SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED
DECEMBER 31, 2003
COMMISSION FILE #333-30176
NMXS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
91-1287406
(IRS EMPLOYER IDENTIFICATION NUMBER)
5041 Indian School Road, Suite 200
Albuquerque, New Mexico 87110
(505) 255-1999
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES )(ZIP CODE)
(505) 255-1999
(REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$0.001
PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
-PAGE-
YES [X] NO [ ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405
OF REGULATION S-B NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-
KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. ( )
REVENUES FOR YEAR ENDED DECEMBER 31, 2003: $1,300,000
AGGREGATE MARKET VALUE OF THE VOTING COMMON STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AS OF MARCH 29, 2004, WAS: $ 20,226,871
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MARCH 29,
2004 IS: 30,119,979
TRANSFER AGENT AS OF MARCH 29, 2004: Interwest Transfer Company, Inc., 1981
East Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS - OUR COMPANY
Our History and Background
New Mexico Software, Inc., was originally incorporated under the laws of the
state of New Mexico in April 1996. The privately held company was involved
in a reverse merger with Raddatz Exploration, Inc. on August 3, 1999, and the
corporate name was changed to NMXS.com, Inc., with New Mexico Software, Inc.
becoming a wholly-owned subsidiary. NMXS.com, Inc. went public at that time.
NMXS is quoted on the OTC Bulletin Board under the symbol "NMXS" and on the
Berlin Stock Exchange with the symbol NM9. At the beginning of April 2004, we
will file an alternate name registration in the state of Delaware to use the
name "New Mexico Software."
Through our wholly-owned subsidiaries, New Mexico Software, Inc. and Working
Knowledge, Inc. (which we acquired in April 2000), we develop and market
proprietary Internet technology-based database software for the management of
digital documents, high resolution graphic images, video clips, and audio
recordings. Through New Mexico Software we develop and market the software,
and through Working Knowledge we provide related professional services.
Our Products
New Mexico Software develops and markets sophisticated Internet-based
document and image management systems for a wide variety of companies that
need the ability to organize paper, email, images, and electronic documents.
Our first product has been called AssetWare. We have marketed AssetWare in
two ways: as a hosted application on the Internet, and as a highly
customized application according to clients' specifications. A hosted
application provides a customer with access to the AssetWare product over the
Internet. Customers log on to our servers and use AssetWare software to
manage, view and distribute their media files. The customer's media files
are also stored in our data center servers. Customers using our hosted model
are billed according to the number of registered users and the amount of disk
space their media files will occupy. This is the primary basis for our
recurring revenue.
-PAGE-
On January 1, 2004, we renamed all of our products with the names of New
Mexico cities. The second generation of AssetWare is called Roswell. It
will be our flagship product, marketed as both a hosted model using our
servers and/or a customized application running on customers' hardware.
Our second product is called Digital Filing Cabinet (DFC). It is sold as a
hardware/software package through dealers and distributors. It may be sold
as hardware and software (Gallup), software only (Aztec), or hardware,
software and scanning equipment (Nageezi).
Our newest product is Taos. It is our first retail product for PC desktops,
providing a low-cost image database solution for organizing, cataloging, and
searching for images based on their color and shape.
Our Technology
We engineer database products around a central core of unique Internet
technology that make it possible to rapidly view, distribute and manage media
files such as documents, graphic images, animation sequences and film clips.
One of the competitive advantages of our technology is that it is based on
Open Source - software that is mostly free, with no royalties payable to
other companies. By integrating Open Source programs into our technology, we
are able to provide well-built, low-cost products for the digital management
market. In addition, the code that we deliver to customers is compiled. When
you compile software code it makes it difficult to use the code to create a
similar program, even though the code we create originates from Open Source.
This provides better protection and security of our products.
Another advantage our company has is the ability to provide totally
integrated services that a customer would normally need to outsource to
several different suppliers. For example, with our business model and
technology, we are able to provide the software, custom programming, hosting,
and database administration as a total solution.
In addition, our core technology is characterized by the following features
that contribute to what we perceive to be marketplace advantages:
* Ability to use high-resolution graphics files - large files with lots of
detail as opposed to the low resolution files with indistinct detail used
by conventional Internet programs.
* Ability to use a single image in multiple resolutions.
* Ability to track images with special codes assigned to each image.
* Our technology works on current versions of Internet browsers on
MacIntosh, PC and UNIX computers.
* Easy to use because it does not require any new software programs, only a
familiarity with Netscape or Internet Explorer browsers.
Our programmers and engineers are tasked with adding new features to our
products and fixing any problems users might encounter. There are risks
inherent in software development including unanticipated delays, technical
problems that could mean significant deviation from original product
specifications, and hardware problems. In addition, once improvements and
bug fixes are deployed there is no assurance that they will work as
anticipated or that they will be durable in actual use by customers.
Working Knowledge
In April 2000, we acquired Working Knowledge, Inc., a Kansas corporation. The
company became our wholly-owned subsidiary which provides services that are
necessary to prepare, enter, and maintain the customer's data in our
software. These services include web design, database development, image
scanning, file uploading and technical support. As well, Working Knowledge
is able to serve the customer by utilizing the stored images to produce
compact disks, digital prints, and large poster formats. These complementary
services allow us to complete our business model of offering comprehensive
digital management.
-PAGE-
Marketing
Our primary sales and marketing efforts have been to develop alliances with
large companies that help to bring our products to market using their sales
forces and distribution channels. Our marketing focus has been in three
principal fields. Approximately 80% of our clients have been in the
entertainment industry, approximately 10% have been in the medical field, and
approximately 10% have been government agencies. In the fourth quarter 2003,
we observed our sales beginning to reach into new markets including financial
services, hotel, legal and construction markets. We believe that our markets
are expanding for our products.
* Medical AssetWare
Our technology offers easily searchable files in a controlled environment,
allowing for record sharing among associated doctors or referrals, yet with
improved security allowing for privacy of record keeping.
New Mexico Software, through its MagZoom technology, can deliver even the
highest resolution X-ray over the web in a matter of seconds, with diagnostic
quality resolution regardless of how close the client zooms. Management
believes this technology has several advantages, including faster, more
accurate readings, with fewer problems for the physician, less waiting time
for the patient, and less cost for the insurance company. Each X-ray image
can be permanently stored in a digital format, complete with detailed patient
information and physician notes.
* Entertainment Industry; Television, Movie Studios, and Ad Agencies
We also provide digital lifecycle management to the Hollywood entertainment
studios. New Mexico Software provides software solutions for the management
of large volumes of media of digital material sent over the Internet. These
digital files include graphic images, animation sequences, video clips, audio
recordings, text, television program material, movie trailers, and
educational films.
Our technology allows clients and their customers to access certain files
themselves and limits their access to only those files the studio wants them
to have. This is especially significant since we serve clients with multiple
offices all over the world. We can allow our customers' end users to access
marketing materials and archived data created at the studio instantly,
securely, and at virtually no cost. In addition, our technology permits them
to find what they need easily because of powerful cataloging features that
can be searched by keyword, color, texture or shape.
* Government
We also work with many government agencies and have developed for them a file
sharing multiple database technology that allows different agencies to share
information. Our technology permits agencies to upload one record for all
divisions, which we believe would save money for the agency by eliminating
duplication of the same files by different divisions. This model provides us
recurring revenue from a variety of government agencies, including seven
national laboratories.
Customers
Although we were still dependent upon a small number of clients in the year
ended December 31, 2003, we believe that trend is changing. During the year
ended December 31, 2003, seven clients accounted for 85% of our revenues, as
compared to the year ended December 31, 2002, when three clients accounted
for 67% of our revenues. As we retain current clients and gain new clients,
this reliance on a small number of customers will continue to decrease. In
addition, while our Roswell product will continue to depend on a relatively
small number of customers, we expect an expanded customer base for our DFC
product, and a wide retail base for our Taos product. Overall, we anticipate
that our customer base will broaden in the next year with the marketing of
these newer products, giving more stability and predictability to our
revenues.
-PAGE-
Our Intellectual Properties
We have several proprietary aspects to our software that we believe make our
products unique and desirable in the marketplace. Consequently, we regard
protection of the proprietary elements of our products to be of paramount
importance and we attempt to protect them by relying on trademark, service
mark, trade dress, copyright and trade secret laws, and restrictions on
disclosure and transferring of title. In addition, as stated above in the
technology section, the compiled software code that we offer makes it
difficult to use the source code to create other similar programs, even
though the code used originates from Open Source. This provides better
protection and security of our products.
We have entered into confidentiality and non-disclosure agreements with our
employees and contractors in order to limit access to, and disclosure of, our
proprietary information. There can be no assurance that these contractual
arrangements or the other steps taken by us to protect our intellectual
property will prove sufficient to prevent misappropriation of our technology
or to deter independent third-party development of similar technologies.
Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current, or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
grows. Any such claim, whether meritorious or not, could be time-consuming,
result in costly litigation, cause service upgrade delays, or require us to
enter into royalty or licensing agreements. Such royalty or licensing
agreements may not be available on terms acceptable to us or at all. As a
result, any such claim could have a material adverse effect upon our
business, results of operations, and financial condition.
While we have commenced the process to protect our trade names, we have not
completed the process. Thus, others could attempt to use trade names that we
have selected. Such misappropriation of our brand identity could cause
significant confusion in the highly competitive Internet technology
marketplace and legal defense against such misappropriation could prove
costly and time-consuming. As part of the brand identity creation process
that defines our products to be unique in the Internet technology marketplace
and proprietary in nature, we have begun the process to protect certain
product names and slogans as registered trademarks to designate exclusivity
and ownership.
Although trademarked in the U.S., effective trademark, copyright or trade
secret protection may not be available in every country in which our products
may eventually be distributed. There can also be no assurance that the steps
taken by us to protect our rights to use these trademarked names and slogans
and any future trademarked names or slogans will be adequate, or that third
parties will not infringe or misappropriate our copyrights, trademarks,
service marks, and similar proprietary rights.
Government Regulation
Our operations, products, and services are all subject to regulations set
forth by various federal, state and local regulatory agencies. We take
measures to ensure our compliance with all such regulations as promulgated by
these agencies from time to time. The Federal Communications Commission sets
certain standards and regulations regarding communications and related
equipment.
There are currently few laws and regulations directly applicable to the
Internet. It is possible that a number of laws and regulations may be
adopted with respect to the Internet covering issues such as user privacy,
pricing, content, copyrights, distribution, antitrust and characteristics and
quality of products and services. The growth of the market for online
commerce may prompt calls for more stringent consumer protection laws that
may impose additional burdens on companies conducting business online. Tax
authorities in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in online commerce, and new state tax
regulations may subject us to additional state sales and income taxes.
-PAGE-
Because our services are accessible worldwide, other jurisdictions may claim
that we are required to qualify to do business as a foreign corporation in a
particular state or foreign country. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us
to taxes and penalties for the failure to qualify and could result in our
inability to enforce contracts in such jurisdictions. Any such new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to our business, could have a
material adverse effect on our business, results of operations, and financial
condition.
How We Compete
The digital lifecycle management market is one of the newest in the rapidly
growing information services industry. Competition at this time is broad,
with many vendors offering systems that have some comparable features as our
current product. However, to our knowledge, few competitors have all of our
comparable features for the complete management and distribution of images.
A competitive strategy we are using is offering our product as a hosted
application. We believe that our strategy to provide Roswell as a hosted
application and our custom system design capabilities provide us a diversity
of competitive market penetration opportunities.
Our products organize, search, retrieve, display, archive and distribute
digital content from a central repository. Further, they convert analog and
digital files to all digital. They use the popular Linux based operating
system. The software handles photographs and images, email, electronic
files, and paper documents. It includes a web server, database, firewall and
search engine. The product receives faxes in digital form and the files
become indexed and searchable. A new file is produced in the Adobe PDF format
allowing speedy download and protection of the original file. It can scan
documents from high-speed Ricoh document scanners. Like Roswell, the Digital
Filing Cabinet can e-mail customized shopping carts of unlimited size -
sending recipients a link and not an attachment. It also provides
instantaneous distribution, which reduces the cost of overnight courier
services.
Our first marketing effort with IT Marketing Corporation and Toshiba has come
to a conclusion. A second marketing effort was started with IT Marketing
Corporation in 2003. IT Marketing Corporation is located in Austin, Texas.
New Mexico Software is working with IT Marketing Corporation to distribute
products built by New Mexico Software. In addition, they are providing
telemarketing assistance to help build the end user and reseller distribution
channels, which will support the sales of our products.
We believe that establishing and maintaining brand identity of our products
and services is critical to attracting new customers and retaining our
customer base of large corporations. In January 2004 we hired a public
relations agency to improve our brand management strategy. The importance of
brand recognition will continue to increase as new competitors enter the
digital lifecycle management marketplace. Promotion and enhancement of our
brands will depend largely on our success in continuing to provide high
quality service and developing leading edge products, and this cannot be
assured. If businesses do not associate our product names or brands with
high quality, or if we introduce new products or services that are not
favorably received, we will run the risk of compromising our product line and
decreasing the attractiveness of our products to potential new customers. In
addition, to attract and maintain customers and to promote our products in
response to competitive pressures, we may find it necessary to increase our
financial commitment substantially to create and maintain product loyalty
among our customers. If we are unable to provide high quality services, or
otherwise fail to promote and maintain our products, or if we incur excessive
expenses in an attempt to improve our services, or promote and maintain our
products, our business, results of operations, and financial condition could
be adversely affected.
Other, better-financed companies may be developing similar products as our
products, which could compete with our products. Such competition could
materially adversely affect our financial condition. Although we have been
established for nine years, our initial product was not marketed until 1998.
There may exist better-capitalized companies on a parallel development path
with similar products addressing our target markets. While the Internet
technology marketplace is extremely competitive, we have anticipated a first-
to-market advantage with our products. However, other highly capitalized
companies that have recognized the absence of digital image management
products could overwhelm our first-to-market advantage with expensive and
expansive media blitzes that create the perception of a dominant market
presence and/or superior products. If we are unsuccessful in addressing
these risks and uncertainties, our business, results of operations, and
financial condition will be materially and adversely affected.
-PAGE-
We are continuing to develop our core products using a mix of readily
available Open Source software development tools. Knowledgeable competitors
may be able to deduce how we have assembled our code base and be able to
develop competing products. The principal advantage in utilizing Open Source
tools is the extremely high degree of portability they ensure. Migrating our
products from one operating system or hardware base to another is more easily
accomplished by avoiding proprietary development tools. The risk factor
inherent in the use of such freely available tools is the fact that a
sophisticated competitor might be able to imitate our work and produce
similar functionality. Our product has two unique and highly desirable
features for e-commerce, medical, and other commercial applications. First,
it offers the ability to magnify details in high-resolution graphic images;
and second, it allows rapid transmission of a portion of such an image based
on user input, significantly enhancing the responsiveness of the system to
deliver images over the Internet. The ability to perform these operations is
based on a specific graphic image file format. We recognize that these
significant features of our product could be a target for imitation. Any
such imitation, should it occur, could have material adverse effects on our
business, operations, and financial condition.
Copyrights and Trademarks
We have four copyright registrations, one of which was effective June 18,
2001, and three federal trademark applications which were filed in January
2000. The copyright is for our MagZoom product. Three additional trademarks
were granted in 2002 and they are: for the names "AssetWare," "Real Time
Real Organized Real Simple," and "The Look and Feel of e-Commerce."
Employees
As of March 31, 2004, we had 15 employees, including 9 in systems engineering
and quality assurance; 4 in administration and sales; and 2 in scanning and
site development. We offer and share in the cost of health and dental
insurance. A stock option plan and a stock issuance plan for employees and
others were adopted on August 3, 1999, and July 27, 2001, respectively. The
competition for qualified personnel in our industry and geographic location
is intense, and there can be no assurance that we will be successful in
attracting, integrating, retaining and motivating a sufficient number of
qualified personnel to conduct our business in the future. We have never had
a work stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good. From
time to time, we also utilize services of independent contractors for
specific projects or to support our research and development effort. Our
firm also hires independent sales agents who work on commission, and these
agents are paid a percentage of the sale once the transaction has been
completed.
ITEM 2. DESCRIPTION OF PROPERTY
We currently lease a 3,000 square foot facility in Albuquerque, New Mexico,
at a cost of approximately $3,000 per month. The lease expires on July 31,
2004. On March 29, 2004 we signed a new five-year lease for a new space of
approximately 3,000 square feet in the same building complex, at a cost of
approximately $3,000 per month, to replace the current space. The new
facility provides both administration and engineering offices. It is in
close proximity to the location of the servers, and the two locations are
networked together by fiber optics. The new space provides adequate room for
expansion. In addition, we will have access to a large power generator,
which will enable our servers to continue operating during power outages. It
also contains an advanced telephone system which will provide the capability
needed to provide adequate customer telephone support.
We have also leased approximately 1,200 square feet of office space in Santa
Monica, California, to house the Working Knowledge, Inc. operations. Current
monthly lease payments are $3,333. The lease term commenced June 8, 2000,
and expired on June 8, 2003. Neither New Mexico Software nor the landlord
realized the lease had expired. We are currently negotiating a renewal of
the current lease for a five-year term. If we are unable to renew the lease
with terms satisfactory to us, we believe similar space will be available at
comparable rates.
-PAGE-
ITEM 3. LEGAL PROCEEDINGS
On October 20, 2003, we received a written demand from Kurt Grossman for
payment in full of a one-year promissory note issued by us on April 23, 2002,
to Mr. Grossman and his wife evidencing a loan of $50,000 by Mr. and Mrs.
Grossman to us. The demand includes payment for the principal amount of the
note of $50,000, fixed interest of $5,000, and post default interest of
$2,665.62. Mr. Grossman informed us that he intended to commence legal
action if the note, plus interest, was not paid on or before October 23,
2003. A court date is set for April 23, 2004 in California to resolve the
dispute, and we have hired an attorney to represent us in that action.
In October 2003 we entered into an interim agreement with the Internal
Revenue Service concerning the repayment of federal tax deposits which we
failed to pay for the four operating quarters ended September 30, 2003. We
have agreed to pay $5,000 per month beginning November 1, 2003. During this
interim period the IRS has agreed withhold the filing of a federal tax lien.
Consideration of filing a lien in the future will be based upon a
determination of how long it may take to pay the taxes. Also, our failure to
make timely federal tax deposits will default this interim agreement and
necessitate the filing of the lien. Our tax returns for the unpaid quarters
are being assessed by the IRS, and we expect to receive an assessment notice
for each period upon completion of this assessment. We estimate that these
assessments will total approximately $300,000, plus interest and penalties.
Since the end of the third quarter 2003, we have made on-time payments of
current payroll taxes for both the state and federal agencies.
On March 9, 2004, our legal counsel received a letter from the attorney
representing Manhattan Scientifics. The letter threatened litigation
against us and Richard Govatski for tortious interference with
contract. This is based on the fact that we have declined to honor
Manhattan Scientifics request for a cashless exercise of our Common
Stock Purchase Warrants issued to them. It is our position that the
warrants were issued in a transaction that was not an arms length
transaction and therefore, the warrants should be cancelled.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the fourth
quarter ended December 31, 2003.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our stock is currently quoted on the OTC Bulletin Board under the symbol
"NMXS." The table below sets forth, for the periods indicated below, our
high and low sales prices. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
Quarter High Low
FISCAL YEAR ENDED
DECEMBER 31, 2002 First $0.40 $0.32
Second $0.50 $0.20
Third $0.26 $0.17
Fourth $0.23 $0.17
FISCAL YEAR ENDED
DECEMBER 31, 2003 First $0.19 $0.05
Second $0.11 $0.055
Third $0.21 $0.06
Fourth $0.71 $0.20
FISCAL YEAR ENDING
DECEMBER 31, 2004 First $1.17 $0.40
-PAGE-
Our shares are subject to Rule 15g-9 under the Exchange Act. This rule
imposes additional sales practice requirements on broker-dealers that sell
low-priced securities designated as "penny stocks" to persons other than
established customers and institutional accredited investors. The SEC's
regulations define a "penny stock" to be any equity security that has a
market price less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. Currently our stock is a
penny stock. We cannot assure you that our shares will ever qualify for
exemption from these restrictions. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to
sell our shares and may affect the ability of holders to sell their shares in
the secondary market.
Shareholders
As of March 29, 2004, there were 352 holders of record of our common shares.
Such number of record owners was determined from our shareholders' records
maintained by our transfer agent and does not include beneficial owners of
our common stock held in the name of various security holders, dealers and
clearing agencies.
Dividends
We did not declare any cash dividends on our common stock during the years
ended December 31, 2003. We have no plans to pay any dividends to the
holders of our common stock in 2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
New Mexico Software develops digital lifecycle management systems. The
digital lifecycle is the strategy that associates database information with
both paper and digital files including text, email, images, audio, graphics,
video and animation files, and coordinates access to a common repository of
these processes and files. The digital lifecycle encompasses creation,
approval, sharing, storage, retrieval, usage, capture and archiving of the
database information. It is appropriate for a wide variety of industries,
including government, medical, entertainment, and IT markets, providing a
significant opportunity for market penetration. Our core product, Roswell,
is an enterprise-level platform that manages digital files. It manages
assets by creating folders, or groups of files, catalog hierarchies, users,
user groups, and user permissions. The files are managed by our database
that maintains both the membership of the file in a folder(s) and information
about the file. Roswell's main user interface is a web browser, which makes
it accessible and more intuitive to a greater number of users. It can be run
on Windows or Linux operating systems.
Some challenges we face in the next year are developing a sales force and
distribution channels in order to market our products and educating potential
customers about the benefits of digital management systems. We have hired IT
Marketing Corporation, a marketing firm in Texas, to help us work with end
users, and to assist us with promotions. We have also hired independent
sales agents to help sell our products. We have hired a manager to focus on
providing education about our products to potential customers, and we provide
demo software on the Internet for this purpose, so that customers can better
understand how the digital lifecycle works.
We presently realize revenues from four primary sources: (i) software sales,
maintenance and hosting; (ii) professional services, including custom
programming, scanning and database management services; (iii) license fees;
and (iv) technical support. To date, license fees and software maintenance
have been directly related. With each sale of our products, the end user
enters into a license agreement for which an initial license fee is paid.
The license agreement also provides that in order to continue the license,
the licensee must pay an annual software maintenance fee for which the party
receives access to product upgrades and bug fixes or product patches. This
structure will continue with our Roswell product; therefore, we anticipate a
positive impact on license fees, software maintenance, and custom programming
revenues from Roswell sales. However, according to an article in Forbes
magazine on March 29, 2004, software companies are gradually relying less on
the software license for revenues and more on professional services such as
programming and consulting. Management believes this trend applies to our
revenues as well, since Roswell is our only product that will use this
licensing structure. Therefore, although we expect a positive impact on
license fees from Roswell, we believe software sales, custom programming, and
professional services will provide a greater portion of our revenues in the
coming years.
-PAGE-
With the marketing of the DFC and Taos products, management anticipates that
revenues for direct software sales and technical support will increase as
those products are sold and the associated technical support programs are
purchased. The change in focus on our newer products reflects management's
belief that a broader range of products and customers will provide greater
stability in revenues.
Another new marketing area that we are developing is the need for customers
to hire our engineers to connect our software to existing software owned by
the customer. We now have several contracts in which we are "welding"
different databases to our database with good success. This could be a very
important growth area for us in the future.
Scanning services are performed by Working Knowledge at its site in Santa
Monica, California. Revenues for scanning services increased in the year
ended December 31, 2003, because of a large on-going contract with a major
entertainment studio to scan over 8,000 movie titles and their associated
media files. In the past, management has anticipated that these services
will be reserved in the future primarily for existing customers and customers
of our core products, although revenue could be generated from unsolicited
customers. Accordingly, in 2003 management has not focused on developing
this segment of our business, but will reassess the importance of this
revenue source in the coming year.
Cost of services consists primarily of engineering salaries, engineering
supplies, compensation-related expenses, hardware purchases and equipment
rental. General and administrative expenses consist primarily of salaries
and benefits of personnel responsible for business development and operating
activities, and include corporate overhead expenses. Corporate overhead
expenses relate to salaries and benefits of personnel responsible for
corporate activities, including acquisitions, administrative, and reporting
responsibilities. We record these expenses when incurred.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amount
of assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe
that there are no critical accounting policies that would have a material
impact on our financial presentation.
Notwithstanding the foregoing, we recognize revenue from sales of proprietary
software that do not require further commitment from us upon shipment.
During 2002, we shipped software under a contract with Physicians Telehealth
Network ("PTN") and recognized $500,000 in revenue from the sale. The
agreement with PTN provided for the licensing of the technology for $500,000,
which amount was recorded as income during 2002. In the first quarter of
2003, certain of PTN's assets were taken over by a group of investors headed
by Kurt Grossman and the initial contract we received continued with the new
investor group named Doctors Telehealth Network ("DTN"). DTN has made no
payments under the contract. During the second quarter of 2003, management
determined that DTN was not going to proceed with the project and we wrote
off the receivable related to it. Management does not intend to pursue the
contract and has rescinded the license granted in the agreement.
-PAGE-
2003 2002
% of % of
Amount Revenue Amount Revenue
----------------------------------------------
Revenues $ 1,300,000 100% $ 1,658,000 100%
Cost of service 330,000 25.4% 527,000 31.8%
----------------------------------------------
Gross profit 970,000 74.6% 1,131,000 68.2%
----------------------------------------------
General & administrative 1,709,000 129.1% 1,386,000 83.6%
Research & development 112,000 8.6% 176,000 10.6%
Impairment of good will 0 22,000 1.3%
----------------------------------------------
Net operating (loss) (851,000) (63.1%) (453,000) (27.3%)
----------------------------------------------
Other income (expense) (33,000) (2.5%) (69,000) (4.2%)
----------------------------------------------
Net income (loss) (884,000) (65.6%) (522,000) (31.5%)
==============================================
Earnings (loss) per share $ (0.03) $ (0.02)
Revenues: Total revenues decreased 21.6%, or $358,000, for the year ended
December 31, 2003, as compared to the same period in the prior year (the
"comparable prior year period"). These revenues were generated from the
following four revenue streams:
* Revenues generated by software sales and maintenance decreased 20.1%, or
$212,000, for the year ended December 31, 2003, as compared to the comparable
prior year period. This decrease is attributable in part to a single contract
with Physicians Telehealth Network (PTN), from which we recognized revenue of
$500,000 in license fees during 2002. Revenues from software sales and
maintenance other than the PTN contract increased 52.1%, or $288,000 for the
current year as compared to the comparable prior year period (from $553,000 in
2002 to $841,000 in 2003). This increase is attributable to the fact that wea
are now marketing our product as a standard retail product. Although we will
continue hosting for various existing clients and for our Roswell product, we
are focusing new marketing efforts on the sale of our standard products as
well as on building custom products. Management anticipates that revenues in
this category will continue to increase, although there is no assurance that
they will increase at the current rate.
* Custom programming revenue increased 112.3%, or $118,000, for the year
ended December 31, 2003, as compared to the comparable prior year period. This
increase was primarily due to two contracts for customized software services
for $75,000 and $72,000, respectively. There are some customers that purchase
our standard products and require customization, and we continue to offer this
service. In addition, our Roswell product will be offered as a customizable
package. Therefore, we anticipate that this revenue will continue to
increase.
* Revenues generated by license fees decreased 65.5%, or $114,000, for the
year ended December 31, 2003, as compared to the comparable prior year period.
This decrease is primarily attributable to the fact that we did not enter into
any significant new licenses during the year. Management believes that this
category may be a less significant portion of future revenues. We may license
the software in certain products, however, we anticipate most revenues will be
generated from sales of our software products.
* Revenue generated by scanning services increased 124%, or $93,000, for the
year ended December 31, 2003, as compared to the comparable prior year period,
due to a large long-term contract with a major movie studio. Although
management had anticipated that the services provided by Working Knowledge
would generally be limited to our existing or future clients and would not be
our primary focus, causing revenues generated by Working Knowledge to remain
consistent or increase modestly in the future, we will reassess the importance
of this revenue source in the coming year.
* Other revenue was generated by consulting services for data base design and
other miscellaneous items. Revenue generated by these other services decreased
97.2% or $243,000, for the year ended December 31, 2003, as compared to the
comparable prior year period. The cessation of Sprint commissions due to the
termination of the Sprint agreement was the main factor in the decrease of
these revenues.
-PAGE-
Cost of Services. Cost of services decreased 37.4%, or $197,000, for
the year ended December 31, 2003, as compared to the comparable prior year
period. Cost of services as a percentage of revenues decreased to 25.4% for
the year ended December 31, 2003 from 31.8% for the comparable prior year
period. This reduction in costs of services is attributable primarily to a
reduction of engineering expenses following completion of the primary
research and development phase of our software. Management believes this
current percentage is more indicative of the percentage of costs associated
with revenues in the future, but until we have been in the active marketing
phase for a longer period, management is unable to yet determine to what
extent this percentage may change in the future.
General and Administrative. General and administrative expenses
increased 23.3%, or $323,000, for the year ended December 31, 2003, as
compared to the comparable prior year period. This increase was primarily
attributable to bad debt expense of $500,000 due to the write-off of the
receivable associated with the DTN contract. General and administrative
expenses other than the DTN expense decreased from $1,386,000 in 2002 to
$1,209,000 in 2003. This decrease of 14.6% or $177,000 is primarily due to a
reduction in staff, resulting in lower salaries and compensation-related
expenses. General and administrative expenses as a percentage of revenues
were 131.5% for the year ended December 31, 2003, as compared to 83.6% for
the comparable prior year period. General and administrative expenses as a
percentage of revenues without DTN contract were 93.0% for the year ended
December 31, 2003, as compared to 119.7% for the comparable prior year
period. Management believes the percentage of general and administrative
costs will decrease in the future because revenues will increase at a greater
rate than general and administrative costs, but until we have been in the
active marketing phase for a longer period, management is unable to yet
determine to what extent this percentage may change in the future.
Research and Development. Research and development expenses decreased
36.4%, or $64,000, for the year ended December 31, 2003, as compared to the
comparable prior year period. This decrease was primarily due to the
completion of the development of our core software and the refocusing of
research and development to upgrading the existing products to remain
competitive in the industry.
Other Income. Interest income decreased 100.0%, or $1,000, for the year
ended December 31, 2003, as compared to the comparable prior year period.
Interest expense increased 45.2%, or $19,000 for the year ended December 31,
2003, as compared to the comparable prior year period. The increase in
interest expense was attributable to estimated penalties and interest on the
past-due payroll taxes of approximately $30,000. There was no loss on
disposal of fixed assets in 2003.
Liquidity and Capital Resources
Although we had a negative operating cash flow during the year ended December
31, 2003 as compared to a positive operating cash flow in the comparable
prior year period, we believe that our ability to provide the necessary cash
for operations from internal sources is improving. The positive cash flow in
the prior year is partially attributable to $469,000 in salaries and services
paid through equity transactions. In 2003, payment of salaries and services
through equity transactions decreased by $100,000 to $369,000.
Also, in 2003, we paid down a significant portion of trade accounts payable,
decreasing the balance from $315,000 at December 31, 2002 to $122,000 at
December 31, 2003. Of the balance of $122,000 at December 31, 2003, $33,000
were current, $16,000 were between 31 and 60 days delinquent, $0 were between
61 and 90 days delinquent, and $73,000 were over ninety days delinquent. The
four largest creditors include a news magazine ($25,000), the State of New
Mexico payroll taxes ($24,000), legal counsel ($10,000), another legal
counsel ($9,000). However, of the $73,000 that is over ninety days
delinquent, $35,000 is being paid in installments according to agreed-upon
payment plans, and we are current in our payments in accordance with these
agreements, and the $25,000 to the news magazine was paid in full in the
first quarter of 2004.
We also continue to accrue the salary of our president, Richard Govatski,
which at December 31, 2003, was an aggregate of $106,000. Payroll taxes due
at December 31, 2003, were $350,000, including penalties and interest. Our
inability to pay or settle these obligations, especially the amount due to
the IRS, could have a material negative impact on our business and could
affect our ability to continue as a going concern.
-PAGE-
Accounts receivable decreased from $643,000 in 2002 to $450,000 in 2003. The
write-off of the DTN receivable accounts for a decrease of $500,000. Taking
into account this write-off, receivables have increased $307,000 from last
year. This increase is partially due to an agreement for advertising, of
which $135,000 in advertising is still owed to us and will be used in 2004,
and partially due to beginning large projects for the U.S. Government and a
major Hollywood entertainment studio at the end of the year (three customers
had balances of $82,000, $85,000 and $72,000 respectively as of December 31,
2003; each was paid in the first quarter of 2004). These contracts will
continue to produce recurring revenues in 2004.
Operating activities used $179,000 of cash for the year ended December 31,
2003, as compared to operating activities generating $76,000 of cash for the
comparable prior year period. The increase in the use of cash was primarily
due to the effort to pay accumulated accounts payable and payroll taxes as
discussed in Liquidity and Capital Resources above. There was a significant
decrease in deferred revenue from hosting activities provided by a change in
sales methodology where sales of licenses are immediately included in revenue
instead of a term contract over a period of time which required deferral of
revenue. In addition, because we did not have access to available cash for
payroll on several occasions during the period, we paid employee salaries and
outside consulting fees with equity-based compensation. However, we have had
to make equity-based payments to employees in lieu of cash only one time
since March 2003.
Investing activities used $1,000 of cash for the year ended December 31,
2003, as compared to $354,000 for the comparable prior year period. The
decrease in the cash used for investing activities for the year ended
December 31, 2003 was primarily attributable to the disposal of the Sony
Petasite equipment in 2002.
Financing activities provided $152,000 in cash for the year ended December
31, 2003, as compared to financing activities providing $260,000 for the
comparable prior year period. The decrease in cash provided by financing
activities was primarily attributable to a reduction in funds borrowed by us.
Of the cash provided by financing activities for the year ended December 31,
2003, $25,000 of the total amount was attributable to a loan from an
investment banking firm. Also, $28,000 was attributable to net proceeds from
a private stock offering of shares of common stock, and we reduced the amount
due on our line of credit during this period by $44,000.
In January 2003, we issued 250,000 shares of common stock for gross proceeds
of $28,000. During 2003, we issued 135 shares of Series A Preferred
Convertible stock for gross proceeds of $135,000. These shares are
convertible at any time by the shareholder at a rate equal to 70% of the
average bid price of the common stock on the conversion date, at a minimum of
$0.05 and a maximum of $.25 per share. The Series A Preferred Convertible
stock has no preference with respect to dividends declared by New Mexico
Software.
Management anticipates that our primary uses of capital in the future periods
will be allocated to continue to satisfy delinquent obligations and for
working capital purposes. Our business strategy is to increase working
capital by internal growth through continued hosting of our existing
customers, sale of licenses for our Roswell products, maintenance of these
licenses, and sales of our retail products DFC and Taos, and externally
through the sale of potentially dilutive securities. We may also continue to
incur debt as needed to meet our operating needs. In addition, we may be
forced to issue additional equity compensation to employees and outside
consultants to meet payroll and pay for needed legal and other services.
At December 31, 2003, we had an outstanding balance on a line of credit with
Los Alamos National Bank (LANB) which was originally due on July 24, 2002.
The outstanding principal amount due at that date was $300,000, plus interest
of $10,545. We negotiated a three month extension on the repayment of the
outstanding balance of the line of credit by reducing the principal amount of
the debt with the payment of $50,000 and the payment of the interest due on
July 24, 2002. We were able to negotiate an extension of the amount due on
the line of credit until April 24, 2003, by paying $25,000 of the principal
amount due and $4,555 in interest due at October 24, 2002. On April 24,
2003, we paid $12,224 of principal and $12,768 of interest, and we negotiated
another six-month extension to October 20, 2003. On October 20, 2003 we
negotiated an extension of the amount due until April 23, 2004 by paying
$25,000 in principal and $7,500 in interest. The principal balance due for
this line of credit was $188,420 as of December 31, 2003. On March 27, 2004,
we received a letter from LANB extending the note until October 15, 2004,
with payment of $25,000 of principal and approximately $6,000 of interest due
on April 15, 2004. The company has the necessary cash to continue to reduce
the note under these circumstances and plans to make payment on time in April
2004. Our inability to retire this debt, negotiate an extension of the
payment amount and/or date, or obtain an alternative loan would likely have a
material negative impact on our business, and could impair our ability to
continue operations if the bank foreclosed on the note. However, the bank
has continued to extend the note six months at a time, providing we pay an
agreed-upon amount of principal and interest at the time of the extension.
We believe that LANB will continue to work with us in this manner.
-PAGE-
We do not currently have material commitments for capital expenditures and do
not anticipate entering into any such commitments during the next twelve
months. Our current commitments consist primarily of lease obligations for
office space.
Management anticipates that the capital requirements for operations for the
next twelve months will be approximately $1,200,000 - $1,500,000, based on
cash flow projections. The company currently has contracts which provide
for recurring revenues of approximately $600,000 for hosting and technical
support over the next twelve months. Based on the prior year licensing and
custom programming revenue, we can expect these services to generate an
additional $300,000 - $400,000 over the next twelve months. We anticipate
that new clients and our new products will provide the remaining necessary
capital for the next year. In addition, if the company is not able to
provide the necessary capital for the next year from revenues, we have a
commitment of a line of credit of $500,000 to cover any additional funds
needed. On November 6, 2003 we received a letter of intent to invest
$500,000 in New Mexico software over the next six months, which will provide
working capital necessary for operations over the next twelve months and to
retire long-term debt and past-due payroll taxes. Through a combination of
increased marketing efforts and continued reduction of expenses, management
anticipates positive working cash flow during 2004.
-PAGE-
ITEM 7. FINANCIAL STATEMENTS
NMXS.com, Inc. and Subsidiaries
Consolidated Balance Sheets
(Rounded to the nearest thousand)
December 31,
-------------------------
2003 2002
----------- -----------
Assets
Current assets:
Cash and equivalents $ 11,000 $ 39,000
Accounts receivable, net 450,000 643,000
Inventory 3,000 -
Prepaid expenses and other assets 21,000 42,000
Officer advances - 1,000
----------- -----------
Total current assets 485,000 725,000
----------- -----------
Furniture, equipment and improvements, net 141,000 226,000
Security deposits 39,000 39,000
Goodwill, net 75,000 75,000
----------- -----------
$ 740,000 $ 1,065,000
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 122,000 $ 315,000
Accrued expenses 465,000 318,000
Deferred revenue 70,000 -
Notes payable 276,000 287,000
----------- -----------
Total current liabilities 933,000 920,000
----------- -----------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, 500,000 shares
authorized, no shares issued and outstanding
as of 12/31/03 and 12/31/02, respectively - -
Common stock, $0.001 par value, 50,000,000 shares
authorized, 29,392,256 and 24,757,726 shares issued and
outstanding as of 12/31/03 and 12/31/02, respectively 29,000 25,000
Additional paid-in capital 8,861,000 8,184,000
Prepaid compensation (135,000) -
Accumulated (deficit) (8,948,000) (8,064,000)
----------- -----------
(193,000) 145,000
----------- -----------
$ 740,000 $ 1,065,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
-PAGE-
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Operations
(Rounded to the nearest thousand)
For the years ended
December 31,
---------------------------
2003 2002
------------ ------------
Revenue
Software sales and maintenance $ 841,000 $ 1,053,000
Custom programming 224,000 106,000
License fees 60,000 174,000
Scanning services 168,000 75,000
Other 7,000 250,000
------------ ------------
1,300,000 1,658,000
------------ ------------
Operating costs and expenses:
Cost of services 330,000 527,000
General and administrative 1,678,000 1,386,000
Research and development 112,000 176,000
Impairment of goodwill - 22,000
------------ ------------
Total operating costs and expenses 2,120,000 2,111,000
------------ ------------
Net operating (loss) (820,000) (453,000)
Other income (expense):
Interest income - 1,000
Interest (expense) (64,000) (45,000)
(Loss) on disposal of fixed assets - (25,000)
------------ ------------
Total other income (expense) (64,000) (69,000)
------------ ------------
Net (loss) $ (884,000) $ (522,000)
============ ============
Weighted average number of
common shares outstanding - basic and fully diluted 26,794,295 23,271,379
============ ============
Net (loss) per share - basic and fully diluted $ (0.03) $ (0.02)
============ ============
The accompanying notes are an integral part of these financial statements.
-PAGE-
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
(Rounded to the nearest thousand)
Total
Stock-
Preferred Stock Common Stock Additional holders'
------------------ ---------------------- Paid-in Subscriptions Prepaid Accumulated Equity
Shares Amount Shares Amount Capital Payable Compensation (Deficit) (Deficit)
--------- ------- ----------- --------- ----------- ------------- ------------ --------- -----------
Balance forward
December 31, 2001 - $ - 22,116,784 $ 22,000 $ 7,550,000 $ - $ - $(7,542,000) $ 30,000
Issuance of shares
previously issuable 21,946 -
Issuance of common stock
for salaries 42,349 15,000 15,000
Issuance of common stock
for services 29,497 212,000 212,000
Issuance of common stock
for services 492,480 1,000 90,000 91,000
Issuance of common stock
for severance 34,422 13,000 13,000
Issuance of common stock
for salaries 148,082 53,000 53,000
Issuance of common stock
for services 103,305 58,000 58,000
Issuance of common stock
for salaries 122,316 27,000 27,000
Sale of common stock, net 1,346,545 1,000 147,000 148,000
Sale of common stock, net 300,000 1,000 19,000 20,000
Net (loss)
For the year ended
December 31, 2002 (522,000) (522,000)
--------- ------- ----------- --------- ----------- ------------- ------------ --------- ----------
Balance, December 31, 2002 - - 24,757,726 25,000 8,184,000 - - (8,064,000) 145,000
Issuance of common stock
for salaries 60,143 11,000 11,000
Issuance of common stock
for services 5,208 1,000 1,000
Cash received for
sale of common stock 28,000 28,000
Issuance of common stock
for salaries 142,241 21,000 21,000
Issuance of common stock
for services 12,500 2,000 2,000
Issuance of options
for services 65,000 65,000
Issuance of common stock
for salaries 199,422 24,000 24,000
Issuance of common stock
for services 18,045 2,000 2,000
Issuance of common stock
for salaries 146,901 16,000 16,000
Issuance of common stock
for services 36,090 4,000 4,000
Issuance of common stock
for services 10,000 1,000 1,000
Cash received for
sale of preferred stock 30,000 30,000
Issuance of common stock
for services 100,000 20,000 20,000
-PAGE-
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
(Rounded to the nearest thousand)
(continued)
Total
Stock-
Preferred Stock Common Stock Additional holders'
------------------ ---------------------- Paid-in Subscriptions Prepaid Accumulated Equity
Shares Amount Shares Amount Capital Payable Compensation (Deficit) (Deficit)
--------- ------- ----------- --------- ----------- ------------- ------------ --------- ----------
Issuance of common stock
for services 170,000 17,000 17,000
Issuance of common stock
for services 42,500 3,000 3,000
Issuance of common stock
for services 57,611 4,000 4,000
Issuance of common stock
for services to be rendered 1,500,000 2,000 88,000 (90,000) -
Cash received for
sale of preferred stock 30,000 30,000
Issuance of common stock
for services to be rendered 500,000 1,000 29,000 (30,000) -
Issuance of options
for services 7,000 7,000
Issuance of warrants
for services 67,000 67,000
Cash received for
sale of preferred stock 75,000 75,000
Issuance of preferred stock
for cash 135 - 135,000 (135,000) -
Issuance of common stock
for services to be rendered 250,000 15,000 (15,000) -
Compensation
expense 15,000 15,000
Issuance of common stock
for cash 250,000 28,000 (28,000) -
Issuance of common stock
for services 200,000 16,000 16,000
Issuance of common stock
for salaries 41,369 17,000 17,000
Issuance of common stock
for services 365,000 1,000 32,000 33,000
Issuance of common stock
for services to be rendered 500,000 30,000 (30,000) -
Issuance of common stock
for bonuses 27,500 11,000 11,000
Issuance of options
for services 11,000 11,000
Compensation
expense 15,000 15,000
Net (loss)
For the year ended
December 31, 2003 (884,000) (884,000)
--------- ------- ----------- --------- ----------- ------------- ------------ --------- ----------
Balance, December 31, 2003 135 $ - 29,392,256 $ 29,000 $ 8,861,000 $ - $ (135,000) $(8,948,000)$(193,000)
========= ======= =========== ========= =========== ============= ============ ========= ==========
The accompanying notes are an integral part of these financial statements.
-PAGE-
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Rounded to the nearest thousand)
For the years ended
December 31,
---------------------------
2003 2002
------------ ------------
Cash flows from operating activities
Net (loss) $ (884,000) $ (522,000)
Adjustments to reconcile net (loss) to
net cash provided (used) by operating activities:
Common stock issued for salaries 89,000 108,000
Common stock issued for services 133,000 205,000
Common stock issued for bonuses 11,000 -
Stock options issued for services 83,000 156,000
Warrants issued for services 67,000 -
Depreciation and amortization 86,000 100,000
Amortization of goodwill - 22,000
Loss on disposal of fixed assets - 25,000
Changes in operating assets and liabilities:
Accounts receivable 193,000 (174,000)
Inventory (3,000) -
Estimated earnings in excess of billings on uncompleted contracts - 18,000
Prepaid expenses and other assets 21,000 8,000
Officer advances 1,000 31,000
Security deposits - 15,000
Accounts payable (193,000) 365,000
Accrued expenses 147,000 -
Deferred revenue 70,000 (266,000)
------------ ------------
Net cash provided (used) by operating activities (179,000) 91,000
------------ ------------
Cash flows from investing activities
Acquisition of fixed assets (1,000) (369,000)
------------ ------------
Net cash (used) by investing activities (1,000) (369,000)
------------ ------------
Cash flows from financing activities
Proceeds from notes payable 33,000 100,000
Repayment of note payable (44,000) (50,000)
Net proceeds from the issuance of common stock 135,000 -
Net proceeds from the issuance of preferred stock 28,000 168,000
Restricted cash 0 42,000
------------ ------------
Net cash provided by financing activities 152,000 260,000
------------ ------------
Net (decrease) in cash equivalents (28,000) (18,000)
Cash equivalents - beginning 39,000 57,000
------------ ------------
Cash equivalents - ending $ 11,000 $ 39,000
============ ============
Supplemental disclosures:
Interest paid $ - $ -
============ ============
Income taxes paid $ - $ -
============ ============
The accompanying notes are an integral part of these financial statements.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - ORGANIZATION AND OPERATIONS
NMXS.com, Inc. and its wholly-owned subsidiaries New Mexico
Software, Inc. ("NMS") and Working Knowledge, Inc. ("WKI")
(collectively "the Company"), each operating as a business
segment that develop and market proprietary internet technology-
based software for the management of digital high- resolution
graphic images, video clips and audio recordings. The Company
believes that its software has applications for the media,
advertising, publishing, medical, entertainment, e-commerce and
university markets.
In August 1999, the Company effected a reverse merger in which
NMXS.com, Inc. acquired all of the outstanding common stock of
NMS.
NMS, a New Mexico corporation, was formed in April 1996. NMS
develops and markets proprietary internet technology-based
software.
During April 2000, the Company purchased 100% of the capital
stock of WKI, a Kansas corporation located in California, for a
total price of $152,000. The business combination has been
accounted for using the purchase method. Tangible assets
purchased were of nominal value. WKI provides services which are
necessary to prepare, enter, and maintain the customer's data on
the Company's digital asset management system. The Company
recorded goodwill of $150,000 in connection with the acquisition.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material inter-
company accounts and transactions have been eliminated.
[2] Revenue recognition:
Revenue from proprietary software sales that does not require
further commitment from the company is recognized upon shipment.
Maintenance contract revenue is recognized on a straight-line
basis over the life of the respective contract. Revenue from
custom software development, which is generally billed separately
from the Company's proprietary software, is recognized based on
its percentage of completion. Revenue recognized under
percentage of completion contracts are generally based upon
specific milestones achieved as specified in customer contracts.
The Company also derives revenue from the sale of third party
hardware and software. Consulting revenue is recognized when the
services are rendered. License revenue is recognized ratably over
the term of the license.
Due to uncertainties inherent in the estimation process it is at
least reasonably possible that completion costs for contracts in
progress will be further revised in the near- term.
The cost of services, consisting of staff payroll, outside
services, equipment rental, communication costs and supplies, is
expensed as incurred.
[3] Cash and cash equivalents:
The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
[4] Inventory:
Inventory, which is composed of component parts and finished
goods, is valued at cost on a specific identity basis for those
items with serial numbers. The remainder of the inventory is
valued at the lower of first-in-first-out (FIFO) cost or market.
On a quarterly basis, management compares the inventory on hand
with our records to determine whether write-downs for excess or
obsolete inventory are required.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] Furniture, equipment and improvements:
Furniture, equipment and improvements are recorded at cost. The
cost of maintenance and repairs is charged against results of
operations as incurred. Depreciation is charged against results
of operations using the straight-line method over the estimated
economic useful life. Leasehold improvements are amortized on a
straight-line basis over the life of the related lease.
[6] Income taxes:
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the
basis of the differences between the tax basis of assets and
liabilities and their respective financial reporting amount
("temporary differences") at enacted tax rates in effect for the
years in which the differences are expected to reverse.
[7] Per share data:
The basic and diluted per share data has been computed on the
basis of the net loss available to common stockholders for the
period divided by the historic weighted average number of shares
of common stock. All potentially dilutive securities have been
excluded from the computations since they would be antidilutive,
however, these dilutive securities could potentially dilute
earnings per share in the future.
[8] Research and development expenses:
Costs of research and development activities are expensed as
incurred.
[9] Advertising expenses:
The Company expenses advertising costs which consist primarily of
direct mailings, promotional items and print media, as incurred.
Advertising expenses amounted to $188,210 and $15,000 for the
years ended December 31, 2003 and 2002, respectively.
[10] Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amount 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.
[11] Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") allows companies to
either expense the estimated fair value of stock options and
warrants, or to continue following the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") but disclose the pro
forma effects on net loss had the fair value of the options and
warrants been expensed. The Company has elected to apply APB 25
in accounting for grants to employees under its stock based
incentive plans. Equity instruments issued to non-employees are
measured based on their fair values.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[11] Stock-based compensation: (continued)
Statement of Financial Accounting Standards No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148") provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent and
more frequent disclosures in financial statements about the
effects of stock-based compensation.
[12] Software development:
The Company accounts for computer software development costs in
accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". As such, all costs incurred prior
to the product achieving technological feasibility are expensed
as research and development costs. Technological feasibility is
generally achieved upon satisfactory beta test results. Upon
achieving technological feasibility, programming costs are
capitalized and amortized over the economic useful live which is
estimated to be two years. There were no capitalized software
development costs as of December 31, 2003 and 2002.
[13] Rental expense:
The Company has recognized the total minimum rental payments due
under the lease on a straight-line basis over the lease term. As
of December 31, 2003, the Company has a prepaid rent asset of
$2,000.
[14] Goodwill:
The Financial Accounting Standards Board ("FASB") recently issued
Statements of Financial Accounting Standards Nos. 141 "Business
Combinations", 142 "Goodwill and Other Intangible Assets" and 144
"Accounting for the Impairment or Disposal of Long-Lived Assets".
("SFAS 141", "SFAS 142" and "SFAS 144"). All of these
pronouncements are effective for fiscal years beginning after
December 31, 2001. Under SFAS 141, a company must use the
purchase method of accounting for all business acquisitions. SFAS
142 requires a company to periodically evaluate for impairment
(as opposed to amortize) goodwill and intangible assets.
Goodwill resulting from the acquisition of Working Knowledge,
Inc., accounted for as a purchase, was being amortized on a
straight-line basis over 5 years through December 31, 2001. The
Company adopted SFAS No. 142 effective January 1, 2002 and as
such, will test the goodwill balance for impairment at least on
an annual basis. Such analysis will be based upon the expected
future cash flows of Working Knowledge, Inc. There was $0 and
$22,000 as impairment of goodwill as of December 31, 2003 and
2002.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[15] Recent pronouncements:
In November 2002, the FASB issued FASB Interpretation ("FIN") No.
45, "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of
Others", an interpretation of FIN No. 5, 57 and 107, and
rescission of FIN No. 34, "Disclosure of Indirect Guarantees of
Indebtedness of Others". FIN 45 elaborates on the disclosures to
be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it
has issued. It also requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while, the provisions of the
disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002. The
company believes that the adoption of such interpretation will
not have a material impact on its financial position or results
of operations and has adopted such interpretation during fiscal
year 2003, as required.
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51. FIN No. 46 requires that variable
interest entities be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority
of the entity's residual returns or both. FIN No. 46 also
requires disclosures about variable interest entities that
companies are not required to consolidate but in which a company
has a significant variable interest. The consolidation
requirements of FIN No. 46 will apply immediately to variable
interest entities created after January 31, 2003. The
consolidation requirements will apply to entities established
prior to January 31, 2003 in the first fiscal year or interim
period beginning after June 15, 2003. The disclosure requirements
will apply in all financial statements issued after January 31,
2003. The company will begin to adopt the provisions of FIN No.
46 during the first quarter of fiscal 2003 and the Company
believes that the adoption of such interpretation will not have a
material impact on its financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 changes the classification
in the statement of financial position of certain common
financial instruments from either equity or mezzanine
presentation to liabilities and requires an issuer of those
financial statements to recognize changes in fair value or
redemption amount, as applicable, in earnings. SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and with one exception, is effective at the
beginning of the first interim period beginning after June 15,
2003. The effect of adopting SFAS No. 150 will be recognized as a
cumulative effect of an accounting change as of the beginning of
the period of adoption. Restatement of prior periods is not
permitted. SFAS No. 150 did not have any impact on the Company's
financial position or results of operations.
NOTE C - ACCOUNTS RECEIVABLE
During the year ended December 31, 2003, the Company elected to
write off $500,000 of accounts receivable to bad debt due to one
customer. The Company is no longer doing business with this
customer and is in negotiations to collect the entire balance.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - FURNITURE, EQUIPMENT, AND IMPROVEMENTS
Furniture, equipment, and improvements as of December 31, 2003
consisted of the following:
Computers $ 269,000
Furniture, fixtures and equipment 105,000
Leasehold improvements 76,000
450,000
--------------
Accumulated depreciation (309,000)
--------------
$ 141,000
==============
NOTE E - NOTE PAYABLE
During January 2001, the Company borrowed $300,000. The loan is
collateralized by substantially all of the Company's assets and
personally guaranteed by an officer of the Company. Additional
collateral was provided by a letter of credit issued by a then
unrelated third party (Note F). The letter of credit expired on
January 19, 2002. The note was renewed with a due date of July
24, 2002 at a current interest rate of 7%. On July 24, 2002, the
Company paid $50,000 of principal and $10,525 of interest. The
remaining $250,000 of principal was extended to October 24, 2002
at a current interest rate of 7%. On October 24, 2002 the Company
paid $25,000 of principal and $4,555 of interest. The remaining
$225,000 of principal was extended until April 24, 2003 at a
current interest rate of 7%. On April 24, 2003, the Company paid
$12,224 of principal and $12,768 of interest. The remaining
$212,776 of principal was extended until October 15, 2003 at a
current interest rate of 7%. On October 20, 2003, the Company
has negotiated a payment of $25,000 in principal and $7,500 in
interest and extended the note to April 23, 2004. As of December
31, 2003, the Company had a balance due of $188,000. On March
27, 2004, the Company received a notice from the bank to extend
the note to October 15, 2004, if the Company pays a principal
payment of $25,000 and $6,000 in interest.
On April 22, 2002, the Company borrowed $50,000. The loan is due
on April 23, 2003 at a current interest rate of 10% per annum.
This note is secured by 500,000 shares of the Company's $0.001
par value common stock. As of December 31, 2003, the Company is
in default and is negotiating with the note holder.
In April 2002, the Company borrowed $12,500. The loan is due on
demand and bears no interest. As of December 31, 2003, the
Company had a balance due of $12,500.
On March 1, 2003, the Company borrowed $25,000. The loan was due
on September 30, 2003 at a current interest rate of 7% per annum.
On August 29, 2003, the note was extended to December 31, 2003.
On December 31, 2003, the note was extended to April 15, 2004.
As of December 31, 2003, the Company had a balance due of
$25,000.
NOTE F - CAPITAL TRANSACTIONS
Series A convertible preferred stock:
The Series A convertible preferred shares are convertible at any
time by the shareholder at a rate equal to 70% of the average bid
price of the common stock on the conversion date, at a minimum of
$0.05 and a maximum of $.25 per share. The Series A convertible
preferred stock has no preference with respect to dividends
declared by New Mexico Software.
During the year ended December 31, 2003, the Company effected the
following stock transactions:
The Company received a total of $135,000 from four individuals to
purchase 135 shares of the Company's $0.001 par value preferred
stock. As of August 31, 2003, the Company closed the preferred
stock offering and all of the shareholders have received their
preferred stock.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Common stock:
During the year ended December 31, 2002, the Company effected the
following stock transactions:
During February, the Company compensated four employees in the
form of the Company's common stock as additional compensation.
The Company issued 42,349 shares of its common stock to these
employees, and approximately $15,000 is included in the statement
of operations for the three months ended March 31, 2002.
The Company issued 51,443 shares, including 21,946 shares which
had been issuable at December 31, 2001, for legal expenses and
sales commission advances. A total of 13,512 shares for legal
expenses are shown as issuable at March 31, 2002. In addition,
227,941 shares are shown as issuable as payment for consulting
services rendered during 2001.
The Company issued 574,509 shares for legal and consulting
services during the three months ended June 30, 2002, 256,853 of
which were shown as issuable at March 31, 2002. Approximately
$91,000 of expense is included in the statement of operations for
the three months ended June 30, 2002. No shares are shown as
issuable at June 30, 2002.
During April, the Company compensated five employees in the form
of the Company's common stock as a severance package. A total of
34,422 shares were issued to these employees, and approximately
$13,000 was included in the statement of operations for the three
months ended June 30, 2002.
During April and May, the Company compensated all its employees
in the form of the Company's common stock in lieu of payroll. A
total of 148,082 shares of the Company's common stock were issued
to these employees, and approximately $53,000 was included in the
statement of operations for the three months ended June 30, 2002.
During the three months ended September 30, 2002, the Company
issued 103,304 shares for legal and consulting services.
Approximately $18,000 was included in the statement of operations
for that period.
In July, the Company compensated all its employees in the form of
the Company's common stock in lieu of payroll. A total of 122,316
shares were issued to these employees, and approximately $27,000
was included in the statement of operations for the three months
ended September 30, 2002.
In September, the Company sold 1,346,545 shares of its common
stock for $148,000.
In December, the Company sold 300,000 shares of its common stock
for $20,000.
During the year ended December 31, 2003, the Company effected the
following stock transactions:
On January 13, 2003, the Company issued a total of 60,143 shares
of its $0.001 par value common stock to its employees in lieu of
salary which was valued at $11,000.
On January 13, 2003, the Company issued a total of 5,208 shares
of its $0.001 par value common stock to an independent contractor
for services rendered which was valued at $1,000.
On January 31, 2003, the Company agreed to issue 250,000 shares
of its $0.001 par value common stock to a director of the Company
for cash of $28,000 which is considered subscriptions payable.
On October 16, 2003, the shares have been issued.
On February 20, 2003, the Company issued a total of 142,241
shares of the Company's $0.001 par value common stock to its
employees in lieu of salary which was valued at $21,000.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Common stock: (continued)
On February 20, 2003, the Company issued a total of 12,500 shares
of its $0.001 par value common stock to its and to an independent
contractors for services rendered in the amount of $2,000.
On February 27, 2003, the Company issued 1,000,000 stock options
for legal services totaling $65,000.
On March 10, 2003, the Company issued a total of 199,422 shares
of its $0.001 par value common stock to its employees in lieu of
salary which was valued at $24,000
On March 10, 2003, the Company issued a total of 18,045 shares of
its $0.001 par value common stock to an independent contractor
for services rendered in the amount of $2,000.
On March 24, 2003, the Company issued a total of 146,901 shares
of its $0.001 par value common stock to its employees in lieu of
salary which was valued at $16,000
On March 24, 2003, the Company issued a total of 36,090 shares of
its $0.001 par value common stock to its independent contractors
for services rendered in the amount of $4,000.
On March 31, 2003, the Company issued a total of 10,000 shares of
its $0.001 par value common stock to an independent contractor
for services rendered in the amount of $1,000.
On April 17, 2003, the Company issued a total of 100,000 shares
of its $0.001 par value common stock to a former director for
services rendered in the amount of $20,000.
On May 16, 2003, the Company issued a total of 170,000 shares of
its $0.001 par value common stock to an attorney for legal
services rendered in the amount of $17,000.
On May 30, 2003, the Company issued a total of 42,500 shares of
its $0.001 par value common stock to an attorney for legal
services rendered in the amount of $3,000.
On June 6, 2003, the Company issued a total of 57,611 shares of
its $0.001 par value common stock to an independent contractor
for services rendered in the amount of $4,000.
On June 6, 2003, the Company issued a total of 1,500,000 shares
of its $0.001 par value common stock to a shareholder of the
Company as part of a five year consulting agreement in the amount
of $90,000. The entire amount is considered deferred
compensation.
On August 1, 2003, the Company issued a total of 500,000 shares
of its $0.001 par value common stock to a shareholder of the
Company as part of a five year consulting agreement in the amount
of $30,000. The entire amount is considered deferred
compensation.
On August 1, 2003, the Company issued 100,000 stock options for
consulting services totaling $7,000.
On August 17, 2003, the Company issued 1,000,000 warrants for
consulting services totaling $67,000.
On August 30, 2003, the Company agreed to issue a total of
365,000 shares of its $0.001 par value common stock to its
landlord in exchange for rent which was valued at $32,850. On
December 8, 2003, the shares have been issued.
On September 18, 2003, the Company issued a total of 250,000
shares of its $0.001 par value common stock to a shareholder of
the Company as part of a five-year consulting agreement in the
amount of $15,000. The entire amount is considered deferred
compensation.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Common stock: (continued)
On September 30, 2003, the Company adjusted deferred compensation
in the amount of $15,000.
On October 16, 2003, the Company issued 250,000 shares of its
$0.001 par value common stock to a director of the Company and
cancelled the subscriptions payable of $28,000.
On November 24, 2003, the Company issued 200,000 shares of its
$0.001 par value common stock in exchange for consulting services
valued at $16,000.
On November 25, 2003, the Company issued a total of 41,369 shares
of its $0.001 par value common stock to its employees in lieu of
salary which was valued at $17,000
On December 8, 2003, the Company issued a total of 365,000 shares
of its $0.001 par value common stock to its landlord in exchange
for rent which was valued at $33,000
On December 8, 2003, the Company issued a total of 500,000 shares
of its $0.001 par value common stock to a shareholder of the
Company as part of a five year consulting agreement in the amount
of $30,000. The entire amount is considered deferred
compensation.
On December 10, 2003, the Company issued a total of 27,500 shares
of its $0.001 par value common stock to its employees as bonuses
which were valued at $11,000. The Company issued 22,500 shares
in error to an employee and the shares will be returned to the
Company in 2004, the amount is considered due from employee in
the amount of $9,000.
On December 31, 2003, the Company issued 130,000 stock options
for consulting services totaling $11,000.
On December 31, 2003, the Company adjusted deferred compensation
in the amount of $15,000.
Warrants:
In September, the Company issued 1,346,545 warrants in
conjunction with the sale of the 1,346,545 shares above at the
rate of one warrant for each common share. The warrants have an
exercise price of $0.21 per share and a seven year contractual
life from date of issuance. The fair value of the warrants has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
warrants was $0.17. The following assumptions were used in
computing the fair value of these warrants: weighted average risk-
free interest rate of 4.05%, zero dividend yield, volatility of
the Company's common stock of 122% and an expected life of the
warrants of seven years. Approximately $2,000 of expense was
included in the statement of operations for the three months
ended September 30, 2002.
On August 17, 2003, the Company issued 1,000,000 warrants to
First Mirage (FM) at the rate of one warrant for each common
share. The warrants have an exercise price of $0.08 per share
and a five year contractual life from date of issuance. The fair
value of the warrants has been estimated on the date of grant
using the Black-Scholes option pricing model. The weighted
average fair value of these warrants was $0.06. The following
assumptions were used in computing the fair value of these
warrants: weighted average risk-free interest rate of 3.35%, zero
dividend yield, volatility of the Company's common stock of 181%
and an expected life of the warrants of five years. Approximately
$67,000 of expense was included in the statement of operations
for the year ended December 31, 2003.
No warrants have been exercised through December 31, 2003 and
2002.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock options:
Disclosures required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), including pro forma operating results had the
Company prepared its financial statements in accordance with the
fair value based method of accounting for stock- based
compensation prescribed therein are shown below. Exercise prices
and weighted-average contractual lives of stock options
outstanding as of December 31, 2003 are as follows:
Options Outstanding Options Exercisable
--------------------------------------- ------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Prices Exercisable Price
------- ----------- ---------------- ---------- ----------- ----------
$0.05- 8,116,849 7.44 $0.10 5,512,643 $0.10
$0.30
$0.31- 212,520 5.98 $0.36 186,000 $0.36
$0.50
$0.54- 60,000 2.33 $0.61 60,000 $0.61
$0.83
$1.25- 0 0.00 $0.00 0 $0.00
$2.13
Summary of Options Granted and Outstanding:
For the year ended december 31,
------------------------------------------------
2003 2002
---------------------- -----------------------
Shares Weighted Shares Weighted
Average Average
Exercise Exercise
Price Price
--------- ----------- -------- ------------
Options:
Outstanding at 2,202,000 $0.77 1,593,000 $1.33
beginning
of year
Granted 332,000 $0.29 1,739,000 $0.47
Cancelled (2,000) $1.25 (1,130,000) $0.09
--------- ----------- -------- ------------
Outstanding 2,532,000 $0.63 2,202,000 $0.77
at end of year ========= =========== ======== ============
During the year ended December 31, 2002, the Company granted the
following stock options:
In January 2002, the Company granted 53,000 stock options to
employees with an exercise price of $.34, equal to the fair value
of the common stock, with a contractual life of ten years and a
two year vesting period, 50% at the end of each one year period
from the date of grant. The fair value of the options has been
estimated on the date of grant using the Black-Scholes option
pricing model. The weighted average fair value of these options
was $0.34. The following assumptions were used in computing the
fair value of these option grants: weighted average risk-free
interest rate of 5.04%, zero dividend yield, volatility of the
Company's common stock of 222% and an expected life of the
options of ten years.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock options: (continued)
During February 2002, the Company granted 200,000 stock options
to an employee with an exercise price of $0.34, equal to the fair
value of the common stock, with a contractual life of ten years
and a two year vesting period, 50% at the end of each one year
period from the date of grant. The fair value of the options has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
options was $0.34. The following assumptions were used in
computing the fair value of these option grants: weighted average
risk-free interest rate of 4.91%, zero dividend yield, volatility
of the Company's common stock of 222% and an expected life of the
options of ten years.
In August 2002, the Company granted 103,125 stock options to an
employee with an exercise price of $0.17, equal to the fair value
of the common stock, with a contractual life of ten years and a
21 month vesting period. The fair value of the options has been
estimated on the date of grant using the Black-Scholes option
pricing model. The weighted average fair value of these options
was $0.16. The following assumptions were used in computing the
fair value of these option grants: weighted average risk-free
interest rate of 4.42%, zero dividend yield, volatility of the
Company's common stock of 122%, and an expected life of the
options of ten years.
During the year ended December 31, 2003, the Company granted the
following stock options:
On February 1, 2003, the Company granted 200,000 stock options to
employees with an exercise price of $0.06, equal to the fair
value of the common stock, with a contractual life of ten years
and a two year vesting period, 50% at the end of each one year
period from the date of grant. The fair value of the options has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
options was $0.04. The following assumptions were used in
computing the fair value of these option grants: weighted average
risk-free interest rate of 4.00%, zero dividend yield, volatility
of the Company's common stock of 163% and an expected life of the
options of ten years.
On February 27, 2003, the Company granted 1,000,000 stock options
to Gerald Grafe, the Company's legal counsel, with an exercise
price of $0.06, equal to the fair value of the common stock, with
a contractual life of ten years and the options vest immediately.
The fair value of the options has been estimated on the date of
grant using the Black-Scholes option pricing model. The weighted
average fair value of these options was $0.03. The following
assumptions were used in computing the fair value of these option
grants: weighted average risk-free interest rate of 5.84%, zero
dividend yield, volatility of the Company's common stock of 177%,
and an expected life of the options of ten years. Approximately
$65,000 of expense was included in the statement of operations
for the year ended December 31, 2003.
On August 1, 2003, the Company granted 1,943,920 stock options to
employees with an exercise price of $0.06, equal to the fair
value of the common stock, with a contractual life of ten years
and a two year vesting period, 50% at the end of each one year
period from the date of grant. The fair value of the options has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
options was $0.04. The following assumptions were used in
computing the fair value of these option grants: weighted average
risk-free interest rate of 4.27%, zero dividend yield, volatility
of the Company's common stock of 181% and an expected life of the
options of ten years.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock options: (continued)
On August 1, 2003, the Company granted 100,000 stock options to
independent contractors for consulting services, with an exercise
price of $0.06, equal to the fair value of the common stock, with
a contractual life of ten years and the options vest immediately.
The fair value of the options has been estimated on the date of
grant using the Black-Scholes option pricing model. The weighted
average fair value of these options was $0.04. The following
assumptions were used in computing the fair value of these option
grants: weighted average risk-free interest rate of 4.27%, zero
dividend yield, volatility of the Company's common stock of 181%,
and an expected life of the options of ten years. Approximately
$7,000 of expense was included in the statement of operations for
the year ended December 31, 2003.
On September 29, 2003, the Company granted 500,000 stock options
to a director with an exercise price of $0.06, equal to the fair
value of the common stock, with a contractual life of ten years
and a two year vesting period, 50% at the end of each one year
period from the date of grant. The fair value of the options has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
options was $0.04. The following assumptions were used in
computing the fair value of these option grants: weighted average
risk-free interest rate of 4.09%, zero dividend yield, volatility
of the Company's common stock of 182% and an expected life of the
options of ten years.
On November 24, 2003, the Company granted 60,000 stock options to
an employee with an exercise price of $0.11, equal to the fair
value of the common stock, with a contractual life of five years
and a two year vesting period, 50% at the end of each one year
period from the date of grant. The fair value of the options has
been estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average fair value of these
options was $0.09. The following assumptions were used in
computing the fair value of these option grants: weighted average
risk-free interest rate of 4.23%, zero dividend yield, volatility
of the Company's common stock of 184% and an expected life of the
options of five years.
On December 31, 2003, the Company granted 130,000 stock options
to an independent contractor for consulting services, with an
exercise price of $0.09, equal to the fair value of the common
stock, with a contractual life of five years and the options vest
immediately. The fair value of the options has been estimated on
the date of grant using the Black-Scholes option pricing model.
The weighted average fair value of these options was $0.07. The
following assumptions were used in computing the fair value of
these option grants: weighted average risk-free interest rate of
4.27%, zero dividend yield, volatility of the Company's common
stock of 181%, and an expected life of the options of five years.
Approximately $10,500 of expense was included in the statement of
operations for the year ended December 31, 2003.
The following table summarizes the pro forma operating results of
the Company for December 31, 2003 had compensation costs for the
stock options granted to employees been determined in accordance
with the fair value based method of accounting for stock based
compensation as prescribed by SFAS No. 123.
2003 2002
------------------------
Proforma net loss available to common stockholders ($1,079,000) ($406,000)
Proforma basic and diluted loss per shares ($0.04) ($0.02)
As of December 31, 2003, the Company has reserved 1,000,000
shares of its common stock for issuance upon exercise of stock
options and warrants.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G - INCOME TAXES
The Company accounts for income taxes using the liability method,
under which deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse.
As of December 31, 2003, the Company had net operating loss
carryforwards of approximately $8,917,000, which expire in
varying amounts between 2016 and 2021. Realization of this
potential future tax benefit is dependent on generating
sufficient taxable income prior to expiration of the loss
carryforward. The deferred tax asset related to this potential
future tax benefit has been offset by a valuation allowance in
the same amount. The amount of the deferred tax asset ultimately
realizable could be increased in the near term if estimates of
future taxable income during the carryforward period are revised.
The difference between the statutory federal income tax rate on
the Company's pre-tax loss and the Company's effective income tax
rate is summarized as follows:
2003 2002
--------- ---------
Statutory federal income tax rate (34.0%) (34.0%)
Increase in valuation allowance 34.0% 34.0%
Other 0.0% 0.0%
--------- ---------
Effective income tax rate 0.0% 0.0%
========= =========
NOTE H - RELATED PARTY TRANSACTIONS
Officer advances:
As of December 31, 2002, officer advances represent advances to
the Chief Executive Officer who is a principal stockholder of the
Company which bears interest at 7% per annum.
Consulting agreement:
The Company entered into a consulting agreement with a
stockholder to advise the CEO on business strategy and to
formulate marketing ideas. The term of the employment agreement
is for approximately five years commencing on July 1, 2003 and
terminating on December 31, 2008. The shareholder will receive a
total of 5,500,000 shares of the Company's $0.001 par value
common stock valued at $330,000. As of December 31, 2003, the
shareholder was paid a total of 2,750,000 shares of common stock,
but he has earned only 500,000 shares and the difference of
2,250,000 shares is considered prepaid compensation. During the
year ended December 31, 2003, the Company has expensed $30,000 in
consulting fees.
NOTE I - MAJOR CUSTOMERS
During the year ended December 31, 2003, seven customers
accounted for 85% of the Company's revenue. The Company
recognized $290,000 as revenue and $290,000 as expense from
barter agreements for the year ended December 31, 2003. During
the year ended December 31, 2002, three customers accounted for
47%, 11% and 9% of the Company's revenue.
As of December 31, 2003, balances due from one customer comprised
27% of total accounts receivable. As of December 31, 2002,
balances due from two customers comprised 70% and 8% of total
accounts receivable.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE J - REPORTABLE SEGMENTS
Management has identified the Company's reportable segments based
on separate legal entities. NMS derives revenues from the
development and marketing proprietary internet technology-based
software and WKI provides data maintenance services related to
NMS digital asset management system. Information related to the
Company's reportable segments for 2003 is as follows:
NMS WKI Total
----------- ----------- ------------
Revenue $1,266,000 $ 34,000 $ 1,300,000
Cost of services 267,000 62,000 330,000
General and administrative 1,556,000 123,000 1,687,000
Research and development 112,000 - 112,000
Impairment of goodwill - - -
----------- ----------- ------------
Operating income (loss) ($669,000) ($151,000) ($820,000)
=========== =========== ============
Total assets $ 704,000 $ 36,000 $ 740,000
=========== =========== ============
WKI revenue consists primarily of software maintenance and
scanning services.
A reconciliation of the segments' operating loss to the
consolidated net loss/comprehensive loss is as follows:
Segment's operating loss $(820,000)
Other income (expense) (33,000)
Consolidated net loss/comprehensive loss $(853,000)
Prior to acquisition of Working Knowledge, Inc., in April 2000,
the Company operated within one business segment.
For the year ended December 31, 2003, amortization and
depreciation expense amounted to $62,000 and $24,000 for NMS and
WKI, respectively. Also, total fixed asset additions amounted to
$0 and $0 for NMS and WKI, respectively, while fixed asset
disposals amounted to $0 and $0 for NMS and WKI, respectively.
For the year ended December 31, 2002, amortization and
depreciation expense amounted to $75,000 and $25,000 for NMS and
WKI, respectively. Also, total fixed asset additions amounted to
$ 6,000 and $0 for NMS and WKI, respectively, while fixed asset
disposals amounted to $342,000 and $0 for NMS and WKI,
respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases office space in New Mexico and California.
Future minimum lease payments as of December 31, 2003 are as
follows:
Year Amount
---------------
2004 76,000
Rent expense for the years ended December 31, 2003 and 2002
amounted to $112,000 and $149,000, respectively.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment agreement:
The Company entered into an employment and non-competition
agreement with a stockholder to act in the capacity of President
and Chief Executive Officer (CEO). The term of the employment
agreement is for three years commencing on January 1, 2003. The
agreement allows for a one year renewal option unless terminated
by either party. Base salary is $20,000 per annum with available
additional cash compensation as defined in the agreement. The
base salary shall be paid in the form of 50 shares of Series A
Convertible Preferred stock of the Company payable at the end of
each fiscal quarter. The CEO has the option to convert up to 25
shares of Series A Convertible Preferred stock to Common stock at
a discount of 30%. Compensation under this agreement of $20,000
is included in general and administrative expenses for the period
ended December 31, 2003. The non-competition agreement commences
upon the termination of the employment agreement for a period of
one year. As of December 31, 2003, there was a total of $15,000
in accrued payroll which will be eliminated upon issuance of the
shares of stock.
Contingencies:
During the year ended December 31, 2002, the Company accumulated
debt totaling $55,000 in line charges with Sprint. The Company
was also owed commissions in connection with its contract with
Sprint as a Sprint Data Partner. The Company and Sprint have
agreed in principle to apply the outstanding commissions to the
debt thereby reducing the debt from $55,000 to $16,000. The
Company expects to pay the $16,000 during the first six months of
2003. During the year ended December 31, 2003, the Company has
paid a total of $11,000 to Sprint.
During the year ended December 31, 2003, the Company settled with
Sun Microsystems, Inc. (Sun) over the terms of equipment leased
from Sun whereby the Company continued to make lease payments and
failed to notify Sun past the lease termination date during 2002.
The Company ceased making payments in October 2002 until the
matter was resolved. Sun is pursuing collection of payments it
considers in arrears totaling $78,000. The Company claims that
the missed termination date is a technicality, and that it has
overpaid Sun by $50,000. On July 23, 2003, the Company settled
with Sun and paid a total of $1,000 and has returned the majority
of the equipment to Sun and does not consider this to impair its
ability to continue servicing its customer base.
During the year ended December 31, 2003, the Company had settled
with Eisner, LLP (Eisner) over past due accounting fees totaling
$109,000. The Company and Eisner have agreed to settle for
$20,000 and in September 2003 the Company paid the entire amount.
During the year ended December 31, 2003, the Company had settled
with TC Albuquerque Ross Interests, LLC and TC Albuquerque Rabina
Interest, LLC (Landlord) over past due office rent totaling
$29,000. The Company issued 365,000 of its $0.001 par value
common stock to cancel the outstanding balance due of $29,000
plus $3,500 in anticipated brokerage fees. The Company
renegotiated its lease to a month-to-month arrangement at a rate
of $3,000 per month.
Outstanding Payroll Taxes:
The Company has unpaid Federal and State payroll taxes totaling
$319,581 as of December 31, 2003. The penalties and interest
associated with this liability is estimated to be in excess of
10% of the total payroll taxes due, and the Company has accrued
$30,419 in penalties and interest.
On June 1, 2003, the Company settled with the State of New Mexico
and agreed to pay $1,000 per month of past due payroll taxes plus
the current amount due. During the year ended December 31, 2003,
the Company paid a total of $5,000 of past due payroll taxes.
-PAGE-
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Outstanding Payroll Taxes: (continued)
On October 17, 2003, the Company settled with the IRS and agreed
to pay $5,000 per month of past due payroll taxes plus the
current amount due. During the year ended December 31, 2003, the
Company paid a total of $10,000 of past due payroll taxes.
NOTE L - LEGAL PROCEEDINGS
On October 20, 2003, we received a written demand from Kurt
Grossman for payment in full of a one-year promissory note issued
by us on April 23, 2002, to Mr. Grossman and his wife evidencing
a loan of $50,000 by Mr. and Mrs. Grossman to us. The demand
includes payment for the principal amount of the note of $50,000,
fixed interest of $5,000, and post default interest of $2,665.62.
Mr. Grossman informed us that he intended to commence legal
action if the note, plus interest, was not paid on or before
October 23, 2003. A court date is set for April 23, 2004 in
California to resolve the dispute, and we have hired an attorney
to represent us in that action.
-PAGE-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years, there have been no disagreements
with Beckstead and Watts, LLP, our independent auditor, on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
----------------------------------------------------------
Our principal executive officer and principal financial officer evaluated our
disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-
14(c) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days before the filing of this annual report (the "Evaluation
Date"). Based on that evaluation, our principal executive officer and
principal financial officer concluded that, as of the Evaluation Date, the
disclosure controls and procedures in place were adequate to ensure that
information required to be disclosed by us, including our consolidated
subsidiaries, in reports that we file or submit under the Exchange Act, is
recorded, processed, summarized and reported on a timely basis in accordance
with applicable rules and regulations. Although our principal executive
officer and principal financial officer believes our existing disclosure
controls and procedures are adequate to enable us to comply with our
disclosure obligations, we intend to formalize and document the procedures
already in place and establish a disclosure committee.
Changes in internal controls
----------------------------------
We have not made any significant changes to our internal controls subsequent
to the Evaluation Date. We have not identified any significant deficiencies
or material weaknesses or other factors that could significantly affect these
controls, and therefore, no corrective action was taken.
-PAGE-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors and officers, as of March 29, 2004, are set forth below. The
directors hold office for their respective term and until their successors
are duly elected and qualified. Vacancies in the existing board are filled by
a majority vote of the remaining directors. The officers serve at the will of
the board of directors. The following is a biographical summary of our
directors and officers:
Name Age Position Director Since
----------------------------------------------------------------------------
Richard Govatski 59 Chairman, President & CEO 1999
Teresa B. Dickey 60 Director, Secretary & Treasurer 2003
John E. Handley 42 Director 2003
Set forth below is certain biographical information regarding our executive
officers and directors:
RICHARD GOVATSKI has been the President of NMXS.com, Inc. since August 1999,
and has been chairman, CEO, and President of New Mexico Software, Inc., since
1996. Mr. Govatski founded New Mexico Software in 1995 after identifying
market inefficiencies in how intellectual property owners managed their image
assets. Prior to New Mexico Software, Mr. Govatski spent 18 years in systems
integration and publishing, both in sales management and software
development. Mr. Govatski led the sales teams for Popular Electronics,
Computer Shopper, Shutterbug, and MacWeek. Later he sold numerous solutions
for vendors, including Kodak, Apple Computer, and Sun Microsystems. Mr.
Govatski also spent several years in systems development as President of
Media Publishing Group and built graphic applications for companies including
Ferrari Color, Time Magazine, New York Daily News, and Getty Images. He
received a Bachelor of Science Degree in Communications from Butler
University, located in Indianapolis, Indiana in 1968.
TERESA B. DICKEY has been the secretary/treasurer of our company since August
1999. She became a member of our Board of Directors on December 19, 2002 and
has held such position since such time. From 1988 until 1999 she was
employed by Sandia National Laboratory as art director. Sandia National
Laboratory is a U.S. Department of Energy national security laboratory. In
1964, Ms. Dickey received her Bachelor of Professional Arts from the Art
Center College of Design in Pasadena, California.
JOHN E. HANDLEY has been our director since January 2003. He has been self-
employed since September 2002 as a telecommunications consultant. From
August 1987 until August 2002 he was employed, as an associate partner (from
September 1997 until August 2000) and as a partner (September 2000 until
August 2002), by Accenture LLP, a business and technology consulting and
outsourcing company. He received his Bachelor of Arts degree in Psychology
and Business from Roanoke College in 1983. Thereafter, he received his
Masters in Business Administration from Virginia Tech in 1987.
CERTAIN LEGAL PROCEEDINGS
No director, nominee for director, or executive officer of the Company has
appeared as a party in any legal proceeding material to an evaluation of his
ability or integrity during the past five years.
Section 16(a) Beneficial Ownership Reporting Compliance
We have not made any required filings for the fiscal year ended December 31,
2003.
-PAGE-
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table. The following table sets forth information
concerning the annual and long-term compensation awarded to, earned by, or
paid to the named executive officer for all services rendered in all
capacities to our company, or any of its subsidiaries, for the years ended
December 31, 2003, 2002 and 2001:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------------------- --------------------------------------
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary Bonus Compensation Award(s) Options
-------------------------------------------------------------------------------------
Richard Govatski 2003 $20,000 (4) -0- -0- -0- -0-
2002 $120,000 (1) -0- $3,600(2) -0- -0-
President and CEO 2001 $-0- (3) -0- -0- -0- -0-
(1) Mr. Govatski did not receive payment of any of his 2002 salary, but he
did apply $26,000 of the amount of this payable toward the satisfaction of a
like amount advanced by us to him in prior years. The remaining $94,000 has
been booked as an account payable to him.
(2) Mr. Govatski is afforded the use of a company automobile.
(3) Mr. Govatski agreed to forgo his annual salary for 2001, none of which
was paid. However, the company did record a charge to operations in the
amount of $120,000 to reflect the fair value of the services rendered during
2001.
(4) Mr. Govatski agreed to forgo most of his salary in 2003. In lieu thereof,
Mr. Govatski received a salary of $20,000. He intends to receive a salary of
$44,000 in 2004.
Option Grants Table. The following table sets forth information concerning
individual grants of stock options to purchase our common stock made to the
executive officer named in the Summary Compensation Table during fiscal 2002.
OPTIONS GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of securities Percent of total
underlying options options granted to Exercise or base
granted employees in last price Expiration
(#) fiscal year ($/Share) Date
Name
--------------------------------------------------------------------------------------
Richard Govatski -0- N/A N/A N/A
Aggregated Option Exercises and Fiscal Year-End Option Value Table. The
following table sets forth certain information regarding stock options
exercised during fiscal 2002 and held as of December 31, 2002, by the
executive officer named in the Summary Compensation Table.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. The
following table sets forth certain information regarding stock options
exercised during fiscal 2002 and held as of December 31, 2002, by the
executive officer named in the Summary Compensation Table.
-PAGE-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year-End(#) Year-End($)(1)
------------- --------------
Shares acquired on Exercisable/ Exercisable/
Name exercise (#) Value realized ($) Unexercisable Unexercisable
--------------------------------------------------------------------------------------------
Richard Govatski - -0- N/A 500,000/0 $225,000/$0(2)
(1) Value is based on the closing sale price of the Common Stock on December
31, 2003, the last trading day of fiscal 2003 ($0.51), less the applicable
option exercise price.
(2) Of these options, 500,000 were exercisable at $0.06per share.
Employment Contracts
We have a three-year employment contract with Mr. Govatski to act as our
President and Chief Executive Officer on a full-time basis. The agreement
commenced on January 1, 2003 and expires on December 31, 2005. The annual
base salary is $200,000. Base Salary is paid quarterly in the form of 50
shares of Series A Convertible Preferred Stock. He is entitled to a bonus
from time-to-time as may be determined solely by our Board of Directors. As
part of his benefits, he receives options to purchase 500,000 shares of our
common stock. The options expire on December 31, 2007. The exercise price
is the greater of $.06 per share or 110% of the fair market value per share
of common stock on the grant date provided our stock option plan. The
agreement is terminable for cause by a vote of two-thirds of our directors.
It could also be terminated upon three-month's notice if he becomes
incapacitated for a period of six consecutive months or immediately upon his
death.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for
their services to the company, but they are not permitted to receive
compensation for their services as directors. The Board of Directors has the
authority to fix the compensation of directors. No amounts have been paid
to, or accrued to, directors in such capacity.
Stock Option and Stock Issuance Plans
Our 1999 Stock Option Plan permits the grant of options exercisable for
shares of our common stock to corporate officers, directors, employees, and
consultants upon such terms, including exercise price and conditions and
timing of exercise, as may be determined by the Board of Directors. The plan
authorizes the grants of awards up to a maximum of 3,000,000 shares of our
common stock. In 2002, we granted 352,686 stock options under the plan. At
April 10, 2003, 2,732,267 remained outstanding and unexercised. Of these
outstanding options, 1,275,474 had vested.
Our 2001 Stock Issuance Plan, as amended, permits the grant of shares of our
common stock to employees of our company and any of its subsidiaries, non-
employee members of our board or non-employee members of the board of
directors of any of our subsidiaries, and consultants and other independent
advisors who provide services to us or any of our subsidiaries, upon such
terms and conditions as may be determined by the Board of Directors. The
plan authorizes the grants of awards up to a maximum of 2,400,000. In 2002
we granted 878,995 shares under the plan. At April 10, 2003, an aggregate of
1,449,443 shares had been granted under the plan, all of which were fully
vested upon issuance.
-PAGE-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information derived from the named
person, or from the transfer agent, concerning the ownership of common stock
as of January 20, 2004, of (i) each person who is known to us to be the
beneficial owner of more than 5 percent of the common stock; (ii) all
directors and executive officers; and (iii) directors and executive officers
as a group:
Amount and Nature
Name and Address of Beneficial
of Beneficial Owner Ownership(1) Percent of Class (1)
------------------------------------------------------------------------------
Richard Govatski 5,080,500 17.14%
5041 Indian School Rd. NE 5,380,500 (including
Albuquerque, NM 87110 the 300,000 options)(2) 17.97%
on a fully diluted
basis including the
300,000 options
Teresa B. Dickey 107,563 *
532,016(3)(including
the 424,453 options) 1.77%
John Handley 765,000(4) *
(including the 500,000
options)
Executive Officers and
Directors as a Group
(3 Persons) 5,453,063 18.40%
6,177,516 20.34% on a fully
(including the options diluted basis
set forth above)
* - Represents beneficial ownership of less than 1% of the total number of
shares of common stock outstanding.
(1) All of the persons are believed to have sole voting and investment power
over the shares of common stock listed or share voting and investment power
with his or her spouse, except as otherwise provided.
(2) This number of shares includes options to purchase 300,000 shares, which
options have vested and are currently exercisable. The shares underlying
these options are included in the table and are considered to be outstanding
for purposes of computing the percentage interest held by Mr. Govatski. The
number of shares also includes 400,000 shares pledged by Mr. Govatski to
First Mirage Corpporation secure a loan to the company which is due and
payable on June 30, 2003. Such shares are presently in the name of David A.
Rapaport. Mr. Govatski retains the right to vote these shares until
foreclosure under the terms of the pledge agreement.
(3) This number of shares includes 107,563 shares issued to Ms. Dickey and
options to purchase 424,453 shares, which options have vested and are
currently exercisable. The shares underlying these options are included in
the table and are considered to be outstanding for purposes of computing the
percentage interest held by Ms. Dickey.
(4) This number of shares includes 265,000 shares issued to Mr. Handley and
options to purchase 500,000 shares, which options have vested and are
currently exercisable. The shares underlying these options are included in
the table and are considered to be outstanding for purposes of computing the
percentage interest held by Mr. Handley.
-PAGE-
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Richard Govatski, our president, director, and principal shareholder, may be
deemed a promoter or founder in relation to the organization of our business.
In connection with the acquisition of New Mexico Software, Mr. Govatski
exchanged all 1,000 of his shares of New Mexico Software for 5,597,000 shares
in the public company.
During the years ended December 31, 1999 and 2000, we advanced a total of
$50,000 to Mr. Govatski. After repayment of $25,000 by Mr. Govatski in 2001,
the principal and interest due was reduced to approximately $32,000 at
December 31, 2001, including $4,000 advanced by us to Mr. Govatski during
2001. During 2002, Mr. Govatski received none of his agreed annual salary of
$120,000. However, effective December 31, 2002, he agreed to cancel $26,000
of the 2002 salary amount and apply it to the former advances. At December
31, 2002, he owed a balance of $6,000 for the prior cash advances.
In January 2001 our wholly owned subsidiary, New Mexico Software, Inc.,
entered into a line of credit agreement with Los Alamos National Bank in the
maximum principal amount of $300,000. It also issued a promissory note dated
January 24, 2001, in the principal amount of $300,000, representing the
amount that it borrowed under the line of credit. The note is secured by all
of New Mexico Software's furniture, fixtures, equipment, inventory, accounts,
chattel paper, tangibles and general intangibles, and a letter of credit in
the amount of $250,000 issued by another bank and provided by Murray Kelly.
We issued 250,000 shares to Mr. Kelly for providing this letter of credit as
collateral on this note. The note was originally due on or before July 24,
2001, and was extended to July 24, 2002. At July 24, 2002, we negotiated a
three-month extension until October 24, 2002, by paying $50,000, plus accrued
interest. At or about October 24, 2002, we were able to negotiate an
extension of the note until April 24, 2003, by paying $25,000, plus interest.
The note bears interest at 7%. Mr. Govatski has personally guaranteed to the
bank repayment of $50,000 of this line of credit. The lease payments for our
office space in Albuquerque, New Mexico, of $47,000 and improvements of
approximately $28,000 were provided through the payment of 75,000 shares of
our common stock to the landlord by Richard Govatski, our president, a
director, and a principal shareholder. In March 2001 we issued 75,000 shares
to Mr. Govatski for providing his shares to the landlord.
In March 2001 we issued 1,500,000 Series C Warrants to Manhattan Scientifics,
Inc., one of our 5% shareholders. These warrants were issued in
consideration of Manhattan Scientifics issuing 150,000 of its common shares
to a consultant for services performed by the consultant for us.
We have granted options to Mr. Govatski under our option plan to purchase an
aggregate of 500,000 shares of common stock. The options were granted in
August 1999 and vest at the rate of 20% per year. Of the total options,
380,000 are exercisable at $0.75 per share and 120,000 are exercisable at
$0.825 per share.
We have granted options under our option plan to Teresa Dickey, one of our
executive officers, to purchase an aggregate of 518,780 shares. Of the total
options, 56,000 were granted in January 2000 and are exercisable at $2.125
per share; 56,000 were granted in July 2000 and are exercisable at $1.25 per
share; 3,000 were granted in January 2001 and are exercisable at $0.77 per
share; 400,000 were granted in October 2001 and are exercisable at $0.34 per
share; and 3,780 were granted in January 2002 and are exercisable at $0.34
per share. The options vest at the rate of 50% per year.
In March 2003 we borrowed $25,000 from an outside lender. To secure
repayment of this loan Mr. Govatski pledged 400,000 of his person shares as
collateral.
-PAGE-
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements; see index to financial statement and schedules in
Item 7 herein.
2. Financial statement schedules; see index to financial statements and
schedules in Item 7 herein.
3. Exhibits: None
(a) Reports on Form 8-K.
Two Form 8-K's were filed with the SEC on October 1, 2003 (SEC No. 333-
30176). Both were based on Item 9, Regulation FD Disclosure. One was to
announce a settlement agreement with our prior auditor. The other one was to
announce the signing of a consulting agreement with First Mirage, Inc.
Item 14. Principal Accountant Fees and Services
Audit Fees
For our fiscal year ended December 31, 2003 and 2002, respectively, we were
billed approximately $20,000 and $25,000 for professional services rendered
for the audit of our financial statements. We also were billed approximately
$5,000 for the review of financial statements included in our periodic and
other reports filed with the Securities and Exchange Commission for our year
ended December 31, 2003 and 2002, respectively.
Tax Fees
For our fiscal years ended December 31, 2003 and 2002, we were billed
approximately $ 0 and $ 0 for professional services rendered for tax
compliance, tax advice, and tax planning.
All Other Fees
We did not incur any other fees related to services rendered by our principal
accountant for the fiscal year ended December 31, 2003.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
-PAGE-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, there unto duly authorized.
NMXS.COM, Inc.
Date: March 30, 2004 By /s/ Richard Govatski
--------------------
Richard Govatski
President, Chief Executive Officer
and Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacitates and on
the dates indicated.
Date: March 30, 2004 /s/ Richard Govatski
----------------------
Richard Govatski, President, Chief
Executive Officer and Chairman of the
Board of Directors
Date: March 30, 2004 /s/ Teresa B. Dickey
----------------------
Teresa B. Dickey, Director, Secretary,
Treasurer and Principal Financial Officer
Date: March 30, 2004 /s/ John Handley
---------------------
John E. Handley, Director