AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2000
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CELEXX CORPORATION (Exact name of registrant as specified in its charter)
Nevada 1040 65-0728991
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Classification Code Number) Identification number)
or organization)
7251 WEST PALMETTO PARK ROAD
SUITE 208
BOCA RATON, FLORIDA 33433
(561)395-1920
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
HARRY WINDERMAN, ESQ.GENERAL COUNSEL
CELEXX CORPORATION
7251 WEST PALMETTO PARK ROAD
SUITE 208
BOCA RATON, FLORIDA 33433
(561) 395-1920
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At
such time or times as may be determined by the Selling Stockholder after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
AGGREGATE OFFERING PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE
Common Stock, $.001 par value, 11,172,222(1) $1.06(1)(2) $11,842,555(1) $3,126.00
issuable upon conversion of 6%
Convertible Preferred Stock and
Warrant Shares
And Common Stock issuable to
Placement Agent
Total . . . . . . . . . .$3,126.00
(1) Represents 11,172,222 shares of Common Stock issuable upon conversion
of 6% Convertible Preferred Stock at a conversion price of $1.06 per
share, warrant shares and shares issued to the placement agent on the
sale of the above Convertible Preferred Stock.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Exchange Act of 1933, as
amended (the "Securities Act"), based on $1.06, the per share average
of high and low sales prices of the Common Stock on the NASDAQ
over-the-counter Market on May 31, 2000.
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.
PROSPECTUS
11,172,222 SHARES
CELEXX CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
This Prospectus relates to the re-offer and resale by certain Selling
Stockholders (collectively the "Selling Stockholder") of shares (the "Shares")
of Common Stock, $0.001 par value per share (the "Common Stock"), of CeleXx
Corporation, a Nevada corporation comprised of an aggregate of 11,172,222 shares
of Common Stock which will be issued by the Company to a certain Selling
Stockholder upon the conversion of the 6% Convertible Preferred Stock
("Preferred Stock") of the Company and warrants and common stock received by the
placement agent as part of the same transaction. This Prospectus also relates,
pursuant to Rules 417 and 457(i) promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), to the offer and resale by a certain Selling
Stockholder of an indeterminate number of shares of Common Stock that may become
issuable by reason of the anti-dilution provisions of the Preferred Stock. The
Selling Stockholder has advised us that it proposes to offer such Shares which
it may acquire for sale, from time to time, through brokers in brokerage
transactions on the National Association of Securities Dealers Automated
Quotation System (Over-the-Counter) ("NASDAQ"), to underwriters or dealers in
negotiated transactions or in a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices.
Brokers, dealers and underwriters that participate in the distribution of the
Shares may be deemed to be underwriters under the Securities Act of 1933 (as
amended, and together with the rules and regulations thereunder, the "Securities
Act"), and any discounts or commissions received by them from the Selling
Stockholder and any profit on the resale of Shares by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholder may be deemed to be an underwriter under the Securities Act. See
"Plan of Distribution".
We will not receive any part of the proceeds from the sale of the
Shares by the Selling Stockholder upon the conversion of the Preferred Stock.
The Selling Stockholder will pay all applicable stock transfer taxes, brokerage
commissions, underwriting discounts or commissions and the fees of Selling
Stockholder's counsel, but we will bear all other expenses in connection with
the offering made hereunder. We have agreed to indemnify the Selling Stockholder
and underwriters of the Selling Stockholder against certain liabilities,
including certain liabilities under the Securities Act, in connection with the
registration and the offering and sale of the Shares.
The Shares are listed on the NASDAQ (OVER-THE-COUNTER). The closing
price per share of Common Stock on the NASDAQ (OVER-THE-COUNTER) on May 31,
2000, was $1.06.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" AT PAGE 7 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ________________.
TABLE OF CONTENTS
Available Information..........................................................5
Prospectus Summary.............................................................5
Risk Factors...................................................................6
Use of Proceeds...............................................................11
Price Range of Common Stock...................................................12
Dividend Policy...............................................................12
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................13
Business......................................................................16
Management and Strategy.......................................................18
Security Ownership of Certain Beneficial Owners and
Management...................................................................28
Description of Capital stock..................................................29
Plan of Distribution..........................................................33
Legal Matters.................................................................34
Experts.......................................................................34
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the following
regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511 upon
payment of the fees prescribed by the Commission. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http//www.sec.gov.
The Company has also filed with the Commission a Form SB-2 Registration
Statement (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement.
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY OF THE INFORMATION THAT IS IMPORTANT TO YOU AND YOU
SHOULD READ THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL STATEMENTS
AND THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
ABOUT US
CeleXx Corporation is an Information Technology company that provides
organizations with services and integrated computer and telecommunications based
systems that improve individual performance. CeleXx's strategy in providing
these services has been accomplished through the acquisition and consolidation
of Information Technology (IT) businesses. In general, these businesses provide
services such as engineering design and layout for the installation of network
systems, Web site development, computer hardware and software integration and
training and ongoing technical support to client companies. In certain
situations, however, computer hardware and software may be sold as part of the
overall service solution.
OUR BUSINESS
We operate within the broad market of Information Technology (IT),
which has grown in tandem with the worldwide proliferation of computerization
over the last two decades and has expanded the rate of growth with the
commercialization of the Internet and corporate Intranets over the last five
years. Several sources, including International Data Corporation (IDC), concur
that the number of online users will grow from about 150 million worldwide now
to about 500 million by 2003. This projected growth is expected, in turn, to
fuel the demand for new computer products and services and create new market
opportunities in this field. IDC is a leading provider of information technology
data, industry analysis and strategic and tactical guidance to builders,
providers and users of information technology. IDC is based in Framingham,
Massachusetts and maintains offices in more than 40 countries around the world.
5
OUR OFFICES
Our executive offices are located at 7251 West Palmetto Park Rd., Suite
208, Boca Raton, Florida 33433. Our telephone NUMBER IS (561) 395-1920. We have
a home page on the internet at http://www.celexx.com.
ABOUT THE OFFERING
MARCH 31, 2000
-----------------
Common stock Offered by the selling stockholder 11,172,222 shares
Common stock Outstanding as of May 31, 2000 12,412,613 shares
Common stock to be Outstanding after the Offering 23,584,835 shares
Use of Proceeds - We will not receive any of the proceeds from the sale of
shares by the selling stockholder.
Bulletin Board Symbol CLXX
Risk Factors - An investment in the shares involves a high degree of risk. See
"Risk Factors" beginning on page 7 of this prospectus.
Summary Financial Data:
(Dollar amounts and share data)
MARCH 31, 2000 DECEMBER 31, 1999
-------------- ------------------
Revenue $ 361,858 $ 680,989
Loss from Operations (1,591,728) (1,746,443)
Net Loss (1,597,687) (1,906,397)
Basic and Diluted Net
Loss Per Common Share (0.13) (0.21)
BALANCE SHEET DATA
Total Assets $1,484,970 $1,480,254
Total Liabilities $ 900,476 $ 724,939
Stockholders' Equity $ 584,494 $ 755,315
RISK FACTORS
An investment in the shares discussed in this prospectus involves a
high degree of risk. You should carefully consider the following risk factors,
as well as the other information contained in this prospectus, before making an
investment decision.
WE ARE A NEW COMPANY WITH A LIMITED OPERATING HISTORY
We can not be sure that we will achieve profitability or positive cash
flow in the future. We commenced operations in February 1997 and, have a limited
6
operating history. As of March 31, 2000, December 31, 1999 and December 31,
1998, we had generated net losses of $1,597,687, $1,906,397 and $316,121,
respectively, and an accumulated deficit of $3,820,205 at March 31, 2000.
WE DO NOT HAVE SOURCES FOR ADDITIONAL WORKING CAPITAL IF NEEDED
The timing and amount of capital requirements are not entirely within
our control and cannot accurately be predicted. If capital requirements
materially exceed those currently anticipated, we may require additional
financing sooner than anticipated. We have no commitments for additional
financing, and we can not be sure that any additional financing would be
available in a timely manner, on terms acceptable to us, or at all. Further, any
additional equity financing could reduce ownership of existing stockholders and
any borrowed money could involve restrictions on future capital raising
activities and other financial and operational matters. If we were unable to
obtain additional financing as needed, we could be required to reduce our
operations or any anticipated expansion, which could hurt us financially.
OUR REQUIREMENT FOR ADDITIONAL WORKING CAPITAL DEPENDS ON THE FUNDS USED BY OUR
COMPETITION
We believe that the net proceeds from our recent stock offerings,
together with other available cash, will be sufficient to meet our operating
expenses and capital requirements at least through December 2000. However, our
capital requirements depend on numerous factors including:
o the level ofresources required to expand our marketing and sales
organization, information systems and research and development activities
o the availability of hardware and software provided by third-party
vendors
WE HAVE SUBSTANTIAL COMPETITION IN THE INFORMATION TECHNOLOGY SERVICE SOLUTION
BUSINESS
We cannot know that we will have the financial resources, technical
expertise or marketing and support capabilities to compete successfully in the
Information Technology business. System integration and e-commerce will result
in even greater competition. Inasmuch as there are no significant barriers to
entry, we believe that competition in this market will intensify. We believe
that our ability to compete successfully will depend on:
THE COMPANY'S FUTURE POTENTIAL COMPETITORS CAN BE DIVIDED INTO SEVERAL GROUPS -
computer hardware and service vendors and/or manufacturers such as IBM
and Hewlett Packard; Internet integrators and web presence providers
such as Agency.com and iXL Holdings; large information consulting
service providers such as Anderson Consulting, Cambridge Technology
Partners and Electronic Data Systems Corporation; telecommunications
companies such as AT&T and MCI; Internet and online service providers
such as America Online, Netcom Online and UUNet Technologies; and
software vendors such as Microsoft, Netscape, Novell and Oracle. Almost
all of the Company's current and potential competitors have longer
operating histories, larger installed customer bases, longer
relationships with clients and significantly greater financial,
technical, marketing and public relation resources than the Company and
could decide at any time to increase their resource commitments to the
Company's target market. As a strategic response to changes in the
competitive environment, the Company may from time to time make certain
pricing, service technology or marketing decisions or business or
technology acquisitions that could have a material adverse effect on
the Company's business, financial condition, results or operations and
prospects. Competition of the type described above could materially
adversely affect the Company's business, results of operations,
financial condition and prospects.
7
In addition, the Company's ability to generate clients will depend to a
significant degree on the quality of its products and services and its
reputation among its clients and potential clients, compared with the
quality of its services provided by, and the reputations of, the
Company's competitors. To the extent the Company loses clients to its
competitors because of dissatisfaction with the Company's services, or
its reputation is adversely affected for any other reason, the
Company's business, result of operations, financial condition and
prospects could be materially adversely affected.
There are relatively low barriers to entry into the Company's business.
Because firms such as the Company rely on the skill of their personnel
and the quality of their client service, they have no patented
technology that would preclude or inhibit competitors from entering
their markets. The Company is likely to face additional competition
from new entrants into the market in the future. There can be no
assurance that existing or future competitors will not develop or offer
services that provide significant performances, price, creative or
other advantages over those offered by the Company, which could have a
material adverse effect on its business, financial condition, results
of operations and prospects.
RAPID TECHNOLOGY CHANGE
The market for Information Technology services is characterized by
rapid technological change, changes in user and client requirements and
preferences, frequent new product and service introductions embodying
new processes and technologies and evolving industry standards and
practices that could render the Company's intended service practices
and methodologies obsolete. The Company's success will depend, in part,
on its ability to improve its existing products and services, develop
new products and services and solutions that address the increasingly
sophisticated and varied needs of any currently and prospective
clients, and respond to technological advances, emerging industry
standards and practices and competitive service offerings. Failure to
do so could result in the loss of customers or the inability to attract
and retain customers, either of which developments could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects. There can be no assurance that the
Company will be successful in responding quickly, cost-effectively and
sufficiently to these developments. If the Company is unable, for
technical, financial or other reasons, to adapt in a timely manner in
response to change in market conditions or client requirements, its
business, financial condition, result of operations and prospects would
be materially adversely affected.
POTENTIAL LIABILITY TO CLIENTS
Many of the Company's intended operations involve the development,
implementation and maintenance of applications that are critical to the
operations of their clients' businesses. Our failure or inability to
meet a client's expectations in the performance of our products or
services could injure the Company's business reputation or result in a
claim for substantial damages, regardless of its responsibility for
such failure. In addition, the Company possesses technologies and
content that may include confidential or proprietary client
information. Although the Company will implement policies to prevent
such client information from being disclosed to unauthorized parties or
used inappropriately, any such unauthorized disclosure or use could
result in a claim for substantial damages. The Company will attempt to
limit contractually its damages arising form negligent acts, errors,
mistakes or omissions in rendering professional services; however,
there can be no assurance that any contractual protections will be
enforceable in all instances or would otherwise protect the Company
from liability damages. The successful assertion of one or more large
claims against the company that are uninsured, exceed available
insurance coverage, if any, or result in changes to any insurance
policies the Company may obtain, including premium increases or the
imposition of a large deductible or co-insurance requirements, could
adversely affect the Company's business, results of operations and
financial condition.
8
FAST GROWTH MAY CAUSE PROBLEMS WITH CONTROL AND PRODUCTION
We are not sure that we will be able to manage our growth effectively,
or that our facilities, systems, procedures or controls will be adequate to
support these operations. Our inability to manage growth effectively could have
a bad effect on us by limiting our ability to service our customers and to
market our products and services. We have experienced a substantial growth in
the number of our employees and our business operations. This growth has placed,
and may to continue to place, significant strain on our managerial, operational,
financial and other resources. We believe that our performance and success will
depend in part on our ability to manage growth effectively. This, in turn, will
require ongoing improvement of our operations. We have expanded our Board of
Directors to include additional business experienced people.
WE WILL DEPEND ON KEY PERSONNEL TO CONTROL OUR BUSINESS AND OUR BUSINESS MAY
SUFFER IF THEY ARE NOT RETAINED
We are not sure that we will be able to retain our employees or to
identify or rehire additional people. The need for people is particularly
important in light of the anticipated demands of future growth and the
competition of the Information Technology Service Solution industry. Our
inability to attract, hire or retain good people could have a bad effect on us.
We are highly dependent on our key employees, including technical, sales,
marketing, information systems, financial and executive personnel due to our new
products and the new markets and new sales people we have recently hired.
Therefore, our success depends upon our ability to train and retain these people
and to identify, hire and retain additional people as the need arises.
Competition for these people, particularly persons having technical expertise is
substantial.
We also are highly dependent on the continued services of our senior
management team, which currently is composed of a small number of individuals.
While executive officers and key employees have employment agreements with us,
agreements are of limited time and are subject to ending under circumstances.
POSSIBLE LACK OF PROTECTION OF OUR PROPRIETARY RIGHTS; RISK OF INFRINGEMENT ON
OTHERS' RIGHTS MAY MEAN WE CANNOT SELL OUR PRODUCTS
While the Company believes that its success is ultimately dependent
upon the innovative skills of its personnel and its ability to anticipate
technological changes, its ability to compete successfully will depend, in part,
upon its ability to protect proprietary technology contained in its products. We
rely on a combination of copyright, trademark and trade secret laws and
contractual restrictions to establish and protect our products and services. We
do not know if these protections will be sufficient to prevent misappropriation
of our products, services and other proprietary property or that our competitors
will not independently develop products and services that is substantially
equivalent or superior to our products and services. Without substantial
protection, we will have nothing of value to sell to businesses.
Also due to the fact that this is a new and rapidly changing business,
we cannot assure that others will not assert that our services or its users'
content infringe their proprietary rights on our products or services. We can
not assure that infringement claims will not be asserted against us in the
future. Such claims could result in substantial costs and diversion of
resources, even if ultimately decided in favor of us, and could have an adverse
effect on us, particularly if judgments on claims were against us. In the event
9
a claim is asserted alleging that we have infringed the intellectual property or
information of someone else, we may be required to seek licenses to continue to
use intellectual property. We are not sure, however, that licenses would be
offered or could be obtained on commercially acceptable terms, if at all. The
failure to obtain necessary licenses or other rights could have an adverse
effect on us.
WE HAVE VOLATILITY IN OUR STOCK PRICE
Our operating results, cash flows and liquidity may fluctuate
significantly over time. Our revenues depend on our ability to attract and
retain customers. We generally offer our new customers a money-back guarantee
pro-rated over the unused duration of the service term and customers to our
services have the option of discontinuing their service for any reason. Our
expense levels are based in part on our expectations of future revenues. To the
extent that revenues are below expectations, we may be unable or unwilling to
reduce expenses proportionately, and operating results, cash flows and liquidity
therefore could be worse than expected. Due to the foregoing factors, it is
likely that, from time to time in the future, our quarterly or other operating
results and/or growth rate will be below the expectations of public market
analysts and investors. Such a failure to meet market expectations could have an
adverse effect on the market price of the common stock.
Prior to this offering, there has been a limited public market for the
common stock trading on electronic bulletin board. We are not sure that an
increased public trading market for the common stock will develop or continue
after this offering, or that the public offering price will correspond to the
price at which the common stock will trade subsequent to this offering. The
stock market has experience price and volume fluctuations that have particularly
affected the stocks of technology companies, resulting in changes in the market
prices of stocks of many companies that may not have been directly related to
the operating performance of those companies. Such broad market fluctuations may
adversely affect the market price of the common stock following this offering.
In addition, he market price of the common stock following this offering may be
highly volatile. Factors as variations in our interim financial results,
comments by securities analysts, announcements of technological innovations or
new products by us or its competitors, changing market conditions in the
industry (including changing demand for internet access) changing government
regulations, developments concerning our proprietary rights or litigation, many
of which are beyond our control, may have an adverse effect on the market price
of the common stock.
SHARES ELIGIBLE FOR FUTURE SALE COULD DEPRESS THE PRICE OF OUR SHARES
Sales of a substantial number of shares of common stock in the public
market following this offering, or the perception that sales could occur, could
make the market price of the common stock prevailing from time to time go down
and could impair our future ability to raise capital through a sale of our
stock. Upon completion of this registration, there will be approximately
24,000,000 shares of common stock outstanding, 16,000,000 of which will be
freely tradable without restriction.
WE WILL NOT PAY A CASH DIVIDEND IN THE NEAR FUTURE
We have never declared or paid any cash dividends on its capital stock
and do not anticipate paying cash dividends in the foreseeable future.
CONTROL BY OFFICERS, DIRECTORS AND EXISTING SHAREHOLDERS PREVENTS CHANGES IN
MANAGEMENT
Currently, the directors as a group and specifically Mr. Doug Forde and
Mr. Lionel Forde, his brother, have the right to vote a large block of the
outstanding shares of common stock. This small group will control the operations
10
of our company and make it very hard to elect other management for us. As a
result, the present officers, directors and shareholders will continue to
control our operations, including the election of directors and, except as
otherwise provided by law, other matters submitted to a vote of shareholders,
including a merger, consolidation or other important matters.
WE PROVIDE INDEMNIFICATION OF OFFICERS AND DIRECTORS AND IT MAY BE DIFFICULT TO
SUE THEM
The Nevada Statutes permit a corporation to indemnify persons including
officers and directors who are or are threatened to be made parties to any
threatened, pending or completed action, suit or proceeding, against all
expenses including attorneys' fees actually and reasonably incurred by, or
imposed upon, him in connection with the defense of action, suit or proceeding
by reason of his being or having been a director or officer, except where he has
been adjudged by a court of competent jurisdiction and after exhaustion of all
appeals to be liable for gross negligence or willful misconduct in the
performance of duty. Our Bylaws provide that we shall indemnify our officers and
directors to the extent permitted by the Nevada law and thereby limit the
actions that may be taken by you against the officers and directors.
WE MAKE ESTIMATES OF OUR FUTURE IN FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not historical
fact are "forward-looking statements," which can be identified by the use of
forward-looking terminology as "believes," "expects," "may," "will," "should,"
or "anticipates," the negatives thereof or other variations thereon or
comparable terminology, and include statements as to the intent, belief or
current our expectations with respect to the future operations, performance or
position. These forward-looking statements are predictions. We cannot assure you
that the future results indicated, whether expressed or implied, will be
achieved. While sometimes presented with numerical specificity, these
forward-looking statements are based upon a variety of assumptions relating to
our business, which, although considered reasonable by us, may not be realized.
Because of the number and range of the assumptions underlying our
forward-looking statements, many of which are subject to significant
uncertainties and contingencies beyond our reasonable control, some of the
assumptions inevitably will not materialize and unanticipated events and
circumstances may occur subsequent to the date of this prospectus. These
forward-looking statements are based on current information and expectation, and
we assume no obligation to update. Therefore, our actual experience and results
achieved during the period covered by any particular forward-looking statement
may differ substantially from those anticipated. Consequently, the inclusion of
forward-looking statements should not be regarded as a representation by us or
any other person that these estimates will be realized, and actual results may
vary materially. We can not assure that any of these expectations will be
realized or that any of the forward-looking statements contained herein will
prove to be accurate.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling stockholder.
PRICE RANGE OF COMMON STOCK
Since October, 1998, our common stock has traded on the electric
bulletin board under the trading symbol CBRA and CLXX. The following table sets
forth the average range of bid and ask quotations for our common stock as
reported by the electronic bulletin board for each full quarterly period within
the two most recent fiscal years and subsequent interim periods.
11
FISCAL YEAR ENDED DECEMBER 31, 1998
- -----------------------------------
BY QUARTER COMMON STOCK
----------- ---------------
QTR. DATE HIGH LOW
----------- ---- ---- ---
4th December 31, 1998 $6.25 $0.06
FISCAL YEAR ENDED DECEMBER 31, 1999
- -----------------------------------
BY QUARTER COMMON STOCK
----------- ---------------
QTR. DATE HIGH LOW
----------- ---- ---- ---
1st March 31, 1999 $6.00 $0.875
2nd June 30,1999 $1.53 $0.875
3rd September 30, 1999 $1.15 $0.63
4th December 31, 1999 $0.83 $0.45
FISCAL YEAR ENDING DECEMBER 31, 2000
- ------------------------------------
BY QUARTER COMMON STOCK
----------- ---------------
QTR. DATE HIGH LOW
----------- ---- ---- ---
1st March 31, 2000 $4.13 $0.56
2nd to May 31, 2000 $3.00 $1.06
Trading transactions in our securities occur in the
over-the-counter electronic bulletin board market. All prices indicated herein
are as reported to us by broker-dealer(s) making a market in our securities. The
quotes indicated above reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of March 31, 2000, there were approximately 249 Holders of record
our common stock, including brokerage firms, clearinghouses, and/or depository
firms holding our securities for their respective clients. The exact number of
beneficial owners of our securities is not known.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our stock and do
not anticipate paying cash dividends in the foreseeable future. The payment of
cash dividends, if any, in the future will be at the sole discretion of the
Board of Directors.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
CeleXx Corporation is an Information Technology company that provides
organizations with support services and integrated and telecommunications based
systems that improve individual performance. CeleXx's strategy in providing
these services has been accomplished through the acquisition and consolidation
of Information Technology (IT)businesses. In general, these businesses provide
services such as engineering design and layout for the installation of network
systems, Web site development, computer hardware and software integration, and
training and ongoing technical support to client companies. In certain
situations, however, computer hardware and software may be sold as part of the
overall service solution.
The Company's recent operations have consumed substantial amounts of
cash and have generated net losses and an accumulated deficit. The Company
believes that it will require a cash infusion from a private placement or other
equity financing to meet its projected working capital and other cash
requirements. Absent such additional cash infusion from a private placement or
other equity financing, the Company's continued existence is in substantial
doubt. The sale of additional equity or other securities could result in
additional dilution to the Company's stockholders. There can be no assurance
that such additional financing can be obtained on acceptable terms, if at all.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 2000 to March 31, 1999
The Company's total revenue was $361,858 for the quarter ended March 31, 2000
compared to $0 for the same quarter last year. The increase in revenue is a
result of its first acquisition, Pinnacle East, Inc. in May 1999.
Gross profit was 55% for the quarter ended March 31, 2000, which is a result of
the aforementioned acquisition.
Operating expenses increased by $1,529,820 or 585% for the quarter ended March
31, 2000, compared to the same period in 1999. As a percentage of sales,
operating expenses were 495% of total sales in the quarter ended March 31, 2000.
The increase in operating expenses for the quarter ended March 31, 2000 is
primarily due to the recognition of $1,426,866 in non-recurring, non-cash
compensation expense for the issuance of stock for services rendered, in
addition to increases in salaries, professional expenses and transaction costs
associated with on-going acquisitions and capital raising efforts.
Comparison of Fiscal Year 1999 to Fiscal Year 1998
The Company's total revenue increased $ 680,989, or 100%, from $ 0 in
1998 to 1999 as a result of its first acquisition of Pinneast.com, Inc. in May
1999.
Gross profit increased to 48% in 1999 from 0% in 1998. This increase is
a result of an increase in the percentage of IT revenue derived from its sole
operating unit.
Selling, general, and administrative ("SG&A") expenses increased by
$1,758,171 or 656% to $2,074,292 in 1999 from $ 316,121 in 1998. As a percentage
of sales, SG&A expenses were 304% of total sales in 1999 compared with no sales
13
in 1998. The increase in SG&A expenses is primarily due to increases in
salaries, professional expenses and non-cash transaction costs associated with
on-going acquisitions and capital raising efforts, along with an increase in
consulting and travel expenses.
Depreciation and amortization expenses increased to $125,920 in 1999
from $0 in 1998. The increase in depreciation and amortization expenses is
primarily due to increases in fixed asset depreciation, goodwill and other
intangibles amortization caused by the acquisition of Pinneast.com, Inc.
In 1999, the Company recorded no income tax expenses. At December 31,
1999, the Company has a federal and state net operating loss carry-forward of
$2,223,000.
FUTURE ASSESSMENT OF RECOVERABILITY AND IMPAIRMENT OF GOODWILL
In connection with its various acquisitions, the Company recorded
goodwill and other intangibles, that are being amortized on a straight-line
basis over a periods of 7 to 10 years, its estimated period that the Company
will be benefited by such intangible assets. At March 31, 2000, the unamortized
goodwill and other intangibles combined were $ 1,074,184 (which represented 72%
of total assets and 184% of stockholders' equity). Goodwill arises when an
acquirer pays more for a business than the fair value of the tangible and
separately measurable intangible net assets. For financial reporting purposes,
goodwill and all other intangible assets are amortized over the estimated period
benefited. The Company has determined the life for amortizing goodwill based
upon several factors, the most significant of which are the relative size,
historical financial viability and growth trends of the acquired companies and
the relative lengths of time such companies have been in existence.
Management of the Company periodically reviews the Company's carrying
value and recoverability of unamortized goodwill and other intangibles. If the
facts and circumstances suggest that the goodwill and other intangibles may be
impaired, the carrying value of such assets will be adjusted which will result
in an immediate charge against income during the period of the adjustment and/or
the length of the remaining amortization period may be shortened, which will
result in an increase in the amount of amortization during the period of
adjustment and each period thereafter until fully amortized. Once adjusted,
there can be no assurance that there will not be further adjustments for
impairment and recoverability in future periods. Of the various factors to be
considered by management of the Company in determining whether goodwill and
other intangibles is impaired, the most significant will be (i) losses from
operations, (ii) loss of customers and (iii) industry developments, including
the Company's ability to maintain its market share, development of competitive
products or services and imposition of additional regulatory requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements primarily through cash
flow from borrowings from its majority shareholder and principal officer. At
March 31, 2000, the Company had $84,481 in cash.
During the three months ended March 31, 2000, cash provided by
financing activities of $118,091 was derived from related party borrowings. Such
amounts were exceeded by cash used in operating and investing activities of
$171,292, resulting in a $53,201 decrease in cash.
In the fiscal year ended December 31, 1999, the Company satisfied its
cash requirements primarily from private equity issuances and loans from certain
officers and shareholders. At December 31, 1999, the Company had $137,682 in
cash.
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During the fiscal year ended December 31, 1999, net cash provided by
investing and financing activities of $1,191,110 exceeded cash used in operating
activities of $1,053,428, resulting in a $137,682 increase in cash.
The Company's operating entity, Pinneast.com, has three working capital
credit lines with a U.S. bank totaling approximately $300,000 that are fully
utilized. The three lines are secured by substantially all of the Company's
assets and mature in the years 2000 and 2003. The Company is currently
evaluating the replacement of these lines with alternative asset financing.
On April 7, 2000, the Company completed a financing agreement with
Birch Circle LLC ("Birch"), a private investment banking firm and raised
$3,500,000 for the Company through the sale of shares of the Company's Series A
Convertible Preferred Stock ("Preferred Shares"). Approximately $1.6 million of
the net proceeds (including accounting and attorneys' fees) had been earmarked
for the acquisition of CMI.
The Preferred Shares will pay dividends at the rate of 6% per annum,
and the dividend may be paid in cash or common shares of the Company, at the
option of the Company. If the Company elects to pay dividends on the Preferred
Shares in common shares, the number of common shares shall be determined by
dividing the cash amount of the dividend by the conversion price of the
Preferred Shares. The conversion price means the lower of: (a), the average
closing bid price on the day immediately preceding the closing of the
transaction or (b), 80 % of the 5-day trading average closing bid price of the
common shares prior the date of conversion.
FACTORS AFFECTING OPERATING RESULTS
The Company's recent operations during the three month period ended
March 31, 2000 and years ended December 31, 1999 and 1998 have consumed
substantial amounts of cash and have generated net losses of $1,597,687,
$1,906,397 and $ 316,121, respectively, and accumulated a deficit of $3,820,205
at March 31, 2000. The Company believes that it will require additional cash
infusions from a private placement or other equity financing to meet the
Company's projected working capital and other cash requirements in 2000.
Since the Company recognizes IT services revenue only when personnel
are engaged on client projects, the relative utilization of such personnel
directly affects the Company's operating results. Variations in utilization of
personnel may materially affect the Company's IT services business or failure to
obtain additional engagements in its IT services business could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's acquisitions have placed, and are expected to continue to
place, a significant strain on its managerial and operational resources. To
manage these acquired businesses and others that may be acquired in the future,
the Company must continue to implement and improve its operational, management
and financial systems and to train and manage its employee base. As part of its
business strategy, the Company may seek out additional business combinations
with other Internet or IT Services companies. To the extent that any of the
companies that the Company acquires fail, the Company could be required to write
off the amount of the investment.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written
15
using two digits rather than four to define the applicable year. Absent
corrective actions, programs with date sensitive logic may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The total cost associated with required modifications to become Year
2000 compliant has not been material to our financial position to date. Our
internal operations and business are also dependent upon the computer-controlled
systems of third parties such as our suppliers, clients and other service
providers. While problems may arise in the future and we cannot assure you that
we will not have a Year 2000 problem, we are unaware of any material impact on
our business caused by a Year 2000 problem either in our systems or those of
third-parties.
INFLATION
In our opinion, inflation has not had an effect on our results of
operations.
OUR BUSINESS
OVERVIEW
We were organized under the laws of the State of Nevada on February 19,
1997, under the name, "Spectrum Ventures, Inc." In February 1999, the Company
merged with Cobra Technologies International, Inc., a Delaware corporation with
the Company surviving. The name of the surviving corporation was changed to
Cobra Technologies, Inc. and in August 1999 and November 1999 was further
changed to CobraTec, Inc. and CeleXx Corporation, respectively.
On February 18, 1999, the shareholders of Spectrum Ventures, Inc. voted
to acquire all of the outstanding common stock of Cobra Technologies
International, Inc., a newly-formed Delaware corporation ("Cobra
International"), pursuant to an Agreement and Plan of Reorganization in exchange
for 4,500,000 of the Company's stock.
Effective May 25, 1999, we acquired all of the outstanding common stock
of Pinneast.com, Inc. a South Carolina corporation ("Pinneast"), pursuant to an
Agreement and Plan of Reorganization for a value of $900,000. Payment consisted
of 500,000 shares of our common stock and $100,000 in cash. Payment of the cash
portion was deferred for one year. Stephen Lounsberry and Mitchell N. Smith,
President and Vice President of Pinneast, respectively, also owning 100% of the
outstanding capital stock of Pinneast, received 275,000 and 225,000 common
shares of our stock, respectively.
We have a short operating history, and through March 31, 2000 have
generated losses from operations on a consolidated basis amounting to
$3,820,205. At present, the only material business that has been successfully
combined with us is Pinneast.com, Inc. While we intend to acquire existing
businesses in accordance with our business plan, we are not sure we will be
successful in our acquisition plans or in securing financing to acquire such
operating companies.
To date, we have not earned a profit and can give no assurances if and
when it will turn a profit. Similarly, because of our limited operating history
and accumulated losses, our ability to attract desirable businesses for
acquisition will be severely limited. Moreover, we can not be sure that such
acquisition candidates, if found, could be acquired under terms acceptable to
us. Consequently, failure to complete planned acquisitions will severely limit
our ability to grow.
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GENERAL
We are an acquirer and consolidator of Information Technology
(IT)businesses. In general, these businesses provide services such as
engineering design and layout for the installation of network systems, Web site
development, computer hardware and software integration, and training and
ongoing technical support to client companies. In certain situations, however,
computer hardware and software may be sold as part of the overall service
solution.
We completed our first acquisition in May of 1999 of Pinneast.com, Inc.
("Pinneast"), a six-year-old Columbia, South Carolina based company. Since then,
Pinneast's revenues and contracts for future business have increased
substantially. We are projecting revenues of approximately $3 million for the
year 2000. The basis for these projections is the current backlog of services
for which Pinneast holds signed contracts. Meanwhile, Pinneast is steadily
making inroads into the corporate training market. In December 1999, for
example, Pinneast signed an open-ended contract to host Dow Chemical's worldwide
computer based training programs. Under the terms of the agreement, Dow can
cancel the balance of the agreement at any time if, in the opinion of Dow,
Pinneast is in breach of the terms of the agreement and fails to live up to
acceptable standards of performance under the agreement. Nevertheless, Pinneast
will be required to complete all work-in-progress, without regard to the date of
cancellation of the open-ended contract. Furthermore, under the agreement Dow
must make a twenty-five percent (25%) non-refundable cash deposit with Pinneast
on all purchase orders issued by Dow and accepted by Pinneast. In addition,
Pinneast is negotiating to jointly produce books in text and video. If the pilot
programs currently being conducted are successful, Pinneast will convert books
and educational programs into CDs and Internet deliverable format for the
publisher.
Our second acquisition, Computer Marketplace, Inc. (CMI) was completed
on April 11, 2000., pursuant to an Agreement and Plan of Reorganization for a
value of $ 5,000,000. Payment consisted of 1,400,000 shares of our common stock
and $2,500,000 in cash. Payment of the cash portion was $1,500,000 at closing
and a promissory note for $1 million at 6%, payable in equal installments at the
first and second anniversaries. David Burke. Sr. and five (5) other key
employees retained their positions in CMI pursuant to 3 year employment
contracts and received a total of 200,000 common shares of our stock . CMI,
located in Tewksbury, Massachusetts, is a sixteen-year-old network solution and
systems design company, founded in 1983. CMI focuses on providing Fortune 1000
companies, government agencies and educational institutions with networking
solutions, systems integration, and computer telephony integration.
We operate within the broad market of Information Technology (IT),
which has grown in tandem with the worldwide proliferation of computerization
over the last two decades and has expanded the rate of growth with the
commercialization of the Internet and corporate Intranets over the last five
years. Several sources, including International Data Corporation (IDC), concur
that the number of online users will grow from about 150 million worldwide now
to about 500 million by 2003. This projected growth is expected, in turn, to
fuel the demand for new computer products and services and create new market
opportunities in this field. IDC is a leading provider of information technology
data, industry analysis and strategic and tactical guidance to builders,
providers and users of information technology. IDC is based in Framingham,
Massachusetts and maintains offices in more than 40 countries around the world.
With the successful acquisition of CMI, in addition to its core
competencies in networking and telephony, we became involved in the delivery of
systems that use voice over IP technology. Voice over IP is an emerging
technology that allows customers voice transmission over the Internet at a
fraction of the cost of current telephone technologies. At the present time,
approximately 50% of CMI's revenues are derived from the general area of
17
telephony, that is, the use of computers in telephonic communications. At this
time, we are unable to forecast what impact, if any, the predicted growth in
this market will have upon us.
Finally, through our ownership of Pinneast, we operate within the
general market of business-to-business e-commerce by building websites and
e-commerce platforms for clients that facilitate the transfer of goods and
services over the Internet. Electronic commerce (or e-commerce, as it is better
known) is a relatively new area within general commerce. This area has
proliferated with the growing use of the Internet and involves the transfer of
goods, services, and funds from one point to another using the Internet.
E-commerce is divided into business-to-business and business-to-consumer
segments.
According to IDC, business-to-business e-commerce is one of fastest
growing sectors of e-commerce and is expected to exceed $179 billion by 2001. To
capitalize on this growth, many businesses are expanding and upgrading their
Internet and networking infrastructures. The industry is highly competitive and
is characterized by numerous small companies, many offering proprietary products
and services. Although there are a few significant players, such as IBM and
Cisco, as yet, no clear leader has emerged. Currently, Pinneast holds a
negligible market share in this field, and currently has neither the capital nor
technical resources to capture meaningful market share. Nevertheless, revenues
from this source are growing.
MANAGEMENT AND STRATEGY
Our core management is composed of individuals experienced in finance,
accounting, and Information Systems. Members of our management team have been
employed by or have been consultants to startup companies and multinational
corporations such as IBM, Mc Graw-Hill and Xerox for more than two decades, Our
current president and our Chief Financial Officer have both been involved in the
financial and business aspects of mergers and acquisitions, as well as with the
investigation and business analysis of prospective acquisitions at Xerox and
McGraw-Hill and for smaller entrepreneurial firms. The core strategy of our
management team is to acquire complimentary businesses in the Information
Technology industry that add value by increasing market share, revenues, or
profits, or by reducing operating costs, or by enhancing our ability to perform
in the market place. We must caution, however, that the achievement of these
targets is highly dependent upon current management as well as upon our ability
to attract new capital. We are not sure that we will be in a position to attract
sufficient capital or that such capital will be available to us on favorable and
desirable terms. If we are unsuccessful in our attempt to raise growth and
working capital at rates that are acceptable to us, our prospects for growth
could be greatly diminished.
To date, we have focused on service companies that provide customers
with systems and network integration and computer and web based training.
Companies in systems engineering, systems design, e-commerce platform
development, and network consulting are our desired potential acquisition
candidates. Through the acquisition of CMI we are also becoming involved in
developing and delivering telecommunications systems such as telephone routers,
networked e-mail systems, and remote telephone diagnostic systems.
Telecommunications is an area that the company expects to become even more
involved with over the next several years.
One important criterion for acquisition is the potential synergy of the
business to be acquired with those that already exist within our structure. CMI
and Pinneast, for example, share a number of their larger clients. CMI provides
hardware, systems, and services to several of these clients while Pinneast
provides training to assure that users understand and take full advantage of the
systems that CMI has provided. We generally look for companies that will add $5
18
million to $15 million, or more to revenue; companies that have been profitable
on a pretax, pre-interest basis. Acquisition valuations are often based on an
EBIT multiple of four (4) to six (6). In addition, the companies must have at
least a three-year history with recently audited financial information and a
strong management team. We require top management to stay with the company after
the acquisition and tie a portion of the final purchase price to future
performance. In any event, we reserve the right to negotiate the purchase price
and terms of an acquisition, and may, from time to time, elect to acquire a
business with a history of losses if, in the opinion of the management and our
board of directors, such an acquisition might add value to our holdings.
PINNEAST.COM, INC.
Pinneast.com, Inc. ("Pinneast") was formed in January 1994 in order to
capitalize on the growing demand for computer-based alternatives to instructor
led training. The company provides its customers, mainly Fortune 500 companies,
with customized interactive (i.e., can be controlled by the user) multimedia
(i.e., combining text, graphics and motion) training design and development
services. Toward this end, Pinneast evaluates the specific practices and
procedures a client might be using, and then details a plan for developing
training programs that address the client's specific requirements. For the most
part, these training programs are designed to fill specific needs; for example,
to help employees improve performance (productivity); to help employees gain
awareness of certain issues, their causes, and cures (e.g., sexual harassment);
to help employees avoid common accidents or to comply with certain governmental
regulations such as OSHA; to teach new skills (e.g., how to operate a certain
machine); or to teach general skills (e.g., computing). Pinneast also develops
and produces marketing tools (e.g., promotional material, video demonstrations,
etc.) for customers to distribute in the form of CD ROMS or via the Internet.
Today, Pinneast's clients include a broad base of industrial companies,
banks, financial institutions, government agencies and educational institutions.
Prominent among its clients are Dow Chemical, for which Pinneast produces and
hosts (maintains the site for) world-wide Web-based training programs; The US
Army, for which Pinneast develops a wide array of training programs related to
the proper use and maintenance of weapons systems; Delta Airlines, for which
Pinneast designs and produces safety training programs; and Nations Bank, for
which Pinneast develops financial training programs. All of Pinneast's programs
are high in multimedia (text, video, graphics and motion) content and delivered
to the end user via CD ROMs, the Internet (World Wide Web), or private corporate
intranets (Internet based links for a specific company or group).
Pinneast generated about $200,000 in revenue during its first year,
primarily from its first customer, Fleet Mortgage, and from a local grocery
chain, Harris Teeter Grocers. During the company's second year, it established a
two-year, $800,000 contract with Hoechst Chemical to provide OSHA mandated
training to its employees. Pinneast also continued to expand within the
financial community by generating contracts with several banks and insurance
companies.
In 1996, Pinneast became a pioneer in web-based training as it
delivered an Internet accessed medical support program, called Learners Toolkit
for Open Time, for the Thomas Jefferson University Hospital. By 1998, the
company had expanded its revenue base to more than $800,000 and established
contracts with companies throughout a variety of industries and government
organizations. In 1999 on an annualized basis Pinneast earned revenues of $
978,000 and signed an open-ended contract to host Dow Chemical's worldwide
computer based training programs.
19
While Pinneast has been particularly successful with companies in a few
key industries such as finance, insurance, transportation and manufacturing, the
scope of its services can be applied to most businesses and government
organizations. Generally, however, its customers need to be large enough to have
ongoing training and training support programs for their employees. Pinneast
maintains a customer retention rate in excess of 80%.
Pinneast products fall into two categories: training and marketing.
Training products include custom computer-based training (CBT) programs, custom
web-based training (WBT) programs, instructional design, instructor-led training
and consultation. The Company's marketing products include: interactive
marketing CD-ROMs, corporate web page development, e-commerce systems, site
development, and consultation.
In developing and producing training programs for its clients, the
Company combines business performance consulting, instructional design, graphic
design and animation, computer methodologies and media technologies to meet the
specific performance improvement (productivity) needs of its clients. The
solutions and training programs are delivered via CD-ROM or the Web.
Furthermore, the Company markets and distributes its products and services
through trade sources, customer referrals and direct marketing.
The Company's instructional design philosophy and approach focus on
helping clients improve employee performance through training. The interactive
nature of the program permits the user (learner) to stop, start, or repeat any
portion of the program he or she may desire, at any time. Pinneast's approach to
interactive multimedia design addresses multiple learning styles in an attempt
to more effectively reach the diverse audiences for which these programs are
intended. Secondly, our interactive multimedia programs engage the learner with
simulated performance-based routines, enhanced by corrective feedback that is
directly applicable to the learner's real world performance responsibilities.
The instructional material is designed to engage or link the learner to
interactive multimedia so that real world knowledge, skills and methodologies
are practiced and developed and, thus, become directly transferable to
on-the-job performance. In addition to designing from the learner's performance
perspective and needs, Pinneast.com designs training programs within the context
of the client's business objectives and priorities so that individual
performance improvements are relevant: they impact overall business performance.
For the year 1999, Pinneast.com employed 16 full-time employees and 10 part-time
employees.
COMPUTER MARKETPLACE, INC.
The acquisition of Computer Marketplace, Inc. (CMI) was completed on
April 11, 2000., pursuant to an Agreement and Plan of Reorganization for a value
of $ 5,000,000. Payment consisted of 1,400,000 shares of CeleXx common stock and
$2,500,000 in cash. Payment of the cash portion was $1,500,000 at closing and a
promissory note for $1 million at 6%, payable in equal installments at the first
and second anniversaries. David Burke. Sr. and 5 other key employees retained
their positions in CMI pursuant to 3 year employment contracts and received a
total of 200,000 common shares of CeleXx .
CMI, located in Tewksbury, Massachusetts, is a sixteen-year-old network
solution and systems design company, founded in 1983. CMI focuses on providing
Fortune 1000 companies, government agencies and educational institutions with
networking solutions, systems integration, and computer telephony integration.
20
CMI has a broad and diversified client list ranging from major
telecommunications companies to public school systems throughout North America.
CMI's customers include: America On-Line, Lucent Technologies, AT&T, J.C. Penny,
Bell Canada, The Prudential Insurance Companies, the Boston Public Schools,
Sprint Corp., IBM Global Services, USA Group, USA Bank, and Hewlett Packard Co.,
among many others. CMI services these customers by designing, installing and
implementing local area network (LAN) and wide area network (WAN) systems, by
customizing software on clients' existing computer network allowing the client
the transmission of telephone conversation via the internet for long distance
calls and computer related maintenance functions. In 1998, CMI reported $16.7
million in revenues, with pretax earnings of approximately $922,000. For the
fiscal year ending, February 2000, CMI is forecasting revenues in excess of $ 16
million and pretax earnings of $1 million.
CMI started in 1983 as a retail operation and rapidly grew to five
store locations. In 1990, management undertook a major restructuring in order to
capitalize on the growing demand for software, systems and solutions rather than
just hardware. The company also recognized the opportunity to utilize this new
focus to expand its market nationwide and establish an international presence.
Consequently, the company shifted its focus from individuals and small
operations to a purely corporate focus. The company achieved this shift in focus
by eliminating the retail side of the business. It did this by closing its
retail stores and moving all its operations into a single location. In addition
the company developed new marketing strategies focusing on system integration,
services and Fortune 1000 companies. Within the last several years, CMI expanded
its network solutions business and entered into the growing field of
telecommunications. The company is divided into two basic divisions: Networking
and Telephony.
CMI provides its customers with complete, ready-to-run networks using
Novell and Windows NT platforms. CMI assesses a customer's needs, determines the
appropriate configuration, purchases the necessary software and hardware and
then assembles and tests the components at the customer's site. While certain
large installations can run as high as $1 million or more, the average order for
a network solution is about $200,000. CMI takes care of all aspects of the
installation, from delivery and setup to completing the necessary licensing and
warranty procedures. The company also provides its customers with systems
operation training, vendor updates and upgrades, as well as a 24-hour Help
Service.
Over the last few years, CMI has also expanded its services to include
a trademarked "Share-A-CNE" program, which provides customers with the benefits
of an on-call Certified Network Engineer who can work closely with the
customers' Information Services (IS) department but does not need to be employed
on a fulltime basis. The Share-A-CNE program is a cost effective way for the
small customer to receive the technical benefits that their larger counterparts
receive.
CMI is also engaged in helping its customers capitalize on the
capabilities of the Internet. More specifically, the company is helping
customers implement voice over IP (Internet Protocol) technology, which is a low
cost alternative to standard telephone service. The company does this through
the design and implementation of customized software on a client's existing
computer network, or a newly implemented network, allowing the client the
transmission of telephone conversation via the Internet for long distance calls.
Network contracts represent approximately 50% of the company's revenues.
CMI provides its customers with systems and solutions for their
telecommunications needs. The telephony division was formed about three years
ago to help some of its major telecommunications systems providers, such as
AT&T, Cisco, Lucent, Qwest and Sprint, in assisting their clients to more
21
effectively manage their call routing systems. The company brings in the
relevant equipment, prepares all the networking functions in terms of software
and hardware, installs the necessary telephony software, conducts in-depth
testing of the systems, and finally ships a ready to use system to the end-user
site. End customers include airlines, banks, insurance companies, investment
firms and customer oriented organizations across the US and Canada. Orders
average about $400,000 and are usually fulfilled within 4 weeks. Occasionally,
orders are received from Europe and the typical user is a Fortune 500 company.
GROWTH STRATEGY
Our current plan of operations is to expand its current worldwide
account base by offering a complete business solutions product line. We will
also seek to expand upon current information technology products and services in
the form of international acquisition or mergers into existing operations.
Achieving market acceptance for our services and products will require
substantial marketing efforts and the expenditure of significant funds to create
awareness and demand.
MARKETING
Marketing initiatives occur under the direction of the combined
company's marketing committee. The committee is comprised of qualified
leadership from all of the operating companies and is chaired by a senior
management member of an operating company and is selected by the Chief Operating
Officer. The Chief Operating Officer is a ex officio member of the committee.
One priority of the Marketing Committee is to develop strong equity in
the CeleXx brand name, world-wide. This effort includes, strategic alliances,
partnering opportunities, and the branding of all products offered through the
operating companies as CeleXx.
The marketing committee works in concert with an outside National
Marketing and Public relations firm to develop programs for the all the
operating companies, according to the requirements of the technical culture of
the specific markets they serve. The programs also address and exploit the
natural synergies between Operating Groups and provide the process by which the
combined services are best blended for use by the Group company sales
department.
Our marketing department has grown to seven employees in the last year.
The focus is to market to established industry.
COMPETITION
There is no way of identifying a specific leader in the many industry
segments in which CeleXx markets its products and services. As a provider of
specialized solutions though, the competition is for the most part, comprised of
smaller entrepreneurial organizations with strong competencies in innovative
development tools of which the marketplace in general, is in short supply, yet
in great demand. In itself, this market condition provides CeleXx with a
strategic competitive advantage. By its form as a growing public company with
multiple locations and a resource pool of innovative competencies more easily
meets the scrutiny of the larger public companies that make up most of the
client base. These requirements, traditionally, address finances, credit,
ability to complete contracts under adverse market conditions, alternatives to
completing contracts and the ability to neutralize adverse commercial
conditions. Also, the ability to finance growth and the increased capacity that
may be required by the most desirable clients. Specifically, each operating
group manages its own marketing and directly competes with companies which are
generally, considerably smaller than CeleXx.
22
EMPLOYEES
As of March 31, 2000, we had five (5) full-time employees in the Boca
Raton, Florida office. We may also employ full-time and part-time consultants on
an as-needed basis. We consider our relationship with our employees to be
satisfactory.
PROPERTIES
We currently lease approximately 3,000 square feet of office space
located at 7251 West Palmetto Park Road, Boca Raton, Florida as its corporate
headquarters. Early in the year 2001, the Company plans to relocate from its
current Boca Raton location to its new corporate headquarters, consisting of
approximately 5,000 square feet, in Coral Springs, Florida. The terms and
conditions of our lease include our move to the new location. Presently, the
monthly rent is $5,300 and the lease terminates in 2004.
Pinneast leases building space at 1221 Sunset Blvd., West Colombia,
South Carolina under a three 3 year lease that requires minimum annual payments
totaling $24,672.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS:
Our directors and executive officers and their positions with us are
set forth below.
POSITION WITH
NAME/DIRECTOR THE COMPANY AGE
Douglas H. Forde Chairman, President and CEO 57
David C. Langle CFO, Vice President-Finance 49
Lionel Forde Director, Vice President 55
Vincent Caminiti Director and COO 47
Moty Hermon Director 57
William Lerner Director 63
David Burke Director, CEO of CMI 56
John Straatsma Secretary 45
DOUGLAS H. FORDE
Mr. Forde has been Chairman of the Board of Directors, President and Chief
Executive Officer since August 1999. From June 1998 until August 1999, he was
director of Mergers and Acquisitions for the Company. From November 1996 until
June 1998, Mr. Forde was Vice President, Strategic Planning for Computer Access
International, Inc. Prior to November 1996, Mr. Forde had been a business
consultant to numerous companies, ranging from the Fortune 500 to smaller
entrepreneurial businesses. He is a graduate of the University of the Virgin
Islands, the University of Illinois, and the Bernard M. Baruch College of the
City University of New York and holds degrees in accounting, finance, and
taxation.
DAVID C. LANGLE
Mr. Langle is currently the Company's Vice President, Finance and Chief
Financial Officer. Mr. Langle joined us in March, 2000. Prior to joining us, he
was Vice President and CFO of Terra Telecommunications Corp. since September
1997. Mr. Langle has also served in various senior management capabilities as
Vice President, Chief Financial Officer and Director for three Florida based
NASDAQ and OTC companies. From 1982 to 1991 Mr. Langle was employed by the Miami
23
office of Spicer & Oppenheim, CPA's, an international accounting and consulting
firm where he concluded his tenure as an Audit Partner. He is a CPA and has a
Bachelor of Science Degree from the University of Illinois in Chicago.
LIONEL FORDE
Mr. Forde is Vice President, former Chief Financial Officer and a Member of the
Board of Directors since February 1999. From November 1997 until February 1999
he was President of the international group at Computer Access International,
Inc., responsible for developing markets in the Caribbean and Latin America.
Prior to that, Mr. Forde was a senior manager in the Color Paper Products
Division at Eastman Kodak Company. He holds an MBA (Honors) degree from Long
Island University and a BS degree in Business Administration from Eastern
Illinois University.
VINCENT A. CAMINITI
Mr. Caminiti is Chief Operating Officer and a member of the Board of Directors
since January, 1999. Since June of 1998 Mr. Caminiti has devoted full time to
the business development of our business. Beginning in 1994 through 1998 Mr..
Caminiti was Managing Director of Rendo International, LTD. with offices in
Denver, Los Angeles, Hong Kong & London, was active in business consulting for
clients in the Communications and Information Technology fields. The business
included identifying strategic business alliances and developing new market
strategies for clients, such as CBS Television to distribute programming in the
Asian markets.
MOTY HERMON
Mr. Hermon has been a Member of Board of Directors since February 1999. Mr.
Hermon has been an international investment banker and business consultant for
the past five years. From December 1979 to December 1986, he served as General
Manager of Elron, Inc., a New York Stock Exchange listed company. Elron is the
largest group of high tech companies in Israel with revenues of approximately
$1.5 billion. From December 1992 to November 1994, Mr. Hermon was the exclusive
representative and partner of Prudential Securities in Israel. He was also the
exclusive representative and partner of TA Associates from January 1986 to July
1988. TA Associates is a Boston based venture capital firm with over $1.5
billion under management. Mr. Hermon holds a BA in Economics and Political
Science from Tel-Aviv University.
WILLIAM LERNER
Mr. Lerner has been a member of the Board of Directors since February 1999.
Since 1994, Mr. Lerner has been in the private practice of corporate and
securities law with offices in Pennsylvania and Florida. Mr. Lerner is also
Counsel to the law firms of Sweeney & Associates (Pittsburgh) an Snow Becker
Krauss, PC (New York). He is a director of Seitel, Inc. (a NYSE listed oil and
gas producing company), Helm Resources, Inc. (an Amex listed company that
provides mezzanine financing to middle market companies), and
Micros-to-Mainframes, Inc. (a NASDAQ listed company and producer of high-
technology communications and computer services to Fortune 500 companies). Mr.
Lerner is a graduate of Cornell University (1955) and of the New York University
School of Law (1960). He is a member of the bars of New York and Pennsylvania.
He has served with the U.S. Securities and Exchange Commission, the American
Stock Exchange and as General Counsel to Hornblower, Weeks, Hemphill & Noyes, a
New York Stock Exchange brokerage/investment firm.
DAVID BURKE SR.
Mr. Burke was recently appointed as a member of the Board of Directors of the
Company and CEO of Computer Marketplace, Inc. (CMI), a company he founded in
1983. Prior to CMI, Mr. Burke had fifteen years in a career that spanned several
management positions including technical supervisor, manufacturing engineering
manager, production manager, and international sales manager with the
24
Metrigraphics Division of Dynamics Research Corporation, a multinational
manufacturer and distributor of electro-optical products. Mr. Burke received his
technical and business education at Worchester Polytechnic, Lowell Technological
Institute and Boston University. He also received specialized training in
information systems from Novell, Microsoft, IBM, HP, Compaq and other "Tier One"
microcomputer and software producers. He is a Member of the American Production
& Inventory Control Society. He co-authored "Metriform Fabrication, Electronic
Packaging and Production," May 1981, Chaners Publishing.
JOHN STRAATSMA
Mr. Straatsma has served as secretary since October of 1999. Since August of
1998, he has acted as a consultant to us for business development and
operations. In September 1995, Mr. Straatsma founded, and since has acted as
president of Consultants Ltd., a company that performs consulting work for
companies active in the IT industry. For January 1983 until August 1995, Mr.
Straatsma was president of Trinidad Computers Ltd., a company he helped to
found. His educational background includes a Bachelor of Commerce degree from
the University of Guelph, in Guelph, Ontario, Canada, and a Master of Science
degree in Management from Florida International University, Miami, Florida.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned, by the Company's Chief Executive Officer and its other key
employees for services rendered in all capacities to the Company and its
subsidiaries for each of the last two fiscal years. Such individuals will be
hereafter referred to as the Named Executive Officers. No other executive
officer who would have otherwise been includible in such table on the basis of
salary and bonus earned for the 1999 fiscal year has resigned or terminated
employment during that fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS
------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Doug Forde, 1999 $34,900 -0- -0- -0- -0- -0- -0-
Chairman and 1998 $60,000 -0- -0- -0- -0- -0- -0-
CEO
STOCK OPTIONS
-------------
Option/SAR Grants in last Fiscal Year:
Potential Realizable Value
At Assumed Annual Alternative
Rates of Stock Price To (f) and (g)
Individual Grants Appreciation for Option Term Grant Date Value
----------------- ----------------------------- ----------------
Grant Date
5% ($) 10% ($) Present Value $
(f) (g) (h)
- ------------------------------------------------------------------------------------------------------------------------------------
Doug Forde -0- -0- N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
25
Options Exercises and Holdings:
The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 1999, of each person named in the summary compensation table and
the unexercised options held as of the end of the 1999 fiscal year.
Aggregated Option/SAR Exercises in last Fiscal Year and Fiscal Year End:
OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs At Fiscal Year-
Shares At Fiscal Year-End End
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Doug Forde N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
Douglas H. Forde - Chairman Of The Board and President :
Under the terms of an employment agreement between the Company and Mr. Forde, in
consideration for his services to the Company, Mr. Forde will receive an annual
base salary of $150,000 as of January 1, 2000. Mr. Forde is also eligible to
participate in the Company's Incentive Stock Option Plan. Effective June 1, 2000
the employment agreement for Mr. Forde ,among other terms, was amended to
increase his annual base salary to $175,000 ,extended to five years and
requiring Keyman life insurance.
Lionel Forde, Vice President - Vice President and Director :
Under the terms of an employment agreement between the Company and Mr. Forde, in
consideration for his services to the Company, Mr. Forde will receive an annual
base salary of $120,000 as of January 1, 2000. Mr. Forde is also eligible to
participate in the Company's Incentive Stock Option Plan.
All Executive Officers of the Company are extended Employment Contracts with
terms of three (3) to five (5) years, renewable annually thereafter.
1999 STOCK OPTION PLAN
On March 1, 1999 we adopted and implemented a Stock Option Plan (the
"Plan"). The Plan increases the employees', advisors', consultants' and
non-employee directors' proprietary interest in us and aligns more closely their
interests with the interests of our shareholders. The Plan also maintains our
ability to attract and retain the services of experienced and highly qualified
employees and non-employee directors.
26
Under the Plan, we reserved an aggregate of 1,000,000 shares of common
stock for issuance pursuant to options granted under the Plan ("Plan Options").
Our Board of Directors or a Committee of the Board of Directors (the
"Committee") will administer the Plan including, without limitation, the
selection of the persons who will be granted Plan Options under the Plan, the
type of Plan Options to be granted, the number of shares subject to each Plan
Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Nonqualified Options"). In addition, the Plan also allows for the inclusion of
a reload option provision ("Reload Option"), which permits an eligible person to
pay the exercise price of the Plan Option with shares of common stock owned by
the eligible person and receive a new Plan Option to purchase shares of common
stock equal in number to the tendered shares. Any Incentive Option granted under
the Plan must provide for an exercise price of not less than 100% of the fair
market value of the underlying shares on the date of such grant, but the
exercise price of any Incentive Option granted to an eligible employee owning
more than 10% of our common stock must be at least 110% of such fair market
value as determined on the date of the grant. The term of each Plan Option and
the manner in which it may be exercised is determined by the Board of the
Directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant.
The exercise price of Nonqualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Our officers, directors, key employees and consultants and our
subsidiaries (if applicable in the future) will be eligible to receive
Nonqualified Options under the Plan. Only our officers, directors and employees
who are employed by us or by any subsidiary thereof are eligible to receive
Incentive Options.
All Plan Options are non-assignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of but is a member of our Board of
Directors and his service as a Director is terminated for any reason, other than
death or disability, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date or 30 days following the date
of termination. If the optionee dies during the term of his employment, the Plan
Option granted to him shall lapse to the extent unexercised on the earlier of
the expiration date of the Plan Option or the date one year following the date
of the optionee's death. If the optionee is permanently and totally disabled
within the meaning of Section 22(c)(3) of the Internal Revenue Code of 1986, the
Plan Option granted to him lapses to the extent unexercised on the earlier of
the expiration date of the option or one year following the date of such
disability.
27
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefore (except in either case in the event of adjustments due to
changes in our capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan has
been suspended or terminated by the Board of Directors, the Plan shall terminate
in approximately 10 years from the date of the Plan's adoption. Any such
termination of the Plan shall not affect the validity of any Plan Options
previously granted thereunder.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Charter and Bylaws provide that we shall indemnify all directors
and officers to the full extent permitted by the Nevada Corporation Law. Under
provisions, any director or officer who, in person's capacity as , is made or
threatened to be made a party to any suit or proceeding, may be indemnified if
the Board determines director or officer acted in good faith and in a manner
director reasonably believed to be in or not opposed to our best interest. The
Charter, Bylaws, and the Nevada Corporation Law further provide that
indemnification is not exclusive of any other rights to which individuals may be
entitled under the Charter, the Bylaws, any agreement, any vote of stockholders
or disinterested directors, or otherwise.
We have power to purchase and maintain insurance on behalf of any
person who is or was our director, officer, employee, or agent, or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss incurred by person in any capacity or arising out of
his status as , whether or not we would have the power to indemnify person
against liability under Nevada law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000 (except where
indicated by asterisk), information regarding the beneficial ownership of our
common stock by each person we know to own five percent or more of the
outstanding shares, by each of the directors and officers, and by the directors
and officers as a group. As of March 31, 2000, there were outstanding 12,412,813
shares of our common stock.
o Beneficial ownership has been determined in accordance with Rule 13d-3
of the Securities Exchange Act of 1934. Generally, a person is deemed
to be the beneficial owner of a security if he has the right to
acquire voting or investment power within 60 days.
o Unless otherwise indicated, all addresses are at our office at 7251
West Palmetto Park Rd., Suite 208, Boca Raton, Florida 33433.
Name and Address of Amount of Percent of
Beneficial Owner Beneficial Ownership Class
---------------- ------------------------- -----
Douglas H. Forde(3) 7,463,375* 35.9%
Lionel Forde(1) 1,075,000 5.2
Vincent Caminiti 250,000 1.2
Moty Hermon 500,000 2.4
William Lerner - -
Michelle J. Michalow(2) 625,000 3.0
David Burke, Sr.(4) 1,400,000* 6.7
John W. Straatsma 250,000 1.2
All Executive Officers and
Directors as a group (7 persons) 10,938,375 52.56%*
- -------------------------------------------------------------------------------
28
(1) Lionel Forde is the brother of Douglas H. Forde.
(2) Ms. Michalow is a former officer of CeleXx.
(3) Douglas H. Forde was granted 7,000,000 shares of restricted company
common stock by the Board of Directors on May 25, 2000, pursuant to an
amended five year employment agreement.
(4) Pursuant to the April 14,2000 acquisition of Computer Marketplace, Inc.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
(10%) stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their 1998 fiscal year transactions in the Common
Stock and their Common Stock holdings, and (ii) the written representations
received from one or more of such persons that no annual Form 5 reports were
required to be filed by them for the 1998 fiscal year, the Company believes that
all executive officers and Board members complied with all their reporting
requirements under Section 16(a) for such fiscal year.
DESCRIPTION OF CAPITAL STOCK
We have an authorized capital of 20,000,000 shares of common stock, par
value $0.01 per share, and 10,000,000 shares of Preferred stock, par value $0.01
per share. As of March 31, 2000, approximately 12,400,000 shares of common stock
were outstanding, held of record by 249 persons, and no shares of Preferred
stock were outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. Except as
otherwise required by law or provided in any resolution adopted by the Board
with respect to any series of Preferred stock, the holders of common stock
exclusively possess all voting power. Subject to any preferential rights of any
outstanding series of our Preferred stock, the holders of common stock are
entitled to dividends as may be declared from time to time by the Board from
funds available for distribution to holders. No holder of common stock has any
preemptive right to subscribe to any securities of ours of any kind or class or
any cumulative voting rights. The outstanding shares of common stock are, and
the shares, upon issuance and sale as contemplated will be, duly authorized,
validly issued, fully paid and non-assessable.
29
CONVERTIBLE PREFERRED STOCK
On April 7, 2000, we completed a financing agreement with an
institutional investor and raised $3,500,000 through the sale of shares of our
Series A Convertible Preferred Stock. Birch is the sole owner of the Series A
Convertible Preferred Stock. The Convertible Preferred Shares will pay dividends
at the rate of 6% per annum, and the dividend may be paid in cash or our common
shares, at our option. If we elect to pay dividends on the Convertible Preferred
Shares in common shares, the number of common shares shall be determined by
dividing the cash amount of the dividend by the conversion price of the
Convertible Preferred Shares. The conversion price means the lower of: (a), the
average closing bid price on the day immediately preceding the closing of the
transaction or (b), 80 % of the 5-day trading average closing bid price of the
common shares prior the date of conversion.
OTHER PREFERRED STOCK
We may issue other preferred stock of a different class from time to
time in one or more series. The Board of Directors is authorized to determine
the rights, preferences, privileges and restrictions granted to, and imposed
upon, any series of Preferred stock and to fix the number of shares of any
series of Preferred stock and the designation of any series, subject to the
consent of the existing holders of Preferred stock in instances. The issuance of
Preferred stock could be used, under circumstances, as a method of preventing
our takeover and could permit the Board of Directors, without any action of the
holders of the common stock to issue Preferred stock which could have a bad
effect on the rights of holders of the common stock, including loss of voting
control.
REGISTRATION RIGHTS
Following this offering, only the shareholder of our Convertible
Preferred Stock will have rights to register those shares for sale to the public
under the Securities Act of 1933, as amended (the "Securities Act").
CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS AND OF NEVADA LAW
GENERAL
Our Charter and Bylaws contain provisions that could make difficult the
acquisition of control of us by means of a tender offer, open market purchases,
proxy fight or otherwise. These provisions may discourage types of coercive
takeover practices and inadequate takeover bids and encourage persons seeking to
acquire control of us first to negotiate with us. We believe that the benefits
of its potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to take over or restructure us outweigh the disadvantages
of discouraging proposals because, among other things, negotiation of proposals
could result in an improvement of their terms.
Our Certificate of Incorporation and By-laws contain provisions which may deter,
discourage, or make more difficult the assumption of control of us by another
corporation or person through a tender offer, merger, proxy contest or similar
transaction or series of transactions. These provisions include an unusually
large number of authorized shares of common stock (20,000,000) the authorization
of the Board of Directors to issue Preferred stock as described above and the
prohibition of cumulative voting. The overall effect of these provisions may be
to deter a future tender offer or other takeover attempt that some shareholders
might view to be in their best interest as the offer might include a premium
over the market price of our capital stock at the time. In addition, these
provisions may have the effect of assisting our current management in retaining
its position and place it in a better position to resist changes which some
stockholders may want it to make if dissatisfied with the conduct of our
business.
30
Set forth below is a summary of provisions in the Charter and Bylaws.
LIMITATIONS ON DIRECTORS' LIABILITY
The Charter and Nevada Corporation Law permit us to indemnify our
directors. The Charter contains provisions to eliminate the personal liability
of its directors for monetary damages resulting from breaches of their fiduciary
duty (other than breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under the Nevada Corporation Law or for any transaction from which
the director derived an improper personal benefit) indemnify its directors and
officers to the fullest extent permitted by the Nevada Corporation Law,
including circumstances in which indemnification is otherwise discretionary.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons, we has been
advised that, in the opinion of the Commission, indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. We believe that these provisions are necessary to attract and
retain qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent and Registrar for the common stock is American Registrar
& Transfer Company, 342 East 900 South Street, Salt Lake City, Utah 84111.
SELLING STOCKHOLDER
The following table sets forth (i) the number of shares of Common Stock
beneficially owned by the selling stockholder as of March 31, 2000, (ii) the
number of Shares of Common Stock to be offered for resale by the selling
stockholder and (iii) the number and percentage of Shares of Common Stock to be
beneficially owned by the selling stockholder after completion of the offering.
The selling stockholder has not had a material relationship with the Company
during the past three years.
Birch Circle LLC ("Birch") purchased an aggregate of $3.5 million of
convertible preferred stock and warrants from the Company in a private placement
transaction which closed on April 30, 2000. As part of that private placement,
Birch was issued shares of preferred stock that may be converted into our common
stock and warrants to acquire our common stock. The preferred stock and the
warrants are described in more detail in page [ ] of this Prospectus. Holders of
the preferred stock and warrants are prohibited from using them to convert into
and acquire shares of our common stock to the extent that such conversion or
acquisition would result in such holder, together with any affiliate thereof,
beneficially owning in excess of 4.999% and 9.999%, respectively, of the
outstanding shares of our common stock following such conversion or acquisition.
This restriction may be waived by the holder on not less than 61 days' notice to
the Company. Since the number of shares of our common stock issuable upon
conversion of the preferred stock will change based upon fluctuations of the
market price of our common stock prior to a conversion, the actual number of
shares of our common stock that will be issued under the preferred stock, and
consequently the number of shares of our common stock that will be beneficially
owned by Birch, cannot be determined at this time. Because of this fluctuating
characteristic, the Company has agreed to register a number of shares of our
common stock that exceeds the number of shares beneficially owned by Birch. The
number of shares of our common stock listed in the table below as being
beneficially owned by Birch includes the shares of our common stock that are
31
issuable to them, subject to the 4.999% and 9.999%, respectively, limitation,
upon conversion of their preferred stock and exercise of their warrants.
However, the 4.999% and 9.999%, respectively, limitation would not prevent Birch
from acquiring and selling in excess of 4.999% and 9.999%, respectively, of our
common stock through a series of conversions and sales under the preferred stock
and acquisitions and sales under the warrants.
No.of
No.of Shares of Common Stock Shares Shares Beneficially
Name Beneficially Owned Offered Owned after Offering(1)
- ---------------- ------------------------- ------------ -----------------
Birch Circle LLC 466,667 10,772,222 (2) 0
C/o Citco Trustees (Cayman) Limited
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
British West Indies
Wellington Capital Corporation 400,000 400,000 0
1270 Avenue of the Americas
Suite 1233
New York, New York 10020
- --------------------------------------------------------------------------------
(1) Assume that all Common Stock offered by the Selling Stockholder is sold and
that no other shares beneficially owned by the Selling Stockholder is sold.
(2) The number of shares of Common Stock issuable upon the conversion of the
Preferred Shares is an approximation which is based on the hypothetical
conversion of such Preferred Shares. The actual number of shares of Common
Stock that would be issuable upon conversion of the Preferred Shares and
available for resale hereunder is determined by a conversion formula which
, in part, cannot be determined on the date hereof. Pursuant to Rule 416
and 457 there is an indeterminable number of shares of Common Stock that
may become issuable by reason of anti-dilution provisions of the shares of
Preferred Stock. Based on the closing price of the stock on ________, ___,
the selling stockholder would be entitled to convert into _____ shares.
There is no assurance that the Selling Stockholder which holds Preferred Shares
will convert such Preferred Shares, or that such selling Stockholder or any
other Selling Stockholder will otherwise opt to sell any of the Shares offered
hereby. To the extent required, the specific Shares of Common Stock beneficially
owned by such Selling Stockholder, the public offering price of the Shares to be
sold, the names of any agent, dealer or underwriter employed by such Selling
Stockholder in connection with such sale, and any applicable commission or
discount with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement.
THE SHARES COVERED BY THIS PROSPECTUS MAY BE SOLD FROM TIME TO TIME SO
LONG AS THIS PROSPECTUS REMAINS IN EFFECT; PROVIDED, HOWEVER, THAT THE SELLING
STOCKHOLDER ARE FIRST REQUIRED TO CONTACT THE COMPANY'S CORPORATE SECRETARY TO
CONFIRM THAT THIS PROSPECTUS IS IN EFFECT. THE SELLING STOCKHOLDER EXPECTS TO
SELL THE SHARES AT PRICES THEN ATTAINABLE, LESS ORDINARY BROKERS' COMMISSIONS
AND DEALERS' DISCOUNTS AS APPLICABLE.
32
THE SELLING STOCKHOLDER AND ANY BROKER OR DEALER TO OR THROUGH WHOM ANY
OF THE SHARES ARE SOLD MAY BE DEEMED TO BE UNDERWRITERS WITHIN THE MEANING OF
THE SECURITIES ACT WITH RESPECT TO THE COMMON STOCK OFFERED HEREBY, AND ANY
PROFITS REALIZED BY THE SELLING STOCKHOLDER OR SUCH BROKERS OR DEALERS MAY BE
DEEMED TO BE UNDERWRITING COMMISSIONS. BROKERS' COMMISSIONS AND DEALERS'
DISCOUNTS, TAXES AND OTHER SELLING EXPENSES TO BE BORNE BY THE SELLING
STOCKHOLDER ARE NOT EXPECTED TO EXCEED NORMAL SELLING EXPENSES FOR SALES
OVER-THE-COUNTER OR OTHERWISE, AS THE CASE MAY BE. THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES ACT SHALL NOT BE DEEMED AN ADMISSION BY THE SELLING
STOCKHOLDER OR THE COMPANY THAT THE SELLING STOCKHOLDER ARE UNDERWRITERS FOR
PURPOSES OF THE SECURITIES ACT OF ANY SHARES OFFERED UNDER THIS PROSPECTUS.
PLAN OF DISTRIBUTION
This Prospectus covers 11,172,222 shares of the Company's Common Stock.
All of the Shares offered hereby are being sold by the Selling Stockholder. The
Securities covered by this Prospectus may be sold under Rule 144 instead of
under this Prospectus. The Company will realize no proceeds from the sale of the
Shares by the Selling Stockholder or upon conversion of the Preferred Shares by
the Selling Stockholder.
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
33
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by its
counsel, Harry Winderman, Esq., Boca Raton, Florida.
EXPERTS
Our financial statements at December 31, 1999 and 1998, appearing in
this Registration Statement have been audited by Feldman Sherb Horowitz & Co.,
P.C., independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING
STOCKHOLDER OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FUNC SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SHARES DESCRIBED IN THIS PROSPECTUS OR AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SHARES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of all estimated expenses
in connection with the issuance and distribution of the securities
being registered, none of which are payable by the Selling Stockholder:
Registration Statement Filing Fee $ 3,126
Legal Fees and Expenses 5,000
Accounting fees and expenses 4,000
Miscellaneous 1,000
-------
Total $13,126
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Prior to the Merger of CobraTec, Inc. and Spectrum Ventures, Inc.
("Spectrum"@), on February 18, 1999, Spectrum raised $11,000 from
sales made pursuant to a Regulation D - Rule 504 Offering Memorandum
dated February 27, 1997. There were 101 purchasers, including friends,
relatives or acquaintances of Spectrum's Officers, Directors and
Affiliates. The aggregate number of shares of common stock issued was
45,833. Spectrum Ventures, Inc. ("Spectrum"), a Nevada corporation,
was listed on the OTC Bulletin Board (symbol SCMV).
While pursuing its business plan, conducted a Regulation D - Rule 504
Offering pursuant to an Offering Memorandum dated February 27, 1998,
whereby it raised an additional $84,900 from 24 shareholders for an
aggregate number of 3,538 shares of Spectrum common stock.
In September 1998, three key employees were issued an aggregate of
1,397 shares of our common stock in reliance upon an exemption
provided by Section 4(2) of the Securities Act of 1933 and are
restricted securities.
In December 1998, 10,458 shares, in aggregate, of Spectrum's common
stock were issued to D. F. Mintmire - (Spectrum's Attorney), Neil Rand
- (Spectrum's Consultant), and William Custer - (Vendor for
Application Software Development, Inc.) in exchange for services and
release of personal debt of certain officers and directors of
Spectrum.
In June 1997, 28,333 shares of Spectrum's common stock were issued to
Larry K. Danley and Jacqueline C. Danley, E.H. Frankland Trust, Arthur
Hansuld, Peter S. Harlee, Jr., John Roy Gough and Virginia L. Gough,
Bill Sheffield and Angela D. Sheffield, Howard Crosby and Marc
Donovan, all shareholders of Commercial Computer Systems, Inc. in
connection with Spectrum's acquiring exclusive marketing rights to 5
proprietary software products from Commercial Computer Systems, Inc.
("CCS"), a Florida corporation, an asset purchase for which Spectrum
relied upon Regulation D - Rule 504 as an exemption from Registration.
On February 18, 1999, we merged with Spectrum Ventures, Inc.
("Spectrum"), a Nevada corporation. Pursuant to the Merger, Spectrum
shareholders received 713,475 shares of Celexx, Inc.'s common stock.
As a consideration to cancel a letter of intent for Spectrum to
acquire Commercial Computer Systems, Inc., we issued an additional
35
200,000 shares of our common stock to Commercial Computer Systems,
Inc. Accordingly, the issuance of these securities was exempt from the
registration requirements of the act pursuant to Section 4(2) of the
Act. Also on February 18, 1999 the founders of Celexx, pursuant to a
share exchange agreement with Spectrum, received 4,500,000 common
shares as a condition of the merger.
As a condition of the retirement of related party debt in the amount
of $448,640 with Edinburgh Consulting, Inc., a consulting firm owned
by Michelle Michalow, a former officer of Celexx 1,733,333 shares were
issued. Pursuant to a Consulting Agreement between Celexx and
Edinburgh, $133,333 was converted at $.10 per share. The remaining
$315,307 was converted at $.78 per share. The issuance of the
securities was exempt from registration requirements of the Act
pursuant to Section 4(2) of the Act.
In November 1998, we entered into an agreement with Girmon Investment
Co., Limited ("Girmon"), a company which is 33% owned by Moty Herman,
a member of our board of directors for corporate finance advisory
services for an initial period of 36 months. As consideration for
business, advisory and other consulting services performed on behalf
of the Company, Girmon received 500,000 shares of our common stock
valued at $125,000 or $.25 per share.
In February 1999, we issued 300,000 shares of common stock to Crabbe
Capital for $30,000, for financial advice, consulting services and
market strategies provided by Crabbe. The issuance of the securities
was exempt from registration requirements of the Act pursuant to
Section 4(2) of the Act.
In March 1999, Celexx conducted an offering of common stock at $1.00
per share pursuant to Rule 504 of Regulation D under the Act.
Management sold an aggregate of 860,250 shares of common stock for an
aggregate of $860,250. Accordingly, the issuance of securities was
exempt from registration requirements of the Act pursuant to Section
4(2) of the Act.
In May 1999, we signed a merger agreement and took effective control
of West Columbia, SC-based Pinneast.com for a combination of cash and
stock. In exchange for all of the outstanding stock of Pinneast, an
aggregate of 500,000 shares of our common stock were issued to the
Pinneast.com shareholders and a cash payment of $100,000 (deferred for
one year). The shares of common stock were valued at $1.50 per share.
Accordingly, the issuance of these securities was exempt from
registration requirements of the Act pursuant to Section 4(2) of the
Act.
On April 7, 2000, we completed a financing agreement with Birch Circle
LLC ("Birch"), a private investment banking firm, and raised
$3,500,000 through the sale of shares of our Series A Convertible
Preferred Stock. Birch is the sole owner of the Series A Convertible
Preferred Stock. The Convertible Preferred Shares will pay dividends
at the rate of 6% per annum, and the dividend may be paid in cash or
our common shares, at our option. If we elect to pay dividends on the
Convertible Preferred Shares in common shares, the number of common
shares shall be determined by dividing the cash amount of the dividend
by the conversion price of the Convertible Preferred Shares. The
conversion price means the lower of: (a), the average closing bid
price on the day immediately preceding the closing of the transaction
or (b), 80 % of the 5-day trading average closing bid price of the
common shares prior the date of conversion.
36
Our second acquisition, Computer Marketplace, Inc. (CMI) was completed
on April 11, 2000., pursuant to an Agreement and Plan of Reorganization for a
value of $ 5,000,000. Payment consisted of 1,400,000 shares of our common stock
and $2,500,000 in cash. Payment of the cash portion was $1,500,000 at closing
and a promissory note for $1 million at 6%, payable in equal installments at the
first and second anniversaries. David Burke. Sr. and five (5) other key
employees retained their positions in CMI pursuant to 3 year employment
contracts and received a total of 200,000 common shares of our stock . CMI,
located in Tewksbury, Massachusetts, is a sixteen-year-old network solution and
systems design company, founded in 1983. CMI focuses on providing Fortune 1000
companies, government agencies and educational institutions with networking
solutions, systems integration, and computer telephony integration.
Douglas H. Forde was granted 7,000,000 shares of restricted company
common stock by the Board of Directors on May 25, 2000, pursuant to an amended
five year employment agreement.
ITEM 27. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of a
Nevada corporation. Our Certificate of Incorporation and the Bylaws
provide that the corporation shall indemnify its directors and officers
to the fullest extent permitted by the Corporation Act. Insofar as
indemnification for liabilities arising under the Act may be permitted
to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
ITEM 28. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
2.1 Plan of Reorganization and Agreement of Merger, dated
April 14,2000, by and between Computer Marketplace, Inc.,
David Burke, Sr., Betty Des Meules, Cobra Technologies, Inc.
and CMI Acquisition Corp.
3.1 By-Laws
3.2 Articles of Incorporation
3.3 Articles of Amendment of Articles of Incorporation
4.1 Stock Option Plan
10.1 Lease Agreement dated May 11, 1999, between Sawgrass Realty
Holdings, Inc. and Celexx Corporation (f/k/a Cobra
Technologies, Inc.)
10.2 Employment Agreement Lionel Forde
10.3 Employment Agreement Doug Forde
37
10.4 Merger Agreement by and between Pinneast.com, Inc. and Celexx
Corporation, dated May 25, 1999
21.1 Subsidiaries of the Company
*23.1 -- Consent of Feldman Sherb Horowitz & Co., P.C.
*23.2 -- Consent of Harry Winderman, Esq., included in Exhibit 5
*25.0 -- Power of Attorney, included on the signature page to this
Registration Statement__________________________
* Included herein.
** Additional Exhibits to be provided
ITEM 29. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) File, during any period in which it offers or sales
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;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement;
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration
statement of the securities offered, and in the offering of
such securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expense
incurred or paid by a director, officer or controlling person of the
small business issuer 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, the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Boca Raton, Florida, on
the 9th day of June, 2000.
CELEXX CORPORATION
BY: /S/DOUG FORDE
-----------------------
Doug Forde, President and
Chief Executive Officer
INDEX TO FINANCIAL STATEMENTS
CELEXX CORPORATION
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-14
COMPUTER MARKETPLACE, INC.
Independent Auditors' Report F-15
Consolidated Balance Sheet F-16
Consolidated Statements of Operations F-17
Consolidated Statements of Cash Flows F-18
Notes to Consolidated Financial Statements F-19 - F-22
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Proforma Financial Statements F-23
Unaudited Proforma Consolidated Balance Sheet F-24
Unaudited Proforma Condensed Consolidated Statements of Operations
(Three months ended March 31, 2000) F-25
Unaudited Proforma Condensed Consolidated Statements of Operations
(Year ended December 31, 2000) F-26
Notes to Unaudited Proforma Condensed Consolidated
Financial Statements F-27 - F-28
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CeleXx Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of CeleXx
Corporation and Subsidiary, as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year ended December 31, 1999 and the period ended July 10, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CeleXx Corporation
and Subsidiary, as of December 31, 1999, and the consolidated results of their
operations and their cash flows for the year ended December 31,1999 and the
period ended July 10, 1998 (inception) through December 31, 1998, in conformity
with generally accepted accounting principles.
/s/Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
April 14, 2000
F-2
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
------------------- -----------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 84,481 $ 137,682
Accounts receivable 154,954 76,923
Advances to employees 12,745 18,245
------------------- -----------------
TOTAL CURRENT ASSETS 252,180 232,850
------------------- -----------------
FURNITURE AND EQUIPMENT, net 65,756 39,575
GOODWILL, net 91,667 94,167
INTANGIBLE ASSETS, net 982,517 1,020,412
OTHER ASSETS 92,850 93,250
------------------- -----------------
$ 1,484,970 $ 1,480,254
==================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 250,448 $ 270,000
Note payable related party 100,000 100,000
Advances from shareholder 127,013 9,013
Deferred revenue 169,882 87,384
------------------- -----------------
TOTAL CURRENT LIABILITIES 647,343 466,397
------------------- -----------------
LINE OF CREDIT - long term portion 253,133 258,542
COMMITMENTS - -
STOCKHOLDERS' EQUITY:
Preferred stock, $001 par value, 1,000,000 share authorized;
none issued - -
Common stock, $.001 par value, 20,000,000 shares authorized;
12,412,613 shares issued and outstanding 12,413 10,907
Additional paid-in capital 4,902,686 3,216,926
Deferred financing costs (510,400) (250,000)
Accumulated Deficit (3,820,205) (2,222,518)
------------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 584,494 755,315
------------------- -----------------
$ 1,484,970 $ 1,480,254
==================== =================
See notes to consolidated financial statements.
F-3
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
July 10, 1998
Three Months Ended March 31, Year Ended (Inception) to
---------------------------- -----------------
2000 1999 December 31, 1999 December 31, 1998
---------------------------- ----------------- ------------------
(unaudited) (unaudited)
REVENUE $ 361,858 $ - $ 680,989 $ -
COST OF REVENUE 162,081 - 353,140 -
---------------------------- ----------------- ------------------
GROSS PROFIT 199,777 - 327,849 -
OPERATING EXPENSES 1,791,505 261,585 2,074,292 316,121
---------------------------- ----------------- ------------------
LOSS FROM OPERATIONS (1,591,728) (261,585) (1,746,443) (316,121)
OTHER EXPENSES:
Interest expense 5,959 - 68,754 -
Settlement of litigation - - 91,200 -
---------------------------- ----------------- ------------------
TOTAL OTHER EXPENSES 5,959 - 159,954 -
---------------------------- ----------------- ------------------
NET LOSS $ (1,597,687)$ (261,585)$ (1,906,397)$ (316,121)
==============--============== ================== ===================
NET LOSS PER COMMON SHARE - basic and diluted $ (0.13)$ (0.04)$ (0.21)$ (0.07)
============== ============== ================== ===================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic and diluted 11,848,910 7,073,725 8,361,171 4,500,000
============== ============== ================== ===================
See notes to consolidated financial statements.
F-4
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
---------------------- Additional Total
Number of Paid-in Deferred Accumulated Stockholders'
Shares Amount Capital Financing Deficit Equity (Deficit)
------------ --------- ---------- ---------- ----------- ----------------
Balance, July 10, 1998 (Inception) 4,500,000 $ 4,500 $ (4,500) - $ - $ -
Capital contribution - - 216,121 - - 216,121
Net loss - - - - (316,121) (316,121)
------------ --------- ---------- ------------ ----------- --------------
Balance, December 31, 1998 4,500,000 4,500 211,621 - (316,121) (100,000)
Shares issued in conjunction with merger 200,000 200 (200) - - -
Issuance of common stock for exchange 713,475 713 (160,342) - - (159,629)
Acquisition of subsidiary 500,000 500 749,250 - - 749,750
Retirement of related party debt 1,733,333 1,734 446,907 - - 448,641
Shares issued for consulting services 500,000 500 124,500 - - 125,000
Sale of common stock 860,250 860 859,390 - - 860,250
Issuance of stock for cash and services 300,000 300 299,700 - - 300,000
Shares issued for deferred financing services 400,000 400 249,600 (250,000) - -
Shares issued to retire debt 400,000 400 183,600 - - 184,000
Shares issued in legal settlement 150,000 150 91,050 - - 91,200
Shares issued for services 650,000 650 161,850 - - 162,500
Net loss - - - - (1,906,397) (1,906,397)
------------ --------- ---------- ------------ ----------- --------------
Balance, December 31, 1999 10,907,058 10,907 3,216,926 (250,000) (2,222,518) 755,315
Period ended March 31, 2000 (unaudited)
Issuance of common stock for services 1,505,555 1,506 1,685,760 (260,400) - 1,426,866
Net loss - - - - (1,597,687) (1,597,687)
------------ --------- ----------- ----------- ------------- --------------
Balance, March 31, 2000 (unaudited) 12,412,613 $ 12,413 $ 4,902,686 $ (510,400) $ (3,820,205) $ 584,494
============= ========= ============ =========== ============= =============
See notes to consolidated financial statements.
F-5
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
July 10, 1998
Three Months Ended March 31, Year Ended (Inception) to
----------------------------
2000 1999 December 31,1999 December 31, 1998
----------- ----------- ---------------- -----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,597,687)$ (261,585)$ (1,906,397)$ (316,121)
-------------- ----------- ---------------- ----------------
Adjustments to reconcile net loss to net cash
used in operations:
Amortization and depreciation 40,740 - 125,920 -
Common stock issued for interest - - 49,000 -
Common stock issued in legal settlement - - 91,200 -
Common stock issued for services 1,426,866 - 557,500 -
Changes in assets and liabilities net of effects from acquisition:
Marketable securities - (51,000) - -
Accounts receivable (78,031) (12,474) 118,531 -
Advances 400 (87,170) - -
Other assets - (62,075) (42,850) -
Accounts payable and accrued expenses (19,552) (94,174) (133,716) -
Deferred revenue 82,498 - 87,384 -
-------------- ----------- ---------------- ----------------
1,452,921 (306,893) 852,969 -
-------------- ----------- ---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (144,766) (568,478) (1,053,428) (316,121)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition - - 8,251 -
Acquisition of software marketing rights - - (112,554) -
Deferred acquisition costs - - (50,000) -
Capital expenditures (26,526) (13,800) (34,148) -
-------------- ----------- ---------------- ----------------
NET CASH USED IN INVESTING ACTIVIES (26,526) (13,800) (188,451) -
-------------- ----------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock - 890,250 890,250 -
Capital contributions - - - 216,121
Decrease in line of credit (5,409) - 14,902 -
Borrowings from related parties 118,000 348,640 492,654 -
Increase (decrease) in due to related parties 5,500 - (18,245) 100,000
-------------- ----------- ---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 118,091 1,238,890 1,379,561 316,121
-------------- ----------- ---------------- ----------------
NET (DECREASE) INCREASE IN CASH (53,201) 656,612 137,682 -
CASH - beginning of period 137,682 - - -
-------------- ----------- ---------------- ----------------
CASH - end of period $ 84,481 $ 656,612 $ 137,682 $ -
================= ================ ================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,959 $ - $ 19,754 $ -
================= ================ ================ =================
Noncash investing and financing activities:
Note payable issued in acquisition $ - $ - $ 100,000 $ -
================= ================ ================ =================
Common stock issued for acquisition $ - $ - $ 500,000 $ -
================= ================ ================ =================
Conversion of related party debt to common stock$ - $ - $ 583,640 $ -
================= ================ ================ =================
Fair value of assets acquired (accounts receivable,
property and equipment and customer lists) $ - $ - $ 248,381 $ -
================= ================ ================ =================
Liabilities assumed in acquisition (accounts payable,
and line of credit) $ - $ - $ 487,727 $ -
================= ================ ================ =================
See notes to consolidated financial statements.
F-6
CELEXX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
JULY 10, 1998 (inception) THROUGH DECEMBER 31, 1998
(UNAUDITED WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 2000)
-----------------------------------------------------------------
1. ORGANIZATION:
Cobra Technologies International, Inc. ("International"), a Delaware
corporation, was formed on July 10, 1998 to acquire select businesses
that produce, service, maintain or support the information
technologies industry.
On February 18, 1999, International was acquired by Spectrum Ventures,
Inc. ("Spectrum"), a Nevada corporation, for 4,500,000 shares of
Spectrum stock (the "Exchange"). The Exchange was completed pursuant
to the Agreement of Merger between International and Spectrum. The
Exchange has been accounted for as a reverse acquisition under the
purchase method for business combinations. Accordingly, the
combination of the two companies is recorded as a recapitalization of
International, pursuant to which International is treated as the
continuing entity. Subsequent to the Exchange, with the approval of
the Board of Directors, Spectrum changed its name to Cobra
Technologies, Inc. On August 3, 1999, Cobra Technologies, Inc. changed
its name to CobraTec, Inc. On November 4, 1999 CobraTec, Inc. changed
its name to CeleXx Corporation ("CeleXx" or the "Company").
On February 18, 1999, prior to the merger with Spectrum, the Board of
Directors of Spectrum declared a 1:24 reverse stock split which
resulted in 713,475 shares outstanding. All periods presented have
been retroactively restated to give effect to this reverse stock
split.
Additionally, on February 18, 1999 the Company issued 200,000 shares
of its common stock as part of the merger agreement with Spectrum in
order to receive a release from an acquisition agreement between
Spectrum and Commercial Computer Systems, Inc. These shares have been
treated as a cost of the merger with Spectrum.
The Company completed an offering of its common stock in April 1999
pursuant to the Securities Act of 1933 and Rule 504 of Regulation D.
The Company offered shares of common stock at $1.00 per share and
received gross proceeds from this offering of $860,250.
On May 25, 1999, CeleXx acquired through its wholly owned subsidiary,
Pinneast.com, Inc ("Pinneast"), all the outstanding shares of Pinnacle
East, Inc., a South Carolina Corporation, engaged in the development
of multimedia educational programs for industry and government.
Pinnacle East, Inc. was acquired for 500,000 shares of CeleXx's common
stock and a $100,000 note payable due in May 2000. Subsequent to the
acquisition Pinnacle East, Inc. was merged into Pinneast, the
surviving corporation.
F-7
In June 1999, CeleXx entered into an agreement to acquire Computer
Marketplace, Inc.(`CMI"), a Massachusetts company engaged in systems
engineering, design and maintenance of computer network systems. The
acquisition of CMI was completed on April 14, 2000, and as
consideration the Company issued 1,400,000 shares of common stock, a
note payable for $1,000,000 bearing interest at 6% due in two equal
annual installments on the anniversary of the closing date and paid
$1,500,000 in cash out of the proceeds from the issuance of preferred
stock (see Note 15).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiary. The accounts
of Pinneast.com, Inc. have been included from the date of acquisition
May 25, 1999 through December 31, 1999. All material intercompany
transactions have been eliminated.
B. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
C. Cash and cash equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months
or less when purchased, to be cash equivalents.
D. Revenue recognition - Revenues are recognized as services are
provided. Deferred revenue arises from the recognition of the revenue
over the period which the services are provided by the Company's
subsidiary, Pinneast. These contracts are generally completed in one
year or less.
E. Income taxes - Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
F. Stock based compensation - The Company accounts for stock transactions
in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees." Additionally, in accordance with Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based
Compensation," the Company has adopted the proforma disclosure
requirements of Statement No. 123.
F-8
G. Net loss per share - The Company has adopted Statement of Financial
Accounting Standard No. 128, "Earnings Per Share;" specifying the
computation, presentation, and disclosure requirements of earnings per
share information. Basic earnings per share has been calculated based
upon the weighted average number of common shares outstanding. Stock
options have been excluded as common stock equivalents in the diluted
earnings per share because they are either antidilutive, or their
effect is not material.
H. Fair value of financial instruments - The carrying amounts reported in
the balance sheet for cash, receivables, accounts payable and accrued
expenses approximate fair value based on the short-term maturity of
these instruments.
I. Goodwill - Goodwill resulting from the acquisition of Pinneast.com,
Inc. represents the remaining unamortized value of the excess of the
purchase price over the fair value of the net assets of Pinneast.com,
Inc. Goodwill is amortized on a straight line basis over a 10 year
period.
J. Intangible assets - Intangibles assets are from the acquisition of
Pinnacle East, Inc. represents customer lists and Pinnacle's trade
name. These assets are amortized on a straight line basis over 7 and
10 years, respectively. Additionally, the Company recorded the costs
incurred acquiring the marketing rights to certain software products.
This license is being amortized over 3 years.
K. Impairment of long-lived assets - The Company reviews long-lived
assets for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may not be
recovered. At December 31, 1999, the Company believes that there has
been no impairment of its long-lived assets.
3. ACQUISITION
The following table summarizes the acquisition of Pinneast.com, Inc.:
Purchase price:
Common stock, 500,000 shares issued $ 750,000
Note payable 100,000
-------------------
Total purchase price 850,000
Less: Fair market value of assets acquired (248,381)
Liabilities assumed 487,727
-------------------
Cost in excess of net book value of assets acquired $ 1,089,346
===================
The Company attributed the cost in excess of the net book value of
assets acquired as follows:
Goodwill $ 100,000
Customer list 450,000
Trade name 539,346
-------------------
$ 1,089,346
===================
F-9
The following unaudited pro-forma information reflects the results of
operations of the Company as though the acquisition had been
consummated as of January 1, 1998.
Year Ended December 31, March 31,
-------------------------------- -------------
1999 1998 1999
------------ ------------ -------------
Revenue $ 1,133,052 $ 840,423 $ 178,000
============ ============ =============
Net loss $ (2,026,865) $ (277,809) $ (298,000)
============ ============ =============
Net loss per share $ (0.24) $ (0.05) $ (0.04)
============ ============ =============
4. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
a. Cash
The Company maintains cash balances at several commercial
banks. Accounts at these financial institutions are insured by
the Federal Deposit Insurance Corporation up to $100,000.
b. Accounts receivable
The concentration of credit risk in the Company's accounts
receivable is mitigated by the Company's credit evaluation
process, credit limits, monitoring procedures and reasonably
short collection terms. Credit losses have been within
management's expectations and the Company does not require
collateral to support accounts receivable. During the year
ended December 31, 1999, three customers accounted for
approximately 42% of the Company's revenue. These customers
accounted for approximately 34% of the Company's outstanding
accounts receivable at December 31, 1999. During the period
from July 10, 1998 (inception) to December 31, 1998, the
Company did not generate any revenue.
5. RELATED PARTY TRANSACTIONS
As of December 31, 1998 the Company had a payable of $100,000 due to
Edinburgh Consulting, an entity which is wholly owned by a shareholder
of the Company. Such payable arose subject to the terms of a consulting
agreement between Edinburgh and the Company. Pursuant to such
agreement, Edinburgh may convert the payable into shares of the
Company's stock upon such shares becoming publically traded. As of
December 31, 1999 the shareholders' of Edinburgh had converted all of
its outstanding debt into shares of the Company's common stock (see
Note 8).
As of March 31, 2000 and December 31, 1999, CeleXx owes $127,013 and
$9,013 respectively, in advances from a shareholder of the Company.
These advances are non-interest bearing, uncollateralized and have no
specified due date for repayment.
At December 31, 1999, the Company has an unsecured note due to the
former shareholders of Pinnacle East, Inc. for $100,000. This note
bears interest at 6% per annum and the principal balance is due in May
2000.
F-10
6. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
Useful Life March 31, 2000 December 31, 1999
------------- ---------------- ------------------
Goodwill 10 years $ 100,000 $ 100,000
Customer lists 7 years 483,550 483,550
Trade name 10 years 538,596 538,596
License 3 years 112,122 112,122
------------- ----------------
1,234,268 1,234,268
Less: accumulated amortization 160,084 119,689
------------- ----------------
$ 1,074,184 $ 1,114,579
============= ================
7. LINE OF CREDIT
The Company's Pinneast subsidiary has three credit lines with an
aggregate availability of $300,000. As of March 31, 2000 and December
31, 1999, Pinneast has $253,133 and $258,542 outstanding on such lines
of credit which expire between February 1, 2000 and November 10, 2003
and bear interest at 8.75% per annum. The lines are secured by
substantially all the assets of Pinneast.
8. STOCKHOLDERS' EQUITY
During the year ended December 31, 1999, a related party, Edinburgh
Consulting, converted the $448,640 owed to it for 1,733,333 shares of
the Company's common stock. Pursuant to a consulting agreement between
CeleXx and Edinburgh Consulting, 1,333,333 of these shares were issued
at $0.10 per share or $133,333. The additional 400,000 shares were
issued at $0.78 per share or $315,307.
In November 1998, CeleXx entered into an agreement with an entity
partially owned by a Director of the Company for financial consulting
services. The Company paid such entity 500,000 shares of its common
stock and valued these shares at $.25 per share and accordingly, has
recorded compensation expense of $125,000. In February 1999, the
Company entered into an agreement with a financial consultant and
issued 300,000 shares of its common stock for cash at $.10 per share
aggregating $30,000 and recorded $270,000 in compensation expense for
services provided.
In 1999, the Company issued 860,250 shares in a private placement at
$1.00 per share for total proceeds of $860,250.
In November 1999, the Company issued 400,000 shares of its common stock
to a company which provides financial services. These services are to
include raising future equity on behalf of the Company. The Company
valued the shares at the fair market value on the date of issuance and
recorded deferred financing costs of $250,000. This financing cost will
be recorded as a reduction to additional paid-in capital pursuant to
the preferred stock offering in April 2000.
From November 1999 to December 1999, the Company issued 400,000 shares
of its common stock to a third party in order to satisfy its debt
obligations of $135,000. These shares were valued at $184,000 and the
Company recorded $49,000 in interest expense.
F-11
In November 1999, the Company issued 650,000 shares of its common stock
to two parties, each of which provided services to the Company in the
first quarter of 1999. The Company valued these shares $.25 and
recorded compensation expense of $162,500.
In December 1999, the Company issued 150,000 shares of its common stock
to settle a judgement brought against the Company. The company recorded
$91,200 in expense regarding this settlement.
During the three months ended March 31, 2000 the Company issued
1,505,555 shares of common stock to various individuals and consultants
for services rendered. The Company has recorded non-cash compensation
of $1,426,826 relating to the issuance of 1,085,555 of the
aforementioned shares. In addition 420,000 shares of the Company's
common stock were issued pursuant to the Company's issuance of 350
shares of convertible preferred stock in April 2000 and has been
recorded as deferred financing costs.
9. EMPLOYMENT AGREEMENTS
On March 1, 1999 CeleXx entered into three year employment agreements
with two of the Company's officers. Such employment agreements
aggregate $145,000 annually through December 31, 1999 and $270,000
annually through February 28, 2002.
Effective June 1, 2000 one such employment agreement was amended to
$175,000 in annual base compensation and extended to a five year term.
10. PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock
at $.001 par value, the terms of which may be determined at the time of
issuance by the Board of Directors without further action by the
shareholders.
11. STOCK OPTION PLAN
On March 1, 1999 the Board of Directors (the"Board") adopted the CeleXx
Corporation 1999 stock option plan. The Board or CeleXx's compensation
committee is authorized to issue to eligible persons as defined a
maximum amount of 1,000,000 options under such plan. No options have
yet to be issued pursuant to the above plan.
F-12
12. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for
the expected future tax benefit to be derived from tax loss and tax
credit carryforwards. SFAS 109 additionally requires the establishment
of a valuation allowance to reflect the likelihood of realization of
deferred tax assets.
The provision (benefit) for income taxes differs from the amounts
computed by applying the statutory federal income tax rate to income
(loss) before provision for income taxes as follows:
December 31, 1999 December 31, 1998
------------------- ----------------------
Taxes benefit computed at statutory rate $ (763,000) $ (107,000)
Losses for which income tax benefit not utilized 763,000 107,000
------------------- ----------------------
Net income tax benefit $ - $ -
=================== ======================
The Company has net operating loss carryforwards for tax purposes
totaling approximately $2,223,000 at December 31, 1999 expiring in the
years 2014 through 2019.
Listed below are the tax effects of the items related to the Company's
net tax liability:
December 31, 1999 December 31, 1998
------------------- ----------------------
Tax benefit of net operating loss carryforward $ 763,000 $ 107,000
Valuation Allowance (763,000) (107,000)
------------------- ----------------------
Net deferred tax asset recorded $ - $ -
=================== ======================
13. COMMITMENT
In May 1999 CeleXx entered into a five year lease for office space at
an annual base rental of $92,500 for the initial year. Such base rental
shall increase by 4% each year. The lease is to commence when such
premises are available for occupancy. CeleXx is currently leasing
temporary office space from the same landlord at $5,300 per month.
F-13
14. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for reporting
information regarding operating segments in annual financial statements
and requires selected information for those segments to be presented in
interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and
services, and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating decision
maker or decision making group, in making decisions how to allocate
resources and assess performance. To date, the Company through its
subsidiary, Pinneast, has operations in principally one segment, the
development of multimedia educational programs for industry and
government within the United States. Therefore, the chief operating
decision maker does not receive discrete financial information about
individual components of the Company's operations.
15. SUBSEQUENT EVENT
On April 10, 2000, the Company issued 350 shares of 6% series A
convertible preferred stock at $10,000 per share plus common stock
purchase warrants and received gross proceeds of $3,500,000. The
preferred shares are convertible at the lower of the closing bid price
on the day preceding the closing of a common stock offering or 80% of
the five day common stock average price prior to the date of
conversion. The shares are convertible immediately upon the
effectiveness of a registration statement. The Company maintains a
redemption option at 125% of the common stock offering price.
On May 25, 2000, the Company agreed to issue 7,000,000 shares of its
common stock to its chief executive officer for services rendered
since the Company's inception.
F-14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Computer Marketplace, Inc.
Tewksbury, Massachusetts
We have audited the accompanying balance sheets of Computer
Marketplace, Inc. as of February 29, 2000 and February 28, 1999 and the related
statements of income, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Computer
Marketplace, Inc. as of February 29, 2000 and February 28, 1999 and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
June 2, 2000
F-15
COMPUTER MARKETPLACE , INC.
BALANCE SHEETS
ASSETS
February 29, February 28,
2000 1999
------------------ ------------------
CURRENT ASSETS:
Cash $ 655,978 $ 400,974
Accounts receivable, net 2,578,244 2,293,585
Tax receivable - refund claim 207,082 -
Inventory 294,295 524,476
------------------ ------------------
TOTAL CURRENT ASSETS 3,735,599 3,219,035
FIXED ASSETS, net 35,876 32,348
DEPOSITS 10,249 14,326
------------------ ------------------
$ 3,781,724 $ 3,265,709
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 307,333 $ 353,548
Accrued expenses 127,321 110,625
Line of credit 1,511,650 1,177,443
Officer loans 54,082 -
Income taxes payable - 230,500
Deferred revenue 301,930 108,619
------------------ ------------------
TOTAL CURRENT LIABILITIES 2,302,316 1,980,735
------------------ ------------------
STOCKHOLDERS' EQUITY:
Common stock; no par, 15,000 shares
authorized 9,250 shares issued
and outstanding 56,000 56,000
Additional paid-in capital 62,505 62,505
Retained earnings 1,400,903 1,206,469
Less treasury stock at cost: 5,000 shares (40,000) (40,000)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 1,479,408 1,284,974
------------------ ------------------
$ 3,781,724 $ 3,265,709
================== ==================
See notes to financial statements.
F-16
COMPUTER MARKETPLACE, INC.
STATEMENTS OF OPERATIONS
Years Ended
---------------------------------------
February 29, February 28,
2000 1999
------------------ -----------------
NET SALES $ 15,847,140 $ 16,733,839
COST OF SALES 12,702,599 13,384,687
------------------ -----------------
GROSS PROFIT 3,144,541 3,349,152
OPERATING EXPENSES 2,723,526 2,398,486
------------------ -----------------
INCOME FROM OPERATIONS 421,015 950,666
OTHER (INCOME) EXPENSES:
Depreciation 21,284 5,056
Interest expense 39,052 29,236
Interest income (3,755) (4,666)
(Gain) Loss on sale of mo-or vehicle - (700)
------------------ -----------------
56,581 28,926
------------------ -----------------
INCOME BEFORE INCOME TAXES 364,434 921,740
PROVISION FOR INCOME TAXES 170,000 378,502
------------------ -----------------
NET INCOME 194,434 543,238
RETAINED EARNINGS- beginning of year 1,206,469 663,231
------------------ -----------------
RETAINED EARNINGS- end of year $ 1,400,903 $ 1,206,469
================== =================
See notes to financial statements.
F-17
COMPUTER MARKETPLACE, INC.
STATEMENTS OF CASH FLOWS
Years Ended
---------------------------------------
Febraury 29, Febraury 28,
2000 1999
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 194,434 $ 543,238
------------------ ------------------
Adjustments to reconcile net income to net cash used in operations:
(Gain) on sale of motor vehicle - (700)
Depreciation 21,284 5,056
Changes in assets and liabilities:
(Increase) in accounts receivable (284,659) (1,005,780)
Decrease in inventories 230,181 107,663
(Increase) in prepaid income taxes (207,082) -
Decrease (increase) in deposits 4,077 (13,826)
(Decrease) increase in accounts payable (46,215) 162,641
Increase in accrued expenses 16,696 56,656
(Decrease) increase in income taxes payable (230,500) 102,153
Increase in deferred revenue 193,311 19,974
------------------ ------------------
Total Adjustments (302,907) (566,163)
------------------ ------------------
NET CASH USED IN OPERATIONS (108,473) (22,925)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,812) (19,900)
Proceeds from sale of motor vehicle - 1,651
------------------ ------------------
NET 'CASH USED IN INVESTING ACTIVITIES (24,812) (18,249)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Officer loans (repaid) borrowed 54,082 (24,227)
Increase in line of credit 334,207 207,559
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 388,289 183,332
------------------ ------------------
NET INCREASE IN CASH 255,004 142,158
CASH - beginning of year 400,974 258,816
------------------ ------------------
CASH - end of year $ 655,978 $ 400,974
================== ==================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 39,052 $ 29,236
================== ==================
Cash paid for taxes $ 607,582 276,349
================== ==================
See notes to financial statements.
F-18
COMPUTER MARKETPLACE, INC
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. ORGANIZATION
Computer Marketplace, Inc. (the "Company") is located in
Tewksbury, Massachusetts. The Company was organized in 1984 and is
engaged in the sale and service of computer equipment and peripherals
through wholesale and retail channels.
In December 1999, the Company formed a foreign subsidiary, CMI
Canada LTD which has not yet commenced operations.
In April 2000, the Company was sold to Celexx Corp.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. DEFERRED REVENUE - Deferred revenue arises from the proration of
service contracts sold by the Company which may vary in length from
six to twelve months.
C. INVENTORIES - Inventories are stated at the lower of cost or
market calculated on the first-in, first-out method, or market.
D. PROPERTY AND EQUIPMENT - Property and equipment is stated at
cost. Depreciation is computed using accelerated methods over the
estimated useful lives of the assets.
E. INCOME TAXES - The Company recognizes deferred tax assets and
liabilities based on the difference between the financial statements
carrying amount and the tax basis of assets and liabilities, using the
effective tax rates in the years in which the differences are expected
to reverse. A valuation allowance related to deferred tax assets is
also recorded when it is probable that some or all of the deferred tax
asset will not be realized.
F-19
F. FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value Financial
Instruments", requires disclosure of fair value information about
financial instruments whether or not recognized in the balance sheet.
The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair
value on the short-term maturity of these instruments.
G. CARRYING VALUE OF LONG LIVED ASSETS - The Company reviews the
carrying value of the long-lived assets to determine if facts and
circumstances exist which would suggest that the assets may be impaired
or that the amortization period needs to be modified. If impairment is
indicated, then an adjustment will be made to reduce the carrying
amount of the tangible assets to their fair value. Based on the
Company's review as of February 29, 2000, no impairment of long-lived
assets was evident.
3. FIXED ASSETS
The Company's fixed assets are as follows:
February 29, February 28,
2000 1999
---------------- ----------------
Furniture and fixtures $ 15,480 $ 9,215
Equipment 139,686 138,756
Leasehold improvements 34,804 28,263
Motor Vehicles 18,500 29,695
---------------- ----------------
208,470 205,929
Less accumulated depreciation 172,594 173,581
$ 35,876 $ 32,348
================ ================
4. LINE OF CREDIT
The Company has a line of credit in the amount of $3,000,000,
which is used to purchase merchandise for resale. Interest accrues at
1% above the prime interest rate from days 41-60. The amounts
outstanding under the line of credit are secured by accounts receivable
and inventory equal to 125 percent of the outstanding balance.
5. RELATED PARTY TRANSACTIONS
A. OFFICER LOANS - In February 2000, the Company borrowed funds
without interest, from its principal officer in the amount of $54,082.
The loan is unsecured and due on demand. In May 2000, the Company
repaid $44,000.
F-20
B. LEASE COMMITMENT - The Company leases building space in
Tewksbury, Massachusetts from a related party, under a five year
lease. The leases require minimum annual payments of $72,000 plus
maintenance and operating costs over the lease term. Total rent
expenses (including common area maintenance) for the years ended
February 29, 2000 and February 28, 1999 were $89,560 and $85,628,
respectively.
The minimum rental commitments as of February 29, 2000 for all
noncancelable operating leases with initial or remaining terms in
excess of one year are as follows:
Years Ending February 28, Amount
- -------------------------------------------- ------------------
2001 $ 72,000
2002 72,000
2003 24,000
6. PROFIT SHARING PLAN
The Company maintains a IRC Section 401(k) plan covering
employees who meet minimum eligibility requirements. The Company made a
voluntary contribution to the Plan of $60,503 and 66,652 for the years
ended February 29, 2000 and February 28, 1999, respectively.
7. CONCENTRATION OF CREDIT RISK
A. The Company maintains cash balances at several financial
institutions located in Massachusetts. Accounts at each institution are
insured by Federal Deposit Insurance Corporation up to $100,000. At
February 29, 2000 and February 28, 1999, the Company's unsecured cash
balances were $362,176 and $63,416, respectively.
B. Concentration of credit risk with respect to trade receivables are
limited due to the large number of customers compromising the Company's
customer base and their dispersion across different industries and
geographic locations. As of February 29, 2000 and February 28, 1999 the
Company had no significant concentration of credit risk.
8. INCOME TAXES
The provision for income taxes is as follows:
February 29, February 28,
2000 1999
--------------- ---------------
Federal income taxes $ 126,000 $ 288,000
State income taxes 44,000 90,502
--------------- ---------------
Total income taxes $ 170,000 $ 378,502
=============== ===============
F-21
9. MAJOR CUSTOMERS
Sales to one customer approximated 13% of the Company's total
sales for the year ended February 29, 2000 while sales to two customers
approximated 27% for the year ended February 28, 1999. Accounts
receivables from this customer was approximately $48,000 at February
29, 2000.
F-22
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO-FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On May 25, 1999 CeleXx Corporation ("CeleXx") signed a merger agreement
and took effective control of Pinnacle East, Inc. ("Pinneast"). CeleXx acquired
Computer MarketPlace ("CMI") on April 14, 2000.
The following unaudited pro-forma condensed consolidated balance sheet
presents the pro-forma financial position of CeleXx at March 31, 2000, as if the
acquisition of CMI had been made as of March 31, 2000.
The unaudited pro-forma condensed consolidated statements of operations
for the three months ended March 31, 2000 and the year ended December 31, 1999
reflect the combined results of CeleXx, Pinneast and CMI as if the acquisitions
had occurred on January 1, 1999.
The unaudited pro-forma condensed consolidated statements of operations
do not necessarily represent actual results that would have been achieved had
the companies been together from January 1, 1999, nor may they be indicative of
future operations. These unaudited pro-forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the respective companies.
F-23
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
March 31, 2000
---------------
CeleXx Proforma Adjustments
---------------------------
Corporation CMI Debit Credit As Adjusted
------------- ------ ----------- ----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 84,481 $ 458,153 (1) $ 3,500,000 (1) $ 1,500,000 $ 2,542,634
Accounts receivable 154,954 2,556,267 - - 2,711,221
Advances to employees 12,745 - - - 12,745
Income tax refunds receivable - 207,082 - - 207,082
Inventory - 204,296 - - 204,296
Other current assets - - - - -
----------- --------- --------- ----------- ----------
TOTAL CURRENT ASSETS 252,180 3,425,798 3,500,000 1,500,000 5,677,978
----------- --------- --------- ----------- ----------
FURNITURE AND EQUIPMENT, net 65,756 65,879 - - 131,635
INTANGIBLES, net 1,074,184 - (1) 2,853,179 (1) 92,442 3,834,921
OTHER ASSETS 92,850 9,663 - - 102,513
----------- --------- --------- ----------- ----------
$ 1,484,970 $3,501,340 $ 6,353,179 $ 1,592,442 $ 9,747,047
============ ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 250,448 $ 335,437 $ - (2)(3)$ 203,090 $ 788,975
Note payable - related party 100,000 - - - 100,000
Advances from shareholder 127,013 - - - 127,013
Line of credit - current portion - 1,540,000 - - 1,540,000
Deferred revenue 169,882 - - - 169,882
----------- --------- --------- ----------- ----------
TOTAL CURRENT LIABILITIES 647,343 1,875,437 - 203,090 2,725,870
----------- --------- --------- ----------- ----------
LINE OF CREDIT 253,133 54,082 - - 307,215
NOTE PAYABLE - CMI - - - (1) 1,000,000 1,000,000
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock - - - (1) 3,552,500 3,552,500
Treasury stock at cost; 5,000 shares - (40,000) - (1) 40,000 -
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,412,613 shares issued
and outstanding (13,812,613 proforma) 12,413 56,000 (1) 56,000 (1) 1,400 13,813
Additional paid-in capital 4,392,286 62,505 (1) 62,505 (1) 1,923,600 6,315,886
Retained (deficit)/earnings (3,820,205) 1,493,316 (1) 1,653,258 (3) (188,090) (4,168,237)
----------- --------- --------- ----------- ----------
TOTAL STOCKHOLDERS' EQUITY 584,494 1,571,821 1,771,763 5,329,410 5,713,962
----------- --------- --------- ----------- ----------
$ 1,484,970 $3,501,340 $ 1,771,763 $ 6,532,500 $ 9,747,047
============ ========== =========== =========== ===========
See notes to proforma financial statements.
F-24
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
Celexx CMI
Three Months Three Months
Ended March 31, Ended March 31, Proforma Adjustments
---------------------
2000 2000 Debit Credit As Adjusted
--------------- ------------- ------------ ------------ ------------
REVENUE $ 361,858 $ 3,783,873 $ - $ - $ 4,145,731
COST OF SALES 162,081 3,028,328 - - 3,190,409
--------------- ------------- ------------ ------------ ------------
GROSS PROFIT 199,777 755,545 - - 955,322
OPERATING EXPENSES 1,791,505 634,472 (1) 92,442 - 2,518,419
--------------- ------------- ------------ ------------ ------------
OPERATING INCOME (LOSS) (1,591,728) 121,073 (92,442) - (1,563,097)
INTEREST EXPENSE 5,959 8,819 (2) 15,000 - 29,778
--------------- ------------- ------------ ------------ ------------
NET INCOME (LOSS) BEFORE TAXES (1,597,687) 112,254 (107,442) - (1,592,875)
BENEFIT (PROVISION) FOR TAXES - - - - -
--------------- ------------- ------------ ------------ ------------
NET INCOME (LOSS) (1,597,687) 112,254 (107,442) - (1,592,875)
CUMULATIVE PREFERRED
STOCK DIVIDEND - - (4) 52,500 - 52,500
NET INCOME (LOSS) TO COMMON
--------------- ------------- ------------ ------------ ------------
SHAREHOLDERS $ (1,597,687) $ 112,254 $ (159,942) $ - $ (1,645,375)
=============== ============= ========== ========== ==========
LOSS PER COMMON SHARE $ (0.13) $ - $ - $ (0.12)
=============== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,848,910 - 1,400,000 13,248,910
=============== ========== ========== ==========
See notes to proforma financial statements.
F-25
CELEXX CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Celexx Pinneast CMI
Year Ended January 1, Year Ended
December 31, to May 24, February 29, Proforma Adjustments
--------------------
1999 1999 2000 Debit Credit As Adjusted
----------- ---------- ------------ -------- --------- ------------
REVENUE $ 680,989 $ 452,063 $ 15,847,140 $ - $ - $ 16,980,192
COST OF SALES 353,140 188,393 12,702,599 - - 13,244,132
----------- ---------- ------------ -------- --------- ------------
GROSS PROFIT 327,849 263,670 3,144,541 - - 3,736,060
OPERATING EXPENSES 2,074,292 218,446 2,744,810 (1) 369,766 - 5,407,314
----------- ---------- ------------ -------- --------- ------------
OPERATING INCOME (LOSS) (1,746,443) 45,224 399,731 (369,766) - (1,671,254)
OTHER EXPENSES 159,954 - 35,297 (2) 60,000 - 255,251
----------- ---------- ------------ -------- --------- ------------
NET INCOME (LOSS) BEFORE TAXES (1,906,397) 45,224 364,434 (429,766) - (1,926,505)
BENEFIT (PROVISION) FOR TAXES - (18,090) (170,000) (3) 188,090 -
----------- ---------- ------------ -------- --------- ------------
NET INCOME (LOSS) (1,906,397) 27,134 194,434 (241,676) - (1,926,505)
CUMULATIVE PREFERRED
STOCK DIVIDEND - - - (4) 210,000 210,000
----------- ---------- ------------ -------- --------- ------------
NET INCOME (LOSS) TO COMMON
SHAREHOLDERS $ (1,906,397)$ 27,134 $ 194,434 $ (451,676)$ - $ (2,136,505)
============ =========== ============= ============ ========== ===========
NET INCOME (LOSS) PER SHARE TO
COMMON SHAREHOLDERS $ (0.23) $ - $ - $ (0.22)
============ ============ ========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,361,171 - 1,400,000 9,761,171
============ ============ ========== ===========
See notes to proforma financial statements.
F-26
CELEXX, INC. AND SUBSIDIARIES
COMPUTER MARKETPLACE, INC.
NOTES TO UNAUDITED PRO-FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CeleXx signed a merger agreement with Pinneast on May 25, 1999
and closed on such transaction on September 7, 1999. For accounting
purposes, the acquisition was effected on May 25, 1999, the date CeleXx
assumed effective control of Pinneast. The accompanying statements of
operations for the three months ended March 31, 2000 and the year ended
December 31, 1999 include the results of operations of Pinneast as if
Pinneast was acquired on January 1, 1999. CeleXx also has entered into
an agreement for the stock of CMI, such acquisition closed on April 14,
2000. The accompanying pro-forma balance sheet reflects the combined
balance sheet of CeleXx, Pinneast and CMI as if the acquisition of CMI
had occurred on March 31, 2000. The accompanying statements of
operations for the three months ended March 31, 2000 and the year ended
December 31, 1999 include the results of operations of CMI as if such
acquisition had occurred on January 1, 1999. The financial statements
for Computer MarketPlace, Inc. have been audited for the years ended
February 28, 2000 and 1999. For purposes of the accompanying pro-forma
unaudited condensed consolidated statements of operations for the year
ended December 31, 1999, the results of operations for the year ended
February 28, 2000 are assumed to approximate the twelve months ended
December 31, 1999. The pro-forma statements of operations of CMI for
the three months ended March 31, 2000, and the year ended February 29,
2000 both include the two month period ended February 28, 2000. Revenue
and net income for such period is $2,555,964 and $19,841, respectively.
A. The following unaudited pro-forma acquisition adjustment is included in
the accompanying unaudited pro-forma condensed consolidated balance
sheet at March 31, 2000:
.
(1) To record the acquisition of the stock of CMI by CeleXx for
$1,500,000 in cash and a $1,000,000 note payable issued to the
seller bearing interest at 6 % per annum, and 1,400,0000
shares of CeleXx stock which has been valued at $1.38 per
share at April 14, 2000. To record $3,500,000 in preferred
stock issued to an unrelated third party, which pays
cumulative at 6% per annum, net of $500,000 in offering costs.
B. The following pro-forma adjustments is included in the accompanying
unaudited pro-forma condensed consolidated statements of operations for
the year ended December 31, 1999 and the three months ended March 31,
2000:
(1) To record amortization expense of goodwill and other
intangibles, which include customer lists, trade name and
covenant not to compete over their expected useful lives as
follows which range from 5 to 20 years. The final valuation of
the intangibles with respect to the CMI acquisition is subject
to the Company obtaining independent appraisals.
F-27
(2) To record interest expense on the debt incurred to finance the
acquisition of CMI.
(3) To record consolidated provision (benefit) for income taxes.
(4) To record cumulative preferred dividends.
F-28