UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 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 November 24, 2003,
there were 28,708,387 shares of the Registrant's Common Stock outstanding.
EXPLANATORY NOTE
NMXS.com, Inc. is filing this Amendment No. 1 to Form 10-QSB to make
minor corrections to its Form 10-QSB for the quarter ended September 30, 2003.
The changes correct (i) a typographical error on the balance sheet showing
total assets of $943,000 which should have been $859,000; (ii) the inclusion
in Management's Discussion and Analysis of Financial Condition and Plan of
Operations of compensation expense of a related party for the three and nine
months ended September 30, 2003, with an explanatory paragraph; and
(iii) changes in Liquidity and Capital Resources related to the compensation
expense.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NMXS.com, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
September 30,
2003
------------
Assets
Current assets:
Cash and equivalents $ 70,000
Accounts receivable, net 449,000
Inventory 10,000
Prepaid expenses and other assets 53,000
----------
Total current assets 582,000
----------
Furniture, equipment and improvements, net 163,000
Security deposits 39,000
Goodwill, net 75,000
----------
$ 859,000
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 183,000
Accrued expenses 435,000
Deferred revenue 25,000
Notes payable 300,000
----------
Total current liabilities 943,000
----------
Stockholders' equity:
Preferred stock, $0.001 par value, 500,000 shares
authorized, 135 shares issued and outstanding -
Common stock, $0.001 par value, 50,000,000 shares
authorized, 28,008,387 shares issued and outstanding 28,000
Additional paid-in capital 8,617,000
Subscriptions payable 28,000
Deferred compensation - related party (120,000)
Prior period adjustment (6,000)
Retained (deficit) (8,631,000)
----------
(84,000)
----------
$ 859,000
==========
The accompanying notes are an integral part of these financial statements.
3
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
For the three months ended For the nine months ended
September 30, Setpember 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue
Software sales and maintenance $ 158,000 $ 1,000 $ 648,000 $ 263,000
Custom programming 151,000 65,000 200,000 99,000
License fees 15,000 13,000 30,000 924,000
Scanning services 50,000 133,000 121,000 202,000
Other 3,000 - 5,000 -
---------- ---------- ---------- ----------
377,000 212,000 1,004,000 1,488,000
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of services 80,000 181,000 245,000 423,000
General and administrative 143,000 268,000 701,000 1,124,000
Compensation expense - related party 15,000 - 15,000 -
Research and development 28,000 44,000 90,000 137,000
Bad debt expense - - 501,000 -
---------- ---------- ---------- ----------
Total operating costs and expenses 266,000 493,000 1,552,000 1,684,000
---------- ---------- ---------- ----------
Net operating profit (loss) 111,000 (281,000) (548,000) (196,000)
Other (expense):
Interest income - - - 1,000
Interest (expense) (5,000) (13,000) (19,000) (27,000)
(Loss) on disposal of fixed assets - - - (25,000)
---------- ---------- ---------- ----------
Total other (expense) (5,000) (13,000) (19,000) (51,000)
---------- ---------- ---------- ----------
Net income (loss) $ 106,000 $ (294,000) $ (567,000) $ (247,000)
========== ========== ========== ==========
Weighted average number of
common shares outstanding - basic and fully diluted 27,625,235 23,351,000 26,202,099 22,825,000
========== ========== ========== ==========
Net income (loss) per share - basic and fully diluted $ 0.00 $ (0.01) $ (0.02) $ (0.01)
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
NMXS.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
For the nine months ended
September 30,
---------------------------
2003 2002
------------ ------------
Cash flows from operating activities
Net income (loss) $ (567,000) $ (247,000)
Adjustments to reconcile net income (loss) to
net cash (used) by operating activities:
Prior period adjustment (6,000) -
Common stock issued for salaries 69,000 108,000
Common stock issued for services 107,000 205,000
Stock options issued for services 9,000 156,000
Bad debt expense 501,000 -
Depreciation and amortization 65,000 74,000
Loss on disposal of fixed assets - 25,000
Changes in:
Restricted cash - (1,000)
Accounts receivable (307,000) (206,000)
Inventory (10,000) -
Estimated earnings in excess of billings on uncompleted contracts - 18,000
Prepaid expenses and other assets (11,000) 31,000
Officer advances 1,000 (23,000)
Accounts payable (132,000) 249,000
Accrued expenses 117,000 (45,000)
Deferred revenue 25,000 (413,000)
---------- ----------
Net cash (used) by operating activities (139,000) (69,000)
---------- ----------
Cash flows from investing activities
Acquisition of fixed assets (6,000) (6,000)
Security deposits - 5,000
---------- ----------
Net cash provided (used) by investing activities (6,000) (1,000)
---------- ----------
Cash flows from financing activities
Proceeds from notes payable 25,000 63,000
Repayment of note payable (12,000) (50,000)
Net proceeds from the issuance of common stock 28,000 148,000
Net proceeds from the issuance of preferred stock 135,000 -
---------- ----------
Net cash provided by financing activities 176,000 161,000
---------- ----------
Net increase in cash and equivalents 31,000 91,000
Cash and equivalents - beginning 39,000 57,000
---------- ----------
Cash and equivalents - ending $ 70,000 $ 148,000
========== ==========
Supplemental disclosures:
Interest paid $ - $ 36,000
========== ==========
Income taxes paid $ - $ -
========== ==========
Non-cash transactions:
Disposal of fixed asset and corresponding reduction
in accounts payable $ - $ 327,000
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.
5
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 - ACCOUNTS RECEIVABLE
During the nine months ended September 30, 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.
NOTE C - FURNITURE, EQUIPMENT, AND IMPROVEMENTS
Furniture, equipment, and improvements as of September 30, 2003 consisted
of the following:
Computers $ 300,000
Furniture, fixtures and equipment 144,000
Leasehold improvements 83,000
---------
527,000
Accumulated depreciation (364,000)
---------
163,000
=========
NOTE D - 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. 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. On April 24, 2003, the Company paid
$12,224 of principal and $12,768 of interest. The remaining $212,849 of
principal was extended until October 15, 2003 at a current interest rate
of 7%. As of September 30, 2003, the Company had a balance due of $212,849.
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.
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
September 30, 2003, the Company is in default and is negotiating with the
note holder.
6
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In April 2002, the Company borrowed $12,500. The loan is due on demand and
bears no interest. As of September 30, 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. As of September 30,
2003, the Company had a balance due of $25,000.
NOTE E - CAPITAL TRANSACTIONS
Preferred stock:
During the nine month period ended September 30, 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 will receive their preferred stock.
Common stock:
During the nine month period ended September 30, 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 agreed to issue 250,000 shares of its
$0.001 par value common stock to an individual for cash of $28,000. As of
September 30, 2003, the shares have not been issued and the total amount
is considered subscriptions payable.
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.
On April 17, 2003, the Company issued a total of 100,000 shares of the
Company's $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 the
Company's $0.001 par value common stock to an independent contractor for
services rendered in the amount of $17,000.
On May 30, 2003, the Company issued a total of 42,500 shares of the
Company's $0.001 par value common stock to an independent contractor for
services rendered in the amount of $2,975.
On June 6, 2003, the Company issued a total of 57,611 shares of the
Company's $0.001 par value common stock to an independent contractor for
services rendered in the amount of $4,000.
7
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On June 6, 2003, the Company issued a total of 1,500,000 shares of the
Company's $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 the
Company's $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 September 18, 2003, the Company issued a total of 250,000 shares of the
Company's $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.
On September 30, 2003, the Company adjusted deferred compensation in the
amount of $15,000.
Warrants:
On August 29, 2003, the Company issued a total of 1,000,000 warrants to a
notes payable holder which gives them the right to purchase up to 1,000,000
shares of the Company's $0.001 par value common stock at $0.08 per share.
The warrants can be exercised at any time until August 29, 2008.
During the nine month period ended September 30, 2003, no warrants have
been exercised.
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 September 30, 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-$0.30 3,144,000 4.64 $0.13 1,347,000 $0.21
$0.31-$0.50 1,139,000 7.56 $0.39 449,000 $0.39
$0.54-$0.83 693,000 2.11 $0.70 643,000 $0.67
$1.25-$2.13 180,000 6.63 $1.69 180,000 $1.69
8
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary of Options Granted and Outstanding:
For the Years Ended December 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 1,700,000 $0.06 225,000 $0.29
Cancelled (6,000) $1.25 (2,000) $1.25
--------- ----- --------- -----
Outstanding at
end of year 4,220,000 $0.63 2,455,000 $0.63
========= ===== ========= =====
On February 27, 2003, the Company granted 1,000,000 stock options to Gerald
Grafe, the Company's former legal counsel, with an exercise price of $0.06,
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 September 30, 2003. The 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
NOTE F - COMMITMENTS
Leases:
The Company leases office space in New Mexico and California. Future
minimum lease payments as of September 30, 2003 are as follows:
Year Amount
---- --------
2003 $121,000
2004 76,000
Rent expense for the period ended September 30, 2003 amounted to $98,000.
9
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $200,000 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 $15,000 is included in general and administrative
expenses for the period ended September 30, 2003. The non-competition
agreement commences upon the termination of the employment agreement for a
period of one year. As of September 30, 2003, there was a total of
$15,000 in accrued payroll which will be eliminated upon issuance of the
shares of stock.
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 September 30, 2003, the shareholder
was paid a total of 2,250,000 shares of common stock, but he has earned
only 250,000 shares and the difference of 2,000,000 shares is considered
deferred compensation. During the nine months ended September 30, 2003,
the Company has expensed $15,000 in consulting fees.
NOTE G - MAJOR CUSTOMERS
During the nine month period ended September 30, 2003, one customer
accounted for 30% of the Company's revenue. The Company recognized
$245,000 as revenue from barter agreements for the nine months ended
September 30, 2003.
As of September 30, 2003, balances due from one customer comprised 39% of
total accounts receivable.
NOTE H - REPORTABLE SEGMENTS
Management has identified the Company's reportable segments based on
separate legal entities. New Mexico Software, Inc. (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. Information
related to the Company's reportable segments for 2003 is as follows:
NMS WKI Total
----------- ----------- -----------
Revenue $ 979,000 $ 25,000 $ 1,004,000
Cost of services 199,000 46,000 245,000
General and administrative 597,000 91,000 688,000
Research and development 90,000 - 90,000
Bad debt expense 500,000 1,000 501,000
-------- -------- ----------
Operating income (loss) (407,000) (113,000) (520,000)
======== ======== ==========
Total assets $ 753,000 $ 106,000 $ 859,000
======== ======== ==========
WKI revenue consists primarily of software maintenance and scanning
services.
10
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the segments' operating loss to the consolidated net
loss/comprehensive loss is as follows:
Segment's operating income ($ 520,000)
Other income (expense) ( 19,000)
------------
Consolidated net income/comprehensive income ($ 539,000)
============
Prior to acquisition of WKI, in April 2000, the Company operated within one
business segment.
For the nine month period ended September 30, 2003, amortization and
depreciation expense amounted to $282,000 and $81,000 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 September 30, 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
Feb 2003. During the nine months period ended September 30, 2003, the
Company has paid a total of $8,000 to Sprint.
As of September 30, 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.
As of September 30, 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 has
paid the entire amount.
As of September 30, 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 has agreed to issue 365,000
of the Company's $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 $277,371 as
of September 30, 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.
11
NMXS.com, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 nine months ended September 30, 2003, the Company
paid a total of $3,000 of past due payroll taxes.
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 nine months ended September 30, 2003, the Company paid a total
of $0 of past due payroll taxes. On November 1, 2003, the Company has made
its first payment of $5,000 to the IRS.
12
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 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 or files, 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 a 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.
Our business creates software that is used by our clients on a hosted
basis. This model is referred to as an Application Service Provider (ASP).
Our clients use our software which we build for them, but the
equipment/hosting is the property of NMS. Their fees consist of the
following: development fees, monthly hosting fees, and yearly renewal
fees. The one time development fee is between $300,000 and $500,000 and
there is a renewal fee each year thereafter. The renewal fee is a
percentage of the one time development fee. The hosting fees vary
depending on the complexity of the site. Current customer sites generate
anywhere from $250 monthly to $5,000 monthly. A few new contracts we have
sold will generate between $7,500 and $15,000 per month, due mainly to the
complexity of the development projects.
The second type of revenue we receive is from custom programming.
Custom programming allows us to make client changes to our standard
software code and include such items as tailoring the application to a
client's workflow, customizing user and administrative interfaces, custom
reporting, user data collection, and multi-division support. The average
revenue received from custom programming varies from month to month, but in
the past few years it only averaged about $5,000 per month. This revenue
source is building and in August and September we received two new
contracts for $75,000 and $80,000, respectively, for development work.
These contracts were from the U.S. Department of Energy and a large
entertainment company. We expect follow on contracts to occur in the
fourth quarter and first quarter of 2004.
The third revenue source consists of professional services. This
includes archive scanning, customer support, and database consulting. This
business has improved and recently we were awarded a multi-year commitment
from a large entertainment studio to scan promotional material from their
archive of 8,000 movies. In our business we do not use contracts or
purchase orders. We have an agreement on price and performance issues
signed by both parties. Billing is performed at the time of delivering the
work. The size and scope of the scanning project is approximately 200,000
to 249,000 images. We had thought this business was
13
on a downward slide. With the third quarter agreement we can report that
this revenue source is going to pick up again.
The last type of revenue comes from the sale of our Digital Filing
Cabinet software. We have recently augmented the program to provide our
own branded servers with our software. In addition, there are monthly
maintenance fees for hardware and a recurring yearly maintenance fee for
the software upgrades. We will continue to work with OEM hardware vendors
to generate revenues from this source.
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.
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 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 second
quarter 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.
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THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003, COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2002
A summary of operating results for the three months ended September 30,
2003 and 2002 is as follows:
2003 2002
% of % of
Amount Revenue Amount Revenue
---------- ------- ---------- -------
Revenues $ 377,000 100% $ 212,000 100%
Cost of services 80,000 21% 181,000 85%
--------- ---------
Gross profit 297,000 79% 31,000 15%
General & administrative 143,000 38% 268,000 126%
Compensation expense 15,000 4% -0-
Research & development 28,000 7% 44,000 21%
--------- ---------
186,000 49% 312,000 147%
Other income (expense) (5,000) (1)% (13,000) (6)%
--------- ---------
Net income (loss) $ 106,000 28% $ (294,000) (139)%
========= =========
2003 2002
------ ------
Earnings (loss) per share: $0.00 $(0.01)
A summary of operating results for the nine months ended September 30,
2003 and 2002 is as follows:
2003 2002
% of % of
Amount Revenue Amount Revenue
---------- ------- ---------- -------
Revenues $1,004,000 100% $1,488,000 100%
Cost of services 245,000 24% 423,000 28%
--------- ---------
Gross profit 759,000 76% 1,065,000 72%
General & administrative 701,000 70% 1,124,000 76%
Compensation expense 15,000 1% -0-
Research & development 90,000 9% 137,000 9%
Bad Debt 501,000 50% -0-
--------- ---------
1,307,000 130% 1,261,000 85%
Other income (expense) (19,000) (2)% (51,000) (3)%
--------- ---------
Net income (loss) $ (567,000) (56)% $ (247,000) (17)%
========= =========
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2003 2002
------ ------
Earnings (loss) per share: $(0.02) $(0.01)
Revenues. Total revenues increased 78%, or $165,000 for the three months
ended September 30, 2003, as compared to the same period in the prior year
(the "comparable prior year period"). Total revenues decreased 32%, or
$484,000, for the nine months ended September 30, 2003, as compared to the
comparable prior year period. Management believes the trend represented by
the third quarter of this year is more indicative of future revenue
generation. We are developing more customers from our distribution program
with the Digital Filing Cabinet and we have initiated a strong sales
program. These revenues were generated principally from the following four
revenue streams:
* Revenues generated by software sales and maintenance increased
15,700%, or $157,000, for the three months ended September 30, 2003,
as compared to the comparable prior year period. Revenues generated
by software maintenance increased 146%, or $385,000, for the nine
months ended September 30, 2003, as compared to the comparable prior
year period. This increase is attributable to the fact that we are
now marketing our product as an off-the-shelf product. The hosting
model is less of a factor for us. Our marketing efforts are for
continuing the sale of our standard products as compared with building
custom products. Management believes software sales and maintenance
will remain strong in the future due to an increasing number of
customers requiring our services.
* Custom programming revenue increased 132%, or $86,000, for the three
months ended September 30, 2003, as compared to the comparable prior
year period. Custom programming revenue increased 102%, or $101,000,
for the nine months ended September 30, 2003, as compared to the
comparable prior year period. There are some customers that purchase
our standard products and require customization, and we continue to
offer this service. While this could be a significant growth area for
us in the future, it will depend on the customer base and their
requirements for customizing our products.
* Revenues generated by license fees increased 15%, or $2,000, for the
three months ended September 30, 2003, as compared to the comparable
prior year period. Revenues generated by license fees decreased 96%,
or $894,000, for the nine months ended September 30, 2003, as compared
to the comparable prior year period. Management believes that this
category may not be a significant portion of future revenues. We may
license our software, or parts of the software, in certain cases.
However, we anticipate most revenues will be generated from software
sales of our Digital Filing Cabinet package.
* Revenue generated by scanning services decreased 62%, or $83,000, for
the three months ended September 30, 2003, as compared to the
comparable prior year period. This type of revenue decreased 40%, or
$81,000, for the nine months ended September 30, 2003, as compared to
the comparable prior year period. This part of our business is not a
primary
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focus, although management believes it generates adequate income when
scanning contracts are received. Generally, these contracts are made
available to us when the promotion budgets are available for new
television shows or archived shows. We are unable to predict when and
to what extent these budgets will be available in the future. Therefore,
management believes revenues in this category may fluctuate in the
future depending on the availability of promotional funds from the
studios.
We continue to rely on a small number of customers to generate our
revenues. During the nine month period ended September 30, 2003, Toshiba
accounted for 30% of the total revenues generated during the period. In
addition, Forbes, Inc. comprised 39% of the total accounts receivable
balance at September 30, 2003.
Cost of Services. Cost of services decreased 56%, or $101,000, for
the three months ended September 30, 2003, as compared to the comparable
prior year period. Cost of services decreased 42%, or $178,000, for the
nine months ended September 30, 2003, as compared to the comparable prior
year period. This reduction in costs of services is attributable primarily
to a reduction of overhead expenses following completion of the primary
research and development phase of our software. Cost of services as a
percentage of revenues decreased to 24% for the nine months ended September
30, 2003 from 28% 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 47%, or $125,000, for the three months ended September 30, 2003,
as compared to the comparable prior year period. General and
administrative expenses decreased 38%, or $423,000, for the nine months
ended September 30, 2003, as compared to the comparable prior year period.
This decrease was primarily attributable to a reduction in engineering and
administrative staff, reducing our monthly lease payments for our office
space in Albuquerque, and reducing our accounting and legal expenses. General
and administrative expenses as a percentage of revenues were 70% for the
nine months ended September 30, 2003, as compared to 76% 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. However, management believes general and
administrative may increase slightly in the future if more customer support
and sales persons are required to handle an increase in customers. 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.
Compensation Expense - Related Party. Compensation expense for shares
issued to Brian McGowan, one of our consultants, increased $15,000 from zero
for the three months ended September 30, 2003, as compared to the comparable
prior year period, as well as for the nine months ended September 30, 2003,
as compared to the comparable prior year period. This increase represents
compensation pursuant to a five year consulting agreement with Mr. McGowan.
The total compensation is being expensed over the life of the contract.
Management
17
expects this amount to be representative of future quarterly expenses related
to this item during the term of the contract.
Research and Development. Research and development expenses decreased
36%, or $16,000, for the three months ended September 30, 2003, as compared
to the comparable prior year period.
Research and Development expenses decreased 34%, or $47,000, for the nine
months ended September 30, 2003, as compared to the comparable prior year
period. This decrease was primarily due to less time required to complete
product enhancements and a reduction in the number of software developers.
It is also attributable to the need to develop additional product areas.
Since our products are mature and now in the market, most of the research
and development category will have a lesser importance in the future. In
addition we will add a maintenance development category in the future.
Bad Debt. Management has determined that the account receivable from
Doctors Telehealth Network generated by the sale of a software license for
$500,000 is not collectable. Therefore, management decided to write-off
the receivable during the second quarter of 2003. Bad debt expenses as a
percentage of revenues were 50% for the nine months ended September 30,
2003, as compared to nothing for the comparable prior year period.
Other Income (Expense). Interest expense decreased 62%, or $8,000,
for the three months ended September 30, 2003, as compared to the
comparable prior year period. Interest expense decreased 30%, or $8,000,
for the nine months ended September 30, 2003, as compared to the comparable
prior year period. The decrease in interest expense was attributable to
retiring existing promissory notes and issuing fewer notes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2003, cash and cash equivalents totaled $70,000,
representing a $31,000 increase from the beginning of the period. This
increase was attributable to cash generated from our financing activities.
Operating Activities used net cash of $139,000 for the nine months
ended September 30, 2003, compared to $69,000 used during the nine months
in the prior year comparable period.
Our cash flow has improved significantly in that we believe we are
able to meet our on-going expenses from our revenues. Nevertheless, at
September 30, 2003, we had negative working capital of ($361,000). At
September 30, 2003, we also owed approximately $277,371, without penalties
and interest, for unpaid federal and state payroll taxes, although we have
negotiated a settlement with the state taxing authority and an interim
settlement with the IRS. At September 30, 2003, we had trade accounts
payable in the amount of $114,041, of which $76,224 were current as of
September 30, 2003, and $37,814 were past due. The largest creditor,
excluding taxing agencies, is Forbes which is owed $25,000 which we intend
to satisfy upon completion of the advertising campaign in first quarter of
2004. The remainder of the past due amounts is owed to our former counsel.
We also continue to accrue the salary of our president, which, at September
30, 2003, was an aggregate of $110,800, of which $15,000 was accrued for
the nine months ended September 30, 2003.
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During the nine months ended September 30, 2003, we issued common
stock or stock options for salaries and services totaling $185,000, as
compared with $469,000 for the comparable prior year period. We anticipate
that this downward trend in such compensation will continue as we are able to
reduce our compensation expenses and generate more revenue from operations.
However, we might continue to compensate employees and consultants with
equity incentives where possible and during 2003 and part of 2004 may
continue to utilize equity instruments. We believe this strategy provides
the ability to increase stockholder value as well as utilize cash resources
more effectively. To support this strategy we may seek an increase in the
number of equity securities that can be issued under our existing stock
plan in order to allow management greater flexibility in its use of stock
based compensation. The continued issuance of equity securities under the
stock plan may result in dilution to existing shareholders.
Investing activities used $6,000 of cash for the nine months ended
September 30, 2003, as compared to $1,000 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 $176,000 in cash for the nine months
ended September 30, 2003, as compared to financing activities providing
$161,000 for the comparable prior year period. The increase in cash
provided by financing activities was primarily attributable to funds
borrowed by us and sales of our stock. Of the cash provided by financing
activities for the nine months ended September 30, 2003, $25,000 of the
total amount was attributable to a loan from First Mirage, Inc. In March
2003 we issued a promissory note for $25,000 with an interest rate of 7%.
The note was due on September 30, 2003. We negotiated an extension of the
note to December 31, 2003. Also during second and third quarters we sold
135 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. During third quarter we received notification from
two on the investors holding 105 of the preferred shares of their intention
to convert their shares into 1,600,000 shares of common stock. The
remaining $28,000 was provided by net proceeds from a private stock
offering of 250,000 shares of common stock to John Handley, one of our
directors.
Management anticipates that our primary uses of capital in the future
periods will be allocated to working capital purposes. Our business
strategy is to achieve growth internally through continued sale of licenses
for our AssetWare and Digital Filing Cabinet 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.
During the quarter ended September 30, 2003, we negotiated the
settlement of several outstanding obligations, including the following:
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* We negotiated a reduction in the amount of space we lease at our
Albuquerque, New Mexico, facilities to approximately 2,886 square feet
and reduced our monthly rent payment to $3,000. We also issued
365,000 shares of our common stock to the landlord in satisfaction of
past due lease payments in the amount of $29,352, provided that we
register the resale of these shares by February 2003. If we fail to
register the shares, we must repay the back lease amount.
* We settled an account payable to our former auditor. We had received
invoices for approximately $109,000 from the auditor and settled the
payable for $20,000 which we paid in September 2003.
* We settled a dispute with Sunrise International Leasing Corporation in
which it claimed that we owed approximately $71,000 under two
equipment leases. We returned the equipment and paid $1,000 to the
leasing company in settlement of this dispute.
At September 30, 2003, we had an outstanding balance of $212,849 on an
original line of credit with Los Alamos National Bank. The total amount
this loan was due on October 15, 2003. Effective October 15, 2003, 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 $7,500 in interest due. The
loan is now due April 15, 2004, and the principal balance due for this line
of credit is $187,776 as of October 15, 2003. 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
were to foreclose on the note after April 15, 2004.
Subsequent to the quarter ended September 30, 2003, we negotiated a
commitment from a related party by which it expressed its intent to invest
approximately $500,000 in our company over the next approximately six
months. This investment is intended to be in the form of either an
acquisition of our common stock, convertible notes, and/or convertible
preferred stock. The investment will be subject to certain conditions,
including registration of the securities for resale, negotiation of
satisfactory deal terms, and satisfactory completion of its due diligence
investigation of our company. The funds will be used to pay back the
delinquent taxes owed to the IRS.
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 believes 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:
20
* 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are attached to this report:
31.1 Rule 15d-14(a) Certification by Principal Executive
Officer
31.2 Rule 15d-14(a) Certification by Principal Financial
Officer
32 Section 1350 Certification of Principal Executive
Officer and Principal Financial Officer.
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: November 24, 2003 By /s/ Richard Govatski
Richard Govatski, President
Date: November 24, 2003 By /s/ Teresa Dickey
Teresa Dickey, Treasurer (Principal
Financial Officer)
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