U.S. Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from to
Commission File Number: 333-5862
Net Lnnx, Inc.
................................................................................
(Exact Name of Registrant as specified in its charter)
Pennsylvania 23-1726390
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
324 Datura Street, Suite 150, West Palm Beach, Florida 33401
................................................................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (407) 832-8832
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS;
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 1,450,126 shares outstanding
as of September 30, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS - ATTACHED TO BACK OF DOCUMENT
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
After several years of having no operations the Company entered into an
agreement to purchase a majority interest in Communications/USA, Inc. (CUSA).
Through CUSA's wholly owned subsidiary CommTel/USA, Inc., ("CommTel") it owns
and operates Voice-Tel franchises which comprises the West Coast of Florida
from Tampa Bay to Naples, and the East Coast of Florida from Cocoa to Stuart.
Voice-Tel is in the interactive voice messaging industry and sells its
products to local customers as well as National Accounts. CommTel expects to
provide in excess of $1,000,000 in interactive voice messaging services to
these accounts.
The national accounts comprise approximately 60% of the Company's
revenues. A typical account in this category is a multi-level marketing
company. The largest national account, Amway, purchases a block of telephone
numbers from the Company and then re-sells them to its independent
distributors. All the incidentals of billing and collections are handled by
Amway, with the Company receiving its revenues on a monthly basis. Service
issues are handled by the Company. The other national accounts
are handled in the same manner as the Company's corporate/retail accounts.
The corporate/retail accounts are typically comprised of corporations or
individuals who desire interactive voice messaging. An example would be a
local real estate broker who desires to be able to communicate with his/her
agents through this medium. The other major target market is for companies
with a field sales and service force.
The Company has also formed a wholly owned subsidiary to provide
Internet services such as consulting and Web Site preparation to businesses
and individuals.
Liquidity:
The Company's present levels of operations are not sufficient to fund
the operations of its Internet Service Provider (ISP) subsidiary. As such,
it will be necessary for the company to raise additional funds from sales of
its common or preferred stock. Management believes that the ISP's revenues
will increase sufficiently to cover its operating expenses by the first or
second quarter of 1997.
The Company's majority owned affiliate, Communicatons/USA, has a current
level of operations sufficient to generate enough cash to adequately fund it
operations. This trend is expected to continue in the future.
Capital Commitment
Presently, the Company does not expect to make any significant capital
expenditures. In the event that additional financing is obtained, the Company
may expand by acquiring more Voice-Tel franchises.
<PAGE>
In order to accomplish its sales goals, the Company may be required to
add sales employees. Management anticipates approximately two new sales
positions to be created during the next fiscal year.
Results of Operations:
The Company experienced a profit of $125,875 or $.09 per share for the
quarter ended September 30, 1996. The profit was a result of a gain on
non-monetary exchange of Web Site development services for advertising and
other publicity with publications and periodicals. The impact of these
transactions also generated a profit of $70,338 or $.07 per share for the
nine months then ended, however this was offset by a writeoff of approximately
$200,000 due to a premature cancellation of a consulting agreement. This
write off then generated a loss of $111,231 or $.09 per share for the nine
months.
Management expects that the Company will not enter into as many of these
types of transactions in the future. As such, gains of this type may not
occur in subsequent periods.
The Company's revenues have been increasing, but are not large enough to
provide the cash flow necessary to fund its operations. The Company will rely
on raising capital to fund its operations for the near future. It is expected
that as a result of its advertising campaign, revenues will increase in
subsequent quarters.
PART II - OTHER INFORMATION
Item 5. Other Information
On November 11, 1996, the majority shareholder of the Company entered
into an agreement to restructure the stock ownership of the Company. Pursuant
to the agreement, Robert C. Hackney & Cyndee W. Hackney transferred shares to
Raul E. Balsera and Georgia A. Balsera and Robert B. Feiman and Roberta
Feiman. In addition, Robert B. Feiman and Roberta Feiman exchanged 250,000
shares of the Company's subsidiary, Communications/USA, Inc. for 250,000
shares of the Company. As a result of the agreement, beneficial shares
ownership among the three individuals is as follows: Robert B. Feiman and
Roberta Feiman, 398,334, Robert C. Hackney and Cyndee W. Hackney, 396,624 and
Raul E. Balsera and Georgia A. Balsera, 396,333. Raul E. Balsera was also
appointed President of the Company, with Robert C. Hackney remaining as a
director.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
NET LNNX, INC.
................................................................................
(Registrant)
Date: November 19, 1996
By: /s/Raul E. Balsera
Raul E. Balsera, President
<TABLE>
<CAPTION>
NET LNNX, INC.
BALANCE SHEETS
Sep.30 Dec. 31
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets
Cash in Bank $ 43,173 $ 2,164
Accounts Receivable 2,139 -
Subscriptions Receivable 10,000 -
Prepaids and Other Assets 578,500 -
Total Current Assets 633,812 2,164
Property and Equipment
(net of Depreciation of
$ 540 at 9/30/96) 10,258 -
Investment in Subsidiary 1,591,220 -
Total Assets $ 2,235,290 $ 2,164
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accruals 82,805 -
Total Current Liabilities 82,805 -
Total Liabilities 82,805 -
Shareholders' Equity:
Preferred Stock, no par, 5,000,000 shares -
authorized, no shares issued or outstanding
as of September 30, 1996 -
Common Stock, no par, 20,000,000 shares auth.
1,450,126 and 165,0000 issued and outstanding
at September 30, 1996 and December 31, 1995 - -
Additional Paid-in Capital 2,262,552 1,000
-
Retained Earnings(Deficit) (110,067) 1,164
Total Shareholders' Equity 2,152,485 2,164
Total Liabilities and Shareholders' Equity $ 2,235,290 $ 2,164
</TABLE>
FINANCIAL STATEMENTS- CONTINUED
<TABLE>
<CAPTION>
NET LNNX, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS(DEFICIT)
For the Nine Months Ended
Sep. 30 Sep. 30
1996 1995
<S> <C> <C>
Revenues $ 22,883 $ 90
Cost of Revenues 76,430 -
Gross Margin (53,547) 90
Expenses General and Administrative 631,471 336
Income(Loss) from Operations (685,018) (246)
Gain on Non-Monetary transactions 558,000
Depreciation 540 -
Income on Subsidiary Equity 16,327 -
573,787 -
Income(Loss)before Income Taxes $ (111,231) $ (246)
Income Tax Provision - -
Net Income (111,231)
Retained Earnings-beginning of Period 1,164 2,026
Retained Earnings-End of Period $ (110,067) $ 1,780
Income(Loss) per common shares $ (0.09) $ (0.001)
Weighted Average number of common shares
outstanding 1,241,435 165,000
</TABLE>
ITEM 1-FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
NET LNNX, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended
Sep. 30 Sep.30
1996 1995
<S> <C> <C>
Revenues $ 18,840 $ 48
Cost of Revenues 58,647 -
Gross Margin (39,807) 48
Expenses General and Administrative 529,010 -
Income(Loss) from Operations (568,817) 48
Gain from Non-Monetary Transactions 558,000
Depreciation 360 -
Income on Subsidiary Equity 137,052 -
694,692 -
Income before Income Taxes 125,875
Provision for Income Taxes - -
Net Income(Loss) $ 125,875 $ 48
Income(Loss) Per Common Share $ 0.09 $ 0.00
Weighted Average number of Common
Shares outstanding 1,388,012 165,000
</TABLE>
ITEM 1-FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
NET LNNX, INC.
STATEMENT OF CASH FLOWS
For the Nine Months Ended
Sep.30 Sep. 30
1996 1995
<S> <C> <C>
Cash Flows from Operations:
Net Income(Loss) $ (111,231) $ (246)
Adjustments to reconcile net loss
to net cash:
Depreciation 540
Expenses paid through stock issuance 412,875
Income from non-monetary transactions (558,000)
Gain on Subsidiary equity (16,327)
Change in assets and liabilities:
(Increase) in Accounts Receivab (2,139)
Payable to Subsidiary 83,284
Subscriptions Receivable (10,000)
Increase in Accrued Expenses 82,805
Net cash (used) by operations (118,193) (246)
Cash Flows from Investing Activities:
Acquisition of Property (10,798)
Cash Flows from Financing Activities:
Proceeds from sale of Preferred Stock 170,000
Net change in cash 41,009 (246)
Cash at beginning of Period 2,164 2,350
Cash at end of Period $ 43,173 $ 2,104
</TABLE>
ITEM I- FINANCIAL INFORMATION-CONTINUED
NET LNNX, INC.
FOOTNOTES TO FINANCIAL STATEMENTS
Note 1- Summary of Significant Accounting Policies:
Organization and Purpose: The company was a wholly owned subsidiary of
Corporate Investment on December 31, 1988. On May 5, 1989 Corporate Investment
Company distributed all of the outstanding stock of the Company to the
shareholders of Corporate Investment Company as a one share stock for stock
dividend.
On December 29, 1995, the company entered into an agreement to exchange 85% of
its no par value common stock for approximately 55% ownership in
Communications/USA, Inc. The actual transaction took place in January 1996,
and the Company filed a Form 8K dated January 8, 1996 detailing the
transaction.
The Company's new Board of Directors and shareholders authorized a name change
from Chester County Security Fund, Inc., to NET LNNX, Inc., as well as a one
for twenty reverse stock split of its common stock.
The Company's purpose is to develop and invest in high-tech company's
primarily engaged in the information super highway industry. Besides the above
named investment, the Company has also formed a wholly owned subsidiary,
TrueNet Corporation, to develop and market products to be used in the
Internet.
Accounting for Results of Operations in Unconsolidated Subsidiary.- The
Company's management has opted for accounting for the results of operations of
unconsolidated subsidiaries under the Equity Method. This means that the
Company records only its portion(approximately 55%) of income or losses of the
subsidiary. For the quarter and nine months ended September 30, 1996 this
amounted to an equity pick-up of $137,052 and $16,327 respectively.
Property and Equipment.- Property and Equipment are recorded at cost. The
equipment is depreciated over its useful life. There are no differences
between book and tax depreciation. Repairs and maintenance are expensed as
incurred.
<PAGE>
Note 2- Prepaids and Other Assets
During the quarter ended September 30, 1996, the company entered into various
agreements to exchange WEB Site development and hosting services for
advertising and corporate publicity with several publications, primarily
focused toward the investing public. The company realized a non-monetary gain
on the exchange of services aggregating $558,000. The company is carrying
these gains as Prepaid Advertising on its Balance Sheet, and intends to
amortize them as they are utilized.
Note 3- Preferred Stock
The company in exchange for a Note had issued 17,000 shares of its convertible
preferred stock, at a price of $10 per share. The company converted the
preferred into 53,572 shares of its common stock at an average price of $3.17
per share.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part I, Item 1. of this Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 43,173
<SECURITIES> 0
<RECEIVABLES> 2,139
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 333,812
<PP&E> 10,798
<DEPRECIATION> 540
<TOTAL-ASSETS> 2,435,290
<CURRENT-LIABILITIES> 101,236
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,334,054
<TOTAL-LIABILITY-AND-EQUITY> 2,435,290
<SALES> 22,883
<TOTAL-REVENUES> 597,210
<CGS> 76,430
<TOTAL-COSTS> 76,430
<OTHER-EXPENSES> 432,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 88,769
<INCOME-TAX> 18,431
<INCOME-CONTINUING> 70,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,338
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
