<PAGE>
As filed with the Securities and Exchange Commission on September 28, 2000
Registration No. 333-94149
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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:
Eisner & Associates
9777 Wilshire Blvd., Suite 718
Beverly Hills, CA 90212
Attention: Michael Eisner, Esq.
(310) 205-6080
--------------------------
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)
<PAGE>
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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------
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
--------------- ------------- --------- ---------- ------------
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 8,362,602
$0.001 per share, Shares(1) $0.200(2) $1,672,520(2)
issued upon conversion
of Series A stock
----------------------------------------------------------------------------------------
Common Stock, par value 100,000 $3.03(3) $ 303,000(3)
$0.001 per share,
issued upon exercise of
warrants by ROBI
Investors, LLC.
---------------------------------------------------------------------------------------
Total 8,462,602 $1,975,520 $2,651(4)
---------------------------------------------------------------------------------------
</TABLE>
(1) The indicated shares may be sold, from time to time, by the selling
security holder. These shares are comprised of: (1) up to 7,854,602
shares of common stock that may be issued upon conversion of 1,800
outstanding shares of our 6% convertible Series A preferred stock
and (2) 508,000 shares of common stock that have been issued in
connection with ROBI Investors LLC's prior conversion of 200
outstanding shares of our 6% convertible Series A preferred stock.
The conversion price of our Series A preferred stock, with respect
to the 1,800 unconverted shares of Series A preferred stock, 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 stock. The number of shares that we have
registered represents two times the number of shares that would
be issuable upon conversion, based upon a conversion price that
was determined by negotiationn between us and the selling
security holder, plus the 508,000 shares of common stock that
will be issued in connection with the prior conversion of 200
shares of our Series A preferred stock by the selling security
holder. The number of registered shares is not indicative of the
actual number of shares that will be issued pursuant to the
Series A preferred stock. The actual number, which depends on the
conversion price in effect at the time of conversion, may be
significantly different than the number of shares that we have
registered.
<PAGE>
(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 September 21, 2000, as reported
by the OTC Bulletin Board.
(3) 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).
(4) Fee of $2,651 was paid with the original filing.
To the extent permitted by Rule 416 under the Securities Act, this
Registration Statement also covers any additional shares of 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 Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated September 28, 2000.
PROSPECTUS FOR SALE OF COMMON STOCK
OF INTELLIQUIS INTERNATIONAL, INC.
Offering by Selling Security Holder
ROBI Investors, LLC, the selling security holder, may use this prospectus to
offer to sell shares of our common stock. Intelliquis is not
offering any shares of our common stock for sale through this prospectus.
Shares That May be Offered
The selling security holder may offer up to 8,462,602 shares of our common
stock. Of these shares, 508,000 are currently outstanding. The selling security
holder may acquire the remainder of these shares from us and use this prospectus
to reoffer these shares to you. These shares are comprised of
(1) 7,854,602 shares that may be acquired pursuant to the terms of
Outstanding shares of our 6% convertible Series A preferred stock;
(2) 508,000 shares that were acquired upon conversion of 200 shares of
our 6% convertible Series A preferred stock; and
(3) 100,000 shares that may be acquired pursuant to the terms of
outstanding warrants.
The selling security holder, in accordance with their rights under section I of
the Certificate of Designations of the Series A 6% Convertible Preferred Stock,
has sent notice to us that they are exercising their mandatory redemption right
thereunder. At the time of this registration statement, we have not redeemed the
selling security holders shares. See "October 1999 Private Placement -- Terms of
Series A Preferred -- Mandatory Redemption."
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 holder 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 September 28, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................2
RISK FACTORS.................................................................6
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS......................10
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....................................................................21
MANAGEMENT..................................................................25
PRINCIPAL STOCKHOLDERS......................................................28
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
1
<PAGE>
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 seven software titles:
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;
o Speed 98, which increases the speed of certain older
computers;
o Web Site Traffic Meter, allows Webmasters to track, monitor
and analyze the traffic patterns of their Internet sites.
o Mass Mailer, allows users to send unlimited numbers of
e-mail messages to an unlimited number of contacts.
o Cyber Surveillance, allows parents and supervisors to see
what their children and employees are viewing during
Internet-surfing sessions.
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 74% of our sales in fiscal 1999. As
expected, however, most personal computer users had addressed their year 2000
problems by the first quarter of the year 2000 and, consequently, sales of this
product declined significantly. Our future success, therefore, depends on our
ability to increase sales of our other products and the expansion of our product
line.
In addition, while our focus is software, we may sometimes offer a
specialized hardware product that essentially functions as software. For
example, we offered 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.
2
<PAGE>
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.
3
<PAGE>
The Offering
General
The security holder 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 holder may use this prospectus to sell up to
8,462,602 shares of our common stock. Of these shares, 508,000 are currently
outstanding. The selling security holder may hereafter acquire the remainder of
these shares from us and use this prospectus to reoffer the shares to you.
The shares that may be offered by the selling security holder pursuant
to this prospectus include:
o up to 7,854,602 shares that may be acquired upon conversion of
1,800 outstanding shares of our 6% convertible Series A
preferred stock;
o 508,000 shares that were acquired upon conversion of 200
shares of our 6% convertible Series A preferred stock; and
o up to 100,000 shares that may be acquired upon exercise of
outstanding warrants.
The selling security holder, in accordance with their rights under
section I of the Certificate of Designations of the Series A 6% Convertible
Preferred Stock, has sent notice to us that they are exercising their mandatory
redemption right thereunder. At the time of this registration statement, we have
not redeemed the selling security holders shares. See "October 1999 Private
Placement -- Terms of Series A Preferred -- Mandatory Redemption."
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 stock. We
have included in this prospectus two times the number of shares that would be
issued based on a conversion price 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 stock. See
"October 1999 Private Placement--Terms of Series A Preferred--Conversion
Price."
Method of Sale
The selling security holder 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.
4
<PAGE>
Use of Proceeds
We will not receive any proceeds upon conversion of the Series A
preferred stock, nor will we receive any of the proceeds from the sale by the
selling security holder of the shares issued upon such conversion.
We will receive the exercise price of any warrants that are exercised
by the selling security holder, but they are under no obligation to exercise. We
intend to use any proceeds from exercise of the warrants for working capital and
general corporate purposes.
Trading Market for Our Common Stock
Our common stock is traded through the OTC Bulletin Board under the
symbol "INTQ."
5
<PAGE>
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 on which to evaluate our potential for
future success.
We first commenced operations in October 1997 and have a limited
operating history. We currently have a limited number of products and limited
financial information upon which to base your evaluation of our performance.
Accordingly, you must consider our business and its prospects in light of the
risks, expenses and difficulties encountered by companies in the early stages of
development.
We have experienced net losses in the recent past and expect to incur net losses
in the near future.
We had net losses of $74,506 in fiscal 1999 and $867,733 in the first
half of 2000. The loss we incurred in fiscal 1999 was the result of an $820,507
charge back taken by the Company as a result of returns of our Intellifix 2000
product. Similarly, our loss in the first half of 2000 was the result of a
substantial reduction in sales of Intellifix 2000, a product that assisted users
in addressing their year 2000 problems and accounted for 74% of our sales in
fiscal 1999. During the first half of 2000, we introduced three new products to
the marketplace, Web Site Traffic Meter, Mass Mailer and Cyber Surveillance.
Although we have not yet received any revenue from the sales of these new
products, we expect that sales will increase as they continue to be introduced
to the marketplace. However, until we begin to generate substantial net revenues
from the sale of our existing products, these new products, and any products
that we may introduce in the future, we expect to continue to incur net losses
on a quarterly and annual basis in the future.
Our future revenues are unpredictable and our quarterly operating results may
fluctuate significantly.
Our revenues and operating results may fluctuate significantly from
quarter to quarter due to a number of factors, not all of which are in our
control. These factors include:
- our ability to attract and retain new customers to purchase our
software products;
- our ability to maintain customer satisfaction;
- the success of new software products that we introduce into the
marketplace;
- new services and products introduced by our competitors;
- price competition;
- the effect of traditional retail seasonality has on the sale or our
software products;
- our ability, through our major distributor, to continue to supply our
customers with our products;
- our ability to continue to acquire and license software titles
developed by others;
- government regulations related to the sales and distribution of
software; and
- general economic conditions and economic conditions specific to the
software industry.
Because of these and other factors, we believe that period to period
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of investors
and other market participants in some future periods, then our stock price may
decline.
Our account receivables represent most of our assets and a significant number or
our receivables come from one customer; we expect that a majority of our
receivables will continue to come from a few customers for the foreseeable
future.
As of August 30, 2000, our accounts receivable amounted to $2,802,665
and represented more than 65% of our estimated assets. We currently maintain an
allowance for doubtful accounts of approximately $460,000. In addition, as of
April 30, 2000 receivables due from one customer, Ingram Micro, Inc., accounted
for $1,435,172 or 51% of our total receivables. The average age of these
receivables was 101 days.
Our business model relies on sales of our software products to
distributors who then sell our products directly to our customers. As a result,
our ability to generate revenues relies, to a large extent, on our distributors
ability to sell our products and our ability to collect receivables owing to us
from these distributors. Although we have provided an allowance for doubtful
accounts, we cannot assure you that this will prove adequate. In addition, since
a substantial amount of our receivables are due from one distributor, if we were
to experience a collection problem with that distributor or if that distributor
were to cease selling our products our ability to generate revenues and to
produce net income would be hindered.
6
<PAGE>
A large portion of our revenues are currently derived from our sales 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
61% of our sales in 1999 and 26% in the first half of 2000. Although we believe
that we will have more distributors for our products as we continue to produce
more products and attract more customers, we expect that a small number of
distributors, and in particular Ingram Micro, Inc., will continue to account for
a substantial part of our revenues in the near term. As a result, our inability
to secure additional distribution contracts during a given period or the loss of
our major distributor could adversely affect our ability to generate revenues
and the price of our stock.
If our distributors cannot resell our products, our ability to generate revenues
will be hindered.
In fiscal 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 August 30, 2000 these distributors
held in their inventory approximately $600,000 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 $220,000. 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;
and
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.
7
<PAGE>
If we fail to develop new software or improve our existing software products
to meet or adapt to the changing needs of our customers, our products may become
obsolete very quickly and sales of our software may decline.
Our future success depends on our ability to develop new software
products and to modify and improve our existing software products to meet our
clients needs. To achieve increased market acceptance of our software, we must,
among other things, continue to:
- improve our existing software products and introduce new
software products to the marketplace;
- incorporate new technology into our software on a timely and
cost-effective basis;
- keep pace with the software products introduced by our
competitors;
- satisfy the changing requirements of our current and potential
customers; and
- adapt to rapidly changing computer operating systems, database
and software platform standards and Internet technology.
If we fail to develop new software products and improve our existing
software products, our software products may not achieve market acceptance and
we may be unable to attract new customers. We may also lose additional
customers, to whom we seek to sell additional software products. Also, we have
recently released Mass Mailer, which allows users to broadcast e-mail messages
to multiple contact lists, and Web Site Traffic Meter, which allows webmasters
to monitor and track traffic patterns to and within their internet sites. To
date we have not received any revenue from Mass Mailer and Web Site Traffic
Meter and cannot assure you that we will derive revenues from these products in
the future. Moreover, we cannot be certain how the continued emergence of the
Internet will effect our business. Our failure to produce software products that
our acceptable to the marketplace and that conform with prevailing technology
standards could limit our ability to produce revenues and could adversely affect
our business.
Our software products may contain defects, which can result in reduced sale,
increased service and warranty costs, and liability to our clients.
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, (3) decreased sales of our
software and (4) we may incur service costs in connection with fixing the
problems or providing replacement products.
Third party Intellectual Property claims against us can be costly and result in
the loss of significant rights.
Other parties may assert infringement or unfair competition claims
against us. We generally do not conduct a comprehensive investigation to verify
that the products that we license from others and sell do not infringe the
rights of others. Rather, we generally rely on representations to that effect
that we receive from the licensor. Although we do not believe that we are
infringing on the patent rights or copyrights of other parties, other parties
may claim that we are doing so. Any claim, with or without merit, could result
in significant litigation costs, distraction of technical and management
personnel, or delays in future releases of our software products. If we are
unsuccessful in defending against such a claim, we may be burdened by being
required to enter into burdensome royalty and licensing agreements or have other
sanctions assessed against us that may materially harm our business.
We face intense competition, which could adversely affect our revenues,
profitability and market share.
The market for our software products is intensely competitive, highly
fragmented, characterized by rapid technological change and significantly
affected by new product introductions. We compete with other software producers
who create products similar to ours including Web Site Builder, Web Trends,
Symantec and Cyberspace HQ. A number of these competitors have significantly
greater financial, technical, marketing and other resources and have been in
business longer than we have. In addition, many of our competitors also have
greater brand recognition, stronger business relationships and more customers
then we do. As a result, our competitors may have the ability to support
marketing endevors that are more extensive than ours, respond to technological
advancements quicker then us, better take advantage of acquisitions and other
opportunities and adopt more aggressive pricing terms and policies then ours.
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 the Series A preferred stock by the selling stockholder will
dilute the ownership interest of our current stockholders.
As of August 30, 2000, 1,800 shares of our Series A preferred stock
having an aggregate stated value of $2.0 million, were issued and outstanding.
The shares of Series A preferred stock are convertible into a number of shares
of our common stock as is determined by dividing the stated value of the Series
A preferred stock being converted ($1,000 per share), by the conversion price in
effect at the time of conversion. The conversion price is determined by
reference to the then current market price of our common stock or, if less, a
fixed conversion price. If the selling security holder had converted the total
number of shares of Series A preferred stock on September 21, 2000, the number
of shares of our common stock that would have been issued to the selling
security holder would have been 9,000,000 (based on the conversion price in
effect on September 21, 2000). However, the actual number of shares that may be
issued on conversion of the Series A preferred stock may prove to be
significantly greater in the event of a decrease in the trading price of our
common stock. The following table describes the number of shares of our common
stock that would be issuable assuming all of the presently issued and
outstanding shares of Series A preferred stock were converted and further
assuming that the applicable conversion price at the time of the conversion were
the following amounts and the percentage ownership of our common stock which
would result from such conversion:
<TABLE>
<CAPTION>
Conversion Number of Shares Percentage
Selling Security Holder Price Beneficially Owned(1) Ownership
----------------------- ---------- ------------------ ----------
<S> <C> <C> <C>
ROBI Investors LLC .458 4,435,301 10.98%
.344 5,740,558 13.77%
.229 8,368,262 18.88%
.114 16,297,474 31.20%
</TABLE>
(1) Shares owned is comprised of (1) the common stock underlying 1,800
shares of Series A preferred stock which is convertible at the
conversion price plus (ii) 508,000 shares, which represents common
stock underlying 200 shares of Series A preferred stock previously
converted by ROBI.
Given the structure of the conversion formula applicable to the Series
A preferred stock, there effectively is no limitation on the number of shares of
our common stock into which the Series A preferred stock may be converted. As
the market price of our common stock decreases, the number of shares of our
common stock underlying the Series A preferred stock continues to increase.
Purchasers of common stock could therefore experience substantial dilution of
their investment upon conversion of the Series A preferred stock by the selling
stockholder.
Our current stockholders could experience overall dilution to market price and
relative voting power.
The conversion of the Series A preferred stock may result in
substantial dilution to the equity interests of other holders of our common
stock. Specifically the issuance of a significant amount of additional common
stock would result in a decrease in the relative voting control of common stock
issued and outstanding prior to the conversion of the Series A preferred stock.
In addition, public resales of our common stock following the conversion of the
Series A preferred stock, likely would depress the prevailing market prices of
our common stock. Even prior to the time of actual conversions, exercises and
public resales, the markets perception of the mere existence of our obligation
to honor such conversion could depress the market price of our common stock.
Conversion of our Series A preferred stock could result in an increased
potential for short sales.
Downward pressure on the market price of our common stock that likely
would result from sales of our common stock issued upon conversion of our Series
A preferred stock could encourage short sales of our common stock. Material
amounts of such short selling could place further downward pressure on the
market price of our common stock.
8
<PAGE>
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 stock, 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 stock, 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.
If we are unable at attract and retain key personnel, we may not be able to
effectively manage and expand our business.
Our future success will depend in large part on our ability to hire,
train, retain and motivate a sufficient number of qualified personnel. If we
are unable to attract and retain qualified personnel or if we experience high
personnel turnover, it would increase our costs and could prevent us from
effectively managing and expanding our business.
Our future success also depends on the continued services of each of
our executive officers particularly Bernard Yaw, our President and Chief
Executive Officer and Mark Tippets, our Vice President of Sales and Marketing.
We have employment agreements and non- compete agreements with each of these
executive officers. However, any executive officers, subject to the terms of
their agreement, and other employees could terminate his or her relationship
with us at any time. The loss of the services of our executive officers or other
key personnel could materially and adversely affect our business. In addition,
if one or more of our executive officers or key employees were to join one of
our competitors, after the completion of the non-compete term, or otherwise
compete with us, it could harm our business.
Our officers and directors control a large percentage of our voting stock and
could exert significant influence over matters requiring stockholder approval.
As of June 1, 2000, our officers and directors controlled
approximately 56% of our outstanding common stock. As a result, these
stockholders, if they act together, will be able to control all matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions involving us. This control may
have the effect of delaying, preventing or deterring a change in control and
could deprive our stockholders of an opportunity to receive a premium for their
common stock as part of any sale or acquisition.
There is pending litigation against us, the outcome of which could have a
material affect on the business.
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 arose 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)
asserted 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) asserted claims of copyright infringement,
breach of contract and fraud.
Subsequently, On the Planet alleged that we entered into a Settlement
Agreement with them on January 4, 2000 regarding the aforementioned claims.
Under the terms of the Settlement Agreement, we allegedly agreed to pay On the
Planet $150,000 in three payments and issue On the Planet 300,000 shares of
registered Intelliquis Stock, which were to be subject to lock-up restrictions,
in exchange for a complete release of Intelliquis from all claims asserted by On
the Planet in connection with the Software Rights Agreement. Intelliquis claimed
that the Settlement Agreement was not an enforceable contract and thus refused
to provide On the Planet compensation under such agreement. On May 23, 2000, the
United States District Court for the District of Utah, Central Division, granted
On the Planet's motion to enforce the Settlement Agreement and directed
Intelliquis to pay On the Planet: $202,100 within 14 days of the court's order
and to grant On the Planet 260,000 shares of registered Intelliquis stock.
Intelliquis has decided to appeal this ruling and we filed a notice of appeal.
However, the outcome of the appellate process is uncertain and cannot be
predicted at this time. If we are unsuccessful with our appeal we will be
required to make the payments ordered by the court and our business will be
adversely affected.
9
<PAGE>
A claim has been brought by Doren Rosenthal d/b/a Rosenthal Engineering
against the Company, based on claims made by Rosenthal that stem from an alleged
breach of a licensing agreement. The case includes claims for breach of
contract, misappropriation of trade secrets, and others.
Rosenthal is a software programmer that developed computer programs
designed to fix Year 2000 bugs in software programs. Rosenthal alleges that he
entered into a licensing agreement with Intelliquis, whereby Intelliquis
licensed Rosenthal's software program and included it in the Company's own Year
2000 fix, and whereby Intelliquis did not pay certain royalties owed to
Rosenthal, and also that Intelliquis made unauthorized use of Rosenthal's
program. Rosenthal has filed a lawsuit in the Superior Court for the State of
California based on the contract and related claims, and is seeking damages in
an unspecified amount. Rosenthal has also threatened to file a lawsuit in
Federal Court based on claims related to intellectual property. Outside of the
litigation, Rosenthal has stated that he is seeking in excess of $1,000,000.
Intelliquis denies all of the allegations made by Rosenthal in the
case. Intelliquis has taken the position that any royalties owed, if any, are of
a nominal amount, and were properly withheld as a reserve due to potential
returns of the Rosenthal product as a result of product defects. Intelliquis
also denies that it engaged in any misappropriation of trade secrets, or any of
the other acts alleged. Intelliquis intends to defend the present and threatened
actions of Rosenthal.
This matter is in its early stages, and the outcome is uncertain. If we
are unsuccessful in the defense of this action it could have a material adverse
effect on the business.
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.
10
<PAGE>
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 the disposal 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)
11
<PAGE>
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.
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<PAGE>
USE OF PROCEEDS
We will not receive any proceeds upon conversion of the Series A
preferred stock, nor will we receive any of the proceeds from the sale by the
selling security holder of the shares issued upon such conversion.
We will receive the exercise price of any warrants that are exercised
by the security holder, but they are under no obligation to exercise.
We intend to use any proceeds from exercise of the warrants for working capital
and general corporate purposes. For information concerning these warrants, see
"October 1999 Private Placement" and "Selling Security Holder."
MARKET FOR OUR COMMON STOCK AND RELATED MATTERS
Market for Our Common Stock
Our common stock trades 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.
<TABLE>
<CAPTION>
Calendar Quarter High Bid Price Low Bid Price
---------------- -------------- -------------
<S> <C> <C>
First quarter of 1999 $ 5.00 $0.00
Second quarter of 1999 6.25 2.750
Third quarter of 1999 5.00 2.125
Fourth quarter of 1999 2.6875 0.8125
First quarter of 2000 2.875 0.50
Second quarter of 2000 1.031 0.375
</TABLE>
Record Holders
As of August 31, 2000, there were 1,123 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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<PAGE>
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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<PAGE>
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, 1999 and for the year ended December 31, 1999 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.
For accounting and other financial reporting purposes, our combination
with an existing "public shell company" on December 31, 1998 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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<PAGE>
<TABLE>
<CAPTION>
Period From June 9,
1997 (Inception)
Through December 31, Six Months Ended June 30,
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
Income statement data:
<S> <C> <C> <C> <C> <C>
Sales $34,709 $1,461,196 $7,457,568 $3,419,410 $ 969,638
Cost of sales 4,948 355,613 3,759,506 1,655,680 199,548
---------- ---------- ---------- ----------- -----------
Gross margin 29,761 1,105,583 3,698,062 1,763,730 770,110
Sales and marketing 36,443 596,125 1,442,675 395,447 430,287
General and administrative 47,841 430,304 1,320,028 738,655 471,098
---------- ---------- ---------- ----------- ------------
Operating income (loss) (54,523) 79,154 935,359 629,628 (131,275)
Other income (expense) - (3,233) (987,837) (4,687) (168,701)
---------- ---------- ---------- ----------- ------------
Net income (loss) before
taxes (54,523) 75,921 (52,478) 624,941 (279,676)
Taxes - - - 243,827 (507,921)
Preferred Dividends - - (22,028) - (59,836)
---------- ---------- ---------- ----------- ------------
Net income $(54,523) $75,921 $ (74,506) $ 381,114 $ (867,733)
========== ========== ========== =========== ============
Pro forma income taxes - 17,859 - - -
---------- ---------- ---------- ----------- ------------
Pro forma net income - $58,062 $ (74,506) $ 381,114 $ (867,733)
========== ========== ========== =========== ============
Earnings per share $ 0.011 $ 0.025
=========== ============
<CAPTION>
June 30, 2000
Balance sheet data: -------------------------------
<S> <C>
Cash $ 143,742
Working capital 1,590,757
Accounts receivable 3,117,017
Total assets 5,358,859
Stockholders' equity 2,414,026
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Background
The Company seeks to become a leading republisher, marketer and
supporter of Year 2000, Internet utility, productivity and communication
software products for the computer software retail market. The Company was
incorporated as Leesburg Land and Mining Inc. in Colorado for the purpose of
conducting mining operations. Effective December 31, 1998, the Company acquired
all of the equity of Intelliquis LLC, which then became a wholly owned
subsidiary (the "Subsidiary") of the Company. During this same period the
Company changed its corporate domicile to Nevada and changed its name to
Intelliquis International, Inc. The Subsidiary was founded in August 1997 and
organized in December 1997 as a Utah limited liability company. As a result of
the acquisition of the Subsidiary, the controlling shareholders of the
Subsidiary became controlling shareholders of the Company.
The Company seeks to build a leadership position in this market by
first licensing fully tested software applications from independent software
developers and then developing or acquiring a family of software applications.
The Company's main emphasis lies in PC Utilities titles, but will offer a
selection of Reference, Productivity and Communication titles both in the North
American and International market. The software products are being marketed
through traditional software distribution channels and the Internet. Since the
release of the Company's first software title in November 1997, the Company has
grossed approximately $9 million in sales to date.
The Company has licensed and released a total of eight software
titles through the end of the first four months of 2000 namely, IntelliFix 2000
(formerly Fix2000), TotalFax, Web Site Traffic Builder, Credit Builder, Speed
98, Cyber Surveillance, Web Site Traffic Meter, and Mass Mailer. In the last
quarter of 1997, the Company republished and released its first three titles
(NetFax, Speed98 and Credit Builder). During 1998, Intelliquis released another
three titles (TotalFax, Fix2000, and Web Site Traffic Builder). In 1999, the
Company revamped Credit Builder and launched it as Credit Builder Deluxe.
Intelliquis also released Cyber Surveillance during fourth quarter 1999. With
the availability of new and quality titles to license, the Company intends to
release new titles on a regular basis in 2000 and beyond.
Intelliquis announced the launch of two new titles at the beginning
of 2000, Mass Mailer and Web Site Traffic Meter. Mass Mailer is a bulk e-mail
message program that allows users to broadcast e-mails to multiple contact
lists. Web Site Traffic Meter allows Webmasters to track and monitor traffic
patterns to and within their Internet sites. The Company plans to offer Web Site
Traffic Meter as a stand-alone product and include the product with Web Site
Traffic Builder in a suite of Internet products.
Liquidity and Capital Resources
Net cash used in operating activities was $2,655,110 and $832,334
for the six months ended June 30, 2000 and 1999, respectively. The increase in
cash used in operating activities is primarily attributable to the
reclassification of a large account payable to a note payable and prepayment of
marketing expenses for fiscal year 2000.
Liquidity is a significant concern for the Company until it can
generate adequate cash flows from operations, which are primarily dependent on
the development, marketing and distribution of the Company's products. With the
forecasted sales for the next quarter and existing receivables, the Company is
planning to meet its obligations.
Accounts receivable is still rather high; however, the Company is
attempting to resolve a discrepancy with its major distributor that will result
in decreasing accounts receivable by approximately $500 thousand. Although the
Company does not anticipate any problems related to accounts receivable
collections, it is currently taking measures to assure collection on all amounts
outstanding. In addition, the Company continues to record an allowance for
possible returns.
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<PAGE>
Results of Operations
Three Months Ended June 30, 2000 and 1999
-----------------------------------------
The Company derives revenue from the sale of software products,
which it licences from developers and resells. The Company sells its products in
North America and internationally primarily through retailers and distributors.
The Company's international sales represented less than 4% and 1% of sales
during the second quarter of 2000 and 1999, respectively. The Company's sales
decreased $1,634,275 from $2,199,137 for the second quarter of 1999 to $564,862
for the same period in 2000. The Company's decrease in sales is primarily due to
the decrease in sales of the IntelliFix 2000 products and the late release of
the Company's new products. The Company expects sales to increase for the rest
of the fiscal year due to the release of new products and new versions of
existing products.
The Company released 2 new software programs (Web-site Traffic
Analyzer and Mass Mailer) during the first six months of 2000. The Company
believes that sales for its current programs will continue to increase
through-out the year. In addition, the Company is planning to release at least
one new software program each quarter. The Company is partnering with another
entity to develop a program that will be installed on the ISA cards currently in
inventory. The Company believes that sales of the ISA card product will
completely deplete the current inventory of the cards.
Cost of sales includes cost of goods sold, royalties paid to
developers and the costs for maintaining technical support. The cost of sales
totaled $61,507 for the three months ended June 30, 2000 and constituted 11% of
total sales as compared to $1,151,990 and 52% of total sales for the same period
in 1999. The change in the percent of sales is due to decreases in royalty fees
and per unit cost of production for the current products being sold. During the
second quarter of 1999 cost of goods sold were higher than normal due to the
cost of sales for the ISA cards. During the second quarter of 2000 the Company
had taken additional measures to reduce royalties and production labor. The
Company anticipates that cost of sales will approach 19% of sales for the fiscal
year 2000.
The total sales and marketing for the second quarter of 2000
amounted to $189,960 while the same period in 1999 amounted to $276,831. Sales
and marketing expense as a percentage of sales were 34% and 13% for the three
months ended June 30, 2000 and 1999, respectively. The increase in percent of
sales is due to the decrease in sales. Also, the Company was involved in
numerous marketing programs that will be of benefit for the entire year. While
sales continue to increase sales and marketing as a percentage of sales will
decrease. The Company expects sales and marketing expense to be approximately
20% for the fiscal year 2000.
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<PAGE>
General and administrative expenses totaled $256,181 and $472,399
for the three months ended June 30, 2000 and 1999, respectively. The decrease in
costs can be attributed to cutbacks in payroll associated with the Y2K products.
General and administrative costs have increased as a percentage of sales to 45%
from 21% for the three months ended June 30, 2000 and 1999, respectively.
However, the increase is more attributable to decrease in sales than an increase
in general and administrative expenses. The Company anticipates general and
administrative expenses as a percentage of sales to approximate 15% for the
fiscal year 2000.
The Company settled on two lawsuits during the second quarter of
2000. The settlements resulted in a loss of $507,921. The Company does not
anticipate any further claims or litigation will result with material effect on
the Company's financial position, results of operations or cash flows.
For the fiscal year 2000, the Company expects to continue to grow by
realizing overseas growth in its current product lines and the demand for the
new products released in April. In relation, the Company anticipates to have
income from operations for each of the remaining quarters and for the fiscal
year. The income will be a result of increased sales throughout the year due to
new products and revisions. In addition, the Company is exploring other products
that could be release by third or fourth quarter which could dramatically
increase sales.
For the three months ended June 30, 2000, the Company reported an
operating income of $57,214, compared to operating income of $297,917 in the
corresponding period in 1999.
Six Months Ended June 30, 2000 and 1999
The Company's sales amounted to $969,658 for the first six months of
2000 which is a decrease of $2,449,753 from $3,419,411 for the same period in
1999. The Company's decrease in sales is primarily due to the decrease in sales
of the IntelliFix 2000 products and the late release of the Company's new
products. The Company expects sales to increase for the rest of the fiscal year
due to the release of new products and new versions of existing products.
Cost of sales includes cost of goods sold, royalties paid to
developers and the costs for maintaining technical support. The cost of sales
totaled $199,548 for the six months ended June 30, 2000 and constituted 21% of
total sales as compared to $1,655,680 and 48% of total sales for the same period
in 1999. The change in the percent of sales is due to decreases in royalty fees
and per unit cost of production for the current products being sold. During the
first six months of 1999 cost of goods sold were higher than normal due to the
cost of sales for the ISA cards. During the first six months of 2000 the Company
had taken additional measures to reduce royalties and production labor. The
Company anticipates that cost of sales will approach 19% of sales for the fiscal
year 2000.
The total sales and marketing for the first six months of 2000
amounted to $189,960 while the same period in 1999 amounted to $276,831. Sales
and marketing expense as a percentage of sales were 44% and 12% for the six
months ended June 30, 2000 and 1999, respectively. The increase in percent of
sales is due to the decrease in sales. Also, the Company was involved in
numerous marketing programs that will be of benefit for the entire year. While
sales continue to increase sales and marketing as a percentage of sales will
decrease. The Company expects sales and marketing expense to be approximately
20% for the fiscal year 2000.
19
<PAGE>
General and administrative expenses totaled $471,098 and $738,658
for the six months ended June 30, 2000 and 1999, respectively. The decrease in
costs can be attributed to cutbacks in payroll associated with the Y2K products.
General and administrative costs have increased as a percentage of sales to 49%
from 22% for the six months ended June 30, 2000 and 1999, respectively. However,
the increase is more attributable to decrease in sales than an increase in
general and administrative expenses. The Company anticipates general and
administrative expenses as a percentage of sales to approximate 15% for the
fiscal year 2000.
The Company settled on two lawsuits during the second quarter of
2000. The settlements resulted in a loss of $507,921. The Company does not
anticipate any further claims or litigation will result with material effect on
the Company's financial position, results of operations or cash flows.
For the fiscal year 2000, the Company expects to continue to grow by
realizing overseas growth in its current product lines and the demand for the
new products released in April. In relation, the Company anticipates to have
income from operations for each of the remaining quarters and for the fiscal
year. The income will be a result of increased sales throughout the year due to
new products and revisions and a reduction in production costs and overhead. In
addition, the Company is exploring other products that could be release by third
or fourth quarter which could dramatically increase sales.
For the six months ended June 30, 2000, the Company reported an
operating loss of $131,275, compared to operating income of $629,627 in the
corresponding period in 1999.
YEAR ENDED DECEMBER 31, 1999 AND 1998
-------------------------------------
The Company derives revenue from software products, which are
republished by Intelliquis. The Company sells its products in North America
primarily through retailers and distributors. The Company's international sales
represented less than 10% and 1% of sales during fiscal 1999 and 1998,
respectively.
The Company's sales increased $5,996,373 (410%) from
$1,461,195 for fiscal 1998 to $7,457,568 for fiscal 1999. The Company's increase
in sales is due to sales of the Y2K software programs and increased market
penetration with TotalFax and Website Traffic Builder software programs. In
addition, the Company released three two newtitles (Total Fax, Fix 2000 and
Website Traffic BuilderCredit Builder Deluxe and Cyber Surveillance) in fiscal
1998 1999 while expanding its' distribution channels. The Company released 2 new
software programs (Web-site Traffic Meter and Mass Mailer) during the first four
months of 2000.
The Company believes that sales for its current programs will
continue to increase through-out the year. In addition, the Company is planning
to release at least one new software program each quarter. Cost of sales
includes cost of goods sold, royalties paid to developers and the costs for
maintaining technical support. The cost of sales totaled $3,759,056 for fiscal
1999 and constituted 50% of total sales as compared to $355,613 or 24% of total
sales for fiscal 1998. The majority of the increase is due to the Company's cost
of ISA Cards. The Company wrote-off 50% ($820,507) of the ISA card inventory due
to the reconfiguration and marketing of the cards. The Company anticipates the
cost of sales will be approximately 40% of sales for the year 2000.
The total sales and marketing for fiscal 1999 amounted to
$1,442,675 while fiscal 1998 amounted to $596,125. The increase of $846,550 in
sales and marketing expenses is primarily due to the Company's aggressive
marketing of its' products through a number of major retailers. A large portion
of the marketing expense is determined by sales volume. Also, the Company
expanded their sales department during 1999 by hiring a number of salespeople to
meet the demand of sales.
As the Company continues to increase in sales, sales and
marketing expense will continue to decrease and constitute approximately 17% of
sales.
General and administrative expenses increased $889,724 during
fiscal 1999 over fiscal 1998. The increase in costs can be attributed to the
continued growth of the Company. The growth of the Company has made it necessary
to hire more employees and to lease additional office and warehouse space.
However, general and administrative costs as a percentage of sales decreased
from 29% to 18%. The Company believes that general and administrative expenses
will decrease as operations become more efficient and should be 15% of sales.
The Company had a net loss of $74,505 for fiscal 1999 compared
to net income of $75,921 for fiscal 1998. The primary reason for the net loss
was the write-off of $820,507 of the ISA card inventory. The write-off of the
cards was made in anticipation of additional costs to program and market the new
ISA card program. The Company plans to return to profitability for the year 2000
by managing cost of sales to achieve an increased profit margin.
For 2000, the Company is expected to continue with its
overseas growth in its current product lines. The Company established
sales/fulfillment centers in England and Malaysia to handle sales in Europe and
the Far East. The Company has also signed agreements with a number of
international distributors. As of the date of this report the Company has
released two new products (Mass Mailer and Website Traffic Meter) and plans to
release at least one new product each quarter. The Company does not anticipate
any production and/or sales facilities and personnel limitations to fulfill its
goals for 1999 2000 and beyond. The Company is also expanding its sales
potential and presence by selling its products directly to consumers over the
internetInternet, thus eliminating a significant overhead of wholesale and
retail marketing through existing channels.
20
<PAGE>
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 seven 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 seven software
titles that we currently offer:
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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<PAGE>
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.
Web Site Traffic Meter is a log analysis program that allows Webmasters to
track, monitor and analyze the traffic patterns of their Internet sites. Traffic
Meter allows Webmasters to track site visits, downloads, bandwidth, operating
system and browser, entry and exit pages for each visitor, and links used to
find the site. Once analysis is complete, Webmasters can generate reports in
HTML or Word that provide a complete statistical overview of the site's traffic
activity.
Mass Mailer is an Internet marketing tool that allows users to send unlimited
numbers of e-mail messages to an unlimited number of contacts. Mass Mailer
allows users to create and manage new databases of contacts, or import an
existing database of contacts into the program. The program also allows users to
send messages in bulk form, or create personalized e-mails to each individual
recipient.
Cyber Surveillance is an Internet-monitoring program that allows parents and
supervisors to see what their children and employees are viewing during
Internet-surfing sessions. Every image users have seen appears in a "slide show"
graphical format, showing the parent or supervisor exactly what has been viewed
during an Internet session. The program is also password-protected, ensuring
unauthorized users are locked out from altering Internet session and image
histories.
Up until the first quarter of 2000, we offered Intellifix 2000, which
was designed to identify and fix certain year 2000 problems affecting personal
computers. Sales of this product accounted for approximately 74% of our sales in
fiscal 1999. As expected, however, most personal computer users had addressed
their year 2000 problems by the first quarter of the year 2000 and,
consequently, sales of this product declined significantly. Our future success,
therefore, depends on our ability to increase sales of our other products and
the expansion of our product line.
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 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 61% of our sales in 1999 and 25% in
the first three months of 2000.
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 sales in 1998 and 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 32 employees. These include three in management,
seven 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 September 11, 2000, an action was commenced by us against certain of
our shareholders, including former officers and attorneys of Intelliquis
International, Inc., in the United States District Court for the District of
Utah, Central Division, in a matter entitled Intelliquis International, Inc. v.
Robert M. Beaton, et, al., case number 2:00CV00703. The action is seeking
damages in excess of $14,000,000 for claims based on violations of securities
regulations through the unlawful trading of our securities in the public market,
as well as other actions, and also includes claims for breach of fiduciary
duties by officers and attorneys of the Company. If an amicable resolution of
the action is not reached in the near future, we intend to vigorously prosecute
our claims. 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.
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 arose 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)
asserted 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) asserted claims of copyright infringement,
breach of contract and fraud.
Subsequently, On the Planet alleged that we entered into a Settlement
Agreement with them on January 4, 2000 regarding the aforementioned claims.
Under the terms of the Settlement Agreement, we allegedly agreed to pay On the
Planet $150,000 in three payments and issue On the Planet 300,000 shares of
registered Intelliquis Stock, which were to be subject to lock-up restrictions,
in exchange for a complete release of Intelliquis from all claims asserted by On
the Planet in connection with the Software Rights Agreement. Intelliquis claimed
that the Settlement Agreement was not an enforceable contract and thus refused
to provide On the Planet compensation under such agreement. On May 23, 2000, the
United States District Court for the District of Utah, Central Division, granted
On the Planet's motion to enforce the Settlement Agreement and directed
Intelliquis to pay On the Planet $202,100 within 14 days of the court's order
and to grant On the Planet 260,000 shares of registered Intelliquis stock.
Intelliquis has decided to appeal this ruling and we filed a notice of appeal.
However, the outcome of the appellate process is uncertainn and cannot be
predicted at this time. If we are unsuccessful with our appeal we will be
required to make the payments ordered by the court and our business will be
adversely affected.
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<PAGE>
A claim has been brought by Doren Rosenthal d/b/a Rosenthal Engineering against
the Company, based on claims made by Rosenthal that stem from an alleged breach
of a licensing agreement. The case includes claims for breach of contract,
misappropriation of trade secrets, and others.
Rosenthal is a software programmer that developed computer programs designed to
fix Year 2000 bugs in software programs. Rosenthal alleges that he entered into
a licensing agreement with Intelliquis, whereby Intelliquis licensed Rosenthal's
software program and included it in the Company's own Year 2000 fix, and whereby
Intelliquis did not pay certain royalties owed to Rosenthal, and also that
Intelliquis made unauthorized use of Rosenthal's program. Rosenthal has filed a
lawsuit in the Superior Court for the State of California based on the contract
and related claims, and is seeking damages in an unspecified amount. Rosenthal
has also threatened to file a lawsuit in Federal Court based on claims related
to intellectual property. Outside of the litigation, Rosenthal has stated that
he is seeking in excess of $1,000,000.
Intelliquis denies all of the allegations made by Rosenthal in the case.
Intelliquis has taken the position that any royalties owed, if any, are of a
nominal amount, and were properly withheld as a reserve due to potential returns
of the Rosenthal product as a result of product defects. Intelliquis also denies
that it engaged in any misappropriation of trade secrets, or any of the of the
other acts alleged. Intelliquis intends to defend the present and threatened
actions of Rosenthal.
This matter is in its early stages, and the outcome is uncertain. If we are
unsuccessful in the defense of this action it could have a material adverse
effect on the business.
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<PAGE>
MANAGEMENT
Information Concerning Officers and Directors
The table below identifies, and provides certain information
concerning, our officers and directors.
<TABLE>
<CAPTION>
Name Age Positions
----------------- --------- -------------------
<S> <C> <C>
Bernard Yaw 40 President, Chief Executive
Officer and Director
Dave Jones 37 Chief Financial Officer
Mark Tippets 48 Vice President of Sales and
Marketing and Director
Say Thean Lim 39 Director of Business
Development and Director
</TABLE>
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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<PAGE>
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 1999.
There were no cash bonus plans in effect at December 31, 1999. The
Company does not maintain or contribute to any pension or retirement plan in
which the executive officers of the Company are participants or are entitled to
receive benefits, but the Board of Directors may recommend one or more programs
for adoption in the future.
The following table provides certain information concerning the
compensation that we paid to Bernard Yaw and Mark Tippets. Mr. Yaw currently
serves President and Cheif Executive Officer of the Company and Mr. Tippets
serves as Vice President of Sales and Marketing.
<TABLE>
<CAPTION>
Summary Compensation Table
-----------------------------------------------------------------------------
Name Year Salary
--------------------------- ---- ------
<S> <C> <C>
Bernard Yaw 1999 $61,000
Mark Tippets 1999 $60,000
</TABLE>
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<PAGE>
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. Tippets 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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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below and the corresponding notes 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 stock. The conversion price
for our Series A preferred stock 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 stock
based upon the conversion price in effect as of September 21, 2000 (which was
$0.200). 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 stock may be significantly higher or lower
than the number shown in the table. See "October 1999 Private Placement--Terms
of the Series A Preferred--Conversion Price."
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<PAGE>
<TABLE>
<CAPTION>
Outstanding Percent of
Outstanding Series A Preferred Common
Name and Address (1)(2) Common Stock and Warrants Stock Owned
------------------------------------- ---------------- --------------------- ----------------
<S> <C> <C> <C>
Officers and Directors:
Bernard Yaw 4,536,856 - 12.62%
Mark Tippets 4,786,496 - 13.32%
Dave Jones 134,288 - *
Say Thean Lim 10,433,808 - 29.03%
Officers and directors as a group 19,991,448 - 55.62%
(5 persons)
Other Stockholders:
Blair Barret 4,986,496 - 13.87%
2871 Morningside Drive
Salt Lake City, UT 84058
ROBI Investors LLC, WEC Asset - 8,462,602(4) 23.54%(5)
Management LLC, and the persons
controlling these entities(3)
110 Colabaugh Pond Road
Croton-on-Hudson, NY 10520
</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 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) 7,854,602 shares that may be issued upon conversion of
1,800 shares of outstanding Series A preferred stock or the maximum amount
allowable under this registration statement (iii) 508,000 shares that will
be issued in connection with 200 shares of outstanding Series A preferred
stock that have previously been converted by the selling security holder.
and (iii) 100,000 shares that may be issued upon the exercise of certain
outstanding warrants. See "October 1999 Private Placement."
(5) The percentage of ownership figure assumes a conversion price of $0.20
per share, the conversion price determined in negotiations between the
selling security holder and us. See "October 1999 Private Placement --
Terms of Series A Preferred--Conversion Price."
29
<PAGE>
CERTAIN TRANSACTIONS
Set forth below is information concerning certain transactions between
Intelliquis and the following individuals: Say Thean Lim; Bernard Yaw; Mark
Tippets; and Blair Barret.
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 each member, (2) the initial
percentage ownership interest in Intelliquis LLC that each member obtained, and
(3) the number of shares of Intelliquis common stock into which each member's
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
o Mr. Lim loaned $80,000 to Intelliquis in 1998, which included
$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.
o 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
o In February 1999, Intelliquis repurchased from Mr. Lim 6,202,944
shares of Intelliquis common stock for an aggregate purchase price of $160,000.
o In February 1999, Mr. Lim purchased 450,000 shares of Intelliquis
common stock at a price of $0.67 per share.
Personal Guarantees
o 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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<PAGE>
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:
o the Securities Purchase Agreement,
o the Certificate of Designation, or designation, for our 6%
Convertible Series A Preferred Stock,
o the forms of the warrants that we issued in this private placement
and
o 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, or the investor, in
a private placement, the following securities:
o 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 and (2) a 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.
Terms of the Series A Preferred
o Dividends. Each share of Series A preferred stock 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 stock 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 stock 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 stock.
o Liquidation Preference. The Series A preferred stock 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 stock must be paid $1,000 (plus any accrued dividends) per share of
Series A preferred stock before any amounts may be distributed to the holders of
our common stock. After the holders of the Series A preferred stock 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 stock 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 A preferred stock could have been converted immediately prior to the
close of business on the distribution date.
o Conversion. Each share of Series A preferred stock may be converted
into the 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. In other words, 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 stock
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 stock.
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 stock. Under certain specified
circumstances, the holders of the Series A preferred stock may be precluded from
using the registration statement for a period of time, or 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 stock may elect, during the blackout period or afterwards, 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.
o Mandatory Redemption. The holders of 51% or more of the Series A
preferred stock may require us to redeem all of the outstanding Series A
preferred stock, 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 stock 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 a decree or order by the court adjudging US a bankrupt or
insolvent, or approving a petition seeking reorganization or
the institution of a voluntary bankruptcy proceeding by US.
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<PAGE>
o we default under any indenture, mortgage, agreement,
commitment or instrument under which there is at the time
outstanding indebtedness in excess of $50,000;
o final judgments against us continue undischarged or unstayed
for 30 days and, in the aggregate exceed 50,000; or
o a change of control (as defined in the designation) occurs.
o Optional Redemption. We may, at our option, redeem any or all of the
outstanding Series A preferred stock 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.
o Voting. The holders of the Series A preferred stock 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.
o Class Voting Rights. We may not change the designation in a manner
that adversely affects the rights of the Series A preferred stock, unless we
obtain the consent of the holders of at least two-thirds of the outstanding
Series A preferred stock.
Terms of Common Stock Warrants
o 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.
o Expiration Date. The common stock warrants will expire on October 26,
2002.
o 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 an
adjustment include:
o certain stock dividends, stock splits, subdivisions or
combinations relating to our common stock,
o 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 warrants of our common stock,
o certain mergers, consolidations or recapitalizations involving
our company and
o certain transactions involving the sale of substantially all
of our assets.
o 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 the shares by exercising
the warrant.
33
<PAGE>
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:
o 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 stock 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 times 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
stock. The number of shares that we agreed to include in the registration
statement is based on a good faith estimate 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 stock.
o Shares Issuable Upon Warrants. We have agreed to include in the
registration statement: the 100,000 shares of common stock that would be issued
assuming full exercise of the common stock warrant.
Damages For Registration Default
If a registration default 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;
34
<PAGE>
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
stock 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.
Consultant Fee
Next Millenium Capital Holdings LLC, or Millenium, acted as a
consultant 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 stock 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. Shares
of our common stock underlying the exercise of the warrant and the additional
warrant issued to Millenium will not be registered pursuant to the registration
statement and will not be available for resale. See "Shares That Will Be
Registered" under this heading.
35
<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 August 31, 2000, there were 35,945,475 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
o restrict or prohibit dividends on the common stock,
o provide that the preferred stock has greater voting rights than the
common stock or
o 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 1,800 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
36
<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 warrants to purchase an aggregate of
160,000 shares of our common stock. These warrants provide for an exercise price
of $3.03 per share. 100,000 of these warrants will be registered pursuant to
this prospectus and will be available for resale. See "October 1999 Private
Placement--Shares That Will Be Registered."
For additional information concerning our outstanding warrants, see
"October 1999 Private Placement--Terms of Common Stock Warrants," 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 our company or on behalf of
our company 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
the 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 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 the indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
37
<PAGE>
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.
38
<PAGE>
SELLING SECURITY HOLDERS
This prospectus relates to the offering by ROBI Investors LLC, its
pledges, donees, transferees or other successors, the selling security holder,
for resale of shares of our common stock acquired by them upon conversion or
exercise of shares of Series A preferred stock and warrants which the selling
security holder received in a private placement transaction. See "October 1999
Private Placement." All of the shares of common stock offered by this prospectus
are being offered by the selling security holder for its own accounts.
ROBI Investors LLC, or ROBI, is currently the owner of the following
securities which may be sold pursuant to this prospectus:
o 2,000 shares of our Series A preferred stock; and
o a warrant to acquire up to 100,000 shares of our common stock.
For information concerning these securities, please see "October 1999
Private Placement.
39
<PAGE>
The number of shares set forth in the table for ROBI represents an
estimate of the number of shares of common stock which may be offered by ROBI.
The actual number of shares of common stock issuable upon conversion of the
Series A preferred stock is indeterminate, is subject to adjustment and could be
materially less or more than such estimated number depending on factors which
cannot be predicted by us at this time, including, among other factors, the
future market price of our common stock. The following table has been provided
to demonstrate the percentage of ownership of our outstanding common stock that
the selling security holder may acquire based upon a reasonable range of
conversion prices related to our current market price. Currently, 35,945,475
shares of our common stock are outstanding
<TABLE>
<CAPTION>
Conversion Number of Shares Percentage
Selling Security Holder Price Beneficially Owned(1) Ownership
----------------------- ---------- ------------------ ----------
<S> <C> <C> <C>
ROBI Investors LLC .458 4,435,301 10.98%
.344 5,740,558 13.77%
.229 8,368,262 18.88%
.114 16,297,474 31.20%
</TABLE>
(1) Shares owned is comprised of (1) the common stock underlying 1,800
shares of Series A preferred stock which is convertible at the
conversion price plus (ii) 508,000 shares, which represents common
stock underlying 200 shares of Series A preferred stock previously
converted by ROBI.
In accordance with our agreement with ROBI, we have reserved 200% of
the total number of shares currently issuable on conversion at exercise of the
Series A preferred stock and the warrants to assure adequate shares available in
the event of a decrease in the conversion price of the Series A preferred stock.
This number is based on a good faith estimate that was determined in negotiation
between us and ROBI. In addition, the actual number of shares of common stock
offered in this prospectus, and included in the registration statement of which
this prospectus is a part, includes such additional number of shares of common
stock as may be issued or issuable upon conversion of the Series A preferred
stock and warrants by reason of any stock split, stock dividend or similar
transaction involving our common stock, in accordance with Rule 416 under the
Securities Act.
40
<PAGE>
PLAN OF DISTRIBUTION
The selling security holder 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.
The sale price to the public may be the market price prevailing at the
time of sale, a price relating to such prevailing market price, at negotiated
prices or such other price as the selling security holder determine from time to
time. The shares may also be sold pursuant to Rule 144. The selling security
holder shall have the sole and absolute discretion not to accept any purchase
offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling security holder or their respective pledgees, donees,
transferees, or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensations as to a
particular broker-dealer might be in excess of customary commissions. Market
makers and block purchasers purchasing the shares will do so for their own
account and at their own risk. It is possible that a selling stockholder will
attempt to sell shares of common stock in block transactions to market makers or
other purchasers at a price per share which may be below the then market price.
There can be no assurance that all or any of the shares offered by this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act, or the rules and regulations under
such acts.
The security holder, alternatively, may sell all or any part of the
shares offered by this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If a selling stockholder
enters into such an agreement or agreements, the relevant details will be set
forth in a supplement or revisions to this prospectus.
The security holder and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations under such act,
including, without limitation, Regulation M, which provisions may restrict
certain activities of, and limit the timing of purchases and sales of any of the
shares by the selling stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
We have agreed to indemnify the security holder, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the security holder or their
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
LEGAL MATTERS
The validity of the issuance of the shares of common stock that may
be offered pursuant to this prospectus will be passed upon for us by Eisner
& Associates, Los Angeles, California.
EXPERTS
The financial statements of Intelliquis Intentional, Inc. and
subsidiary as of December 31, 1997, December 31, 1998 and December 31, 1999 and
for the period from June 9, 1997 (Inception) to December 31, 1997 and for the
year ended December 31, 1999, have been audited by Crouch, Bierwolf & Chisholm,
independent auditors, as set forth in their report which appears elsewhere in
this prospectus. We have included these financial statements in this prospectus
in reliance on the report of Crouch, Bierwolf & Chisholm given upon the
authority of Crouch, Bierwolf & Chisholm as experts in accounting and auditing.
41
<PAGE>
INTELLIQUIS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
CONTENTS
For the period from June 9, 1997 (inception) to December 31, 1997 and for the
years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
<S> <C>
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-15
<CAPTION>
For the three months ended June 30, 2000
(unaudited)
<S> <C>
Balance Sheets F-16
Statements of Stockholders Equity F-16
Statements of Operations F-17
Statements of Cash Flows F-18
Notes to Financial Statements. F-19 through F-26
</TABLE>
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,
1999, 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, 1999. 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, 1999, 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, 1999 in
conformity with generally accepted accounting principles.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
April 14, 2000
F-2
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current assets
Cash $ 264,395 $ 23,074 $ 52,455
Accounts receivable (Note 2) 4,180,139 619,966 28,067
Note Receivable 598,220 - -
Inventory (Note 2) 551,845 130,517 18,398
Prepaid expenses 31,660 6,838 8,253
Deposits 7,700 500 -
----------- ---------- ----------
5,633,959 780,895 107,173
Property, Plant & Equipment (Note 2) 147,350 54,297 16,533
Other assets
Certificate of deposit (Note 2) 42,256 40,351 -
Intangibles (Note 2) 6,213 8,328 10,444
Inventory-Long Term 400,000 - -
----------- ---------- ----------
Total Assets $ 6,229,778 $ 883,871 $ 134,150
=========== ========== ==========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C> <C>
Current Liabilities
Accounts payable and accrued expenses $ 3,115,869 $ 502,973 $ 18,673
Short term notes (Note 3) 275,853 104,500 -
Short term notes - related party (Note 4) - 85,000 -
Accrued Dividends Payable 22,028 - -
----------- ---------- ----------
3,413,750 692,473 18,673
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, 2,000 outstanding 2 - -
Common Stock, 50,000,000 shares authorized,
$.001 par, 37,759,233 shares issued and
outstanding 33,462 37,759 -
Members equity (1997) (Note 6) - - 170,000
Additional paid in capital 2,835,672 132,241 -
Retained earnings (deficit) (53,108) 21,398 (54,523)
----------- ---------- ----------
2,816,028 191,398 115,477
----------- ---------- ----------
Total Liabilities and Stockholders' Equity $ 6,229,778 $ 883,871 $ 134,150
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
For the For the June 9, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Sales $7,457,568 $1,461,196 $ 34,709
Cost of Sales 3,759,506 355,613 4,948
----------- ---------- ----------
Gross Margin 3,698,062 1,105,583 29,761
Expenses: 1,442,675 596,125 36,443
Sales & Marketing 1,320,028 430,304 47,841
General & Administrative ----------- ---------- ----------
2,762,703 1,026,429 84,284
Total Expenses ----------- ---------- ----------
Operating Income (Loss) 935,359 79,154 (54,523)
Other Income (Expense) (987,837) (3,233) -
Net Income (Loss) before Taxes (52,478) 75,921 (54,523)
Taxes (Note 1) - - -
---------- ---------- ----------
Net Income (Loss) $ (52,478) $ 75,921 $ (54,523)
========== ========== ==========
Preferred Dividends 22,028 - -
---------- ---------- ----------
Net Income-Common Stock $ (74,506) $ 75,921 $ (54,523)
Pro Forma Income Taxes (Unaudited) - 17,859 -
---------- ---------- ----------
Pro Forma Net Income (Loss) (Unaudited) $ (74,506) $ 58,062 $ (54,523)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
For the June 9, 1997
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ (74,506) $ 75,921 $ (54,523)
Non Cash Flow Items:
Depreciation & Amortization 30,316 10,756 4,630
Changes in assets and liabilities
(increase) in accounts receivable (3,560,173) (591,899) (28,067)
(increase) in inventory (821,328) (112,119) (18,398)
decrease (increase) in prepaids & deposits (32,022) 915 (8,253)
decrease in accounts payable &
accrued expenses 2,635,134 484,300 18,673
------------ ---------- ----------
Net Cash Flows used in
Operating Activities (1,822,579) (132,126) (85,938)
------------ ---------- ----------
Investing Activities:
Cash from stock sales / LLC units 2,792,455 - 170,000
Purchase of certificates of deposits - (40,000) -
Stock Purchase (160,000) - -
Stock Issued services 66,681 - -
------------ ---------- ----------
Net Cash provided by (used) for
Investing Activities 2,699,136 (40,000) 170,000
------------ ---------- ----------
Financing Activities:
Purchase of fixed assets (123,369) (46,404) (21,030)
Purchase of intangibles & other assets - (351) (10,577)
Cash from short term debt 86,353 189,500 -
Note Receivable (598,220) - -
------------ ---------- ----------
Net Cash Flows provided (used) for
Financing Activities (635,236) 142,745 (31,607)
----------- ---------- ----------
Net increase (decrease) in cash 241,321 (29,381) 52,455
Cash, beginning of year 23,074 52,455 -
------------ ---------- ----------
Cash, end of year $ 264,395 $ 23,074 $ 52,455
============ ========== ==========
Supplemental Cash Flow Information
Cash Paid for:
Taxes - $ - $ -
Interest $ 107,330 $ 2,334 $ -
</TABLE>
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
Preferred Common Stock Paid in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 - $ - 37,759,233 $ 37,759 $ 132,241
Common stock repurchase (Note 4 & 7) - $ - (6,202,944) $ (6,203) $ (153,797)
Issuance of common stock
in a private placement (Note 7) - - 1,815,000 1,815 1,060,185
Issuance of preferred stock (Note 6) 2,000 2 - - 1,730,453
Issuance of common stock to
employees (Note 7) - - 91,344 91 66,590
Fractional common shares canceled in 3
for 1 forward stock split - - (213) - -
Net Income (loss) - - - - -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 2,000 $ 2 33,462,420 $ 33,462 $ 2,835,672
Preferred shares converted
to Common shares, Feb 2000 (200) - 508,055 508 (508)
Issuance of Shares
for Services, May 2000 - - 320,000 320 209,862
Issuance of Shares
for Debt Relief - - 250,000 250 212,948
Issuance of Shares
in Litigation Settlements - - 305,000 305 209,383
Registration Costs - - - - (167,343)
Net Income (loss) - - - - -
------------ ------------ ------------- ------------ ------------
Balance, June 30, 2000 1,800 $ 2 34,845,475 $ 34,845 $ 3,300,021
============ ============ ============== ============ ============
<CAPTION>
Members' Retained
Equity Deficit
------------ -----------
<S> <C> <C>
Balance, December 31, 1998 - $ 21,398
Common stock repurchase (Note 4 & 7) - -
Issuance of common stock
in a private placement (Note 7) - -
Issuance of preferred stock (Note 6) - -
Issuance of common stock to
employees (Note 7) - -
Fractional common shares canceled in 3
for 1 forward stock split - -
Net Income (loss) - (74,506)
------------ ------------
Balance, December 31, 1999 $ - $ (53,108)
Preferred shares converted
to Common shares, Feb 2000 - -
Issuance of Shares
for Services, May 2000 - -
Issuance of Shares
for Debt Relief - -
Issuance of Shares
in Litigation Settlements - -
Registration Costs - -
Net Income (loss) - $ (867,733)
------------ ------------
Balance, June 30, 2000 - $ (920,841)
============ ============
</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, 1999
NOTE 1 - Background and History
Intelliquis International, Inc. (the Company) (formerly Leesburg Land and
Mining, Inc.) was created on June 21, 1983 in the State of Colorado. The
Company was involved in mining activities until approximately 1987, when
it ceased all activities and began disposing of its assets. It has not had
any business activity since that time. The Company changed it's name in
December 1998 to Intelliquis International, Inc.
Also in December 1998, the Company created and later merged with a Nevada
subsidiary.
Intelliquis, LLC was created in 1997 as a corporation and later
reorganized as a limited liability company in the State of Utah.
Intelliquis was organized for the purpose of licensing and marketing
computer software to wholesale and private label customers.
Intelliquis International, Inc. acquired all of the outstanding units of
Intelliquis LLC effective December 31, 1998.
The acquisition is accounted for as a "reverse acquisition" where the
parent corporation is taken over by the owners of the subsidiary. All
activity of the financial reports is that of the subsidiary operation.
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 1998 was $2,115 and $2,115
for 1999.
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.
F-7
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 2 - Significant Accounting Policies (continued)
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, 1999 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all
years.
The Company has cumulative net operating loss carry-forwards of over
$4,000,000 at December 31, 1999. 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, 1999 have been offset by valuation reserves of the same amount.
The subsidiary operation 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.
Inventory consists of finished goods (assembled and unassembled computer
software) valued at lower of cost (FIFO) or market. During the year, the
Company purchased a large number of ISA cards into inventory that were
programmed with Y2K compliance software for use in its Intellifix 2000
Software Package, a rapidly moving software package prior to the beginning
of the year 2000. The purchase resulted in an oversupply of the ISA cards
at year-end that cannot be returned to the supplier. The Company
negotiated a reduction in the royalty due on each card sold from $5.50 to
$1.00 for each card sold in the future. This reduction in royalty payment
makes it economically feasible to reprogram the ISA cards with new
software at a cost estimated at $35,367. Management believes the newly
programmed cards will be a slower moving inventory item and that it may
take up to two years to sell the oversupply of cards. As a result,
management has elected to write down the value of the cards carried in its
inventory at year-end by $820,507, or, approximately 50% of the original
value. The cards have a $2.50-3.00 per card salvage value, or $530,500 to
$636,600. Failure of the Company to sell the re-programmed ISA cards could
result in an additional inventory write-down of $250,000-$300,000.
Certificate of Deposit The Company holds a Certificate of Deposit as
partial security for a short-term loan at the Company's bank (see Note 3)
and therefore is not currently available for use in operations. The 6-60
month certificate has interim rollover maturity dates but will ultimately
mature on the same date the note is due which is currently May 10, 2000.
Interest on the certificate is stated at 4.28%.
F-8
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 2 - Significant Accounting Policies (continued)
The Company capitalizes purchases of long lived assets that are expected
to give benefit to the Company over the life of the asset. The Company
also capitalizes improvements and costs that increases the value of or
extend the life of the asset.
Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------- ---------------
<S> <C> <C>
Computer Equipment & Software $ 130,215 $ 32,886
Office Equipment & Furniture 57,018 34,549
Leasehold Improvements 3,571 -
----------------- ---------------
190,804 67,435
Less: Accumulated Depreciation (43,454) (13,138)
$ 147,350 $ 54,297
================= ===============
</TABLE>
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 $8,641
and $30,316 for 1998 and 1999 respectively.
Principles of Consolidation The Company consists of the parent
corporation, Intelliquis International, Inc. and subsidiary Intelliquis
LLC. The two companies together report as a consolidated group known as
The Company. All inter-company accounts and transactions have been
eliminated.
Accounts Receivable Accounts Receivable is shown net of allowance for
returns of $186,660 and $411,446 and allowance for bad debt of $150,000
and $210,000 for 1998 and 1999, respectively. Certain of the Company's
distributors including the largest distributor have the right to return
for credit, products purchased from the Company. The Company has a major
concentration in accounts receivable with one major distributor accounting
for 72% of all receivables at December 31, 1999. That distributor had paid
34% of the balance at March 31, 2000. The distributor has taken credits
against the account totaling approximately $1,062,000 that management
believes are improper and is in the process of resolving with the
distributor. Accounts receivable balance includes $56,632 of employee
receivables (see Note 4).
F-9
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Note payable to a bank; secured by
$40,000 certificate of deposit, all
assets of the Company and personal
guarantees from the corporation's
officers; interest stated at 10.75%;
due May 10, 2000 $ 79,500 $ 79,500
Note payable to an individual; unsecured;
interest stated at 25%; due in January 1999 - 25,000
Note payable to a lender; unsecured; personal
guarantees by two directors; interest stated
at 8% per 30 days; due August, 1999 167,929 -
Note payable to a law firm; unsecured;
No stated interest 28,423 -
-------------------- --------------------
$ 275,853 $ 104,500
==================== ====================
</TABLE>
Interest expense was $3,584 and $107,330 for 1998 and 1999, respectively.
NOTE 4 - Related Party Transactions
The Company had accounts receivable owing from three officers/directors at
December 31, 1999, as follows:
<TABLE>
<CAPTION>
<S> <C>
Bernard Yaw, President and Chief Executive Officer/Director- $30,258
Mark Tippetts, Vice President of Sales and Marketing/Director- $15,000
Dave Jones, Chief Financial Officer- $ 140
</TABLE>
On May 25, 1999, Bernard Yaw and Mark Tippetts, two officers and directors
of the Company, issued on behalf of the Company, their personal guarantees
to allow the Company to secure a $200,861 loan advance from A-Vision
Financial. The loan advance had stated interest of 7% per 30-day period
when not in default with the stated rate accelerating to 8% per 30-day
period from inception if in default. The Company paid $150,000 on the loan
advance in 1999 and satisfied the remaining balance plus accrued interest
($212,009) in April 2000, through the issuance if 250,000 shares of
restricted common stock (see Note 5-"Subsequent Events").
Messrs. Yaw and Tippets have also issued their personal guarantees
relating to a loan from First Utah Bank in the amount of $79,500.
F-10
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 4 - Related Party Transactions (continued)
In June 1999, Intelliquis International, Inc. began negotiations to
acquire Direct Media Communications, Inc. through the issuance of common
stock and funding of the company. The Company funded $90,000 between June
1999 and November 1999, when a $500,000 wire transfer was made to
substantially fund Direct Media Communications, Inc. In December 1999, the
transaction was negated. Subsequent to the cancellation of the
transaction, and with Direct Media Communications, Inc. owing $590,000 to
Intelliquis International, Inc., a director of Intelliquis International,
Inc., through an affiliate in Malaysia concluded a similar transaction
with Direct Media Communications, Inc. Subsequent to the Company's
year-end, Direct Media Communications has repaid $500,000 of the advances
made to it by Intelliquis International, Inc. leaving a principal balance
of $90,000 plus accrued interest of $8,219.96 as of the Company's year-end
(see Note 5-"Subsequent Events").
In February 1999, the Company reacquired 6,202,944 shares of restricted
common stock at a cost of $160,000 from Say Thean Lim, a director of the
Company. Also, in February 1999, Mr. Lim purchased 450,000 shares of the
Company's common stock at a price of $0.67 per share.
In May 1998 and again in August 1998, Mr. Lim loaned $40,000 to the
Company for a total of $80,000. The loan did not bear interest and was
fully repaid in February 1999.
In April 1998, Mr. Yaw loaned $5,000 to the Company in an interest free
loan and repayable on demand. The Company repaid $4,000 of this loan in
June 1999.
NOTE 5 - Subsequent Events
In April 2000, the Company satisfied the remaining principal and accrued
interest ($212,009) relating to a loan advance received from A-Vision
Financial in May 1999, by agreeing to the issuance of 250,000 shares of
restricted common stock (see Note 4-"Related Party Transactions").
During the first quarter of 2000, the Company received repayment of
$500,000 of a total of $590,000 plus accrued interest of $8,219.96 in
advances made to Direct Media Communications, Inc. during 1999 (see Note
4-"Related Party Transactions").
On January 7, 2000, the Company canceled common stock certificate #3401
issued in the name of Direct Media Communications, Inc. for 1,500,000
restricted common shares. On March 27, 2000, the Company canceled common
stock certificate #3397 also issued in the name of Direct Media
Communications, Inc. for 1,500,000 restricted common shares. Both
certificates had been issued in anticipation of completing the Direct
Media Communications, Inc. acquisition.
On March 28, 2000, the Company reached a verbal agreement with Bi-Com to
reduce the royalty from $5.50 to $1.00 due on ISA cards sold making it
economically feasible to re-program the ISA cards held in inventory with
new software.
F-11
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 6 - Preferred Stock
On October 25, 1999, the Company issued to ROBI Investors, LLC 2,000
shares of the Company's 6% Convertible Series A Preferred Stock with a
stated value of $1,000 per share and a $.001 par value per share. The
Company realized $1,730,455 after legal expense of $83,200, filing fees of
$10,000, travel expense of $1,880 and commissions and fees of $174,565.
The Preferred Stock carries preferences in liquidation and dissolution and
prohibits the payment of dividends to common shareholders until all
accrued dividends in the Preferred Stock are paid. The Securities Purchase
Agreement also contained a warrant allowing ROBI to purchase up to 100,000
common shares and a conditional warrant allowing ROBI to purchase another
3,000 shares of the Company's 6% Convertible Series A Preferred Stock and
another warrant to purchase another 150,000 shares of common stock.
Dividends accruing on the Preferred Stock are payable in cash or
registered common shares at the Company's option. The conversion price for
the Series A Preferred Stock is linked to the future market price of the
common stock. As a result, the conversion price will change as the price
for the common shares changes in the marketplace. Therefore, the number of
common shares to which the Preferred Shares will convert cannot be
determined until the date of conversion. The Securities Purchase Agreement
required the Company to file a Registration Statement within 30 days of
the agreement with the Securities and Exchange Commission to register the
underlying shares with the Registration Statement to be declared effective
within 180 days of the agreement. An application for a stock listing on
the NASDAQ Small-cap Market was to be filed within 45 days of the date of
the agreement. Failure of the Company to perform some of these conditions
could result in significant penalties to the Company. Under certain
conditions, the Company can require the exercise of the Conditional
Warrant that would result in an additional $3,000,000 of equity into the
Company. Management does not expect this to occur.
NOTE 7 - Common Stock
The Company issued 91,344 shares of restricted common stock valued at
$66,681 to employees during 1999. An additional 1,815,000 restricted
common shares were issued for $1,062,000 in a private placement during the
first quarter of the year. Of the shares issued 360,000 restricted common
shares were issued to Bill Chipman for assistance in the financing
arrangements for the Company.
In April 1999, the Company effected a 3-for-1 forward stock split. All
information presented in the financial statements gives retroactive
effects to this stock split.
In February 1999, the Company reacquired 6,202,944 restricted common
shares of its stock from a director at a cost of $160,000.
The Company currently has outstanding warrants that allow for the purchase
of up to 160,000 shares of common stock as follows:
<TABLE>
<CAPTION>
<S> <C>
ROBI Investors, LLC 100,000 Warrants @ variable price (Note 6)
Patrick Lucci 10,000 Warrants*
Doug Cole 25,000 Warrants*
Say Lim 25,000 Warrants*
</TABLE>
* Pricing of warrant will be determined when option plan is completed.
F-12
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 8 - Employment Agreements
The Company has entered into Executive Employment Agreements with Bernard
Yaw, President, CEO and Director and Mark Tippetts, Vice President of
Sales and Marketing and Director. The agreements, which became effective
on February 3, 1999, are for a period of two years. The agreements provide
for compensation to the two parties to be set by the board of directors,
reimbursement for expenses, termination for cause, fiduciary
responsibility to protect confidential information, indemnification to the
fullest extent permitted by the Nevada Corporation Statutes, a non-compete
agreement for one year following the party's departure from the Company
and the Company's right of first refusal to purchase equity owned by the
parties.
NOTE 9 - Contingencies
On The Planet v. Intelliquis International, Inc.
On May 6, 1999, a legal action was commenced against the Company 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 the Company 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 asserts that the Company
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 also 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 Company's alleged direct sales of the year 2000 fix
software, as well as attorneys' fees and punitive damages. The Company 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. The Company has also filed additional claims
against On the Planet and its principal, Ernest Hemple, arising from
conduct that the Company believes constitutes defamation and interference
with contract.
The Company intends to vigorously defend the action and pursue its
counterclaims. The outcome of the litigation is uncertain and cannot be
predicted at this time. Any adverse result could have a material adverse
affect on the business of the Company.
William L. Rosonbeck v. Staples and Intelliquis International, Inc.
This Case No. 00CVI00202 was filed as a small claims complaint in the
Xenia, Ohio Xenia Municipal Court on February 17, 2000, seeking damages of
$1,290.31 arising out of personal computer problems which purportedly
resulted from use of Y2K software distributed by the Company. Due to the
costs to defend the case in Xenia, Ohio, the Company does not plan to
appear. If the claim is reduced to judgment in Ohio and enforcement action
is taken in Utah, the Company plans to contest the matter on jurisdiction
ground. No opinion has been expressed on the outcome of the matter.
F-13
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 9 - Contingencies (continued)
Intelliquis International, Inc. v. Jeff Boonmee and Bi-Com Link
This action, pending as Civil No. 990912546 in the Third Judicial District
Court in and for Salt Lake County, State of Utah, seeks recovery of excess
payments made to Bi-Com Link under a royalty agreement. Bi-Com Link
counterclaimed for $517,819 in alleged unpaid royalties under the
agreement. No discovery has been conducted in the case. Rather, the
parties and their counsel have engaged in settlement negotiations and have
been exchanging draft settlement agreements. No opinion has been expressed
as to the ultimate outcome of the case or as to the ultimate
collectibility of any judgment obtained.
Doren Rosenthal DBA RRosenthal Engineering v. Intelliquis International,
Inc. and Intelliquis LLC
By this action, pending as Civil No. 991124 in the Superior Court in the
State of California, County of San Luis Obispo, plaintiff alleges that he
developed and produced a computer program which operated as a Y2K fix for
hardware with year 2000 complications, that he licensed his repair
software to the Company for the purpose of distribution at the retail
level, and that he has not been paid the royalties to which he was
entitled under the license and parties' agreement. He asserts claims for
breach of contract, misappropriation of trade secrets, breach of the
covenant of good faith and fair dealing, unjust enrichment, and unfair
competition. The action seeks general damages in the amount of $5 million,
punitive damages in an unstated amount and injunctive relief. No opinion
has been expressed as to the ultimate outcome of the action.
In addition to filed litigation actions by or against the Company, the
following claims have also been made against the Company:
Blair Barrett Claims
Blair Barrett, a former officer of the Company, has made two categories of
demands upon the Company; 1) a demand for delivery of stock certificates
representing 5,336,496 shares in the Company, and 2) a demand for payment
of back wages and benefits purportedly owing as a result of the allegedly
wrongful termination of his employment in June 1999. The Company has
delivered certificates representing the demanded shares but denies that
the termination was improper and that he is owed any back wages and
benefits. No lawsuit or arbitration has been filed by Mr. Barrett. No
opinion has been expressed concerning the likelihood that any action will
be taken nor to the ultimate outcome of any action if action is taken.
Envirocon Strategic Management Consulting Group, Inc.
In December 1999, this alleged consulting group made a $100,000 demand
against the Company for consulting services allegedly rendered. The
Company denied the claim by letter on December 29, 1999. No action has
been taken by this consulting group for the fee allegedly owed. No opinion
has been expressed as to the ultimate outcome of the matter.
F-14
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 9 - Contingencies (continued)
The Company engaged a payroll processing company for handling its payroll
and payroll tax deposits during the first three quarters of the year. The
payroll processing company accurately accounted for all payroll tax
deposits for the first quarter. Payroll tax depositories indicate no
payroll taxes were deposited for the account of the Company during the
second and third quarters although accounting records indicate the Company
deposited the liabilities with the payroll processor. Failure to resolve
this matter could result in the Company being liable for an additional
$88,318.01 in payroll tax deposits.
NOTE 10 - Leases
The Company leases approximately 3,900 square feet of office space under a
lease that expires on March 31, 2002 and approximately 5,638 square feet
of warehouse space under a lease that expires on March 31, 2002.
NOTE 11 - Concentration of Risk
Cash at December 31, 1999; the Company had deposited funds that exceeded
the FDIC insured limits of $100,000. The amount of cash subject to this
potential loss at December 31, 1999 was $27,136.
The Company currently uses one major distributor for most of its sales.
That distributor accounted for approximately 67% of all sales in 1998 and
approximately 64% of all sales in 1999. This distributor accounts for over
70% of the Company's accounts receivable. The Company could recognize
significant declines in sales if the distributor or the Company chooses to
alter its current sales relationship.
The Company's Intellifix 2000 and Fix 2000 Pro Y2K software products
accounted for 60.64% and 81.87% of sales for 1998 and 1999, respectively.
With the beginning of 2000 and the lapse of the potential problems
associated therewith, the Company could experience significant declines in
sales if the Company fails to diversify its product line through the
introduction of new software products. The Company is in the process of
transcending from licensing software products for distribution to
developing their own software products.
F-15
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Balance Sheet
Assets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash (Note 2 and 11) $ 143,792 $ 264,395
Accounts receivable-trade (Note 2) 3,117,017 4,123,507
Accounts receivable-employee (Note 2) 64,217 56,632
Note Receivable 114,829 598,220
Inventory (Note 2) 590,854 551,845
Prepaid expenses 534,679 31,660
Deposits 10,200 7,700
----------- -----------
4,575,588 5,633,959
Property, Plant & Equipment (Note 2) 138,372 147,350
Other assets
Certificate of deposit (Note 2) 43,347 42,256
Intangibles (Note 2) 241,550 6,213
Inventory - Long Term (Note 2) 400,000 400,000
----------- -----------
Total Assets $ 5,398,857 $ 6,229,778
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 789,379 $ 3,115,869
Short term notes (Note 3) 1,974,518 275,853
Litigation settlement payable (Note 5&9) 139,070 --
Accrued dividends payable 81,864 22,028
----------- -----------
2,984,831 3,413,750
Commitments and Contingencies (Note 6 & 9)
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, 1,800 shares outstanding 2 2
Common Stock, 50,000,000 shares authorized,
$.001 par, 34,845,475 shares issued and outstanding 34,845 33,462
Additional paid in capital 3,300,020 2,835,672
Retained earnings (deficit) (920,841) (53,108)
----------- -----------
2,414,026 2,816,028
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,398,857 $ 6,229,778
=========== ===========
</TABLE>
F-16
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 564,862 $ 2,199,137 $ 969,658 $ 3,419,410
Cost of Sales 61,507 1,151,990 199,548 1,655,680
------------ ------------ ------------ ------------
Gross Margin 503,355 1,047,147 770,110 1,763,730
Expenses:
Sales & Marketing 189,960 276,831 430,287 395,447
General & Administrative 256,181 472,399 471,098 738,655
------------ ------------ ------------ ------------
Total Expenses 446,141 749,230 901,385 1,134,102
------------ ------------ ------------ ------------
Operating Income (Loss) 57,214 297,917 (131,275) 629,628
Other Income (Expense)
Interest Expense (7,673) (3,017) (52,447) (9,595)
Interest Income 5,104 2,800 20,476 4,908
Bad Debt (136,331) -- (136,730) --
------------ ------------ ------------ ------------
(138,900) (217) (168,701) (4,687)
Net Income (Loss) before Taxes (81,686) 297,700 (299,976) 624,941
Income Tax Expense (Note 2) -- 116,148 -- 243,827
------------ ------------ ------------ ------------
Net Income (Loss) $ (81,686) $ 181,552 $ (299,976) $ 381,114
============ ============ ============ ============
Loss on Litigation 507,921 -- 507,921 --
Preferred Dividends 29,918 -- 59,836 --
------------ ------------ ------------ ------------
537,839 -- 567,757 --
Net Income (Loss) Attributable to Common Stock $ (619,525) $ 181,552 $ (867,733) $ 381,114
============ ============ ============ ============
Net Income (Loss) Per Share $ (.018) $ .006 $ (.025) $ .011
============ ============ ============ ============
Total average shares outstanding 34,492,013 33,178,790 34,140,056 34,167,578
============ ============ ============ ============
</TABLE>
F-17
<PAGE>
Intelliquis International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating
Activities:
Net income ($ 867,733) $ 381,114
Non Cash Flow Items:
Depreciation & Amortization 24,900 12,193
Increase (decrease) in
Accounts receivable 998,905 (2,102,222)
Inventory (39,009) (9,923)
Prepaid expenses & deposits (505,519) (17,894)
Accounts payable & accrued expenses (2,266,654) 904,398
----------- -----------
Net Cash Flows used in
Operating Activities (2,655,110) (832,334)
----------- -----------
Cash Flows from Investing Activities:
Stock Purchase -- (160,000)
Cash from private placement of stock -- 1,212,000
Stock issued for public relations services 199,375 --
Stock issued for services 10,813 --
Stock issued for litigation settlement 209,688 --
Stock issued for payment of debt 213,198 --
Cost of stock registration (167,343) --
----------- -----------
Net Cash Flows from
Investing Activities 465,731 1,052,000
----------- -----------
Cash Flows from Financing Activities:
Note receivable 483,391 --
Purchase of fixed assets (251,259) (76,443)
Purchase of intangibles & other assets (1,091) (1,233)
Proceeds from short-term debt 1,837,735 --
Cash used to pay-off short-term debt -- (109,000)
----------- -----------
Net Cash Flows used in Financing Activities 2,068,776 (186,676)
----------- -----------
Net increase (decrease) in cash (120,603) 32,990
Cash, beginning of year 264,395 23,074
----------- -----------
Cash, end of period $ 143,792 $ 56,064
=========== ===========
Supplemental Cash Flow Information
Cash Paid for:
Taxes $ -- $ --
Interest $ 52,447 $ 9,594
</TABLE>
F-18
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 1 - Background and History
Intelliquis International, Inc. (the "Company") (formerly Leesburg Land
and Mining, Inc.) was created on June 21, 1983 in the State of
Colorado. The Company was involved in mining activities until
approximately 1987, when it ceased all activities and began disposing
of its assets. It has not had any business activity since that time.
The Company changed its name in December 1998 to its current name.
Also in December 1998, the Company created and later merged with a
Nevada subsidiary.
Intelliquis, LLC was created in 1997 as a corporation and later
reorganized as a limited liability company in the State of Utah.
Intelliquis was organized for the purpose of licensing and marketing
computer software to wholesale and private label customers.
Intelliquis International, Inc. acquired all of the outstanding
ownership units of Intelliquis LLC effective December 31, 1998.
The acquisition is accounted for as a "reverse acquisition" where the
parent corporation is taken over by the owners of the subsidiary. All
activity of the financial reports is that of the subsidiary operation.
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 was $2,115 for 1999. The
Company's amortization expense for the second quarter of 2000 and 1999
was $1,653 and $529, respectively. The Company's amortization expense
for the first six months of 2000 and 1999 was $3,107 and $1,028,
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 $0 and $101,264 for the second
quarter of 2000 and 1999, respectively. The state tax provision is $0
and $14,884 for the second quarter of 2000 and 1999, respectively. The
federal income tax provision is $0 and $212,580 for the first six
months of 2000 and 1999, respectively. The state tax provision
F-19
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 2 - Significant Accounting Policies (continued)
is $0 and $31,247 for the first six months of 2000 and 1999,
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 Company has 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 subsidiary operation 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.
Inventory consists of finished goods (assembled and unassembled
computer software) valued at lower of cost (FIFO) or market. During
1999, the Company purchased a large number of ISA cards into inventory
that were programmed with Y2K compliance software for use in its
Intellifix 2000 Software Package, a rapidly moving software package
prior to the beginning of the year 2000. The purchase resulted in an
oversupply of the ISA cards at year-end that cannot be returned to the
supplier. The Company negotiated a reduction in the royalty due on each
card sold from $5.50 to $1.00 for each card sold in the future. This
reduction in royalty payment makes it economically feasible to
reprogram the ISA cards with new software at a cost estimated at
$35,367. Management believes the newly programmed cards will be a
slower moving inventory item and that it may take up to two years to
sell the oversupply of cards. As a result, management has elected to
write down the value of the cards carried in its inventory at year-end
by $820,507, or, approximately 50% of the original value. The cards
have a $2.50-3.00 per card salvage value, or $530,500 to $636,600.
Failure of the Company to sell the re-programmed ISA cards could result
in an additional inventory write-down of $250,000-$300,000.
Certificate of Deposit The Company holds a Certificate of Deposit as
partial security for a short term loan at the Company's bank (see Note
3) and therefore is not currently available for use in operations The
6-60 month certificate has interim rollover maturity dates. The
certificate matures on September 10, 2000. Interest is stated at 4.86%.
Fixed Assets The Company capitalizes purchases of long lived assets
that are expected to give benefit to the Company over the life of the
asset. The Company also capitalizes improvements and costs that
increases the value of or extend the life of the asset.
Fixed assets consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Computer Equipment & Software $ 142,105 $ 130,215
Office Equipment & Furniture 57,334 57,018
Leasehold Improvements 4,180 3,571
----------- -----------
</TABLE>
F-20
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 2 - Significant Accounting Policies (continued)
<TABLE>
<S> <C> <C>
203,619 190,804
Less: Accumulated Depreciation (65,247) (43,454)
----------- -----------
$ 138,372 $ 147,350
=========== ===========
</TABLE>
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 $30,316 for 1999. For the second quarter the depreciation
expense is $10,898 and $6,224 for 2000 and 1999, respectively. For the
first six months the depreciation expense is $21,793 and $11,135 for
2000 and 1999, respectively.
Principles of Consolidation The Company consists 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.
Accounts Receivable Accounts Receivable are shown net of allowance for
returns of $213,497 and $328,000 and allowance for bad debt of $260,000
and $150,000 for the first six months ended June 30, 2000 and for
fiscal year 1999, respectively. Certain of the Company's distributors
including the largest distributor have the right to return for credit,
products purchased from the Company. The Company has a major
concentration in accounts receivable with one major distributor
accounting for 72% of all receivables at December 31, 1999. That
distributor had paid 54% of the balance at June 30, 2000. The
distributor has taken credits against the account totaling
approximately $487,117 that management believes are improper and is in
the process of resolving with the distributor. Accounts receivable
balance includes $64,217 of employee receivables (see Note 4).
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
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 10.75%,
due November 10, 2000 $ 79,500 $ 79,500
Note payable to a lender; unsecured; personal guarantees by
two directors; interest stated at 8% per 30 days;
due August, 1999 -- 167,929
Note payable to a vendor; secured by
Inventory, interest stated at 8.50%,
due November, 2000 1,883,764 --
Note payable to a law firm; unsecured;
No stated interest 11,254 28,423
----------- -----------
$ 1,974,518 $ 275,853
=========== ===========
</TABLE>
F-21
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 3 - Short Term Notes (continued)
Interest expense for fiscal 1999 was $107,330. The interest expense for
the first quarter of 2000 is $44,774 and $6,578 for the same quarter in
1999.
NOTE 4 - Related Party Transactions
The Company had accounts receivable owing from three officers/directors
at June 30, 2000, as follows:
Bernard Yaw, President and Chief Executive
Officer/Director- $16,000
Mark Tippetts, Vice President of Sales
and Marketing/Director- $36,222
Dave Jones, Chief Financial Officer- $11,575
On May 25, 1999, Bernard Yaw and Mark Tippetts, two officers and
directors of the Company, issued on behalf of the Company, their
personal guarantees to allow the Company to secure a $200,861 loan
advance from A-Vision Financial. The loan advance had stated interest
of 7% per 30-day period when not in default with the stated rate
accelerating to 8% per 30-day period from inception if in default. The
Company paid $150,000 on the loan advance in 1999 and satisfied the
remaining balance plus accrued interest ($212,009) in April 2000,
through the issuance of 250,000 shares of restricted common stock (see
Note 5-"Subsequent Events").
At June 30, 2000, an officer of the corporation held $173,000 in his
personal accounts for the benefit of the Company. As of the review
report date, the $173,000 has been utilized for the Company's benefit.
Messrs. Yaw and Tippets have also issued their personal guarantees
relating to a loan from First Utah Bank in the amount of $79,500.
In June 1999, Intelliquis International, Inc. began negotiations to
acquire Direct Media Communications, Inc. through the issuance of
common stock and funding of the company. The Company funded $90,000
between June 1999 and November 1999, when a $500,000 wire transfer was
made to substantially fund Direct Media Communications, Inc. In
December 1999, the transaction was negated. Subsequent to the
cancellation of the transaction, and with Direct Media Communications,
Inc. owing $590,000 to Intelliquis International, Inc., a director of
Intelliquis International, Inc., through an affiliate in Malaysia
concluded a similar transaction with Direct Media Communications, Inc.
Subsequent to the Company's year-end, Direct Media Communications has
repaid $500,000 of the advances made to it by Intelliquis
International, Inc. leaving a principal balance of $90,000 plus accrued
interest of $11,461 as of the Company's year-end (see Note
5-"Subsequent Events").
In February 1999, the Company reacquired 6,202,944 shares of restricted
common stock at a cost of $160,000 from Say Thean Lim, a director of
the Company. Also, in February 1999, Mr. Lim purchased 450,000 shares
of the Company's common stock at a price of $0.67 per share.
In May 1998 and again in August 1998, Mr. Lim loaned $40,000 to the
Company for a total of $80,000. The loan did not bear interest and was
fully repaid in February 1999.
In April 1998, Mr. Yaw loaned $5,000 to the Company in an interest free
loan and repayable on demand. The Company repaid $4,000 of this loan in
June 1999.
NOTE 5 - Subsequent Events
As a settlement in the On the Planet litigation, the Court ordered
Intelliquis to pay $202,000 to On the Planet plus issue 260,000 shares
to On the Planet or as directed by OTP's counsel. As of the review
report date $47,000 has been paid and 260,000 shares issued
F-22
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 6 - Preferred Stock
On October 25, 1999, the Company issued to ROBI Investors, LLC 2,000
shares of the Company's 6% Convertible Series A Preferred Stock with a
stated value of $1,000 per share and a $.001 par value per share. The
Company realized $1,730,455 after legal expense of $83,200, filing fees
of $10,000, travel expense of $1,880 and commissions and fees of
$174,565. The Preferred Stock carries preferences in liquidation and
dissolution and prohibits the payment of dividends to common
shareholders until all accrued dividends in the Preferred Stock are
paid. The Securities Purchase Agreement also contained a warrant
allowing ROBI to purchase up to 100,000 common shares and a conditional
warrant allowing ROBI to purchase another 3,000 shares of the Company's
6% Convertible Series A Preferred Stock and another warrant to purchase
another 150,000 shares of common stock. Dividends accruing on the
Preferred Stock are payable in cash or registered common shares at the
Company's option. The conversion price for the Series A Preferred Stock
is linked to the future market price of the common stock. As a result,
the conversion price will change as the price for the common shares
changes in the marketplace. Therefore, the number of common shares to
which the Preferred Shares will convert cannot be determined until the
date of conversion. The Securities Purchase Agreement required the
Company to file a Registration Statement within 30 days of the
agreement with the Securities and Exchange Commission to register the
underlying shares with the Registration Statement to be declared
effective within 180 days of the agreement. An application for a stock
listing on the NASDAQ Small-cap Market was to be filed within 45 days
of the date of the agreement. Failure of the Company to perform some of
these conditions could result in significant penalties to the Company.
Under certain conditions, the Company can require the exercise of the
Conditional Warrant that would result in an additional $3,000,000 of
equity into the Company. Management does not expect this to occur. In
addition, Robi Investors, LLC has issued a letter to the Company
requesting redemption by the Company of the preferred shares purchased
by them pursuant to the terms of the original agreement.
NOTE 7 - Common Stock
During the quarter ended June 30, 2000, 305,000 common shares were
issued as partial settlements of pending litigations, 30,000 common
shares were issued to individuals for their services in the procurement
of financing for the Company and 290,000 common shares were issued for
public/investor relations services.
The Company issued 91,344 shares of restricted common stock valued at
$66,681 to employees during 1999. An additional 1,815,000 restricted
common shares were issued for $1,062,000 in a private placement during
the first quarter of the year. Of the shares issued 360,000 restricted
common shares were issued to Bill Chipman for assistance in the
financing arrangements for the Company.
In April 1999, the Company effected a 3-for-1 forward stock split. All
information presented in the financial statements gives retroactive
effects to this stock split.
In February 1999, the Company reacquired 6,202,944 restricted common
shares of its stock from a director at a cost of $160,000.
The Company currently has outstanding warrants that allow for the
purchase of up to 160,000 shares of common stock as follows:
ROBI Investors, LLC 100,000 Warrants @ variable price (Note 6)
Patrick Lucci 10,000 Warrants*
Doug Cole 25,000 Warrants*
Say Lim 25,000 Warrants*
* Pricing of warrant will be determined when option plan is completed.
F-23
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 8 - Employment Agreements
The Company has entered into Executive Employment Agreements with
Bernard Yaw, President, CEO and Director and Mark Tippetts, Vice
President of Sales and Marketing and Director. The agreements, which
became effective on February 3, 1999, are for a period of two years.
The agreements provide for compensation to the two parties to be set by
the board of directors, reimbursement for expenses, termination for
cause, fiduciary responsibility to protect confidential information,
indemnification to the fullest extent permitted by the Nevada
Corporation Statutes, a non-compete agreement for one year following
the party's departure from the Company and the Company's right of first
refusal to purchase equity owned by the parties.
NOTE 9 - Contingencies
William L. Rosonbeck v. Staples and Intelliquis International, Inc.
This Case No. 00CVI00202 was filed as a small claims complaint in the
Xenia, Ohio Xenia Municipal Court on February 17, 2000, seeking damages
of $1,290.31 arising out of personal computer problems which
purportedly resulted from use of Y2K software distributed by the
Company. Due to the costs to defend the case in Xenia, Ohio, the
Company does not plan to appear. If the claim is reduced to judgment in
Ohio and enforcement action is taken in Utah, the Company plans to
contest the matter on jurisdiction ground. No opinion has been
expressed on the outcome of the matter.
Doren Rosenthal DBA RRosenthal Engineering v. Intelliquis
International, Inc. and Intelliquis LLC
By this action, pending as Civil No. 991124 in the Superior Court in
the State of California, County of San Luis Obispo, plaintiff alleges
that he developed and produced a computer program which operated as a
Y2K fix for hardware with year 2000 complications, that he licensed his
repair software to the Company for the purpose of
F-24
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 9 - Contingencies (continued)
distribution at the retail level, and that he has not been paid the
royalties to which he was entitled under the license and parties'
agreement. He asserts claims for breach of contract, misappropriation
of trade secrets, breach of the covenant of good faith and fair
dealing, unjust enrichment, and unfair competition. The action seeks
general damages in the amount of $5 million, punitive damages in an
unstated amount and injunctive relief. No opinion has been
expressed as to the ultimate outcome of the action.
In addition to filed litigation actions by or against the Company, the
following claims have also been made against the Company:
Blair Barrett Claims
Blair Barrett, a former officer of the Company, has made two categories
of demands upon the Company; 1) a demand for delivery of stock
certificates representing 5,336,496 shares in the Company, and 2) a
demand for payment of back wages and benefits purportedly owing as a
result of the allegedly wrongful termination of his employment in June
1999. The Company has delivered certificates representing the demanded
shares but denies that the termination was improper and that he is owed
any back wages and benefits. No lawsuit or arbitration has been filed
by Mr. Barrett. No opinion has been expressed concerning the likelihood
that any action will be taken nor to the ultimate outcome of any action
if action is taken.
Envirocon Strategic Management Consulting Group, Inc.
In December 1999, this alleged consulting group made a $100,000 demand
against the Company for consulting services allegedly rendered. The
Company denied the claim by letter on December 29, 1999. No action has
been taken by this consulting group for the fee allegedly owed. No
opinion has been expressed as to the ultimate outcome of the matter.
The Company engaged a payroll processing company for handling its
payroll and payroll tax deposits during the first three quarters of the
year. The payroll processing company accurately accounted for all
payroll tax deposits for the first quarter. Payroll tax depositories
indicate no payroll taxes were deposited for the account of the Company
during the second and third quarters although accounting records
indicate the Company deposited the liabilities with the payroll
processor. Failure to resolve this matter could result in the Company
being liable for an additional $88,318.01 in payroll tax deposits.
NOTE 10 - Leases
The Company leases approximately 3,900 square feet of office space
under a lease that expires on March 31, 2002 and approximately 5,638
square feet of warehouse space under a lease that expires on March 31,
2002.
NOTE 11 - Concentration of Risk
Cash at December 31, 1999; the Company had deposited funds that
exceeded the FDIC insured limits of $100,000. The amount of cash
subject to this potential loss at December 31, 1999 was $27,136.
The Company currently uses one major distributor for most of its sales.
That distributor accounted for approximately 64% of all sales in 1999.
This distributor accounts for over 70% of the Company's accounts
receivable. The Company could recognize significant declines in sales
if the distributor or the Company chooses to alter its current
F-25
<PAGE>
Intelliquis International, Inc. and Subsidiary
Notes to The Financial Statements
June 30, 2000
NOTE 11 - Concentration of Risk (continued)
sales relationship.
The Company's Intellifix 2000 and Fix 2000 Pro Y2K software products
accounted for 81.87% of sales for 1999. With the beginning of 2000 and
the lapse of the potential problems associated therewith, the Company
could experience significant declines in sales if the Company fails to
diversify its product line through the introduction of new software
products. The Company is in the process of transcending from licensing
software products for distribution to developing their own software
products.
F-26
<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*
II-3
<PAGE>
10.5 Registration Rights Agreement dated as of
October 26, 1999, between Intelliquis
International, Inc. and ROBI Investors LLC*
10.6 Employment Agreement between Intelliquis
International, Inc. and Bernard Yaw*
10.7 Employment Agreement between Intelliquis
International, Inc. and Mark Tippets*
10.8 Distribution Agreement dated as of November 22,
1999, between Ingram Micro Inc. and Intelliquis
International, Inc.*
10.9 Mutual Release Agreement, dated as of September 28,
2000, between ROBI Investors, LLC 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" )
*Exhibits Incorporated by Reference into this Document
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 September 28, 2000.
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)
September 28, 2000
/s/ Mark Tippets
--------------------------
Mark Tippets, Director
September 28, 2000
<PAGE>
/s/ Say Thean Lim
--------------------------
Say Thean Lim, Director
September 28, 2000
/s/ Dave Jones
--------------------------
Dave Jones, Chief Financial Officer
(principal accounting officer)
September 28, 2000
