Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X]
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QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-53597
CEELOX, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
10801 Mastin, Suite 920, Bldg # 8, Overland Park, Kansas 66210
(Address of principal executive offices, including zip code.)
(913) 884-3705
(telephone number, including area code)
Check whether the issuer (1) 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 filing requirements for the last 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated Filer
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Smaller Reporting Company
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[X]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 38,347,556 as of August 16, 2012.
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Page
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Condensed Consolidated Financial Statements.
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Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011
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F-1
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Statements of Operations for the six months ended June 30, 2012 and 2011 (Unaudited)
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F-2
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Statements of Operations for the three months ended June 30, 2012 and 2011 (Unaudited)
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F-3
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Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited)
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F-4
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F-5
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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19
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Quantitative and Qualitative Disclosures About Market Risk.
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21
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Controls and Procedures.
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22
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Risk Factors.
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22
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Other Events.
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22
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Exhibits.
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23
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24
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25
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CEELOX, INC. AND SUBSIDIARY
June 30, 2012
CEELOX, INC. AND SUBSIDIARY
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June 30,
2012
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December 31,
2011
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Unaudited
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ASSETS
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Current assets:
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Cash
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$
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2,162
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$
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6,940
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Prepaids and other current assets
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72,076
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17,628
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Total current assets
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$
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74,238
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$
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24,568
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LIABILITIES
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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428,912
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$
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387,289
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Advances, related party
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7,833,128
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Notes payable
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120,861
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Notes payable, related party
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118,761
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628,421
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Convertible notes payable, related party
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960,185
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Convertible note - bridge loan ($0 and $156,985 due to shareholder)
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182,356
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331,385
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Secured convertible note
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8,703
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Derivative liabilities
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21,750
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Total current liabilities
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881,343
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10,140,408
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Commitments and contingencies
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STOCKHOLDERS’ DEFICIT
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Preferred stock, $0.0001 par value; 5,000,000 undesignated shares,
authorized; none issued and outstanding
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Common stock, $0.00001 par value: Authorized 100,000,000 shares;
Issued: 38,347,556 shares as of June 30, 2012 and 14,147,556
shares as of December 31, 2011; Outstanding: 38,347,556 at
June 30, 2012 and 14,147,556 at December 31, 2011
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384
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142
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Additional paid-in capital
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25,347,258
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15,877,094
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Accumulated deficit
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(25,796,324)
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(25,639,942)
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Non controlling interests
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(358,423)
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(353,134)
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Total stockholders’ deficit
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(807,105)
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(10,115,840)
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Total liabilities and stockholders’ deficit
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$
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74,238
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$
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24,568
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See Notes to Condensed Consolidated Financial Statements
F-1
CEELOX, INC. AND SUBSIDIARY
(UNAUDITED)
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For the six months ended
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June 30,
2012
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June 30,
2011
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Revenue:
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Hardware and software
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$
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$
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1,374
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Licensing
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10,002
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Total Revenue
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11,376
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Operating costs and expenses:
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Costs of hardware sales
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3,710
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Marketing, general and administrative
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292,360
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1,029,221
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Depreciation and amortization
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11,063
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Total costs and expenses
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292,360
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1,043,994
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Operating loss
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(292,360)
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(1,032,618)
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Other income (expenses):
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Interest and amortization of financing fees
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(35,061)
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(212,621)
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Derivative income
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165,750
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Total other income (expenses)
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130,689
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(212,621)
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Net loss
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$
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(161,671)
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$
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(1,245,239)
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Less: Net loss attributable to non-controlling interest
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5,289
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42,316
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Net loss attributable to common stockholders
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$
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(156,382)
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$
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(1,202,923)
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Basic and diluted loss per share
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$
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(0.00)
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$
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(0.10)
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Weighted average shares basic and diluted
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35,609,751
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11,625,770
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Stock-based compensation:
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Payroll and related benefits
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$
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$
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12,252
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Consulting
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$
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$
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45,875
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Legal fees
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$
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$
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80,000
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See Notes to Condensed Consolidated Financial Statements
F-2
CEELOX, INC. AND SUBSIDIARY
(UNAUDITED)
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For the three months ended
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June 30,
2012
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June 30,
2011
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Revenue:
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Licensing
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$
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$
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6,339
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Total Revenue
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6,339
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Operating costs and expenses:
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Costs of hardware sales
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1,419
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Marketing, general and administrative
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166,219
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482,663
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Depreciation and amortization
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5,515
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Total costs and expenses
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166,219
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489,597
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Operating loss
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(166,219)
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(483,258)
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Other income (expenses):
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Interest and amortization of financing fees
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(20,145)
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(88,543)
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Derivative income
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283,528
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Total other income (expenses)
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263,383
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(88,543)
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Net income (loss)
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$
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97,164
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$
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(571,801)
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Less: Net (income) loss attributable to non-controlling interest
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(3,675)
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18,995
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Net income (loss) attributable to common stockholders
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$
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93,489
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$
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(552,806)
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Basic and diluted income (loss) per share
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$
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0.01
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$
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(0.05)
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Weighted average shares basic and diluted
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38,311,292
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11,474,566
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Stock-based compensation:
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Payroll and related benefits
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$
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$
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8,237
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Consulting
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$
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$
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16,375
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See Notes to Condensed Consolidated Financial Statements
F-3
CEELOX, INC. AND SUBSIDIARY
(UNAUDITED)
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For the six months ended
June 30,
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2012
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2011
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss:
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$
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(161,671)
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$
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(1,245,239)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Stock compensation expense to consultants and employees
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138,127
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Depreciation and amortization
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11,063
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Amortization of financing fees
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812
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Derivative income
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(165,750)
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Effect on cash of changes in operating assets and liabilities:
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Accounts receivable
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7,206
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Inventory
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(817)
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Prepaids and other current assets
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28,426
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(12,124)
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Accounts payable and accrued liabilities
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68,286
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288,401
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NET CASH USED IN OPERATING ACTIVITIES
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(229,897)
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(813,383)
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CASH FLOW FROM FINANCING ACTIVITIES:
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Payments on notes payable - related party
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(4,506)
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Advances from related party
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385,552
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Proceeds from notes payable
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125,000
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Proceeds from notes payable, related party
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404,791
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Proceeds from issuance of secured convertible note
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104,625
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NET CASH PROVIDED BY FINANCING ACTIVITIES
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225,119
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790,343
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NET DECREASE IN CASH
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(4,778)
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(23,040)
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CASH:
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Beginning of period
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6,940
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25,729
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End of period
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$
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2,162
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$
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2,689
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Supplemental disclosure of non-cash investing and financing activities:
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Advance – Expenses paid by related party
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$
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$
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70,000
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Shares issued in satisfaction of related party debt
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$
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9,460,456
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$
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Shares issued in satisfaction of accounts payable
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$
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5,000
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$
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Discount on notes payable
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$
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4,950
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$
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Deferred financing fees resulting from issuance of secured convertible note
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$
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70,456
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$
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See Notes to Condensed Consolidated Financial Statements
F-4
CEELOX, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of Business and Recapitalization Transaction
Ceelox, Inc. (the “Company”) (formerly Nicaragua Rising, Inc. or “Nicaragua”) was incorporated on October 24, 2007 in Nevada. The Company was a Development Stage Company until the occurrence of the following recapitalization transaction. On February 12, 2010, (the “Merger Date”), pursuant to the share exchange agreement between Ceelox Private (defined below), certain stockholders of Ceelox Private, the Company and the Company’s majority stockholder, the Company exchanged 1 share of the Company’s common stock for every 9 shares of Ceelox Private common stock (the “Merger”). As a result of the Merger, Ceelox Private became a majority-owned subsidiary of the Company.
The Company’s majority-owned subsidiary Ceelox, Inc. (“Ceelox Private”) was incorporated in the State of Florida and commenced operations on September 17, 2003. Through the Company’s majority-owned subsidiary, the Company offers software solutions and devices that deliver biometric identity-based user access authentication, verification, and data and email encryption. The Company’s biometric authentication provides protection against identity theft, and our solutions also meet regulatory requirements for two-factor authentication.
Prior to the above transaction, on November 5, 2009, the majority beneficial owner of Ceelox Private acquired 11,091,000 shares of the Company’s common stock, representing 98.5% of the issued and outstanding common stock. The net assets of Ceelox Private and the Company were combined at their respective net asset value on February 12, 2010 and no goodwill was recorded as a result of the Merger.
The Company formally changed its name from Nicaragua Rising, Inc. to Ceelox, Inc., a Nevada Corporation, on September 30, 2010.
2. Going Concern and Management’s Plans
During the six months ended June 30, 2012, the Company was engaged in continued development of our business plan surrounding virtual credit card, social networking and mobile, security and continues to seek merger and acquisition candidates with synergies within these areas. As indicated in the accompanying condensed consolidated financial statements, at June 30, 2012 and December 31, 2011, the Company had $2,162 and $6,940 in cash, respectively, and $807,105 and $10,115,840 in negative working capital, respectively. For the six months ended June 30, 2012 and 2011, the Company had a net loss of $161,671 and $1,245,239, respectively, and utilized $229,897 and $813,383, respectively, in cash from operations. For the three months ended June 30, 2012, the Company had net income of $97,164 and a net loss of $571,801 for the three months ended June 30, 2011. These factors, among others, indicate that the Company is in need of additional financing in order to continue its planned activities for the year that began on January 1, 2012. No adjustment has been made in the accompanying condensed consolidated financial statements to the amounts and classification of assets and liabilities which could result should the Company be unable to continue as a going concern.
F-5
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
2. Going Concern and Management’s Plans (continued)
License and Intellectual Property
On August 3, 2011, CIP, the Company’s majority stockholder executed a majority stockholder written consent authorizing Ceelox Sub to deliver all of the Collateral to CIP on August 12, 2011 in exchange for CIP’s agreement to forgive all amounts due under the Note and all other amounts due to CIP by Ceelox Sub. This action will result in the termination of (i) that certain License Agreement dated July 20, 2007 between CIP and Ceelox Sub and (ii) that certain Exclusive Software Development Maintenance and Marketing Services Agreement dated July 20, 2007 between CIP and Ceelox Sub. In connection with the stockholder consent, Ceelox Sub has agreed to execute and return certain documents that accompanied the Demand Letter on or before August 12, 2011, including the following: (i)Termination, Settlement and Full Release, (ii) Omnibus Bill of Sale and Assignment and (iii) Global Assignment of Intellectual Property Rights, (collectively, the “Settlement Agreements”).
As announced on Form 8-K filed with the SEC on January 27, 2012, Ceelox completed the fulfillment of the demand notice from CIP, LLC. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. Since that time Ceelox has continued development of its business plan surrounding virtual credit card, social networking, and mobile, security. Ceelox will continue to seek merger and acquisition candidates with synergies within these areas. Ceelox is currently in discussions with CIP and will seek to license and/or purchase the intellectual property from CIP as appropriate to complete their new product rollout.
3. Basis of Presentation and Selected Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim period reporting in conjunction with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these statements do not include all of the information required by generally accepted accounting principles for annual financial statements. In the opinion of management, all known adjustments (consisting of normal recurring accruals and reserves) necessary to present fairly the financial position, results of operations and cash flows as of and for the interim periods have been included. It is suggested that these condensed consolidated interim financial statements be read in conjunction with the consolidated financial statements and related notes in the Company’s Form 10-K for the year ended December 31, 2011.
The operating results for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Principles of Consolidation
The condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the SEC’s accounting rules under Regulation S-X. All material inter-company accounts and transactions have been eliminated in consolidation.
F-6
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
3. Basis of Presentation and Selected Significant Accounting Policies (continued)
Use of Estimates
The preparation of condensed consolidated interim financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board (FASB) guidance regarding disclosures about fair value of financial instruments, approximate the carrying amounts presented in the accompanying consolidated balance sheets.
Computation of Earning (Loss) Per Share
A basic earnings (loss) per share is calculated by dividing the earnings (loss) by the weighted average number of common shares outstanding during the period. A diluted earnings (loss) per share is calculated by dividing the earnings (loss) by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, warrants and shares issuable upon the conversion of convertible notes. The dilutive effect of the convertible notes is calculated under the if-converted method. The dilutive effect of outstanding shares is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instruments were exercised and the amount of unrecognized stock-based compensation related to future services.
For the three months ended June 30, 2012, we included 12,661,025 of potentially dilutive options, warrants and convertible debt instruments in our computation of earnings per share.
No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported. Accordingly, we did not include 12,661,025 and 25,319,019 of potentially dilutive options, warrants and convertible debt instruments at June 30, 2012 and 2011 respectively.
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For the six months ended
June 30,
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2012
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2011
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Potentially dilutive options
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2,181,111
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2,279,063
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Potentially dilutive warrants
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7,129,783
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6,254,783
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Potentially dilutive convertible instruments
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3,350,131
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16,785,173
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12,661,025
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25,319,019
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Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
F-7
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
4. Advances from Related Party
In connection with a License Agreement with CIP, LLC, the Company entered into a Software Services Agreement with the related party whereby they agreed to pay the Company costs associated with marketing its products and maintaining and developing our products based on our biweekly cash burn rate, net of sales collections.
During the six months ended June 30, 2012 and 2011, the Company received advances of $0 and $385,552, respectively, under this agreement. Interest accrued for the six months ended June 30, 2012 and 2011 amounted to $0 and $96,388, respectively.
Total advances including the reacquisition fee, which is being treated as interest expense, amounted to $0 and $7,833,128 as of June 30, 2012 and December 31, 2011, respectively.
On January 24, 2012, CIP, the Company’s majority shareholder executed a majority shareholder written consent authorizing Ceelox Sub to deliver all of the Collateral to CIP on January 27, 2012 in exchange for CIP’s agreement to forgive all debt (other than an aggregate of $118,761 which shall remain due and owing to CIP) in exchange for the Company’s issuance of 24,000,000 shares of its common stock. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. As a result, all of the advances from related party were converted.
5. Convertible Notes Payable - Related Party
On June 14, 2007, the Company entered into a convertible note agreement in the amount of $300,705. Under this agreement, the instrument was convertible into common stock at a conversion rate of $1.35. Interest expense for the six months ended June 30, 2012 and 2011 amounted to $3,141 and $22,220, respectively.
On February 10, 2010, the Company entered into a convertible note with a related party in the amount of $350,000 in exchange for 9,916,000 of common stock held by the related party. Simultaneously, the related party cancelled an additional 1,175,101 shares for no consideration. The note has a term of one year and accrues interest at 8% per annum. Under this agreement, the note was convertible into common stock at $0.81 per share. Interest expense for the six months ended June 30, 2012 and 2011 amounted to $1,540 and $10,892, respectively. On February 12, 2011 the term of the note was modified from February 10, 2011 to ‘on demand by the holder’.
On February 10, 2010, the Company converted a related party advance into a convertible note in the amount of $100,000. The note has a term of one year and accrues interest at 8% per annum. Under this agreement, the note was convertible into common stock at $0.81 per share. Interest expense for the six months ended June 30, 2012 and 2011 amounted to $440 and $3,112, respectively. On February 12, 2011 the term of the note was modified from February 10, 2011 to ‘on demand by the holder’.
On January 24, 2012, CIP, the Company’s majority shareholder executed a majority shareholder written consent authorizing Ceelox Sub to deliver all of the Collateral to CIP on January 27, 2012 in exchange for CIP’s agreement to forgive all debt (other than an aggregate of $118,761 which shall remain due and owing to CIP) in exchange for the Company’s issuance of 24,000,000 shares of its common stock to CIP. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. As a result, all of the convertible notes payable – related party was converted into common stock.
F-8
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
5. Convertible Notes Payable - Related Party (continued)
At June 30, 2012 and December 31, 2011, the carrying value of convertible notes payable due to related parties consisted of the following:
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Principal
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Accrued Interest
|
Balance
|
||||
|
Balance December 31, 2011
|
$
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750,705
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$
|
209,480
|
$
|
960,185
|
|
Interest accrued January 24, 2012
|
-
|
5,121
|
5,121
|
|||
|
Notes converted at January 24, 2012
|
(750,705)
|
(214,601)
|
(965,306)
|
|||
|
Balance June 30, 2012
|
$
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-
|
$
|
-
|
$
|
-
|
6. Convertible Notes Payable – Bridge Loans
In August of 2009 Ceelox Private entered in to a convertible note subscription agreement with certain accredited investors. The offering was for $1.5 million in convertible notes and common stock purchase warrants.
The notes are due and payable upon the earlier of:
1. Two years from the date of issuance
2. The date of completion, by Ceelox Private, of a transaction pursuant to which it becomes a majority-owned subsidiary of a publicly-traded company along with a simultaneous financing in the minimum amount of $1,500,000 (for purposes hereof this shall be referred to as a “Reverse Merger”), or
3. The date on which Ceelox Private is acquired in a non-Reverse Merger transaction whereby a non-affiliated third-party acquires 50% or more of Ceelox Private’s capital stock (“Third-Party Acquisition”).
Purchasers in this offering are granted warrants to purchase that number of shares of Common Stock equal to the principal amount of their note divided by the applicable conversion price of the notes as described above and the exercise price per share shall be equal to the conversion price of the notes. Upon the Merger, 777,451 of warrants were issuable under this agreement.
During the year ended December 31, 2010, holders of notes with a face value totaling $345,000 converted the face value plus accrued interest of $8,476 into 436,391 post merger common shares. Unamortized discounts of $25,069 were charged to interest expense upon conversion. Additionally, during the six months ended June 30, 2012 and the twelve months ended December 31, 2011, the Ceelox Private recorded amortization of discounts in the amount of $538 and $11,875 related to unconverted instruments, respectively. As of June 30, 2012 and December 31, 2011, the carrying amounts of convertible bridge notes were $182,356 and $331,385, net of $0 and $538 in un-amortized discount, respectively.
On January 24, 2012, CIP, the Company’s majority shareholder executed a majority shareholder written consent authorizing Ceelox Sub to deliver all of the Collateral to CIP on January 27, 2012 in exchange for CIP’s agreement to forgive all debt (other than an aggregate of $118,761 which shall remain due and owing to CIP) in exchange for the Company’s issuance of 24,000,000 shares of its common stock. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. As a result, $156,352 of the convertible notes payable – bridge loans were converted. As of June 30, 2012, $182,356 of the convertible notes payable – bridge loans are considered in default.
F-9
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
7. Notes Payable - Related Party
On March 31, 2011, Ceelox issued a promissory note to a related party in the amount of $110,000. The note is payable on demand and has an interest rate of 0.55%. The note was given in exchange for funds advanced to the Company to pay fees related to various consulting agreements. Interest expense for the six months ended June 30, 2012 and 2011 amounted to $40 and $153, respectively.
On June 30, 2011, Ceelox issued a promissory note to a related party in the amount of $364,791. The note is payable on demand and has an interest rate of 0.55%. The note was given in exchange for funds advanced to the Company to pay fees related to various consulting agreements. Interest expense for the six months ended June 30, 2012 amounted to $134.
On September 30, 2011, Ceelox issued a promissory note to a related party in the amount of $78,086. The note is payable on demand and has an interest rate of 0.55%. The note was given in exchange for funds advanced to the Company to pay fees related to various consulting agreements. Interest expense for the six months ended June 30, 2012 amounted to $124.
On December 31, 2011, Ceelox issued a promissory note to a related party in the amount of $73,947. The note is payable on demand and has an interest rate of 0.55%. The note was given in exchange for funds advanced to the Company to pay fees related to various consulting agreements. Interest expense for the six months ended June 30, 2012 amounted to $206. As of December 31, 2011, the notes payable – related party were considered in default.
On January 24, 2012, CIP, the Company’s majority shareholder executed a majority shareholder written consent authorizing Ceelox Sub to deliver all of the Collateral to CIP on January 27, 2012 in exchange for CIP’s agreement to forgive all debt (other than an aggregate of $118,761 which shall remain due and owing to CIP) in exchange for the Company’s issuance of 24,000,000 shares of its common stock. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. As a result $505,670 of the notes payable – related party was converted.
8. Secured Convertible Note Financing
As reported in the Company’s Form 8-K filed with the SEC on February 22, 2012: On February 16, 2012 the Company entered into a securities purchase agreement with one investor for the purchase and sale of a convertible promissory note (“Note”) in the principal amount of $187,500 and a warrant to purchase shares of the Company’s common stock. The number of warrant shares exercisable is equal to the number of shares equal to 20% of the quotient obtained by dividing (i) the principal amount of the Note ($187,500) by (ii) the Conversion Price of the Company’s common stock. Additionally, the Company entered into a security agreement with the investor whereby the Company’s obligation to repay the Note is secured by all of the Company’s assets.
After the payment of fees, expenses and the prepayment of interest, the Company received net proceeds of $104,625.
F-10
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
8. Secured Convertible Note Financing (Continued)
Pursuant to the terms of the Note, the maturity date of the Note is February 16, 2013 (“Maturity Date”) and all of the interest due under the Note during the initial term was prepaid by the Company upon issuance of the Note. The Note may be prepaid by the Company at anytime before the Maturity Date, subject to a 10% prepayment penalty. In the event that the Company completes an offering of its equity securities (including securities convertible into its equity securities) resulting in a minimum amount of $4,000,000 in gross proceeds to the Company (“Qualified Offering”), the investor shall have the right to request the prepayment of this Note.
Upon the earlier of the completion of a Qualified Offering, or the Maturity Date, the investor shall have the right to convert the Note into shares of the Company’s common stock. The number of shares into which the Note may be converted shall be determined by dividing the conversion amount of the Note by the conversion price. The conversion price shall be determined as follows: (i) a 25% discount from the price per share (denominated in US dollars) at which the common stock is sold in a Qualified Offering (such price at which the common stock is sold in a Qualified Offering is referred to as the “Offering Price”) if the Qualified Offering occurs on or before the six (6) month anniversary of the final Closing Date; (ii) a 40% discount from the Offering Price if a Qualified Offering occurs after the six (6) month anniversary of the final Closing Date but on or before the twelve (12) month anniversary of the final Closing Date; or (iii) the greater of (x) a 40% discount from the VWAP of the common stock over the five (5) trading days prior to conversion, and (y) $0.10 per share if a Qualified Offering does not occur on or prior to the twelve (12) month anniversary of the final Closing Date. For purposes hereof, the final Closing Date shall be the earlier of February 28, 2012 and the sale of an aggregate of $500,000 principal amount of the Notes.
The Company issued a five year warrant to the investor pursuant to which the investor shall have the right to acquire additional shares of the Company’s common stock. The number of shares of common stock issuable upon exercise of the warrant shall be determined by dividing the principal amount of the Note by the Conversion Price (as defined above pursuant to the Note) multiplied by twenty percent (20%).
Accounting for the Secured Convertible Notes
We have evaluated the terms and conditions of the secured convertible note and warrants under the guidance of ASC 815, Derivatives and Hedging. Both the embedded conversion feature and detachable warrants have a variable conversion price, which precludes these instruments from being indexed to the Company’s own stock. As a result, both the embedded conversion feature and warrants require classification as liabilities.
The following tables reflect the allocation of the purchase on the financing dates:
|
Secured Convertible Note
|
$187,500
Face Value
|
||
|
Proceeds
|
$
|
104,625
|
|
|
Embedded conversion feature
|
(251,852)
|
||
|
Warrant derivative liability
|
(55,370)
|
||
|
Prepaid interest
|
24,375
|
||
|
Deferred finance fees
|
58,500
|
||
|
Carrying value
|
$
|
-
|
|
F-11
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
8. Secured Convertible Note Financing (Continued)
Accounting for the Secured Convertible Notes (continued)
Discounts (premiums) on the convertible notes arise from (i) the allocation of basis to other instruments issued in the transaction, (ii) fees paid directly to the creditor and (iii) initial recognition at fair value, which is lower than face value. Discounts (premiums) are amortized through charges (credits) to interest expense over the term of the debt agreement.
For the six months ended June 30, 2012, the Company recorded interest expense related to the amortization of debt discount in the amount of $8,703. For the three months ended June 30, 2012, the Company recorded interest expense related to the amortization of debt discount in the amount of $7,826. The carrying value of the secured convertible note at June 30, 2012 was $8,703.
9. Derivative Financial Instruments
The components of warrant derivative liability as reflected in the condensed consolidated balance sheet as of June 30, 2012:
|
June 30, 2012
|
|||
|
Secured convertible note financing giving rise to derivative financial
instruments:
|
Indexed Shares
|
Fair Values
|
|
|
Embedded conversion feature
|
3,125,000
|
$
|
15,625
|
|
Warrant derivative liability
|
625,000
|
6,125
|
|
|
3,750,000
|
$
|
21,750
|
|
The following table summarizes the effects on our gain (loss) associated with changes in the fair values of our derivative financial instruments by type of financing for the six months ended June 30, 2012:
|
Secured convertible note financing giving rise to derivative financial
instruments and the income effects:
|
Six Months
Ended
June 30, 2012
|
||
|
Embedded conversion feature
|
$
|
236,227
|
|
|
Warrant derivative liability
|
49,245
|
||
|
283,528
|
|||
|
Day-one derivative loss
|
(119,722)
|
||
|
Total derivative gain (loss)
|
$
|
165,750
|
|
The following table summarizes the effects on our gain (loss) associated with changes in the fair values of our derivative financial instruments by type of financing for the three months ended June 30, 2012:
|
Secured convertible note financing giving rise to derivative financial
instruments and the income effects:
|
Three Months
Ended
June 30, 2012
|
||
|
Embedded conversion feature
|
$
|
234,375
|
|
|
Warrant derivative liability
|
49,153
|
||
|
Total derivative gain (loss)
|
$
|
283,528
|
|
F-12
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
10. Fair Value Considerations
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:
Level 1 valuations: Quoted prices in active markets for identical assets and liabilities.
Level 2 valuations: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
Level 3 valuations: Significant inputs to valuation model are unobservable.
We follow the provisions of ASC 820, Fair Value Measurements and Disclosures, with respect to our financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments which are required to be measured at fair value on a recurring basis under of ASC 815 are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of December 31, 2011 there was no assets or liabilities measured at fair value.
The following table presents information about the Company’s liabilities measured at fair value as of June 30, 2012:
|
Fair Value Measurements Using:
|
|||||||||||
|
Quoted Prices
in Active Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets
(Liabilities)
at Fair Value
|
||||||||
|
Derivative liabilities
|
$
|
-
|
$
|
-
|
$
|
21,750
|
$
|
21,750
|
|||
|
Total
|
$
|
-
|
$
|
-
|
$
|
21,750
|
$
|
21,750
|
|||
Both the embedded conversion feature and warrants were valued using a binomial-lattice-based valuation model. The lattice-based valuation technique was utilized because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) that are necessary to fair value these instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weighted to multiple possible outcomes. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock. Because derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.
F-13
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
10. Fair Value Considerations (continued):
The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair valued hierarchy:
|
Balance as of January 1, 2012
|
$
|
-
|
|
Total gains or losses (realized or unrealized):
|
||
|
Included in earnings
|
285,472
|
|
|
Warrant issuances
|
(55,370)
|
|
|
Embedded conversion feature
|
(251,852)
|
|
|
Balance as of June 30, 2012
|
$
|
(21,750)
|
11. Notes Payable
On May 18, 2012, the Company sold a $125,000 convertible promissory note (“Note”) to an investor. In connection with the sale of the Note the Company also issued the investor a warrant to purchase shares of the Company’s common stock (“Warrant”). The Note is due and payable on November 18, 2012 and bears interest at a rate of 13% per annum, all of which shall be paid on the maturity date. The Company may prepay the Note and accrued interest in whole or in part at any time prior to the maturity date without penalty. An event of default shall occur in the event the Company fails to make the principal and interest payment to the investor on or prior to the maturity date. The Warrant issued to the investor allows the investor to acquire up to 250,000 shares of the Company’s common stock at a price of $0.10 per share for a period of five years from the date of issuance of the warrant. We have evaluated the terms and conditions of the warrants under the guidance of ASC 815, Derivatives and Hedging and determined that they achieved equity classification. The warrants did not contain any terms or feature that would preclude equity classification.
The purchase price allocation for the convertible notes resulted in a debt discount of $120,050. The discount on the notes will be amortized through periodic charges to interest expense over the term of the debenture using the effective interest method. Amortization of debt discount amounted to $811 during the six month period ended June 30, 2012. The purchase price allocation is as follows:
|
Inception
|
|||
|
Net proceeds
|
$
|
125,000
|
|
|
Carrying value
|
(120,050)
|
||
|
Paid in capital (warrants)
|
(4,950)
|
||
The warrants were recorded as a discount to the note and will be accreted to face value over the life of the loan.
Warrants
The Company had outstanding warrants at June 30, 2012 totaling 7,129,783. The warrants expire at various dates ranging from October 1, 2012 through May 18, 2017 and have an average exercise price of $0.16.
F-14
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
12. Equity Activity
Investment Banking Agreement
On February 21, 2012, the Company entered into an agreement with a firm for non-exclusive investment banking and financial advisory services. As consideration for these services, pursuant to the Agreement, the Company agreed to issue (i) 400,000 restricted common shares, payable in four equal quarterly installments beginning on the date of execution of this Agreement, (ii) fees associated with the raising of capital of 10% cash and 10% in warrants on equity-linked capital raised (i.e., common equity, preferred equity, convertible debt, debt with warrants), and 3% cash and no warrants on straight debt capital raised and (iii) fees associated with merger and acquisitions of 5% of the consideration up to $5 million, 3% of the consideration between $5-10 million, and 1% of consideration above $10 million. At the Company’s discretion, $5,000 may be paid in lieu of the restricted shares as quarterly compensation. The warrants will be struck at a 20% premium to the valuation of said financing event, have a five-year expiration, and have a cashless exercise feature. The term of the agreement is 12 months and can be terminated upon 10 days written notice without cause by either the Company or the firm at any time before the Expiration Date. For the six months ended June 30, 2012, $1,000 in consulting expenses has been incurred. On May 4, 2012, the Company issued 100,000 shares of common stock to an investing banking group in accordance with the terms of the agreement.
Legal Services Agreement
On January 21, 2012, the Company contracted with a legal firm to (i) assist the Company with a potential acquisition of target companies for asset acquisitions, (ii) assist the Company with a proposed private financing for which a $50,000 retainer was paid by the Company and (iii) assist the Company with a future acquisition. In exchange for services, the company will be billed at an hourly rate for work performed on behalf of the Company. The current hourly rates for firm personnel range from $390 to $895 for partners, from $225 to $545 for associates, $90 to $315 for paralegals, clerks and librarians, and other members of our staff. During the six months ended June 30, 2012, the Company paid a $50,000 retainer for their use of services. The retainer was paid out of the proceeds of the secured convertible note financing dated February 16, 2012. $12,500 of which has been recorded as legal fees.
Placement Agent Agreement
On May 11, 2012, the Company entered into an agreement with a firm for exclusive placement agent agreement for the private placement of securities. As consideration for these services, pursuant to the Agreement, the Company agreed (i) to pay, at the signing of this agreement $25,000 cash, and 30 days from the signing of this agreement an additional $10,000 cash as a non-refundable retainer that is creditable to the placement fee described herein (ii) a cash fee payable upon each closing of a transaction closing equal to 10% of the gross proceeds received by the Company from sources of capital introduced by the placement agent (iii) a cash fee if the Company or any of its advisors or affiliates sources any capital investment into the Company equal to 4% of such gross proceeds (iv) pay placement agent a corporate finance fee payable in cash upon each closing equal to 2% of the gross proceeds (v) warrants to the placement agent to purchase shares of the Company’s common stock equal to 10% of the number of shares of common stock underlying the securities issued in the offering. Warrants will be issued at each closing and shall provide (a) be exercisable at an exercise price equal to the price of the securities issued to the investors in the offering, (b) expire five (5) years from the date of issuance, (c) contain anti-dilution protection provided to the investors, (d) same registration rights provided to the investors, and (e) provisions for cashless exercise. The term of the agreement is 6 months and can be terminated upon 30 days written notice without cause by either the Company or the placement agent at any time before the Expiration Date.
F-15
CEELOX, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
12. Equity Activity (continued):
Investment Banking Agreement
On March 29, 2012, the company entered into an agreement with a firm to provide general financial advisory and M&A advisory services to the Company. The terms of the engagement, which is modified from the original agreement signed on December 1, 2011, are for a term of six (6) months which will commence on the closing of the current Ceelox agreement. The firm will serve as the Company’s non-exclusive financial advisor and to provide agreed upon general financial advisory and investment banking advisor services. As consideration for these services, the Company has agreed to compensate the firm as follows: (a) The Company agrees to pay sixty thousand dollars ($60,000) in the form of six (6) consecutive monthly payments of $10,000; (b) In the event that the firm identifies, negotiates, and acts as an advisor on a M&A assignment. Ceelox agrees to pay the greater of $75,000 or a fee equal to 5% of the first $5 million of Consideration paid, plus 3% of the second $5 million of Consideration paid, plus 1% of the Consideration paid thereafter (on any Acquirer or Acquiree Transaction) for any merger, asset sale, stock swap, or any transaction or combination other than the ordinary course of business, whereby, directly or indirectly, control of or an asset is transferred for any Consideration (defined below) including, without limitation, cash and/or non cash consideration. Payment will be due upon closing of the transaction.
Stock Option Plans
As of June 30, 2012, 3,818,889 shares of the 6,000,000 shares approved under the Company’s Plan remain available for grant.
Stock-Based Compensation
Stock Options
During the six months ended June 30, 2012 and 2011, the Company recorded stock-based compensation related to stock options of $0 and $12,252, respectively.
13. Share Exchange Agreement
As reported in the Company’s Form 8-K filed with the SEC on March 22, 2012: On November 23, 2011, the Company entered into a share exchange agreement (“Agreement”) with P2P Cash, Inc. (“P2P”) for the purchase of all of the outstanding capital stock of P2P Ceelox, Inc. (“P2P Acquisition Corp.”). The Agreement has been terminated by the mutual agreement of P2P and the Company.
14. Subsequent Events
These condensed consolidated interim financial statements were approved by management and made available for issuance on August 20, 2012. Subsequent events have been evaluated through that date.
F-16
This section of this quarterly report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of our prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Overview
We were originally formed for the purpose of developing and marketing advanced fingerprint biometric technology and encryption software solutions. Our biometric identification and encryption software solutions provide innovative and new ways for customers to securely access, store, send and receive confidential information. We commenced marketing our products in the first half of 2007 following more than three years of technology and product development. We have invested over $12 million in the operations of the business including research and development, product development and marketing of our products.
As announced on Form 8-K filed with the SEC on January 27, 2012, Ceelox completed the fulfillment of the demand notice from CIP, LLC. In this agreement, Ceelox converted approximately $9,460,000 in debt to 24 million shares of common stock and turned over all intellectual property and software to CIP. Since that time Ceelox has continued development of its business plan surrounding virtual credit card, social networking, and mobile, security. Ceelox will continue to seek merger and acquisition candidates with synergies within these areas. Ceelox is currently in discussions with CIP and will seek to license and/or purchase the intellectual property from CIP as appropriate to complete their new product rollout.
Results of Operations
Six Months Ended June 30, 2012 Compared with Six Months Ended June 30, 2011
Net Revenue
For the six months ended June 30, 2012 and 2011 the Company had revenues of $0 and $11,376, respectively. This results from the fact that the Company was focused on continued product development and securing funding to execute its business plan.
Total Operating Costs and Expenses
Our total costs and expenses which consist of payroll and related benefits, consulting expenses, marketing, general and administrative expenses, depreciation and amortization, and research and development expenses decreased by $751,634 or 72% for the six months ended June 30, 2012 from the six months ended June 30, 2011. The decrease in Operating Costs and Expenses was due to a decrease of $736,861 or 72% in marketing, general and administrative expenses.
Loss from Operations
Our operating loss for the six months ended June 30, 2012 was $292,360 compared to a loss of $1,032,618 for the six months ended June 30, 2011. The decreased loss from operations of $740,258 or 72% was due largely to focus on product development and pursuit of funding to execute our business plan.
Interest Expense
Interest expense and related financing fees for the six months ended June 30, 2012 was $34,250 compared to $212,621 for the six months ended June 30, 2011, a decrease of $178,371 or 84%. In August 2005, Ceelox of Florida, a majority owned subsidiary of the Company, entered into a convertible note from a related party totaling $300,705 (see footnote 5 of the Company’s financial statements). Interest on that note was $3,141 for the six months ended June 30, 2012 compared to $22,220 for the same period in 2011. In February 2010, the Company issued convertible notes to a related party totaling $450,000 (see footnote 7 of the Company’s financial statements) which contributed $1,980 additional interest expense. Between December 2009 and February 2010, the Company issued convertible bridge loan notes totaling $626,735, of which $350,000 was converted in February 2010. Interest expense on these notes was $7,323 for the six months ended June 30, 2012. Of the $7,323 in interest expense, $6,785 is related to accrued interest and $538 is related to debt discount. In 2011, the Company issued promissory notes to a related party in the aggregate amount of $626,824. Interest expense for the six months ended June 30, 2012 related to these related party promissory notes amounted to $392. The remaining interest expense of $21,414 is related to financing fees.
Net Loss
During the six months ended June 30, 2012 and 2011 the Company incurred net losses of $161,671 and $1,245,239, respectively. The decreased losses of $1,083,568 were primarily due to a reduction in workforce expenses while seeking additional funding for its business plan.
Liquidity and Capital Resources
As of June 30, 2012, we had a working capital deficit of $807,105 as compared to a working capital deficit of $10,115,840 as of December 31, 2011. In the past we have relied on sales of our equity to raise funds for our working capital requirements, as well as loans from our majority stockholder. We will need to raise additional capital in order to implement our business plan and will seek to sell additional equity and/or debt to accomplish this objective. There can be no assurance that we will be able to raise funds sufficient to carry out our business plan, or that if funds are available to us that they will be on acceptable terms.
Operating Activities
Cash used in operations of $229,897 during the six months ended June 30, 2012 was primarily a result of our $161,671 net loss reconciled with our net non-cash expenses relating accrued interest. Cash used in operations of $813,383 during the six months ended June 30, 2011 was primarily a result of our $1,245,239 net loss reconciled with our net non-cash expenses relating to stock-based compensation expense, accrued interest, and depreciation and amortization expense.
Investing Activities
During the six months ended June 30, 2012 and 2011 we expended $0 and $0, respectively.
Financing Activities
During the six months ended June 30, 2012, we generated proceeds of $225,119 from our financing activities which consisted of a secured convertible note financing.
Seasonality Results
We do not expect to experience any seasonality in our operating results.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements or financing activities with special purpose entities.
Results of Operations
Three Months Ended June 30, 2012 Compared with Three Months Ended June 30, 2011
Net Revenue
For the three months ended June 30, 2012 and 2011 the Company had revenues of $0 and $6,339, respectively. This results from the fact that the Company was focused on continued product development and securing funding to execute its business plan.
Total Operating Costs and Expenses
Our total costs and expenses which consist of payroll and related benefits, consulting expenses, marketing, general and administrative expenses, depreciation and amortization, and research and development expenses decreased by $323,378 or 66% for the three months ended June 30, 2012 from the three months ended June 30, 2011. The decrease in Operating Costs and Expenses was due to a decrease of $316,444 or 66% in marketing, general and administrative expenses.
Loss from Operations
Our operating loss for the three months ended June 30, 2012 was $166,219 compared to a loss of $483,250 for the three months ended June 30, 2011. The decreased loss from operations of $317,039 or 66% was due largely to focus on product development and pursuit of funding to execute our business plan.
Interest Expense
Interest expense and related financing fees for the three months ended June 30, 2012 was $19,334 compared to $88,543 for the three months ended June 30, 2011, a decrease of $69,209 or 78%. In August 2005, Ceelox of Florida, a majority owned subsidiary of the Company, entered into a convertible note from a related party totaling $300,705 (see footnote 5 of the Company’s financial statements). Interest on that note was $0 for the three months ended June 30, 2012 compared to $11,283 for the same period in 2011. In February 2010, the Company issued convertible notes to a related party totaling $450,000 (see footnote 7 of the Company’s financial statements). Between December 2009 and February 2010, the Company issued convertible bridge loan notes totaling $626,735, of which $350,000 was converted in February 2010. Interest expense on these notes was $3,033 for the three months ended June 30, 2012. In 2011, the Company issued promissory notes to a related party in the aggregate amount of $626,824. Interest expense for the three months ended June 30, 2012 related to these related party promissory notes amounted to $165. The remaining interest expense of $16,136 is related to financing fees.
Interest Rates
We are not being exposed to market risks relating to changes in interest rates because all outstanding debt bears interest at a fixed rate. We currently do not engage in any interest rate hedging activity and have no intention of doing so in the foreseeable future.
Foreign Exchange
The company has no exposure to foreign exchange fluctuations.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs.
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, Mr. Grannell, our CEO, and Mr. Moore, our CFO, concluded that our Disclosure Controls were not effective as of the end of the period covered by this report. The small size of our company does not provide for the desired separation of control functions, and we do not have the required closing process related to the preparation of consolidated financial statements. As of June 30, 2012 we do not believe that our disclosure controls and procedures were effective.
Changes in Internal Controls
There have been no changes in our control over financial reporting that materially affected, or is reasonably likely to material affect, our internal control over financial reporting.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
On May18, 2012, the Company sold a $125,000 convertible promissory note (“Note”) to an investor. In connection with the sale of the Note the Company also issued the investor a warrant to purchase shares of the Company’s common stock (“Warrant”). The Note is due and payable on November 18, 2012 and bears interest at a rate of 13% per annum, all of which shall be paid on the maturity date. The Company may prepay the Note and accrued in whole or in part at any time prior to the maturity date without penalty. An event of default shall occur in the event the Company fails to make the principal and interest payment to the investor on or prior to the maturity date. The Warrant issued to the investor allows the investor to acquire up to 250,000 shares of the Company’s common stock at a price of $0.10 per share for a period of five years from the date of issuance of the warrant.
The Note and Warrant were sold to the investor pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended.
The following documents are included herein:
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Exhibit No.
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Document Description
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 17th day of August, 2012.
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CEELOX INC.
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(the “Registrant”)
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By:
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MARK L. GRANNELL
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Mark L. Grannell
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Chief Executive Officer and Chief Operating Officer
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By:
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WILLIAM P. MOORE
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William P. Moore
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Secretary, Treasurer and Chief Financial Officer
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Exhibit No.
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Document Description
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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