U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30,2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number 000-30468
CELEXX CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 65-0728991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7251 West Palmetto Park Road,
Suite 208
Boca Raton, Florida
(Address of principal executive offices)
561-395-1920
(Issuer's telephone number)
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 past 90 days.
Yes |X| No |_|
The number of shares outstanding of each of the issuer's classes of common
equity as of September 30, 2000:
Common Stock, $.01 Par Value - 23,319,696 shares
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
Part I Financial Information
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2000
- unaudited -
ASSETS
CURRENT ASSETS:
Cash $ 546,248
Accounts receivable 2,853,992
Inventory 574,216
Prepaid Taxes 207,082
Other current assets 73,065
-------------
TOTAL CURRENT ASSETS 4,254,603
MARKETABLE SECURITIES - AVAILABLE FOR SALE 125,000
FURNITURE AND EQUIPMENT, NET 393,860
GOODWILL, NET 521,080
INTANGIBLES ASSETS, NET 3,197,969
OTHER ASSETS 93,008
-------------
$ 8,585,520
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,600,111
Note payable related party 41,500
Line of credit - short term portion 1,679,728
Deferred revenue 224,214
-------------
TOTAL CURRENT LIABILITIES 3,545,553
-------------
LINE OF CREDIT - long term portion 71,631
-------------
NOTE PAYABLE AND ADVANCES - RELATED PARTIES 1,118,787
-------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
Preferred stock, $001 par value, 20,000,000 shares authorized;
350 issued and outstanding -
Common stock, $.001 par value, 100,000,000 shares authorized;
23,319,696 shares issued and outstanding 23,320
Additional paid-in capital 15,435,505
Unamortized stock compensation (4,027,483)
Other comprehensive loss -
Unrealized loss on marketable securities -
available for sale (1,875,000)
Accumulated deficit (5,706,793)
--------------
TOTAL STOCKHOLDERS' EQUITY 3,849,549
-------------
$ 8,585,520
=================
See notes to consolidated financial statements.
2
<PAGE>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- unaudited -
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
----------------------- -----------------------
<S> <C> <C>
REVENUE $ 5,234,652 $ 270,234
COST OF REVENUE 3,999,196 141,706
----------------------- -----------------------
GROSS PROFIT 1,235,456 128,528
OPERATING EXPENSES
Selling, general and administrative expense 1,207,398 478,149
Amortization of goodwill, intangibles and stock compensation 279,642 21,159
----------------------- -----------------------
1,487,040 499,308
LOSS FROM OPERATIONS (251,584) (370,780)
OTHER INCOME (EXPENSES):
Interest expense (16,941) -
Other Income (expense) 25,589 -
----------------------- -----------------------
TOTAL OTHER INCOME 8,648 -
----------------------- -----------------------
NET LOSS $ (242,936) $ (370,780)
======================= =======================
NET LOSS $ (242,936) $ (370,780)
OTHER COMPREHENSIVE LOSS:
Unrealized holding loss arising during the period from
marketable securities (312,000) -
----------------------- -----------------------
COMPREHENSIVE LOSS (554,936) (370,780)
======================= =======================
NET LOSS PER COMMON SHARE - basic $ (0.02) $ (0.05)
======================== ========================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic 15,223,878 6,769,019
======================== ========================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- unaudited -
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
--------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (242,936) $ (370,780)
--------------------- ---------------------
Adjustments to reconcile net loss to net cash
used in operations:
Amortization and depreciation 286,620 54,298
Changes in assets and liabilities net of effects from acquisition:
Accounts receivable (641,694) 105,000
Inventory (151,472) 95,122
Other current assets (46,320) (181,500)
Other assets (40,000) -
Accounts payable and accrued expenses 252,641 35,655
Deferred revenue 111,618 (6,000)
--------------------- ---------------------
(228,607) 102,575
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (471,543) (268,204)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities - 51,000
Capital expenditures (108,498) -
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN INVESTING ACTIVIES (108,498) 51,000
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit 585,917 19,723
Borrowings from (repayments to) related parties 17,901 (84,144)
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 603,818 (64,421)
--------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 23,777 (281,626)
CASH - beginning of period 522,471 283,576
--------------------- ---------------------
CASH - end of period $ 546,248 $ 1,950
===================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 22,184 $ -
===================== ====================
Noncash investing and financing activites:
Common stock issued for compensation and services $ 2,895,400 $ -
===================== ====================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CeleXx Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of CeleXx
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB . Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related footnotes included in the Company's Form 10-KSB
for the six month transition period ended June 30,2000.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation have been included. The
results for the three months ended September 30, 2000, and 1999, are not
necessarily indicative of financial information for the full year. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission for the six month transition period ended June 30,2000.
2. General
On May 25, 1999 CeleXx acquired through its wholly owned subsidiary,
Pinneast.com, Inc. ("Pinneast"), all the outstanding shares of Pinnacle East,
Inc., a South Carolina Corporation, engaged in the development of multimedia
educational programs for industry and government. Pinneast was acquired for
500,000 shares of CeleXx's common stock and a $100,000 note payable due in May
2000. As of September 30, 2000 the balance of the note is $41,500. Subsequent to
the acquisition, Pinnacle East, Inc. was liquidated.
On April 14, 2000, CeleXx acquired Computer Marketplace, Inc. ("CMI"), a
Massachusetts company engaged in systems engineering, design and maintenance of
computer network systems. The consideration paid was 1,400,000 shares of the
Company's common stock and $1,500,000 at closing and a note payable for
$1,000,000 bearing interest at 6% due in two equal annual installments on the
anniversary of the closing date. The former owner of CMI agreed to extend the
first annual installment of $500,000 originally due April 2000 to November 2001.
The acquisitions of Pinneast and CMI were accounted for using the purchase
method of business combinations.
On June 9, 2000, the Board of Directors elected to change the Company's fiscal
year end from a year ending December 31 to a year ending June 30. The decision
was made to conform to industry group standards and administrative purposes.
5
<PAGE>
CeleXx Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
3. Stockholders' Equity
On September 1, 2000, the Company issued 7,650,000 shares of the Company's
common stock to two executives. Such shares were issued pursuant to the
executive's employment agreements and are restricted from resale during the term
of these agreements, which are five years. In addition, 50,000 shares of common
stock were issued to an individual for services rendered. The Company has
recorded non-cash compensation charge to earnings of $49,147 and an increase to
unamortized stock compensation of $2,895,400 as relating to the issuance of the
aforementioned shares.
On August 23, 2000, the Board of Directors granted 363,225 options to acquire
shares of the Company's common stock at an exercise price of $0.50 to employees
of the Company's CMI subsidiary. On September 5, 2000, the Board of Directors
authorized the grant of 2,650,000 options at an exercise price of $0.43 to
acquire common stock of the Company to members of its executive management.
These options were issued pursuant to the Company's stock option plan.
4. Pro-forma Information
The following unaudited pro-forma condensed statement of operations for the
three months ended September 30, 1999 reflects the combined results of the
Company as if the acquisitions of Pinneast and CMI had occurred on July 1, 1999.
REVENUES $3,839,374
----------
GROSS PROFIT 872,331
----------
OPERATING EXPENSES 1,161,569
---------
NET LOSS $( 289,238)
-----------
NET LOSS PER SHARE $ ( 0.04)
-----------
5. Subsequent Events
Potential Borrowings:
On October 16, 2000, the Company's Chairman and principal shareholder along with
four other officers and/or shareholders provided the Company with a letter of
guarantee to jointly consent to lend the Company up to $1,000,000 on an as
needed basis for a one year period ending in October 2001. Repayment will not be
required before such date.
6
<PAGE>
CeleXx Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
5. Subsequent Events - continued
On October 17, 2000, the Company received a commitment for a $10 million secured
Revolving Credit Line ("Credit Line") maturing in October 2003 from CIT Business
Credit, a unit of CIT Commercial Finance and one of six operating groups within
the CIT Group, Inc. Availability under the Credit Line is based on a formula of
eligible accounts receivable and inventory and allows for an increase in the
credit facility to consummate acquisition financing within the maximum $10
million line. Borrowings bear interest at the Chase Bank rate plus 1% per annum
and are collateralized by essentially all assets of the Company, such as
accounts receivable, inventory, and general intangibles, including its
subsidiaries. The Credit Line requires, among other conditions, compliance with
certain covenants. The consummation of the Credit Line is subject to the
completion of the asset-based lender's legal review and documentation. The
Company anticipates the closing for this Credit Line to occur no later than
November 30, 2000.
Settlement of Litigation:
On October 24, 2000, Celexx and E-Pawn.com, Inc. ("E-Pawn") entered into a
Settlement and Release Agreement ("settlement") to settle the lawsuit that
E-Pawn filed against Celexx and any claims that the companies may have with
respect to each other. The settlement will include unconditional releases and
will be subject to documentation and delivery of all considerations. The
settlement provides for, among other things, the issuance of an additional
2,250,000 shares of Celexx restricted common stock to E-Pawn (E-Pawn already has
1,000,000 shares). Celexx will also cancel the $500,000 that is due from E-Pawn
and return 1,000,000 freely tradable shares of E-Pawn that it currently holds
and, issue to a shareholder of E-Pawn a warrant to purchase 250,000 shares of
common stock of Celexx granting the shareholder the right to purchase the shares
at $2.50 per share until October 20, 2003. Celexx in return will receive
5,250,000 restricted shares of common stock of E-Pawn.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Months Ended September 30, 2000, and 1999
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS
SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED IN "PART I -
ITEM 1 - DESCRIPTION OF BUSINESS - RISK FACTORS" AND "PART II - ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" CONTAINED IN THE
COMPANY'S FORM 10-KSB FOR THE SIX MONTH TRANSITION PERIOD ENDED JUNE 30,2000, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY LAW, THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
INVESTORS SHOULD REVIEW THIS QUARTERLY REPORT IN COMBINATION WITH THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB IN ORDER TO HAVE A MORE COMPLETE UNDERSTANDING OF
THE PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY'S STOCK.
Overview
CeleXx Corporation is an integrated management company providing Information
Technology (IT) services, networking solutions and web-centric training to its
clients. In general, these services are designed to enhance the performance of
client IT systems and to improve individual performance. CeleXx's strategy in
providing these services has been accomplished through acquisition,
consolidation and operation of IT businesses in select markets. In general,
these businesses provide services such as design, engineering and installation
of network systems; customization and design of multimedia applications in all
the major formats used in the development and delivery of e-Education, Distance
Learning, and other interactive Web-based solutions; commercial Web site
development, computer hardware and software integration, Voice over Internet
Protocol and call center telephony; as well as training and on-going technical
support to client companies.
Company operations are currently organized into four groups according to
function: Integrated Solutions, Performance Media, Information Engineering, and
Special applications.
CMI is the flagship of the company's Integrated Solutions Group, which is
involved in systems engineering, networking, computer telephony integration and
other network support services. The Performance Media Group develops high-end
multimedia applications and delivers eEducation, Distance Learning and other
web-centric solutions to clients in the Fortune 500 list.
8
<PAGE>
Effective January 1, 2000 the Company changed its fiscal year from December 31
to June 30. Accordingly, the discussion of financial results set forth below
compares the three-month period ended September 30, 2000 to the three-month
period ended September 30, 1999.
Results of Operations
Consolidated revenues for the quarter ended September 30, 2000 were $ 5,234,652
compared to $ 270,234 for the same quarter last year, representing an increase
of $4,964,418 or 1,837%. The increase in revenue resulted from a substantial
increase in the revenues of the company's Performance Media Group and from the
acquisition of Computer Marketplace, Inc.("CMI") in April 2000. No revenues have
been earned from the Information Engineering Group and the revenues for the
Special Applications Group were negligible.
Gross profits for the first quarter ended September 30, 2000 decreased to 24%
from 48% for the quarter ended September 30, 1999. This decrease was due in part
to disproportional revenues from the company's Integrated Solutions Group versus
its other businesses. Traditionally, the sale of computing solutions, which
involves, among other things, the integration of computer hardware and software
and which constitutes the business of the Integrated Solutions Group, yields
lower gross profit margins than does the service business, which are carried out
by the company's three other groups. In the first quarter ended September 30,
2000 the Company generated gross profit of 60% from its Performance Media Group
and 20% from the Integrated Solutions Group, combined netting 24% of revenues,
compared to 48% derived only from the Performance Media Group in the same period
in 1999.
For the quarter ended September 30, 2000 selling, general and administrative
expenses ("SG&A") increased by $729,249 or 153%, over the same period in 1999.
SG&A expenses represented 23% of total sales for the quarter ended September 30,
2000 as opposed to 177% of total sales for 1999. The overall increase in SG&A
expenses, for the quarter ended September 30, 2000, includes the selling,
general and administrative expenses for the Company's operations, which amounted
to $936,000, non-cash compensation expense in the amount of $152,064 for the
issuance of stock rendered, as well as the salaries, wages, professional
expenses and transaction costs associated with on-going acquisitions and the
Company's on-going capital raising efforts.
Amortization of goodwill, intangibles, and stock compensation increased by
$258,483 to $279,642 for the quarter ended September 30, 2000 from the same
period in 1999 primarily as a result of the Company's acquisition of CMI in
April 2000.
As a result of the overall increase in revenues and proportionately lower
operating expenses, the consolidated operating loss of $251,584 for the quarter
ended September 30, 2000 decreased by $119,196(32%) when compared to the
operating loss of $370,780 for the same period in 1999.
Net loss decreased $127,844(34%) to a net loss of $249,936 for the quarter ended
September 30, 2000 compared to $370,780 in 1999. The net loss per common share
decreased from ($0.05) for the quarter ended September 30, 1999 to ($0.02) in
the same quarter in 2000, resulting in a change of +$0.03 per share or 60%.
9
<PAGE>
Liquidity and Capital Resources
The Company historically has satisfied its operating cash requirements primarily
through cash flow from operations, from borrowings from shareholders and from a
revolving line of credit with limits up to $5 million from FINOVA. At September
30, 2000, the Company had $546,248 in cash on hand and in bank accounts.
During the three months ended September 30, 2000, cash provided by financing
activities amounting to $603,818 exceeded cash used in operating and investing
activities of $580,041 , resulting in a $23,777 increase in cash. Net cash used
by operations of $471,543 was primarily due to increases in accounts receivable
and inventory levels, which were partially offset by increases in accounts
payable and deferred revenues.
On October 16, 2000, the Company's Chairman and principal shareholder along with
four other officers and/or shareholders of the Company provided the Company with
a letter of guarantee jointly consenting to lend the Company up to $1,000,000 on
an as needed basis over a one year period ending in October 2001, the repayment
of which will not be required before such date.
Also, on October 17, 2000, the Company received a commitment for a $10 million
secured Revolving Credit Line ("Credit Line") maturing in October 2003 from CIT
Business Credit, a leading asset-based lender. Availability under the Credit
Line is based on a formula of eligible accounts receivable and inventory and
allows for an increase in the credit facility to consummate acquisition
financing within the maximum $10 million line. Borrowings bear interest at the
Chase Bank rate plus 1% per annum and are collateralized by essentially all the
assets of the Company. The Credit Line requires, among other conditions,
compliance with certain covenants. The consummation of the Credit Line is
subject to the completion of the asset-based lender's legal review and
documentation. The closing for this credit line is anticipated to occur no later
than November 30, 2000 and anticipated availability of net borrowings is
projected to range between $1 million to $2 million at closing.
The Company believes that it will require additional cash infusions to meet the
Company's projected working capital, strategic acquisitions and other cash
requirements in its current fiscal year ending June 30, 2001 and is working
closely with lenders, investment bankers and others to meet these projected
needs.
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the three
months ended September 30, 2000:
10
<PAGE>
On August 18, 2000 the Company filed a report on 8-K/A reporting an
Investment Agreement with E-Pawn.com, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Boca Raton, state of
Florida, on the 18th day of August, 2000:
Celexx Corporation
By: /s/ Doug H. Forde November 13, 2000
---------------------------------------------------
Doug H. Forde
President, Chairman of the Board,
and Chief Executive Officer
[principal executive officer]
By: /s/ David C. Langle November 13, 2000
---------------------------------------------------
David C. Langle
Vice President Finance
And Chief Financial Officer
{principal accounting officer]
11
