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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Intelliquis International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Nevada 7372 87-0630562
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code) Identification No.)
Incorporation or
Organization)
352 West 12300 South, Suite 300
Draper, Utah 84020
801-990-2600
(Address and Telephone Number of Principal Executive Offices)
Mr. Bernard Yaw
352 West 12300 South, Suite 300
Draper, Utah 84020
801-990-2600
(Name, Address, and Telephone Number of Agent For Service of Process)
--------------------------
Copies of all communications to:
Joseph Ehrenreich, Esq. Law Offices of Michael Eisner
Ehrenreich Eilenberg & Krause LLP 499 North Canon Drive
11 East 44th Street Beverly Hills, CA 90210
New York, NY 10017 Attention: Michael Eisner, Esq.
(212) 986-9700 (310) 887-7035
--------------------------
Approximate date of proposed sale to the public: from time to time after the
effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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)
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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,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Each Maximum Proposed
Class of Aggregate Maximum Amount of
Securities to be Amount to be Price Per Aggregate Registration
Registered Registered Unit Offering Price) Fee
--------------- ------------- --------- ---------- ---------
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Common Stock,
par value
$0.001 per 13,793,104
share Shares(1) $0.64(2) $8,827,586(2)
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Common Stock,
par value
$0.001 per
share 250,000(3) $3.03(4) $757,500(4)
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Common Stock,
par value
$0.001 per
share 150,000(5) $3.03(4) $454,000(4)
-------------------------------------------------------------------------
Total 14,193,104 $10,039,086 $2,651
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(1) The indicated shares may be sold, from time to time, by a selling
security holder. These shares are comprised of: (1) up to 5,517,242
shares that may be issued upon conversion of 2,000 outstanding
shares of our 6% Convertible Series A Preferred Stock ("Series A
Preferred") and (2) up to 8,275,862 shares that may be issued upon
conversion of an additional 3,000 shares of Series A Preferred that
the selling security holder may hereafter purchase pursuant to the
terms of a certain outstanding warrant (as described in this
Registration Statement). The conversion price for our Series A
Preferred is linked to the future market price of our common stock
and, consequently, will fluctuate as the market price for our common
stock changes. Thus, we cannot know at this time the actual number
of shares that will be issued upon conversion of our Series A
Preferred. The number of shares that we have registered represents
two times the number of shares that would be issuable upon
conversion, based on the conversion price in effect as of December
28, 1999. This is an arbitrary number that was determined by
negotiation between us and the selling security holder and is not
necessarily indicative of the actual number of shares that will be
issued pursuant to the Series A Preferred. The actual number, which
depends on the conversion
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price in effect at the time of conversion, may be significantly
different than the number of shares that we have registered.
(2) Calculated solely for the purpose of determining the registration
fee pursuant to Rule 457(c)under the Securities Act of 1933 (the
"Securities Act"), based upon the average of the closing bid and
asked prices for our common stock on December 31, 1999, as reported
by the OTC Bulletin Board.
(3) The indicated shares may be sold, from time to time, by a selling
security holder. These shares are comprised of: (1) up to 100,000
shares that may be issued upon exercise of outstanding warrants and
(2) up to 150,000 shares that may be issued upon exercise of
additional warrants that the selling security holder may hereafter
acquire pursuant to the terms of a certain outstanding warrant (as
described in this Registration Statement).
(4) Calculated solely for the purpose of determining the registration
fee pursuant to Rule 457(g), based upon the exercise price provided
for in the warrants pursuant to which the indicated shares may be
acquired. Such exercise price was higher than the price determined
in accordance with Rule 457(c).
(5) The indicated shares may be sold, from time to time, by a selling
security holder. These shares are comprised of: (1) up to 60,000
shares that may be issued upon exercise of outstanding warrants and
(2) up to 90,000 shares that may be issued upon exercise of
additional warrants that the selling security holder may hereafter
acquire under certain circumstances pursuant to an existing
contractual arrangement (as described in this Registration
Statement).
To the extent permitted by Rule 416 under the Securities Act, this
Registration Statement also covers any additional shares of our common stock
that we may be required to issue pursuant to our Series A Preferred stock or the
warrants referred to in the preceding footnotes by reason of any adjustment
necessary to reflect any stock split, stock dividend or similar transaction
involving our common stock.
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.
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PROSPECTUS FOR SALE OF COMMON STOCK
OF INTELLIQUIS INTERNATIONAL, INC.
Offering by Selling Security Holders
Certain of our security holders may offer shares of our common stock.
Intelliquis International is not offering any shares.
Shares That May be Offered
The selling security holders may offer up to 14,193,104 shares of our common
stock. These shares are not currently outstanding. However, the selling security
holders may hereafter acquire these shares from us and use this prospectus to
reoffer these shares to you. These shares are comprised of (1) 5,677,242 shares
that may be acquired pursuant to the terms of outstanding shares of our 6%
Convertible Series A Preferred Stock ("Series A Preferred") and outstanding
warrants and (2) 8,515,862 shares that may be acquired pursuant to the terms of
additional shares of our Series A Preferred Stock and additional warrants that
we may issue in the future pursuant to existing contractual commitments.
The conversion price for our Series A Preferred stock is linked to the future
market price of our common stock. As a result, the conversion price will change
as the market price of our common stock changes. Because the conversion price is
subject to change, we cannot know at this time the actual number of shares that
will be issued upon conversion of our Series A Preferred. We have included in
this prospectus two times the number of shares that would be issued based on the
conversion price in effect as of December 28, 1999. This is an arbitrary number
that was determined by negotiation between us and the selling security holder.
This number is not indicative of the actual number of shares that will be issued
pursuant to the Series A Preferred.
Trading Market for Our Common Stock
Our common stock is traded through the OTC Bulletin Board under the symbol
"INTQ."
Method of Sale
The selling security holders may, from time to time, sell shares:
o through the OTC Bulletin Board, any other over-the-counter market, any
stock exchange on which our shares may hereafter be listed, in
privately negotiated transactions or otherwise;
o directly to purchasers or through agents, brokers, dealers or
underwriters; and
o at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices.
Investing in our securities involves certain risks. See "Risk Factors"
beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000
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TABLE OF CONTENTS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.......................1
PROSPECTUS SUMMARY...........................................................2
RISK FACTORS.................................................................6
CORPORATE HISTORY...........................................................11
USE OF PROCEEDS.............................................................13
MARKET FOR OUR COMMON STOCK AND RELATED MATTERS.............................13
SELECTED HISTORICAL FINANCIAL INFORMATION...................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................17
BUSINESS....................................................................20
MANAGEMENT..................................................................24
PRINCIPAL STOCKHOLDERS......................................................27
CERTAIN TRANSACTIONS........................................................30
OCTOBER 1999 PRIVATE PLACEMENT..............................................31
DESCRIPTION OF SECURITIES...................................................36
CERTAIN CHARTER PROVISIONS..................................................37
SELLING SECURITY HOLDERS....................................................39
PLAN OF DISTRIBUTION........................................................41
LEGAL MATTERS...............................................................41
EXPERTS.....................................................................41
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus are forward-looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. You are cautioned that our business and operations are
subject to a variety of risks and uncertainties and, consequently, our actual
results may materially differ from those projected by any forward-looking
statements. Certain of these risks and uncertainties are discussed below under
the heading "Risk Factors." We make no commitment to revise or update any
forward-looking statements in order to reflect events or circumstances after the
date any such statement is made.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information included elsewhere in this prospectus.
Intelliquis
We sell a variety of software products for personal computers and the
Internet. We acquire the right to manufacture and sell products by entering into
licensing arrangements with software developers or, less frequently, purchasing
the rights to a particular product. We do not independently develop software.
We currently offer the following five software titles:
o IntelliFix 2000, which identifies and fixes certain year 2000
problems that may affect personal computers;
o Website Traffic Builder, which facilitates registering
Internet web site addresses with the various "search engines"
that are used to search the Internet;
o TotalFax, which facilitates faxing via a personal computer;
o Credit Builder, which helps the user to obtain and manage
credit and improve his credit rating; and
o Speed 98, which increases the speed of certain older
computers.
Our goal is to continue to expand our product line. We are seeking to
do so by maintaining close relationships with independent software developers,
monitoring the new products that they develop, and negotiating to obtain the
right to sell those products that we believe have the greatest potential for
success.
We sell our products in various ways. These include (1) selling through
intermediaries, such as distributors, original equipment manufacturers, computer
resellers and Internet retailers of software, and (2) selling directly to end
users through our own Internet site and our sales force. We believe that our
existing distribution relationships should help us bring to market any new
products that we succeed in adding to our product line.
Our most important product to date has been IntelliFix 2000. Sales of
this product accounted for approximately 83% of our sales in the first nine
months of 1999. We expect that most personal computer users will have addressed
their year 2000 problems by the first quarter of the year 2000 and,
consequently, that sales of this product will decline significantly in the near
future. Our future success, therefore, depends on our ability to increase sales
of our other products and expand our product line.
While our focus is software, we may sometimes offer a specialized
hardware product that essentially functions as software. For example, we offer
two versions of our IntelliFix 2000 product --a traditional software version and
a hardware version that consists of an ISA circuit board that is installed in
the computer.
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Corporate Information
Address and Phone Number
Our address is 352 West 12300 South, Suite 300, Draper, Utah 84020. Our
telephone number is (801) 990-2600.
History
We were formed in June 1997 and commenced operations in October 1997.
On December 31, 1998, we became a public company by combining with an existing
"public shell company." We use the term "public shell company" to refer to a
company that is publicly traded but has no operations.
Form of Organization
Our form of organization has changed several times. A summary is set
forth below:
o we were formed as a Utah corporation in June 1997;
o we became a Utah limited liability company in December 1997;
and
o we became a Nevada corporation on December 31, 1998, when we
combined with a public shell company.
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The Offering
General
Certain of our security holders may, from time to time, sell shares of
our common stock pursuant to this prospectus. Intelliquis is not selling any
shares pursuant to this prospectus.
Shares Which May be Offered
The selling security holders may use this prospectus to sell up to
14,193,104 shares of our common stock. These shares are not currently
outstanding. However, the selling security holders may hereafter acquire these
shares from us and use this prospectus to reoffer the shares to you.
The shares that may be offered by the selling security holders pursuant
to this prospectus include:
o up to 5,517,242 shares that may be acquired upon conversion of
2,000 outstanding shares of our 6% Convertible Series A
Preferred Stock ("Series A Preferred");
o up to 8,275,862 shares that may be acquired upon conversion of
3,000 shares of Series A Preferred that are not currently
outstanding, but which we may be required to issue in the
future pursuant to the terms of a certain warrant;
o up to 160,000 shares that may be acquired upon exercise of
outstanding warrants; and
o up to 240,000 shares that may be acquired pursuant to certain
warrants which are not currently outstanding, but which we may
be required to issue in the future pursuant to certain
existing contractual commitments.
The conversion price for our Series A Preferred stock is linked to the
future market price of our common stock. As a result, the conversion price will
change as the market price of our common stock changes. Because the conversion
price is subject to change, we cannot know at this time the actual number of
shares that will be issued upon conversion of our Series A Preferred. We have
included in this prospectus two times the number of shares that would be issued
based on the conversion price in effect as of December 28, 1999. This is an
arbitrary number that was determined by negotiation between us and the selling
security holder and is not indicative of the actual number of shares that will
be issued pursuant to the Series A Preferred.
Method of Sale
The selling security holders may, from time to time, sell shares:
o through the OTC Bulletin Board, any other over-the-counter
market, any stock exchange on which our shares may hereafter
be listed, in privately negotiated transactions or otherwise;
o directly to purchasers or through agents, brokers, dealers or
underwriters; and
o at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated
prices.
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Use of Proceeds
We will not receive any proceeds from the sale of the shares by the
selling security holders. However, we may receive proceeds from the exercise of
certain warrants as described below.
Certain of the shares that may be sold pursuant to this prospectus are
shares that certain selling security holders may acquire by exercising certain
warrants. If these warrants are exercised, we will be paid the exercise price
specified in the relevant warrant. We intend to use any proceeds that we receive
from the exercise of these warrants for working capital and our general
corporate purposes. For information concerning these warrants, see "October 1999
Private Placement" and "Selling Security Holders."
Trading Market for Our Common Stock
Our common stock is traded through the OTC Bulletin Board under the
symbol "INTQ."
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RISK FACTORS
You should carefully consider the following factors and the other
information in this prospectus before purchasing our common stock. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties, of which we are unaware or that we currently think are
immaterial, may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
We have a limited operating history.
We first commenced operations in October 1997. Because we have a
limited operating history, you may not have sufficient data to assess our
business and its prospects.
Even a small downturn in our business could cause losses.
We had net income of $75,921 and $672,468 in 1998 and the first nine
months of 1999, respectively. Because our net income has been relatively low,
even a small downturn in our business could cause losses.
We expect sales of our main product to decline significantly.
We market a product that identifies and fixes certain year 2000
problems that may affect personal computers. Sales of this product accounted for
approximately 83% of our sales in the first nine months of 1999. We expect that
most personal computer users will have addressed their year 2000 problems by the
first quarter of the year 2000. Consequently, we expect that sales of our year
2000 product will decline significantly in the near future. In order to offset
the expected decline in revenues from this product, we are seeking to increase
sales of our other products and add new products. However, we may not succeed in
these efforts. If we do not succeed in increasing our revenues from other
sources, we will incur losses when sales of our year 2000 product declines.
Accounts receivable represent most of our assets.
As of November 30, 1999, our accounts receivable amounted to $6,062,000
and represented more than 90% of our estimated assets. We currently maintain an
allowance for doubtful accounts of approximately $360,000. We cannot, however,
guarantee that this allowance will prove adequate. Our business will be
adversely affected if we are unable to collect a significant amount of our
receivables.
Accounts receivable from two customers represent most of our receivables.
As of November 30, 1999, receivables due from two customers accounted
for approximately 88% of our total receivables. Specifically, receivables due
from Ingram Micro Inc. accounted for approximately 55% of our total receivables
and receivables due from Millenium 2K Solutions accounted for approximately 33%.
As of November 30, 1999, the average age of these receivables was 101 days, in
the case of receivable due from Ingram Micro, and 100 days, in the case of
receivables due from Millenium 2K Solutions. Because our receivables are not
diversified among many accounts, we face the risk that a collection problem with
even one customer will significantly hurt our business.
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Most of our sales have been to a single distributor.
Ingram Micro Inc., a distributor, has to date been our largest
customer. More specifically, sales to Ingram Micro accounted for approximately
67% of our sales in 1998 and 47% in the first nine months of 1999. The loss of
Ingram Micro as a major customer could adversely affect our business.
If our distributors cannot resell our products, our business will be hurt.
In the first nine months of 1999, we sold approximately $4.6 million of
our products to distributors. These distributors are seeking to resell our
products to retail stores and others. We estimate that, as of November 30, 1999,
these distributors held in their inventory approximately $823,000 of our
products. If our distributors are unable to resell our products, we may be
adversely affected in a number of ways, including:
Possible Return of Products. Certain of our distributors have the right
to return products that they purchase from us. For example, Ingram Micro, our
largest customer, has the contractual right to return any products that we sell
to them and to receive a credit or refund. Even when a distributor does not have
a contractual right of return, we may determine that it is in our long-term
interest to accept the return of products that the distributor cannot resell. We
currently maintain an allowance for returns of approximately $911,000. We
cannot, however, guarantee that this allowance will prove adequate. Our business
will be adversely affected if our allowance for returns proves to be
insufficient by a material amount.
Possible Inability to Collect Receivables. If a distributor is unable
to resell our products, the distributor may be unwilling, or financially unable,
to pay amounts that it owes to us.
We do not develop our own products.
We do not develop our own products. Rather, we license or acquire
products developed by others. This may put us at a competitive disadvantage
relative to those companies that develop their own products. We have identified
below some of the possible disadvantages of relying on third party product
development:
o we may encounter substantial competition in our efforts to
license or acquire new products;
o we cannot guarantee that (1) we will be able to identify any
new products that we wish to license or acquire or (2) any new
products that we wish to license or acquire will be available
to us on terms that are acceptable to us;
o we may not be able to obtain upgrades and improvements that
are needed to maintain the competitiveness of our products;
o we may not be able to fix any bugs or defects that may be
discovered in our products;
We generally do not have exclusive rights to our products.
We acquire most of our products by entering into a licensing
arrangement with the owner of the product. In general, this arrangement gives us
only a non-exclusive right to sell the product. This means that the owner could
also license others to sell the same product.
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Our products may become obsolete very quickly.
New software products are continuously being developed. Consequently,
the products that we sell could quickly become obsolete.
We cannot be certain that our products do not have hidden defects.
Our products are generally tested before we release them to the market.
We cannot, however, be certain that they do not have errors that have not been
detected. If our products contain errors, we may be adversely affected in a
number of ways, including: (1) our reputation could be hurt; (2) product returns
and uncollectible receivables could increase, and (3) we may incur costs in
connection with fixing the problems or providing replacement products.
Third party infringement claims against us are possible.
We generally do not conduct a comprehensive investigation to verify
that the products that we license from other and sell do not infringe the rights
of others. Rather, we generally rely on representations to that effect that we
receive from the licensor. We cannot be certain that third parties will not
assert patent, copyright or other infringement claims against us.
There are competing products available
There are competing products available for each product that we offer.
See "Business--Competition."
We may be unable to obtain needed capital.
The cash generated from our operations has to date been insufficient to
fund all the cash outlays associated with our operations. We have made up the
shortfall principally through the sale of our capital stock and short-term
borrowings. We may require additional debt or equity financing to meet our
ongoing cash requirements. We cannot, however, be certain that any additional
financing will be available or, if available, will be available on terms that
are satisfactory to us.
We combined with a public shell company; we cannot be sure that the public shell
company did not have hidden liabilities.
On December 31, 1998, Intelliquis became a public company by combining
with an existing "public shell company." We use the term "public shell company"
to refer to a company that is publicly traded but has no operations. Based upon
our investigation of the public shell company, we believe that the public shell
company did not have any material liabilities at the time we completed the
combination transaction . We cannot, however, be certain that the public shell
company did not have hidden liabilities that we were unable to discover.
Conversion of our Series A Preferred will dilute the ownership interests of the
other stockholders; the number of shares issuable upon conversion is not
currently known because the conversion price depends on the future market price
of our common stock; the lower the market price of our common stock the more
shares will be issued upon conversion of the Series A Preferred; there is no
limit to the potential dilution from the Series A Preferred.
We have issued Series A Preferred stock and may issue additional shares
in the future. These shares are convertible into common stock. Consequently, the
conversion of these shares will dilute the ownership interest of the other
stockholders. The conversion price for the Series A Preferred is linked to the
future market price of our common stock. Specifically, the
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conversion price will equal the lower of (1) 80% of the average of the three
lowest Closing Bid Prices (as defined in the instrument that governs the Series
A Preferred) during the 20 trading days preceding the conversion date and (2)
$2.90375. Because the conversion price is subject to change, we cannot know at
this time the number of shares of common stock that will be issued upon
conversion of the Series A Preferred.
Under the conversion formula for the Series A Preferred, a decrease in
the market price of our common stock will decrease the conversion price and,
thereby, increase the number of shares issuable upon conversion. There is no
limit on how low the conversion price can go and, therefore, there is no limit
on the number of shares that are potentially issuable upon conversion of the
Series A Preferred. The following example illustrates the foregoing point. On
December 15, 1999, the closing bid price for our common stock was $1.125. Based
on this price, each share of Series A Preferred would be convertible into 1,111
shares of common stock. If the market price of our common stock were to decrease
to $0.10 per share, then each share of Series A Preferred would instead be
convertible into 12,500 shares of common stock.
We depend on the services of each of our executive officers.
We depend on the services of each of our executive officers.
Consequently, our business could be hurt if we lose the services of any of our
executive officers and are unable to retain a suitable replacement.
Our officers and directors may effectively control our company.
As of November 30, 1999, our officers and directors owned approximately
63.34% of our outstanding common stock. This share ownership may effectively
give these persons the power to elect all of the directors of our company and to
control our management and affairs.
The price of our stock may decrease as a result of sales.
The sale of substantial amounts of our common stock, including shares
issuable upon conversion of our Series A Preferred, could cause the price of our
common stock to decline significantly. Subject to certain limitations,
substantially all of our outstanding common stock, as well as the shares
issuable upon conversion of the Series A Preferred, may be publicly sold.
Our common stock is quoted on the OTC Bulletin Board, which can be a volatile
market.
Our common stock is quoted on the OTC Bulletin Board, a quotation
system for equity securities. The OTC Bulletin Board is a more limited trading
market than the NASDAQ Stock Market and, consequently, timely, accurate
quotations of the price of our common stock may not always be available. Trading
volume may be low in such a market and, consequently, the activity of only a few
shares may affect the market and may result in wide swings in price and in
volume.
There is pending litigation against us
On May 6, 1999, an action was commenced against us by On the Planet,
Inc. in the United States District Court for the District of Utah, Central
Division. The claims purportedly arise out of a Software Rights Agreement under
which we granted On The Planet "an exclusive license for direct sales along with
a nonexclusive license for all other sales including but not limited to retail
sales" for certain year 2000 fix software identified therein. On The Planet (1)
asserts that we violated this agreement by engaging in direct sales or giving
third parties a license to engage in direct sales of the year 2000 fix software
and other related products and (2) asserts claims of copyright infringement,
breach of contract and fraud. In addition to injunctive relief,
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On The Planet is seeking unspecified damages, including profits lost through our
alleged direct sales of the year 2000 fix software, as well as attorneys' fees
and punitive damages. In response to the lawsuit filed by On The Planet, we have
denied the claims filed against us and have filed counterclaims seeking
rescission of the Software Rights Agreement and asserting breach of contract of
that Agreement. We have also filed additional claims against On The Planet and
its principal, Ernest Hemple, arising from conduct that we believe constitutes
defamation and interference with contract. If an amicable resolution of the
action is not reached in the near future, we intend to vigorously defend this
action and prosecute our counterclaims. Nevertheless, the outcome of this
litigation is uncertain and cannot be predicted at this time. Any unanticipated
adverse result could have a material adverse effect on our business.
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CORPORATE HISTORY
Original Formation
Intelliquis Corp. was incorporated on June 9, 1997 under the laws of
the state of Utah.
Conversion to Limited Liability Company
In December 1997, Intelliquis reorganized as a limited liability
company under the laws of the state of Utah and changed its name to "Intelliquis
LLC."
Combinations with Public Shell Company
General
On December 31, 1998, Intelliquis became a public company by combining
with an existing "public shell company." We use the term "public shell company"
to refer to a company that is publicly traded but has no operations.
Form of Transaction
The transaction between Intelliquis LLC and the public shell company
involved the following elements:
o the owners of Intelliquis LLC transferred to the public shell
company all of their interests in Intelliquis LLC, which
resulted in Intelliquis LLC becoming a wholly owned subsidiary
of the public shell company;
o the public shell company issued 32,511,600 shares of its
common stock to the former owners of Intelliquis LLC (plus and
additional 91,344 shares to employees of Intelliquis), which
resulted in these persons owning approximately 86% of the
common stock of the public shell company outstanding upon
completion of the transaction;
o the management of Intelliquis LLC became the management of the
public shell company; and
o the public shell company changed its name from "Leesburg Land
& Mining, Inc." to "Intelliquis International, Inc." and
changed its jurisdiction of incorporation from the state of
Colorado to the state of Nevada.
Certain Information Concerning the Public Shell Company
Leesburg Land & Mining, Inc. ("Leesburg") was incorporated in June 1983
and completed a public offering of its common stock in 1983. Leesburg was
primarily engaged in (1) various mining activities and (2) various activities
relating to a contract that contemplated that Leesburg would drill and complete
a geothermal well and construct a power plant. Leesburg was unable to derive
significant revenues from its operations and completely discontinued its
operations in 1988 (except for thereafter disposing of certain assets and
settling obligations). At the time of the transaction with Intelliquis LLC
described above, Leesburg did not have any operating business or any known
assets or liabilities.
Accounting Treatment of the Transaction
For accounting and other financial reporting purposes, the combination
of Intelliquis LLC with the public shell company has been treated as a "reverse
merger." Under this treatment, (1)
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the post-combination company has been treated as a continuation of Intelliquis
LLC rather than a continuation of the public shell company and (2) the
transaction has been treated as the issuance of interests in Intelliquis LLC for
the net monetary assets of the public shell company accompanied by a
recapitalization. In view of the foregoing, the financial statements for
Intelliquis do not include the results of the public shell company for any
period prior to the combination.
Stock Split
In April 1999, Intelliquis effected a 3-for-1 stock split. All
information in this Prospectus gives retroactive effect to this stock split.
12
<PAGE>
USE OF PROCEEDS
The shares covered by this prospectus are being offered by certain
selling security holders and not by our company. Consequently, we will not
receive any proceeds from the sale of these shares. However, we may receive the
proceeds from the exercise of certain warrants as described below.
The shares that may be sold under this prospectus include shares that
certain selling security holders may acquire by exercising certain warrants. If
these warrants are exercised, we will receive the exercise price specified in
the relevant warrant. We intend to use any proceeds that we receive from the
exercise of these warrants for working capital and our general corporate
purposes. For information concerning these warrants, see "October 1999 Private
Placement" and "Selling Security Holders."
MARKET FOR OUR COMMON STOCK AND RELATED MATTERS
Market for Our Common Stock
On December 31, 1998, we combined with an existing "public shell
company". See "Corporate History--Combination with Public Shell Company." As a
result of this transaction, our common stock began trading through the OTC
Bulletin Board under the symbol "INTQ."
Price Range For Our Common Stock
The table below shows, for the calendar quarters indicated, the high
and low bid prices for our common stock as quoted on the OTC Bulletin Board. The
quoted bid prices are not necessarily indicative of the prices at which shares
were actually sold because (1) the bid prices are inter-dealer prices, without
retail mark-up, mark-down or commission and (2) the bid prices may be for
transactions that were proposed but not actually completed.
Calendar Quarter High Bid Price Low Bid Price
---------------- -------------- -------------
First quarter of 1999 $ 4.83 $0.00
Second quarter of 1999 6.00 2.750
Third quarter of 1999 4.875 2.125
Fourth quarter of 1999 (through 2.6875 0.8125
December 27, 1999)
Record Holders
As of December 3, 1999, there were 1,094 holders of record of our
common stock.
Penny Stock Rules
Because the bid price for our common stock has been below $5.00 per
share, the SEC's Rule 15g-9 may apply to our common stock. This rule imposes
additional sales practice requirements on a broker-dealer that sells Rule 15g-9
securities to persons other than the broker-dealer's established customers and
institutional accredited investors. For transactions covered under Rule 15g-9,
the broker dealer must make a suitability determination of the purchaser and
receive the purchaser's written agreement to the transaction before the sale. In
addition, broker-
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dealers, particularly if they are market makers in the common stock, have to
comply with the disclosure requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5, and
15g-6 under the Securities Exchange Act of 1934, unless the transaction is
exempt under Rule 15g-1. Consequently, Rule 15g- 9 and these other rules may
adversely affect the ability of broker-dealers to sell or to make markets in our
common stock and also may adversely affect the ability of our stockholders to
resell their shares.
Dividends
We have never paid any dividends on our common stock and have no plans
to do so in the foreseeable future. Under the terms of our Series A Preferred,
we may not pay any cash dividends on our common stock unless we first pay all
accrued dividends on the Series A Preferred. See "October 1999 Private
Placement--Terms of the Series A Preferred--Dividends."
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SELECTED FINANCIAL INFORMATION
General
We have set forth in the following tables selected income statement and
balance sheet data for our company. You should read this information together
with (1) our financial statements and the related notes that are included
elsewhere in this prospectus and (2) the information under "Management's
Discussion and Analysis of Financial Condition and Results of Operations." We
derived the historical income statement data for the period from June 9, 1997
(inception) to December 31, 1998 and for the year ended December 31, 1998 from
our audited financial statements that are included elsewhere in this prospectus.
We derived all other data from our unaudited financial statements that are
included elsewhere in this prospectus.
Accounting Treatment of Combination with a Public Shell Company.
On December 31, 1998, Intelliquis became a public company by combining
with an existing "public shell company." We use the term "public shell company"
to refer to a company that is publicly traded but has no operations. For
accounting and other financial reporting purposes, this combination has been
treated as a "reverse merger." Under this treatment, (1) the post-combination
company has been treated as a continuation of Intelliquis rather than a
continuation of the public shell company and (2) the transaction has been
treated as the issuance of interests in Intelliquis for the net monetary assets
of the public shell company accompanied by a recapitalization. In view of the
foregoing, our financial statements do not include the results of the public
shell company for any period prior to the combination. For additional
information, see "Corporate History."
Certain Information Concerning Pro Forma Income Taxes and Pro Forma Net Income
We were a limited liability company during part of 1997 and all of
1998. See "Corporate History." In general, the income or loss of a limited
liability company is passed through to its owners rather than being subjected to
tax at the entity level. Pro forma income taxes reflects a provision for income
taxes as if we had been liable for federal and state income taxes as a taxable
corporate entity for all periods presented. Pro forma net income reflects such
pro forma income taxes.
Certain Information Concerning Earnings Per Share
As discussed above, we were a limited liability company during part of
1997 and all of 1998. We did not have any shares outstanding during these
periods. Therefore, we have not provided earnings per share information for 1997
or 1998.
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<TABLE>
<CAPTION>
Period From June 9,
1997 (Inception)
Through December 31, Nine Months Ended September 30,
1997 1998 1998 1999
---- ---- ---- ----
Income statement data:
<S> <C> <C> <C> <C>
Sales $34,709 $1,461,196 $1,382,961 $6,467,014
Cost of sales 4,948 355,613 293,552 3,214,038
---------- ---------- ---------- ----------
Gross margin 29,761 1,105,583 1,089,409 3,252,976
Sales and marketing 36,443 596,125 425,639 926,830
General and administrative 47,841 430,304 238,234 1,100,526
---------- ---------- ---------- ----------
Operating income (loss) (54,523) 79,154 425,536 1,225,620
Other income (expense) - (3,233) (643) (122,967)
---------- ---------- ---------- ----------
Net income (loss) before
taxes (54,523) 75,921 424,893 1,102,653
Taxes - - - 430,185
---------- ---------- ---------- ----------
Net income $(54,523) $75,921 $424,893 $672,4683
========== ========== ========== ==========
Pro forma income taxes 17,859 165,908
---------- ----------
Pro forma net income $58,062 $258,985
========== ==========
Earnings per share $ 0.02
==========
</TABLE>
September 30, 1999
Balance sheet data: -------------------------------
Cash $ 45,706
Working capital 1,702,497
Accounts receivable 4,448,550
Total assets 5,107,442
Stockholders' equity 1,915,866
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
We sell software products for personal computers and the Internet. We
license or acquire these products from software developers and do not
independently develop new products. While our focus is software, we may
sometimes offer a specialized hardware product that essentially functions as
software. For example, as described below, we sell both a software and hardware
version of one of our current products.
Our most important product to date has been IntelliFix 2000. This
product identifies and fixes certain year 2000 problems that may affect personal
computers. We offer two versions of this product --a traditional software
version and a hardware version that consists of an ISA circuit board that is
installed in the computer. Sales of all versions of this product accounted for
approximately 83% of our sales in the first nine months of 1999 and 61% of our
sales in 1998.
We expect that most personal computer users will have addressed their
year 2000 problems by the first quarter of the year 2000. Consequently, we
expect that sales of our year 2000 product will decline significantly in the
near future. In order to offset the expected decline in revenues from this
product, we are seeking to increase sales of our other products and add new
products. However, we may not succeed in these efforts. If we do not succeed in
increasing our revenues from other sources, we will incur losses when sales of
our year 2000 product declines.
Our cost of sales consists principally of (1) royalties that are
payable in respect of the products that we sell but do not own, (2) the cost of
producing the product, and (3) costs associated with providing technical
support. The cost of producing the circuit board version of our IntelliFix 2000
is significantly higher than the cost of producing the software version and,
consequently, we have lower profit margins on the hardware version than on the
software version.
We commenced operations in October 1997. Because our 1997 results
reflect operations for only part of a year and our 1998 results reflect
operations for a full year, we believe that a comparison of our 1997 and 1998
results would not be meaningful.
Allowances for Returns
Certain of our distributors have the right to return products that they
purchase from us. For example, Ingram Micro, our largest customer, has the
contractual right to return any products that we sell to them and to receive a
credit or refund. Even when a distributor does not have a contractual right of
return, we may determine that it is in our long-term interest to accept the
return of products that the distributor cannot resell. We currently maintain an
allowance for returns of approximately $911,000. We cannot, however, guarantee
that this allowance will prove adequate. Our business will be adversely affected
if our allowance for returns proves to be insufficient by a material amount.
Allowance for Receivables
As of November 30, 1999, our accounts receivable amounted to $6,062,000
and represented more than 90% of our estimated assets. We currently maintain an
allowance for doubtful accounts of approximately $360,000. We cannot, however,
guarantee that this
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<PAGE>
allowance will prove adequate. Our business will be adversely affected if we are
unable to collect a significant amount of our receivables.
Results of Operations for the Nine Months Ended September 30, 1998 and September
30, 1999
Sales. Our sales increased to $6,467,014 in the first nine months of
1999 from $1,382,961 in the first nine months of 1998, representing an increase
of 367.6%. This increase principally reflected increased sales of our IntelliFix
2000 product (both software and circuit board versions), as well as increased
sales of our Website Traffic Builder and other products.
Gross margin. Our gross profit margin decreased to 50.3% in the first
nine months of 1999 from 78.8% in the first nine months of 1998. This decrease
principally reflected the factors discussed below.
We sold more of the hardware version of our IntelliFix 2000 product in
the first nine months of 1999 than we did in the first nine months of 1998.
Specifically, the hardware version represented 33% of total sales of this
product in the first nine months of 1998 compared with less than 1% in the first
nine months of 1998. As discussed above, we have significantly lower gross
profit margins on the hardware version than on the software version.
Consequently, this shift in mix negatively affected our gross profit margin in
1999.
During the first nine months of 1999, we conducted a special promotion
relating to our TotalFax product. As part of this promotion, we gave a modem to
each purchaser of the product. The costs associated with this promotion
negatively affected our gross profit margin in 1999.
Sales and Marketing. Our sales and marketing expenses were $962,830, or
14.9% of sales, during the first nine months of 1999, compared with $425,639, or
30.8% of sales, during the first nine months of 1998. The increase in the dollar
amount of these expenses in 1999 primarily reflected an increase in various
promotions for our products. The decrease in these expenses in 1999 as a
percentage of sales reflected the fact that we were able to increase our sales
without a commensurate increase in sales and marketing expenses.
General and Administrative. Our general and administrative expenses
were $1,100,526, or 17.0% of sales, during the first nine months of 1999,
compared with $238,234, or 17.2% of sales, during the first nine months of 1998.
The increase in the dollar amount of these expenses in 1999 primarily reflected
the following factors: (1) we increased the number of our employees in order to
support our growth, (2) we leased additional office and warehouse space and (3)
we retained an investor relations firm.
Other Expenses. We had other expenses of $122,967 in the first nine
months of 1999 compared with $643 in the first nine months of 1998. Our other
expenses in the first nine months of 1999 included interest expense of $68,749
(partially offset by interest income of $5,782) and the write-off of an
uncollectible receivable of $60,000. Our interest expense was primarily
attributable to $258,096 that we borrowed in mid-1999 in order to fund our
operations. Interest on this loan is 7% per month.
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<PAGE>
Liquidity and Capital Resources
General
The cash generated from our operations has to date been insufficient to
completely fund the cash outlays associated with our business. We have
principally funded this shortfall from the following sources:
o in 1997, we received $170,000 of capital contributions from
our founders;
o in 1998, we borrowed approximately $189,500 on a short-term
basis (including $85,000 that we borrowed from two officers as
described under "Certain Transactions");
o in the first nine months of 1999, we borrowed approximately
$258,096 on a short term basis;
o in the first quarter of 1999, we raised approximately
$1,062,000 of gross proceeds from the sale in a private
placement of 1,446,00 shares of our common stock; and
o in October 1999, we raised approximately $2,000,100 of gross
proceeds from the sale in a private placement of 2,000 shares
of our Series A Preferred together with certain warrants (as
described under "October 1999 Private Placement").
As of December 1, 1999, we had cash-on-hand of approximately $588,000,
representing the remaining proceeds from the private placement of our Series A
Preferred described above.
Depending on a number of factors, we may require additional debt or
equity financing to meet our ongoing cash requirements over the next 12 months.
These factors include, but are not limited to, the following: (1) the level of
our future revenues and profits, (2) the pace at which we collect our accounts
receivable and the extent to which we experience collection problems and (3) the
extent to which we invest in expanding our marketing capability and acquiring
new products. Depending on these and other factors, we estimate that we could
require additional financing in the range of $2 million to $3 million over the
next 12 months. We cannot, however, be certain that the actual amount will not
be higher. If we require additional financing, we cannot be certain that we will
be able to obtain such financing on favorable terms or at all.
Certain Balance Sheet Changes
Our account receivable increased from $619,966 as of December 31, 1998
to $4,448,550 at September 30, 1999. This increase primarily reflects the
increase in our sales in 1999.
Our account payable and accrued expenses increased from $502,973 as of
December 31, 1998 to $2,852,980 at September 30, 1999. This increase primarily
reflects cost associated with our increase in sales in 1999. Approximately 63%
of our accounts payable and accrued expenses as of September 30, 1999 were
attributable to costs associated with manufacturing the circuit board version of
our year 2000 product. As discussed above, the cost of producing the circuit
board version of our year 2000 product is significantly higher than the cost of
producing the software version, and sales of the circuit board version increased
in 1999.
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BUSINESS
Overview
We sell a variety of software products for personal computers and the
Internet. We acquire the right to manufacture and sell products by entering into
licensing arrangements with software developers or, less frequently, purchasing
the rights to a particular product. We do not independently develop software.
We currently offer five software titles. Our goal is to continue to
expand our product line. We are seeking to do so by maintaining close
relationships with independent software developers, monitoring the new products
that they develop, and negotiating to obtain the right to sell those products
that we believe have the greatest potential for success.
We sell our products in various ways. These include (1) selling through
intermediaries, such as distributors, original equipment manufacturers, computer
resellers and Internet retailers of software, and (2) selling directly to end
users through our own Internet site and our sales force. We believe that our
existing distribution relationships should help us bring to market any new
products that we succeed in adding to our product line.
While our focus is software, we may sometimes offer a specialized
hardware product that essentially functions as software. For example, as
discussed below, we offer both a software and hardware version of our IntelliFix
2000 product.
Our Current Products
Set forth below is certain information concerning the five software
titles that we currently offer:
IntelliFix 2000 (formerly Fix 2000). IntelliFix 2000 is designed to
identify and fix certain year 2000 problems that may affect personal computers.
We offer two versions of this product --a traditional software version and a
hardware version that consists of an ISA circuit board that is installed in the
computer. We released this product in the first quarter of 1998.
IntelliFix 2000 has accounted for most of our sales to date.
Specifically, sales of this product accounted for approximately 61% of our sales
in 1998 and 83% in the first nine months of 1999. We expect that most personal
computer users will have addressed their year 2000 problems by the first quarter
of the year 2000 and, consequently, that sales of this product will decline
significantly in the near future. Our future success, therefore, depends on our
ability to increase sales of our other products and expand our product line.
Website Traffic Builder. Website Traffic Builder is designed to make it
easy for the owner of an Internet web sites to register the site with the
various "search engines" and Internet web directories that people use to search
the Internet and identify sites that are of interest to them. We released this
product in August 1998.
TotalFax. TotalFax is designed to facilitate sending and receiving
faxes through a personal computer. We released this product in the first quarter
of 1998.
Credit Builder. Credit Builder is designed to help a user obtain and
manage credit and improve his credit rating. We released this product in the
fourth quarter of 1997.
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Speed 98. Speed 98 is designed to increase the speed at which certain
older computers can process information. We released this product in the fourth
quarter of 1997.
Distribution, Sales and Marketing
Distribution Channels
Set forth below is certain information concerning the principal ways in
which we distribute our products.
Sales through distributors. We principally sell our products through
distributors. These distributors purchase products from us and resell them to
retail stores and others. Sales to distributors accounted for approximately 82%
of our sales in 1998 and 81% in the first nine months of 1999.
Our most important distributor has been Ingram Micro, the leading
wholesale distributor of computer-based technology products and services. Sales
to Ingram Micro accounted for approximately 67% of our sales in 1998 and 47% in
the first nine months of 1999. The loss of Ingram Micro as a major customer
could adversely affect our business.
Our second most significant distributor has been Millenium 2K
Solutions, a distributor of year 2000 related products. We commenced sales to
this distributor in 1999. Sale to Millenium 2K accounted for approximately 33%
of our sales in the first nine months of 1999. We only sell one product to this
distributor--the hardware version of our IntelliFix 2000 product. As described
above, we expect that sales of our IntelliFix 2000 product will decrease
significantly in the near future. Consequently, we do not expect Millenium 2k to
continue as a significant distributor of our products.
Sales through other intermediaries. We also sell our products through
other intermediaries, such as original equipment manufacturers, computer
resellers and Internet retailers of software.
Direct sales. We also sell our product directly to end users. We make
these sales through our Internet site and our sales force.
Certain Information Concerning Sales
We sell our products both in the United States and in international
markets. Sales in the United States accounted for approximately 99% and 97% of
our sale in 1998 and the first nine months of 1999, respectively. We are seeking
to expand our international sales by establishing additional relationships with
distributors in various international markets.
We principally sell our products under our own name. However, we also
enter into private label arrangements with certain customers. These arrangements
allow the customer to sell our products under the customer's name rather than
our name.
Marketing
We promote our products in a variety of ways, including by:
o maintaining an Internet site, which (1) provides information
concerning our company and products and (2) enables customers
to purchase our products over the Internet;
o advertising on third-party Internet sites;
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<PAGE>
o arranging for promotions in retail stores;
o advertising in catalogues; and
o e-mailing information and promotions to potential customers.
Technical Support
We provide technical support for our products through our in-house
support staff.
Production
We perform certain productions functions ourselves and outsource to
third parties certain other functions.
Functions that we perform in-house: We perform the following function
in-house: (1) designing the packaging for our products; (2) duplicating
software; (3) writing manuals for our products, product literature, and
brochures and (4) packaging and shipping.
Functions that we outsource: We outsource the following functions: (1)
printing our packaging; (2) replicating CD-ROMs; and (3) manufacturing the
hardware version of our IntelliFix 2000 product.
Competition
The software industry is very competitive. Our competitors include (1)
numerous companies similar to ours that market software that they license or
acquire from others and (2) numerous companies that develop their own software.
Most of our competitors have greater financial resources, greater name
recognition and a longer operating history than we do. There are competing
products available for each product that we offer. For example, Symantec, one of
our competitors, offers a product that directly competes with our IntelliFix
2000 product.
Employees
We have approximately 34 employees. These include three in management,
nine that perform warehouse and production functions, eight that provide
technical and computer support, nine in sales, and five that perform clerical
functions. Our employees are not represented by any collective bargaining unit.
Facilities
We lease (1) approximately 3,900 square feet of office space under a
lease that expires on March 31, 2002 and (2) approximately 5,638 square feet of
warehouse space under a lease that expires on March 31, 2002.
Legal Proceedings
On May 6, 1999, an action was commenced against us by On the Planet,
Inc. in the United States District Court for the District of Utah, Central
Division. The claims purportedly arise out of a Software Rights Agreement under
which we granted On The Planet "an exclusive license for direct sales along with
a nonexclusive license for all other sales including but not limited to retail
sales" for certain year 2000 fix software identified therein. On The Planet (1)
asserts that we violated this agreement by engaging in direct sales or giving
third parties a license to engage in direct sales of the year 2000 fix software
and other related products and (2) asserts claims of copyright infringement,
breach of contract and fraud. In addition to injunctive relief,
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On The Planet is seeking unspecified damages, including profits lost through our
alleged direct sales of the year 2000 fix software, as well as attorneys' fees
and punitive damages. In response to the lawsuit filed by On The Planet, we have
denied the claims filed against us and have filed counterclaims seeking
rescission of the Software Rights Agreement and asserting breach of contract of
that Agreement. We have also filed additional claims against On The Planet and
its principal, Ernest Hemple, arising from conduct that we believe constitutes
defamation and interference with contract. If an amicable resolution of the
action is not reached in the near future, we intend to vigorously defend this
action and prosecute our counterclaims. Nevertheless, the outcome of this
litigation is uncertain and cannot be predicted at this time. Any unanticipated
adverse result could have a material adverse effect on our business.
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MANAGEMENT
Information Concerning Officers and Directors
The table below identifies, and provides certain information
concerning, our officers and directors.
Name Age Positions
- ----------------- --------- -------------------
Bernard Yaw 39 President, Chief Executive
Officer and Director
Dave Jones 36 Chief Financial Officer
Mark Tippets 47 Vice President of Sales and
Marketing and Director
Douglas Cole 44 Director
Say Thean Lim 38 Director of Business
Development and Director
Bernard Yaw, who is one of the founders of our company, has been with
our company since we commenced operations in October 1997. Since December 31,
1998, when we became a publicly traded company, Mr. Yaw has served as President,
Chief Executive Officer and a director of our company. From 1997 until December
31, 1998, Mr. Yaw served as a Manager of our company. Prior to joining our
company, Mr. Yaw held a number of positions, including (i) from 1996 to 1997,
President and a director of IN2 Technologies, a developer of software for
Internet form publishing, and (ii) from 1994 to 1996, President of Handwriting
Imaging Systems Corp., a developer of hand print recognition and document
imaging software. Mr. Yaw has a Bachelor of Science degree in computer science
from Oral Roberts University.
Dave Jones has served as Chief Financial Officer of our company since
joining our company in November 1998. Prior to joining our company, Mr. Jones
held a number of positions, including: (i) from 1993 to November 1998, Chief
Financial Officer of RC Management Corporation (also known as Video III), (ii)
from 1990 to 1993, Assistant Controller at Rocky Mountain Helicopters, and (iii)
from 1989 to 1990, an accountant at Deloitte & Touche. Mr. Jones is a certified
public accountant and has a Bachelor of Science degree in accounting from
Brigham Young University.
Mark Tippets, who is one of the founders of our company, has been with
us since we commenced operations in October 1997. He served as Vice President of
Marketing and Business Development until December 31, 1998, when he was
appointed to his current positions of Vice President of Marketing and Sales and
director. From 1993 to 1995, Mr. Tippets served as Vice President of Channel
Marketing, a company founded by him that was a marketing and sales
representative firm for computer hardware and software companies. From 1990
until 1993, he held various positions at Gazelle Systems, including a managerial
position with the company's OEM and government sales department. Mr. Tippet has
a Bachelor of Arts degree in Psychology from Brigham Young University.
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Douglas Cole became a director of our company in February 1999. Mr.
Cole has worked in the information technology industry, with a focus on
marketing, for the past 22 years. He has held a variety of positions, including
(i) from August, 1998 until the present, Chairman and Chief Executive Officer of
NetAmerica, Inc., a company engaged in the business of aggregating and offering
dial-up and dedicated Internet communication service access, (ii) from 1992
until 1996, President and Chief Executive Officer of Great Bear Technology, a
company that was engaged in the business of multimedia development and
publishing, (iii) from 1996 to 1998, President and Chief Executive Officer of
PolarCap, Inc., a company that was engaged in the business of software
development, and (iv) from 1996 to 1999, a director of VR1, a company engaged in
the business of Internet multi-player games. Mr. Cole is also a director RedFish
Telemetrix, a company engaged in the business of long-distance optimization
hardware, and RateXchange, a company engaged in the long distance
telecommunications industry.
Say Thean Lim provided most of the initial funding in connection with
the formation of our company in 1997. Since December 31, 1998, when we became a
publicly traded company, Mr. Lim has served as a member of our board of
directors and as Director of Business Development. From August 1998 until
December 31, 1998, Mr. Lim served as a Manager of our company. Mr. Lim is, and
has been since 1996, a business consultant and private investor in Malaysia and
the United States of America. He has investments in a variety of technology-
based companies, including companies in the semiconductor, precision machining,
multimedia and software development, e-commerce, and virtual training
industries. Prior to 1996, Mr. Lim held various positions, including: (i) from
1992 to 1995, he was chief executive officer of Unico Technology Sdn. Bhd., a PC
manufacturing and exporting company with approximately 1,500 employees and (ii)
from 1984 to 1992, he served in various positions, including Industrial Engineer
and Operations Manager, at a semiconductor manufacturing plant in Penang,
Malaysia. Mr. Lim has a bachelor of applied science degree in computers,
industrial and electrical engineering and a bachelor of engineering degree in
industrial engineering from the Technical University, Nova Scotia, Canada.
Compensation of Officers
General
We did not pay any of our officers more than $100,000 of total
compensation in 1998.
The following table provides certain information concerning the
compensation that we paid to Blair Barrett during the indicated periods. Mr.
Barret served as the President of our company from December 1997 until December
31, 1998. He ceased to be an officer and director of our company in June 1999.
Summary Compensation Table
-----------------------------------------------------------------------------
Name and Principal Position Year Salary
--------------------------- ---- ------
Blair Barret 1998 $47,537
President (through December
31, 1998) 1997 $13,500
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Certain Employment Agreements
We have entered into an employment agreement with each of Mr. Yaw and
Mr. Tippets. Set forth below is certain information concerning these agreements.
Salary and Benefits. Each agreement provides that we shall pay the
executive salary in an amount to be negotiated between the parties. We are
currently paying Mr. Yaw and Mr. Tippet base salary at rate per annum of $61,000
and $60,000, respectively. In addition, we may provide certain perquisites to
these officers.
Each agreement also provides that we shall make available to the
executive certain health and life insurance plans.
Term. The term of each agreement extends until February 3, 2001.
Noncompete. Each agreement has a non-compete provision, which continues
in effect for one year following termination of employment.
Compensation of Outside Directors
Under our current policy, each director who is not an officer is:
o paid $1,000 for each meeting that he attends (up to a maximum
of $1,500 per quarter); and
o reimbursed for all reasonable expenses that he incurs in
connection with serving as a director.
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PRINCIPAL STOCKHOLDERS
The table below and the notes thereto show, as of the date of this
Prospectus, certain information concerning the beneficial ownership of our
common stock by (1) each officer and director of our company, (2) all officers
and directors of our company as a group and (3) each person that we know to be
the beneficial owner of more than 5% of our outstanding common stock. For
purposes of this table, a person is considered to own any shares that he has the
right to acquire within 60 days pursuant to options, warrants or convertible
securities. For example, if a person has the right to acquire 100 shares
pursuant to a warrant, he is treated as if he owned these shares, even though
these shares are not outstanding and may never be issued. In computing the
percentage of outstanding shares held by a particular person or group, we have
treated as outstanding any shares which such person or group has the right to
acquire within 60 days, but have not treated as outstanding any shares that any
other person has the right to acquire.
Certain of the shares shown in the table below are shares that may be
acquired upon conversion of our Series A Preferred. The conversion price for our
Series A Preferred is linked to the market price of our common stock and,
consequently, will fluctuate as the market price for our common stock changes.
For purposes of the table below, we have calculated the number of shares that
may be acquired upon conversion of the Series A Preferred based upon the
conversion price in effect as of December 16, 1999 (which was $0.80). Because
the conversion price in effect at the time of conversion may be significantly
different, the actual number of shares that will be acquired upon conversion of
the Series A Preferred may be significantly higher or lower than the number
shown in the table. See "October 1999 Private Placement--Terms of the Series A
Preferred."
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<TABLE>
<CAPTION>
Common Stock Issuable Pursuant to
-----------------------------------------------
Outstanding Series A Preferred and Percent of
Outstanding Series A Preferred Warrants that may Common
Name and Address (1)(2) Common Stock and Warrants Hereafter be Purchased Stock Owned
- ------------------------------------- ---------------- --------------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
Officers and Directors:
Bernard Yaw 5,201,856 - - 15.55%
Mark Tippets 5,036,496 - - 15.05%
Dave Jones 74,288 - - *
Say Thean Lim 10,883,808 - - 32.53%
Douglas Cole - - - -
Officers and directors as a group 21,196,448 - - 63.34%
(5 persons)
Other Stockholders:
Blair Barret 5,336,496 - - 15.95%
2871 East Morningside Drive
Salt Lake City, UT 84058
ROBI Investors LLC, WEC Asset - 2,600,000(4) 3,900,000(5) 16.27%
Management LLC, and the persons
controlling these entities(3)
One World Trade Center
New York, NY 10048
</TABLE>
- -------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address is care of our company.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated.
(3) ROBI Investors LLC ("ROBI") is the record owner of the indicated shares.
WEC Asset Management LLC controls the affairs of ROBI Investors LLC. The
following individuals control the affairs of WEC Asset Management LLC:
Daniel Saks, Ethan Berkovitz and Mark Nordlicht.
(4) Represents (i) 2,500,000 shares that may be issued upon conversion of
2,000 shares of outstanding Series A Preferred (based upon the conversion
price in effect on December 16, 1999) and (ii) 100,000 shares that may be
issued upon the exercise of certain outstanding warrants. See "October
1999 Private Placement."
(5) Represents (i) 3,750,000 shares that may be issued upon conversion of
3,000 shares of Series A Preferred (based upon the conversion price in
effect on December 16, 1999) that ROBI has the right to purchase and (ii)
150,000 shares that may be issued upon exercise of warrants that ROBI has
the right to purchase. These shares of Series A Preferred and
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<PAGE>
warrants are not currently outstanding. However, ROBI has the right to
purchase theses shares and warrants from us. See October 1999 Private
Placement."
29
<PAGE>
CERTAIN TRANSACTIONS
Set forth below is information concerning certain transactions between
Intelliquis and the following individuals: Say Thean Lim (who is a director and
the owner of more than 5% of the outstanding common stock of Intelliquis);
Bernard Yaw (who is a director, President, Chief Executive Officer and owner of
more than 5% of the outstanding common stock of Intelliquis); Mark Tippets (who
is a director, Vice President, and owner of more than 5% of the outstanding
common stock of Intelliquis); and Blair Barret (who is an owner of more than 5%
of the outstanding common stock of Intelliquis and was formerly an officer and
director).
Capital Contributions
Intelliquis LLC was initially capitalized in 1997 by capital
contributions from its founding members. The table below shows for each such
member (1) the amount of capital contributed by such member, (2) the initial
percentage ownership interest in Intelliquis LLC that each such member obtained,
and (3) the number of shares of Intelliquis common stock into which such
interest was converted when Intelliquis LLC combined with a public shell company
(as described under "Corporate History--Combination with Public Shell Company).
Number of Shares of
Common Stock Into Which
Capital Ownership Interest Interest in Intelliquis
Name Contribution in Intelliquis LLC LLC was converted
- --------------- ----------------- ------------------ -----------------------
Say Thean Lim $160,000 51% 16,636,752
Bernard Yaw $6,000 16% 5,201,856
Mark Tippets $2,000 16% 5,336,496
Blair Barret $2,000 16% 5,336,496
Loans
Mr. Lim loaned $80,000 to Intelliquis in 1998 ($40,000 in May and
$40,000 in August). Intelliquis fully repaid this loan in February 1999. This
loan did not bear interest and was repayable on demand.
In April 1998, Mr. Yaw loaned $5,000 to Intelliquis. Intelliquis repaid
$4,000 of this loan in June 1999. This loan does not bear interest and is
repayable on demand.
Certain Stock Transaction
In February 1999, Intelliquis repurchased from Mr. Lim 6,202,944 shares
of Intelliquis common stock for an aggregate purchase price of $160,000.
In February 1999, Mr. Lim purchased 450,000 shares of Intelliquis
common stock at a price of $0.67 per share.
Personal Guarantees
Messrs. Yaw and Tippets have personally guaranteed our obligations
relating to the following borrowings: (1) $79,500 that we borrowed from a bank
and (2) $258,096 that we borrowed from an individual.
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OCTOBER 1999 PRIVATE PLACEMENT
We completed a private placement of our securities in October 1999. We
have provided below certain information concerning this transaction and the
securities that we issued. This information is not complete. You can obtain
additional information by reading the agreements and instruments relating to
this transaction. These agreements and instruments include: (1) a Securities
Purchase Agreement, (2) the Certificate of Designation (the "Designation") for
our 6% Convertible Series A Preferred Stock, (3) the forms of the warrants that
we issued in this private placement and (4) the Registration Rights Agreement
(the "Registration Rights Agreement") that we entered into in connection with
this private placement. We have filed these agreements and instruments as
exhibits to the Registration Statement of which this prospectus forms a part.
General
On October 26, 1999, we sold to ROBI Investors LLC (the "Investor"), in
a private placement, the following securities:
Series A Preferred Stock and Common Stock Warrants. For an aggregate
purchase price of $2 million, we sold to the Investor: (1) 2,000 shares of our
6% Convertible Series A Preferred Stock ("Series A Preferred) and (2) a warrant
(the "Common Stock Warrant") to purchase up to 100,000 shares of our common
stock at an exercise price of $3.03 per share (subject to possible adjustment as
described below).
Additional Warrant. For a purchase price of $100, we sold to the
Investor an additional warrant (the "Additional Warrant"). The Additional
Warrant provides that the holder has the right to purchase up to an additional
3,000 shares of Series A Preferred at a price of $1,000 per share. The
Additional Warrant also provides that, for each 1,000 shares of Series A
Preferred that the holder purchases pursuant to the warrant, we are required to
issue to the holder, without additional consideration, a warrant to purchase
50,000 shares of our common stock. Any such warrants to purchase common stock
will have the same terms as the Common Stock Warrants described above.
Terms of the Series A Preferred
Dividends. Each share of Series A Preferred accrues cumulative
dividends at a rate of $60 per year (which amount represents 6% of the
liquidation preference of $1,000). We are required to pay all dividends that
have accrued on a share of Series A Preferred when either the share is converted
into common stock, the share is redeemed or our company is liquidated. We may,
at our election, pay dividends in cash or in shares of our common stock. If we
elect to pay any dividends in shares, we will be required to issue a number of
shares equal to (1) the dollar amount of the dividends that we have elected to
pay in shares divided by (2) the conversion price for the Series A Preferred as
of such time. We may not pay any cash dividends on our common stock unless we
first pay all accrued dividends on the Series A Preferred.
Liquidation Preference. The Series A Preferred has a liquidation
preference of $1,000 per share. This means that, in the event of any
liquidation, dissolution or winding up of our company, the holders of the Series
A Preferred must be paid $1,000 (plus any accrued dividends) per share of Series
A Preferred before any amounts may be distributed to the holders of our common
stock. After the holders of the Series A Preferred are paid their liquidation
preference, they are entitled to share in any remaining assets of our company
together with the holders of our common stock. For purposes of this sharing,
each share of Series A Preferred will be treated as
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<PAGE>
being equivalent to the number of shares of common stock into which such share
of Series Preferred could have been converted immediately prior to the close of
business on the distribution date.
Conversion. Each share of Series A Preferred may be converted into such
number of shares of our common stock as is equal to $1,000 divided by the
conversion price in effect as of the conversion date. For this purpose, the
conversion price is defined to equal the lower of (1) 80% of the average of the
three lowest Closing Bid Prices (as defined in the Designation) during the 20
trading days preceding the conversion date or (2) $2.90375. The foregoing
definition of conversion price in effect links the conversion price to the
future market price of our common stock. Thus, the conversion price will change
as the price of our common stock changes (i.e., an increase in the market price
of our common stock will increase the conversion price and a decrease in the
market price of our common stock will decrease the conversion price).
Under the conversion formula for the Series A Preferred described
above, the number of shares of our common stock that will be issued upon
conversion will depend on the conversion price in effect at the time of
conversion. Specifically, the lower the conversion price the more shares will be
issued upon conversion. Because the conversion price is subject to change, we
cannot know at this time the number of shares of common stock that will be
issued upon conversion of the Series A Preferred.
As described below under "--Registration Rights Agreement," we have
agreed to file a registration statement under the Securities Act of 1933
registering for resale the shares of common stock that may be acquired upon
conversion of the Series A Preferred. Under certain specified circumstances, the
holders of the Series A Preferred may be precluded from using the registration
statement for a period of time (the "blackout period"). If this should occur as
a result of the circumstances specified in Section 3(f) or 3(g) of the
Registration Right Agreement, the holders of the Series A Preferred may elect,
during the blackout period or thereafter, to designate as the conversion price
any conversion price that would have been applicable during the blackout period
had shares been converted during such period.
Mandatory Redemption. The holders of 51% or more of the Series A
Preferred may require us to redeem all of the outstanding Series A Preferred, at
a redemption price or $1,250 per share (plus accrued dividends), upon the
occurrence of certain specified events. These events include, but are not
limited to, the following:
o the registration statement contemplated by the Registration
Rights Agreement is not declared effective within 180 days of
October 26, 1999;
o we fail to comply with our obligations under the Designation,
the Securities Purchase Agreement or the Registration Rights
Agreement (subject to a grace period in certain cases);
o we at any time do not have sufficient authorized shares of
common stock to cover the potential issuances as of such time
pursuant to (1) the outstanding Series A Preferred and
additional shares that that may be issued pursuant to the
Additional Warrant and (ii) the various common stock warrants
issued in connection with the private placement or that may be
issued pursuant to the Additional Warrant;
o certain bankruptcy or insolvency events occur;
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<PAGE>
o we defaults under certain agreement or instrument to which we
are a party;
o certain judgments against us continue undischarged or unstayed
for 30 days; or
o a Change of Control (as defined in the Designation) occurs.
Optional Redemption. We may, at our option, redeem any or all of the
outstanding Series A Preferred at any time, subject to complying with specified
notice requirements. In such event, we will be required to pay a redemption
price per share specified in the Designation.
Voting. The holders of the Series A Preferred are not entitled to vote
on any matter submitted for stockholder approval, except as provided below under
"--Class Voting Rights" or as required by applicable law.
Class Voting Rights. We may not change the Designation in a manner that
adversely affects the rights of the Series A Preferred, unless we obtain the
consent of the holders of at least two-thirds of the outstanding Series A
Preferred.
Terms of Common Stock Warrants
Shares Subject to the Warrant and Exercise Price. The Common Stock
Warrant gives the holder the right to purchase, at the holder's option, up to
100,000 shares of our common stock at a price of $3.03 per share (subject to
possible adjustment as described below).
Expiration Date. The Common Stock Warrants will expire on October 26,
2002.
Possible Adjustments. The Common Stock Warrant provides that, upon the
happening of certain events, a specified adjustment shall be made to the number
of shares subject to the warrant, the exercise price and/or the type of
securities that are subject to the warrant. The events that may require such an
adjustment include: (1) certain stock dividends, stock splits, subdivisions or
combinations relating to our common stock, (2) certain issuances of our common
stock (or options or warrants to purchase our common stock) to our stockholders,
if the purchase price or exercise price is lower than the Market Price (as
defined in the warrant) of our common stock, (3) certain mergers, consolidations
or recapitalizations involving our company and (4) certain transactions
involving the sale of substantially all of our assets.
Cashless Exercise Feature. The Common Stock Warrant provides for
"cashless exercise." This means that, in lieu of paying the exercise price, the
holder may surrender the warrant and receive in exchange shares of common stock
having a Market Value (as defined in the warrant) equal to the value of the
warrant at the time of surrender. For this purpose, the value of the warrant is
deemed to equal the difference between (1) the Market Value of the shares of
common stock that are subject to the warrant and (2) the exercise price that the
holder would be required to pay in order to acquire such shares by exercising
the warrant.
Terms of the Additional Warrant
Shares Subject to the Warrant and Exercise Price. The Additional
Warrant gives the holder the right to purchase, at the holder's option, up to
3,000 shares of our Series A Preferred stock at a price of $1,000 per share
(representing an aggregate purchase price of $3 million if the Additional
Warrant is exercised in full). However, the Additional Warrant may not be
exercised for less than 1,000 shares a time.
Right of Holder to Receive Additional Common Stock Warrants. For each
1,000 shares of Series A Preferred that the holder purchases pursuant to the
Additional Warrant, we are required
33
<PAGE>
to issue to the holder, without additional consideration, a warrant to purchase
50,000 shares of our common stock. (For example, if the holder purchases 3,000
shares of Series A Preferred pursuant to the Additional Warrant, we would be
required to issue to the holder, without additional consideration, a warrant to
purchase 150,000 shares of our common stock.) Any such warrants to purchase
common stock will have the same terms, including exercise price, as the Common
Stock Warrants described above.
Expiration Date. The Additional Warrant will expire on October 26,
2001.
Registration Rights Agreement
General
The securities that we issued in the private placement were not
registered under the Securities Act and, consequently, are subject to certain
transfer restrictions. In connection with the private placement, we entered into
a Registration Rights Agreement with the Investor. In this agreement, we agreed
that we would file a registration statement under the Securities Act that would
enable the Investor to publicly sell the shares of our common stock that the
Investor may acquire upon conversion or exercise of the securities that we
issued in the private placement.
Shares that Will be Registered
We must register for resale the following shares of our common stock:
Shares Issuable Upon Conversion of Series A Preferred. We cannot know
at this time the number of shares of our common stock that will be issued upon
conversion of the Series A Preferred because the conversion price will change as
the market price of our common stock changes (as described under "--Terms of
Series A Preferred--Conversion"). We have agreed to include in the registration
statement two time the aggregate number of shares that, based on the conversion
price in effect as of the registration statement filing date, would be issued
upon full conversion of all outstanding Series A Preferred and all Series A
Preferred that may be issued pursuant to the Additional Warrant. The number of
shares that we agreed to include in the registration statement is an arbitrary
number that was determined by negotiation between us and the Investor and is not
indicative of the actual number of shares that will be issued upon conversion of
the Series A Preferred.
Shares Issuable Upon Warrants. We have agreed to include in the
registration statement: the 350,000 shares of common stock that would be issued
assuming full exercise of the Common Stock Warrant and the maximum number of
additional warrants that may be issued pursuant to the Additional Warrant.
Damages For Registration Default
If a Registration Default (as defined below) exists, then we will be
required to pay to the Investor damages as follows: (1) $667 per day if a
Registration Default has occurred on any day during the period that begins on
January 24, 2000 and ends on February 23, 2000, and (2) $1,334 per day if there
is a Registration Default on any day thereafter.
A Registration Default will be deemed to exist if any of the following
events has occurred and has not been cured:
o the registration statement is not filed or declared effective
within the time-frames specified in the Registration Rights
Agreement;
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o we fail to have reserved and listed for trading, for any
period of five consecutive days, a sufficient number of shares
of our common stock to cover the potential issuances required
pursuant to the securities that we sold to the Investor; or
o shares may not be sold under the registration statement, for
any period of five consecutive days, because of a stop order
issued by the SEC, an inaccuracy in the registration statement
or certain other reasons.
Lock-up Agreements
Without the consent of Investor (which Investor has agreed not to
unreasonably withhold), we may not issue our capital stock, or any securities
convertible into or exercisable for our capital stock, during the following
periods: (1) the 270-day period following the date on which the registration
statement required by the Registration Rights Agreement is declared effective
and (2) the 270-day period following each date on which any Series A Preferred
are issued pursuant to the Additional Warrant. The foregoing restriction does
not apply, however, to any issuance of shares, for aggregate consideration of at
least $10 million, in an underwritten public offering.
Placement Agent Fee
Millenium Capital Holdings LLC ("Millenium") acted as placement agent
with respect to the private placement. In consideration for Millenium's
services, we:
o paid to Millenium approximately $150,000;
o issued to them a warrant to purchase 60,000 shares of our
common stock;
o agreed to pay them 7.5% of any proceeds we receive upon
exercise of the Additional Warrant; and
o agreed to issue to them warrants for 30,000 shares of our
common stock in respect of each 1,000 shares of Series A
Preferred that we issue pursuant to the Additional Warrant.
The warrants issued to Millenium have the same terms, including exercise price,
as the Common Stock Warrants issued to the Investor as described above.
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<PAGE>
DESCRIPTION OF SECURITIES
General
Our certificate of incorporation authorizes us to issue: (1) up to
50,000,000 shares of common stock, par value $0.001 per share, and (2) up to
5,000,000 shares of preferred stock, par value $0.001 per share.
Information Concerning Common Stock
As of December 15, 1999, there were 33,462,420 shares of our common
stock outstanding.
The holders of common stock:
o are entitled to one vote per share;
o do not have cumulative voting rights;
o do not have preemptive rights;
o are entitled to receive dividends, if any, that may be
declared by the board of directors on the common stock
(subject to the rights of preferred stockholders); and
o upon liquidation, dissolution or winding-up our business, are
entitled to any assets remaining after we pay our creditors
(subject to the rights of preferred stockholders).
Information Concerning Preferred Stock
General
Our Certificate of Incorporation authorizes us to issue up to 5,000,000
shares of preferred stock in one or more series. Each series may have different
terms, including rights relating to dividends, voting, conversion, redemption,
and liquidation preference. Our certificate of Incorporation authorizes our
board of directors to fix the terms of each series of preferred stock without
obtaining stockholder approval.
The terms that we establish for our preferred stock could adversely
affect our common stock. For example, a series of preferred stock could (1)
restrict or prohibit dividends on the common stock, (2) provide that the
preferred stock has greater voting rights than the common stock or (3) provide
that the holders of the preferred stock have a prior claim on our assets upon
any liquidation of our company.
Series A Preferred
We have to date designated 5,000 shares of our authorized preferred
stock as our "6% Convertible Series A Preferred Stock." As of the date of this
prospectus, there were issued and outstanding 2,000 shares of this series. For
information concerning the terms of this series, see "October 1999 Private
Placement--Terms of the Series A Preferred."
Possible Anti-Takeover Effects
As described above, the board of directors has the power to authorize
the issuance of our authorized preferred stock and to establish, and fix the
terms, of one or more new series of our
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<PAGE>
preferred stock. The board could use this power to discourage unsolicited
acquisition proposals or make it more difficult for a third party to obtain
control of our company. For example, if the board wishes to discourage a hostile
acquiror, the board could issue preferred stock with terms that (1) would
adversely affect the securities that the acquiror is planning to acquire or (2)
increase the voting power of stockholders that support the incumbent board.
Warrants
There are currently outstanding warrant to purchase an aggregate of
160,000 shares of our common stock. These warrants provide for an exercise price
of $3.03 per share.
There is also outstanding a warrant pursuant to which we may be
required to issue (1) up to an additional 3,000 shares of Series A Preferred and
(2) warrants to purchase up to 150,000 shares of our common stock.
For additional information concerning our outstanding warrants, see
"October 1999 Private Placement--Terms of Common Stock Warrants," "--Terms of
Additional Warrant" and "--Placement Agent Fee."
CERTAIN CHARTER PROVISIONS
Indemnification
General
Under the terms of our certificate of incorporation, we are generally
required to indemnify our officers and directors against any claims that may be
asserted against them in connection with their activities on behalf our company,
subject to specified qualifications. These qualifications include, but are not
limited to, the following:
o we are not required to indemnify a person, unless the person
acted in good faith and in a manner that he reasonably
believes to be in, or not opposed to, the best interests of
our company;
o in the case of a claim relating to a criminal proceeding, we
are not required to indemnify a person, unless the person had
no reasonable cause to believe that his conduct was unlawful;
and
o in the case of a claim brought by or on behalf of our company
(commonly referred to as a derivative action), we are not
required to indemnify a person against any judgment rendered
against him, unless and only to the extent that the court
determines that such person is fairly and reasonably entitled
to such indemnification.
Undertaking Required by the SEC
We undertake that, insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of our company pursuant to the
provisions of our certificate of incorporation, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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Advance Notice Provision for Stockholder Nominations
In order to nominate a director, a stockholder must (1) give advance
notice to our company and (2) provide certain information about the nominee. In
general, this stockholder notice must be furnished not less than 14 and not more
than 50 days prior to the meeting at which directors will be elected. However,
if we provide less than 21 days advance notice of the meeting, the stockholder
notice may given until the seventh day following the date of our notice.
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SELLING SECURITY HOLDERS
General
Certain of our security holders may sell shares of our common stock
pursuant to this prospectus as described below. If a selling security holder
transfers any of the shares covered by this prospectus, the transferee will be
considered a selling security holder for purposes of this prospectus, provided
that (1) the transfer was a private placement and (2) the transferee is
identified in a supplement to this prospectus.
Shares that may be Sold by ROBI Investors LLC.
ROBI Investors LLC ("ROBI") is currently the owner of the following
securities that we sold to ROBI in a private placement in October 1999:
o 2,000 share of our Series A Preferred;
o a warrant to acquire up to 100,000 shares of our common stock;
and
o a warrant to acquire (1) up to an additional 3,000 share of
Series A Preferred and (2) warrants to purchase up to an
additional 150,000 shares of our common stock.
For information concerning these securities, see "October 1999 Private
Placement." We refer to these securities collectively as the " Private Placement
Securities."
ROBI may sell, from time to time, pursuant to this prospectus, up to
14,193,104 shares of our common stock that ROBI may acquire upon conversion or
exercise of, or as dividends on, the Private Placement Securities and the
securities issuable pursuant thereto. (To the extent permitted by Rule 416 under
the Securities Act, this prospectus also covers any additional shares of our
common stock that we may be required to issue by reason of any adjustment
necessary to reflect any stock split, stock dividend or similar transaction
involving our common stock.)
The number of shares that we have included in this prospectus is an
arbitrary number that was determined by negotiation between us and ROBI and is
not indicative of the actual number of shares that will be issued pursuant to
the Private Placement Securities. The actual number cannot be known at this time
because the conversion price for the Series A Preferred is linked to the future
market value of our common stock. See "October 1999 Private Placement-- Terms of
Series A Preferred--Conversion" and "--Registration Rights."
As of December 1, 1999, ROBI was the only holder of our outstanding
Series A Preferred.
Shares that may be Sold by Millenium Capital Holdings LLC
Millenium Capital Holdings LLC ("Millenium") acted as placement agent
with respect to our October 1999 private placement. As part of our compensation
arrangement with Millenium, we (1) issued to Millenium a warrant to purchase
shares of our common stock and (2) agreed to issue to Millenium certain
additional common stock warrants in the event that ROBI purchases additional
shares of our Series A Preferred. For information concerning these warrants, see
"October 1999 Private Placement--Placement Agent Fee."
Millenium may sell, from time to time, pursuant to this prospectus, up
to 150,000 shares of our common stock that may be acquired upon exercise of the
warrants that we issued, or may hereafter issue, to Millenium as described
above. (To the extent permitted by Rule 416 under the
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Securities Act, this prospectus also covers any additional shares of our common
stock that we may be required to issue by reason of any adjustment necessary to
reflect any stock split, stock dividend or similar transaction involving our
common stock.)
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PLAN OF DISTRIBUTION
The selling security holders may sell shares:
o through the OTC Bulletin Board, any other over-the-counter
market, any stock exchange on which the shares may hereafter
be listed, in privately negotiated transactions or otherwise;
o directly to purchasers or through agents, brokers, dealers or
underwriters; and
o at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated
prices.
If a selling security holder sells shares through agents, brokers,
dealers or underwriters, such agents, brokers, dealers or underwriters may
receive compensation in the form of discounts, commissions or concessions. Such
compensation may be greater than customary compensation.
To the extent required, we will use our best efforts to file one or
more supplements to this prospectus to describe any material information with
respect to the plan of distribution not previously disclosed in this prospectus
or any material change to such information in this prospectus.
LEGAL MATTERS
Certain legal matters relating to the shares of common stock that may
be offered pursuant to this prospectus will be passed upon for us by the Law
Offices of Michael Eisner, Los Angeles, California.
EXPERTS
The financial statements of Intelliquis Intentional, Inc. and
subsidiary as of December 31, 1997 and December 31, 1998, and for the period
from June 9, 1997 (Inception) to December 31, 1997 and for the year ended
December 31, 1998, have been audited by Crouch, Bierwolf & Chisholm, independent
auditors, as set forth in their report thereon which appears elsewhere in this
prospectus. We have included these financial statements in this prospectus in
reliance on such report of Crouch, Bierwolf & Chisholm given upon the authority
of such firm as experts in accounting and auditing.
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INTELLIQUIS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
CONTENTS
For the period from June 9, 1997 (inception) to December 31, 1997 and for the
year ended December 31, 1998
Independent Auditor's Report F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Statements of Stockholders' Equity F-6
Notes to Financial Statements. F-7 through F-9
For the nine months ended September 30, 1999
(unaudited)
Balance Sheets F-10
Statements of Operations F-11
Statements of Cash Flows F-12
Notes to Financial Statements. F-13 through F-16
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Intelliquis International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Intelliquis
International, Inc. (a Nevada corporation) and subsidiary, as of December 31,
1998 and 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from June 9, 1997 (inception)
to December 31, 1997 and for the year ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Intelliquis
International, Inc. and subsidiary as of December 31, 1998 and 1997 and the
results of its operations and cash flows for the period from June 9, 1997
(inception) to December 31, 1997 and for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
March 5, 1999
F-2
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
December 31, December 31,
1998 1997
---------- ----------
Current assets
Cash $ 23,074 $ 52,455
Accounts receivable (Note 2) 619,966 28,067
Inventory (Note 2) 130,517 18,398
Prepaid expenses 6,838 8,253
Deposits 500 -
---------- ----------
780,895 107,173
Property, Plant & Equipment (Note 2) 54,297 16,533
Other assets
Certificate of deposit (Note 2) 40,351 -
Intangibles (Note 2) 8,328 10,444
---------- ----------
Total Assets $ 883,871 $ 134,150
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 502,973 $ 18,673
Short term notes (Note 3) 104,500 -
Short term notes - related party (Note 4) 85,000 -
---------- ----------
692,473 18,673
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, no shares outstanding - -
Common Stock, 50,000,000 shares authorized,
$.001 par, 37,759,233 shares issued and
outstanding 37,759 -
Members equity (1997) (Note 6) - 170,000
Additional paid in capital 132,241 -
Retained earnings (deficit) 21,398 (54,523)
---------- ----------
191,398 115,477
---------- ----------
Total Liabilities and Stockholders' Equity $ 883,871 $ 134,150
========== ==========
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Operations
Period from
For the June 9, 1997
Year Ended (Inception) to
December 31, December 31,
1998 1997
---------- ----------
Sales $1,461,196 $ 34,709
Cost of Sales 355,613 4,948
---------- ----------
Gross Margin 1,105,583 29,761
Expenses:
Sales & Marketing 596,125 36,443
General & Administrative 430,304 47,841
---------- ----------
Total Expenses 1,026,429 84,284
---------- ----------
Operating Income (Loss) 79,154 (54,523)
Other Income (Expense) (3,233) -
Net Income (Loss) before Taxes 75,921 (54,523)
Taxes (Note 1) - -
---------- ----------
Net Income (Loss) $ 75,921 $ (54,523)
========== ==========
Pro Forma Income Taxes (Unaudited) 17,859 -
---------- ----------
Pro Forma Net Income (Loss) (Unaudited) $ 58,062 $ (54,523)
========== ==========
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Period from
For the June 9, 1997
Year Ended (Inception) to
December 31, December 31,
1998 1997
---------- ----------
Operating Activities:
Net income (loss) $ 75,921 $ (54,523)
Non Cash Flow Items:
Depreciation & Amortization 10,756 4,630
Changes in assets and liabilities
(increase) in accounts receivable (591,899) (28,067)
(increase) in inventory (112,119) (18,398)
decrease (increase) in prepaids & deposits 915 (8,253)
decrease in accounts payable &
accrued expenses 484,300 18,673
---------- ----------
Net Cash Flows used in
Operating Activities (132,126) (85,938)
---------- ----------
Financing Activities:
Cash from stock sales / LLC units - 170,000
Purchase of certificates of deposits (40,000) -
---------- ----------
Net Cash provided by (used) for
Financing Activities (40,000) 170,000
---------- ----------
Investing Activities:
Purchase of fixed assets (46,404) (21,030)
Purchase of intangibles & other assets (351) (10,577)
Cash from short term debt 189,500 -
---------- ----------
Net Cash Flows provided (used) for
Investing Activities 142,745 (31,607)
---------- ----------
Net increase (decrease) in cash (29,381) 52,455
Cash, beginning of year 52,455 -
---------- ----------
Cash, end of year $ 23,074 $ 52,455
========== ==========
Supplemental Cash Flow Information
Cash Paid for:
Taxes $ - $ -
Interest $ 2,334 $ -
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Stockholders Equity
Common Stock Paid in Members' Retained
Shares Amount Capital Equity
------------ ------------ ------------ ------------
Deficit/Earnings
----------------
<S> <C> <C> <C> <C> <C>
Balance, June 9, 1997(inception) - $ - $ - $ - $ -
Members contributions (Note 6) - - - 170,000 -
Net loss - - - (54,523)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 - - - 170,000 (54,523)
Issuance of Common Stock for purchase
Of Intelliquis International, Inc. (Note 6) 37,759,233 37,759 132,241 (170,000) -
Net Income - - - 75,921
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 37,759,233 $ 37,759 $ 132,241 $ - $ 21,398
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1998
NOTE 1 - Background and History
Intelliquis LLC (originally Intelliquis Corp.) was formed on June 9,
1997 as a Utah corporation, commenced operations in October 1997 and
reorganized as a Utah limited liability company in December 1997. On
December 31, 1998, Intelliquis LLC combined with a public shell company
(i.e., a public company with no assets or liabilities). This
transaction involved the following elements: (1) the owners of
Intelliquis LLC transferred their interests in Intelliquis LLC to the
public shell company in exchange for shares of common stock of the
public shell company, which resulted in Intelliquis LLC becoming a
subsidiary of the public shell company; (2) the management of
Intelliquis LLC became the management of the public shell company; and
(3) the public shell company, a Nevada corporation, changed its name
from "Leesburg Land & Mining, Inc." to "Intelliquis International,
Inc." For accounting purposes, this combination has been treated as a
"reverse merger." Under this treatment, (i) the post-combination
company has been treated as a continuation of Intelliquis LLC rather
than a continuation of the public shell company and (ii) the
transaction has been treated as the issuance of interests in
Intelliquis for the net monetary assets of the public shell company
accompanied by a recapitalization. In view of the foregoing, the
financial statements do not include the results of the public shell
company for any period prior to the combination. The term the "Company"
as used in these financial statements refers to Intelliquis LLC with
respect to periods prior to such combination and refers to Intelliquis
International, Inc. and subsidiary with respect to periods following
such combination.
The Company sells software products for personal computers and the
Internet. The Company license or acquire these products from software
developers and does not independently develop new products.
NOTE 2 - Significant Accounting Policies
Cash and Cash Equivalents The Company considers all short term, highly
liquid investments that are readily convertible to known amounts as
cash equivalents.
Intangible Assets Intangible assets consist of contract design work and
goodwill. Both intangibles are being amortized over 60 months on the
straight line method. Amortization expense for 1997 was $133 and $2,115
for 1998.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets, liabilities
and earnings involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
Income Taxes The Company adopted Statement of Financial Standards No.
109 "Accounting for Income taxes" in the fiscal year ended December 31,
1998 and was applied retroactively.
Statement of Financial Accounting Standards No. 109 " Accounting for
Income Taxes" requires an asset and liability approach for financial
accounting and reporting for income tax purposes. This statement
recognizes (a) the amount of taxes payable or refundable for the
current year and (b) deferred tax liabilities and assets for future tax
consequences of events that have been recognized in the financial
statements or tax returns.
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. There were no temporary differences at December 31, 1998 and
earlier years; accordingly, no deferred tax liabilities have been
recognized for all years.
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1998
NOTE 2 - Significant Accounting Policies (continued)
Intelliquis International, Inc. had cumulative net operating loss
carryforwards of over $4,000,000 at December 31, 1998. No effect has
been shown in the financial statements for the net operating loss
carryforwards as the likelihood of future tax benefit from such net
operating loss carryforwards is highly improbable. Accordingly, the
potential tax benefits of the net operating loss carryforwards,
estimated based upon current tax rates at December 31, 1998 have been
offset by valuation reserves of the same amount.
The Company was a limited liability company (LLC) in 1997 and 1998.
LLC's report their earnings on a partnership tax return and no tax
liability accrued at the company level. Taxable income is allocated to
its individual members and tax paid by each member. The unaudited Pro
Forma income tax information included in the statements of operations
is presented in accordance with SFAS No. 109, Accounting for Income
Taxes, as if the Company had been subject to Federal and state income
taxes for the period from June 9, 1997 (inception) to December 31, 1997
and for the year ended December 31, 1998. The Company incurred no Pro
Forma deferred taxation charges, as there were no significant temporary
differences during such periods. Pro forma deferred tax assets were not
recognized for net operating losses incurred by Intelliquis
International, Inc. due to uncertainty as to their ultimate
recoverability.
Inventory consists of finished goods (assembled and unassembled
computer software) that is valued at lower of cost (FIFO) or market.
Certificate of Deposit The Company holds a Certificate of Deposit. The
Company has pledged this certificate of deposit as partial security for
a short term loan from the Company's bank (see Note 3). The certificate
matures on March 10, 1999, the same day that the loan is due. Interest
is stated at 4.91%.
Fixed Assets
Fixed assets consist of the following:
December 31,
1998 1997
------------ -----------
Computer Equipment & Software $ 32,886 $ 12,464
Office Equipment & Furniture 34,549 8,566
------------ -----------
67,435 21,030
Less: Accumulated Depreciation (13,138) (4,497)
------------ -----------
$ 54,297 $ 16,533
============ ===========
Computer equipment and software is being depreciated on the straight
line method over three to five years. Office equipment is being
depreciated on the straight line method over five years. Depreciation
expense is $4,497 and $8,641 for 1997 and 1998, respectively.
Principles of Consolidation Since December 31, 1998, the Company has
consisted of the parent corporation, Intelliquis International, Inc.,
and its subsidiary, Intelliquis LLC. The two companies together report
as a consolidated group known as the "Company." All intercompany
accounts and transactions have been eliminated.
Accounts Receivable Accounts Receivable is shown net of allowance for
returns of $186,660 and $0 and allowance for bad debt of $150,000 and
$0 for 1998 and 1997, respectively.
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1998
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as
follows:
Note payable to a bank, secured by
$40,000 certificate of deposit,
all assets of the Company and
personal guarantees from the
corporation officers, interest
stated at 10%, due March 10, 1999 $ 79,500
Note payable to an individual, no
security, interest stated at 25%
payable in January 1999 25,000
-----------
$ 104,500
===========
Interest expense for 1998 was $3,584.
NOTE 4 - Short Term Notes - Related Party
The Company has acquired short term financing from two officers of the
corporation. One loan was for $80,000 and the other for $5,000. These
are demand notes with no interest accruing. The $80,000 was paid in
1999.
NOTE 5 - Economic Dependency
The Company currently uses one major distributor for most of its sales.
That distributor accounted for 67% of all sales in 1998. The Company
could recognize significant declines in sales if the distributor or the
Company chooses to alter its current sales relationship.
NOTE 6 - Member Contributions/Common Stock Transactions
Intelliquis LLC (originally Intelliquis Corp.) was formed on June 9,
1997 as a Utah corporation, commenced operations in October 1997 and
reorganized as a Utah limited liability company in December 1997, at
which time it received $170,000 of member contributions for start up
operations.
On December 31, 1998, Intelliquis LLC combined with Leesburg Land &
Mining, Inc., which was a public shell company. As part of this
transaction, (1) the public shell company issued 32,511,600 shares of
its common stock in exchange for 100% of the membership interests of
Intelliquis LLC, which resulted in Intelliquis LLC becoming a
subsidiary of the public shell company; (2) the management of
Intelliquis LLC became the management of the public shell company; and
(3) the public shell company, a Nevada corporation, changed its name
from "Leesburg Land & Mining, Inc." to "Intelliquis International,
Inc.". Before this transaction, the public shell company had 5,247,633
shares outstanding with no assets and no liabilities.
NOTE 7 - Subsequent Events
In 1999, the Company leased office space for a term of three years at
$4,000 per month. In 1999, the Company repurchased 6,202,944 of the
Company shares for $160,000.
The accompanying notes are an integral part of these financial statements
F-9
<PAGE>
Intelliquis International, Inc. and Subsidiary
Condensed Balance Sheets
Assets
September 30, December 31,
1999 1998
---------- ----------
(Unaudited) (Audited)
Current assets
Cash $ 45,706 $ 23,074
Accounts receivable (Note 2) 4,448,550 619,966
Inventory (Note 2) 373,539 130,517
Prepaid expenses 17,479 6,838
Deposits 8,799 500
---------- ----------
4,894,073 780,895
Property, Plant & Equipment (Note 2) 164,623 54,297
Other assets
Certificate of deposit (Note 2) 42,003 40,351
Intangibles (Note 2) 6,743 8,328
---------- ----------
Total Assets $5,107,442 $ 883,871
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $2,852,980 $ 502,973
Short term notes (Note 3) 337,596 104,500
Short term notes - related party (Note 4) 1,000 85,000
---------- ----------
3,191,576 692,473
Commitments and Contingencies (Note 8)
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, no shares outstanding - -
Common Stock, 50,000,000 shares authorized,
$.001 par, 39,665,364 and 37,759,233
shares issued and outstanding, respectively
(Note 6) 39,665 37,759
Additional paid in capital 1,342,335 132,241
Retained earnings 693,866 21,398
Treasury Stock (Note 6) (160,000) -
---------- ----------
1,915,866 191,398
---------- ----------
Total Liabilities and Stockholders' Equity $5,107,442 $ 883,871
========== ==========
The accompanying notes are an integral part of these financial statements
F-10
<PAGE>
Intelliquis International, Inc. and Subsidiary
Condensed Statements of Operations
For the nine months ended
September 30, 1999 and 1998
(Unaudited)
Nine Months Ended
September 30, September 30,
1999 1998
------------- --------------
Sales $ 6,467,014 $ 1,382,961
Cost of Sales 3,214,038 293,552
------------- -------------
Gross Margin 3,252,976 1,089,409
Expenses:
Sales & Marketing 926,830 425,639
General & Administrative 1,100,526 238,234
------------- -------------
Total Expenses 2,027,356 663,873
------------- -------------
Operating Income (Loss) 1,225,620 425,536
Other Income (Expense) (122,967) (643)
Net Income (Loss) before Taxes 1,102,653 424,893
Taxes (Note 1) 430,185 -
------------- -------------
Net Income (Note 6) $ 672,468 $ 424,893
============== =============
Pro Forma Income Taxes 165,908
-------------
Pro Forma Net Income $ 258,985
=============
Net Income Per Share (Note 6) $ .020
==============
Total average shares outstanding 33,925,794
==============
The accompanying notes are an integral part of these financial statements
F-11
<PAGE>
Intelliquis International, Inc. and Subsidiary
Statements of Cash Flows
For the nine months ended
September 30, 1999 and 1998
(Unaudited)
Nine Months Ended
September 30,
1999 1998
---------- ----------
Operating Activities:
Net income $ 672,468 $ 424,893
Non Cash Flow Items:
Depreciation & Amortization 23,827 6,831
Changes in assets and liabilities
(increase) in accounts receivable (3,828,584) (887,124)
(increase) in inventory (243,022) (16,588)
(increase) in prepaid expenses &
deposits (18,940) (3,995)
decrease in accounts payable &
accrued expenses 2,350,007 334,037
----------- -----------
Net Cash Flows used in
Operating Activities (1,044,244) (141,946)
----------- -----------
Financing Activities:
Cash from private placement of stock 1,062,000 -
Stock issued for public relations services 150,000 -
Purchase of treasury stock (160,000) -
----------- -----------
Net Cash Flows provided by (used)
Financing Activities 1,052,000 -
----------- -----------
Investing Activities:
Purchase of fixed assets (132,568) (26,562)
Purchase of intangibles & other assets (1,652) (40,000)
Proceeds from short-term debt 257,096 153,478
Cash used to pay-off short-term debt (108,000) -
----------- -----------
Net Cash Flows provided (used) in investing
activities 14,876 86,916
----------- -----------
Net increase (decrease) in cash 22,632 (55,030)
Cash, beginning of year 23,074 52,455
----------- -----------
Cash, end of period $ 45,706 ($ 2,575)
=========== ===========
Supplemental Cash Flow Information
Cash Paid for:
Taxes $ - $ -
Interest $ 12,509 $ 643
The accompanying notes are an integral part of these financial statements
F-12
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
September 30, 1999
NOTE 1 - Background and History
Intelliquis LLC (originally Intelliquis Corp.) was formed on June 9, 1997
as a Utah corporation, commenced operations in October 1997 and
reorganized as a Utah limited liability company in December 1997. On
December 31, 1998, Intelliquis LLC combined with a public shell company
(i.e., a public company with no assets or liabilities). This transaction
involved the following elements: (1) the owners of Intelliquis LLC
transferred their interests in Intelliquis LLC to the public shell company
in exchange for shares of common stock of the public shell company, which
resulted in Intelliquis LLC becoming a subsidiary of the public shell
company; (2) the management of Intelliquis LLC became the management of
the public shell company; and (3) the public shell company, a Nevada
corporation, changed its name from "Leesburg Land & Mining, Inc." to
"Intelliquis International, Inc." For accounting purposes, this
combination has been treated as a "reverse merger." Under this treatment,
(i) the post-combination company has been treated as a continuation of
Intelliquis LLC rather than a continuation of the public shell company and
(ii) the transaction has been treated as the issuance of interests in
Intelliquis for the net monetary assets of the public shell company
accompanied by a recapitalization. In view of the foregoing, the financial
statements do not include the results of the public shell company for any
period prior to the combination. The term the "Company" as used in these
financial statements refers to Intelliquis LLC with respect to periods
prior to such combination and refers to Intelliquis International, Inc.
and subsidiary with respect to periods following such combination.
The Company sells software products for personal computers and the
Internet. The Company license or acquire these products from software
developers and does not independently develop new products.
NOTE 2 - Significant Accounting Policies
Cash and Cash Equivalents The Company considers all short term, highly
liquid investments that are readily convertible to known amounts as cash
equivalents.
Intangible Assets Intangible assets consist of contract design work and
goodwill. Both intangibles are being amortized over 60 months on the
straight line method. Amortization expense for the first nine months of
1999 and 1998 was $1,586 and $1,058, respectively.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities and earnings
involve extensive reliance on management's estimates. Actual results could
differ from those estimates.
Income Taxes The Company adopted Statement of Financial Standards No. 109
"Accounting for Income Taxes" in the fiscal year ended December 31, 1998
and applied it retroactively.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" requires an asset and liability approach for financial accounting
and reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b)
deferred tax liabilities and assets for future tax consequences of events
that have been recognized in the financial statements or tax returns.
The federal income tax provision is $375,052 and $0 for the first nine
months of 1999 and 1998, respectively. The state tax provision is $55,133
and $0 for the first nine months of 1999 and 1998, respectively.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes. There
were no temporary differences at December 31, 1998 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all
periods.
The accompanying notes are an integral part of these financial statements
F-13
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
September 30, 1999
Intelliquis International, Inc. had cumulative net operating loss carry
forwards of more than $4,000,000 at December 31, 1998. No effect has been
shown in the financial statements for the net operating loss carry
forwards as the likelihood of future tax benefit from such net operating
loss carry forwards is highly improbable. Accordingly, the potential tax
benefits of the net operating loss carry forwards, estimated based upon
current tax rates at December 31, 1998, have been offset by valuation
reserves of the same amount.
The Company was a limited liability company (LLC) in 1997 and 1998. LLC's
report their earnings on a partnership tax return and no tax liability
accrued at the company level. Taxable income is allocated to its
individual members and tax paid by each member. The unaudited Pro Forma
income tax information included in the statements of operations is
presented in accordance with SFAS No. 109, Accounting for Income Taxes, as
if the Company had been subject to Federal and state income taxes for the
for the period from June 9, 1997 (inception) to December 31, 1997 and for
the year ended December 31, 1998. The Company incurred no Pro Forma
deferred taxation charges, as there were no significant temporary
differences during these periods. Pro forma deferred tax assets were not
recognized for net operating losses incurred by the Company due to
uncertainty as to their ultimate recoverability.
Inventory consists of finished goods (assembled and unassembled computer
software) that are valued at lower of cost (FIFO) or market.
Certificate of Deposit The Company holds a Certificate of Deposit. The
Company has pledged this certificate of deposit as partial security for a
short term loan from the Company's bank (see Note 3). The certificate
matures on March 10, 2000. Interest is stated at 4.91%.
Fixed Assets
Fixed assets consist of the following:
September 30, December 31,
1999 1998
------------ -----------
Computer Equipment & Software $ 142,020 $ 32,886
Office Equipment & Furniture 57,983 34,549
------------ -----------
200,003 67,435
Less: Accumulated Depreciation (35,380) (13,138)
------------ -----------
$ 164,623 $ 54,297
============ ===========
Computer equipment and software is being depreciated on the straight-line
method over three to five years. Office equipment is being depreciated on
the straight-line method over five years. Depreciation expense was $8,641
for 1998. For the third quarter the depreciation expense is $11,106 and
$2,652 for 1999 and 1998, respectively. For the first nine months the
depreciation expense is $22,242 for 1999 and $5,774 for 1998.
Principles of Consolidation Since December 31, 1998, the Company has
consisted of the parent corporation, Intelliquis International, Inc., and
its subsidiary, Intelliquis LLC. The two companies together report as a
consolidated group referred to here as the "Company". All inter-company
accounts and transactions have been eliminated.
NOTE 3 - Short Term Notes
Accounts Receivable
Accounts Receivable are shown net of allowance for returns of $411,446 and
$186,660 and allowance for bad debt of $210,000 and $150,000 for the nine
months ended September 30, 1999 and for fiscal year 1998, respectively.
The accompanying notes are an integral part of these financial statements
F-14
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
September 30, 1999
The Company has acquired short term borrowing for working capital as
follows:
September 30, December 31,
1999 1998
----------- -----------
Note payable to a bank, secured by
$40,000 certificate of deposit,
all assets of the Company and
personal guarantees from certain
officers of the corporation,
interest stated at 10%,
due March 10, 2000 $ 79,500 $ 79,500
Line of credit payable to a private
lending institution, secured by
inventory and personal guarantees
from certain officers of the
corporation, interest stated at 7%
per month 258,096 -
Note payable to an individual, no
security, interest stated at 25%
payable in January 1999 - 25,000
----------- -----------
$ 337,596 $ 104,500
=========== ===========
Interest expense for fiscal 1998 was $3,584. The Company incurred interest
expense of $68,749 and $643 for the first nine months of 1999 and 1998,
respectively.
NOTE 4 - Short Term Advances - Related Party
The Company has acquired short term financing from two officers of the
corporation. One advance was for $80,000 and was paid during the first
quarter of 1999. The other advance is for $5,000 of which $4,000 was paid
during the second quarter of 1999.
NOTE 5 - Economic Dependency
The Company currently uses one major distributor for most of its sales.
That distributor accounted for 47% and 95% of sales in the first nine
months of 1999 and 1998, respectively. The Company could recognize
significant declines in sales if that distributor or the Company chooses
to alter its current sales relationship.
NOTE 6 - Member Contributions/Common Stock Transactions
In 1998, the Company operated as a limited liability company until
December 31, 1998. On December 31, 1998, Intelliquis LLC combined with
Leesburg Land & Mining, Inc., which was a public shell company. As part of
this transaction, (1) the public shell company issued 32,511,600 shares of
its common stock in exchange for 100% of the membership interests of
Intelliquis LLC, which resulted in Intelliquis LLC becoming a subsidiary
of the public shell company; (2) the management of Intelliquis LLC became
the management of the public shell company; and (3) the public shell
company, a Nevada corporation, changed its name from "Leesburg Land &
Mining, Inc." to "Intelliquis International, Inc.". Before this
transaction, the public shell company had 5,247,633 shares outstanding
with no assets and no liabilities. Net income per share or total
The accompanying notes are an integral part of these financial statements
F-15
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
September 30, 1999
average shares outstanding are not indicated for the first nine months of
1998 because the company was operating as a limited liability company
during that time.
On April 12, 1999 the Company announced a 3-for-1 stock split payable to
shareholders of record as of the close of business on April 23, 1999. The
payout date was April 29, 1999 and the execution date was April 30, 1999.
All numbers pertaining to the shares of the company have been reported
giving retroactive effect to the 3-for-1 stock split.
Private Placement During the first quarter of 1999, the Company concluded
a private placement offering of common stock. The amount raised was
$1,062,000 with 1,446,000 shares issued. In addition, In April 1999, the
Company sold 9,000 shares at a price of $1.07 per share and issued an
aggregate of 359,787 shares as payment for legal, public relations and
other services. Also, in the first quarter of 1999, the Company
repurchased 6,202,944 of the company shares for $160,000.
NOTE 7 - Subsequent Events
In October of 1999, the company concluded a private placement offering of
two thousand (2,000) shares of 6% Convertible Series A Preferred Stock at
$1,000 per share and warrants to purchase one hundred thousand (100,000)
shares of Common Stock. The total amount raised was $2,000,000 for the
Preferred Stock and $100 for the warrants.
NOTE 8 - Commitments and Contingencies
On May 6, 1999, On The Planet, Inc. filed a lawsuit in the United States
District Court for the District of Utah against Intelliquis International,
Inc. ("Intelliquis"). The claims purportedly arise out of a Software
Rights Agreement under which Intelliquis granted On The Planet "an
exclusive license for direct sales along with a nonexclusive license for
all other sales including but not limited to retail sales" for certain Y2K
fix software identified therein. On The Planet asserts that Intelliquis
violated that Agreement by engaging in direct sales or giving third
parties a license to engage in direct sales of the Y2K fix software and
other related products. On The Planet asserts claims of copyright
infringement, breach of contract and fraud. In addition to injunctive
relief, On The Planet is seeking unspecified damages including profits
lost through the direct sales of the Y2K fix software, as well as
attorneys' fees and punitive damages. In response to the lawsuit filed by
On The Planet, Intelliquis has denied the claims filed against it and has
filed counterclaims seeking rescission of the Software Rights Agreement
and asserting breach of contract of that Agreement. Intelliquis has also
filed additional claims against On The Planet and its principal, Ernest
Hemple, arising from conduct that Intelliquis believes constitutes
defamation and interference with contract. If an amicable resolution is
not reached in the near future, Intelliquis intends to vigorously defend
the action and prosecute its counterclaims.
The accompanying notes are an integral part of these financial statements
F-16
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under the terms of our certificate of incorporation, we are generally
required to indemnify our officers and directors against any claims that may be
asserted against them in connection with their activities on behalf our company,
subject to specified qualifications. These qualifications include, but are not
limited to, the following:
o we are not required to indemnify a person, unless the person
acted in good faith and in a manner that he reasonably
believes to be in, or not opposed to, the best interests of
our company;
o in the case of a claim relating to a criminal proceeding, we
are not required to indemnify a person, unless the person had
no reasonable cause to believe that his conduct was unlawful;
and
o in the case of a claim brought by or on behalf of our company
(commonly referred to as a derivative action), we are not
required to indemnify a person against any judgment rendered
against him, unless and only to the extent that the court
determines that such person is fairly and reasonably entitled
to such indemnification.
Item 25. Other Expenses of Issuance and Distribution
Our expenses in connection with the distribution of the securities
being registered hereunder are set forth below. All expenses are estimated other
than the SEC registration fee.
Securities and Exchange Commission registration fee... $2,651.00
Printing expenses..................................... 3,000.00
Accounting fees and expenses.......................... 40,000.00
Legal fees and expenses .............................. 125,000.00
Miscellaneous......................................... 15,000.00
-----------
Total.......................................... $185,651.00
===========
Item 26. Recent Sale of Unregistered Securities
We have set forth below certain information concerning the unregistered
securities that we have heretofore issued. This information gives effect to a
3-for-1 stock split previously effected. We issued these securities without
registration in reliance on the exemption contemplated by Section 4(2) of the
Securities Act of 1933 for transactions not involving a public offering.
1. Initial Issuance of Membership Interests in Intelliquis LLC
Intelliquis LLC was initially capitalized in 1997 by capital
contributions from its founding members. The table below shows for each such
member (1) the amount of capital
II-1
<PAGE>
contributed by such member, (2) the initial percentage ownership interest in
Intelliquis LLC that each such member obtained, and (3) the number of shares of
Intelliquis common stock into which such interest was converted when Intelliquis
LLC combined with a public shell company on December 31, 1998 (as described in
Part 1 of this Registration Statement under "Corporate History--Combination with
Public Shell Company).
Number of Shares of
Common Stock Into Which
Capital Ownership Interest Interest in Intelliquis
Name Contribution in Intelliquis LLC LLC was converted
- --------------- ----------------- ------------------- -----------------------
Say Thean Lim $160,000 51% 16,636,752
Bernard Yaw $6,000 16% 5,201,856
Mark Tippets $2,000 16% 5,336,496
Blair Barret $2,000 16% 5,336,496
2. Shares Issued in Connection with Combination with Public Shell Company
On December 31, 1998, Intelliquis became a public company by combining
with an existing public shell company" (as described in Part 1 of this
Registration Statement under "Corporate History--Combination with Public Shell
Company). The following shares of common stock were issued by the public shell
company in connection with such transaction.
2.1. The four members of Intelliquis LLC were issued, in the
aggregate, 32,511,600 shares of common stock in exchange for
their membership interests as indicated in the table above.
2.2. The following employees of Intelliquis were issued shares for
no or nominal consideration: Jeff Nichols (48,048 shares); Joe
Christensen (14,256 shares); Darren Burbank (4,752); Dave
Jones (24,288).
3. Other Shares of Common Stock Issued
3.1. In the first quarter of 1999, we sold an aggregate of
1,446,000 shares to the following individuals: Say Thean Lim
(450,000 shares at a price of $0.67 per share); Bill Chipman
(18,000 shares at a price of $1.07 per share); A-Vision
(450,000 shares at a price of $0.67 per share); Allen Gelbard
(450,000 shares at a price of $0.78 per share); Kent Huff
(18,000 shares at a price of $1.07 per share); and Hubert
Michaud (60,000 shares at a price of $1.07 per share).
3.2. In April 1999, we sold 9,000 shares to Bill Chipman at a price
of $1.07 per share.
3.3. In April 1999, we issued to Nathan Drage an aggregate of
359,787 shares as payment for legal, public relations and
other services.
II-2
<PAGE>
4. Issuance of Series A Preferred and Common Stock Warrant in October 1999
Private Placement
In October 1999, we issued shares of our 6% Convertible Series A
Preferred Stock and related warrants (as described in Part 1 of this
Registration Statement under "October 1999 Private Placement).
Item 27. Exhibits
Exhibit Number Description
3.1 Certificate of Incorporation of Leesburg Land
and Mining, Inc. (subsequently renamed
Intelliquis International, Inc.)*
3.2 Certificate of Merger of Leesburg Land and
Mining, Inc., a Colorado corporation, into
Leesburg Land and Mining, Inc. (subsequently
renamed Intelliquis International , Inc.), a
Nevada corporation*
3.3 Articles of Amendment to the Articles of
Incorporation of Leesburg Land and Mining, Inc.
dated January 7, 1999 (which amendment changed
the name of the corporation to Intelliquis
International , Inc.)*
3.4 Articles of Amendment to the Articles of
Incorporation of Intelliquis International,
Inc. dated April 21, 1999 (which amendment
effected a 3-for-one stock split)*
3.5 Certificate of Designations of Series A 6%
Convertible Preferred Stock of Intelliquis
International, Inc.*
3.6 By-laws of Intelliquis International, Inc.*
5.1 Opinion of Michael Eisner, Esq.*
10.1 Acquisition Agreement between Leesburg Land and
Mining, Inc. and the equity owners of
Intelliquis LLC (incorporated by reference to
Exhibit 2 to the Report on Form 8-K dated
January 22, 1999, by Leesburg Land and Mining,
Inc.)
10.2 Securities Purchase Agreement dated as of
October 26, 1999, between Intelliquis
International, Inc. and ROBI Investors LLC*
10.3 Warrant to Purchase Common Stock of Intelliquis
International, Inc. issued to ROBI Investors LLC*
10.4 Conditional Warrant to Purchase 6% Convertible
Series A Preferred Stock and Warrants to
Purchase Common Stock issued to ROBI Investors LLC*
10.5 Warrant to Purchase Common Stock of Intelliquis
International, Inc. issued to Millenium Capital
Holdings*
II-3
<PAGE>
LLC*
10.6 Registration Rights Agreement dated as of
October 26, 1999, between Intelliquis
International, Inc. and ROBI Investors LLC*
10.7 Employment Agreement between Intelliquis
International, Inc. and Bernard Yaw*
10.8 Employment Agreement between Intelliquis
International, Inc. and Mark Tippets*
10.9 Distribution Agreement dated as of November 22,
1999, between Ingram Micro Inc. and Intelliquis
International, Inc.*
21 List of Subsidiaries of Intelliquis
International, Inc.*
22.1 Consent of Michael Eisner (included in the
opinion filed as Exhibit 5.1)*
22.2 Consent of Crouch, Bierwolf & Chisholm
24 Power of Attorney (included in Part II of the
Registration Statement under the caption
"Signatures" )
* To be filed by amendment
Item 28. Undertakings
(a) Rule 415 Offerings
The registrant hereby undertakes that:
(1) it will file, during any period in which it offers or sell
securities, 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, as amended (the "Act");
(ii) reflect in the Prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) include any additional or changed material information
with respect to the plan of distribution.
(2) for the purpose of determining any liability under the Act, each
post-effective amendment shall be treated as a new registration statement of the
securities offered, and the offering of such securities at that time will be
treated as the initial bona fide offering thereof.
(3) it will file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(e) Request for Acceleration of Effective Date
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
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 our payment of expenses incurred or paid by a
director, officer or controlling person 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, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of 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 has authorized this
registration statement to be signed on its behalf by the undersigned, in Draper,
Utah, on December 28, 1999.
Intelliquis International, Inc.
/s/ Bernard Yaw
By:------------------------------
Bernard Yaw
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
respective capacities and on the respective dates indicated. Each person whose
signature appears below hereby authorizes Bernard Yaw and David Jones and each
with full power of substitution, to execute in the name and on behalf of such
person any amendment or any post-effective amendment to this Registration
Statement and to file the same, with exhibits thereto, and other documents in
connection therewith, making such changes in this Registration Statement as the
Registrant deems appropriate, and appoints each of Bernard Yaw and David Jones,
each with full power of substitution, attorney-in-fact to sign any amendment and
any post-effective amendment to this Registration Statement and to file the
same, with exhibits thereto, and other documents in connection therewith.
/s/ Bernard Yaw
---------------------------
Bernard Yaw
President, Chief Executive Officer and Director (Principal Executive
Officer)
December 28, 1999
/s/ Mark Tippets
--------------------------
Mark Tippets, Director
December 28, 1999
<PAGE>
/s/ Say Thean Lim
--------------------------
Say Thean Lim, Director
December 28, 1999
--------------------------
Douglas Cole, Director
December 28, 1999
/s/ Dave Jones
--------------------------
Dave Jones, Chief Financial Officer
(principal accounting officer)
December 28, 1999
<PAGE>
EXHIBIT 22.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-B2 and the related Prospectus of Intelliquis
International, Inc., for the registration of up to 14,193,104 shares of its
common stock, and to the inclusion therein of our report dated March 5, 1999.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
December 27, 1999
