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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ULTREXX CORPORATION
(Name of Small Business issuer in its charter)
UTAH 87-0405662
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6100 SOUTH CENTER BLVD. #230
SEATTLE, WA 98188 98188
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (206) 242-6480
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SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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COMMON SHARES NONE
$.001 PAR VALUE
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TABLE OF CONTENTS
PART I
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Item 1: Description of Business 1
Item 2: Description of Property 7
Item 3: Directors, Executive Officers and Significant Employees 7
Item 4: Remuneration of Directors and Officers 8
Item 5: Security Ownership of Management and Certain Securityholders 9
Item 6: Interest of Management and Others in Certain Transactions 10
PART II
Item 1: Market Price of and Dividends on the Registrant's Common Equity 11
and Other Shareholder Matters
Item 2: Legal Proceedings 11
Item 3: Changes in and Disagreements with Accountants 12
Item 4: Recent Sales of Unregistered Securities 12
Item 5: Indemnification of Directors and Officers 12
PART F/S
Financial Statements: 13
PART III
Item 1: Index to Exhibits 13
Item 2: Description of Exhibits 13
EXHIBITS
A. FINANCIAL STATEMENTS
3. CORPORATE GOVERNANCE
10. MATERIAL CONTRACTS
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PART I
All statements, other than statements of historical fact, included in this
Form 10-SB, including without limitation, the statements under "Description of
Business," are, or may be deemed to be, "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). Such forward-looking statements involve assumptions, known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of Ultrexx Corporation to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements contained in this Form 10-SB. Such
potential risks and uncertainties include, without limitation, the Company
being a development stage Company, receiving an audit opinion with a "going
concern" paragraph, having limited financial resources, dealing in an industry
with rapidly developing technology and intense competition, and other risk
factors detailed herein. The forward-looking statements are made as of the
date of this Form 10-SB and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could
differ from those projected in such forward-looking statements. Therefore,
readers are cautioned not to place undue reliance on these forward-looking
statements.
The Company is filing this 10-SB in transitional disclosure format and
following Alternative 2 in furnishing the information required by Items 6-12
of Model B of Form 1-A.
ITEM 1: DESCRIPTION OF BUSINESS
NARRATIVE DESCRIPTION OF BUSINESS
Ultrexx Corporation, (the "Company"), a publicly traded corporation, and its
wholly-owned subsidiary Crux Inc., ("Crux") develop Java-language based
software technology and applications that allow the creation of intelligent,
knowledge-based solutions for the internet, intranets, wireless devices, and
other networks.
Effective June 30, 1995, Ultrexx Corporation, a Minnesota corporation, merged
with EconoDraft Corporation, a Utah Corporation. EconoDraft was the surviving
entity. Through this transaction, Ultrexx also acquired a subsidiary,
HealthGuard International Marketing Corporation ("HIMC"). On August 16, 1995,
EconoDraft changed its name to Ultrexx Corporation. During 1995 the Company
had no material operations.
On November 1, 1996, the Company acquired all of the outstanding common stock
of Crux, a Washington Corporation (formerly NetExpert Inc.) in a reverse
acquisition. NetExpert Inc. was incorporated in Washington in 1996 to develop
computer software knowledge engineering tools and applications.
The Company has also signed a letter of intent with Ultrexx Solutions Pvt.
Ltd., an Indian legal entity ("Ultrexx India"), to acquire Ultrexx India as a
subsidiary.
PRINCIPAL PRODUCTS AND STATUS
The Company's software development expertise is a key asset which the Company
is attempting to leverage by developing and bringing applications that use the
software to market.
The Company's original products were a series of development tools for the
creation of intelligent, interactive applications in Java and HTML. The range
of products includes; 1) CruXpert 2.0-TM-, available in Pro, Standard, and Lite
versions, and 2) Visual CruXpert 2.0-TM-. These products are sold through the
Company's web site and also through various software distributors such as
Netsales, Beyond.com, and Ingram Micro. Although they do not provide
substantial revenues for the Company, they establish and
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reinforce the Company's credibility in the Java development area while
requiring minimal attention from management.
In 1998, under a development contract with six port facilities in the Seattle,
Washington area, the Company developed the Northwest Marina Management
Software Suite. This is software for the management of marinas, ship and boat
movements, and related functions. The software has gone through extensive
testing and changes and is currently undergoing final testing and port staff
training. A key element of the development contract, granted in exchange for a
reduced development fee, allows the Company the intellectual property
ownership and exclusive global marketing rights for the software. Once the
software is accepted, which the Company anticipates will occur during the
third quarter of 2000, the Company will have the opportunity to bring the
software to the broader market and plans to do so by establishing a series of
distribution agreements with companies that sell products into marinas and
ports. The Company is also exploring other derivatives of the software, such
as a consumer accessible version.
In March 2000, the Company launched its first software application into the
online advertising market. This product known as Knowledge Banner-TM-, is a
Java-based, thin-client, banner technology for web pages that allows a complete
transaction to take place inside the banner without leaving the host site.
Online advertising was determined by the Company to be a key market growth
area and the Company entered into a strategic alliance with an online
advertising firm, Eyescream Interactive ("Eyescream"). The alliance provides
for Eyescream to develop the graphic appearance for the banners and to sell
them to Eyescream clients while the Company develops the backend, server, and
database elements of the banner using its software. Through the alliance with
Eyescream, sales costs to the Company are minimal and the primary time demands
are on the Company's programming staff to develop the related backend features
for each banner. The companies jointly represent Knowledge Banner technology
to prospective advertising clients, agencies, and web site publishers.
Eyescream is one of the top interactive agencies in the world. Mark Grimes,
founder and president of Eyescream, has 15 years of experience in marketing
and telecommunications. A pioneer in online advertising, marketing, and sales,
Mr. Grimes and Eyescream have served since 1996 as expert consultants or
strategic partners to an impressive range of Web-savvy media destinations and
online advertisers. Mr. Grimes was appointed to the Ultrexx Board of Advisors
in January 2000.
The Company's primary marketing tool for Knowledge Banner is a web site,
WWW.KNOWLEDGEBANNER.COM, which is currently operating. The Company has also
discussed Knowledge Banner alliances with other companies active in the online
advertising field. The Company also offers programming and development
services, some of which it outsources to approved contractors. While this
activity may contribute to revenues and profits, it is not considered a
primary goal of the Company and is undertaken only when there will be minimum
impact on Company operations.
RESEARCH AND DEVELOPMENT
The Company intends to continue to improve its Intelligent
Bridge-TM- technology, which is being overseen by Mr. Muralidhara Keshavamurthy
at Ultrexx India. Intelligent Bridge is a server-side software that provides
an intelligent, real-time bridge between front-end interactive clients
(web-pages/banners/devices) and back-end enterprise management software such
as databases, enterprise systems, and supply-chain systems.
Elements of Intelligent Bridge technology are already being used in serving
Knowledge Banner application, but the Company believes that they may also have
business-to-business applications which could be licensed to third parties
because they are compatible with most commonly used database and
data-warehousing systems.
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The Knowledge Banner and Intelligent Bridge technology is also compatible with
many of the wireless devices currently being developed and marketed and the
Company is pursuing use of its technologies for wireless applications
marketed by third parties.
To date, substantially all of the Company's research and development has been
performed in-house and through approved contractors. The Company does not
devote significant funds to research and development other than the time of
Mr. Muralidhara and Ultrexx India's staff. The Company expects that most of
its products will continue to be developed internally or jointly with selected
strategic partners; although, it may, on occasion, acquire ownership of, or
rights to market, existing programs. During 1998 and 1999, the Company spent
approximately $200,000, cumulatively, on research and development.
EMPLOYEES
As of July 1, 2000, the Company and its subsidiary, Crux, had four employees,
including two employees on a full-time basis and two part-time employees.
Other programming and administrative staff are retained on a hourly or per-job
basis. The Company also utilizes the services of various individuals on a
consulting basis. None of the Company's employees are covered by a collective
bargaining agreement, the Company has never experienced a work stoppage, and
the Company considers its labor relations to be excellent.
CHARACTERISTICS OF THE INTERNET INDUSTRY
The growth of the Internet has permanently changed business dynamics. In the
wired world, companies want interaction with customers, colleagues, and
employees that is as easy-to-use and as efficient as possible. Companies and
individuals continually seek the most productive means of obtaining or
providing information. The Internet may become the most efficient vehicle yet
designed for organizations to sell products, disseminate information, and
provide services.
The Company believes that intelligent, interactive access to well-structured,
constantly evolving knowledge systems will allow companies to increase their
efficiency. The Company's core technologies are designed to run behind the
scenes to access and bridge information sources.
Although businesses have focused on wired access to the Internet since its
inception, there is currently a transition to wireless web access. The Company
technology designed for Internet use is easily adaptable to wireless formats.
The Company exists in a fast-moving, dynamic field that has many competitors.
The Company believes that its technology is contemporary and is attempting to
bring it to market in a timely manner.
RISK FACTORS
Potential factors which could materially affect the Company's profitability,
viability, and future prospects include, but are not necessarily limited to,
the following:
GENERAL BUSINESS ASSUMPTIONS
The Company has formulated its business plans and strategies based on certain
assumptions regarding the size and growth of the Internet and other network
and technology markets, the market for programming services and products, and
the Company's anticipated share of the market and perceived competitive
advantages, as well as the estimated price and acceptance of its products. The
Company's assumptions are based upon speaking with present and potential
technology partners and potential customers, and these assumptions represent
the Company's best estimates. The Company could be wrong as to the market size
and growth, its potential market share, its product pricing, its product
acceptance, or a variety of other assumptions. Ultimately, the Company's
success depends on its ability to
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effectively execute its business plan and many outside factors, some or all of
which the Company may be able to accurately predict and some or all of which
it may not be able to predict. The Internet and network industries and related
technologies change rapidly, making the Company's ability to change quickly
and adjust product and marketing strategies at any time very important to the
Company's survival, particularly in the long term. Some of the outside factors
which may affect the Company's business include changes in the communications
and data transmission industries, technological advances or product
obsolescence, increased levels of competition including the entry of
additional competitors, changes in general worldwide economic conditions,
increases in operating costs including supplies, personnel and equipment, and
foreign regulation changes.
LIMITED OPERATING HISTORY - NEW BUSINESS
The Company should be considered as being in the start-up and development
stage. The Company's success will depend largely on the skills and abilities
of its officers, management, and directors. While many of the Company's
officers and principals have experience in the industries it has entered and
plans to enter, the Company cannot provide assurance that this experience will
result in a successful and profitable operation. The Company's operations are
subject to all the risks inherent in the establishment of any new enterprise.
The likelihood of the Company's success should be considered in the light of
the problems, expenses, difficulties, complications, and delays frequently
encountered in connection with a new business.
DEPENDENCE ON KEY PERSONNEL
The Company's formation and business development has resulted from the efforts
of certain management and technical employees. The loss of services for any
reason of any of these key contributors could adversely affect the progress of
its business. The Company has key man insurance coverage on Ram Menon, but
currently does not maintain life insurance on other key personnel. The
Company's growth is dependent upon the ability to continue to attract and
retain additional qualified employees. There is no assurance that the Company
will continue to attract and retain personnel with the requisite capabilities.
The Company is requesting that many of its employees work for less than they
could receive elsewhere to help preserve cash, while providing stock options,
as non-cash incentive to join and remain on its team.
MANAGEMENT OF GROWTH
The Company believes that its business may grow rapidly over the next several
years. This anticipated growth will likely place a significant strain on its
management and operations. To manage this growth effectively, it will need to
continue to implement and to improve its operational systems and attract,
hire, and retain skilled employees. The Company will also need to effectively
use its financial resources for operational needs in a cost-effective and
efficient manner. Should the Company be unable to effectively manage growth,
its operations and financial condition could suffer.
TECHNOLOGICAL CHANGE AND OBSOLESCENCE
The Internet, network, programming, and other technology markets in which the
Company intends to operate may be subject to technological changes. The
Company cannot provide assurance that its technology and processes will remain
at the forefront of technology even with significant additional capital
investment and continued research and development. The rapidly changing nature
of these technologies and their markets makes it difficult to predict if the
Company will be able to obtain or maintain an adequate market share.
The Company may have to change and improve its products and/or services in
response to customer requirements, changes to operating systems, application
and networking software, computer and communications hardware, and the
emergence of competitive services or technology. There can be no assurance
that the Company will be able to complete product enhancements in a timely
manner or that
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it will be able to bring new services to market in a timely manner. Delays and
difficulties, for technological or other reasons, in the development of the
Company's products and services could have a material adverse effect on its
business, operating results, and financial condition.
In addition, competitors may announce enhancements to existing products or
services or new products or services embodying new technologies, industry
standards or customer requirements that have the potential to supplant or
provide lower cost alternatives than the Company's products and services. The
introduction of such enhancements or new products and services could render
the Company's products or services obsolete and not marketable. The Company
cannot provide assurance that the announcement or introduction of new products
or services by a competitor or any change in industry standards will not cause
customers to defer or cancel the use of the Company's products or services.
Furthermore, introduction of products or services with reliability or quality
problems could result in reduced orders and additional development and service
costs. Conversely, the failure to introduce a new product, service, or product
enhancement on a timely basis could delay or hinder market acceptance. Any of
these events could have a material adverse effect on the Company's overall
business, operating results, and financial condition.
MARKETING
The Company's success will depend on adequate marketing and support resources,
both of which are very difficult to accurately predict, among other financial
factors. There can be no assurance that the Company's marketing efforts will
result in sales and profits, or that the Company's products can be offered at
profitable levels.
COMPETITION
Company competitors include Enliven, Thinking Media, ePod, and others
presently unknown to the Company. These companies have developed rich media
banner ads in the form of animation, audio, and video streaming in their
banners. While providing TV commercial-like features on the banner, these
applications do require a higher speed of Internet connectivity than is
generally prevalent to be truly appreciated. Future competitors, as well as
the Company's existing competitors, may have substantially greater financial
and operating resources than the Company has. The Company cannot provide
assurance that it will be able to effectively compete with present or future
competitors.
Online ad spending is expected to increase from $5.25 billion in 1999 to $45.5
billion by 2005, according to a study released in March 2000 from The Myers
Group. Findings estimate that the U.S. will account for $4.32 billion, or 82
percent of global online ad spending this year, with that figure rising to
$32.5 billion by 2005. The study also predicts that U.S. advertisers will
spend more to market their products and services on the Internet than they
will on television.
RELIANCE ON SUBCONTRACTORS, SUBSIDIARIES, AND IMPACT OF FOREIGN
CONDITIONS
It is possible that unexpected changes in domestic or foreign laws or in the
Company's relationship with subsidiaries and subcontractors may cause it to
suffer delays or other problems that could impact its profitability,
viability, and ability to compete. Such factors might also impact the
Company's ability to meet its client or creditor obligations.
INDUSTRY RISKS
The industries in which the Company operates entail commercial risks that
could adversely affect its ultimate profitability, including, competition for
clients, miscalculation of operating costs, the failure of other parties to
fulfill their contractual obligations and other contingencies. The industries
may be affected by deflation or inflation, employment and wage level changes
(including labor shortages), changes in local markets or economic conditions,
changes in client tastes and changes in governmental regulations (including
health codes and wage and price controls).
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INTELLECTUAL PROPERTY RIGHTS; DEPENDENCE UPON PROPRIETARY RIGHTS;
RISK OF INFRINGEMENT
The Company relies upon a combination of confidentiality, nondisclosure, and
other contractual arrangements, and copyright and trademark laws to protect
its proprietary rights. The Company has applied for patent protection on
certain products and trademark protection on certain names and is working with
counsel to determine other ways to protect it's intellectual property assets.
The Company generally enters into confidentiality agreements with its
employees, consultants, clients, potential clients, and vendors and limits
access to and distribution of its proprietary information. The Company
provides no assurance that its precautions to protect proprietary information
will be adequate to deter misappropriation of the Company's proprietary
information or that it will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. Although the
Company believes that its services and products do not infringe on the
intellectual property rights of others, the Company cannot provide assurance
that such a claim will not be asserted against it in the future, or that if
asserted, any such claim will be successfully defended.
INTERNATIONAL RISKS
The Company presently relies upon Ultrexx India to perform substantially all
of its programming functions. These operations and the Company and its
subsidiary's profitability may be affected by varying degrees of political
instability and haphazard changes in government regulations such as tax laws,
business laws, intellectual property, and other laws. Any changes in
regulations or shifts in political conditions are beyond the control of the
Company and may adversely affect its business. Operations may be affected in
varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes, expropriation of
property, environmental legislation, and labor laws.
The Company's foreign operations in India could subject it to foreign currency
fluctuations and changes in government regulations governing the
convertibility and use of such currency. Changing economic conditions and
changes in currency controls and regulations may materially affect the
Company's financial position and results. The Company does not engage in
currency hedging activities.
BUSINESS STRATEGY
The Company received small revenue amounts in 1997, 1998, and 1999. Its
ability to operate and develop products was hampered by lack of funds that
necessitated a continual quest for funding. The Company primarily completed
development of the marina management software application by utilizing our
India operations. This was possible because it was able to defer payments to
development engineers until additional investment capital could be raised. The
Company is now financially able to continue operations in India and expects to
complete the marina installation in of the third quarter of 2000 after which
we can begin marketing it outside of the Seattle region.
The Company was formed for the purpose of engaging in the design, development,
production, and marketing of intelligent decision-support tools and
applications for the Internet and other networks, for both industrial and
consumer applications. Since inception, the Company has been primarily in a
development stage: developing, testing, test marketing, and improving its
software.
The Company plans to bring the technology to market and grow by leveraging its
proprietary technologies into applications. With the Company providing the
underlying technology, it will seek established strategic partners to bring
each technology to market. In the first such relationship, the Company will
market its intelligent application technology as a new solution in the
Internet advertising field in partnership with Eyescream.
The Company is currently developing technology to enable "intelligent"
decision-support and diagnostic web-served applications that can be accessed
through wireless hand-held devices. The
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Company's applications are being adapted to the specific requirements of
delivery systems and formats that are needed to access this market. The
Company is in discussions with potential strategic partners that can harness
and market the technology.
The Marina Management software described earlier is not a core focus area for
the Company, but rather an application to which the Company has ownership and
marketing rights. The Company plans to license the distribution rights to a
Company specializing in marinas, ports, or boating and to receive royalties in
perpetuity. It is also possible that the Company could profitably sell its
marina software business outright. The Company will be considering this option.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 400 square feet of office space in Seattle,
Washington, on a month-to-month basis, at a rate of $1,000 per month. The
Company leases approximately 4000 square feet of office space in Bangalore,
India, at a rate of $1,000 per month.
From November 1999 through May 2000, the Company also maintained an office in
San Diego, California, in conjunction with its relationship with Venture
Catalyst ("VCAT"). VCAT is a business "incubator" that invested in the Company
and which leases approximately 300 feet of office space to the Company along
with providing management support. Commencing March 2000, VCAT received 5,000
shares of the Company's stock per month for the office space and services
provided. The relationship was ended in May 2000.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages, and positions of the Company's Directors and executive
officers as of August 1, 2000 are listed below:
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NAME AGE POSITION WITH THE COMPANY FIRST ELECTED
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David LeCompte 45 CEO, Chairman, Secretary 1999
Ram Menon 49 President 1996
Muralidhara Keshavamurthy 37 Director 1996
Manohar Prabhu 45 Director, VP of International Operations 1996
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J. DAVID LECOMPTE, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE BOARD, SECRETARY
Mr. LeCompte became the Company's Chief Executive Officer and Chairman during
2000. Mr. LeCompte was the founder and President of Efinds, a company
intending to link direct response television with an e-commerce web site from
January to October 1999. Efinds was a division of Respond2, a direct response
marketing agency, where LeCompte served as Vice President Interactive. As
President of Efinds, he was responsible for planning, financial modeling and
budgeting; hiring programmers, designers and support staff; developing
creative elements and content, contracting with service providers such as
database and fulfillment companies, and working with attorneys on trademarks
and other legal matters. From 1996 to 1998, LeCompte worked with Williams
Worldwide Television as Vice President Of International Business Development
overseeing wholesale distributor relationships in approximately 60 countries,
supervising the home shopping division, working with product developers to
introduce new products, and coordinating marketing and trade show initiatives.
Prior to working with Williams Television, LeCompte was a partner and
marketing consultant to La Forza Group, based in the UK, and to Healthrider
International, a joint venture between La Forza Group and Healthrider, Inc.,
based in the USA. He also concurrently operates FL7.com, a
business-to-business web site that sells liquidation goods into international
markets.
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RAM MENON, PRESIDENT AND DIRECTOR
Mr. Menon has served as the President and a Director for Ultrexx since 1996
and is responsible for fund raising and developing key partnerships for
promoting the growth of the Company. Prior to forming Ultrexx, from 1994 to
1996 he served as President of Intertech International, where he was
responsible for creating joint venture partnerships in Asia and the U.S. in
the area of energy efficient devices and sustainable infrastructure
development fields. Ram Menon is an electronics engineer with over 20 years
of experience in the high technology industry. He has held senior technical
positions in General Electric, E.M.I , the Dutch conglomerate Philips and has
worked in Europe, the United States, and Asia.
MURALIDHARA KESHAVAMURTHY, DIRECTOR, TECHNOLOGY DEVELOPMENT
Mr. Keshavamurthy has served as a Director of the Company and has been at the
center of technology development since 1996. Mr. Keshavamurthy has a
background in Electronics and Communication engineering, with over 15 years
experience in hands-on software development, with an emphasis on the areas of
artificial intelligence and expert systems. He is the developer of the first
version of CruXpert 1.2 (CKRL compiler) and the CruXpert range of products
developed to date besides being the chief architect of Ultrexx Intelligent
Bridge technology. He has worked in various capacities on software development
projects at Indian Institute of Science-Bangalore, Hewlett Packard (India)
Software Operation,Bangalore and National Semiconductor, Santa Clara,
California.
MANOHAR PRABHU, DIRECTOR AND VP OF INTERNATIONAL OPERATIONS
Mr. Prabhu has served as a Director of the Company since 1996 and as the
interim CEO from December 1998 to December 1999. As of January 2000, he
continues to be on the Board but does not serve as an officer of the Company.
Mr. Prabhu has a background in mechanical engineering and is an entrepreneur
with over 20 years of hands-on experience in management, finance,
manufacturing, international trade, collaboration, and technology-transfer. In
1981 Mr. Prabhu founded Scarab (India) Pvt. Ltd., Bangalore, India, and has
served as its director since its founding. Scarab is active in the areas of
design, manufacture, marketing, and installation of solar energy devices and
systems, computer aided design, passive solar architecture, and construction
and specialized project consultancy.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
Compensation paid during 1999 to the highest paid Executive Officer of the
Company is as follows:
SUMMARY COMPENSATION TABLE
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ANNUAL COMPENSATION
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OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
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<S> <C> <C> <C> <C>
Ram Menon, President 1999 $60,000 0 0
1998 0 0 0
1997 0 0 0
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No other officers or directors earned more than Mr. Menon during the past
three years.
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ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
BENEFICIAL OWNERSHIP
The following table sets forth, as of July 1, 2000, the number and percentage
of outstanding shares of Company Common Stock owned by (i) each person known
to the Company to beneficially own more than 10% of its outstanding Common
Stock, (ii) each director, (iii) each named executive officer, and (iv) all
officers and directors as a group.
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NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER (1) BENEFICIALLY OWNED(2) PERCENT OF TOTAL(3)
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Muralidhara Keshavamurthy 2,932,576 14.8%
Ram Menon 1,239,141 6.2%
Manohar Prabhu 1,839,142 9.3%
David Le Compte 1,500,000 (4) 7.9%
Mark Grimes 2,000,000 (5) 9.8%
Ramanathan R. Krishnan 1,599,141 8.0%
All officers and Directors 7,270,359 (6) 35.2%
as a group
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(1) Unless otherwise noted, the Company believes that all Shares are
beneficially owned and that all persons named in the table or family
members have sole voting and investment power with respect to all Shares
owned by them. Unless otherwise indicated, the address of each Stockholder
is 6100 South Center Blvd., #230, Seattle, WA 98188.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(3) Assumes 19,881,514 Shares outstanding plus, for each individual, any
securities that specific person has the right to acquire upon exercise of
presently exercisable stock options and conversion of debenture shares.
Options, warrants, or conversion rights held by persons other than the
specific individual for whom an ownership interest percentage is being
calculated are not considered in calculating that specific individual's
ownership interest percentage.
(4) Includes 325,500 options to purchase shares from the Company, and 1,174,500
options to purchase shares from Messrs. Keshavamurthy, (523,500 shares),
Menon (325,500 shares), and Prabhu (325,500 shares). All options are
exercisable at $.18 per share and are exercisable anytime before December
31, 2002. The options fully vest on May 1, 2000 and may be extended beyond
their expiration date at the election of the Board.
(5) Includes 434,000 options to purchase shares from the Company, and 1,566,000
options to purchase shares from Messrs. Keshavamurthy, (698,000 shares),
Menon (434,000 shares), and Prabhu (434,000 shares). All options are
exercisable at $.18 per share and are exercisable anytime before December
31, 2002. The options fully vest on May 1, 2000 and may be extended beyond
their expiration date at the election of the Board.
(6) Includes the 325,500 options exercisable by Mr. LeCompte and the 434,000
options exercisable by Mr. Grimes before December 31, 2002. The options
fully vest on May 1, 2000 and may be extended beyond their expiration date
at the election of the Board.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION NUMBER OF PERCENT OF
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR EXPIRATION
OPTIONS EMPLOYEES IN BASE PRICE DATE
GRANTED (1) FISCAL YEAR ($)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David LeCompte 1,500,000 43% $.18 12/31/02
Mark Grimes 2,000,000 57% $.18 12/31/02
</TABLE>
-----------------
A. See description of options set forth in footnotes 5 and 6 of the Beneficial
Ownership Chart above.
ITEM 6. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
The company maintains an exclusive contractual relationship with Ultrexx
India, which is an Indian company having its principal place of business at
270,1st Main Road, Defence Colony, Indiranagar, Bangalore -560038, India.
Muralidhara Keshavamurthy is a Director of Ultrexx India and a founder,
director and the single largest shareholder in the Company. Manohar Prabhu is
also a Director of Ultrexx India and a founder, director and shareholder of
the Company. Ultrexx India was founded for the express purpose of becoming a
subsidiary of Ultrexx Corporation. Ultrexx has provided Ultrexx India with
operating capital as consideration for exclusive programming and software
development services. The Company has signed a letter of intent with Ultrexx
India to acquire it as a subsidiary.
On January 1, 2000, the Company entered into a consulting agreement with the
Chief Executive Officer ("CEO") of the Company. As payment for consulting
services, the agreement calls for the issuance of options to purchase
1,500,000 shares of the Company's common stock. (See Beneficial Ownership.)
On January 1, 2000, the Company entered into a consulting agreement with a
member of the Advisory Board of the Company. As payment for consulting
services, the agreement calls for the issuance of options to purchase
2,000,000 shares of the Company's common stock. (See Beneficial Ownership.)
Subsequent to December 31, 1999, the Company was in default on a note payable
from a related party, which is secured by 500,000 shares of common stock owned
by the Company's CEO. As payment for the outstanding balance of the note
payable, the CEO transferred ownership of 250,000 of the shares being held as
security to the lender. The remaining 250,000 shares were returned to the CEO.
The CEO resigned from his position on January 24, 2000.
The Company entered into agreements with Crux Knowledgeware, Inc. and Ultrexx
Solutions Pvt. Ltd., affiliated companies located in India, to conduct
research and development on its products. For the years ended December 31,
1999 and 1998 and the six months ended June 30, 2000 and 1999, research and
development expense paid to these affiliated companies amounted to $96,000,
$81,000, $36,400 (unaudited), and $58,500 (unaudited), respectively. Accounts
payable to these affiliated companies totaled $76,000 and $25,000 (unaudited)
as of December 31, 1999 and June 30, 2000, respectively.
10
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
COMMON STOCK MARKET INFORMATION
The following table sets forth, for the period from January 1998 through
December 2000, the high and low bid quotations each quarter for the Common
Stock as reported by the OTC Bulletin Board through May 2000, and in the "pink
sheets" thereafter. The Company's stock began trading on the OTCBB in June
1993 and traded under the stock symbol "ULTX" until April 7, 2000. The Company
lost its listing on the OTCBB because of its failure to file audited financial
statements with the Securities and Exchange Commission to be recognized as a
fully reporting company. The prices represent quotations between dealers,
without adjustment for retail markup, mark down or commission, and do not
necessarily represent actual transactions.
COMMON STOCK PRICE
<TABLE>
<CAPTION>
2000 HIGH LOW
---- ---- ---
<S> <C> <C>
1st Quarter 2 1/8 1/4
2nd Quarter 1 7/32 1/4
1999 HIGH LOW
---- ---- ---
1st Quarter 1 1/16 1/2
2nd Quarter 2 1/4 3/8
3rd Quarter 9/16 1/4
4th Quarter 7/8 1/8
1998 HIGH LOW
---- ---- ---
1st Quarter 1 3/16 11/16
2nd Quarter 1 7/8 5/8
3rd Quarter 1 7/8 5/8
4th Quarter 1 3/8
</TABLE>
The Company has not paid any cash dividends on its common stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business. As of July 1, 2000,
the approximate number of record holders of the Company's common stock was 316.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently involved in litigation with Ramanathan Krishnan
("Krishnan"), a former officer and director of the Company who remains a
beneficial owner of more than 5% of the Company's outstanding common stock.
The action involves Fidelity Transer Company ("Fidelity"), the Company's stock
transfer agent, as the plaintiff, and the Company and Krishnan as defendants
("Fidelity Action"). Krishnan has also filed a Cross-Claim against Fidelity,
the Company, and Ram Menon ("Menon"), the Company's President. The Fidelity
Action is pending in the Third Judicial District Court in and for Salt Lake
County, State of Utah and was commenced on November 10, 1999.
The Fidelity Action involves a claim for declaratory relief concerning an
attempted transfer of shares by Krishnan. The Company requested a temporary
hold be placed on Krishnan's transfer request because of contractual and
regulatory concerns regarding such transfers. Fidelity requested the court's
11
<PAGE>
assistance in determining its rights and obligations concerning the requested
transfer. Krishnan subsequently counter-sued the Company and Menon for
requesting the temporary hold on the shares and demanding immediate transfer
and an unspecified amount of general and punitive damages for the delay in the
transfer. The Company and Menon intend to vigorously defend Krishnan's
counter-claim.
The Company is currently involved in a related case in Washington State. The
action is pending in Washington State Superior Court, King County, and was
instigated on November 4, 1999. The case was brought by an Ultrexx
stockholder, Steven Frankowitz, as the plaintiff and presumes to be brought in
the name of Ultrexx as a derivative action ("Washington Action"). The
complaint names the following defendants: Krishnan; NetCompliance, Inc.; and
NetCompliance Products and Services, Inc. Mr. Frankowitz also named Ultrexx,
not only as a Plaintiff, but also as a Defendant in this matter. The Company
has not answered the complaint and has received an open extension to answer
from Mr. Frankowitz.
Mr. Frankowitz, alleges against the above named defendants, except Ultrexx,
the following causes of action: (1) Breach of Fiduciary Duty against Krishnan,
due to allegations of self-dealing; (2) Breach of Contract against Krishnan,
concerning an oral employment agreement; (3) Breach of Implied Covenant of
Good Faith and Fair Dealing against Krishnan, concerning his involvement in
setting up a competing business (among other claims); (4) Conversion against
Krishnan and NetCompliance, for improperly taking assets belonging to
Plaintiffs; (5) Waste and Theft of Corporate Opportunities against Krishnan;
(6) Tortious Interference against Krishnan and NetCompliance, in that the
defendants diverted corporate opportunity to themselves; (7) Fraud against
Krishnan and NetCompliance; (8) Prima Facie Tort against Krishnan and
NetCompliance; and (9) Violation of the Uniform Trade Secrets Act.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has experienced no recent change in or disagreement with its
accountant. The Company's present Auditor, Singer, Lewak, Greenbaum &
Goldstein LLP, has been the Company's auditor since March 28, 1998.
Management of the Company intends to keep Singer, Lewak, Greenbaum &
Goldstein LLP as its auditor for the foreseeable future.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company is authorized to issue up to 50,000,000 shares of Common Stock, of
which 19,881,514 shares of Common Stock are issued and outstanding.
In December 1999, Venture Catalyst purchased a total of 714,286 shares of the
Company's restricted common stock for $100,000, or $0.14 per share. The
Company issued the shares under the exemption from registration provided by
Section 4(2). The shares were sold to a single accredited investor.
In January 2000, the company concluded a private share placement or restricted
common stock with Berry-Shino Securities totaling 2 million shares at a price
of $.25 per share. After cash commissions to Berry-Shino Securities, the
Company realized approximately $450,000 from the sale, to be used for general
operating purposes. Additionally, the Company paid 200,000 shares to
Berry-Shino Securities as commission valued at $50,000.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company may indemnify its directors and
executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company's Bylaws also
permit it to secure insurance
12
<PAGE>
on behalf of any officer, director, employee, or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
Bylaws permit such indemnification.
At present, Ram Menon is entitled to indemnification by the Company for the
acts alleged in the Cross-Claim made by Krishnan in the Fidelity Action
pursuant to the vote of the Board of Directors. Other than the Fidelity
Action, the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee, or agent of the Company where
indemnification will be required or permitted.
PART F/S
FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to Financial
Statements are attached hereto and filed as a part of this Report.
The selected financial data of the Company for 1998 and 1999 were derived from
the financial statements of the Company which have been audited by Singer,
Lewak, Greenbaum & Goldstein. Singer, Lewak, Greenbaum & Goldstein issued an
unqualified opinion with a going concern paragraph regarding the financials.
The selected unaudited financial statements for the quarter and six months
ended June 30, 2000 were prepared by management in accordance with generally
accepted accounting standards.
PART III
ITEM 1. INDEX TO EXHIBITS
The following documents are filed as part of this report on Form 10-SB:
A. Consolidated Financial Statements for the years ended December 31,
1999 and 1998, for the six months ended June 30, 2000 and 1999
(unaudited), and for the period from July 1, 1996 (inception) to
June 30, 2000 (unaudited)
3. Corporate Goverance
10. Material Contracts
13
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED
PAGE
<S> <C> <C>
A. Consolidated Financial Statements for the years ended December 31,
1999 and 1998, for the six months ended June 30, 2000 and 1999
(unaudited), and for the period from July 1, 1996 (inception) to
June 30, 2000 (unaudited)
-Consolidated Balance Sheet
-Consolidated Statements of Operations
-Consolidated Statements of Shareholders' Equity (Deficit)
-Consolidated Statements of Cash Flows
-Notes to Consolidated Financial Statements
3. Corporate Goverance
3.1(a) Articles of Incorporation of RNA Development Corporation
3.1(b) Articles of Amendment of Name Change to Ultrexx Corporation
3.2 Bylaws of Ultrexx Corporation
10. Material Contracts
10.1 Letter of Intent with Ultrexx India
10.2 Option Agreement LeCompte and Grimes
10.3 Private Placement Agreement
</TABLE>
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Seattle, State of Washington, on
September 21, 2000.
By: /s/ Ram Menon
----------------------------
Ram Menon, President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ram Menon
----------------------------- President, Director September 21, 2000
Ram Menon
/s/ David Le Compte
----------------------------- CEO, Chairman of the Board September 21, 2000
David Le Compte
/s/ Muralidhara Keshavamurthy
----------------------------- Director September 21, 2000
Muralidhara Keshavamurthy
</TABLE>
15
<PAGE>
EXHIBIT INDEX
The following exhibits are being filed with this Report on Form 10-SB:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED
PAGE
<S> <C> <C>
A. Consolidated Financial Statements for the years ended December 31,
1999 and 1998, for the six months ended June 30, 2000 and 1999
(unaudited), and for the period from July 1, 1996 (inception) to
June 30, 2000 (unaudited)
3. Corporate Goverance
3.1(a) Articles of Incorporation of RNA Development Corporation
3.1(b) Articles of Amendment of Name Change to Ultrexx Corporation
3.2 Bylaws of Ultrexx Corporation
10. Material Contracts
10.1 Letter of Intent with Ultrexx India
10.2 Option Agreement LeCompte and Grimes
10.3 Private Placement Agreement
</TABLE>
16
<PAGE>
ULTREXX CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED),
AND FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION)
TO JUNE 30, 2000 (UNAUDITED)
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity (Deficit) 5 - 6
Consolidated Statements of Cash Flows 7 - 9
Notes to Consolidated Financial Statements 10 - 20
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Ultrexx Corporation
We have audited the accompanying consolidated balance sheet of Ultrexx
Corporation (a development stage company) and subsidiary as of December 31,
1999, and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the two years in the period ended
December 31, 1999, and the period from July 1, 1996 (inception) to December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultrexx
Corporation and subsidiary as of December 31, 1999, and the consolidated results
of their operations and their consolidated cash flows for each of the two years
in the period ended December 31, 1999, and the period from July 1, 1996
(inception) to December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of $2,750,212 during the
period from July 1, 1996 (inception) to December 31, 1999, and it had negative
cash flows from operations of $1,482,750. These factors, among others, as
discussed in Note 2 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 26, 2000
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 47,843 $ 14,983
Accounts receivable 3,810 3,810
-------- --------
Total current assets 51,653 18,793
FURNITURE AND EQUIPMENT, net of accumulated depreciation
and amortization of $77,066 (unaudited) and $71,067 25,410 27,522
CAPITALIZED SOFTWARE, net of accumulated amortization of
$307,500 (unaudited) and $262,500 142,500 187,500
DEPOSITS AND OTHER ASSETS 7,747 7,747
-------- --------
TOTAL ASSETS $227,310 $241,562
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
June 30, December 31,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ -- $ 40,948
Accounts payable 121,534 228,338
Accrued payroll and payroll taxes 164,308 202,238
Notes payable to shareholders and related parties 34,350 35,634
----------- -----------
Total current liabilities 320,192 507,158
----------- -----------
COMMITMENTS
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value
50,000,000 shares authorized
19,881,514 (unaudited) and 17,391,514 shares
issued and outstanding 19,882 17,392
Common stock committed, $0.001 par value
826,907 (unaudited) and 936,786 shares committed,
but not yet issued 130,000 168,500
Additional paid-in capital 2,858,796 2,299,092
Treasury stock, at cost, 367,996 shares (368) (368)
Deficit accumulated during the development stage (3,101,192) (2,750,212)
----------- -----------
Total shareholders' deficit (92,882) (265,596)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 227,310 $ 241,562
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED), AND
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
For the
Period from
For the Six Months Ended For the Year Ended July 1, 1996
June 30, December 31, (Inception) to
--------------------------- ----------------------------- June 30,
2000 1999 1999 1998 2000
---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,671 $ 41,338 $ 90,046 $ 27,063 $ 136,466
COST OF GOODS SOLD -- 40 -- -- 10,043
---------- ---------- ---------- ---------- ----------
GROSS PROFIT 1,671 41,298 90,046 27,063 126,423
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 315,921 395,777 698,195 976,315 2,927,336
Research and
development 36,400 58,500 96,000 81,000 284,400
---------- ---------- ---------- ---------- ----------
Total operating
expenses 352,321 454,277 794,195 1,057,315 3,211,736
---------- ---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (350,650) (412,979) (704,149) (1,030,252) (3,085,313)
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 1,429 -- -- -- 1,429
Interest expense (1,759) (7,945) (10,474) (5,075) (17,308)
---------- ---------- ---------- ---------- ----------
Total other income
(expense) (330) (7,945) (10,474) (5,075) (15,879)
---------- ---------- ---------- ---------- ----------
NET LOSS $ (350,980) $ (420,924) $ (714,623) $(1,035,327) $(3,101,192)
========== ========== ========== ========== ==========
BASIC AND DILUTED LOSS
PER SHARE $ (0.02) $ (0.03) $ (0.04) $ (0.07) $ (0.24)
========== ========== ========== ========== ==========
WEIGHTED-AVERAGE
COMMON SHARES
OUTSTANDING 20,406,992 16,485,995 17,053,130 15,178,381 12,795,208
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Common Additional During the
-------------------------- Stock Paid-In Treasury Development
Shares Amount Committed Capital Stock Stage Total
----------- ----------- --------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996 -- $ -- $ -- $ -- $ -- $ -- $ --
INITIAL CAPITALIZATION 2,414,665 2,415 36,013 (368) 38,060
COMMON STOCK ISSUED FOR
REVERSE ACQUISITION OF
CRUX, INC 10,000,000 10,000 440,000 450,000
COMMON STOCK ISSUED FOR
FEES RELATED TO REVERSE
ACQUISITION OF CRUX, INC 1,000,000 1,000 44,000 45,000
COMMON STOCK ISSUED FOR CASH 382,551 382 258,903 259,285
NET LOSS (162,988) (162,988)
----------- ----------- -------- ----------- -------- ----------- ---------
BALANCE, DECEMBER 31, 1996 13,797,216 13,797 -- 778,916 (368) (162,988) 629,357
COMMON STOCK ISSUED FOR CASH 1,032,558 1,033 562,962 563,995
NET LOSS (837,274) (837,274)
----------- ----------- -------- ----------- -------- ----------- ---------
BALANCE, DECEMBER 31, 1997 14,829,774 14,830 -- 1,341,878 (368) (1,000,262) 356,078
COMMON STOCK ISSUED FOR CASH 909,000 909 327,491 328,400
ISSUANCE OF COMMON STOCK
FOR SERVICES 381,000 381 190,119 190,500
NET LOSS (1,035,327) (1,035,327)
----------- ----------- -------- ----------- -------- ----------- ---------
BALANCE, DECEMBER 31, 1998 16,119,774 16,120 -- 1,859,488 (368) (2,035,589) (160,349)
COMMON STOCK ISSUED FOR CASH 565,000 565 199,435 200,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Common Additional During the
-------------------------- Stock Paid-In Treasury Development
Shares Amount Committed Capital Stock Stage Total
----------- ----------- --------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK ISSUED
FOR SERVICES RENDERED 706,740 $ 707 $ $ 240,169 $ $ $ 240,876
COMMON STOCK COMMITTED
FOR CASH 100,000 100,000
COMMON STOCK COMMITTED
FOR SERVICES RENDERED 38,500 38,500
COMMON STOCK COMMITTED FOR
REPAYMENT OF SHORT-TERM
LOANS 30,000 30,000
NET LOSS (714,623) (714,623)
----------- ----------- --------- ----------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1999 17,391,514 17,392 168,500 2,299,092 (368) (2,750,212) (265,596)
COMMON STOCK ISSUED FOR
(unaudited)
CASH 2,000,000 2,000 498,000 500,000
OFFERING COSTS 200,000 200 (50,730) (50,530)
SERVICES RENDERED 100,000 100 23,500 29,900 53,500
ISSUANCE OF COMMITTED SHARES
(unaudited) 190,000 190 (62,000) 61,810 --
CAPITAL CONTRIBUTION
(unaudited) 20,724 20,724
NET LOSS (unaudited) (350,980) (350,980)
----------- ----------- --------- ----------- -------- ----------- ----------
BALANCE, JUNE 30, 2000
(unaudited) 19,881,514 $ 19,882 $ 130,000 $ 2,858,796 $ (368) $(3,101,192) $ (92,882)
=========== =========== ========= =========== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED), AND
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
For the
Period from
For the Six Months Ended For the Year Ended July 1, 1996
June 30, December 31, (Inception) to
--------------------------- ----------------------------- June 30,
2000 1999 1999 1998 2000
----------- ----------- ----------- ------------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(350,980) $(420,924) $(714,623) $(1,035,327) $(3,101,192)
Adjustments to reconcile
net loss to net cash
used in operating
activities
Depreciation 5,997 11,863 22,638 23,670 77,064
Amortization of
capitalized
software 45,000 45,000 90,000 90,000 307,500
Issuance of
common stock
for services
rendered 30,000 189,000 240,876 190,500 506,376
Issuance of
committed
common stock
for services 23,500 -- 38,500 -- 62,000
(Increase) decrease in
Accounts receivable -- 11,634 21,399 (18,381) (982)
Inventory -- 40 15,309 20 --
Other receivables -- -- -- 2,338 (2,828)
Deposits and other
assets -- (10,000) 3,802 -- (7,747)
Increase (decrease) in
Accounts payable (106,804) (27,063) (78,481) 209,432 121,534
Accrued payroll
and payroll taxes (37,930) 17,205 55,501 116,331 164,308
--------- --------- --------- ----------- -----------
Net cash used in
operating activities (391,217) (183,245) (305,079) (421,417) (1,873,967)
--------- --------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED), AND
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
For the
Period from
For the Six Months Ended For the Year Ended July 1, 1996
June 30, December 31, (Inception) to
--------------------------- --------------------------- June 30,
2000 1999 1999 1998 2000
----------- ----------- ----------- ----------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of furniture
and equipment $ (3,885) $ (511) $ (510) $ (2,948) $ (102,474)
--------- --------- --------- --------- -----------
Net cash used in
investing activities (3,885) (511) (510) (2,948) (102,474)
--------- --------- --------- --------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from line of
credit -- -- -- 48,635 48,635
Payments on line of
credit (40,948) (7,687) (7,687) -- (48,635)
Proceeds from short-
term loans -- -- 30,000 -- 30,000
Proceeds from notes
payable to
shareholders and
related parties -- 900 53,365 38,700 92,065
Payments on notes
payable to
shareholders and
related parties (1,284) -- (56,430) -- (57,714)
Capital contributions 20,724 -- -- -- 20,724
Stock offering costs (50,530) -- -- -- (50,530)
Proceeds from sale
of common stock 500,000 200,000 200,000 328,400 1,889,739
Proceeds from sale
of committed
common stock -- -- 100,000 -- 100,000
--------- --------- --------- --------- -----------
Net cash provided by
financing activities 427,962 193,213 319,248 415,735 2,024,284
--------- --------- --------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED), AND
FOR THE PERIOD FROM JULY 1, 1996 (INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
For the
Period from
For the Six Months Ended For the Year Ended July 1, 1996
June 30, December 31, (Inception) to
--------------------------- --------------------------- June 30,
2000 1999 1999 1998 2000
----------- ----------- ----------- ----------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease)
in cash and cash
equivalents $32,860 $ 9,457 $13,659 $(8,630) $47,843
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 14,983 1,324 1,324 9,954 --
------- ------- ------- ------- -------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD $47,843 $10,781 $14,983 $ 1,324 $47,843
======= ======= ======= ======= =======
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION
INTEREST PAID $ -- $ -- $10,474 $ 5,075 $15,549
======= ======= ======= ======= =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On October 21, 1996, Ultrexx Corporation issued 10,000,000 shares of common
stock valued at $450,000 for the reverse acquisition of Crux, Inc.
During the years ended December 31, 1999 and 1998, the Company issued 706,740
and 381,000 shares of common stock for services rendered valued at $240,876 and
$190,500, respectively.
During the year ended December 31, 1999, the Company committed to issue 100,000
shares of common stock as repayment of short-term loans totaling $30,000. These
shares were issued during the six months ended June 30, 2000.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS
Ultrexx Corporation ("Ultrexx"), a publicly traded corporation incorporated
in the State of Utah in 1984, and its wholly owned subsidiary Crux, Inc.
("Crux"), a Washington corporation, (collectively, "the Company") is in the
design and development stage of producing and marketing programming
software designed for the Internet. The Company's revenue streams will be
generated primarily from the sale of software packages over the Internet,
as well as from contractual agreements to provide product development
services.
Crux, Inc. was formed under the laws of the State of Washington on July 1,
1996. On October 21, 1996, Ultrexx entered into an Agreement and Plan of
Business Combination, whereby it acquired all of the outstanding common
stock of Crux in exchange for an aggregate of 10,000,000 shares of newly
issued common stock effective November 1, 1996. For accounting purposes,
the transaction has been treated as a recapitalization of Crux, with Crux
as the accounting acquirer (reverse acquisition), and has been accounted
for in a manner similar to a pooling of interests. The operations of
Ultrexx have been included with those of Crux from the acquisition date.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Ultrexx and
its wholly owned subsidiary, Crux. All intercompany accounts and
transactions have been eliminated.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
the Company as a going concern. However, during the period from July 1,
1996 (inception) to December 31, 1999, the Company incurred a net loss of
$2,750,212, and it had negative cash flows from operations of $1,482,750.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION (Continued)
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the Company's
development program and its transition to the attainment of profitable
operations is dependent upon the Company achieving a level of sales
adequate to support the Company's cost structure. In addition, realization
of a major portion of the assets in the accompanying balance sheet is
dependent upon the Company's ability to meet its financing requirements and
the success of its plans to sell its products. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to
continue in existence.
Management plans to achieve a level of sales adequate to support the
Company's cost structure and believes that its customer base will grow
considerably once its software has become fully developed and aggressive
advertising can begin.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined
using specific identification.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Computer equipment 5 years
Computer software and design equipment 3 to 7 years
</TABLE>
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FURNITURE AND EQUIPMENT (Continued)
Maintenance and minor replacements are charged to expense as incurred.
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all
of its present efforts to establish a new business, and its planned
principal operations have not yet commenced. All losses accumulated since
inception have been considered as part of the Company's development stage
activities.
TREASURY STOCK
The Company accounts for its treasury stock under the cost method, whereby
purchases of treasury stock are recorded at the cost to the Company.
LOSS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing the loss available to common shareholders by
the weighted-average number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. Because the
Company has incurred net losses, basic and diluted loss per share are the
same.
COMPREHENSIVE INCOME
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which
are excluded from net income, include foreign currency translation
adjustments and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the Company's
financial statements since the Company did not have any of the items of
comprehensive income in any period presented.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses, the carrying amounts
approximate fair values due to their short maturities. The amounts shown
for line of credit and notes payable to shareholders and related parties
also approximate fair value because current interest rates offered to the
Company for debt of similar maturities are substantially the same.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each period-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes, if applicable,
represents the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future net
cash flows expected to be generated by the assets. If the assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount exceeds the fair value of the
assets. To date, no impairment has occurred.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 136, "Transfers of Assets to a Not-for-Profit Organization or
Charitable Trust That Raises or Holds Contributions for Others," which is
effective for financial statements with fiscal years beginning after
December 15, 1999. This statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which is effective upon issuance. This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB Statement
No. 53 and Amendments to Statements No. 63, 89, and 121." This statement
is not applicable to the Company.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Furniture and fixtures $ 8,335 $ 8,335
Computer equipment 51,649 49,969
Computer software and design equipment 42,492 40,285
-------- -------
102,476 98,589
Less accumulated depreciation and amortization 77,066 71,067
-------- -------
TOTAL $ 25,410 $27,522
======== =======
</TABLE>
NOTE 4 - CAPITALIZED SOFTWARE
As part of the Agreement and Plan of Business Combination between Ultrexx
and Crux entered into on October 21, 1996, Ultrexx issued 10,000,000 shares
of its common stock in exchange for the source code for the software
product currently being marketed by Crux. The capitalized software costs
were valued at $0.045 per share, the fair value of the common stock issued
by Ultrexx on October 21, 1996.
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," capitalized software
costs are amortized on a product-by-product basis. The annual amortization
amount is the greater of the amount calculated using the ratio that current
gross revenues for a product bear to the total of current and anticipated
future gross revenues for that product or the straight-line method over the
remaining estimated economic life of the product. The capitalized software
is being amortized over an estimated useful life of five years.
Amortization of the capitalized software began on February 1, 1997, the
date that the software product was available for general release to
customers. Amortization expense for the years ended December 31, 1999 and
1998 and the six months ended June 30, 2000 and 1999 was $90,000, $90,000,
$45,000 (unaudited), and $45,000 (unaudited), respectively.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 5 - LINE OF CREDIT
The Company has available a $50,000 line of credit with a bank through
January 1, 2000. The line bears interest at an annual rate of 10.75% and is
collateralized by the accounts receivable of the Company. As of December
31, 1999, the outstanding balance was $40,948. The Company paid off the
line of credit on March 28, 2000.
NOTE 6 - NOTES PAYABLE TO SHAREHOLDERS AND RELATED PARTIES
Notes payable to shareholders and related parties at December 31, 1999 and
June 30, 2000 represent advances made to the Company from various
shareholders and related parties for general operating purposes. The
amounts are due in varying installments.
NOTE 7 - COMMITMENTS
LEASES
During the six months ended June 30, 2000, the Company entered into a lease
agreement for office facilities with a third party that had purchased
1,096,786 shares of the Company's common stock for proceeds of $211,500
during the year ended December 31, 1999. This third party is also providing
management support to the Company. Under the terms of the lease agreement,
this third party will receive 5,000 shares of the Company's common stock
per month as payment for the office space and services provided. This
agreement was ended in May 2000.
The Company has entered into a one-and-a-half-year lease agreement for the
rent of its corporate offices, commencing December 17, 1999. Rent expense
for this agreement for the six months ended June 30, 2000 was $8,700
(unaudited). Rent expense for the previous lease agreement of its corporate
offices for the years ended December 31, 1999 and 1998 and the six months
ended June 30, 1999 amounted to $58,322, $64,585, and $30,149 (unaudited),
respectively.
The Company has also entered into various month-to-month lease agreements
for the rental of corporate facilities and furniture. Rent expense for
these leases for the years ended December 31, 1999 and 1998 and the six
months ended June 30, 2000 and 1999 amounted to $8,880, $25,066, $651
(unaudited), and $4,633 (unaudited), respectively.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 7 - COMMITMENTS (Continued)
LEASES (Continued)
Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $17,730
2001 13,278
2002 5,391
-------
Total $36,399
=======
</TABLE>
LITIGATION
The Company is currently involved in litigation with Ramanathan Krishnan
("Krishnan"), a former officer and director of the Company who remains a
beneficial owner of more than 5% of the Company's outstanding common stock.
The action involves Fidelity Transer Company ("Fidelity"), the Company's
stock transfer agent, as the plaintiff, and the Company and Krishnan as
defendants ("Fidelity Action"). Krishnan has also filed a Cross-Claim
against Fidelity, the Company, and Ram Menon ("Menon"), the Company's
President. The Fidelity Action is pending in the Third Judicial District
Court in and for Salt Lake County, State of Utah and was commenced on
November 10, 1999.
The Fidelity Action involves a claim for declaratory relief concerning an
attempted transfer of shares by Krishnan. The Company requested a temporary
hold be placed on Krishnan's transfer request because of contractual and
regulatory concerns regarding such transfers. Fidelity requested the
court's assistance in determining its rights and obligations concerning the
requested transfer. Krishnan subsequently counter-sued the Company and
Menon for requesting the temporary hold on the shares and demanding
immediate transfer and an unspecified amount of general and punitive
damages for the delay in the transfer. The Company and Menon intend to
vigorously defend Krishnan's counter-claim.
The Company is also currently involved in a related case in Washington
State. The action is pending in Washington State Superior Court, King
County, and was instigated on November 4, 1999. The case was brought by an
Ultrexx stockholder, Steven Frankowitz, as the plaintiff and presumes to be
brought in the name of Ultrexx as a derivative action ("Washington
Action"). The complaint names the following defendants: Krishnan;
NetCompliance, Inc.; and NetCompliance Products and Services, Inc. Mr.
Frankowitz also named Ultrexx, not only as a plaintiff, but also as a
defendant in this matter. The Company has not answered the complaint and
has received an open extension to answer from Mr. Frankowitz.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 7 - COMMITMENTS (Continued)
LITIGATION (Continued)
Mr. Frankowitz alleges against the above named defendants, except Ultrexx,
the following causes of action: (1) Breach of Fiduciary Duty against
Krishnan, due to allegations of self-dealing; (2) Breach of Contract
against Krishnan, concerning an oral employment agreement; (3) Breach of
Implied Covenant of Good Faith and Fair Dealing against Krishnan,
concerning his involvement in setting up a competing business (among other
claims); (4) Conversion against Krishnan and NetCompliance, Inc. for
improperly taking assets belonging to the plaintiffs; (5) Waste and Theft
of Corporate Opportunities against Krishnan; (6) Tortious Interference
against Krishnan and NetCompliance, Inc. in that the defendants diverted
corporate opportunity to themselves; (7) Fraud against Krishnan and
NetCompliance, Inc.; (8) Prima Facie Tort against Krishnan and
NetCompliance, Inc.; and (9) Violation of the Uniform Trade Secrets Act.
NOTE 8 - SHAREHOLDERS' DEFICIT
During the six months ended June 30, 2000, the Company entered into a
consulting agreement with the Chief Executive Officer ("CEO") of the
Company. As payment for consulting services, the agreement calls for the
issuance of options to purchase 1,500,000 shares of the Company's common
stock. 325,500 of these options are to be issued by the Company, and the
remaining 1,174,500 options are to be issued by three officers of the
Company from options previously issued to those officers. All options have
an exercise price of $0.18 per share, vest on May 1, 2000, and expire on
December 31, 2002. The expiration date of the options may be extended at
the election of the Company's Board of Directors.
During the six months ended June 30, 2000, the Company entered into a
consulting agreement with a member of the Advisory Board of the Company. As
payment for consulting services, the agreement calls for the issuance of
options to purchase 2,000,000 shares of the Company's common stock. 434,000
of these options are to be issued by the Company, and the remaining
1,566,000 options are to be issued by three officers of the Company from
options previously issued to those officers. All options have an exercise
price of $0.18 per share, vest on May 1, 2000, and expire on December 31,
2002. The expiration date of the options may be extended at the election of
the Company's Board of Directors.
During the six months ended June 30, 2000, the Company issued 2,000,000
restricted shares of common stock for proceeds of $500,000, net of issuance
costs of $100,530. The issuance costs included the issuance of 200,000
restricted shares of common stock valued at $50,000.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 8 - SHAREHOLDERS' DEFICIT (Continued)
During the six months ended June 30, 2000, the Company issued 100,000
restricted shares of common stock in exchange for services rendered valued
at $30,000.
NOTE 9 - MAJOR CUSTOMERS
During the year ended December 31, 1999, the Company did business with two
customers whose sales aggregated to 74% of net sales. The Company did not
have any accounts receivable from these customers at December 31, 1999.
During the year ended December 31, 1998, the Company did business with one
customer whose individual sales comprised 73% of net sales. Accounts
receivable from this customer comprised 88% of net accounts receivable at
December 31, 1998.
NOTE 10 - INCOME TAXES
The current provision for income taxes is the minimum tax due to the State
of Washington. The components of the Company's net deferred taxes for the
year ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets
Bad debt expense $ -- $ 23,316
Net operating loss carryforward 801,482 585,849
Other 272 272
Deferred tax liabilities
Capitalized software (115,668) (154,224)
Furniture and equipment (3,382) (3,382)
--------- ---------
682,704 451,831
Valuation allowance 682,704 451,831
--------- ---------
NET DEFERRED TAXES $ -- $ --
========= =========
</TABLE>
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 10 - INCOME TAXES (Continued)
The Company has established a valuation allowance based on a number of
factors which impact the likelihood the deferred tax assets will be
recovered, including the Company's history of operating losses. Based upon
a weighting of all available evidence, management believes that there is no
basis to project significant United States-sourced taxable income.
Therefore, it is more likely than not that the deferred tax assets will not
be realized, and a full valuation allowance has been established. The net
change in the valuation allowance for the year ended December 31, 1999 was
an increase of $230,873. No provision for income taxes for the years ended
December 31, 1999 and 1998 is required, except for minimum state taxes,
since the Company incurred losses during such years.
As of December 31, 1999, the Company had consolidated federal and state net
operating loss carryforwards of $2,148,463 and $1,073,832, respectively.
These carryforwards, if unused, begin to expire in 2015.
Income tax expense differs from the amounts computed by applying the United
States federal income tax rate of 34% to income taxes as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Computed "expected" tax benefit 34.0% 34.0%
Increase in income taxes resulting from
Change in the beginning-of-the-year balance
of the valuation allowance for deferred tax
assets allocated to income tax expense (34.0) (34.0)
----- -----
Total --% --%
===== =====
</TABLE>
The overall effective tax rate differs from the federal statutory tax rate
of 34% due to operating losses not providing benefit for income tax
purposes.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company entered into agreements with Crux Knowledgeware, Inc. and
Ultrexx Solutions Pvt. Ltd., affiliated companies located in India, to
conduct research and development on its products. For the years ended
December 31, 1999 and 1998 and the six months ended June 30, 2000 and 1999,
research and development expense paid to these affiliated companies
amounted to $96,000, $81,000, $36,400 (unaudited), and $58,500 (unaudited),
respectively. Accounts payable to these affiliated companies totaled
$76,000 and $25,000 (unaudited) as of December 31, 1999 and June 30, 2000,
respectively.
<PAGE>
ULTREXX CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
NOTE 11 - RELATED PARTY TRANSACTIONS (Continued)
During the six months ended June 30, 2000, the Company was in default on a
note payable to a related party, which is secured by 500,000 shares of
common stock owned by the Company's CEO. As payment for the outstanding
balance of the note payable, the CEO transferred ownership of 250,000 of
the shares being held as security to the lender. The remaining 250,000
shares were returned to the CEO. The CEO resigned from his position on
January 24, 2000.
During the six months ended June 30, 2000, the Company signed a letter of
intent with Ultrexx Solutions Pvt. Ltd. to acquire Ultrexx India Pvt. Ltd.
as a subsidiary.
NOTE 12 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by ongoing Year 2000 problems.
Upgrades to systems judged critical to business operations have been
successfully installed. To date, no significant costs have been incurred in
the Company's systems related to the Year 2000.
Based on the review of the computer systems, management believes all action
necessary to prevent significant additional problems has been taken. While
the Company has taken steps to communicate with outside suppliers, it
cannot guarantee that the suppliers have all taken the necessary steps to
prevent any service interruption that may affect the Company.
