U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 small business issuer as specified in its charter)
Pennsylvania 23-1726390
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
324 Datura St., Suite. 303, West Palm Beach, FL 33401
(Address of principal executive office and zip code)
(561) 659-1196
(Issuer's telephone number)
324 Datura St., Suite 330, West Palm Beach, FL 33401
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act of 1934 during the past 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 at least
the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At June 30, 1997, there were
outstanding 2,058,209 shares of common stock, no par value.
Transitional Small Business Disclosure Format (check one);
Yes _X_ No ___
<PAGE>
NET LNNX, INC.
Form 10-QSB Index
June 30, 1997
Page
Part I: Financial Information
Item 1. Financial Statements .......................... 3
Balance Sheets Unaudited at June 30, 1997......... 4
Unaudited Statements of Operations for the
Period ended June 30, 1997........................ 5-6
Unaudited Statements of Cash Flow for the
Period Ended June 30, 1997........................ 7
Notes to Unaudited Financial Statements .......... 8
Item 2. Management's Discussion and Analysis or Plan
of Operation ..................................... 9
Part II: Other Information
Item 1. Legal Proceedings .......................... 11
Item 2. Changes in Securities ....................... 12
Item 3. Defaults Upon Senior Securities ............. 12
Item 4. Submission of Matters to a Vote of
Security Holders ............................ 12
Item 5. Other Information ........................... 12
Item 6. Exhibits and Reports on Form 8-K ............ 13
Signatures .................................................. 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
NET LNNX, INC.
CONDENSED BALANCE SHEET
June 30, 1997
(Unaudited)
ASSETS
Current assets:
Cash $ 70,802
Prepaid expenses 1,550
Total current assets 72,352
Property and equipment (net) 8,308
Note receivable - long term 444,452
$ 525,112
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 18,256
Total current liabilities 18,256
Deferred gain - installment sale 42,845
Stockholders' equity:
Common stock 1,000
Additional paid-in capital 1,096,335
Retained deficit (633,324)
Total stockholders' equity 464,011
$ 525,112
See Accompanying Notes
<PAGE>
NET LNNX, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
[CAPTION]
<TABLE>
For the Three Months
Ended June 30,
1997 1996
<S> <C> <C>
Sales, net $ - $ -
Cost of sales - -
Gross profit (loss) - -
General & administrative
expenses 61,072 35,984
Loss from operations (61,072) (35,984)
Other income (expense)
Interest earned 7,827 -
Installment gain
- sale of subsidiary 402 -
Total other income (expense) 8,229 -
Net loss from continuing operations (52,843) (35,984)
Discontinued operations:
Loss from operations of subsidiaries - (52,345)
Estimated loss from disposal of subsidiaries (118,002) -
(118,002) (52,345)
Net loss (170,845) (88,329)
<PAGE>
Retained earnings (deficit),
beginning of period (462,479) (147,793
Retained earnings(deficit), end of period $ (633,324) $ (236,122)
Earnings per share:
Loss from continuing operations $ (.03) $ (.04)
Loss on disposal of subsidiaries $ (.09) $ (.05)
Weighted average shares outstanding 2,044,555 1,020,934
</TABLE>
See Accompanying Notes
<PAGE>
NET LNNX, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
[CAPTION]
<TABLE>
For the Three Months
Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ (170,845) $ (88,329)
Adjustments for non-cash items 13 180
Changes in assets and liabilities 64,052 90,227
Net cash provided (used) for operations (106,780) 2,078
Investments activities:
Acquisition of property - -
Receipts from installment sale note 4,173 -
Cash used for investment activities (4,173) -
Financing activities:
Proceeds from issuance paid-in capital 100,000 -
Proceeds from sale of Preferred Stock - -
Net cash provided by financing activities 100,000 -
Net increase (decrease) in cash (2,607) 2,078
Cash, beginning of period 73,409 -
Cash, end of period $ 70,802 $ 2,078
Supplemental disclosure:
Cash paid for interest $ - $ -
Income taxes paid $ - $ -
</TABLE>
See Accompanying Notes
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements of Net Lnnx, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997.
2. Discontinued Operations and Subsequent Events
In 1996, the Company reported the pending sale of its subsidiaries,
Communications/USA, Inc. ("CUSA") and TrueNet, Inc. The Company expensed
expected costs of these discontinued operations in 1996. Operating loss from
operations of $52,345 reported in the second quarter of 1996 are not included
in loss from operations in the accompanying income statements. Potential tax
benefits from the loss on disposition have not been recognized since the
ultimate realization of the tax benefits is dependent on the Company
generating future capital gains.
In 1997, the Company completed the sale of CUSA. The consideration of the
sale was cash and a promissory note. The gain on the sale is being reported
on the installment method. Based on cash receipts in the second quarter of
1997, the gain was $402. The Company, however, has begun litigation to
accelerate payments based on the terms and conditions of the note. The suit
is in its discovery stage and management believes the ultimate outcome will be
favorable to the Company.
The sale of the Company's other subsidiary, TrueNet, Inc., was also
completed. The consideration was stock in the name of the purchaser, Banana
Corporation, Inc. ("BCI"). BCI is in the process of considering bankruptcy
subsequent to June 30, 1997. The Company's investment in BCI may not be
realizable and a reserve for the loss has been expensed during the second
quarter of 1997.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
(a) Plan of Operation
The registrant is presently a holding company conducting virtually no
business operation, other than its efforts to seek merger partners or
acquisition candidates. As disclosed in the registrant's press release dated
June 26, 1997, on that date, the registrant cancelled the proposed merger
announced on April 25, 1997 between the registrant and Techni-Logic
Consultants, Inc., a Texas based corporation. As of the date of this report,
no letter of intent or definitive binding merger agreement has been entered
into between the registrant and any other prospective merger partner or
acquisition candidate, and no assurances can be made that such a letter of
intent or merger agreement will be entered into or that such a merger will
close.
In April 1997, the registrant received a capital infusion of
approximately $100,000 in connection with the sale of 250,000 shares of the
registrants common stock. See Part II Item 2 herein "Change In Securities".
Also, the registrant receives a cash flow from a 7% note receivable (the "Note
Receivable") made to the registrant. The Note Receivable is a 7% interest
promissory note in the amount of $475,000 with 5 monthly payments of $ 4,000
per month, 7 monthly payments of $9,000 per month, 12 monthly payments of
$12,000 per month, and a balloon payment of the balance due on March 1, 1999.
The underlying value of the Note Payable is presently approximately $444,452.
During the period covered by this report, the registrant instituted legal
proceeding against the maker of the Note Receivable in connection with the
purchase contract for which the Note Receivable was issued. See Part II, Item
1 herein, "Legal Proceedings". During the period covered by this report, the
registrant has expended a significant amount of its cash reserves, in addition
to a significant amount of the cash flow received by the registrant from the
Note Receivable, on professional fees and costs in connection with this and
other litigation matters in which the registrant has been a party to. No
assurances can be made that the registrant, or its assigns, will continue to
receive its monthly payments, or the balloon payment, on the Note Receivable
when due in light of the circumstances which prompted the registrant to
institute litigation proceedings against the Note Receivable maker. As of the
date of this report, the registrant maintains cash reserves in the amount of
approximately $70,800.
Upon the termination of the abovementioned litigation, the Note
Receivable will be transferred from the registrant to Harbor Town Holding
Group I, Inc., a wholly owned subsidiary of the registrant. See Part II, Items
4 and 5 herein, "Submission of Matters to a Vote of Security Holders", "Other
Information". Upon such transfer, the registrant will be required to expend
its cash reserves in order to meet its operating costs for 1997 since it will
no longer receive cash flow from the Note Receivable and the registrant has no
other means of cash flow. Notwithstanding the abovementioned litigation, or
any other litigation, until such time as the registrant closes a merger or
acquisition transaction, with the exception of professional fees and costs for
such a transaction, the registrant expects that it will incur only minor
operating costs in 1997.
<PAGE>
The registrant has been operated by new management since January 1997.
To the best of such new management's knowledge, the registrant's past
liabilities have been paid to the satisfaction of all creditors, with the
exception of one creditor which has brought suit against the registrant in the
approximate amount of $25,645 as of the date of this report. See Part II, Item
1 herein, "Legal Proceedings". In the event this creditor is successful in
such action against the registrant, depending upon the costs involved and the
monetary damage awards obtained against the registrant, the registrant might
have difficulty meeting its cash requirements. Also, although the
registrant's management has conducted what they consider a thorough
investigation of all potential liabilities of the registrant, management may
not be aware of all the registrant's outstanding liabilities; therefore, in
the event present, material, unknown liabilities exist, the registrant might
have difficulties meeting its cash flow requirements in the event it is
required to pay such liabilities.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
CommGroup, Inc. Litigation
On April 15, 1997, CommGroup, Inc. d/b/a Communications Group, a Florida
corporation ("CommGroup"), filed suit against the registrant in the Circuit
Court of the Fifteenth Judicial Circuit, Palm Beach County, Florida.
CommGroup is a company which provides marketing support and public
relations services ("Services"). CommGroup alleges that it performed Services
for the registrant valued at approximately $25,645 pursuant to an oral
contract between the registrant and CommGroup. CommGroup brought this suit
for breach of contract, account stated and quantum meruit relief against the
registrant. As of the date hereof, the lawsuit is in the "discovery stage".
Palm Capital, Inc. et. al Litigation
During the period covered by this report, questionable circumstances
arose with respect to the Note Payable, Communications/USA, Inc., Palm
Capital, Inc. and the viability of continued payment on the Note Payable and
the possibility of its default, either in whole or in part. Based on this,
registrant considered it likely that the value of the Note Payable was in
jeopardy and that certain action, including litigation, would be required and
appropriate in order to salvage the greatest amount of value for the Note
Payable. As stated, the underlying value of the Note Payable is presently
approximately $444,452. On June 27, 1997 a representative of Palm Capital,
Inc. and Communications\USA, Inc. offered to pay Net Lnnx a lump sum payment
of $213.256.00 as payment in full on the Note Payable in exchange for a
release from liability for any additional payments under the Note Payable.
The registrant rejected the offer as payment in full for the Note Payable.
On June 27, 1997, the registrant, filed suit against Palm Capital, Inc.,
a Florida corporation ("Palm"), Communications/USA, Inc., a Florida
corporation ("Comm/USA"), Robert Feiman, an individual ("Feiman") Raul
Balsera, an individual ("Balsera") and Gibbs and Runyan, P.A , a Florida
professional corporation ("Gibbs") in the Circuit Court of the Fifteenth
Judicial Circuit, Palm Beach County, Florida in connection with the purchase
contract for which the Note Receivable was issued.
The registrant commenced suit against the abovenamed defendants
collectively and/or individually alleging/seeking Fraudulent Transfer; Fraud
In The Inducement; Injunctive Relief (pursuant to Florida's Fraudulent
Conveyance Statute and common law); Fraud In the Purchase Of Securities;
Breach of Contract; and Breach of Fiduciary Duty. Upon a motion to dismiss
all counts brought by the defendants, the court denied the motion as to all
counts except for the common law injunctive relief sought. The court,
however, sustained and refused to dismiss the registrant's claim for
<PAGE>
injunctive relief based upon Florida's Fraudulent Conveyance Statute. At a
preliminary hearing, the court did not grant preliminary injunctive relief;
however, the lawsuit is continuing forward, discovery is proceeding, and a
jury trial has been requested. The registrant is seeking compensatory damages
and punitive damages, in addition to any and all other relief the court may
grant.
Item 2. Change in Securities
On each of March 26, 1997 and April 10, 1997, the registrant sold
250,000 shares of common stock (500,000 in the aggregate) at $0.40 per share
pursuant to a private placement transaction. The exemptions the registrant
relied upon were Sections 4(2), 4(6) and Regulation D of the Securities Act of
1933, as amended. The stock was sold to an individual in the March
transaction and to a privately held limited liability partnership in the April
transaction. Both purchasers are accredited investors as that term is defined
in Regulation D. The net proceeds to the registrant for the sale of said
500,000 shares, after offering expenses of $1,000 were $199,000.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the registrant was held on May
23, 1997. Shareholders representing 1,426,336 shares of the 2,058,209 shares
outstanding on that date attended the meeting and unanimously passed the
following resolutions:
1. To ratify the Company's anticipated reverse merger with Techni- logic
Consultants, Inc.;
2. To ratify the January 31, 1997 sale of the registrant's interest in
TrueNet Corporation to Banana Corp., Inc;
3. To ratify the transfer of two of the registrant's assets: (i) the Note
Receivable into Harbor Town Holding Group I, Inc., the first of two new
wholly owned subsidiaries of the registrant; and (ii) the registrant's
25% interest in Banana Online, Inc., a Florida internet corporation, to
Harbor Town Holding Group II, Inc., the second of two wholly owned
subsidiaries of the registrant. On May 19, 1997 the registrant declared
a dividend to distribute to May 21, 1997 shareholders of record of the
registrant the shares of the two abovementioned wholly owned subsidiaries.
4. To ratify the election of Ronald W. Hayes, Jr, president and director
of the registrant, president and sole director of the two wholly owned
subsidiaries.
Item 5. Other Information
On June 5, 1997, the registrant agreed to assign the Note Payable to
Harbor Town Holding Group I, Inc. ("Harbor Town"), a wholly owned subsidiary
of the registrant. The assignment was made for the payment of the transfer to
registrant by Harbor Town of Two Million Fifty Eight Thousand Two Hundred and
Nine (2,058,209) shares of Harbor Town's capital stock, which on May 23, 1997,
<PAGE>
pursuant to a shareholder and director's meeting, the registrant was
authorized to issue such Harbor Town stock to record shareholders of Net Lnnx.
Previous to June 5, 1997 and continuously up to June 6, 1997,
questionable circumstances arose with respect to the Note Payable, Comm/USA,
Palm, and the viability of continued payment on the Note Payable or the
possibility of its default, either in whole or in part. Based on this, both
the registrant and Harbor Town considered it likely that the value of the Note
Payable was in jeopardy and that certain action, including litigation, would
be required and appropriate in order to salvage the greatest amount of value
for the Note Payable.
The registrant and Harbor Town agreed that in exchange for the registrant
utilizing its resources to collect the greatest amount of value for the Note
Payable, Harbor Town will suspend, and shall not effectuate the assignment of
the Note Payable to Harbor Town until such date that the registrant can
collect the greatest amount of value for the Note Payable, with such value to
be determined by the registrant. The registrant shall continue to have full
right of ownership in all Two Million Fifty Eight Thousand Two Hundred and
Nine (2,058,209) shares of Harbor Town's capital stock, which now belongs to
the registrant's shareholders of record date. As of the date of this report,
the registrant and the opposing parties to this litigation are in the
discovery process of the lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NET LNNX, INC.
Registrant
/s/ Ronald W. Hayes, Jr.
Ronald W. Hayes, Jr.
President.
/s/ Ronald W. Hayes, Jr.
Ronald W. Hayes, Jr.
President.
/s/ Ronald P. Perella
Ronald P. Perella,
Vice President and
Executive Secretary
Date: August 6, 1997
<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-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 70,802
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,352
<PP&E> 10,798
<DEPRECIATION> 2,490
<TOTAL-ASSETS> 525,112
<CURRENT-LIABILITIES> 18,250
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 1,096,335
<TOTAL-LIABILITY-AND-EQUITY> 464,011
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 61,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (170,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,843)
<DISCONTINUED> (118,002)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170,845)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
