UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number: 333-30176
NMXS.COM, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 91-1287406
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
5041 INDIAN SCHOOL ROAD NE, SUITE 200, ALBUQUERQUE, NM 87110
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (505) 255-1999
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such fling requirements for the past 90 days.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
State the number of shares outstanding of each of the Issuer's classes of
common equity as of the latest practicable date: At May 19, 2003, there
were 25,658,276 shares of the Registrant's Common Stock outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NMXS.com, Inc. and Subsidiaries
Consolidated Balance Sheet
(unaudited)
March 31,
2003
-----------
Assets
Current assets:
Cash and equivalents 44,000
Accounts receivable, net 938,000
Prepaid expenses and other assets 122,000
----------
Total current assets 1,104,000
Furniture, equipment and improvements, net 208,000
Security deposits 39,000
Goodwill, net 75,000
----------
$ 1,426,000
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 343,000
Accrued expenses 416,000
Deferred revenue 55,000
Notes payable 312,000
----------
Total current liabilities 1,126,000
Stockholders' equity:
Preferred stock, $0.001 par value, 500,000 shares
authorized, no shares issued and outstanding -
Common stock, $0.001 par value, 50,000,000 shares
authorized, 25,388,276 shares issued and outstanding 25,000
Additional paid-in capital 8,291,000
Subscriptions payable 30,000
Prior period adjustment (6,000)
Retained (deficit) (8,040,000)
----------
300,000
----------
$ 1,426,000
==========
The accompanying notes are an integral part of these financial statements.
2
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
For the three months ended
March 31,
----------------------------
2003 2002
------------ ------------
Revenue
Software maintenance $ 366,000 $ 107,000
Custom programming 28,000 65,000
License fees - 348,000
Scanning services 36,000 2,000
---------- ----------
430,000 522,000
Operating costs and expenses:
Cost of services 87,000 164,000
General and administrative 275,000 368,000
Research and development 35,000 57,000
---------- ----------
Total operating costs and expenses 397,000 589,000
---------- ----------
Net operating profit (loss) 33,000 (67,000)
Other (expense):
Interest (expense) (9,000) (7,000)
---------- ----------
Total other (expense) (9,000) (7,000)
---------- ----------
Net income (loss) $ 24,000 $ (74,000)
========== ==========
Weighted average number of
Common shares outstanding - basic and fully diluted 25,119,340 22,319,000
========== ==========
Net income (loss) per share - basic and fully diluted $ 0.00 $ (0.00)
========== ==========
The accompanying notes are an integral part of these financial statements.
3
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
For the three months ended
March 31,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities
Net income (loss) $ 24,000 $ (74,000)
Adjustments to reconcile net income (loss) to
net cash (used) by operating activities:
Prior period adjustment (6,000) -
Common stock issuable for services - 85,000
Common stock issued for salaries 69,000 15,000
Common stock issued for services 10,000 11,000
Stock options issued for services - 60,000
Depreciation and amortization 24,000 24,000
Changes in:
Accounts receivable (295,000) 299,000
Estimated earnings in excess of billings on uncompleted contracts - (2,000)
Prepaid expenses and other assets (80,000) -
Officer advances 1,000 (1,000)
Accounts payable 28,000 (38,000)
Accrued expenses 98,000 -
Deferred revenue 55,000 (396,000)
--------- ---------
Net cash (used) by operating activities (72,000) (17,000)
Cash flows from investing activities
Acquisition of fixed assets (6,000) (2,000)
Security deposits - 5,000
--------- ---------
Net cash provided (used) by investing activities (6,000) 3,000
Cash flows from financing activities
Proceeds from notes payable 25,000 -
Net proceeds from the issuance of common stock 28,000 -
Net proceeds from the issuance of preferred stock 30,000 -
--------- ---------
Net cash provided by financing activities 83,000 -
--------- ---------
Net increase (decrease) in cash and equivalents 5,000 (14,000)
Cash and equivalents - beginning 39,000 57,000
--------- ---------
Cash and equivalents - ending $ 44,000 $ 43,000
========= =========
Supplemental disclosures:
Interest paid $ - $ 2,000
========= =========
Income taxes paid $ - $ -
========= =========
Non-cash transactions:
Common shares issuable for leasehold improvements
and prepaid rent $ - $ 62,000
Acquisition of investment - (225,000)
Disposition of investment - 225,000
The accompanying notes are an integral part of these financial statements.
4
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein, presented in accordance
with United States generally accepted accounting principles and stated in
US dollars, have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these interim financial statements be read in conjunction with the
financial statements of the Company for the year ended December 31, 2002
and notes thereto included in the Company's Form 10-KSB. The Company
follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
NOTE B - GOING CONCERN
There is no assurance that the Company's marketing efforts will be
successful, or that the Company will achieve the necessary sales volume to
sustain operations. The Company has incurred net losses and negative cash
flows from operations since its inception. In addition, the Company
operates in an environment of rapid change in technology and is dependent
upon the services of its employees and its consultants. If the Company is
unable to increase its sales volume, the Company would require additional
funding and there is no assurance that such funding will be available to
the Company under acceptable conditions. If such events do not occur, it is
unlikely that the Company could continue its business.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. The Company
will continue to require the infusion of capital until operations become
profitable. During 2003, the Company anticipates increasing revenues and
continuing to monitor their expenses primarily in the area of compensation.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE C - FURNITURE, EQUIPMENT, AND IMPROVEMENTS
Furniture, equipment, and improvements as of March 31, 2003 consisted of
the following:
Computers $ 275,000
Furniture, fixtures and equipment 172,000
Leasehold improvements 83,000
--------
530,000
Accumulated depreciation (322,000)
--------
$ 208,000
========
NOTE D - NOTE PAYABLE
During March 1, 2003, the Company borrowed $25,000. The loan is due on
June 30, 2003 at a current interest rate of 7% per annum. As of March 31,
2003, the Company had a balance due of $25,000.
5
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE E - CAPITAL TRANSACTIONS
Preferred stock:
During the three month period ended March 31, 2003, the Company effected
the following stock transactions:
The Company received a total of $30,000 from three individuals to purchase
30,000 shares of the Company's $0.001 par value preferred stock. As of
March 31, 2003, the Company had the preferred stock offering open and the
total amount is considered subscriptions payable. Upon the close of the
offering, all of the shareholders will receive their preferred stock.
Common stock:
During the three month period ended March 31, 2003, the Company effected
the following stock transactions:
On January 13, 2003, the Company issued a total of 65,351 shares of the
Company's $0.001 par value common stock to its employees in lieu of salary
which was valued at $12,000.
On January 31, 2003, the Company issued 250,000 shares of its $0.001 par
value common stock to an individual for cash of $28,000.
On February 20, 2003, the Company issued a total of 154,741 shares of the
Company's $0.001 par value common stock to its employees in lieu of salary
which was valued at $21,000 and to its independent contractors for services
rendered in the amount of $2,000.
On March 10, 2003, the Company issued a total of 217,467 shares of the
Company's $0.001 par value common stock to its employees in lieu of salary
which was valued at $22,000 and to its independent contractors for services
rendered in the amount of $2,000.
On March 24, 2003, the Company issued a total of 182,991 shares of the
Company's $0.001 par value common stock to its employees in lieu of salary
which was valued at $16,000 and 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 the
Company's $0.001 par value common stock to its independent contractors for
services rendered in the amount of $1,100.
Warrants:
During the three month period ended March 31, 2003 there were no warrants
issued or exercised.
6
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 March 31, 2003 are as follows:
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Prices Exercisable Price
------------- ------------ ------------ ------------ ------------ ------------
$0.10 - $0.30 1,644,000 9.32 $0.19 1,347,000 $0.21
$0.31 - $0.50 1,139,000 8.06 $0.39 449,000 $0.39
$0.54 - $0.83 693,000 2.61 $0.70 643,000 $0.67
$1.25 - $2.13 180,000 7.05 $1.69 180,000 $1.69
Summary of Options Granted and Outstanding:
For the three months ended March 31,
2003 2002
---------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
Options:
Outstanding at
beginning of year 2,526,000 $0.63 2,202,000 $0.77
Granted 1,000,000 $0.29 255,000 $0.34
Cancelled (6,000) $1.25 (2,000) $1.25
---------- ----------
Outstanding at
end of year 3,520,000 $0.63 2,455,000 $0.72
========== ======== ========== ========
On February 27, 2003, the Company granted 1,000,000 stock options to Gerald
Grafe with an exercise price of $0.11, equal to the fair value of the
common stock, with a contractual life of 5 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 $12,800. 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.
The following table summarizes the pro forma operating results of the
Company for March 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.
Proforma net income (loss) available to common stockholders $ 24,000
Proforma basic and diluted loss per share $ 0.00
7
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - COMMITMENTS
Leases:
The Company leases office space, equipment and an automobile under
operating leases. Future minimum lease payments as of March 31, 2003 are
as follows:
Year Amount
---- --------
2003 $121,000
2004 70,000
Rent expense for the period ended March 31, 2003 amounted to $34,000.
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, 2000. The agreement allows for a one year renewal option
unless terminated by either party. Base salary is $120,000 per annum with
available additional cash compensation as defined in the agreement.
Compensation under this agreement of $30,000 is included in general and
administrative expenses for the period ended March 31, 2003. As of March 31,
2003 the Company is currently negotiating the terms of the renewal with
its President and CEO. The non-competition agreement commences upon the
termination of the employment agreement for a period of one year. As of
March 31, 2003, there was a total of $139,000 in accrued payroll.
NOTE G - MAJOR CUSTOMERS
During the three month period ended March 31, 2003, one customer accounted
for 70% of the Company's revenue.
As of March 31, 2003, balances due from two customers comprised 53% and 27%
of total accounts receivable.
NOTE H - REPORTABLE SEGMENTS
Management has identified the Company's reportable segments based on
separate legal entities. New Mexico Software (NMS) derives revenues from
the development and marketing proprietary internet technology-based
software and Working Knowledge, Inc. (WKI) provides data maintenance
services related to NMS digital asset management system. WKI revenue
consists primarily of software maintenance and scanning services.
Information related to the Company's reportable segments for 2002 is
as follows:
NMS WKI Total
----------- ----------- -----------
Revenue $ 430,000 $ - $ 430,000
Cost of services 78,000 9,000 87,000
General and administrative 236,000 39,000 275,000
Research and development 35,000 35,000
Impairment of goodwill - - -
---------- ---------- ----------
Operating (loss) income $ 81,000 $ (48,000) $ 33,000
========== ========== ==========
Total assets $ 1,273,000 $ 153,000 $ 1,426,000
========== ========== ==========
8
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the segments' operating income to the consolidated net
income/comprehensive income is as follows:
Segments' operating income $ 33,000
Other income (expense) (9,000)
--------
Consolidated net income/comprehensive income $ 24,000
========
Prior to acquisition of WKI, in April 2000, the Company operated within one
business segment.
For the three month period ended March 31, 2003, amortization and
depreciation expense amounted to $17,000 and $6,000 for NMS and WKI,
respectively. Also, total fixed asset additions amounted to $6,000 and $0
for NMS and WKI, respectively.
NOTE I - CONTINGENCIES AND OTHER LIABILITIES
Contingencies:
As of March 31, 2003, the Company had 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 over a period of 16 months starting
February 2003.
As of March 31, 2003, the Company was in dispute 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 $18,000. The Company claims that the
missed termination date is a technicality, and that it has overpaid Sun by
$50,000. The Company intends to return the equipment to Sun as settlement
in full, and does not consider this to impair its ability to continue
servicing its customer base.
Outstanding Payroll Taxes:
The Company has unpaid Federal and State payroll taxes totaling $277,371 as
of March 31, 2003. No action has been taken by the Company or the Internal
Revenue Service (IRS) to negotiate payment terms, and no plan for repayment
has been determined by the Company. The penalties and interest associated
with this liability is estimated to be in excess of 10% of the total
payroll taxes due, but has not been accrued because the Company feels that
until a settlement is reached with the IRS the Company cannot reasonably
determine the amount due in penalties and interest.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS.
OVERVIEW
We are a leading provider of digital asset management solutions. We
provide full ASP services for content owners to better manage the digital
lifecycle of intellectual property which includes digitizing, encoding,
storing, managing, licensing, and distributing digital files in government,
medical, entertainment, and IT markets. Our core product, AssetWare, is an
enterprise-level platform that manages digital assets, which is anything
digital that a company or organization would consider an asset. It manages
assets by creating catalogs, or groups of assets, catalog hierarchies,
users, user groups, and user permissions. The assets are managed by our
database that maintains both the membership of the asset in a catalog, or
catalogs, and information about the asset. AssetWare's main user interface
is a web browser, which makes it accessible and more intuitive to a greater
number of users. AssetWare can be run on Solaris or Linux operating
systems.
During third quarter of 2002 our engineers upgraded our customized
technology which will permit the installation of a high-speed 6Ghz "Triage"
data cluster. This will provide increased speed, redundancy, failover
capability, and load balancing to our AssetWare enterprise database. The
system also helps balance image and data processing server side loads.
Management believes this upgrade is a normal part of the business of the
company and allows us to remain competitive in this industry. We currently
offer this upgrade to our software. Management has assessed that this
technology will help our business become more competitive on future
AssetWare software sales.
AssetWare is offered in a number of configurations, including the
following: AssetWare - hosted model; AssetWare - licensed model; AssetWare -
E-commerce module; AssetWare - For Kiosks; AssetWare - Workgroup;
AssetWare - Rapid Deployment; AssetWare - For Government; and AssetWare -
Source Code API. We also now offer two lower-end versions of AssetWare,
called Digital Filing Cabinet, to smaller users providing a concurrent user
system for from 25 to 100 concurrent users.
During third quarter of 2002, we finalized the arrangements to preload
our Linux-based Digital Filing Cabinet software, formerly available only on
our AssetWare enterprise software, on Toshiba's Magnia SG20 and Z series
servers. Management believes this arrangement is designed to appeal to
small business and consumers who desire to organize, store, find, and
manage information at a reasonable cost. Management has seen the results
of the first quarter 2003 sales as a good beginning for the Digital File
Cabinet. We have begun a marketing program with IT Marketing Corporation
through the assistance of Toshiba to start identifying new dealer potential
among copier resellers and computer resellers. Thus far, we have attracted
15 new resellers to the program and our staff is currently training and
educating the resellers in selling the product.
Through the third quarter of 2001 our focus was on research and
development and testing of our software. Beginning in the fourth quarter
of 2001 we commenced production and marketing of the Digital Filing
Cabinet. Although we continue to perform research and development, these
10
activities are currently limited to upgrading the existing product,
creating new features requested by clients, and matching the product to
various OEM hardware. Also, since the core product is now available for
mass distribution, we intend to reduce the amount of custom programming
previously performed and focus on marketing our core products.
We presently realize revenues from four primary sources: (i) software
maintenance; (ii) custom programming; (iii) license fees; and (iv) scanning
and related services. Two of these revenue streams, license fees and
software maintenance, are directly related. With each sale of our
products, including the sales of the Toshiba 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.
Management has standardized the license fees on its products and
established a standard maintenance fee based on a fixed percentage of the
initial license fee depending on the product purchased. In the past,
license and maintenance fees were established on an individual client
basis. We are currently in the second year of several of these initial
license agreements which accounts for the increase in revenue generated
from software maintenance. Management anticipates that this source of
revenue will continue to increase as more products are sold. During the
initial stage of product development, we focused more on custom programming
for clients and, with the completion of our core product, will perform less
customized services, which could result in a continued decline in this
source of revenue. Scanning services are performed by Working Knowledge at
its site in Santa Monica, California. With management's focus on marketing
our core products, less attention has been devoted to developing this
segment of our business. Management anticipates that these services will
be reserved in the future primarily for customers of our core products,
although revenue could be generated from unsolicited customers. While the
scanning business remained static during the last several quarters, early
indications are that the scanning business has been revitalizing in the
last six weeks and it may be possible that the scanning revenue will
increase in sales in the future.
Cost of services consists primarily of engineering salaries and
supplies, and compensation-related expenses, as well as 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.
11
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 there are no critical accounting policies which would have a
material impact on our financial presentation.
Notwithstanding the foregoing, we recognize revenue from sales of
proprietary software which 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 license fees from the
sale. The agreement with PTN provides for the licensing of the technology
for $500,000, which amount was recorded as income during 2002. In the
first quarter, 2003, certain of PTN's assets were taken over by a group of
investors and the initial contract we received will continue with the new
investor group. The group has renamed Physician's Telehealth Network to
Doctor's Telehealth Network. Management is continuing to work with the new
investor group and initial systems shipments have been delayed until the
new group is reestablished with its product offering. Therefore, we will
probably not receive any licensing funds until the second or third quarter,
2003.
THREE MONTHS ENDED MARCH 31, 2003, COMPARED TO THREE MONTHS ENDED MARCH 31,
2002
A summary of operating results for the three months ended March 31,
2003 and 2002 is as follows:
2003 2002
----------------- -----------------
% of % of
Amount Revenue Amount Revenue
-------- ------- -------- -------
Revenues $430,000 100% $522,000 100%
Cost of services 87,000 20.2% 164,000 31.4%
------- -------
Gross profit 343,000 79.8% 358,000 68.6%
General & administrative 275,000 64.0% 368,000 70.5%
Research & development 35,000 8.1% 57,000 10.9%
------- -------
310,000 72.1% 425,000 81.4%
Other income (expense) (9,000) (2.1)% (7,000) (1.3)%
------- -------
Net income (loss) $ 24,000 5.6% $(74,000) (14.2)%
======= =======
2003 2002
------ ------
Earnings (loss) per share: $0.00 $(0.00)
12
Revenues. Total revenues decreased 17.6%, or $92,000, for the three
months ended March 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 maintenance increased 136.5%, or
$146,000, for the first three months ended March 31, 2003, as compared
to the comparable prior year period. This increase is attributable to
the fact that additional software maintenance programs for existing
customers were sold and the reclassification of some income. Software
maintenance will remain strong in the future due to an increasing
number of customers requiring our services.
* Custom programming revenue decreased 56.9%, or $37,000, for the three
months ended March 31, 2003, as compared to the comparable prior year
period. This decrease was primarily due to a shift from providing
customized software services to marketing of developed software
products. Management anticipates that the decrease in revenue from
custom programming will improve based on new contracts signed with
existing customers for upgrades to their systems through the remainder
of 2003.
* There were no revenues generated by license fees for the first three
months ended March 31, 2003, as compared to $348,000 generated during
the comparable prior year period. This decrease is primarily
attributable to lack of one time AssetWare enterprise sales in the
first quarter compared to the large sale in the first quarter of 2002.
Management anticipates that revenues in this category will continue to
improve in the remaining quarters of 2003 due to the accounting that
will show sales of the Digital Filing Cabinet. Based on the
accounting procedure used by Toshiba, royalty reports and payments
occur forty five (45) days after the quarter ends.
* Revenue generated by scanning services and other services increased
1,700%, or $34,000, for the three months ended March 31, 2003, as
compared to the comparable prior year period. This increase was
primarily due to new contracts received by Working Knowledge division.
Although management anticipates that revenues generated by Working
Knowledge will increase significantly in the future, the services
provided by Working Knowledge will generally be limited to existing or
future clients and will not be our primary focus. However, Working
Knowledge will continue to accept unsolicited work.
Cost of Services. Cost of services decreased 47%, or $77,000, for the
three months ended March 31, 2003, as compared to the comparable prior year
period. This decrease was primarily due to a decrease in salaries and
compensation. Cost of services as a percentage of revenues decreased to
20.2% for the three months ended March 31, 2003 from 31.4% for the
comparable prior year period. 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
decreased 25.3%, or $93,000, for the three months ended March 31, 2003, as
compared to the comparable prior year
13
period. This decrease was primarily attributable to a reduction in
engineering and administrative staff. General and administrative expenses
as a percentage of revenues were 64% for the three months ended March 31,
2003, as compared to 70.5% for the comparable prior year period.
Management believes this current percentage is more indicative of the
percentage of general and administrative 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.
Research and Development. Research and development expenses decreased
38.6%, or $22,000, for the three months ended March 31, 2003, as compared
to the comparable prior year period. This decrease was primarily due to
the need to develop additional product areas. Since our products are
mature and now in the market, most of the R&D category will be replaced by
a Maintenance Development category in the future.
Other Income. Interest expense increased 28.6%, or $2,000, for the
three months ended March 31, 2003, as compared to the comparable prior year
period. The increase in interest expense was attributable to accruing
interest due on additional promissory notes issued by us.
LIQUIDITY AND CAPITAL RESOURCES
Our negative cash flow continues to be of concern to management. As
discussed below, we suffer from a lack of available cash to meet our
continuing operating requirements. At March 31, 2003, we had negative
working capital of ($22,000). At March 31, 2003, we also owed
approximately $277,371, without penalties and interest, for unpaid federal
and state payroll taxes. Amounts due a number of suppliers for services
and products remain delinquent which may cause these parties to seek legal
action against us to collect delinquent accounts. At March 31, 2003, we
had trade accounts payable in the amount of $330,336, of which $104,094
were current, $9,903 were between 31 and 60 days delinquent, $13,816 were
between 61 and 90 days delinquent, and $202,523 were over ninety days
delinquent. The four largest creditors include our original auditor
($91,255), Sprint Data Services ($14,154), our most recent former auditor
($12,174), and legal counsel ($8,200). Management continues to work with
our creditors and to seek additional sources of capital, but there is no
assurance that it will be successful, or that additional capital can be
obtained at rates or terms favorable to us. We also continue to accrue the
salary of our president, which at March 31, 2003, was an aggregate of
$139,000. We may also settle some of our outstanding liabilities by
exchanging shares of our common or preferred stock for amounts owed. 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.
Accounts receivable increased from $170,000 on March 31, 2002, to
$938,000. Of the total increase, $500,000 is due to the carryforward of
the receivable from PTN. The remaining increase management believes is due
to other new accounts.
Operating activities used $72,000 of cash for the three months ended
March 31, 2003, as compared to operating activities using $17,000 of cash
for the comparable prior year period. The
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increase in the use of cash was primarily due to prepaid expenses for
advertising from a marketing co-op fund established by Toshiba.
Investing activities used $6,000 of cash for the three months ended
March 31, 2003, as compared to $3,000 provided for the comparable prior
year period. The increase in the cash used for investing activities was
primarily attributable to acquisition of fixed assets for replacement of
computer hardware.
Financing activities provided $83,000 in cash for the three months
ended March 31, 2003, as compared to financing activities providing $-0-
for the comparable prior year period. The increase in cash provided by
financing activities was primarily attributable to an increase in funds
borrowed by us and sales of our Company's equity. Of the cash provided by
financing activities for the three months ended March 31, 2003, $25,000 of
the total amount was attributable to a loan from one individual who is an
acquaintance of management. In March, 2003, we issued a promissory note
for $25,000 with an interest rate of 7%. The note is due on June 30, 2003.
Also in March, $30,000 was provided by net proceeds from a private stock
offering of shares of Series A preferred stock. The Series A shares are
convertible into common shares at the option of the holder at the rate of
70% of the average bid price of the common stock on the conversion date,
based upon the value of the Series A shares being converted which is deemed
to be $1,000 per share. The remaining $28,000 was provided by net proceeds
from a private stock offering of shares of common stock to one individual
who is a director.
Management anticipates that our primary uses of capital in the future
periods will be allocated to satisfy delinquent obligations and for working
capital purposes. Our business strategy is to achieve growth internally
through continued sale of licenses for our AssetWare products, and
maintenance of these licenses, 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 March 31, 2003, we had an outstanding balance on a line of credit
with Los Alamos National Bank which was originally due on July 24, 2002.
The outstanding principal amount due at that date was $300,000, plus
interest of $10,545. On July 24, 2002, 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. At October 24, 2002, we negotiated a
six month extension of the amount due on the line of credit by paying
$25,000 of the principal amount due and $4,555 in interest due. On April 24,
2003 another six month extension was negotiated by the payment of
$12,500 of the principal amount due and $7,000 in interest due. The loan is
now due October 24, 2003, and the principal balance due for this line of
credit is now $212,500. 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.
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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. There is no assurance that our capital
resources are sufficient to meet our present obligations and those to be
incurred in the normal course of business for the next twelve months. If
we are unable to secure additional sources of capital, or significantly
increase revenues from operations, we may not be able to continue
operating.
FORWARD-LOOKING STATEMENTS
This report contains statements that plan for or anticipate the
future. Forward-looking statements include statements about the future of
operations involving the marketing and maintenance of products which manage
large volumes of media or digital material, statements about our future
business plans and strategies, and most other statements that are not
historical in nature. In this report forward-looking statements are
generally identified by the words "anticipate," "plan," "believe,"
"expect," "estimate," and the like. Although management believe that any
forward-looking statements it makes in this report are reasonable, because
forward-looking statements involve future risks and uncertainties, there
are factors that could cause actual results to differ materially from those
expressed or implied. For example, a few of the uncertainties that could
affect the accuracy of forward-looking statements include the following:
* Rapid changes in technology relating to the Internet;
* the continued growth and use of the Internet;
* changes in government regulations;
* changes in our business strategies;
* hardware failure of a catastrophic proportion;
* terrorist interference with the operation of the Internet or effects
of terrorist activities on the economy;
* difficulty recruiting and retaining staff of sufficient technical
caliber to provide adequate and on-going customer support and product
maintenance and development;
* failure to successfully market our products through the Internet and
our representatives;
* the inability to locate sources to retire our line of credit or to
obtain alternative lending sources; and
* the inability to solve cash flow problems.
In light of the significant uncertainties inherent in the forward-
looking statements made in this report, particularly in view of our early
stage of operation, the inclusion of this information should not be
regarded as a representation by us or any other person that our objectives
and plans will be achieved.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, our management
conducted an evaluation, under the supervision and with the participation
of our President and Principal Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures.
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Based on this evaluation, the President and Principal Financial Officer
concluded that our disclosure controls and procedures are effective. There
have been no significant changes in our internal controls or in other factors
that could significantly affect those controls subsequent to the date of our
last evaluation.
PART II
ITEM 1. LEGAL PROCEEDINGS
Although this report contains no reportable legal proceedings, we are
delinquent in payment to a number of service or product providers, any one
of which could institute legal proceedings against us in the future.
Management is actively working with these creditors to settle the amounts
owed or negotiate more favorable payment terms. There is no assurance that
management will be successful in settling these accounts or renegotiating
payment terms. If we are unsuccessful in doing so, the enforcement of
collection of the amounts owed could have a material negative impact on our
business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2003, the following securities were
sold by us without registering the securities under the Securities Act:
* In March 2003 we borrowed $25,000 from First Mirage, Inc. and issued a
promissory note to evidence the loan. The promissory note bears
interest at 7% per annum; principal and interest are due on June 30,
2003. The note was issued without registration under the Securities
Act by reason of the exemption from registration afforded by the
provisions of Section 4(6) thereof, as a transaction by an issuer to
accredited investors, and pursuant to the provisions of Rule 506 of
Regulation D. The lender did not enter into the transaction as a
result of or subsequent to any advertisement, article, notice, or
other communication published in any newspaper, magazine, or similar
media or broadcast on television or radio, or presented at any seminar
or meeting. The lender was also afforded the opportunity to ask
questions of our management and to receive answers concerning the
terms and conditions of the transaction. No underwriting discounts or
commissions were paid in connection with such issuance.
* In March 2003 we issued 30 shares of Series A Convertible Preferred
Stock to two accredited investors for gross proceeds of $30,000. We
also granted registration rights for the shares of common stock into
which the Series A Convertible Preferred Stock may be converted.
These securities were issued without registration under the Securities
Act by reason of the exemption from registration afforded by the
provisions of Section 4(6) thereof, as a transaction by an issuer to
accredited investors, and pursuant to the provisions of Rule 506 of
Regulation D. Each of the investors acknowledged the investment
nature of the securities issued and consented to the imposition of
restrictive legends upon the certificates evidencing the shares. The
investors did not enter into the transaction as a result of or
subsequent to any advertisement, article, notice, or other
communication published in any newspaper, magazine,
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or similar media or broadcast on television or radio, or presented at
any seminar or meeting. Each investor was also afforded the opportunity
to ask questions of our management and to receive answers concerning the
terms and conditions of the transaction. No underwriting discounts or
commissions were paid in connection with such issuance.
* In February 2003 we granted options to Gerald Grafe to purchase
1,000,000 shares of our common stock at any time before February 28,
2013, at $0.06 per share. These securities were issued without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering. Mr. Grafe
acknowledged the investment nature of the securities issued and
consented to the imposition of restrictive legends upon the
certificates evidencing the options. Mr. Grafe did not enter into the
transaction as a result of or subsequent to any advertisement,
article, notice, or other communication published in any newspaper,
magazine, or similar media or broadcast on television or radio, or
presented at any seminar or meeting. Mr. Grafe was provided access to
information similar to the type of information which would be included
in a prospectus and was also afforded the opportunity to ask questions
of our management and to receive answers concerning the terms and
conditions of the transaction. No underwriting discounts or
commissions were paid in connection with such issuance.
* In January 2003 we issued 250,000 shares of common stock to one
accredited investor for gross proceeds of $28,000. These securities
were issued without registration under the Securities Act by reason of
the exemption from registration afforded by the provisions of Section
4(6) thereof, as a transaction by an issuer to accredited investors,
and pursuant to the provisions of Rule 506 of Regulation D. The
investor acknowledged the investment nature of the securities issued
and consented to the imposition of restrictive legends upon the
certificates evidencing the shares. The investor did not enter into
the transaction as a result of or subsequent to any advertisement,
article, notice, or other communication published in any newspaper,
magazine, or similar media or broadcast on television or radio, or
presented at any seminar or meeting. The investor was also afforded
the opportunity to ask questions of our management and to receive
answers concerning the terms and conditions of the transaction. No
underwriting discounts or commissions were paid in connection with
such issuance.
ITEM 5. OTHER INFORMATION
On February 3, 2003, the Board of Directors adopted a resolution
creating a new series of preferred stock designated as Series A Convertible
Preferred Stock. This new series consists of 1,000 shares of our preferred
stock with no preference as to dividends. The Series A shares are
convertible into common shares at the option of the holder at the rate of
70% of the average bid price of the common stock on the conversion date,
based upon the value of the Series A shares being converted which is deemed
to be $1,000 per share. No Series A shares are convertible at less than
$0.05 per share or more than $.025 per share. Any shares of Series A stock
outstanding at April 30, 2006 will be automatically converted into common
stock. The Series A shares have no voting rights and are not redeemable by
us. In the event of liquidation, dissolution, or winding up, the Series A
shares will have a preference up to $1,000 per share.
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On March 5, 2003, the Board of Directors authorized the issuance of
1,500,000 shares of restricted common stock to Brian McGowan for consulting
services. As of the date of this report, the certificate representing
these shares has not been issued, but management anticipates issuing the
certificate as soon practicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are attached to this report:
4.7 Designation of Series A Convertible Preferred Stock filed
with the State of Delaware on February 5, 2003
4.8 Form of Series A Convertible Preferred Stock Certificate
10.13 Form of Registration Rights for Common Stock underlying
Series A Convertible Preferred Stock
99.1 Written Statement of the Chief Executive Officer with
respect to compliance with Section 13(a) of the Securities Exchange Act of
1934.
99.2 Written Statement of the Principal Financial Officer with
respect to compliance with Section 13(a) of the Securities Exchange Act of
1934.
(b) Reports on Form 8-K. A current report on Form 8-K dated January
20, 2003, was filed on January 24, 2003. The report announced under Item 4
the engagement of Beckstead and Watts, LLP as new independent accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
NMXS.com, INC.
Date: May 20, 2003 By /s/ Richard Govatski
Richard Govatski, President
Date: May 20, 2003 By /s/ Teresa Dickey
Teresa Dickey, Principal Financial Officer
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CERTIFICATIONS
I, Richard Govatski, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NMXS.com,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
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6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 20, 2003
/s/ Richard Govatski
Richard Govatski, President & CEO
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I, Teresa Dickey, Principal Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NMXS.com,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
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6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 20, 2003
/s/ Teresa Dickey
Teresa Dickey, Principal Financial Officer
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