U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
CELEXX CORPORATION
(Name of Small Business Issuer in its charter)
NEVADA 65-0728991
(State of incorporation) (I.R.S. Employer Identification No.)
7251 WEST PALMETTO PARK ROAD, SUITE 208
BOCA RATON, FLORIDA 33433
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER (561) 395-1920
- ------------------------------------------------------------------------------
Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
<PAGE>
106215-0100 262142.1
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Celexx Corporation ("Celexx" or the "Company") 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 Pinneast.com, 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, received 275,000 and 225,000
common shares, respectively.
Celexx Corporation has a short operating history, and since the
inception has generated losses from operations on a consolidated basis amounting
to $1,694,032. At present, the only material business that has been successfully
combined with the Company is Pinneast.com, Inc. Pinneast has had net losses of
$91,000 and $131,000 for 1997 and 1998, respectively. At present, Celexx lacks
revenues and the Company has not achieved its business plan. 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.
Our 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 Apenny 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.
<PAGE>
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.com,
a six-year-old Columbia, South Carolina based company. Since then, Pinneast's
revenues and contracts for future business have increased substantially. For the
fiscal year ended December 31, 1999, Pinneast expects to report an operating
profit of $300,000 (compared to a loss from operations of $131,000 in 1998) on
revenues of $1.2 million, (up from $840,000 in 1998). 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)
is scheduled to be completed on or about March 15, 2000. Negotiating the
acquisition of any business is inherently complex, involving matters of law,
taxation, finance and control, among others issues. While we expect to
successfully complete the acquisition of CMI, we cannot provide assurances that
the merger will be consummated. In addition, Celexx is highly dependent upon
outside financing (from banks, financial institutions, venture capitalists, or
private investors) for capital to complete the acquisition of CMI and other
businesses. Celexx has received letters of interest from financial institutions
and believes that the consummation of the merger with CMI is likely.
Nevertheless, for all the foregoing reasons and the Company's limited operating
history, which, despite increasing revenues at Pinneast.com, has resulted in
operating losses to date, Celexx can provide no assurance that such financing
will become available under terms and conditions acceptable to Celexx.
Consequently, if Celexx is unsuccessful in completing the acquisition of CMI,
its prospects for growth will be greatly diminished.
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.
If we are successful in acquiring CMI, and there can be no assurance
that we will, 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.
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 complimentary 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 planned acquisition of CMI (currently
scheduled to occur on or about March 15, 2000), 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 (which acquisition is planned for March, 2000) 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; 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.
PINNEAST.COM, INC.
Pinneast.com, Inc. was formed in January 1994 in order to capitalize on
the growing demand for computer-based alternatives to instructor led 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 is on track to report revenues of about $1.2
million. After two consecutive years of losses, the company expects to report a
profit of more than $300,000 in 1999. Early financials indicate that the
company's revenues for 1999 are approximately $1.2 million with a profit of
about $300,000.
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%.
Company 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-led training
and consultation. The Company=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, the
Company 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.
The Company'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, developed and experienced B 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.
In June 1999, the Company reached a definitive agreement to acquire
Computer Marketplace, Inc. (CMI) for $5 million. The purchase price is payable
as follows: $1.25 million in cash at closing, a promissory note for $1.25
million at 6%, payable in equal installments at the first and second
anniversaries, and 1,000,000 Common Shares of CeleXx stock. Currently, attorneys
for CMI and CeleXx are working to complete the closing documents and required
schedules (see Exhibit 2.1 ). Nevertheless, and in spite of the fact that CeleXx
has reached agreement with a lender to provide the capital necessary to complete
this merger transaction, due to the low market value of our stock and our
limited operating history which has resulted in operating losses, the financing
needed to fund this acquisition may not be available at all or may not be
available on acceptable terms. Also, due to the inherent complexities in
corporate finance transactions, there may be issues upon which the Company and
CMI will not agree. As such, there is a risk that this transaction may not be
completed under the current terms or not at all.
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 $17
million and pretax earnings of $1.1 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. The company also recognized the opportunity to utilize this new
focus to expand its market nationwide and establish an international presence.
Consequently, the company shifted its focus from individuals and small
operations to a purely corporate focus. The company 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
the company 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.
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. The company 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, the company 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.
For the fiscal year ending, February 2000, CMI is forecasting revenues in excess
of $17 million and pretax earnings of $1.1 million.
The acquisition of CMI falls well within our criteria for acquisition
and the consummation of this acquisition is probable. The financing required to
pay the $1.25 million cash required at closing has been arranged and an
agreement in principle signed with the lender. The date for closing on CMI is
March 15, 2000.
On January 6, 2000, the Company signed a financing agreement with
Brennan Dyer & Company LLC ("Brennan Dyer"), a private investment banking firm,
based in Chattanooga, Tennessee to raise $3,000,000 for the Company through the
sale of shares of the Company's Convertible Preferred Stock ("Preferred
Shares"). Approximately $1.5 million of the net proceeds (including accounting
and attorneys fees) have been earmarked for the acquisition of CMI.
The Preferred Shares will pay dividends at the rate of 8% 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), 120% of the 5-day trading
average closing bid price of the common shares prior to the closing of the
transaction or (b), the discounted average bid price on the date of conversion.
The discounted average bid price means 70% of the average of the daily closing
bid prices of the Company's Common Stock for the 5 consecutive trading days
immediately preceding the date of conversion notice. In any event, the Company
may require conversion of the entire balance of outstanding Preferred Shares,
based on the above-mentioned formulas, after two years.
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.
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 100% of the average closing bid price for the 5
trading days 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 120% of the principal amount. However, the
Company must give investors 30 days notice prior to such redemption.
The offering is subject to the Company being a fully reporting company
current on all SEC filings, and the mutual approval of the closing documents by
attorneys for both Celexx and Brennan Dyer.
IF, FOR ANY REASON, WE ARE UNSUCCESSFUL IN ACQUIRING CMI, WE WILL MAKE
EVERY REASONABLE EFFORT TO REPLACE CMI WITH A SUITABLE ACQUISITION CANDIDATE IN
THE SAME FIELD; HOWEVER, THERE CAN BE NO ASSURANCES THAT WE WILL BE SUCCESSFUL
IN FINDING SUCH AN ACQUISITION OR THAT WE WILL BE ABLE TO NEGOTIATE SUITABLE
TERMS AND OBTAIN THE FINANCING NECESSARY TO COMPLETE THE ACQUISITION. IN
ADDITION, THE LOSS OF CMI WILL HAVE A MATERIAL IMPACT UPON OUR REVENUE AND
PROFIT PROJECTIONS FOR THE YEAR 2000, AS CMI CURRENTLY HAS SUBSTANTIALLY GREATER
REVENUES AND PROFITS THAN THE COMPANY AS A WHOLE.
<PAGE>
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 $5,300 and the lease terminates in 2004.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and positions with
CeleXx and ages of our executive officers and directors. Directors will be
elected at our annual meeting of shareholders and serve for one year or until
their successors are elected and qualify. Officers are elected by the board of
directors and their terms of office are, except to the extent governed by
employment contract, at the discretion of the board of directors. Douglas H.
Forde and Lionel Forde have entered into three year employment agreements with
Celexx.
NAME AGE POSITIONS HELD
Douglas H. Forde 57 Chairman, President and CEO
Lionel Forde 55 Director, Vice President,
and CFO
Vincent Caminiti 47 Director
Moty Hermon 56 Director
William Lerner 62 Director
Vito Gambelunghe 47 Director
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.
LIONEL FORDE. Mr. Forde has been Vice President & 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.
VINCENT A. CAMINITI. Mr. Caminiti has been 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.
VITO A. GAMBELUNGHE. Mr. Gambelunghe has been a member of the Board of
Directors since January 1999. From January 1999 until August 1999, Mr.
Gambelunghe was President and Chief Executive Officer of the Company. Prior to
January 1999, Mr. Gambelunghe had been President of Worldwide Trading
Enterprises, Inc., a private enterprise engaged in the procurement, sale and
global distribution of computer equipment, software, and solutions. Mr.
Gambelunghe is a graduate of Brooklyn College.
JOHN W. 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.
ITEM 4. 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 1998.
<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
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Doug Forde, Chairman, 1998 $ 60,000 -0- -0- -0- -0- -0- -0-
President and CEO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Doug Forde -0- -0- N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1998, of each person named in the summary compensation table and
the unexercised options held as of the end of the 1998 fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------------------------
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>
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, CHIEF FINANCIAL OFFICER 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 of
a 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.
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 such
disability.
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.
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
Company's shares ("Shares") of Common Stock, par value $.001, beneficially owned
as of November 30, 1999, 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 November 30, 1999, there were 10,557,058 shares of Common Stock
outstanding.
Approximate
Percentage of
No. of Outstanding Shares
NAME(1) SHARES
BENEFICIALLY OWNED
Douglas H. Forde 775,000 7.3%
Lionel Forde(2) 650,000 6.2
Vincent Caminiti 250,000 2.4
Moty Hermon 500,000 4.7
Vito Gambelunghe 500,000 5.4
William Lerner - -
Michelle J. Michalow(3) 2,483,333 23.5
John W. Straatsma 50,000 2.4
All Executive Officers and
Directors as a group (6 persons) 2,925,000 27.7
- ----------
(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 6. INTEREST OF MANAGEMENT AND CERTAIN 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 $.25for 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.
ITEM 7. DESCRIPTION OF SECURITIES
We are authorized to issue 20,000,000 shares of common stock, par value
$.001 per share, and 1,000,000 shares of preferred stock, par value $.001. As of
November 30, 1999, there were 10,557,058 shares of common stock issued and
outstanding, and no shares of preferred stock outstanding.
COMMON STOCK
Each share of common stock entitles the holders thereof, to one vote.
Holders of common stock do not have cumulative voting rights. This means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. Our
bylaws require that only a majority of the issued and outstanding shares of our
common stock need be represented to constitute a quorum and to transact business
at a shareholders= meeting. The common stock has no preemptive, subscription or
conversion rights, and is not redeemable by us. Dividends are not anticipated to
be declared by the Board of Directors. Upon our liquidation, dissolution or
winding up, after payment to creditors and holders of any outstanding shares of
preferred stock, our assets will be divided pro rata on a per share basis among
the holders of the common stock.
PREFERRED STOCK
We are authorized to issue 1,000,000 shares of preferred stock, $.001
par value per share, of which no shares are outstanding as of the date hereof.
The preferred stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by the Board of Directors, without further
action by shareholders, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions.
The issuance of any preferred stock could adversely affect the rights of the
holders of common stock and, therefore, reduce the value of the common stock.
The ability of the Board of Directors to issue preferred stock could discourage,
delay or prevent the takeover of CeleXx.
SHARES ELIGIBLE FOR FUTURE SALES
As of November 30, 1999, we had outstanding, an aggregate of 10,557,058
shares of common stock. Of the total outstanding shares of common stock,
1,632,203 shares of common stock are freely tradable without restriction or
further registration under the Act. The remaining 8,924,855 shares of common
stock will be eligible for resale after March 1, 2000 under Rule 144.
Under Rule 144, a person (or persons whose shares of common stock are
aggregated) who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, would
be generally entitled to sell, within any three month period, a number of shares
that does not exceed the greater of:
(i) 1% of the number of the then outstanding shares of the
common stock, or (ii) the average weekly trading volume of the
common stock in the public market during the four calendar
weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions notice requirements and the availability of current public
information about CeleXx. Any person (or persons), whose shares are aggregated
and who is not deemed to have been an affiliate of CeleXx at any time during the
three months preceding a sale and who has beneficially owned shares for at least
two years (including any period of ownership of preceding nonaffiliated
holders), would be entitled to sell such shares under Rule 144 (k) without
regard to the volume limitations, manner-of-sale provisions, public information
requirements or notice requirements.
CERTAIN NEVADA LEGISLATION
Nevada law and our Articles and Bylaws authorize us to indemnify our
directors, officers, employees and agents. We have insurance in place to satisfy
said requirements. In addition, our Articles and Nevada law presently limit the
personal liability of corporate directors for monetary damages, except where the
directors
(i) breach their fiduciary duties; and
(ii) such breach constitutes or includes certain violations of
criminal law, a transaction from which the directors derived
an improper personal benefit, certain unlawful distribution or
certain other reckless, wanton or willful acts or misconduct.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON CELEXX CORPORATION'S COMMON
------------------------------------------------------------
EQUITY AND OTHER STOCKHOLDER MATTERS
------------------------------------
As of November 30, 1999, there were approximately 184 shareholders of
record of our Common Stock. 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 $.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 $.63
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.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings filed, or to our knowledge, threatened
against Celexx that we believe would have, individually or in the aggregate, a
material adverse effect upon our financial condition or results of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
All Shares below reflect the number of shares issued after giving
effect to a 1 for 24 reverse split in Spectrum Ventures, Inc. shares, which was
approved by shareholders of Spectrum Ventures, Inc. on February 18, 1999.
Prior to the Merger of CobraTec, Inc. and Spectrum Ventures, Inc.
("Spectrum"@), on February 18, 1999, Spectrum raised $11,000 from sales made
pursuant to a Regulation D - Rule 504 Offering Memorandum dated February 27,
1997. There were 101 purchasers, including friends, relatives or acquaintances
of Spectrum's Officers, Directors and Affiliates. The aggregate number of shares
of common stock issued was 45,833. Spectrum Ventures, Inc. ("Spectrum"), a
Nevada corporation, was listed on the OTC Bulletin Board (symbol SCMV).
While pursuing its business plan, Spectrum conducted a Regulation D -
Rule 504 Offering pursuant to an Offering Memorandum dated February 27, 1998,
whereby it raised an additional $84,900 from 24 shareholders for an aggregate
number of 3,538 shares of Spectrum common stock.
In September 1998, three key employees were issued an aggregate of
1,397 shares of our common stock in reliance upon an exemption provided by
Section 4(2) of the Securities Act of 1933 and are restricted securities.
In December 1998, 10,458 shares, in aggregate, of Spectrum's common
stock were issued to D. F. Mintmire - (Spectrum's Attorney), Neil Rand -
(Spectrum's Consultant), and William Custer - (Vendor for Application Software
Development, Inc.) in exchange for services and release of personal debt of
certain officers and directors of Spectrum.
In June 1997, 28,333 shares of Spectrum's common stock were issued to
Larry K. Danley and Jacqueline C. Danley, E.H. Frankland Trust, Arthur Hansuld,
Peter S. Harlee, Jr., John Roy Gough and Virginia L. Gough, Bill Sheffield and
Angela D. Sheffield, Howard Crosby and Marc Donovan, all shareholders of
Commercial Computer Systems, Inc. in connection with Spectrum's acquiring
exclusive marketing rights to 5 proprietary software products from Commercial
Computer Systems, Inc. ("CCS"), a Florida corporation, an asset purchase for
which Spectrum relied upon Regulation D - Rule 504 as an exemption from
Registration.
On February 18, 1999, we merged with Spectrum Ventures, Inc.
("Spectrum"), a Nevada corporation. Pursuant to the Merger, Spectrum
shareholders received 713,475 shares of Celexx, Inc.'s common stock. As a
consideration to cancel a letter of intent for Spectrum to acquire Commercial
Computer Systems, Inc., we issued an additional 200,000 shares of our common
stock to Commercial Computer Systems, Inc. Accordingly, the issuance of these
securities was exempt from the registration requirements of the act pursuant to
Section 4(2) of the Act. Also on February 18, 1999 the founders of Celexx,
pursuant to a share exchange agreement with Spectrum, received 4,500,000 common
shares as a condition of the merger.
As a condition of the retirement of related party debt in the amount of
$448,640 with Edinburgh Consulting, Inc., a consulting firm owned by Michelle
Michalow, a former officer of Celexx, 1,733,333 shares were issued. Pursuant to
a Consulting Agreement between Celexx and Edinburgh, $133,333 was converted at
$.10 per share. The remaining $315,307 was converted at $.78 per share.
The issuance of the securities was exempt from registration requirements of the
Act pursuant to Section 4(2) of the Act.
In November 1998, we entered into an agreement with Girmon Investment
Co., Limited ("Girmon"), a company which is 33% owned by Moty Herman, a member
of our board of directors for corporate finance advisory services for an initial
period of 36 months. As consideration for business, advisory and other
consulting services performed on behalf of the Company, Girmon received 500,000
shares of our common stock valued at $125,000 or $.25 per share.
In February 1999, we issued 300,000 shares of common stock to Crabbe
Capital for $30,000, for financial advice, consulting services and market
strategies provided by Crabbe. The issuance of the securities was exempt from
registration requirements of the Act pursuant to Section 4(2) of the Act.
In March 1999, Celexx conducted an offering of common stock at $1.00
per share pursuant to Rule 504 of Regulation D under the Act. Management sold an
aggregate of 860,250 shares of common stock for an aggregate of $860,250.
Accordingly, the issuance of these securities was exempt from registration
requirements of the Act pursuant to Section 4(2) of the Act.
In May 1999, we signed a merger agreement and took effective control of
West Columbia, SC-based Pinneast.com for a combination of cash and stock. In
exchange for all of the outstanding stock of Pinneast, an aggregate of 500,000
shares of our common stock were issued to the Pinneast.com shareholders and a
cash payment of $100,000 (deferred for one year). The shares of common stock
were valued at $1.50 per share. Accordingly, the issuance of these securities
was exempt from registration requirements of the Act pursuant to Section 4(2) of
the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of a Nevada
corporation. Our Certificate of Incorporation and the Bylaws provide that the
corporation shall indemnify its directors and officers to the fullest extent
permitted by the Corporation Act. Insofar as indemnification for liabilities
arising under the Act may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Act and is therefore unenforceable.
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CELEXX CORPORATION
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheet................................................F-3
Consolidated Statement of Operations......................................F-4
Consolidated Statement of Stockholders' Equity (Deficit)..................F-5
Consolidated Statement of Cash Flows......................................F-6
Notes to Consolidated Financial Statements............................F-7-F-12
PINNACLE EAST, INC
Independent Auditors' Report..............................................F-13
Balance Sheets............................................................F-14
Statements of Operations..................................................F-15
Statements of Cash Flows..................................................F-16
Notes to Financial Statements........................................F-17-F-18
COMPUTER MARKETPLACE, INC
Independent Auditors' Report..............................................F-19
Balance Sheets............................................................F-20
Statements of Operations..................................................F-21
Statements of Cash Flows..................................................F-22
Notes to Financial Statements........................................F-23-F-26
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Proforma Financial Statements..............................F-27
Unaudited Proforma Consolidated Balance Sheet.............................F-28
Unaudited Proforma Condensed Consolidated Statement of Operations
(Nine months ended September 30, 1999)....................................F-29
Unaudited Proforma Condensed Consolidated Statement of Operations
(Year ended December 31, 1998)............................................F-30
Notes to Unaudited Pro-Forma Condensed Consolidated Financial Statements .F-31
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CeleXx, Corporation
Boca Raton, Florida
We have audited the accompanying balance sheet of CeleXx Corporation,
as of December 31, 1998, and the related statements of operations, stockholders'
equity (deficit) and cash flows for the period 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CeleXx Corporation,
as of December 31, 1998, and the results of its operations and its cash flows
for the period 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
July 21, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
(unaudited)
ASSETS
------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash ..........................................................................$ 20,221 $ --
Accounts receivable ........................................................... 257,675 --
Loan receivable - related party ............................................... 112,122 --
------------- ---------------
TOTAL CURRENT ASSETS ................................................................ 390,018 --
------------- ---------------
FURNITURE AND EQUIPMENT, net ........................................................ 58,579 --
GOODWILL, net ....................................................................... 97,500 --
OTHER INTANGIBLES, net .............................................................. 808,321 --
DEPOSITS AND OTHER ASSETS ........................................................... 131,753 --
------------- ---------------
$ 1,486,171 $ --
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses .........................................$ 219,364 $ --
Note payable shareholders ..................................................... 100,000 --
Line of credit ................................................................ 264,707 --
------------- ---------------
TOTAL CURRENT LIABILITIES ..................................................... 584,071 --
------------- ---------------
DUE TO RELATED PARTY ................................................................ 56,000 100,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $001 par value, 1,000,000 share authorized;
none issued
Common stock, $.001 par value, 20,000,000 shares authorized;
9,307,058 and 4,500,000 shares issued and outstanding ..................... 9,306 4,500
Additional paid-in capital .................................................... 2,530,826 211,621
Accumulated Deficit ........................................................... (1,694,032) (316,121)
------------- ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ................................... 846,100 (100,000)
------------- ---------------
$ 1,486,171 $ --
============= ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months July 10, 1998 July 10, 1998
Ended (Inception) to (Inception) to
September 30, September 30, December 31,
1999 1998 1998
------------- ------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE ............................................... $ 605,516 $ -- $ --
COST OF SALES ......................................... 251,271 -- --
------------- ------------- ----------------
GROSS PROFIT .......................................... 354,245 -- --
OPERATING EXPENSES .................................... 1,717,586 147,062 316,121
------------- ------------- ----------------
LOSS FROM OPERATIONS .................................. (1,363,341) (147,062) (316,121)
INTEREST EXPENSE ...................................... 14,570 -- --
------------- ------------- ----------------
NET LOSS .............................................. $ (1,377,911)$ (147,062) $ (316,121)
============= ============= ================
NET LOSS PER COMMON SHARE - basic and assuming dilution $ (0.20)$ (0.03) $ (0.07)
============= ============= ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ............ 6,928,342 4,500,000 4,500,000
============= ============= ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
---------------------------- Additional Total
Number of Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
--------------- ------------ ----------- --------------- -----------------
<S> <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)
Period ended September 30, 1999
(unaudited)
Shares issued in conjucntion 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 1,733 446,907 -- 448,640
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
Net loss ............................... -- -- -- (1,377,911) (1,377,911)
--------------- ------------ ----------- --------------- -----------------
Balance, September 30, 1999 (unaudited) 9,307,058 $ 9,306 $ 2,530,826 $ (1,694,032) $ 846,100
=============== ============ =========== =============== =================
See notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months July 10, 1998 July 10, 1998
Ended (Inception) to (Inception) to
September 30 September 30, December 31,
1999 1998 1998
------------- ----------- ---------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss ................................................$ (1,377,911) $ (147,062) $ (316,121)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation .................................... 3,384 -- --
Amortization .................................... 41,311 -- --
Common stock issued for services ................ 395,000 -- --
Changes in assets and liabilities net of assets acquired:
Increase in accounts receivable ..................... (62,220) -- --
Increase in deposits and other assets ............... (208,122) -- --
Increase in accounts payable and accrued expenses ... 19,958 -- --
------------- ----------- ---------------
189,311 -- --
------------- ----------- ---------------
NET CASH USED IN OPERATING ACTIVITIES ......................... (1,188,600) (147,062) (316,121)
------------- ----------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition ............................ 8,251 -- --
Capital expenditures .................................... (40,986) -- --
------------- ----------- ---------------
NET CASH FLOWS USED IN INVESTING ACTIVIES ..................... (32,735) -- --
------------- ----------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock .................................... 890,250 -- --
Capital contributions ................................... -- 147,062 216,121
Increase in line of credit .............................. 21,067 -- --
Borrowings from related parties ......................... 348,640 -- --
Increase (decrease) in due to related parties ........... (18,401) -- 100,000
------------- ----------- ---------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES ............... 1,241,556 147,062 316,121
------------- ----------- ---------------
NET INCREASE IN CASH .......................................... 20,221 -- --
CASH - beginning of period .................................... -- -- --
------------- ----------- ---------------
CASH - end of period .......................................... $ 20,221 $ -- $ --
============= =========== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest .................. $ 14,570 $ -- $ --
============= =========== ===============
Noncash investing and financing activities:
Purchase of subsidiary for a note ................... $ 100,000 $ -- $ --
============= =========== ===============
Common stock issued for acquisitions ................ $ 500,000 $ -- $ --
============= =========== ===============
Conversion of related party debt to common stock .... $ 448,640 $ -- $ --
============= =========== ===============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CELEXX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 10, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30,1999)
1. ORGANIZATION:
Cobra Technologies International, Inc. ("International"), a Delaware
corporation, was formed on July 10, 1998 to "roll-up" future
acquisitions of select businesses that produce, service, maintain or
support the information technologies industry.
On February 18, 1999, the Company 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,
Pineast.com, Inc, all the outstanding shares of Pinnacle East, Inc., a
South Carolina Corporation, for 500,000 shares of CeleXx and a $100,000
note payable due in May 2000. Subsequent to the acquisition Pinnacle
East, Inc. was dissolved.
F-7
<PAGE>
The following table summarizes the acquisition:
Purchase price:
Common stock, 500,000 shares issued $ 750,000
Note payable 100,000
--------------------
Total purchase price 850,000
Fair market value of assets acquired (209,766)
Liabilities assumed 283,417
--------------------
Cost in excess of net book value of assets acquired $ 923,651
====================
In June 1999 CeleXx entered into an agreement to acquire Computer
Marketplace, Inc., a Massachusetts company engaged in systems
engineering, design and maintenance of computer network systems. The
consideration to be paid is 1,000,000 shares of the Company's common
stock and $1,250,000 at closing and a note payable for $1,250,000
bearing interest at 6% due in two equal annual installments on the
anniversary of the closing date. CeleXx intends to close this sale
before the end of the first quarter 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and its
subsidiaries. The accounts of Pinneast.com, Inc. have been
included from the date of acquisition May 25, 1999 through
September 30, 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.
E. CONCENTRATION OF RISK - Credit losses, if any, have been
provided for in the financial statements and are based on
management's expectations. The Company's accounts receivable
are subject to potential concentrations of credit risk. The
Company does not believe that it is subject to any unusual or
significant risks, in the normal course of business.
F. 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-8
<PAGE>
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.
I. GOODWILL(UNAUDITED) - 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. OTHER INTANGIBLES (UNAUDITED) - Other intangibles resulting
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.
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, 1998,
the Company believes that there has been no impairment of its
long-lived assets.
L. INTERIM FINANCIAL STATEMENTS - The consolidated financial
statements as of September 30, 1999 and for the nine months
then ended are presented as unaudited. In the opinion of
management, these financial statements include all adjustments
necessary to present fairly the information set forth therein.
These adjustments consist solely of normal recurring accruals.
The interim results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the
results to be expected for the full year or for any other
interim period.
M. NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial
Accounting Standard ("SFAS") No. 130 and 131. SFAS No.130
establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131
establishes standards for reporting about operating segments,
products, services, geographic areas, and major customers. The
Company has adopted these standards for all periods presented.
In June 1999 the FASB issued Statement of Financial Accounting
Standard No. 133 which establishes standards for accounting
and reporting derivative instruments, including certain
derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. Management has adopted these standards for the
year ending after December 31, 1999, additionally the Company
believes the adoption of this standard will not have a
material effect on its financial statements.
F-9
<PAGE>
3. RELATED PARTY TRANSACTIONS
As of December 31, 1998 the Company has 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
September 30, 1999 the shareholders' of Edinburgh had converted all of
its outstanding debt into shares of the Company's common stock.
As of September 30, 1999 CeleXx owes $56,000 in short term borrowings
to shareholders of the Company.
At September 30, 1999 shareholders have short term loans due to the
Company of $112,122.
4. INTANGIBLE ASSETS
Intangible assets as of September 30, 1999 are as follows:
September 30,
Useful Life 1999
---------------------- ------------------------
Goodwill 10 years $ 97,500
Customer lists 7 years 477,506
Trade name 10 years 330,815
------------------------
$ 905,821
========================
5. LINE OF CREDIT
As of September 30, 1999 the Company's Pinneast.com, Inc., subsidiary,
has $264,707 outstanding on its $300,000 line of credit. Such line
expires on November 1, 1999 and bears interest at 8.75% per annum.
6. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 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 $0.25 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 $0.10 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.
F-10
<PAGE>
7. 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.
8. 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.
9. 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.
10. 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. 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:
<TABLE>
<CAPTION>
September December 31,
30, 1999 1998
------------------- -----------------------
<S> <C> <C>
Taxes benefit computed at statutory rate $ (551,000) $ (107,000)
Income tax benefit not utilized 551,000 107,000
------------------- -----------------------
Net income tax benefit $ - $ -
=================== =======================
</TABLE>
The Company has a net operating loss carryforward for tax purposes
totaling approximately $316,000 at December 31, 1998 expiring in the
year 2018.
F-11
<PAGE>
Listed below are the tax effects of the items related to the Company's
net tax liability:
December 31,
1998
--------------------
Tax benefit of net operating loss carryforward $ 107,000
Valuation Allowance (107,000)
--------------------
Net deferred tax asset recorded $ -
====================
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS:
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.
CONTINGENCIES:
Subsequent to September 30, 1999 the Company settled a litigation in
which Spectrum was held in judgement for services rendered on its
behalf in 1998. The Company paid $6,500 and issued 150,000 shares of
common stock. As of September 30, the Company accrued $86,000 for this
matter.
The Company has been made aware of a $50,000 judgement in 1998 against
Spectrum. The Company is contesting such judgment.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Pinnacle East, Inc.
We have audited the accompanying balance sheets of Pinnacle East, Inc.
as of December 31, 1998 and 1997 and the related statements of operations, and
cash flows for the years then ended. 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 audit 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 amounts 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 financial position of Pinnacle East, Inc.
as of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the years then ended 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
July 2, 1999
F-13
<PAGE>
<TABLE>
<CAPTION>
PINNACLE EAST , INC.
BALANCE SHEETS
ASSETS
December 31,
---------------------------------------
1998 1997
------------------ ------------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ - $ 4,148
Accounts receivable, net 88,612 31,275
------------------ ------------------
TOTAL CURRENT ASSETS 88,612 35,423
FIXED ASSETS, net 25,686 36,215
CUSTOMER LIST 24,231 26,467
OTHER 18,145 12,195
------------------ ------------------
$ 156,674 $ 110,300
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses 25,031 10,592
Line of credit 244,521 81,231
Note payable - 6,608
Deferred revenue 6,000 -
------------------ ------------------
TOTAL CURRENT LIABILITIES 275,552 98,431
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 100,000 shares issued and outstanding 1,000 1,000
Retained earnings (deficit) (119,878) 10,869
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (118,878) 11,869
------------------ ------------------
$ 156,674 $ 110,300
================== ==================
</TABLE>
See notes to financial statements.
F-14
<PAGE>
PINNACLE EAST, INC.
STATEMENTS OF OPERATIONS
Years Ended
December 31,
------------------------------------------
1998 1997
------------------- -------------------
REVENUE $ 840,423 $ 651,091
------------------- -------------------
OPERATING EXPENSES:
Salaries and payroll taxes 540,022 389,959
Professional fees 117,523 42,929
Interest expense 23,052 1,732
Depreciation and amortization 17,475 19,266
Other 273,098 284,771
------------------- -------------------
971,170 738,657
------------------- -------------------
LOSS BEFORE INCOME TAXES (130,747) (87,566)
PROVISION FOR INCOME TAXES - 3,759
------------------- -------------------
NET LOSS (130,747) (91,325)
RETAINED EARNINGS- beginning of year 10,869 102,194
------------------- -------------------
RETAINED EARNINGS (DEFICIT) -
end of year $ (119,878) $ 10,869
=================== ===================
See notes to financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
PINNACLE EAST, INC.
STATEMENTS OF CASH FLOWS
Years Ended
December 31,
-------------------------------------
1998 1997
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (130,747) $ (91,325)
------------------ ----------------
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 17,475 19,266
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (57,337) 71,965
Increase in other assets (5,950) (11,495)
Increase (decrease) in accounts payable and accrued expenses 14,439 (5,583)
Increase (decrease) in deferred revenue 6,000 (11,200)
------------------ ----------------
Total Adjustments (25,373) 62,953
------------------ ----------------
NET CASH USED IN OPERATIONS (156,120) (28,372)
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,710) (20,268)
------------------ ----------------
CASH USED IN INVESTING ACTIVITIES (4,710) (20,268)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) of loans (6,608) 6,608
Increase in line of credit 163,290 43,188
------------------ ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 156,682 49,796
------------------ ----------------
NET (DECREASE) INCREASE IN CASH (4,148) 1,156
CASH - beginning of year 4,148 2,992
------------------ ----------------
CASH - end of year $ - $ 4,148
================== ================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 23,052 $ 1,732
================== ================
Cash paid for taxes $ - $ 3,759
================== ================
</TABLE>
See notes to financial statements.
F-16
<PAGE>
PINNACLE EAST, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION
Pinnacle East, Inc.(the "Company") is located in Columbia,
South Carolina. The Company was organized in 1994 and is engaged in the
development of multimedia programs for industry and government.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. DEFERRED REVENUE - Deferred revenue arises from the proration of
service contracts sold by the Company, which is usually less than one
year.
C. PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is computed using straight line methods over the estimated
useful lives of the assets.
D. INCOME TAXES - The Company recognizes deferred tax assets and
liabilities based on the difference between the financial statements
carrying amount and the tax basis of assets and liabilities, using the
effective tax rates in the years in which the differences are expected
to reverse. A valuation allowance related to deferred tax assets is
also recorded when it is probable that some or all of the deferred tax
asset will not be realized.
E. FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value Financial
Instruments", requires disclosure of fair value information about
financial instruments whether or not recognized in the balance sheet.
The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair
value on the short-term maturity of these instruments.
F. CARRYING VALUE OF LONG LIVED ASSETS - The Company reviews the
carrying value of the long-lived assets to determine if facts and
circumstances exist which would suggest that the assets may be impaired
or that the amortization period needs to be modified. If impairment is
indicated, then an adjustment will be made to reduce the carrying
amount of the tangible assets to their fair value. Based on the
Company's review as of December 31, 1998 and 1997, no impairment of
long-lived assets was evident.
F-17
<PAGE>
3. FIXED ASSETS
The Company's fixed assets are as follows:
December 31,
----------------------------------------
1998 1997
--------------- -----------------
Office equipment $ 86,677 $ 81,967
Automobiles 10,329 10,329
--------------- -----------------
97,006 92,296
Less accumulated depreciation 71,320 56,081
--------------- -----------------
$ 25,686 $ 36,215
=============== =================
4. CUSTOMER LISTS
The Company bought the assets of an existing company at
inception in 1994. An intangible asset was recognized at the time, due
to a customer list which would provide a future customer base for the
company. The asset is being amortized over a 15 year life.
5. LINE OF CREDIT
The Company has a line of credit expiring November 1, 1999 in
the amount of $300,000, which is used for operating capital. Such line
bears interest 8.75% per annum.
The amounts outstanding under the line of credit are secured
by personal assets of the stockholders.
6. LEASE COMMITMENTS - The Company leases building space in Columbia,
South Carolina under a three year lease. The leases require minimum
annual payments of $24,672. Total rent expenses for the years ended
December 31, 1998 and 1997 were $34,623 and $31,951, respectively.
The minimum rental commitments as of December 31, 1998 for all
noncancellable operating leases with initial or remaining terms in
excess of one year are as follows:
Year Ending December 31, Amount
-------------------------------------------- ----- ------------------
1999 $ 24,672
2000 24,672
7. MAJOR CUSTOMERS
Sales to one of the Company's customers approximated 49% of
sales for the year ended December 31, 1998. Accounts receivable from
such customer was $47,960 at December 31, 1998. For the year ended
December 31, 1997 sales to another customer was approximately 54% of
sales. Accounts receivables from such customer was $15,000 at December
31, 1997.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Computer Marketplace, Inc.
Tewksbury, Massachusetts
We have audited the accompanying balance sheets of Computer
Marketplace, Inc. as of February 28, 1999 and 1998 and the related statements of
income, and cash flows for the years then ended. 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 audit 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 amounts 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 financial position of Computer
Marketplace, Inc. as of February 28, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended 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
May 4, 1999
F-19
<PAGE>
<TABLE>
<CAPTION>
COMPUTER MARKETPLACE , INC.
BALANCE SHEETS
ASSETS
February 28,
September 30, ---------------------------------------
1999 1999 1998
------------------- ------------------ ------------------
CURRENT ASSETS: (unaudited)
<S> <C> <C> <C>
Cash $ 106,891 $ 400,974 $ 258,816
Accounts receivable, net of allowance for doubtful accounts
of $5,000 for all periods presented 2,742,945 2,293,585 1,287,805
Inventory 947,920 524,476 632,139
Other current assets 34,107 - -
------------------- ------------------ ------------------
TOTAL CURRENT ASSETS 3,831,863 3,219,035 2,178,760
FIXED ASSETS, net 46,398 32,348 18,455
DEPOSITS 9,663 14,326 500
------------------- ------------------ ------------------
$ 3,887,924 $ 3,265,709 $ 2,197,715
=================== ================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,182,419 $ 353,548 $ 190,907
Accrued expenses 169,199 110,625 53,969
Line of credit - 1,177,443 969,884
Officer loans - - 24,227
Income taxes payable - 230,500 128,347
Deferred revenue - 108,619 88,645
------------------- ------------------ ------------------
TOTAL CURRENT LIABILITIES 2,351,618 1,980,735 1,455,979
------------------- ------------------ ------------------
STOCKHOLDERS' EQUITY:
Common stock; no par, 15,000 shares authorized
9,250 shares issued and outstanding 56,000 56,000 56,000
Additional paid-in capital 62,505 62,505 62,505
Retained earnings 1,457,801 1,206,469 663,231
Less treasury stock at cost: 5,000 shares (40,000) (40,000) (40,000)
------------------- ------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 1,536,306 1,284,974 741,736
------------------- ------------------ ------------------
$ 3,887,924 $ 3,265,709 $ 2,197,715
=================== ================== ==================
</TABLE>
See notes to financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
COMPUTER MARKETPLACE, INC.
STATEMENTS OF OPERATIONS
Seven Months
Ended Years Ended
September 30, February 28,
---------------------------------------
1999 1999 1998
-------------------- ------------------ ------------------
(unaudited)
<S> <C> <C> <C>
NET SALES $ 8,950,218 $ 16,733,839 $ 10,179,987
COST OF SALES 7,199,561 13,384,687 8,238,728
-------------------- ------------------ ------------------
GROSS PROFIT 1,750,657 3,349,152 1,941,259
OPERATING EXPENSES 1,316,888 2,403,542 1,543,909
-------------------- ------------------ ------------------
INCOME FROM OPERATIONS 433,769 945,610 397,350
OTHER (INCOME) EXPENSES:
Interest expense 16,678 29,236 27,235
Interest income (1,796) (4,666) (440)
(Gain) Loss on sale of moto- vehicle (700) 721
-------------------- ------------------ ------------------
14,882 23,870 27,516
-------------------- ------------------ ------------------
INCOME BEFORE INCOME TAXES 418,887 921,740 369,834
PROVISION FOR INCOME TAXES 167,555 378,502 145,131
-------------------- ------------------ ------------------
NET INCOME 251,332 543,238 224,703
RETAINED EARNINGS- beginning of year 1,206,469 663,231 438,528
-------------------- ------------------ ------------------
RETAINED EARNINGS- end of period $ 1,457,801 $ 1,206,469 $ 663,231
==================== ================== ==================
</TABLE>
See notes to financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
COMPUTER MARKETPLACE, INC.
STATEMENTS OF CASH FLOWS
Seven Months
Ended Years Ended
September 30, Febraury 28,
-------------------------------------
1999 1999 1998
------------------ -------------------------------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 251,332 $ 543,238 $ 224,703
------------------ ------------------ ----------------
Adjustments to reconcile net income to net cash
used in operations:
(Gain) Loss on sale of motor vehicle - (700) 721
Depreciation 2,950 5,056 18,731
Changes in assets and liabilities:
Increase in accounts receivable (449,360) (1,005,780) (256,511)
Decrease (increase) in inventories (423,444) 107,663 (365,588)
Increase in other current assets (34,107) - -
Decrease in prepaid income taxes - - 17,358
Decrease in prepaid payroll taxes - - 185
(Increase) decrease in deposits 4,663 (13,826) 1,307
Increase (decrease) in accounts payable 1,828,871 162,641 (111,457)
Increase in accrued expenses 58,574 56,656 29,713
(Decrease) increase in income taxes payable (230,500) 102,153 128,347
(Decrease) increase in deferred revenue (108,619) 19,974 65,732
------------------ ------------------ ----------------
Total Adjustments 649,028 (566,163) (471,462)
------------------ ------------------ ----------------
NET CASH USED IN OPERATIONS 900,360 (22,925) (246,759)
------------------ ------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,000) (19,900) (14,214)
Proceeds from sale of motor vehicle - 1,651 200
------------------ ------------------ ----------------
NET CASH USED IN INVESTING ACTIVITIES (17,000) (18,249) (14,014)
------------------ ------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Officer loans (repaid) borrowed - (24,227) 17,287
(Decrease) increase in line of credit (1,177,443) 207,559 394,547
------------------ ------------------ ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,177,443) 183,332 411,834
------------------ ------------------ ----------------
NET (DECREASE) INCREASE IN CASH (294,083) 142,158 151,061
CASH - beginning of year 400,974 258,816 107,755
------------------ ------------------ ----------------
CASH - end of period $ 106,891 $ 400,974 $ 258,816
================== ================== ================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 16,978 $ 29,236 $ 27,235
================== ================== ================
Cash paid for taxes $ - $ 276,349 $ 16,784
================== ================== ================
</TABLE>
See notes to financial statements.
F-22
<PAGE>
COMPUTER MARKETPLACE, INC
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
(UNAUDITED WITH RESPECT TO THE SEVEN MONTHS ENDED SEPTEMBER 30, 1999)
1. ORGANIZATION
Computer Marketplace, Inc. (the "Company") is located in
Tewksbury, Massachusetts. The Company was organized in 1984 and is
engaged in the sale and service of computer equipment and peripherals
through wholesale and retail channels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. DEFERRED REVENUE - Deferred revenue arises from the proration of
service contracts sold by the Company which may vary in length from six
to twelve months.
C. INVENTORIES - Inventories are stated at the lower of cost or market
calculated on the first-in, first-out method, or market.
D. PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is computed using accelerated methods over the estimated
useful lives of the assets.
E. INCOME TAXES - The Company recognizes deferred tax assets and
liabilities based on the difference between the financial statements
carrying amount and the tax basis of assets and liabilities, using the
effective tax rates in the years in which the differences are expected
to reverse. A valuation allowance related to deferred tax assets is
also recorded when it is probable that some or all of the deferred tax
asset will not be realized.
F. FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value Financial
Instruments", requires disclosure of fair value information about
financial instruments whether or not recognized in the balance sheet.
The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair
value on the short-term maturity of these instruments.
F-23
<PAGE>
G. CARRYING VALUE OF LONG LIVED ASSETS - The Company reviews the
carrying value of the long-lived assets to determine if facts and
circumstances exist which would suggest that the assets may be impaired
or that the amortization period needs to be modified. If impairment is
indicated, then an adjustment will be made to reduce the carrying
amount of the tangible assets to their fair value. Based on the
Company's review as of February 28, 1999, no impairment of long-lived
assets was evident.
H. INTERIM FINANCIAL STATEMENTS - The financial statements as of
September 30, 1999 and for the nine months then ended are presented as
unaudited. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the information
set forth therein. These adjustments consist solely of normal
recurring accruals. The interim results of operations for the nine
months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full year or for any other interim
period.
3. FIXED ASSETS
The Company's fixed assets are as follows:
<TABLE>
<CAPTION>
September 30, February 28,
----------------------------------------
1999 1999 1998
-------------------- ----------------- ----------------
<S> <C> <C> <C>
Furniture and fixtures $ 14,497 $ 9,215 $ 7,615
Equipment 150,641 138,756 138,756
Leasehold improvements 34,803 28,263 17,363
Motor Vehicles 29,695 29,695 30,595
-------------------- ----------------- ----------------
229,636 205,929 194,329
Less accumulated depreciation 183,238 173,581 175,874
-------------------- ----------------- ----------------
$ 46,398 $ 32,348 $ 18,455
==================== ================= ================
</TABLE>
4. LINE OF CREDIT
The Company has a line of credit in the amount of $3,000,000,
which is used to purchase merchandise for resale. Interest accrues at
1% above the prime interest rate from days 41-60.
The amounts outstanding under the line of credit are secured
by accounts receivable and inventory equal to 125 percent of the
outstanding balance.
F-24
<PAGE>
5. RELATED PARTY TRANSACTIONS
A. OFFICER LOANS - The Company had an outstanding unsecured loan in
1998 due to an officer with interest charged at an annual rate of
10.5%. The outstanding balance as of February 28, 1998 was $24,227. The
Company repaid the remaining balance in June 1998. Interest expense
totaled $2,151 for the year ended February 28, 1998.
B. LEASE COMMITMENT - The Company leases building space in Tewksbury,
Massachusetts from a related party, under a five year lease. The
leases require minimum annual payments of $72,000 plus maintenance and
operating costs over the lease term. Total rent expenses
(including common area maintenance) for the years ended February 28,
1999 and 1998 were $85,628 and $79,412, respectively. At September 30,
1999 rent expense for the seven months ended was $51,725.
The minimum rental commitments as of February 28, 1999 for all
noncancelable operating leases with initial or remaining terms in
excess of one year are as follows:
Year Ending February 28, Amount
-------------------------------------------- ----- ------------------
2000 $ 72,000
2001 72,000
2002 72,000
2003 24,000
6. PROFIT SHARING PLAN
The Company maintains a IRC Section 401(k) plan covering
employees who meet minimum eligibility requirements. The Company made a
voluntary contribution to the Plan of $66,652 and 16,494 for the years
ended February 28, 1999 and 1998, respectively. As of September 30
,1999 the Company has made no contributions to the Plan.
7. CONCENTRATION OF CREDIT RISK
A. The Company maintains cash balances at several financial
institutions located in Massachusetts. Accounts at each institution are
insured by Federal Deposit Insurance Corporation up to $100,000. At
September 30, 1999, February 28, 1999 and 1998, the Company's unsecured
cash balances were $0, $63,416 and $119,588, respectively.
B. Concentration of credit risk with respect to trade receivables are
limited due to the large number of customers compromising the Company's
customer base and their dispersion across different industries and
geographic locations. As of February 28, 1999 and 1998, the Company had
no significant concentration of credit risk.
F-25
<PAGE>
8. INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes is as follows:
September 30, February 28,
-------------------------------------
1999 1999 1998
--------------------- -------------- ----------------
<S> <C> <C> <C>
Federal income taxes $ 142,422 $ 288,000 $ 113,000
State income taxes 25,133 90,502 32,131
--------------------- -------------- ----------------
Total income taxes $ 167,555 $ 378,502 $ 145,131
===================== ============== ================
</TABLE>
9. MAJOR CUSTOMERS
Sales to two of the Company's customers approximated 27% of
sales for the year ended February 28, 1999. For the year ended February
28, 1998 sales to one such customer was approximately 12% of sales.
Accounts receivables from these two customers was approximately
$560,000 at February 28, 1999.
F-26
<PAGE>
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO-FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On May 25, 1999 CeleXx Corporation. (formerly "Cobra Technologies,
Inc."), ( "CeleXx") signed a merger agreement and took effective control of
Pinnacle East, Inc. ("Pinneast"). Cobra has also signed an agreement for the
acquisition of Computer MarketPlace ("CMI").
The following unaudited pro-forma condensed consolidated balance sheet
presents the pro-forma financial position of Cobra at September 30, 1999, as if
the acquisition of Computer MarketPlace, Inc.(" CMI ") had been made as of
September 30, 1999.
The unaudited pro-forma condensed consolidated statements of operations
for the nine months ended September 30, 1999 and the year ended December 31,
1998 reflect the combined results of CeleXx, Pinneast and CMI as if the
acquisitions had occurred on January 1, 1998.
The unaudited pro-forma condensed consolidated statements of operations
do not necessarily represent actual results that would have been achieved had
the companies been together from January 1, 1998, nor may they be indicative of
future operations. These unaudited pro-forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the respective companies.
F-27
<PAGE>
<TABLE>
<CAPTION>
CELEXX, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
September 30, Proforma
1999 CMI Adjustments As Adjusted
------------- ------------ ------------ -------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 20,221 $ 106,891 $ 1,250,000 $ 1,377,112
Accounts receivable 257,675 2,742,945 - 3,000,620
Income tax refunds receivable - 201,662 - 201,662
Inventory - 947,920 - 947,920
Loans receivable - related party 112,122 - - 112,122
------------- ------------ ------------ -------------
TOTAL CURRENT ASSETS 390,018 3,999,418 1,250,000 5,639,436
------------- ------------ ------------ -------------
FURNITURE AND EQUIPMENT, net 58,579 46,398 - 104,977
GOODWILL 100,000 - - 100,000
OTHER INTANGIBLES, net 808,321 - 1,796,140 2,604,461
DEPOSITS AND OTHER ASSETS 131,753 9,663 - 141,416
------------- ------------ ------------ -------------
$ 1,488,671 $ 4,055,479 $ 3,046,140 $ 8,590,290
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 219,364 $ 2,519,173 $ - $ 2,738,537
Note payable 100,000 - - 100,000
Line of credit 264,707 - - 264,707
------------- ------------ ------------ -------------
TOTAL CURRENT LIABILITIES 584,071 2,519,173 - 3,103,244
------------- ------------ ------------ -------------
NOTES PAYABLE 56,000 - 1,250,000 1,306,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, - - 2,500,000 2,500,000
Treasury stock at cost; 5,000 shares - (40,000) - (40,000)
Common stock, $.001 par value, 20,000,000 shares
authorized; 9,307,058 shares issued and outstanding 9,306 56,000 (55,000) 10,306
Additional paid-in capital 2,260,826 62,505 936,495 3,259,826
Deficit (1,421,532) 1,457,801 (1,585,355) (1,549,086)
------------- ------------ ------------ -------------
TOTAL STOCKHOLDERS' EQUITY 848,600 1,536,306 1,796,140 4,181,046
------------- ------------ ------------ -------------
$ 1,488,671 $ 4,055,479 $ 3,046,140 $ 8,590,290
============= ============ ============ =============
</TABLE>
See notes to proforma financial statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
Celexx Pinneast CMI
Nine Months January 1, Nine Months
Ended September 30, to May 24, Ended September 30, Proforma Adjustments
1999 1999 1999 Debit Credit As Adjusted
-------------- --------------- ----------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE ......................$ 605,516 $ 452,063 $ 11,741,765 $ -- $ -- $ 12,799,344
COST OF SALES ................ 251,271 -- 9,430,342 -- -- 9,681,613
-------------- --------------- ----------------- --------------- ------------ --------------
GROSS PROFIT ................. 354,245 452,063 2,311,423 -- -- 3,117,731
OPERATING EXPENSES ........... 1,717,586 406,836 1,717,478(1) 220,471 -- 4,062,371
-------------- --------------- ----------------- --------------- ------------ --------------
OPERATING INCOME (LOSS) ...... (1,363,341) 45,227 593,945 (220,471) -- (944,640)
INTEREST EXPENSE ............. 14,570 -- 21,551(2) 56,250 -- 92,371
-------------- --------------- ----------------- --------------- ------------ --------------
NET INCOME (LOSS) BEFORE TAXES (1,377,911) 45,227 572,394 (276,721) -- (1,037,011)
BENEFIT (PROVISION) FOR TAXES -- -- (230,638)(3) 248,728 18,090
-------------- --------------- ----------------- --------------- ------------ --------------
NET INCOME (LOSS) ............ (1,377,911) 45,227 341,756 (27,993) -- (1,018,921)
CUMULATIVE PREFERRED
STOCK DIVIDEND ........... -- -- -- (4) 67,500 67,500
-------------- --------------- ----------------- --------------- ------------ --------------
NET INCOME (LOSS) TO COMMON
SHAREHOLDERS ............$ (1,377,911)$ 45,227 $ 341,756 $ (95,493) $ -- $ (1,086,421)
============== =============== ================= =============== ============ ==============
LOSS PER COMMON SHARE ........$ (0.20) $ (0.15)
============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ..... 6,928,342 6,928,342
============== ==============
</TABLE>
See notes to proforma financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Celexx Pinneast CMI
Year Ended Year Ended Year Ended
December 31, December 31, February 28, Proforma Adjustments
1998 1998 1999 Debit Credit As Adjusted
------------- ------------- -------------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE ......................$ -- $ 840,423 $ 16,733,839 $ -- $ -- $ 17,574,262
COST OF SALES ................ -- -- 13,384,687 -- -- 13,384,687
------------- ------------- -------------------- ----------- ------------- --------------
GROSS PROFIT ................. -- 840,423 3,349,152 -- -- 4,189,575
OPERATING EXPENSES ........... 316,121 971,170 2,427,412(1) 293,961 -- 4,008,664
------------- ------------- -------------------- ----------- ------------- --------------
OPERATING INCOME (LOSS) ...... (316,121) (130,747) 921,740 (293,961) -- 180,911
INTEREST EXPENSE ............. -- -- -- (2) 75,000 -- 75,000
------------- ------------- -------------------- ----------- ------------- --------------
NET INCOME (LOSS) BEFORE TAXES (316,121) (130,747) 921,740 (368,961) -- 105,911
BENEFIT (PROVISION) FOR TAXES -- -- (378,502)(3) 378,502 --
------------- ------------- -------------------- ----------- ------------- --------------
NET INCOME (LOSS) ............ (316,121) (130,747) 543,238 9,541 -- 105,911
CUMULATIVE PREFERRED
STOCK DIVIDEND ........... -- -- -- (4) 90,000 -- 90,000
------------- ------------- -------------------- ----------- ------------- --------------
NET INCOME (LOSS) TO COMMON
SHAREHOLDERS .............$ (316,121)$ (130,747)$ 543,238 $ (80,459)$ -- $ 15,911
============= ============== =================== ============ ============= ==============
NET INCOME (LOSS) PER SHARE TO
COMMON SHAREHOLDERS ...... $ (0.07) $ 0.00
============= ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ..... 4,500,000 4,500,000
============= ==============
</TABLE>
See notes to proforma financial statements.
F-30
<PAGE>
CELEXX, INC. AND SUBSIDIARIES
COMPUTER MARKETPLACE, INC.
NOTES TO UNAUDITED PRO-FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CeleXx signed a merger agreement with Pinneast on May 25, 1999
and closed on such transaction on September 7, 1999. For accounting
purposes, the acquisition was effected on May 25, 1999, the date CeleXx
assumed effective control of Pinneast. The accompanying statements of
operations for the nine months ended September 30, 1999 and the year
ended December 31, 1998 include the results of operations of Pinneast
as if Pinneast was acquired on January 1, 1998. CeleXx also has entered
into an agreement, that management is of the opinion is probable of
closing, for the acquisition of the stock of CMI. The accompanying
pro-forma balance sheet reflects the combined balance sheet of CeleXx,
Pinneast and CMI as if the acquisition of CMI had occurred on September
30, 1999. The accompanying statements of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998 include
the results of operations of CMI as if such acquisition had occurred on
January 1, 1998. The financial statements for Computer MarketPlace,
Inc. have been audited for the years ended February 28, 1999 and 1998.
For purposes of the accompanying pro-forma unaudited condensed
consolidated statements of operations for the year ended December 31,
1998, the results of operations for the year ended February 28, 1999
are assumed to approximate the twelve months ended December 31, 1998.
The pro-forma statements of operations of CMI for the nine months ended
September 30 , 1999 and the year ended February 28 , 1999 both include
the two month period ended February 28, 1999. Revenue and net income
for such period is $2,791,547 and $90,424, respectively.
A. The following unaudited pro-forma acquisition adjustment is included in
the accompanying unaudited pro-forma condensed consolidated balance
sheet at September 30, 1999:
B.
(1) To record the acquisition of the stock of CMI by CeleXx for
$1,250,000 in cash and a $1,250,000 note payable issued to the
seller bearing interest at 6 % per annum, and 1,000,0000
shares of CeleXx stock which has been valued at $1 per share
at September 30, 1999. To record $3,000,000 in preferred stock
issued to an unrelated third party, which pays cumulative at
3% per annum, net of $500,000 in offering costs.
C. The following pro-forma adjustments is included in the accompanying
unaudited pro-forma condensed consolidated statements of operations for
the year ended December 31, 1998 and the nine months ended September
30, 1999:
(1) To record amortization expense of goodwill and other
intangibles, which include customer lists, trade name and
covenant not to compete over their expected useful lives as
follows which range from 7 to 10 years.
(2) To record interest expense on the debt incurred to finance the
acquisition of CMI.
(3) To record consolidated provision (benefit) for income taxes.
(4) To record cumulative preferred dividends.
F-31
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBITS DESCRIPTION OF DOCUMENT
2.1 Plan of Reorganization and Agreement of Merger, dated July __, 1999,
by and between Computer Marketplace, Inc., David Burke, Sr., Betty
Des Meules, Cobra Technologies, Inc. and CMI Acquisition Corp.(1)
3.1 By-Laws(1)
3.2 Articles of Incorporation(1)
3.3 Articles of Amendment of Articles of Incorporation(1)
4.1 Stock Option Plan(1)
10.1 Lease Agreement dated May 11, 1999, between Sawgrass Realty Holdings,
Inc. and Celexx Corporation (f/k/a Cobra Technologies, Inc.)(1)
10.2 Employment Agreement Lionel Forde(1)
10.3 Employment Agreement Doug Forde(1)
10.4 Merger Agreement by and between Pinneast.com, Inc. and Celexx
Corporation, dated May 25, 1999 (1)
21.1 Subsidiaries of the Company(1)
27.1 Financial Data Schedule(1)
27.2 Financial Data Schedule(1)
27.3 Financial Data Schedule(1)
27.4 Financial Data Schedule(1)
- -------------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form 10-SB, File No. 000-27535.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Celexx Corporation caused this amendment to its registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
CELEXX, INC.
DATE: FEBRUARY 10, 2000 BY: /S/DOUG FORDE
------------------------------------
Doug Forde, President and
Chief Executive Officer
DATE: FEBRUARY 10, 2000 BY: /S/ JOHN W. STRAATSMA
------------------------------------
John W. Straatsma, Secretary
<PAGE>
