As filed with the Securities and Exchange Commission on July 31, 2000
SEC Registration No. 333-30176
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
NMXS.com, INC.
(Name of small business issuer in its charter)
0DELAWARE 7389 91-1287406
(State or other (Primary Standard Industrial (I.R.S.
Employer jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
5041 INDIAN SCHOOL ROAD NE, SUITE 200, ALBUQUERQUE, NM 87110
(505) 255-1999
(Address and Telephone Number of Principal Executive Offices)
5041 INDIAN SCHOOL ROAD NE, SUITE 200, ALBUQUERQUE, NM 87110
(Address of Principal Place of Business)
RICHARD GOVATSKI, PRESIDENT, NMXS.com, INC.
5041 INDIAN SCHOOL ROAD NE, SUITE 200, ALBUQUERQUE, NM 87110
(505) 255-1999
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Ronald N. Vance, Esq.
57 West 200 South
Suite 310
Salt Lake City, UT 84101
(801) 359-9300
(801) 359-9310 - FAX
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee (2)
Series A Warrants
and Common Stock,
$.001 par value
per share 1,000,000 $1.25 $1,250,000 $348
Common Stock
$.001 par value
per share 20,000 $3.00 $60,000 $16
TOTAL $364
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457. This amount is based upon the average of the bid and
asked prices ($3.00) of the common stock of the Registrant as of February 7,
2000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 31, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
NMXS.com, INC.
1,000,000 Warrants and Underlying Shares
Exercise Price: $1.25 Per Share
We are distributing 1,000,000 Series A Warrants to our shareholders of
record as of the beginning of business on August 3, 1999. Each warrant
entitles the holder to purchase one share of common stock. Each warrant is
exercisable at $1.25. Our stock is quoted on the Pink Sheets under the symbol
"NMXS." We may redeem the warrants for $.01 per warrant on 30 days notice at
any time the closing bid price of the stock equals or exceeds 300% of the
exercise price of the warrant for ten consecutive trading days. The warrants
will expire three years following the date of this prospectus.
The warrants are being distributed to our shareholders without the
payment of any consideration. The shares of stock are being offered only to
holders of the warrants and these shares of stock will be issued upon exercise
of the warrants. The offering price of the shares is payable in cash upon
exercise of the warrants. No minimum number of warrants must be exercised,
and we cannot assure you that any warrants will be exercised. We will not pay
any underwriting discounts or other commissions in connection with the
exercise of the warrants. The only proceeds we could receive in this offering
will be from the exercise of the warrants. If all of the warrants were
exercised, we would receive $1,250,000.
Concurrently with this offering, we are registering for resale 20,000
shares to be offered by a selling security holder.
This Offering Is Highly Speculative and Involves Special Risks Concerning
the Company and its Business. See "Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is
a criminal offense.
________, 2000
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 7
Risk Factors 8
We are much like a start up company and have a limited operating history
on which to evaluate our potential for future success. Other, better
financed companies may be developing similar products as ours which
could compete with our products. Such competition could materially
adversely affect our financial condition. 8
We have experienced losses of $1,687,000 for the year ended December 31,
1999 and 594,000 for the three months ended March 31, 2000, and we
expect losses for the foreseeable future. Also our operating results
may fluctuate from quarter to quarter. 8
We may encounter difficulty recruiting and retaining staff. Without
highly trained technical personnel, we may find it more difficult to
compete with other companies in our field. 9
We may face a need for additional financing, especially if our estimates
to obtain new staff or if our projected costs of product development
are incorrect. If such additional financing is required, but
unavailable, we may not be able to develop markets for our products
before others introduce competing products. 10
We have developed our core products using a mix of readily available open
source software development tools. Knowledgeable competitors may be
able to deduce how we have assembled our code base and be able to
develop competing products. 10
Brand identity problems could stall or compromise our market
penetration. 11
While we have commenced the process to protect our trade names, we have
not completed the process. Thus, others could attempt to use trade
names which we have selected. Such misappropriation of our brand
identity could cause significant confusion in the highly competitive
Internet technology marketplace and legal defense against such
misappropriation could prove costly and time-consuming. 11
We have been delisted from the OTC Electronic Bulletin Board which has
caused our stock to be less liquid. 12
Forward Looking Statements 12
Use of Proceeds 13
Dilution 13
Management's Discussion and Analysis of Financial Condition and Results of
Operation 13
Business 17
Management 24
Certain Transactions 29
Market Information 29
Principal Shareholders 30
Selling Shareholder 32
Description of Securities 33
Dividend Policy 35
Plan of Distribution 35
Shares Eligible For Future Sale 36
Legal Matters 37
Experts 37
Financial Statements 37
<PAGE>
PROSPECTUS SUMMARY
Our Company
We create software solutions for the management of large volumes of media
or digital material, such as graphic images, video clips, or audio files, over
the Internet or via internal business intranets. In addition, our products
can also be used in any business sector that must deal with the management of
large volumes of graphic images, such as medicine, scientific environments,
and law enforcement.
Our principal executive offices are located at 5041 Indian School Road
NE, Suite 200, Albuquerque, NM 87110, and our telephone number at these
offices is (505) 255-1999
The Offering
Securities offered1,000,000 warrants, each exercisable at $1.25 per share for
three years from the date of this prospectus
Shares outstanding at July 25, 2000 20,733,836
Shares outstanding after maximum exercise 21,733,836
Proceeds from exercise of warrants $1,250,000
Estimated offering expenses $60,000
Net proceeds to us $1,190,000
Plan of distribution The warrants will be
distributable to, and exercisable
by, shareholders of record on
August 3, 1999
We intend to use the net proceeds, if any, to:
- Expand sales and advertising efforts; and
- Fund research and development of existing and new products.
The following summary financial information has been derived from
our consolidated financial statements which appear later in this prospectus
and should be read in conjunction with those consolidated financial
statements and related notes.
For the years For the three months
ended December 31 ended March 31
1999 1998 2000 1999
Consolidated Statement of
Operations Data:
Sales $266,000 $196,000 $104,000 $ 79,000
Operating expenses 1,978,000 310,000 719,000 370,000
Net loss (1,687,000) (114,000) 594,000 291,000
Loss per share (.14) (.02) (.03) (.02)
Consolidated Balance Sheet
Data:
Current assets $1,167,000 $1,720,000
Total assets 1,309,000 2,013,000
Current liabilities 85,000 133,000
Stockholders' equity 1,224,000 1,880,000
RISK FACTORS
- We are much like a start up company and have a limited operating history
on which to evaluate our potential for future success. Other, better financed
companies may be developing similar products as ours which could compete with
our products. Such competition could materially adversely affect our
financial condition.
Although we have been established for three years, we remain a
development stage enterprise and our product was not completed and sold until
1998. We, therefore, have a limited operating history upon which you can
evaluate our business prospects. You must consider the risks and
uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets. For example, we believe there may exist
better-capitalized companies on a parallel development path with similar
products addressing our target markets. While the Internet technology
marketplace is extremely competitive, we have anticipated a first-to-market
advantage with our products. However, other highly capitalized companies that
have recognized the absence of digital image management products could
overwhelm our first-to-market advantage with expensive and expansive media
blitzes that create the perception of a dominant market presence and/or
superior products. If we are unsuccessful in addressing these risks and
uncertainties, our business, results of operations and financial condition
will be materially and adversely affected.
- We have experienced losses of $1,687,000 for the year ended December 31,
1999 and 594,000 for the three months ended March 31, 2000, and we expect losses
for the foreseeable future. Also our operating results may fluctuate from
quarter to quarter.
To date we have incurred net losses, resulting primarily from costs
related to developing our product and attempting to establish ourselves in the
marketplace. Our short-term plans include hiring additional engineers to
improve our existing products and develop new products, hiring additional
marketing personnel, and investing in administrative personnel. We feel that
these expenses are necessary to build an organization which is capable of
establishing and maintaining a strong market position and operating
effectively in that environment. However, we will be subject to continued
risks, expenses and difficulties in our continuing software development and
growth efforts. Product development difficulties could limit sales of our
product and could cause a bad reputation in the marketplace. When a product
gains a reputation for containing operating bugs, it is often difficult to
recover credibility. Additional risks and difficulties include, but are not
limited to, the following situations:
Difficulty recruiting and retaining staff of sufficient technical
caliber to provide adequate and on-going customer support and product
maintenance and development;
Failure to successfully market our products through the Internet
and company representatives; and
Catastrophic and universal hardware failure.
We offer no assurance that we will be successful in addressing or
responding to such risks and the failure to do so could have a material
adverse effect on our business, operations and financial condition. Our
operating history and the uncertain and volatile nature of the markets make
predictions of future results of operations difficult and should not be taken
as indicative of revenue growth, if any, that can be expected in the future.
There is no firm basis to estimate our expenses or the amount of revenues that
planned operations will generate and there can be no assurance that we will
ever achieve significantly increased revenues or profitable operations.
Comparisons to our previous ability to attract customers and sell products may
not necessarily be an indication of future performance.
- We may encounter difficulty recruiting and retaining staff. Without
highly trained technical personnel, we may find it more difficult to compete
with other companies in our field.
We must attract and retain highly qualified technical personnel to both
maintain the current product and customer support levels and to update and
improve our products. Competition for highly qualified technical personnel,
particularly those with Internet technology-related programming skills, is
intense and there is no assurance that we will be able to attract and retain
personnel of the skill level and caliber we need to accomplish our goals.
Because they are in high demand, such technical personnel often demand large
salaries and comprehensive benefits packages that could strain our financial
resources. Technology companies generally have a higher employee turnover
rate than non-technology companies due to intense competition to attract the
most qualified personnel. We may also be at slightly more of a disadvantage
than other software development companies because technical personnel with the
Internet technology expertise that we seek might be reluctant to relocate away
from the more financially lucrative West Coast technology centers such as
Silicon Valley.
- We may face a need for additional financing, especially if our estimates
to obtain new staff or if our projected costs of product development are
incorrect. If such additional financing is required, but unavailable, we may
not be able to develop markets for our products before others introduce
competing products.
There is no assurance that the equity funding obtained will be adequate.
Substantial additional equity or debt financing may be necessary. In such an
event, we intend to seek additional financing in order to hire more technical
or sales staff or to expand our promotional capabilities. We could seek such
additional financing from a number of sources including, but not limited to,
possible further sales of equity or debt securities, bank loans, affiliates,
or other financial institutions. We have no arrangements with respect to, or
sources of, additional financing. Failure to obtain additional financing in
the future could have an adverse effect on us, including advancement of our
business plan. For example, if a significant portion of our financial
resources were exhausted in recruiting and hiring highly skilled staff and by
greater than anticipated product development costs, we would be left with
inadequate funding for developing markets for our products. We can offer no
assurance that we will be able to sell any such securities, or obtain such
financing, on terms and conditions acceptable, or favorable to us, or at all,
if and when needed by us. Any equity financing may involve substantial
dilution of the interests of the current stockholders. Any debt financing
would subject us to the risks associated with leverage, including the possible
risk of an inability to repay the debt as it comes due.
- We have developed our core products using a mix of readily available open
source software development tools. Knowledgeable competitors may be able to
deduce how we have assembled our code base and be able to develop competing
products.
The principal advantage in utilizing open source tools is the extremely
high degree of portability they ensure. Migrating our products from one
operating system or hardware base to another is more easily accomplished by
avoiding proprietary development tools. The risk factor inherent in the use of
such freely available tools is the fact that a sophisticated competitor might
be able to reverse engineer our work and produce similar functionality.
Our product has two unique and highly desirable features for e-commerce,
medical, and other commercial applications . Our product offers the ability to
magnify details in high-resolution graphic images. Our product also allows
rapid transmission of a portion of such an image based on user input,
significantly enhancing the responsiveness of the system to deliver images
over the Internet. The ability to perform these operations is based on a
specific graphic image file format. This file format is universally available,
as it has recently been published as an open source specification. The risk,
as discussed above, is mitigated by the five years we have spent developing
our unique applications and we have made modifications to this code that very
significantly enhance its capabilities and flexibility. We recognize that
these significant features of our product could be a target for imitation.
Any such imitation, should it occur, could have material adverse effects on
our business, operations and financial condition.
- Brand identity problems could stall or compromise our market penetration.
We believe that establishing and maintaining brand identity of our
products and services is critical to attracting new customers and retaining
our customer base of large corporations. The importance of brand recognition
will continue to increase as new competitors enter the digital asset
management marketplace. Promotion and enhancement of our brands will depend
largely on our success in continuing to provide high quality service and
leading edge products and this cannot be assured. If businesses do not
associate our product names or brands with high quality, or if we introduce
new products or services that are not favorably received, we will run the risk
of compromising our product line and decreasing the attractiveness of our
products to potential new customers. In addition, to attract and maintain
customers and to promote our products in response to competitive pressures, we
may find it necessary to increase our financial commitment substantially to
create and maintain product loyalty among our customers. If we are unable to
provide high quality services, or otherwise fail to promote and maintain our
products, or if we incur excessive expenses in an attempt to improve our
services, or promote and maintain our products, our business, results of
operations and financial condition could be adversely affected.
- While we have commenced the process to protect our trade names, we have
not completed the process. Thus, others could attempt to use trade names which
we have selected. Such misappropriation of our brand identity could cause
significant confusion in the highly competitive Internet technology
marketplace and legal defense against such misappropriation could prove costly
and time-consuming.
As part of the brand identity creation process that defines our products
to be unique in the Internet technology marketplace and proprietary in nature,
we have begun the process to protect certain product names and slogans as
registered trademarks to designate exclusivity and ownership. We have engaged
a trademark attorney to complete searches on the uniqueness of some of these
brand names and slogans and she has concluded that the following names and
slogans qualify for registered trademark status and has begun the process to
register them: "AssetWare," "Zoombox TM," "The Look and Feel of
E-commerce," "Real Time," "Real Organized," and "Real Simple."
Although trademarked in the U.S., effective trademark, copyright or trade
secret protection may not be available in every country in which our products
may eventually be distributed. There can also be no assurance that the steps
taken by us to protect our rights to use these trademarked names and slogans
and any future trademarked names or slogans will be adequate, or that third
parties will not infringe or misappropriate our copyrights, trademarks,
service marks, and similar proprietary rights.
- We have been delisted from the OTC Electronic Bulletin Board which has
caused our stock to be less liquid.
We have been unable to meet the requirements necessary to remain eligible
for quotation on the OTC Electronic Bulletin Board. Consequently, our common
stock has been delisted from the Bulletin Board and is now being traded on the
electronic pink sheets which we believe to be a much less suitable system for
people to trade our stock.
FORWARD LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the
future. Forward-looking statements include statements about the future of
operations involving the management of large volumes of media or digital
material, statements about our future business plans and strategies, and most
other statements that are not historical in nature. In this prospectus
forward-looking statements are generally identified by the words "anticipate,"
"plan," "believe," "expect," "estimate," and the like. Although we believe
that any forward-looking statements we make in this prospectus are reasonable,
because forward-looking statements involve future risks and uncertainties,
there are factors that could cause actual results to differ materially from
those expressed or implied. For example, a few of the uncertainties that
could affect the accuracy of forward-looking statements, besides the specific
factors identified in the Risk Factors section of this prospectus, include the
following:
- Rapid changes in technology relating to the Internet;
- the continued growth and use of the Internet;
- changes in government regulations;
- changes in our business strategies;
- market acceptance of our products; and
- hardware failure of a catastrophic proportion.
In light of the significant uncertainties inherent in the forward-looking
statements made in this prospectus, particularly in view of our early stage of
operations, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar statements by existing public companies, does not
apply to our offerings.
USE OF PROCEEDS
The net proceeds we may receive from the sale of the shares underlying
the warrants will vary depending upon the total number of warrants exercised,
and the timing of when they are exercised. We can give no assurances that any
warrants will be exercised or that we will obtain any net proceeds from
exercise of the warrants if offering expenses exceed proceeds received.
Regardless of the timing and number of warrants exercised, we expect to incur
offering expenses estimated at $60,000 for legal, accounting, printing and
other costs in connection with the offering pursuant to this prospectus.
The uses of any proceeds that we may receive from exercise of the
warrants will depend on the amounts received and the timing of their receipt.
We will have broad discretion in applying proceeds and we have presently
identified the following categories of expenditure to be allocated
approximately pro rata as follows:
- expansion of sales and advertising efforts; and
- funding of research and development of existing and new products.
DILUTION
This dilution calculation does not give effect to the issuance of
equity instruments in January and February, 2000. Our financial statements at
March 31, 2000, show a net tangible book value of $1,880,000 or $.09 per
share. Net tangible book value per share represents the amount of our
tangible assets, less total liabilities, divided by the number of shares of
common stock outstanding. Without taking into account any further adjustments
in net tangible book value after March 31, 2000, other than to give effect to
the exercise of the 1,000,000 warrants, after deduction of offering expenses,
the pro forma net tangible book value at March 31, 2000, would have been
$3,130,000 or approximately $.14 per share of common stock, representing an
increase in net tangible book value of approximately $1,250,000 to existing
shareholders and a dilution of approximately $1.11 per share to new
investors. If less than the maximum number of warrants is exercised, the
amount of dilution will increase.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and
notes thereto appearing elsewhere in this registration statement. The matters
discussed in this registration statement contain forward-looking statements
that involve risk and uncertainties. Our actual results may differ materially
from those discussed herein.
Results of Operations
Year ended December 31, 1999, compared to Year ended December 31, 1998
Revenues for the year ended December 31, 1999 of $266,000 represents a
36% increase over 1998. In 1998, our image management software prototype was
completed and we commenced beta testing at customer sites. 1999 reflects not
only the impact of the addition of new customer installations and monthly
service, but also a full year of service on those accounts which were
installed at various times during 1998.
Operating costs and expenses for the year ended December 31, 1999 were
$1,978,000, an increase of $1,668,000, or 538%, from 1998 operating costs and
expenses of $310,000. This increase is the result of our focused efforts on
developing, selling, installing and servicing our proprietary product. The
data management software was developed by Richard Govatski, the company's
chief executive, another systems development engineer, and the limited use of
a number of independently contracted software developers. A full-time
engineering, administrative and sales staff was hired beginning in July,
1999. This staff has now grown to 18 employees and Mr. Govatski is the
Company's President and CEO. Common stock and common stock options valued at
approximately $852,000 were distributed beginning in August, 1999 to various
individuals as compensation for services they provided to the organization.
$120,000 was recognized as the fair value of services which had been provided
by Mr. Govatski during 1999; $90,000 was similarly recognized in 1998. During
1999, the company moved into new office facilities. As a result, office and
occupancy expenses, consisting of office rent, utilities, office supplies,
office equipment maintenance, copying and fax costs, and telephone have
increased from approximately $18,000 for 1998 to approximately $54,000 for
1999. 1999 included advertising of approximately $56,000, travel of
approximately $24,000 and legal and accounting fees of approximately
$138,000. Research and development expenses have continued to increase in the
effort to develop new products. As a result, the research and development
expenses increased $59,000 from 1998, an increase of 65%. Depreciation
expense also increased substantially due to the purchase of computer hardware
and the office furniture and equipment necessary to furnish the new facility .
Three months ended March 31, 1999 compared to three months ended March
31, 2000
Revenues for the three months ended March 31, 2000 increased $25,000,
32%, over the same period in 1999. Revenues for the three months ended March
31, 2000 reflect a continuation of beta testing which had been in effect
during 1999, together with the addition of a limited number of new customers.
Operating costs and expenses were $719,000 for the three months ended
March 31, 2000 compared to $370,000 for the same three months in 1999, an
increase of 94%. Of the $120,000 which was recognized as the fair value of
services which had been provided by Mr. Govatski during 1999, $30,000 has been
included in the three months ended March 31, 1999. Approximately $286,000,
representing a portion of the value of stock which was distributed beginning
in August, 1999 to various individuals as compensation for services they
provided to the organization, was included in operations for the three months
ended March 31, 1999. Operating costs and expenses for the three months ended
March 31, 2000 reflect the impact of the full-time staff which was hired
beginning in July, 1999, additions to the staff since that time, and the
expenses necessary to support that increased level of operation. The company
moved into new office facilities during August, 1999. Office and occupancy
expenses for the three months ended March 31, 1999, including office rent,
utilities, office supplies, office equipment maintenance, copying and fax
costs, and telephone, total approximately $7,000. Those same expenses total
approximately $35,000 for the three months ended March 31, 2000. The three
months ended March 31, 1999 includes no advertising or professional fees
expense, and $2,000 of travel. The three months ended March 31, 2000
includes advertising expense of $47,000, professional fees of $85,000 and
travel of $30,000. Research and development expense increased from $28,000
during the three months ended March 31, 1999 to $79,000 during the three
months ended March 31, 2000. This reflects the substantial increase in the
engineering staff which was begun in 1999.
Liquidity and Capital Resources
At December 31, 1999
We have no material commitments for capital expenditures as of the end of
the fiscal year ended December 31, 1999. During the year ended December 31,
1999, we had a net cash increase of $945,000. 1998 resulted in a net cash
decrease of $1,000. Operating activities for 1999 resulted in a net cash
decrease. The net loss from operations of $1,687,000 was reduced by non-cash
expenses of $1,139,000, consisting of distributions of stock and stock options
for services, recognition of the services provided by the founder, and
depreciation. This net decrease of $548,000, together with increases in
receivables, inventory, prepaid expenses, accounts payable and accrued
expenses and a decrease in deferred revenue, accounted for the total decrease
of $706,000.
Investing activities resulted in cash decreases due to property purchases
in both 1999 and 1998 of $137,000 and $9,000, respectively. During 1999, a
security deposit of $6,000 was paid for our new office facilities.
Financing activities during 1999 resulted in a cash increase of
$1,817,000 from the sale of our common stock, and was decreased by a $23,000
repayment of a note payable.
Cash requirements for the year ended December 31, 2000 will be largely
dependent on our success in selling our products and services. We estimate
that product development and support, the implementation of our marketing
plan, and the general and administrative expense to support our operations
will require approximately $1,400,000. Additional funds of $1,090,000 have
been obtained as a result of a private placement sale during January and
February 2000 of units consisting of stock and warrants. We estimate that
these funds, together with existing cash balances, will provide the funding
needed for anticipated operations during the year 2000. The total of our
available funds will be sufficient to fund anticipated expenses at our current
level of operation for the year 2000. Should anticipated revenues not be
achieved, we would be required to expend our current cash balances, reduce our
expenses, and possibly restrict or eliminate planned product development and
marketing. This could also hamper our ability to take advantage of potential
business opportunities or respond to competitive pressures. Should our cash
requirements exceed our current cash reserves, there is no assurance that
additional financing would be available to us. Should these situations occur,
they could have a material adverse effect on our operations and financial
condition.
At March 31, 2000
We have no material commitments for capital expenditures as of March 31,
2000. During the three months ended March 31, 2000, we had a net cash
increase of $508,000. The three months ended March 31, 1999 resulted in a
net cash decrease of $21,000.
Operating activities for the three months ended March 31, 2000
resulted in a net cash decrease. The net loss from operations of $594,000 was
reduced by non-cash expenses of $169,000, consisting of distributions of
stock options for services, and depreciation. This net decrease of $425,000,
together with increases in receivables, prepaid expenses, accounts payable and
accrued expenses and a decrease in deferred revenue, accounted for the total
decrease of $421,000. The three months ended March 31, 1999, had a net
decrease from operating activities due primarily to the net loss of $291,000,
reduced by the non-cash expenses of $317,000. These non-cash expenses were
the allocated portion of the distributions of stock for services, recognition
of the services provided by the founder, and depreciation. Changes in the
asset and liability accounts accounted for a decrease of $46,000, resulting in
the total decrease of $20,000.
Investing activities resulted in cash decreases due to property
purchases in both 2000 and 1999 of $46,000 and $1,000, respectively. During
March of 2000, a deposit of $115,000 was made on the purchase of the common
stock of Working Knowledge, Inc. This purchase was consummated during April,
2000.
Financing activities during the three months ended March 31, 2000,
resulted in a cash increase of $1,090,000 from the sale of our common stock.
Cash requirements for the twelve months ended March 31, 2001, will be
largely dependent on our success in selling our products and services. We
estimate that our monthly cash requirements extending through March 31, 2001,
will not change from those estimated through December 31, 2000. Therefore, we
estimate that product development and support, the implementation of our
marketing plan, and the general and administrative expense to support our
operations will require approximately $1,400,000. Additional funds of
$1,090,000 have been obtained as a result of a private placement sale during
January and February 2000 of units consisting of stock and warrants. We
estimate that these funds, together with existing cash balances, will provide
the funding needed for anticipated operations during the twelve months which
will end March 31, 2001. Should anticipated revenues not be achieved, we
would be required to expend our current cash balances, reduce our expenses,
and possibly restrict or eliminate planned product development and marketing.
This could also hamper our ability to take advantage of potential business
opportunities or respond to competitive pressures. Should our cash
requirements exceed our current cash reserves, there is no assurance that
additional financing would be available to us. Should these situations occur,
they could have a material adverse effect on our operations and financial
condition.
We anticipate that our ongoing sales effort, together with operations
of Working Knowledge, Inc., may result in greatly increased revenue over the
next year. Working Knowledge, Inc. operations will require additional expense
for personnel and facilities. However, we believe that revenue generated by
this operation will exceed these expenses. We will also continue to invest in
the research and development effort required to enhance our current products
and develop new products which we believe will allow us to increase sales and
market penetration.
BUSINESS
Our History and Background
We were originally incorporated under the laws of the State of Utah on
August 12, 1983, under the name "Raddatz Exploration, Inc." The name was
changed to "Renaissance Guild, Inc." on February 16, 1984, and to
"C.O.N.S.E.R.V.E Corporation" on October 3, 1985. On April 28, 1997, we
changed domicile to the State of Delaware by merging into a Delaware
corporation incorporated on October 14, 1980, under the name "Costs of Owning
the Newest Systems of Energy Reduction are Virtually Eliminated, Inc." The
name was changed to "Conserve, Inc." on May 11, 1999.
Our company was originally formed to engage in the business of
manufacturing and selling solar systems for residential homes. In November
1985, an involuntary bankruptcy proceeding was filed against us. The Court
dismissed the involuntary petition in August 1986. In late 1986 we ceased
operations. On December 5, 1989, we renounced all of our rights to the
collateral, virtually all assets, except its patents, under the Uniform
Commercial Code and transferred our interest therein to a financial
institution, the major creditor which was in bankruptcy proceedings from May
1986 until early 1992, in satisfaction of the related debt. However, a full
release from the debt was not obtained until April 1994. On July 8, 1988, the
patents were sold. Other than as stated above we conducted no business
activity until the reverse acquisition by New Mexico Software.
On or about August 3, 1999, we entered into an agreement with New
Mexico Software, Inc., a privately-held New Mexico corporation, and the
shareholders of this entity. The agreement provided that on the closing date
the shareholders of New Mexico Software would exchange all of their shares for
11,880,000 post-reverse split shares of our company, such that New Mexico
Software would become a wholly owned subsidiary and the shareholders of New
Mexico Software would own approximately 60.7% of the outstanding stock of our
company. The closing of the reorganization agreement was held on August 3,
1999.
Also in connection with a reorganization agreement with New Mexico
Software, we reverse split the outstanding shares at the rate of one-for-1.5,
canceled 5,725,435 outstanding shares, and issued 2,360,500 shares in a
private offering at $0.75 per share. We received gross proceeds of $1,770,375
from this offering. As a result of the closing of the reorganization
agreement, old management resigned in favor of the current directors and
officers who were designated by New Mexico Software. The name of the company
was changed to NMXS.com, Inc. on August 3, 1999. Giving effect to the reverse
split, the cancellation of shares, and the issuance of shares in the reverse
acquisition and private offering, we had 19,440,499 shares outstanding
immediately after the reverse acquisition.
Unless otherwise indicated, all references to our outstanding shares give
effect to all previous stock splits.
In conjunction with the closing of the reorganization agreement with New
Mexico Software, we declared a distribution of 1,000,000 warrants at the rate
of one-for-5.3 to all of the shareholders of record as of the beginning of
business on August 3, 1999.
In January and February 2000, we issued 1,090,000 units in a private
offering consisting of one share of common stock and a Series B Warrant to
purchase one share of common stock through January 17, 2005, at $1.00 per
share. We received gross proceeds of $1,090,000 from the offering.
In April 2000 we entered into a stock purchase agreement with the sole
shareholder of Working Knowledge, Inc., a Kansas corporation incorporated on
December 3, 1997. Working knowledge has been engaged in the web site
management business since incorporation. The acquisition price of the stock
of Working Knowledge was $150,000. The closing was held in April 2000.
Through our wholly owned subsidiary, we provide Internet technology-based
digital asset management software that is a business-to-business solution for
the efficient organization, storage, rapid retrieval and transmission of
digital assets.
History of New Mexico Software
With the explosive growth of the Internet, e-commerce, and even the
availability of low-cost scanners, businesses have begun a mass migration of
visual images to digital formats. These graphic images, along with video and
audio clips, are collectively called digital assets. Businesses that rely on
them have a significant investment in their creation, maintenance and ability
to reproduce these assets for other uses. The growing importance of digital
assets has produced a large demand for efficient organization tools and rapid
distribution methods. New Mexico Software's software products were designed
to address this growing market need.
New Mexico Software was founded in 1994 by Richard Govatski and
incorporated in 1996. With the anticipation that digital asset management
would emerge as a crucial factor in the growth of the Internet, he and a small
team of engineers began the development of a core system that addressed the
most important requirements for a comprehensive digital asset management
system.
Although the company has been in existence for five years, it was not
until very recently that we began as a start-up company in the marketplace.
Our first product, Image Assets, became operationally viable during April of
1998. It was not until June of 1999, however, that a sales effort was
undertaken and an internal engineering, sales, and administrative staff was
put into place.
What New Mexico Software Products Provide Customers
New Mexico Software operates as a single unit within NMXS.com Inc.;
its role is product development and support. Currently, New Mexico Software
has developed a media asset management product called AssetWare. We market
AssetWare in two ways; as a hosted application on the Internet, and highly
customized according to clients' specifications. A hosted application
provides a customer access to the AssetWare product over the Internet.
Customers log on to our server and use AssetWare to manage, view and
distribute their media assets. The hosted application customers' media files
are also stored on our server. Payment for this service is automatic credit
card billing to which the customer has agreed in advance. Customers can
choose the number of features needed for the particular business and are
billed according to the number of features chosen and the amount of disk space
the customer's media files will occupy.
Because of its flexibility our core technology can be adapted to other
more industry-specific uses. We are in the process of defining an application
for the medical market that we are calling XREX. Currently, this product and
marketing efforts are in the formative stages.
In addition to the products we have developed based on our technology,
we have cooperative agreements with other vendors to either incorporate their
products with our product, or offer their products as an additional feature.
For instance, we are a certified Sprint Data Partner. That means that we can
resell Sprint high-speed data transmission lines that will provide our
customers with fast data communication capabilities.
Our Technology
We engineer products around a central core of unique Internet
technology that makes it possible to rapidly view, distribute and manage media
files such as graphic images, animation sequences and film clips.
Characteristically, media files are very large, thus making them more
time-consuming to view and distribute using conventional Internet technology.
For instance, a media file such as an x-ray might be as large as 70mb.
Conventional Internet technology moves the entire media file. Using a
standard 56.6-kb modem connection, moving such a file would take more than 20
hours to load to a Netscape or Internet Explorer browser window--if the
Internet connection could be maintained that long, and if the browser didn't
crash. Using our technology that same 70mb file can be viewed in
approximately 37 seconds over a 56.6-kb modem connection. If it is necessary
to move the actual media file our technology provides a highly expedited
method of doing this as well. However, for most e-commerce and other common
Internet uses, it is usually not necessary to move the file, only to view it.
In addition, our viewing technology also provides several magnification
features. One type of magnification makes it possible to magnify regions of
interest in a graphic image by clicking on them with the computer mouse. The
viewer can then move the mouse around to magnify different areas of the
image. Another type of magnification provides the ability to click on the
image to greatly magnify the entire image. By holding down the mouse button
and moving the mouse, the viewer can then move the magnified image to fit in
the screen. While the ability to magnify images over the Internet is not
unique, what is unique about our product is that the viewer does not require
any special software to perform these various types of magnification. The
magnification capability is generated by our Internet technology on our
server--a special high speed computer that handles multiple streams of
incoming and outgoing data-- rather than being deployed as an application that
must reside on the viewer's desktop computer. This means that e-commerce
sites using our technology can offer their viewers the ability to examine
products in detail without requiring them to download additional software.
Besides our unique viewing technology we also provide the ability to
manage large numbers of media files in a visual database displaying small,
thumbnail representations of the media. This database can searched by natural
language queries.
Our core technology is characterized by these additional features that
also contribute to its marketplace advantages:
- Ability to use high-resolution graphics files--large files with
lots of detail as opposed to the low resolution files with indistinct detail
used by conventional Internet technology.
- Ability to use a single image in multiple resolutions.
- Media stored using our unique technology has more modest storage
requirements than media stored in conventional formats.
- Our technology works on MacIntosh, PC and Sun computers. If a
business has a network of these different types of computers it will work with
combinations of these computers.
- Ability to print photographic quality images directly from the
Internet. That is, images of the same quality that would normally require a
color separation and professional printing process.
- A compression technology that allows images to move rapidly from
one computer to another over the Internet.
- An invisible branding process used to authenticate ownership of
images.
- The ability to create private, password required viewing salons
on the Internet for the purposes of inter-business collaboration.
- Ability to convert existing images in other file formats such as
computer aided design files and medical digital imaging and communications in
medicine files to the file format used by our technology.
- Easy to use because it does not require any new software
programs, only a familiarity with Netscape or Internet Explorer.
In January 2000 we entered into a development agreement with
3Dshopping.com, Inc. to develop optimization software that would significantly
reduce the size of the photographic images used by this company in their web
site development. The product, called Accelera, has been installed at its
facility in Marina del Rey, California, and is currently being put through
final acceptance testing. We have provided reseller pricing to 3Dshopping.com
for our ZoomBox TM product. 3Dshopping.com has agreed to buy
ZoomBox TM units, a computer server with preinstalled software to provide
magnification of images on web pages, and resell them to their customers. This
is the only relationship between the companies projected at this time.
We currently employ eight programmers and engineers tasked with adding
new features to our products and fixing any problems users might encounter.
There are risks inherent in software development including unanticipated
delays, technical problems that could mean significant deviation from original
product specifications, and hardware problems. In addition, once improvements
and bug fixes are deployed there is no assurance that they will work as anticipa
ted or that they will be durable in actual use by customers.
During the years ended December 31, 1999 and 1998, our research and
development costs were $150,000 and $91,000, respectively. The three months
ended March 31, 2000 and 1999 include research and development costs of
$79,000 and $28,000 respectively.
Working Knowledge
Working Knowledge, Inc. provides services which are necessary to prepare,
enter and maintain the customer's data on our image management system. These
include web design, database development, image scanning, asset uploading and
database support. In addition, Working Knowledge, Inc. is able to serve the
customer by utilizing the stored images to produce compact discs, digital
prints and large poster formats. These complementary services allow us to
complete our cycle of comprehensive image management.
Marketing
Our marketing effort, including print, direct mail, web advertising,
cross-linking and participation in key industry events, is being primarily
directed to advertising-associated industries, including corporate accounts
and stock photo houses. Other areas in which the management of large graphic
image and media files is a significant problem include medical and x-ray
imaging, architectural and engineering firms and various forms of e-commerce.
Our senior management have appeared as industry experts at significant
industry events including Seybold, XPlor International, Photo Marketing
Association conferences and others. We had a principal speaking engagement at
the first annual Digital Asset Management Conference held in Orlando, FL, in
January, 2000. This semi-annual event will become the premier conference
event in the emerging asset management market.
Our Intellectual Properties
We have several proprietary aspects to our software which we believe make
our products unique and desirable in the marketplace. Consequently, we regard
protection of the proprietary elements of our products to be of paramount
importance and we attempt to protect them by relying on trademark, service
mark, trade dress, copyright and trade secret laws, and restrictions on
disclosure and transferring of title. We have entered into confidentiality
and non-disclosure agreements with our employees and contractors in order to
limit access to, and disclosure of, our proprietary information. There can be
no assurance that these contractual arrangements or the other steps taken by
us to protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies.
Although we do not believe that we infringe the proprietary rights of
third parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current, or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
grows. Any such claim, whether meritorious or not, could be time-consuming,
result in costly litigation, cause service upgrade delays, or require us to
enter into royalty or licensing agreements. Such royalty or licensing
agreements may not be available on terms acceptable to us or at all. As a
result, any such claim could have a material adverse effect upon our business,
results of operations and financial condition.
We have applied for trademark protection on our Zoombox TM
product.
Government Regulation
Our company, operations, products, and services are all subject to
regulations set forth by various federal, state and local regulatory
agencies. We take measures to ensure our compliance with all such regulations
as promulgated by these agencies from time to time. The Federal Communications
Commission sets certain standards and regulations regarding communications and
related equipment.
There are currently few laws and regulations directly applicable to the
Internet. It is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality
of products and services. The growth of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. Tax authorities
in a number of states are currently reviewing the appropriate tax treatment of
companies engaged in online commerce, and new state tax regulations may
subject us to additional state sales and income taxes.
Because our services are accessible worldwide, other jurisdictions may
claim that we are required to qualify to do business as a foreign corporation
in a particular state or foreign country. Our failure to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject us
to taxes and penalties for the failure to qualify and could result in our
inability to enforce contracts in such jurisdictions. Any such new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could have a
material adverse effect on our business, results of operations and financial
condition.
How We Compete
The media asset management market is one of the newest in the rapidly
growing Information Services industry. Competition at this time is broad with
over 100 vendors offering systems that have some comparable features as our
current product. However, to our knowledge, few have as robust a feature set
for the management and distribution of images and none has the advanced
viewing technology that we provide. We believe our viewing technology offers
a competitive advantage over companies that offer just media asset management
products.
We have an additional advantage as a certified Sprint Data Partner.
This allows us to market ourselves as a total solution provider that can
provide the wide bandwidth connectivity that many businesses need for
high-speed Internet connections..
Another competitive strategy we are using is offering our product as a
hosted application. We believe that our strategy to provide AssetWare as a
hosted application and our custom system design capabilities provide us a
diversity of competitive market penetration opportunities.
Office Facilities and Equipment
We lease a 3,116 square foot facility in Albuquerque, New Mexico, at a
cost of approximately $3,895 per month, increasing to approximately $4,414
over the term of the lease. The lease expires approximately July 31, 2004.
The facility provides both administration and engineering offices. It is in
close proximity to the location of the servers, and the two locations are
networked together by fiber optics. The current space provides adequate room
for expansion. It also contains an advanced telephone system which will
provide the capability needed to provide adequate customer telephone support.
We have also leased approximately 1,200 square feet in Santa Monica,
California to house the Working Knowledge, Inc. operations. The lease term
extends for 36 months beginning June 8, 2000 and provides for monthly rental
payments of $3,000, with an annual increase of 3%.
We also lease a Sun Solaris computer network under a master lease
which has an option to purchase the equipment at the end of the individual
leases at the then fair market value. Monthly payments are approximately
$6,500.
Employees
As of June 30, 2000, we had 26 employees, including 10 in systems
engineering; 9 in administration; 3 in sales; and 4 in scanning. We offer and
share in the cost of health and dental insurance. A stock option plan for
employees and others was adopted on August 3, 1999. The competition for
qualified personnel in our industry and geographic location is intense, and
there can be no assurance that we will be successful in attracting,
integrating, retaining and motivating a sufficient number of qualified
personnel to conduct its business in the future. We have never had a work
stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good. From
time to time, we also utilize services of independent contractors for specific
projects or to support our research and development effort.
Reports to Our Security Holders
Our fiscal year ends on December 31st. We do not intend to furnish
our shareholders annual reports containing audited financial statements
and other appropriate reports. However, we intend to become a reporting
company and file annual, quarterly and current reports, and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room at 450 fifth
Street, N.W., Washington D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings are also available
to the public on the SEC Internet site at http://www.sec.gov.
MANAGEMENT
General
The following table sets forth our directors and executive officers,
their ages, and all offices and positions held with our company. A director
holds office until his successor is elected and qualified. Annual meetings to
elect directors are scheduled to be held on the 5th day of April in each year
if not a legal holiday, and if a legal holiday, then on the next succeeding
day that is not a holiday, at 10:00 am. Officers are chosen by the Board of
Directors and hold office until their successors are chosen and qualified.
Officers may be removed with or without cause by the affirmative vote of a
majority of the whole Board of Directors.
Name Age Position Director Since
Richard Govatski 55 Chairman, President & CEO 1999
Marvin Maslow 62 Director 1999
Scott L. Bach 37 Director 1999
Marc Orchant 41 Vice President Marketing
Susan Blumenthal 49 Vice President Communications
Teresa B. Dickey 55 Secretary & Treasurer
Set forth below is certain biographical information regarding the
Company's executive officers and directors:
RICHARD GOVATSKI has been the chairman, CEO, and president of New Mexico
Software, Inc., since 1996.
MARVIN MASLOW has been the president and chairman of Manhattan
Scientifics Inc., a shareholder of the Company, a high technology and
commercialization company, since January 1998. Manhattan Scientifics, Inc., a
development stage company, is a technology incubator that seeks to acquire,
develop and bring to market life-enhancing technologies in various fields of
endeavor, with emphasis in the area of consumer and commercial electronics.
He has also served as chief executive officer and chairman of the board of
Tamarack Storage Devices, Inc., a wholly owned subsidiary of Manhattan
Scientifics, Inc. since November, 1996. From June 1990 until September 1996,
he was the chief executive officer of Projectavision, Inc., a company he
co-founded to develop and market video projection technology.
SCOTT BACH has been a practicing attorney since 1987. He has been the
owner of Bach & Associates, a law firm located in New York since September
1995. He is also a director of Manhattan Scientifics Inc., a shareholder of
the Company, and Tamarack Storage Devices, inc., a wholly owned subsidiary of
Manhattan Scientifics.
MARC ORCHANT has been employed as the vice-president of marketing for
New Mexico Software since August 1999. From March 1998 until August 1999 he
was employed by AGFA Corporation as a market development manager in the
company's digital printing systems group. AGFA Corporation is a worldwide
supplier of graphics, photographic and medical imaging technologies and
consumables. The company's worldwide headquarters are in Belgium with US
headquarters in Ridgefield Park, NJ. From February 1989 until March 1998 he
was employed by Aibus Corporation, doing business as Subia, as director of
training and as operations manager. Aibus Corporation is an Albuquerque,
NM-based digital graphics company. It offers design, production and digital
output services to the advertising and marketing industries, corporate clients
and individual graphic designers. Output services include film separations for
offset printing, large format color posters, digital color printing, and
digital photography.
SUSAN BLUMENTHAL has been employed by us since August 1999. From 1992
until 1999 she was employed as a consultant to StarTree, Inc., a public
relations firm, which contracted work for us.
TERESA B. DICKEY has been the secretary/treasurer of our company since
August 1999. From 1988 until 1999 she was employed by Sandia National
Laboratory as art director. Sandia National Laboratory is a U.S. Department
of Energy national security laboratory.
The Board of Directors has no nominating or compensation committee. The
Board of Directors functions as the audit committee. There are no
arrangements or understandings between any of the officers or directors and
any other person(s) pursuant to which such officer or director was selected as
an officer or director. There are no family relationships between any of the
officers or directors of the Company.
Compensation of Executive Officers
The following table sets forth the aggregate executive compensation
awarded to, earned by, or paid to the named executive officer by any person
for all services rendered in all capacities to our company and its
subsidiaries for the fiscal years ended December 31, 1999, 1998, and 1997:
Name and Annual Compensation Long-Term Compensation All
Principal Awards Payouts Other
Positions Year Salary Bonus Other Restricted Options/ Compensation
Annual Stock SARS LTIP
Compens- Award(s) Payouts
ation
Richard
Govatski,
CEO 1999 -- -- -- -- 500,000 -- --
1998 -- -- -- -- -- -- --
1997 -- -- -- -- -- -- --
Richard
Southwick,
CEO(1) 1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
1997 -- -- -- -- -- -- --
(1) Mr. Southwick served as CEO from 1985 until August 1999.
We have a three-year employment contract with Mr. Govatski to act as
our president and chief executive officer on a full-time basis. The agreement
commenced on January 1, 2000. The annual base salary is $120,000, which amount
is subject to review by the Board of Directors each year commencing as of
January 1, 2000. He is entitled to a bonus from time-to-time as may be
determined solely by the Board of Directors. As part of his benefits he
received options to purchase 500,000 shares of our common stock as discussed
below. We have also agreed to provide him with a long-term disability
insurance policy and with group health, hospitalization, major medical
insurance, and other similar benefits as we may adopt in the future. The only
benefits provided at this time are medical and dental insurance. We have also
agreed to maintain a $1,000,000 life insurance policy which permits him to
designate the beneficiary. We are in the process of securing these life
insurance benefits, but no life insurance benefits were in place as of July
12, 2000. We also purchased an automobile for approximately $36,000 and
provide him use of the automobile at no cost. The employment contract also
contains standard confidentiality provisions and a one-year non-competition
provision. The agreement is terminable for cause by a vote of two-thirds of
the directors. It can also be terminated upon three-month's notice if he
becomes incapacitated for a period of six months or immediately upon his
death.
We have entered into an arrangement with Marvin Maslow to pay him an
annual salary of $60,000 to work part-time as a consultant for us. We have
also leased a car for him. This arrangement can be terminated by the Board of
Directors at any time.
Option Grants in the Last Fiscal Year
The following table sets forth certain information concerning
individual grants of stock options made during the last completed fiscal year
ended December 31, 1999, to each of the named executive officers:
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise Expiration
Name Options Fiscal Year Price Date
Richard Govatski 380,000 64.41% $0.750 9/30/04
120,000 20.34% $0.825 9/30/04
Total 500,000 84.75%
The options granted to Mr. Govatski will vest and become exercisable at
the rate of 20% per year commencing August 4, 2000.
No options were exercised by Mr. Govatski during the last completed
fiscal year ended December 31, 1999.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation
for their services as directors. The Board of Directors has the authority to
fix the compensation of directors. No amounts have been paid to, or accrued
to, directors in such capacity. There is no current compensation for the
directors' services.
Stock Option Plan
As of the closing of the reverse acquisition with New Mexico Software, we
adopted a stock option plan, pursuant to which we are authorized to grant
options to purchase up to 3,000,000 shares of our common stock to our key
employees, officers, directors, consultants, and other agents and advisors.
Awards under the plan consist of both incentive and non-qualified options.
The plan is administered by the Board of Directors which will determine
the persons to whom awards will be granted, the number of awards to be granted
and the specific terms of each grant, including the vesting thereof, subject
to the provisions of the plan.
Persons who are eligible to participate in the plan include the
following:
- Employees, as to both incentive and non-qualified options;
- Non-employee members of the Board, as to non-qualified options; and
- Consultants and other independent advisors, as to non-qualified options.
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock
on the date of grant, or 110% of the fair market value in the case of a
grantee holding more than 10% of our outstanding stock. The aggregate fair
market value of shares for which qualified stock options are exercisable for
the first time by such employee, or 10% shareholder, during any calendar year
may not exceed $100,000. Non-qualified stock options granted under the plan
may be granted at a price determined by the Board of Directors, not to be less
than the fair market value of the common stock on the date of grant.
No option may be granted to be exercised more than 10 years after the
grant date. The terms of options outstanding at the time of a persons
cessation of service, death, permanent disability, or misconduct are reduced
to the following periods, but not to exceed the original term:
- Three months after cessation of services, except by reason of
death, permanent disability, or misconduct;
- Twelve months after the optionee's death or permanent disability; and
- Immediately upon termination for misconduct.
The plan also contains provisions affecting outstanding options in the
case of certain corporate transactions or in the event of a change of
control. If we should enter into a merger or consolidation, or in the event
of a tender or exchange offer, in which securities representing more than 50%
of the voting control are transferred to an outside party, or if we should
sell, transfer, or dispose of all, or substantially all of our assets, we
could accelerate the vesting and termination dates of these options. We could
also elect to terminate outstanding purchase rights associated with the
options. In the alternative, the options could be assumed and adjusted for
the particular corporate transaction.
Indemnification of Directors, Officers, and Others
Section 145 of the General Corporation Law of the State of Delaware
expressly authorizes a Delaware corporation to indemnify its officers,
directors, employees, and agents against claims or liabilities arising out of
such persons' conduct as officers, directors, employees, or agents for the
corporation if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company.
Neither the articles of incorporation nor the Bylaws of the Company provide
for indemnification of the directors, officers, employees, or agents of the
Company. The Company has not adopted a policy about indemnification. Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the "Act") may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
The eighth article of our Certificate of Incorporation includes
provisions to eliminate, to the fullest extent permitted by Delaware General
Corporation Law as in effect from time to time, the personal liability of our
directors for monetary damages arising from a breach of their fiduciary duties
as directors.
CERTAIN TRANSACTIONS
Richard Govatski, our president, director, and principal shareholder,
may be deemed a promoter in relation to the organization of our business. In
connection with the acquisition of New Mexico Software, Mr. Govatski exchanged
all 1,000 of his shares of New Mexico Software for 5,597,000 shares in the
public company.
MARKET INFORMATION
The Common Stock of the Company did not commence trading either on the
OTC Electronic Bulletin Board or in the Pink Sheets until approximately August
1999. We were delisted from the Bulleting Board on October 21, 1999. Our
stock is currently quoted on the Pink Sheets under the symbol "NMXS." The
table below sets forth for the periods indicated the high and low bid
quotations as reported on the Internet. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not
necessarily represent actual transactions.
Quarter High Low
FISCAL YEAR ENDED
DECEMBER 31, 1999 Third $3.375 $2.187
Fourth $2.25 $1.00
FISCAL YEAR ENDING
DECEMBER 31, 2000 First $4.50 $1.55
Second $2.437 $0.75
Initially our shares will be subject to Rule 15g-9 under the Exchange
Act. That rule imposes additional sales practice requirements on
broker-dealers that sell low-priced securities designated as "penny stocks" to
persons other than established customers and institutional accredited
investors. The SEC's regulations define a "penny stock" to be any equity
security that has a market price less than $5.00 per share or with an exercise
price of less than $5.00 per share, subject to certain exceptions. Initially
our stock will be a penny stock. We cannot assure you that our shares will
ever qualify for exemption from these restrictions. For transactions covered
by this rule, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may affect the ability of
broker-dealers to sell our shares and may affect the ability of holders to
sell their shares in the secondary market.
Outstanding Options, Warrants, and Convertible Instruments
At March 21, 2000, we had outstanding 1,029,760 options which we had
granted pursuant to our stock option plan. In addition to the 1,000,000
Series A Warrants set forth in this prospectus, we also have outstanding
1,090,000 warrants designated as Series B Warrants to purchase 1,090,000
shares of stock at $1.00 per share, exercisable commencing August 1, 2000,
until January 17, 2005. We have also granted registration rights to our
securities counsel to register up 20,000 of the outstanding restricted shares.
Record Holders of Stock; Transfer Agent
At July 25, 2000, we had approximately 383 shareholders of record as
reported by our transfer agent. Our transfer agent for our common stock and
our Series A Warrants is Interwest Transfer Company, Inc., 1981 East 4800
South, Suite 100, Salt Lake City, UT 84117.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
stock ownership as of July 25, 2000, of each person who is known by us to be
the beneficial owner of more than five percent of our stock; by each of our
executive officers and directors; and by our executive officers and directors
as a group. Such information was furnished to us by these persons or was
obtained from information provided by the transfer agent.
Name and Address Amount and Nature of Percent of Class
of Beneficial Owner Beneficial Ownership Before Exercise After Exercise
Richard Govatski 5,597,000 26.99% 25.75%
5041 Indian School Rd NE
Albuquerque, NM 87110
Manhattan Scientifics, Inc. 5,416,300(1) 26.12% 24.92%
Olympic Tower
641 5th Ave.
Suite 36 F
New York, NY 10022
Marvin Maslow 5,416,300(1) 26.12% 24.92%
Olympic Tower
641 5th Ave.
Suite 36 F
New York, NY 10022
Michael Lauer 5,416,300(1) 26.12% 24.92%
475 Steamboat Road
Greenwich, CT 06830
Scott L. Bach 40,000 * *
1 Rockefeller Plaza
New York NY 10020
Marc Orchant 30,000 * *
5041 Indian School Rd NE
Albuquerque, NM 87110
Susan Blumenthal 170,000(2) * *
5041 Indian School Rd NE
Albuquerque, NM 87110
Teresa B. Dickey 50,000 * *
5041 Indian School Rd NE
Albuquerque, NM 87110
Executive officers and
directors as a group
(6 persons) 11,303,300 54.52% 52%
* Represents less than 1%.
(1) These shares are held directly in the name of Manhattan Scientifics,
Inc. Mr. Maslow, one of our directors, is an officer and director of
Manhattan Scientifics, Inc., and is deemed to share beneficial interset in
these shares. Mr. Lauer is a principal beneficial owner of the stock of
Manhattan Scientifics and is deemed to share beneficial ownership of these
shares.
(2) Of these shares, 70,000 are held in a brokerage account.
SELLING SHAREHOLDER
Up to 20,000 shares issued previously by us may be offered for resale by
Ronald N. Vance, P.C. We will not receive any of the proceeds from the sale
of these securities. Mr. Vance is acting as counsel for us in this offering
and the shares previously issued to him are for services rendered in
connection with this offering. Mr. Vance beneficially owns no other shares
and will not beneficially own any of our securities if these shares are sold.
The sale of the shares by the selling security holder may be effected
from time to time in transactions in the over-the-counter market or in
negotiated transactions or otherwise. These transactions may include block
transactions by or for the account of the selling security holders. Sales may
be made at fixed prices which may be changed, at market prices, if any,
prevailing at the time of sale, or at negotiated prices.
The selling security holder may effect these transactions by selling his
shares directly to purchasers, through broker-dealers acting as agents for him
or to broker-dealers who may purchase the securities as principals and
thereafter sell the securities from time to time in the over-the-counter
market, if any, in negotiated transactions or otherwise. These broker-dealers,
if any, may receive compensation in the form of discounts, concessions or
commissions from the selling security holder or the purchasers for whom the
broker dealers may act as agents or to whom they may sell as principals or
otherwise, which compensation as to a particular broker-dealer may exceed
customary commissions.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in the distribution of the selling security holder's shares
may not simultaneously engage in market making activities with respect to any
of our securities for a period of at least two, and possibly nine, business
days prior to the start of any distribution.
The selling security holder and broker-dealers, if any, acting in
connection with these sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
Common Stock
We are presently authorized to issue 50,000,000 shares of $.001 par
value common stock. At July 25, 2000, we had 20,733,836 shares of common
stock outstanding. The holders of our common stock are entitled to equal
dividends and distributions when, as, and if declared by the Board of
Directors from funds legally available therefor. No holder of any shares of
common stock has a preemptive right to subscribe for any of our securities,
nor are any common shares subject to redemption or convertible into other of
our securities, except for outstanding options described above. Upon
liquidation, dissolution or winding up, and after payment of creditors and
preferred stockholders, if any, the assets will be divided pro-rata on a
share-for-share basis among the holders of the shares of common stock. All
shares of common stock now outstanding are fully paid, validly issued and
non-assessable. Each share of common stock is entitled to one vote with
respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote. Holders of our common stock
do not have cumulative voting rights, so the holders of more than 50% of the
combined shares voting for the election of directors may elect all of the
directors if they choose to do so, and, in that event, the holders of the
remaining shares will not be able to elect any members to the Board of
Directors.
Preferred Stock
We are authorized to issue up to 500,000 shares of $.001 par value
preferred stock. Under our Certificate of Incorporation, the Board of
Directors will have the power, without further action by the holders of the
common stock, to designate the relative rights and preferences of the
preferred stock, and to issue the preferred stock in one or more series as
designated by the Board of Directors. The designation of rights and
preferences could include preferences as to liquidation, redemption and
conversion rights, voting rights, dividends or other preferences, any of which
may be dilutive of the interest of the holders of the common stock or the
preferred stock of any other series. The issuance of preferred stock may have
the effect of delaying or preventing a change in control of our company
without further shareholder action and may adversely affect the rights and
powers, including voting rights, of the holders of common stock. In certain
circumstances, the issuance of preferred stock could depress the market price
of the common stock.
Series A Warrants
We declared a warrant distribution of common stock purchase warrants to
all stockholders of record as of the beginning of business on August 3, 1999,
a date immediately preceding closing the acquisition with New Mexico
Software. The warrants will be distributed on the effective date of this
prospectus. We will distribute a total of 1,000,000 warrants pro rata to
these shareholders who owned shares on August 3, 1999. The warrants will be
distributed on the basis of one warrant for each 5.3 shares owned on this date
and will be exercisable for one share of common stock. The warrants will be
exercisable for a period of three years from the date of this prospectus,
subject to redemption by us. The distribution of the warrants and the
purchase of the shares of common stock underlying the warrants must be
registered with the Securities and Exchange Commission prior to the warrants
becoming exercisable. Therefore, we have filed the registration statement of
which this prospectus is a part. The warrants are exercisable at $1.25 per
share subject to our right to lower the price at any time.
Only stockholders of record as of August 3, 1999, are entitled to the
distribution of the warrants, which distribution is being made to said
stockholders without monetary consideration. The warrants are
nontransferable.
The warrants are redeemable by us at any time regardless of whether a
registration statement has been filed or declared effective and regardless of
whether the registration statement is then current, upon thirty days written
notice, at a price of $.01 per warrant. Any warrant holder who does not
exercise his warrants prior to the redemption date, as set forth on our notice
of redemption, will forfeit his right to purchase the shares underlying the
warrants. After the redemption date, any outstanding warrants referred to in
the notice of redemption will become void and will be canceled. If we do not
redeem the warrants, they will expire at the conclusion of the exercise
period, unless we extend the period.
We may extend the exercise period of the warrants at any time provided
we give written notice of the extension to the warrant holders prior to their
expiration date. We do not presently contemplate any extensions of the
exercise period.
The warrants contain anti-dilution provisions with respect to the
occurrence of certain events, such as stock splits or stock dividends. The
anti-dilution provisions do not apply in the event of a merger or
acquisition. In the event of a liquidation, dissolution or winding-up of our
company, warrant holders will not be entitled to participate in our assets.
Warrant holders have no voting, preemptive, liquidation or other rights of a
stockholder, and no dividends may be declared on the warrants.
The warrants may be exercised by surrendering the warrant certificate
evidencing the warrants to be exercised and paying to us the exercise price
per share in cash or check. Stock certificates will be issued as soon
thereafter as practicable.
The warrants are not exercisable unless the warrants and the shares of
stock underlying the warrants are registered. We have filed with the
Securities and Exchange Commission a registration statement with respect to
the issuance of the stock underlying the warrants. This prospectus is part of
this registration statement and the date of this prospectus is the effective
date of the registration statement. The effective date of the registration
statement is the commencement date for determining the exercise period of the
warrants. We will also seek to register or qualify the common stock issuable
upon the exercise of the warrants under the securities laws of all states in
which holders of the warrants may reside.
The warrants will not be exercisable by, and may not be distributed
to, stockholders residing in states where the distribution or exercise is
prohibited without registration in these states and where we are unable to
meet the registration requirements of the state.
Series B Warrants
In February 2000 we issued a total of 1,090,000 Series B Warrants
which entitle the holders to acquire one share of our common stock for $1.00
per warrant. These five-year warrants are exercisable commencing August 1,
2000. The warrants are subject to redemption by us at $.01 per warrant, at
any time, upon thirty days notice if the closing bid price of our common stock
equals or exceeds 300% of the exercise price for ten consecutive trading days
at any time prior to notice of redemption. Any warrant holder who does not
exercise his warrants prior to the redemption date, as set forth on our notice
of redemption, will forfeit his right to purchase the shares underlying the
warrants. After the redemption date, any outstanding warrants referred to in
the notice of redemption will become void and will be canceled. If we do not
redeem the warrants, they will expire at the conclusion of the exercise
period.
The warrants are not exercisable unless the warrants and the shares of
stock underlying the warrants are registered, or a valid exemption from the
registration requirements exists. We have not agreed to register the warrants
or the underlying shares.
The warrants contain anti-dilution provisions with respect to the
occurrence of certain events, such as stock splits or stock dividends. The
anti-dilution provisions do not apply in the event of a merger or
acquisition. In the event of a liquidation, dissolution or winding-up of our
company, warrant holders will not be entitled to participate in our assets.
Warrant holders have no voting, preemptive, liquidation or other rights of a
stockholder, and no dividends may be declared on the warrants.
DIVIDEND POLICY
We have not declared or paid any cash dividends as yet on the common
stock and the Board of Directors has not yet decided on a dividend policy.
Whether dividends will be paid will be determined by the Board of Directors
and will necessarily depend on our earnings, financial condition, capital
requirements and other factors. The Board of Directors has no current plans
to declare any dividends in the foreseeable future.
PLAN OF DISTRIBUTION
This prospectus relates to the distribution of 1,000,000 redeemable
warrants and 1,000,000 shares of our common stock underlying these warrants.
As soon as practicable after the date of this prospectus, the warrants will be
distributed to the record holders of our common stock as of the beginning of
business on August 3, 1999. The warrants were not distributed and did not
constitute an offer by us to sell the shares of common stock prior to the date
of this prospectus.
The distribution of the warrants will be managed without an underwriter,
and the shares of stock to be issued upon exercise of the warrants will be
issued by our officers without any discount, sales commissions or other
compensation being paid to anyone in connection with the distribution. In
connection therewith, we will pay the costs of preparing, mailing and
distributing this prospectus to the holders of our common stock. Brokers,
nominees, fiduciaries and other custodians will be requested to forward copies
of this prospectus to the beneficial owners of securities held of record by
them on August 3, 1999, and such custodians will be reimbursed for their
expenses.
There is no assurance that any of the warrants will be exercised and that
any of the shares of common stock will be sold. All funds received upon the
exercise of any warrants will be immediately available to us for our use.
Our transfer agent will act as the warrant agent for the Series A
Warrants. Warrants may be exercised in whole or in part by presentation of
the warrant certificate, with the purchase form on the reverse side thereof
filled out and signed at the bottom thereof, together with payment of the
exercise price and any applicable taxes at the principal office of Interwest
Transfer Co., Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah
84117. Payment of the exercise price shall be made in lawful money of the
United States of America by wire transfer or check payable to the order of
"Interwest Transfer Co.--NMXS.com, Inc. Escrow Account." All holders of
warrants will be given an independent right to exercise their purchase
rights. If, as, and when properly completed and duly executed notices of
exercise are received by the warrant agent, together with the warrant
certificates being surrendered and full payment of the exercise price in
cleared funds, the checks or other funds will be delivered to us, and the
warrant agent will promptly issue certificates for the underlying common
stock. It is presently estimated that certificates for the shares of common
stock will be available for delivery in Salt Lake City, Utah, at the close of
business on the tenth business day after the receipt of all required documents
and funds.
SHARES ELIGIBLE FOR FUTURE SALE
At July 25, 2000, we had 20,733,836 outstanding shares. In addition,
if all of the 1,000,000 warrants being issued were exercised, the shares
issued upon exercise will, subject to any applicable state law restrictions on
secondary trading, be freely tradeable without restriction under the
Securities Act, except that any shares purchased by our affiliates will be
subject to the resale limitations of Rule 144.
Of the shares outstanding at July 25, 2000, approximately 17,928,514
shares are "restricted" within the meaning of Rule 144 under the Securities
Act, and only 20,000 are being registered for resale. Of this number,
approximately 131,242 shares may be eligible for immediate sale in the public
market without restriction under Rule 144(k). In the reverse acquisition
transaction between us and New Mexico Software which closed on August 3, 1999,
we issued 11,880,000 restricted shares to the shareholders of New Mexico
Software. These shares will be available for resale beginning approximately
August 3, 2000.
In general, under Rule 144, as currently in effect, any person who has
beneficially owned restricted shares for at least one year, is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of our then outstanding shares, or the average weekly
trading volume of our stock during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are also subject to certain requirements relating
to manner of sale, notice and availability of current public information about
us. A person who is not deemed to have been an affiliate at any time during
the 90 days immediately preceding the sale and whose restricted shares have
been fully-paid for two years since the later of the date they were acquired
from us, or the date they were acquired from one of our affiliates, may sell
these restricted shares under Rule 144(k) without regard to the limitations
and requirements described above. Restricted shares may not be resold under
Rule 144 until ninety days from the date of this prospectus, regardless of
when the one year holding period expires.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for us
by Ronald N. Vance, Attorney at Law, Salt Lake City, Utah. Mr. Vance is the
selling shareholder set forth in this prospectus. Mr. Vance owns 20,000
shares of our common stock which is being registered for resale as described
above.
EXPERTS
Our financial statements for the years ended December 31, 1999 and 1998,
included in this prospectus have been audited by Richard A. Eisner & Company,
LLP ("Eisner"), Independent Certified Public Accountants as indicated in their
report. The financial statements audited by Eisner have been included in
reliance upon the authority of said firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
We have attached to this prospectus copies of our audited financial
statements as of December 31, 1999 and 1998. Also attached to this prospectus
are copies of the unaudited financial statements as of March 31, 2000.
<PAGE>
NMXS.com, Inc.
(a development stage enterprise)
Condensed Consolidated Balance Sheet
March 31, 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,485,000
Restricted cash 37,000
Accounts receivable 109,000
Inventory 7,000
Prepaid expenses and other assets 37,000
Officer advances 45,000
----------
Total current assets 1,720,000
Furniture and equipment - net 173,000
Deposit on purchase of subsidiary company 115,000
Security deposits 5,000
----------
$ 2,013,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 92,000
Deferred revenue 4,000
Loan payable 37,000
----------
Total current liabilities 133,000
----------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value:
Preferred stock, authorized 500,000 shares;
issued and outstanding - None
Common stock, authorized 50,000,000 shares;
20,733,836 shares issued and outstanding 21,000
Additional paid-in capital 4,331,000
Deficit accumulated during the development stage (2,472,000)
----------
Total stockholders' equity 1,880,000
----------
$ 2,013,000
==========
The accompanying notes are an integral part of these financial statements
<PAGE>
NMXS.com, Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
Period From
Inception
(April 2,1996)
Three Months Ended Through
March 31, March 31,
2000 1999 2000
Revenues:
Programming and asset management
services $ 104,000 $ 79,000 $ 643,000
-------- ------- ---------
Operating costs and expenses:
Cost of services 77,000 42,000 382,000
General and administrative 563,000 300,000 2,368,000
Research and development 79,000 28,000 411,000
-------- ------- ---------
Total operating costs
and expenses 719,000 370,000 3,161,000
-------- ------- ---------
Other income (expense):
Interest income 22,000 48,000
Interest expense (1,000) (2,000)
-------- ------- ---------
21,000 46,000
-------- ------- ---------
Net loss/comprehensive loss $(594,000) $ (291,000) $(2,472,000)
======== ======= =========
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 20,195,000 11,880,000
========== ==========
Basic and diluted loss per
Share $(.03) $(.02)
========== ==========
The accompanying notes are an integral part of these financial statements
<PAGE>
NMXS.com, Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Stockholders' Equity (Capital
Deficiency)
(Notes A and F)
(unaudited)
Deficit
Accumulated
Common Stock Additional During the
$.001 Par Value Paid-in Development
Shares Amount Capital Stage Total
Initial issuance of
shares to founder for
$1,000 118,800 $ 1,000 $ 1,000
------- -------- -------
Balance, December 31,
1996 118,800 1,000 1,000
Fair value of services
provided by founder 75,000 75,000
Net loss/comprehensive
loss $ (77,000) (77,000)
Balance, December 31, ------- -------- --------- -------
1997 118,800 76,000 (77,000) (1,000)
Fair value of services
provided by founder 90,000 90,000
Net loss/comprehensive
loss (114,000) (114,000)
------- -------- -------- -------
Balance, December 31,
1998 118,800 $ 0 166,000 (191,000) (25,000)
Issuance of shares -
June 5,416,300 5,000 95,000 100,000
Special distribution
of shares to founder
- June 5,618,900 6,000 (6,000)
Issuance of shares at
$.75 per share for
consulting services -
July 726,000 1,000 544,000 545,000
Shares deemed issued
in connection
with reverse
acquisition - August 5,333,336 5,000 (5,000)
Issuance of shares at
$.75 per share,
net of issuance
costs - August 2,360,500 2,000 1,715,000 1,717,000
Issuance of stock
options at fair value
for consulting
services - August 267,000 267,000
Estimated value of
services provided
by Founder 120,000 120,000
Shares issued for
legal services
provided To the
Company - December 20,000 40,000 40,000
Shares issuable at
$2.94 per share for
Consulting services 147,000 147,000
Net loss/comprehensive
loss (1,687,000) (1,687,000)
Balance, December 31, ---------- -------- --------- ---------- ---------
1999 19,593,836 $ 19,000 $3,083,000 $(1,878,000) $1,224,000
Issuance of shares at
$2.94 per share for
consulting services
- January 50,000
Issuance of shares
- February 1,090,000 2,000 1,088,000 1,090,000
Issuance of stock
options at fair value
for consulting
services - March 160,000 160,000
Net loss/comprehensive
loss (594,000) (594,000)
Balance, March 31, ---------- -------- --------- ---------- ---------
2000 20,733,836 $ 21,000 $4,331,000 $(2,472,000) $1,880,000
========== ======== ========= ========== =========
The accompanying notes are an integral part of these financial statements
<PAGE>
NMXS.com, Inc.
(a development stage enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
Period From
Inception
(April 2, 1996)
Three Months Through
Ended March 31, March 31,
2000 1999 2000
Cash flows from operating activities:
Net loss $ (594,000) $ (291,000) $ (2,472,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for services 286,000 732,000
Stock options issued for services 160,000 427,000
Fair value of services provided by
founder 30,000 285,000
Depreciation 9,000 1,000 34,000
Changes in:
Notes receivable 20,000
Accounts receivable (32,000) (4,000) (109,000)
Inventory (7,000)
Prepaid expenses and other assets (33,000) (37,000)
Officer advances (8,000) (45,000)
Accounts payable and accrued expenses 54,000 92,000
Deferred revenue (5,000) (34,000) 5,000
--------- -------- ---------
Net cash used in operating activities (421,000) (20,000) (1,095,000)
--------- -------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (46,000) (1,000) (207,000)
Deposit on purchase of subsidiary
company (115,000) (115,000)
Security deposits (6,000)
--------- -------- ---------
Net cash used in investing activities (161,000) (1,000) (328,000)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from note payable 37,000
Net proceeds from issuance of common
stock 1,090,000 2,908,000
Restricted cash (37,000)
--------- -------- ---------
Net cash provided by
financing activities 1,090,000 2,908,000
--------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 508,000 (21,000) 1,485,000
Cash and cash equivalents, beginning
of period 977,000 32,000
--------- -------- ---------
Cash and cash equivalents, end of
period $ 1,485,000 $ 11,000 $ 1,485,000
--------- -------- ---------
The accompanying notes are an integral part of these financial statements
<PAGE>
NMXS.com, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
NOTE A - ORGANIZATION AND OPERATIONS
NMXS.com, Inc. (formerly Conserve, Inc.) ("Conserve") and its wholly-owned
subsidiary New Mexico Software, Inc. (collectively "the Company"), a
development stage enterprise, operates in a single business segment that
develops and markets proprietary internet technology-based software for the
management of digital high-resolution graphic images, video clips and audio
recordings. The Company believes that its software has major applications for
the media, advertising, publishing, medical, entertainment, e-commerce and
university markets.
In August 1999, NMXS.com, Inc., then a non-operating public corporation with
nominal net assets (a development stage enterprise) acquired all of the
outstanding common stock of New Mexico Software, Inc. (a development stage
enterprise) ("NMS") in a transaction that gave the stockholders of NMS actual
control of the combined company. For accounting purposes, the acquisition has
been treated as a capital stock transaction rather than a business
combination. This transaction has been recorded as a recapitalization of NMS
with NMS as the acquiror ("Reverse Acquisition") and no goodwill or other
intangible was recognized. The historical financial statements prior to the
date of the reverse acquisition are those of NMS with the accounting
acquiror's capital deficiency prior to the acquisition having been
retroactively restated (i.e. recapitalized) for the equivalent number of
shares received in the transaction and the difference between the par value of
Conserve's and NMS's stock recorded as an offset to additional paid-in
capital. The historical deficit accumulated during the development stage of
NMS is being carried forward after the reverse acquisition. Loss per share
has similarly been restated for all periods prior to the reverse acquisition
to represent the number of equivalent shares received by NMS's stockholders.
NMS, a New Mexico corporation, was formed in April 1996. NMS was formed to
develop and market proprietary internet technology-based software as currently
conducted by the Company.
On August 3, 1999, Conserve issued to the stockholders of NMS 11,880,000
shares of Conserve's common stock in exchange for all of the shares of NMS
with NMS becoming a wholly-owned subsidiary of Conserve. In connection with
this transaction, Conserve changed its name to NMXS.com.
The Company has commenced principal business operations. However, the Company
has not achieved a level of sales that it deems significant relative to its
business plan. Since its inception, NMS, and more recently, the Company, has
been engaged in developing sales channels for its existing products as well as
coordinating research and development efforts in the continuing development of
its products and raising funds. The Company conducts its operations primarily
in the United States.
There is no assurance that the Company's research and development and
marketing efforts will be successful, or that the Company will achieve
significant sales of any such products. The Company has incurred net losses
since its inception. In addition, the Company operates in an environment of
rapid change in technology and is dependent upon the services of its employees
and its consultants. If the Company is unable to successfully bring its
technologies to commercialization, it is unlikely that the Company could
continue its business. The existing cash balance, together with revenues
billed and collected during the next twelve months, is estimated to provide
sufficient liquidity to meet the working capital requirements of the Company
through April 1, 2001.
NMXS.com, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[2] Revenue recognition:
Maintenance contract revenue is recognized on a straight-line basis over the
life of the respective contract. The Company also derives revenue from the
sale of third party hardware and software. Consulting revenue is recognized
when the services are rendered.
The cost of maintenance revenue consists of staff payroll, outside services,
equipment rental, communication costs and supplies and is expensed as
incurred.
[3] Cash and cash equivalents:
The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents. Cash equivalents totaled
approximately $1,485,000 as of March 31, 2000. The Company maintains its cash
and cash equivalents at one financial institution.
[4] Inventory:
Inventory consists of software for resale. Inventory is stated at the lower
of cost (first-in, first-out method) or market.
[5] Furniture and equipment:
Furniture and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation is
charged against results of operations using the straight-line method over the
estimated economic useful life.
[6] Income taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the differences between the tax basis of
assets and liabilities and their respective financial reporting amount
("temporary differences") at enacted tax rates in effect for the years in
which the differences are expected to reverse.
Prior to the acquisition of NMS by NMXS.com, Inc., NMS was an S corporation as
defined in the Internal Revenue Code. Upon the consummation of this
transaction, NMS Subchapter S status was terminated. The accumulated losses
through the date of acquisition which amounted to $32,000 was reported on the
individual income tax return of the former stockholder of NMS and therefore is
not available to the Company.
NMXS.com, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
[7] Per share data:
The basic and diluted per share data has been computed on the basis of the net
loss available to common stockholders for the period divided by the historic
weighted average number of shares of common stock adjusted for the retroactive
treatment of common shares issued to the founder (historical number of shares
represents the shares issued by Conserve to NMS' stockholders in connection
with the reverse merger) immediately prior to the reverse acquisition. All
potentially dilutive securities (see Note F) have been excluded from the
computations since they would be antidilutive.
[8] Research and development expenses:
Costs of research and development activities are expensed as incurred.
[9] Advertising expenses:
The Company expenses advertising costs which consist primarily of direct
mailings, promotional items and print media, as incurred. Advertising
expenses amounted to $47,000 for the three months ended March 31, 2000 and
$102,000 for the cumulative period April 2, 1996 (inception) through March 31,
2000.
[10] Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amount 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.
[11] Interim financial statements:
Financial statements as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 and the period from inception April 2,
1996 are unaudited but, in the opinion of management, the financial statements
include all adjustments reflecting normal recurring accruals necessary for a
fair presentation of the comparative financial position and results of
operations. Results of operations for interim periods are not necessarily
indicative of those to be achieved or expected for the entire year.
[12] Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") allows companies to either expense the
estimated fair value of stock options and warrants, or to continue following
the intrinsic value method set forth in Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro
forma effects on net income had the fair value of the options and warrants
been expensed. The Company has elected to apply APB 25 in accounting for its
stock based incentive plans. Equity instruments issued to non-employees are
measured based on their fair values.
NMXS.com, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
[13] Software development:
The Company accounts for computer software development costs in accordance
with Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. As such, all costs incurred prior to the product achieving
technological feasibility are expensed as research and development costs.
Technological feasibility is generally achieved upon satisfactory beta test
results. Upon achieving technological feasibility, programming costs are
capitalized and amortized over the economic useful live which is estimated to
be two years.
[14] Rental expense:
The Company has recognized the total minimum rental payments due under the
lease on a straight-line basis over the lease term.
NOTE C - RESTRICTED CASH
The Company acquired a certificate of deposit in the amount of $37,000 to
collateralize a company note payable for the same amount. Interest is
compounded on a quarterly basis at an annual percentage yield of 5.3%. (See
Note E).
NOTE D - FURNITURE AND EQUIPMENT
Furniture and equipment as of March 31, 2000 consists of the following:
Computers $ 108,000
Furniture, fixtures and equipment 92,000
Leasehold improvements 7,000
207,000
Accumulated depreciation (34,000)
$ 173,000
NOTE E - PROMISSORY NOTE
The Company has a $37,000 promissory note expiring on August 31, 2000. The
principal balance and all accrued, unpaid interest is due on this date.
Interest is payable on a quarterly basis at a rate of 7.2% per annum.
NOTE F - CAPITAL TRANSACTIONS
Common stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization as a
result of the reverse acquisition. The exchange rate of such shares was 118.8
Conserve common shares for each NMS common share. Accordingly, there were
11,880,000 common shares outstanding immediately prior to consummating the
reverse acquisition.
Effective April 2, 1996, the Company issued 118,800 shares of common stock to
the founder for a capital contribution.
During 1999, the Company effected the following stock transactions:
In June 1999, in contemplation of the anticipated reverse acquisition, the
Company adjusted its capitalization in order to facilitate the exchange of
shares required as part of the acquisition transaction. Prior to this
adjustment, the founding shareholder owned 100% (1,000 pre-exchange common
shares) (118,800 shares giving effect to the exchange) of NMS. In connection
with this adjustment, the Company distributed 47,297 pre-exchange common
shares (5,618,900 shares giving effect to the exchange) to the founding
stockholder. As a result of this distribution, the founding shareholder's
overall ownership percentage did not change. This event resulted in no charge
and has been recorded in a manner similar to a recapitalization.
In June 1999, issued 5,416,300 shares of common stock for $100,000 in
accordance with a stock purchase agreement.
In July 1999, issued 726,000 shares of common stock with a fair market value
of $.75 per share for consulting services.
In August 1999, in accounting for the reverse acquisition transaction, the
Company was deemed to have issued 5,333,336 million common shares for the net
monetary assets of Conserve which was nominal. These shares represented the
common shares outstanding immediately prior to the reverse acquisition.
In August 1999, issued 2,360,500 shares of its common stock at $.75 per share
in a private placement offering, net of issuance costs of $53,000.
On December 28, 1999, the Company issued 20,000 shares of common stock to one
individual valued at $40,000 in exchange for services.
During the three months ended March 31 2000, the Company effected the
following stock transactions:
During January, 2000, the Company issued 50,000 common shares to a former
officer of the Company for services rendered prior to August, 1999. The fair
value of such shares amounting to $147,000 was recorded in the statement of
operations for the year ended December 31, 1999. Approximately $63,000 of
this amount was deemed to have been rendered during the three months ended
March 31, 1999 and has been included in the statement of operations for the
three months ended March 31, 1999.
The Company issued, in January and February 2000, in connection with a private
placement offering, 1,090,000 units at $1 per unit consisting of one share of
common stock and one Series B warrant to purchase one share of common stock at
$1.00 per share exercisable for a period of up to five years from date of
issuance.
NMXS.com, Inc.
(a development stage enterprise)
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
Stock options:
On August 3, 1999, the Company adopted its 1999 Stock Option Plan (the
"Plan"). Under the Plan, incentive and non-qualified stock options may be
granted to key employees and consultants at the discretion of the Board of
Directors. Any incentive option granted under the Plan will have an exercise
price of not less than 100% of the fair market value of the shares on
the date on which such option is granted. With respect to an incentive option
granted to a Participant who owns more than 10% of the total combined voting
stock of the Company or of any parent or subsidiary of the Company, the
exercise price for such option must be at least 110% of the fair market value
of the shares subject to the option on the date on which the option is
granted. A non-qualified option granted under the Plan (i.e., an option to
purchase the common stock that does not meet the Internal Revenue Code's
requirements for incentive options) must have an exercise price of not less
than 100% of the fair market value of the stock on the date of grant. A
maximum of 3,000,000 options can be awarded under the Plan. The terms of
grant permit a noncash exercise.
Disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation prescribed therein are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of March 31, 2000 are as follows:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
$ .75 452,000 4.6 .75 60,500 $ .75
$ .825 120,000 4.6 $ .825 16,000 $ .825
$ 2.125 308,000 9.8 $ 2.125 -0- $ 2.125
$ 1.625 150,000 9.8 $ 1.625 3,600 $ 1.625
During the year ended December 31, 1999, the Company issued 572,000 options.
The most recent quoted market price of the Company's common shares was $3 per
share at the date of grant. The total fair value of such options approximated
$1,385,000. The charge for the 76,500 options that vested during the three
months ended March 31, 2000 approximated $160,000 and is reflected in the
statement of operations for the three months ended March, 2000 in general and
administrative expense. There were no options outstanding prior to August 3,
1999.
The fair value of each option granted prior to 2000 has been estimated on the
date of grant using the Black-Scholes option pricing model. The weighted
average fair value of the options granted during 1999 was $2.42. The
following weighted average assumptions were used in computing the fair value
of option grants for 1999. Weighted average risk-free interest rate of 5.50%;
zero dividend yield, volatility of the Company's common stock of 40% and an
expected life of the options of five years. The options vest ratably over a
five year period. In January 2000, the Company granted 308,000 stock options
to employees with an exercise price of $2.125, equal to the fair value of the
common stock, with a contractual life of ten years and a two year vesting
period, 50% at the end of each one year period from the date of grant. The
fair value of each of these options has been estimated on the date of grant
using the Black-Scholes option pricing model. The weighted average fair value
of these options was $1.30. The following weighted average assumptions were
used in computing the fair value of these option grants. Weighted average
risk-free interest rate of 5.50%; zero divident yield, volatility of the
Company's common stock of 40% and an expected life of the options of ten
years. The average fair value of such options approximated
$402,000. The pro-forma results were not considered significant.
Effective January 1, 2000, the Company entered into an agreement with a third
party to provide legal services to the Company in exchange for an initial
grant of 150,000 options at an exercise price of $1.625 equal to the fair
value of the common stock. In accordance with the agreement, legal counsel
earns as a retainer fee an automatic vesting of 1,000 options each month
services are rendered and earns additional vesting of stock options for
services rendered based on a calculation defined in the agreement. The
fair value of each of these options has been estimated on the date of grant
using the Black-Scholes option pricing model. The weighted average fair
value of these options was $1.00. The following weighted average assumptions
were used in computing the fair value of these option grants. Weighted average
risk-free interest rate of 5.50%; zero dividend yield, volatility of the
Company's common stock of 40% and an expected life of the options of ten years.
As of March 31, 2000, options valued at approximately $9,000 were earned and
had vested.
NOTE G - INCOME TAXES
The Company has a deferred tax asset as of March 31, 2000 of $808,000 which
was calculated using a federal statutory rate of 34% and a state statutory
rate of 6%. The deferred tax asset represents a benefit from net operating
loss carryforwards of $368,000 and deferred compensation of $440,000, which is
reduced by a valuation allowance of approximately $808,000 since the future
realization of such tax benefit is not presently determinable.
As of December 31, 1999, the Company has a net operating loss carryforward of
$562,000 expiring in 2019 for federal income tax purposes. In the event of
potential future ownership changes (Note A), Internal Revenue Code Section 382
limits the amount of such net operating loss carryforward available to offset
future taxable income.
NOTE H - RELATED PARTY TRANSACTIONS
Officer advances:
Represents non-interest bearing advances to the Chief Executive Officer who is
a principal stockholder of the Company. The amount is to be repaid by
December 31, 2000.
Officer compensation:
For the three months ended March 31, 1999, the Company has recorded the fair
value of services provided by the Company's chief executive officer in the
amount of $30,000 in the statement of operations with a corresponding increase
to additional paid-in capital.
Note Receivable:
Represents an amount due from a related party of which the chief executive
officer and principal stockholder of the Company is a member of the Board of
Directors. The note was repaid in February 2000.
NMXS.com, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
Management Services:
An officer and stockholder of a significant stockholder was hired in September
1999 and provides management and consulting services to the Company at an
annual rate of $60,000. The amount charged to operations for the three
months ended March 31, 2000 amounted to $15,000.
NOTE I - COMMITMENTS
Leases:
The Company leases office space and office equipment under operating leases.
Future minimum lease payments as of March 31, 2000 are as follow:
Year Ending
March 31,
2001 $ 135,000
2002 162,000
2003 138,000
2004 100,000
2005 106,000
Rent expense for the three months ended March 31, 2000 and 1999 amounted to
$31,000 and $2,000, respectively.
Warrants:
In conjunction with the closing of the reverse merger, the Company declared a
distribution of 1,000,000 warrants at the rate of one warrant for each 5.3
common shares held by the stockholders of record as of the beginning of
business on August 3, 1999. The warrants have an exercise price of $1.25 per
share and a three year contractual life from date of issuance. The warrants
are redeemable by the Company for $.01 per warrant subject to 30 days written
notice at any time the closing bid price of the stock equals or exceeds 300%
of the exercise price of the warrant for ten consecutive trading days. The
warrants will be issued upon the Company's Form SB-2 filing being declared
effective. The value ascribed to these warrants will be determined utilizing
the Black-Scholes model and recorded as a dividend distribution at the
effective date of the registration statement.
The Company issued, in January and February 2000, in connection with a private
placement offering, 1,090,000 units at $1 per unit consisting of one share of
common stock and one Series B warrant to purchase one share of common stock at
$1.00 per share exercisable for a period of up to five years from date of
issuance.
Employment agreement:
On December 10, 1999, the Company entered into an employment and
noncompetition agreement with a stockholder to act in the capacity of
President and Chief Executive Officer. The term of the employment agreement
is for three years and the noncompetition agreement is for one year with both
agreements commencing on January 1, 2000. The agreement allows for a one
year renewal option unless terminated by either party. Base salary is
$120,000 per annum with available additional cash compensation as defined in
the agreement.
NOTE J - MAJOR CUSTOMERS
During the three months ended March 31, 1999, three customers accounted for
56%, 21% and 17% of the Company's revenue.
During the three months ended March 31, 2000, three customers accounted for
34%, 19% and 17% of the Company's revenue.
As of March 31, 2000, balances due from four customers comprised 24%, 22%, 21%
and 19% of total accounts receivable.
NOTE K - SUBSEQUENT EVENT
During April, 2000, the Company purchased 100% of the outstanding capital
stock of Working Knowledge, Inc., a Kansas corporation with its office in
Irvine, California, for a total price of $150,000. This business combination
will be accounted for using the purchase method. Tangible assets purchased
were of nominal value. Working Knowledge, Inc. provides services which are
necessary to prepare, enter and maintain the customer's data on the Company's
image management system. Prior to this purchase, the Company serviced certain
customers jointly with Working Knowledge, Inc. and shared the revenue
resulting from this service equally.
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET
ASSETS
Current assets:
Cash and cash equivalents $ 977,000
Restricted cash 37,000
Note receivable 20,000
Accounts receivable 77,000
Inventory 7,000
Prepaid expenses and other assets 4,000
Officer advances 45,000
-----------
Total current assets 1,167,000
Furniture and equipment - net 136,000
Security deposits 6,000
-----------
$ 1,309,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 38,000
Deferred revenue 10,000
Loan payable 37,000
-----------
Total current liabilities 85,000
-----------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value:
Preferred stock, authorized 500,000 shares;
issued and outstanding - none
Common stock, authorized 50,000,000 shares;
19,593,836 shares deemed issued
and outstanding, 50,000 shares issuable 19,000
Additional paid-in capital 3,083,000
Deficit accumulated during the development stage (1,878,000)
-----------
Total stockholders' equity 1,224,000
-----------
$ 1,309,000
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS F-2
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
INCEPTION
YEAR ENDED (APRIL 2,1996)
DECEMBER 31, THROUGH
------------------------------- DECEMBER 31,
1999 1998 1999
------------ ------------ ------------
Revenues $ 266,000 $ 196,000 $ 539,000
------------ ------------ ------------
Operating costs and expenses:
Cost of services 177,000 119,000 305,000
General and administrative 1,651,000 100,000 1,805,000
Research and development 150,000 91,000 332,000
------------ ------------ ------------
Total operating costs
and expenses 1,978,000 310,000 2,442,000
------------ ------------ ------------
Other income (expense):
Interest income 26,000 26,000
Interest expense (1,000) (1,000)
------------ ------------ ------------
25,000 25,000
------------ ------------ ------------
NET LOSS/COMPREHENSIVE LOSS $ (1,687,000) $ (114,000) $ (1,878,000)
============ ============ ============
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 11,878,000 5,737,700
============ ============
Basic and diluted loss per
share $ (.14) $ (.02)
====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS F-3
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(NOTES A AND F)
DEFICIT
COMMON STOCK ACCUMULATED
$.001 PAR VALUE ADDITIONAL DURING THE
---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
-------- ----------- ------------ ------------ ------
Initial issuance of
shares to founder
For $1,000 118,800 $ 1,000 $ 1,000
-------- ------------ --------
BALANCE,
DECEMBER 31, 1996 118,800 1,000 1,000
Fair value of services
provided by founder 75,000 75,000
Net loss/comprehensive
loss $ (77,000) (77,000)
-------- ------------ ------------ --------
BALANCE,
DECEMBER 31, 1997 118,800 76,000 (77,000) (1,000)
Fair value of
services provided
by founder 90,000 90,000
Net loss/comprehensive
loss (114,000) (114,000)
-------- ---------- ------------ --------
BALANCE,
DECEMBER 31, 1998 118,800 $ 0 166,000 (191,000) (25,000)
Issuance of shares
- June 5,416,300 5,000 95,000 100,000
Special distribution
of shares to
Founder - June 5,618,900 6,000 (6,000)
Issuance of shares
at $.75 per share
For consulting
services - July 726,000 1,000 544,000 545,000
Shares deemed issued
in connection
With reverse
acquisition -
August 5,333,336 5,000 (5,000)
Issuance of shares
at $.75 per share,
Net of issuance
costs - August 2,360,500 2,000 1,715,000 1,717,000
Issuance of stock
options at fair value
For consulting
services - August 267,000 267,000
Estimated value of
services provided by
Founder 120,000 120,000
Shares issued for
legal services
provided to the
Company - December 20,000 40,000 40,000
Shares issuable at
$2.94 per share for
Consulting services 147,000 147,000
Net loss/comprehensive
loss (1,687,000) (1,687,000)
----------- ------------ ---------- -------- ----------
BALANCE,
DECEMBER 31, 1999 19,593,836 $ 19,000 $ 3,083,000 $ (1,878,000)$1,224,000
=========== ============ ========= ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS F-4
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
INCEPTION
(APRIL 2, 1996)
YEAR ENDED DECEMBER THROUGH
-------------------------- DECEMBER 31,
1999 1998 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,687,000) $ (114,000) $(1,878,000)
Adjustments to reconcile net
loss to net cash (used in)
provided by
operating activities:
Common stock issued for
services 732,000 732,000
Stock options issued for
services 267,000 267,000
Fair value of services
provided by founder 120,000 90,000 285,000
Depreciation 20,000 3,000 25,000
Changes in:
Notes receivable (20,000) (20,000)
Accounts receivable (53,000) (24,000) (77,000)
Inventory (7,000) (7,000)
Prepaid expenses and other
assets (4,000) (4,000)
Officer advances (29,000) (11,000) (45,000)
Accounts payable and accrued
expenses (17,000) 20,000 38,000
Deferred revenue (28,000) 38,000 10,000
----------- ----------- -----------
Net cash (used in) provided by
operating activities (706,000) 2,000 (674,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (137,000) (9,000) (161,000)
Security deposits (6,000) (6,000)
----------- ----------- -----------
Net cash used in investing
activities (143,000) (9,000) (167,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from (repayment to) stockholder (23,000) 6,000
Proceeds from note payable 37,000 37,000
Net proceeds from issuance of common
stock 1,817,000 1,818,000
Restricted cash (37,000) (37,000)
----------- ----------- -----------
Net cash provided by
financing activities 1,794,000 6,000 1,818,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 945,000 (1,000) 977,000
Cash and cash equivalents,
beginning of period 32,000 33,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 977,000 $ 32,000 $ 977,000
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS F-5
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A - ORGANIZATION AND OPERATIONS
NMXS.com, Inc. (formerly Conserve, Inc.) ("Conserve") and its wholly-owned
subsidiary New Mexico Software, Inc. (collectively "the Company"), a development
stage enterprise, operates in a single business segment that develops and
markets proprietary internet technology-based software for the management of
digital high-resolution graphic images, video clips and audio recordings. The
Company believes that its software has major applications for the media,
advertising, publishing, medical, entertainment, e-commerce and university
markets.
In August 1999, NMXS.com, Inc., then a non-operating public corporation with
nominal net assets (a development state enterprise) acquired all of the
outstanding common stock of New Mexico Software, Inc. (a development enterprise)
("NMS") in a transaction that gave the stockholders of NMS actual control of the
combined company. For accounting purposes, the acquisition has been treated as a
capital stock transaction rather than a business combination. This transaction
has been recorded as a recapitalization of NMS with NMS as the acquiror
("Reverse Acquisition") and no goodwill or other intangible was recognized. The
historical financial statements prior to the date of the reverse acquisition are
those of NMS with the accounting acquiror's capital deficiency prior to the
acquisition having been retroactively restated (i.e. recapitalized) for the
equivalent number of shares received in the transaction and the difference
between the par value of Conserve's and NMS's stock recorded as an offset to
additional paid-in capital. The historical deficit accumulated during the
development stage of NMS is being carried forward after the reverse acquisition.
Loss per share has similarly been restated for all periods prior to the reverse
acquisition to represent the number of equivalent shares received by NMS's
stockholders.
NMS, a New Mexico corporation, was formed in April 1996. NMS was formed to
develop and market proprietary internet technology-based software as currently
conducted by the Company.
On August 3, 1999, Conserve issued to the stockholders of NMS 11,880,000 shares
of Conserve's common stock in exchange for all of the shares of NMS with NMS
becoming a wholly-owned subsidiary of Conserve. In connection with this
transaction, Conserve changed its name to NMXS.com.
The Company has commenced principal business operations. However, the Company
has not achieved a level of sales that it deems significant relative to its
business plan. Since its inception, NMS, and more recently, the Company, has
been engaged in developing sales channels for its existing products as well as
coordinating research and development efforts in the continuing development of
its products and raising funds. The Company conducts its operations primarily in
the United States.
There is no assurance that the Company's research and development and marketing
efforts will be successful, or that the Company will achieve significant sales
of any such products. The Company has incurred net losses since its inception.
In addition, the Company operates in an environment of rapid change in
technology and is dependent upon the services of its employees and its
consultants. If the Company is unable to successfully bring its technologies to
commercialization, it is unlikely that the Company could continue its business.
As further described in Note K[2], the Company subsequently raised $1,090,000 in
a private placement offering. The proceeds from the offering along with the
existing cash balance is estimated to provide sufficient liquidity to meet the
working capital requirements of the Company through January 1, 2001.
F-6
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[2] REVENUE RECOGNITION:
Maintenance contract revenue is recognized on a straight-line basis over
the life of the respective contract. The Company also derives revenue from
the sale of third party hardware and software. Consulting revenue is
recognized when the services are rendered.
The cost of maintenance revenue, consists of staff payroll, outside
services, equipment rental, communication costs and supplies and is
expensed as incurred.
[3] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents
totaled approximately $977,000 as of December 31, 1999. The Company
maintains its cash and cash equivalents at one financial institution.
[4] INVENTORY:
Inventory consists of software for resale. Inventory is stated at the
lower of cost (first-in, first-out method) or market.
[5] FURNITURE AND EQUIPMENT:
Furniture and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation
is charged against results of operations using the straight-line method
over the estimated economic useful life.
[6] INCOME TAXES:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the differences
between the tax basis of assets and liabilities and their respective
financial reporting amount ("temporary differences") at enacted tax rates
in effect for the years in which the differences are expected to reverse.
Prior to the acquisition of NMS by NMXS.com, Inc., NMS was an S
corporation as defined in the Internal Revenue Code. Upon the consummation
of this transaction, NMS Subchapter S status was terminated. The
accumulated losses through the date of acquisition which amounted to
$32,000 was reported on the individual income tax return of the former
stockholder of NMS and therefore is not available to the Company.
F-7
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] PER SHARE DATA:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock adjusted for
the retroactive treatment of common shares issued to the founder
(historical number of shares represents the shares issued by Conserve to
NMS' stockholders in connection with the reverse merger) immediately prior
to the reverse acquisition. Weighted average number of shares also
includes 50,000 shares issuable as of December 31, 1999 which were issued
subsequently. (See Note H). All potentially dilutive securities (see Note
F) have been excluded from the computations since they would be
antidilutive.
[8] RESEARCH AND DEVELOPMENT EXPENSES:
Costs of research and development activities are expensed as incurred.
[9] ADVERTISING EXPENSES:
The Company expenses advertising costs which consist primarily of direct
mailings, promotional items and print media, as incurred. Advertising
expenses amounted to $55,000, for both the year ended December 31, 1999
and for the cumulative period April 2, 1996 (inception) through December
31, 1999.
[10] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount 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.
F-8
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[11] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") allows companies to either expense
the estimated fair value of stock options and warrants, or to continue
following the intrinsic value method set forth in Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25")
but disclose the pro forma effects on net income had the fair value of the
options and warrants been expensed. The Company has elected to apply APB
25 in accounting for its stock based incentive plans. Equity instruments
issued to non-employees are measured based on their fair values.
[12] SOFTWARE DEVELOPMENT:
The Company accounts for computer software development costs in accordance
with Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. As such, all costs incurred prior to the product
achieving technological feasibility are expensed as research and
development costs. Technological feasibility is generally achieved upon
satisfactory beta test results. Upon achieving technological feasibility,
programming costs are capitalized and amortized over the economic useful
live which is estimated to be two years.
[13] RENTAL EXPENSE:
The Company has recognized the total minimum rental payments due under the
lease on a straight-line basis over the lease term.
NOTE C - RESTRICTED CASH
The Company acquired a certificate of deposit in the amount of $37,000 to
collateralize a company note payable for the same amount. Interest is compounded
on a quarterly basis at an annual percentage yield of 5.3%. (See Note E).
NOTE D - FURNITURE AND EQUIPMENT
Furniture and equipment as of December 31, 1999 consists of the following:
Computers $ 74,000
Furniture, fixtures and equipment 80,000
Leasehold improvements 7,000
--------
161,000
Accumulated depreciation (25,000)
--------
$136,000
========
NOTE E - PROMISSORY NOTE
The Company has a $37,000 promissory note expiring on August 31, 2000. The
principal balance and all accrued, unpaid interest is due on this date. Interest
is payable on a quarterly basis at a rate of 7.2% per annum.
F-9
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - CAPITAL TRANSACTIONS
COMMON STOCK:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization as a result
of the reverse acquisition. The exchange rate of such shares was 118.8 Conserve
common shares for each NMS common share. Accordingly, there were 11,880,000
common shares outstanding immediately prior to consummating the reverse
acquisition.
Effective April 2, 1996, the Company issued 118,800 shares of common stock to
the founder for a capital contribution.
During 1999, the Company effected the following stock transactions:
In June 1999, in contemplation of the anticipated reverse acquisition, the
Company adjusted its capitalization in order to facilitate the exchange of
shares required as part of the acquisition transaction. Prior to this
adjustment, the founding shareholder owned 100% (1,000 pre-exchange common
shares) (118,800 shares giving effect to the exchange) of NMS. In connection
with this adjustment, the Company distributed 47,297 pre-exchange common
shares (5,618,900 shares giving effect to the exchange) to the founding
stockholder. As a result of this distribution, the founding shareholder's
overall ownership percentage did not change. This event resulted in no charge
and has been recorded in a manner similar to a recapitalization.
In June 1999, issued 5,416,300 shares of common stock for $100,000 in
accordance with a stock purchase agreement.
In July 1999, issued 726,000 shares of common stock with a fair market value
of $.75 per share for consulting services.
In August 1999, in accounting for the reverse acquisition transaction, the
Company was deemed to have issued 5,333,336 million common shares for the net
monetary assets of Conserve which was nominal. These shares represented the
common shares outstanding immediately prior to the reverse acquisition.
In August 1999, issued 2,360,500 shares of its common stock at $.75 per share
in a private placement offering, net of issuance costs of $53,000.
On December 28, 1999, the Company issued 20,000 shares of common stock to one
individual valued at $40,000 in exchange for services.
STOCK OPTIONS:
On August 3, 1999, the Company adopted its 1999 Stock Option Plan (the
"Plan"). Under the Plan, incentive and non-qualified stock options may be
granted to key employees and consultants at the discretion of the Board of
Directors. Any incentive option granted under the Plan will have an exercise
price of not less than 100% of the fair market value of the shares on the
date on which such option is granted. With respect to an incentive option
granted to a Participant who owns more than 10% of the total combined voting
stock of the Company or of any parent or subsidiary of the Company, the
exercise price for such option must be at least 110% of the fair market value
of the shares subject to the option on the date on which the option is
granted. A non-qualified option granted under the Plan (i.e., an option to
purchase the common stock that does not meet the Internal Revenue Code's
requirements for incentive options) must have an exercise price of not less
than 100% of the fair market value of the stock on the date of grant. A
maximum of 3,000,000 options can be awarded under the Plan. The terms of
grant permit a noncash exercise.
F-10
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation prescribed therein are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of December 31, 1999 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
---------- ------------- ------------ ---------- ------------ ---------
$ .75 452,000 4.6 $ .75 37,500 $ .75
$.825 120,000 4.6 $.825 10,000 $.825
During the year ended December 31, 1999, the Company issued 572,000 options. The
most recent quoted market price of the Company's common shares was $3 per share
at the date of grant. The total fair value of such options approximated
$1,385,000. There were no options outstanding prior to August 3, 1999. The
charge for the 47,500 options that vested during 1999 approximated $267,000
which are reflected in the statement of operations for the year ended December
31, 1999 in general and administrative expense.
The fair value of each option granted has been estimated on the date of grant
using the Black-Scholes option pricing model. The weighted average fair value of
the options granted during 1999 was $2.42. The following weighted average
assumptions were used in computing the fair value of option grants for 1999.
Weighted average risk-free interest rate of 5.50%; zero dividend yield,
volatility of the Company's common stock of 40% and an expected life of the
options of five years. The options vest ratably over a five year period.
NOTE G - INCOME TAXES
The Company has a deferred tax asset as of December 31, 1999 of $593,000 which
was calculated using a federal statutory rate of 34% and a state statutory rate
of 6%. The deferred tax asset represents a benefit from net operating loss
carryforwards of $213,000 and deferred compensation of $380,000, which is
reduced by a valuation allowance of approximately $593,000 since the future
realization of such tax benefit is not presently determinable.
As of December 31, 1999, the Company has a net operating loss carryforward of
$562,000 expiring in 2019 for federal income tax purposes. In the event of
potential future ownership changes (Note A), Internal Revenue Code Section 382
limits the amount of such net operating loss carryforward available to offset
future taxable income.
F-11
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE H - RELATED PARTY TRANSACTIONS
OFFICER ADVANCES:
Represents non-interest bearing advances to the Chief Executive Officer who is a
principal stockholder of the Company. The amount is to be repaid by December 31,
2000.
OFFICER COMPENSATION:
During 1999 and 1998, the Company has recorded the fair value of services
provided by the Company's chief executive officer in the amounts of $120,000 and
$90,000, respectively in the statement of operations with a corresponding
increase to additional paid-in capital.
In August 1999, the Company agreed to issue 50,000 common shares to a former
officer of the Company. The fair value of such shares amounting to $147,000 has
been recorded in the statement of operations for the year ended December 31,
1999.
NOTE RECEIVABLE:
Represents an amount due from a related party of which the chief executive
officer and principal stockholder of the Company is a member of the Board of
Directors. The note was repaid in February 2000.
MANAGEMENT SERVICES:
An officer and stockholder of a significant stockholder was hired in September
1999 and provides management and consulting services to the Company at an annual
rate of $60,000. The amount charged to operations for the year ended December
31, 1999 amounted to $20,000.
NOTE I - COMMITMENTS
LEASES:
The Company leases office space and office equipment under operating leases.
Future minimum lease payments as of December 31, 1999 are as follow:
YEAR ENDING
DECEMBER 31,
----------------
2000 $ 90,000
2001 68,000
2002 69,000
2003 69,000
2004 42,000
Rent expense for the years ended December 31, 1999 and 1998 amounted to $33,000
and $5,000, respectively.
F-12
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE I - COMMITMENTS (CONTINUED)
WARRANTS:
In conjunction with the closing of the reverse merger, the Company declared a
distribution of 1,000,000 warrants at the rate of one warrant for each 5.3
common shares held by the stockholders of record as of the beginning of business
on August 3, 1999. The warrants have an exercise price of $1.25 per share and a
three year contractual life from date of issuance. The warrants are redeemable
by the Company for $.01 per warrant subject to 30 days written notice at any
time the closing bid price of the stock equals or exceeds 300% of the exercise
price of the warrant for ten consecutive trading days. The warrants will be
issued upon the Company's Form SB-2 filing being declared effective. The value
ascribed to these warrants will be determined utilizing the Black-Scholes model
and recorded as a dividend distribution at the effective date of the
registration statement.
EMPLOYMENT AGREEMENT:
On December 10, 1999, the Company entered into an employment and noncompetition
agreement with a stockholder to act in the capacity of President and Chief
Executive Officer. The term of the employment agreement is for three years and
the noncompetition agreement is for one year with both agreements commencing on
January 1, 2000. The agreement allows for a one year renewal option unless
terminated by either party. Base salary is $120,000 per annum with available
additional cash compensation as defined in the agreement.
NOTE J - MAJOR CUSTOMERS
During the year ended December 31, 1999, four customers accounted for 33%, 30%,
17% and 15% of the Company's revenue. During the year ended December 31, 1998,
one customer accounted for 82% of the Company's revenue.
As of December 31, 1999, balances due from three customers comprised 43%, 13%
and 12% of total accounts receivable.
As of December 31, 1998, balances due from two customers comprised 50% and 46%
of total accounts receivable.
NOTE K - SUBSEQUENT EVENTS
[1] STOCK OPTIONS:
In January 2000, the Company granted approximately 308,000 stock options
with an exercise price of $2.125 with a contractual life of ten years and
a two year vesting period to employees.
[2] CAPITAL TRANSACTIONS:
The Company issued, in January and February 2000, in connection with a
private placement offering 1,090,000 units at $1 per unit consisting of
one share of common stock and one Series B warrant to purchase one share
of common stock at $1.00 per share exercisable for a period of up to five
years from date of issuance.
F-13
<PAGE>
NMXS.com, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE K - SUBSEQUENT EVENTS (CONTINUED)
[3] COMMITMENT:
Effective January 1, 2000, the Company entered into an agreement with a
third party to provide legal services to the Company in exchange for an
initial grant of 150,000 options at an exercise price similar to prices
for employee grants. In accordance with the agreement, legal counsel will
earn as a retainer fee an automatic vesting of 1,000 options each month
services are rendered and will earn additional vesting of stock options
for services rendered based on a calculation defined in the agreement. A
charge for the fair value of such options will be determined when
services are rendered.
F-14
<PAGE>
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
Page
Prospectus Summary 7
Risk Factors 8
We are much like a start up company and have a limited operating history
on which to evaluate our potential for future success. Other, better
financed companies may be developing similar products as ours which
could compete with our products. Such competition could materially
adversely affect our financial condition. 8
We have experienced losses of $1,687,000 for the year ended December 31,
1999 and 594,000 for the three months ended March 31, 2000, and we
expect losses for the foreseeable future. Also our operating results
may fluctuate from quarter to quarter. 8
We may encounter difficulty recruiting and retaining staff. Without
highly trained technical personnel, we may find it more difficult to
compete with other companies in our field. 9
We may face a need for additional financing, especially if our estimates
to obtain new staff or if our projected costs of product development
are incorrect.
If such additional financing is required, but unavailable, we may
not be able to develop markets for our products before others
introduce competing products. 10
We have developed our core products using a mix of readily available open
source software development tools. Knowledgeable competitors may be
able to deduce how we have assembled our code base and be able to
develop competing products. 10
Brand identity problems could stall or compromise our market
penetration. 11
While we have commenced the process to protect our trade names, we have
not completed the process. Thus, others could attempt to use trade
names which we have selected. Such misappropriation of our brand
identity could cause significant confusion in the highly competitive
Internet technology marketplace and legal defense against such
misappropriation could prove costly and time-consuming. 11
We have been delisted from the OTC Electronic Bulletin Board which has
caused our stock to be less liquid. 12
Forward Looking Statements 12
Use of Proceeds 13
Dilution 13
Management's Discussion and Analysis of Financial Condition and Results of
Operation 13
Business 17
Management 24
Certain Transactions 29
Market Information 29
Principal Shareholders 30
Selling Shareholder 32
Description of Securities 33
Dividend Policy 35
Plan of Distribution 35
Shares Eligible For Future Sale 36
Legal Matters 37
Experts 37
Financial Statements 37
Until _____, 2000, (ninety days after the date of this prospectus) all
dealers that effect transactions in these securities may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
expressly authorizes a Delaware corporation to indemnify its officers,
directors, employees, and agents against claims or liabilities arising out of
such persons' conduct as officers, directors, employees, or agents for the
corporation if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company.
Neither the articles of incorporation nor the Bylaws of the Company provide
for indemnification of the directors, officers, employees, or agents of the
Company. The Company has not adopted a policy about indemnification.
The eighth article of our Certificate of Incorporation includes
provisions to eliminate, to the fullest extent permitted by Delaware General
Corporation Law as in effect from time to time, the personal liability of our
directors for monetary damages arising from a breach of their fiduciary duties
as directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
Item 2. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the offering described in the registration statement:
Registration Fee $359
Blue Sky Fees $3,000
Accounting Fees and Expenses $25,000
Legal Fees and Expenses $20,000
Printing and Engraving $5,000
Transfer Agent Fees $3,000
Miscellaneous $3,641
Total Expenses $60,000
None of these expenses will be paid by the selling security holder.
Item 3. Undertakings
(a) The Company hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement; and (iii) include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For the purpose of determining liability under the Securities Act
of 1933, treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at that time
shall be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c)The Company will:
(1) For determining any liability under the Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
a prospectus filed by the Company under Rule 424(b) (1) or (4) or 497(h) under
the Act as part of this registration statement as of the time the Commission
declared it effective.
(2) For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for the securities offered in the registration statement, and that the
offering of the securities at that time as the initial bona fide offering of
those securities.
Item 4. Unregistered Securities Issued or Sold Within Three Years
In August 1999, the Company issued 11,880,000 shares of Common Stock
of the Company to the shareholders of New Mexico Software, Inc. The shares
were issued in a reverse acquisition transaction between the Company and New
Mexico Software, in which such shareholders exchanged all of their shares for
the shares of the Company. Such securities were issued without registration
under the Securities Act by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, and Rule 506, as transactions by an
issuer not involving any public offering. Each of the shareholders of New
Mexico Software delivered appropriate investment representations to the
Company with respect to such transaction and consented to the imposition of
restrictive legends upon the certificates evidencing such securities. No
underwriting discounts or commissions were paid in connection with such
issuance. Each of the shareholders of New Mexico Software was provided with
information normally provided in a prospectus. In addition, the company made
the determination that each shareholder was a sophisticated investor with
enough knowledge and experience in business to evaluate the risks and merits
of the investment. A Form D was filed on or about August 5, 1999.
Also in August 1999 the Company issued 2,360,500 shares to 44
accredited investors in a private placement of its shares. Such securities
were issued without registration under the Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506,
as transactions by an issuer not involving any public offering. Such
investors delivered appropriate investment representations to the Company with
respect to such transaction and consented to the imposition of restrictive
legends upon the certificates evidencing such securities. No underwriting
discounts or commissions were paid in connection with such issuance. A Form D
was filed on or about August 5, 1999.
Also in August 1999 the Company granted options to purchase 572,000
shares pursuant to the Company's stock option plan. The options were granted
to seven persons without registration under the Act by reason of the exemption
from registration afforded by the provisions of Rule 701 promulgated by the
Securities and Exchange Commission. Each of these persons was either an
employee of the Company or a business consultant who provided bona fide
services which were not in connection with the offer or sale of securities in
a capital raising transaction and not directly or indirectly to promote or
maintain a market for the Company's securities. No underwriting discounts or
commissions were paid in connection with such issuances.
In January 2000 the Company granted options to purchase 457,760 shares
pursuant to the Company's stock option plan. The options were granted to 15
persons without registration under the Act by reason of the exemption from
registration afforded by the provisions of Rule 701 promulgated by the
Securities and Exchange Commission. Each of these persons was an employee of
the Company. No underwriting discounts or commissions were paid in connection
with such issuances.
In January 2000 the Company issued 50,000 shares to James Kurzmack in
settlement of termination of his employment with the Company. Such securities
were issued without registration under the Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof as a
transaction by an issuer not involving any public offering. Mr. Kurzmack
delivered appropriate investment representations to the Company with respect
to such transaction and consented to the imposition of restrictive legends
upon the certificates evidencing such securities. No underwriting discounts
or commissions were paid in connection with such issuance. Mr. Kurzmack was
deemed to be a sophisticated investor. He had access to the kind of
information normally provided in a prospectus.
In January and February 2000 the Company sold 1,090,000 units at $1.00
per unit to 24 accredited investors in a private placement of its shares. The
units consisted of one share of common stock and one Series B Warrant to
purchase one share of stock at $1.00, exercisable commencing August 1, 2000,
through January 17, 2005. Such securities were issued without registration
under the Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, and Rule 506, as transactions by an issuer
not involving any public offering. Such investors delivered appropriate
investment representations to the Company with respect to such transaction and
consented to the imposition of restrictive legends upon the certificates
evidencing such securities. No underwriting discounts or commissions were
paid in connection with such issuance. A Form D was filed on or about
February 11, 2000.
Item 5. Exhibits
The exhibits set forth in the following index of exhibits are filed as a
part of this registration statement.
Exhibit No. Description of Exhibit Location
2.1 Reorganization agreement dated August 3, 1999 *
2.2 Acquisition Agreement with Working Knowledge 39
3.1 Articles of Incorporation, as amended *
3.2 By-Laws of the Company currently in effect *
4.1 Form of Common Stock Certificate *
4.2 Form of Series A Warrant Certificate *
4.3 Form of Warrant Agency Agreement for Series A Warrants *
4.4 Form of Series B Warrant Certificate *
5.1 Opinion re Legality *
10.1 Sun Microsystems Lease *
10.2 Building Lease *
10.3 Form of Employee Confidentiality Agreement *
10.4 Stock Option Plan *
10.5 Employment Agreement of Mr. Govatski 52
21.1 List of subsidiaries *
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Ronald N. Vance (contained in
Exhibit 5.1 above) --
*Filed as an exhibit with the original filing of the registration
statement of the Company on Form SB-2 on February 11, 2000 (SEC File No.
333-30176).
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amendment
to the registration statement to be signed on its behalf by the undersigned in
the city of Albuquerque, State of New Mexico, on the 27th day of July 2000.
NMXS.com, Inc.
By: /s/ Richard Govatski, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amended registration statement was signed by the following persons in the
capacities and on the dates stated.
Date: July 27, 2000 /s/ Richard Govatski, Director
Date: July 27, 2000 /s/ Marvin Maslow, Director
Date: July 26, 2000 /s/ Scott L. Bach, Director
Date: July 27, 2000 /s/ Teresa Dickey, Principal Financial Officer
Date: July 27, 2000 /s/ Robert A. Armstrong, Controller
<PAGE>
