200) - - -
Issuance of common stock for exchange 713,475 713 (160,342) - - (159,629)
Acquisition of subsidiary 500,000 500 749,250 - - 749,750
Retirement of related party debt 1,733,333 1,734 446,907 - - 448,641
Shares issued for consulting services 500,000 500 124,500 - - 125,000
Sale of common stock 860,250 860 859,390 - - 860,250
Issuance of stock for cash and services 300,000 300 299,700 - - 300,000
Shares issued for deferred financing services 400,000 400 249,600 (250,000) - -
Shares issued to retire debt 400,000 400 183,600 - - 184,000
Shares issued in legal settlement 150,000 150 91,050 - - 91,200
Shares issued for services 650,000 650 161,850 - - 162,500
NET LOSS - - - - (1,906,397) (1,906,397)
------------ --------- ------------ --------------- ------------- ----------------
Balance, December 31, 1999 10,907,058 $ 10,907 $3,216,926 $ (250,000) $(2,222,518) $ 755,315
============= ========= ============ =============== ============= =============
See notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
CELEXX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 10, 1998
Year Ended (Inception) to
December 31, 1999 December 31, 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,906,397)$ $ (316,121)
Adjustments to reconcile net loss to net cash ----------------- ------------------
used in operations:
Amortization and depreciation 125,920 -
Common stock issued for interest 49,000 -
Common stock issued in legal settlement 91,200 -
Common stock issued for services 557,500 -
Changes in assets and liabilities,
net of effects from acquisition:
Accounts receivable 118,531 -
Other assets (42,850) -
Accounts payable and accrued expenses (133,716) -
Deferred revenue 87,384
----------------- ------------------
852,969 -
----------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (1,053,428) (316,121)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition 8,251 -
Acquisition of software marketing rights (112,554) -
Deferred acquisition costs (50,000) -
Capital expenditures (34,148) -
NET CASH USED IN INVESTING ACTIVITIES (188,451) -
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 890,250 -
Capital contributions - 216,121
Increase in line of credit 14,902 -
Borrowings from related parties 492,654 -
Increase (decrease) in due to related parties (18,245) 100,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,379,561 316,121
----------------- ------------------
NET INCREASE IN CASH 137,682 -
CASH - beginning of period - -
------------------ ------------------
CASH - end of period $ 137,682 $ -
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
================= =================
Cash paid during the year for interest $ 19,754 $ -
================= =================
Noncash investing and financing activities:
Note payable issued in acquisition $ 100,000 $ -
================== =================
Common stock issued for acquisition $ 500,000 $ -
================== =================
Conversion of related party debt to common stock $ 583,640 $ -
================== =================
Fair value of assets acquired (accounts receivable,
property and equipment and customer lists) $ 248,381 $ -
================== =================
Liabilities assumed in acquisition (accounts payable,
and line of credit) $ 487,727 $ -
================== =================
See notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
CELEXX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
JULY 10, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
1. ORGANIZATION:
Cobra Technologies International, Inc. ("International"), a Delaware
corporation, was formed on July 10, 1998 to acquire select businesses
that produce, service, maintain or support the information
technologies industry.
On February 18, 1999, International was acquired by Spectrum Ventures,
Inc. ("Spectrum"), a Nevada corporation, for 4,500,000 shares of
Spectrum stock (the "Exchange"). The Exchange was completed pursuant
to the Agreement of Merger between International and Spectrum. The
Exchange has been accounted for as a reverse acquisition under the
purchase method for business combinations. Accordingly, the
combination of the two companies is recorded as a recapitalization of
International, pursuant to which International is treated as the
continuing entity. Subsequent to the Exchange, with the approval of
the Board of Directors, Spectrum changed its name to Cobra
Technologies, Inc. On August 3, 1999, Cobra Technologies, Inc. changed
its name to CobraTec, Inc. On November 4, 1999 CobraTec, Inc. changed
its name to CeleXx Corporation ("CeleXx" or the "Company").
On February 18, 1999, prior to the merger with Spectrum, the Board of
Directors of Spectrum declared a 1:24 reverse stock split which
resulted in 713,475 shares outstanding. All periods presented have
been retroactively restated to give effect to this reverse stock
split.
Additionally, on February 18, 1999 the Company issued 200,000 shares
of its common stock as part of the merger agreement with Spectrum in
order to receive a release from an acquisition agreement between
Spectrum and Commercial Computer Systems, Inc. These shares have been
treated as a cost of the merger with Spectrum.
The Company completed an offering of its common stock in April 1999
pursuant to the Securities Act of 1933 and Rule 504 of Regulation D.
The Company offered shares of common stock at $1.00 per share and
received gross proceeds from this offering of $860,250.
On May 25, 1999, CeleXx acquired through its wholly owned subsidiary,
Pinneast.com, Inc ("Pinneast"), all the outstanding shares of Pinnacle
East, Inc., a South Carolina Corporation, engaged in the development
of multimedia educational programs for industry and government.
Pinnacle East, Inc. was acquired for 500,000 shares of CeleXx's common
stock and a $100,000 note payable due in May 2000. Subsequent to the
acquisition Pinnacle East, Inc. was merged into Pinneast, the
surviving corporation.
In June 1999, CeleXx entered into an agreement to acquire Computer
Marketplace, Inc.('CMI'), a Massachusetts company engaged in systems
engineering, design and maintenance of computer network systems. The
acquisition of CMI was completed on April 11, 2000, and as
consideration the Company issued 1,400,000 shares of common stock, a
F-7
<PAGE>
note payable for $1,000,000 bearing interest at 6% due in two equal
annual installments on the anniversary of the closing date and paid
$1,500,000 in cash out of the proceeds from the issuance of preferred
stock (see Note 15).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and its
subsidiary. The accounts of Pinneast.com, Inc. have been
included from the date of acquisition May 25, 1999 through
December 31, 1999. All material intercompany transactions have
been eliminated.
B. ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
C. CASH AND CASH EQUIVALENTS - The Company considers all highly
liquid temporary cash investments with an original maturity of
three months or less when purchased, to be cash equivalents.
D. REVENUE RECOGNITION - Revenues are recognized as services are
provided. Deferred revenue arises from the recognition of the
revenue over the period which the services are provided by the
Company's subsidiary, Pinneast. These contracts are generally
completed in one year or less.
E. INCOME TAXES - Income taxes are accounted for under Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which is an asset and liability approach that
requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial
statements or tax returns.
F. STOCK BASED COMPENSATION - The Company accounts for stock
transactions in accordance with APB Opinion No. 25 "Accounting
for Stock Issued to Employees." Additionally, in accordance
with Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation," the Company has
adopted the proforma disclosure requirements of Statement No.
123.
G. NET LOSS PER SHARE - The Company has adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share;"
specifying the computation, presentation, and disclosure
requirements of earnings per share information. Basic earnings
per share has been calculated based upon the weighted average
number of common shares outstanding. Stock options have been
excluded as common stock equivalents in the diluted earnings
per share because they are either antidilutive, or their
effect is not material.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts
reported in the balance sheet for cash, receivables, accounts
payable and accrued expenses approximate fair value based on
the short-term maturity of these instruments.
F-8
<PAGE>
I. GOODWILL - Goodwill resulting from the acquisition of
Pinneast.com, Inc. represents the remaining unamortized value
of the excess of the purchase price over the fair value of the
net assets of Pinneast.com, Inc. Goodwill is amortized on a
straight line basis over a 10 year period.
J. INTANGIBLE ASSETS - Intangibles assets are from the
acquisition of Pinnacle East, Inc. represents customer lists
and Pinnacle's trade name. These assets are amortized on a
straight line basis over 7 and 10 years, respectively.
Additionally, the Company recorded the costs incurred
acquiring the marketing rights to certain software products.
This license is being amortized over 3 years.
K. IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews
long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the
carrying amounts may not be recovered. At December 31, 1999,
the Company believes that there has been no impairment of its
long-lived assets.
3. ACQUISITION
The following table summarizes the acquisition of Pinneast.com, Inc.:
Purchase price:
Common stock, 500,000 shares issued $ 750,000
Note payable 100,000
--------------------
Total purchase price 850,000
Less: Fair market value of assets acquired (248,381)
Liabilities assumed 487,727
--------------------
Cost in excess of net book value of assets acquired $ 1,089,346
====================
The Company attributed the cost in excess of the net book value of assets
acquired as follows:
Goodwill $ 100,000
Customer list 450,000
Trade name 539,346
--------------------
$ 1,089,346
====================
F-9
<PAGE>
The following unaudited pro-forma information reflects the results of operations
of the Company as though the acquisition had been consummated as of January 1,
1998.
Year Ended December 31,
----------------------------------------------
1999 1998
------------------ --------------------
Revenue $ 1,133,052 $ 840,423
================== ====================
Net loss $ (2,026,865) $ (277,809)
================== ====================
Net loss per share $ (0.24) $ (0.05)
================== ====================
4. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
A. CASH
The Company maintains cash balances at several commercial
banks. Accounts at these financial institutions are insured by
the Federal Deposit Insurance Corporation up to $100,000.
B. ACCOUNTS RECEIVABLE
The concentration of credit risk in the Company's accounts
receivable is mitigated by the Company's credit evaluation
process, credit limits, monitoring procedures and reasonably
short collection terms. Credit losses have been within
management's expectations and the Company does not require
collateral to support accounts receivable. During the year
ended December 31, 1999, three customers accounted for
APPROXIMATELY 42% of the Company's revenue. These customers
accounted for approximately 34% of the Company's outstanding
accounts receivable at December 31, 1999. During the period
from July 10, 1998 (inception) to December 31, 1998, the
Company did not generated any revenue.
5. RELATED PARTY TRANSACTIONS
As of December 31, 1998 the Company had a payable of $100,000 due to
Edinburgh Consulting, an entity which is wholly owned by a shareholder
of the Company. Such payable arose subject to the terms of a consulting
agreement between Edinburgh and the Company. Pursuant to such
agreement, Edinburgh may convert the payable into shares of the
Company's stock upon such shares becoming publically traded. As of
December 31, 1999 the shareholders' of Edinburgh had converted all of
its outstanding debt into shares of the Company's common stock (see
Note 8).
As of December 31, 1999, CeleXx owes $9,013 in advances from a
shareholder of the Company. These advances are non-interest bearing,
uncollateralized and have no specified due date for repayment.
At December 31, 1999, the Company has an unsecured note due to the
former shareholders of Pinnacle East, Inc. for $100,000. This note
bears interest at 6% per annum and the principal balance is due in May
2000.
F-10
<PAGE>
6. INTANGIBLE ASSETS
Intangible assets as of December 31, 1999 are as follows:
December 31,
Useful Life 1999
----------------- ------------------------
Goodwill 10 years $ 100,000
Customer lists 7 years 483,550
Trade name 10 years 538,596
License 3 years 112,122
------------------------
1,234,268
Less: accumulated amortization 119,689
------------------------
$ 1,114,579
========================
7. LINE OF CREDIT
The Company's Pinneast subsidiary has three credit lines with an
aggregate availability of $300,000. As of December 31, 1999, Pineast
has $258,542 outstanding on such lines of credit which expire between
February 1, 2000 and November 10, 2003 and bear interest at 8.75% per
annum. The lines are secured by substantially all the assets of
Pinneast.
8. STOCKHOLDERS' EQUITY
During the year ended December 31, 1999, a related party, Edinburgh
Consulting, converted the $448,640 owed to it for 1,733,333 shares of
the Company's common stock. Pursuant to a consulting agreement between
CeleXx and Edinburgh Consulting, 1,333,333 of these shares were issued
at $0.10 per share or $133,333. The additional 400,000 shares were
issued at $0.78 per share or $315,307.
In November 1998, CeleXx entered into an agreement with an entity
partially owned by a Director of the Company for financial consulting
services. The Company paid such entity 500,000 shares of its common
stock and valued these shares at $ .25 per share and accordingly, has
recorded compensation expense of $125,000. In February 1999, the
Company entered into an agreement with a financial consultant and
issued 300,000 shares of its common stock for cash at $.10 per share
aggregating $30,000 and recorded $270,000 in compensation expense for
services provided.
In 1999, the Company issued 860,250 shares in a private placement at
$1.00 per share for total proceeds of $860,250.
In November 1999, the Company issued 400,000 shares of its common stock
to a company which provides financial services. These services are to
include raising future equity on behalf of the Company. The Company
valued the shares at the fair market value on the date of issuance and
recorded deferred financing costs of $250,000. This financing cost will
be recorded as a reduction to additional paid-in capital pursuant to
the preferred stock offering in April 2000.
F-11
<PAGE>
From November 1999 to December 1999, the Company issued 400,000 shares
of its common stock to a third party in order to satisfy its debt
obligations of $135,000. These shares were valued at $184,000 and the
Company recorded $49,000 in interest expense.
In November 1999, the Company issued 650,000 shares of its common stock
to two parties, each of which provided services to the Company in the
first quarter of 1999. The Company valued these shares $.25 and
recorded compensation expense of $162,500.
In December 1999, the Company issued 150,000 shares of its common stock
to settle a judgement brought against the Company. The company recorded
$91,200 in expense regarding this settlement.
9. EMPLOYMENT AGREEMENTS
On March 1, 1999 CeleXx entered into three year employment agreements
with two of the Company's officers. Such employment agreements
aggregate $145,000 annually through December 31, 1999 and $270,000
annually through February 28, 2002.
10. PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock
at $.001 par value, the terms of which may be determined at the time of
issuance by the Board of Directors without further action by the
shareholders.
11. STOCK OPTION PLAN
On March 1, 1999 the Board of Directors (the"Board") adopted the CeleXx
Corporation 1999 stock option plan. The Board or CeleXx's compensation
committee is authorized to issue to eligible persons as defined a
maximum amount of 1,000,000 options under such plan. No options have
yet to be issued pursuant to the above plan.
12. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for
the expected future tax benefit to be derived from tax loss and tax
credit carryforwards. SFAS 109 additionally requires the establishment
of a valuation allowance to reflect the likelihood of realization of
deferred tax assets.
F-12
<PAGE>
The provision (benefit) for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income (loss) before provision
for income taxes is as follows:
December 30, December 31,
1999 1998
------------- --------------
Taxes benefit computed at statutory rate $ (763,000) $ (107,000)
Losses for which income tax benefit not
utilized 763,000 107,000
------------- --------------
Net income tax benefit - -
============= ==============
The Company has a net operating loss carryforward for tax purposes totaling
approximately $2,223,000 at December 31, 1999 expiring in between the years 2014
and 2019.
Listed below are the tax effects of the items related to the Company's net tax
liability:
December 31, December 31,
1999 1998
------------- --------------
Tax benefit of net operating loss
carryforward $ 763,000 $ 107,000
Valuation Allowance (763,000) (107,000)
------------- --------------
Net deferred tax asset recorded $ - $ -
============= ==============
13. COMMITMENT
In May 1999 CeleXx entered into a five year lease for office space at
an annual base rental of $92,500 for the initial year. Such base rental
shall increase by 4% each year. The lease is to commence when such
premises are available for occupancy. CeleXx is currently leasing
temporary office space from the same landlord at $5,300 per month.
14. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS
131 also establishes standards for related disclosures about products
and services, and geographic areas. Operating segments are identified
as components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating
decision maker or decision making group, in making decisions how to
allocate resources and assess performance. To date, the Company
through its subsidiary, Pinneast, has operations in principally one
segment, the development of multimedia educational programs for
industry and government within the United States. Therefore, the chief
operating decision maker does not receive discrete financial
information about individual components of the Company's operations.
F-13
<PAGE>
15. SUBSEQUENT EVENT
On April 10, 2000, the Company issued 350 shares of 6% series A convertible
preferred stock at $10,000 per share plus common stock purchase warrants and
received gross proceeds of $3,500,000. The preferred shares are convertible at
the lower of the closing bid price on the day preceding the closing of a common
stock offering or 80% of the five day common stock average price prior to the
date of conversion. Th shares are convertible immediately upon the effectiveness
of a registration statement. The Company maintains a redemption option at 125%
of the common stock offering price.
F-14
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
16
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company. Directors will be
elected at the Company's annual meeting of shareholders and serve for one year
or until their successors are elected and qualify. Officers are elected by the
Board and their terms of office are, except to the extent governed by employment
contract, at the discretion of the Board.
Executive Officers and Directors
NAME AGE POSITIONS HELD
Douglas H. Forde 57 Chairman, President and CEO
David C. Langle 49 Vice President Finance and CFO
Lionel Forde 55 Director and Vice President
Vincent Caminiti 47 Director and COO
Moty Hermon 57 Director
William Lerner 63 Director
David Burke 56 Director and CEO of CMI
John Straatsma 45 Secretary
DOUGLAS H. FORDE. Mr. Forde has been Chairman of the Board of Directors,
President and Chief Executive Officer since August 1999. From June 1998 until
August 1999, he was Director of Mergers and Acquisitions for the Company. From
November 1996 until June 1998, Mr. Forde was Vice President, Strategic Planning
for Computer Access International, Inc. Prior to November 1996, Mr. Forde had
been a business consultant to numerous companies, ranging from the Fortune 500
to smaller entrepreneurial businesses. He is a graduate of the University of the
Virgin Islands, the University of Illinois, and the Bernard M. Baruch College of
the City University of New York and holds degrees in accounting, finance, and
taxation.
DAVID C. LANGLE. Mr. Langle is currently the Company's Vice President,
Finance and Chief Financial Officer. Mr. Langle joined the Company in March
2000. Prior to joining the Company, he was Vice President and CFO of Terra
Telecommunications Corp. since September 1997. Mr. Langle has also served in
various senior management capabilities as Vice President, Chief Financial
Officer and Director for three Florida based NASDAQ and OTC companies. From 1982
to 1991 Mr. Langle was employed by the Miami office of Spicer & Oppenheim,
CPA's, an international accounting and consulting firm where he concluded his
tenure as an Audit Partner. He is a CPA and has a Bachelor of Science Degree
from the University of Illinois in Chicago.
LIONEL FORDE. Mr. Forde is Vice President ,former Chief Financial Officer
and a Member of the Board of Directors of the Company since February 1999. From
November 1997 until February 1999 he was President of the international group at
Computer Access International, Inc., responsible for developing markets in the
Caribbean and Latin America. Prior to that, Mr. Forde was a senior manager in
the Color Paper Products Division at Eastman Kodak Company. He holds an MBA
(Honors) degree from Long Island University and a BS degree in Business
Administration from Eastern Illinois University.
17
<PAGE>
VINCENT A. CAMINITI. Mr. Caminiti is Chief Operating Officer and a member
of the Board of Directors of the Company since January of 1999. . Since June of
1998 Mr. Caminiti has devoted full time to the business development of CeleXx
Corporation. Beginning in 1994 through 1998 Mr.. Caminiti was Managing Director
of Rendo International, LTD. The Company, with offices in Denver, Los Angeles,
Hong Kong & London, was active in business consulting for clients in the
Communications and Information Technology fields. The business included
identifying strategic business alliances and developing new market strategies
for clients, such as CBS Television to distribute programming in the Asian
markets.
MOTY HERMON. Mr. Hermon has been a Member of Board of Directors since
February 1999. Mr. Hermon has been an international investment banker and
business consultant for the past five years. From December 1979 to December
1986, he served as General Manager of Elron, Inc., a New York Stock Exchange
listed company. Elron is the largest group of high tech companies in Israel with
revenues of approximately $1.5 billion. From December 1992 to November 1994, Mr.
Hermon was the exclusive representative and partner of Prudential Securities in
Israel. He was also the exclusive representative and partner of TA Associates
from January 1986 to July 1988. TA Associates is a Boston based venture capital
firm with over $1.5 billion under management. Mr. Hermon holds a BA in Economics
and Political Science from Tel-Aviv University.
WILLIAM LERNER. Mr. Lerner has been a member of the Board of Directors
since February 1999. Since 1994, Mr. Lerner has been in the private practice of
corporate and securities law with offices in Pennsylvania and Florida. Mr.
Lerner is also Counsel to the law firms of Sweeney & Associates (Pittsburgh) an
Snow Becker Krauss, PC (New York). He is a director of Seitel, Inc. (a NYSE
listed oil and gas producing company), Helm Resources, Inc. (an Amex listed
company that provides mezzanine financing to middle market companies), and
Micros-to-Mainframes, Inc. (a NASDAQ listed company and producer of high-
technology communications and computer services to Fortune 500 companies). Mr.
Lerner is a graduate of Cornell University (1955) and of the New York University
School of Law (1960). He is a member of the bars of New York and Pennsylvania.
He has served with the U.S. Securities and Exchange Commission, the American
Stock Exchange and as General Counsel to Hornblower, Weeks, Hemphill & Noyes, a
New York Stock Exchange brokerage/investment firm.
DAVID BURKE Sr. Mr. Burke was recently appointed as a member of the
Board of Directors of the Company and CEO of Computer Marketplace, Inc. (CMI), a
company he founded in 1983. Prior to CMI, Mr. Burke had fifteen years in a
career that spanned several management positions including technical supervisor,
manufacturing engineering manager, production manager, and international sales
manager with the Metrigraphics Division of Dynamics Research Corporation, a
multinational manufacturer and distributor of electro-optical products. Mr.
Burke received his technical and business education at Worchester Polytechnic,
Lowell Technological Institute and Boston University. He also received
specialized training in information systems from Novell, Microsoft, IBM, HP,
Compaq and other "Tier One" microcomputer and software producers. He is a Member
of the American Production & Inventory Control Society. He co-authored
"Metriform Fabrication, Electronic Packaging and Production," May 1981, Chaners
Publishing.
JOHN STRAATSMA. Mr. Straatsma has served as secretary since October of
1999. Since August of 1998, he has acted as a consultant to CeleXx for business
development and operations. In September 1995, Mr. Straatsma founded, and since
has acted as president of Consultants Ltd., a company that performs consulting
work for companies active in the IT industry. For January 1983 until August
1995, Mr. Straatsma was president of Trinidad Computers Ltd., a company he
helped to found. His educational background includes a Bachelor of Commerce
degree from the University of Guelph, in Guelph, Ontario, Canada, and a Master
of Science degree in Management from Florida International University, Miami,
Florida.
18
<PAGE>
Item 10. Executive Compensation
The following table sets forth information relating to the compensation
paid by CeleXx during the past fiscal year (CeleXx had no operations prior to
January 1, 1999) to its Chief Executive Officer and President. No options were
granted to, and no options were exercised by any of our executive officers or
directors during 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------------------------- --------------------------------------
Awards
------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------------------------------------------------------------------------------------------------------
Doug Forde, Chairman, 1999 $ 34,900 -0- -0- -0- -0- -0- -0-
President and CEO 1998 $ 60,000
- -----------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Alternative
Value At To
Assumed Annual Rates Of (f) and (g):
Stock Grant Date
Price Appreciation For Value
Option
Term
Grant Date
5% ($) 10% ($) Present
(f) (g) Value $
(h)
Doug Forde -0- -0- N/A N/A N/A N/A N/A
</TABLE>
19
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 1999, of each person named in the summary compensation table and
the unexercised options held as of the end of the 1999 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs At Fiscal Year-
Shares At Fiscal Year-End End
Acquired On Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Doug Forde N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
EMPLOYMENT AGREEMENTS
DOUGLAS H. FORDE, CHAIRMAN OF THE BOARD AND PRESIDENT
Under the terms of an employment agreement between the Company and Mr.
Forde, in consideration for his services to the Company, Mr. Forde will receive
an annual base salary of $150,000 as of January 1, 2000. Mr. Forde is also
eligible to participate in the Company's Incentive Stock Option Plan.
LIONEL FORDE, VICE PRESIDENT AND DIRECTOR
Under the terms of an employment agreement between the Company and Mr.
Forde, in consideration for his services to the Company, Mr. Forde will receive
an annual base salary of $120,000 as of January 1, 2000. Mr. Forde is also
eligible to participate in the Company's Incentive Stock Option Plan.
All Executive Officers of the Company are extended Employment Contracts
with a term of three (3) years, renewable annually thereafter.
1999 STOCK OPTION PLAN
On March 1, 1999 we adopted and implemented a Stock Option Plan (the
"Plan"). The Plan increases the employees', advisors', consultants' and
non-employee directors' proprietary interest in us and aligns more closely their
interests with the interests of our shareholders. The Plan also maintains our
ability to attract and retain the services of experienced and highly qualified
employees and non-employee directors.
Under the Plan, we reserved an aggregate of 1,000,000 shares of common
stock for issuance pursuant to options granted under the Plan ("Plan Options").
Our Board of Directors or a Committee of the Board of Directors (the
"Committee") will administer the Plan including, without limitation, the
selection of the persons who will be granted Plan Options under the Plan, the
type of Plan Options to be granted, the number of shares subject to each Plan
Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Nonqualified Options"). In addition, the Plan also allows for the inclusion
ofa reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of common stock owned
by the eligible person and receive a new Plan Option to purchase shares of
common stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of our common stock must be at least 110% of such fair
market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee, provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant.
The exercise price of Nonqualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
21
<PAGE>
Our officers, directors, key employees and consultants and our
subsidiaries (if applicable in the future) will be eligible to receive
Nonqualified Options under the Plan. Only our officers, directors and employees
who are employed by us or by any subsidiary thereof are eligible to receive
Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of but is a member of our Board of
Directors and his service as a Director is terminated for any reason, other than
death or disability, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date or 30 days following the date
of termination. If the optionee dies during the term of his employment, the Plan
Option granted to him shall lapse to the extent unexercised on the earlier of
the expiration date of the Plan Option or the date one year following the date
of the optionee's death. If the optionee is permanently and totally disabled
within the meaning of Section 22(c)(3) of the Internal Revenue Code of 1986, the
Plan Option granted to him lapses to the extent unexercised on the earlier of
the expiration date of the option or one year following the date of
suchdisability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefore (except in either case in the event of adjustments due to
changes in our capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan has
been suspended or terminated by the Board of Directors, the Plan shall terminate
in approximately 10 years from the date of the Plan's adoption. Any such
termination of the Plan shall not affect the validity of any Plan Options
previously granted thereunder.
As of March 31, 2000 no options have been granted.
Section 16(a) Beneficial Ownership Reporting Compliance
COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, each
executive officer, director and beneficial owner of 10% or more of the Company's
Common Stock is required to file certain forms with the Securities and Exchange
Commission. A report of beneficial ownership of the Company's Common Stock on
Form 3 is due at the time such person becomes subject to the reporting
requirement and a report on Form 4 or 5 must be filed to reflect changes in
beneficial ownership occurring thereafter. During the year ended December 31,
1999 and as of March 31, 2000, none of the executive officers, directors, and
beneficial owners of 10% or more of the Company's Common Stock were current with
these filing requirements.
22
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
Company's shares ("Shares") of Common Stock, par value $.001, beneficially owned
as of March 31,2000 for:
- - each shareholder known by the Company to be the beneficial owner of five
(5%) percent or more of the Company's outstanding Common Stock, each of the
Company's executive officers and directors, and
- - all executive officers and directors as a group.
In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities to
which the person has the right to acquire beneficial ownership within sixty (60)
days. As of March 31,2000 there were 12,912,813 shares of Common Stock
outstanding.
Approximate
Percentage of
No. of Outstanding Shares
NAME(1) SHARES
BENEFICIALLY OWNED
Douglas H. Forde 775,000 6.0%
Lionel Forde(2) 650,000 5.0
Vincent Caminiti 750,000 5.8
Moty Hermon 500,000 3.9
William Lerner - -
Michelle J. Michalow(3) 1,150,000 8.9
John W. Straatsma 250,000 1.9
All Executive Officers and
Directors as a group (6 persons) 2,925,000 22.65
- ----------
(1) Unless otherwise indicated, the address of each of the persons set forth
above is 7251 West Palmetto Park Road, Boca Raton, FL 33433.
(2) Lionel Forde is the brother of Douglas H. Forde.
(3) Ms. Michalow is a former officer of CeleXx. Includes 1,733,333 shares owned
by Edinburgh Consulting, which is wholly-owned by Ms. Michalow.
Item 12. Certain Relationships and Related Transactions
In November 1998, we entered into an agreement with Girmon Investment
Co., Limited, a company which is 33% owned by Moty Hermon, a member of our board
of directors. The agreement is for corporate finance advisory services for an
initial period of 36 months. As consideration for business, advisory and other
consulting services performed on our behalf, Girmon Investment received 500,000
shares of our Common Stock. Each share was valued at $.25 for an aggregate value
of $125,000.
Since February 1998, Edinburgh Consulting, an entity that is
wholly-owned by Michelle J. Michalow, a former officer of CeleXx, has loaned us
$664,761. In December 1998, Edinburgh contributed to capital $216,121. In
February 1999, pursuant to the terms of a consulting agreement between Edinburgh
and CeleXx, Edinburgh converted $133,333 of the outstanding debt into 1,333,333
shares of our common stock at $.10 per share. Additionally, in March 1999
Edinburgh converted the remaining $315,307 into 400,000 shares of our common
stock at $.78 per share.
23
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
The Exhibits listed below are filed or incorporated by reference
herein.
EXHIBIT INDEX
-------------
Exhibit Description of Document
Number -----------------------
- ------
21.1 Subsidiary ofCeleXx Corporation.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended December 31,1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 17, 2000 REGISTRANT:
CeleXx Corporation
By: /s/ Doug H. Forde
-----------------------
Doug H. Forde
President, Chairman of the Board,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Doug H. Forde March 31, 2000
---------------------------------------------------
Doug H. Forde
President, Chairman of the Board,
and Chief Executive Officer
(principal executive officer)
By: /s/ David C. Langle March 31, 2000
---------------------------------------------------
David C. Langle
Vice President Finance
And Chief Financial Officer
By: /s/
---------------------------------------------------
Director
By: /s/
---------------------------------------------------
Director
By: /s/
---------------------------------------------------
Director
A copy of the Company's Annual Report on Form 10-KBS for the year ended December
31, 1999, with exhibits, may be obtained by any stockholder of the Company,
without charge, by writing to: CELEXX CORPORATION, Attn: Investor Relations,
7251 W. Palmetto Road, Suite 208, Boca Raton, FL 33433
25
<PAGE>
Exhibit Index
-------------
Exhibit
Number Description of Document
------ -----------------------
21.1 Subsidiary of CeleXx Corporation
27 Financial Data Schedule
EX-21.1 SUBSIDIARY OF CELEXX CORPORATION
Exhibit 21.1 - Subsidiary of CeleXx Corporation
Name Jurisdiction
---- ------------
Pinneast.com, Inc. South Carolina
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0
0
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