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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-24376
ClearLogic, Inc.
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(Name of small business issuer in its charter)
Delaware 33-0612125
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 South Haddon Avenue, Haddonfield, New Jersey 08033
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (856) 547-7844
N/A
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(Former name, former address and former fiscal year,
if changed since last report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 .
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State the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 14,827,226 shares of Common
Stock outstanding on August 14, 2000.
Transitional Small Business Disclosure: Yes . No X .
--- ---
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ClearLogic, Inc.
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. Financial Information
Item 1. Condensed Financial Statements
Consolidated Balance Sheets................................................3-4
Consolidated Statements of Operations........................................5
Consolidated Statement of Changes in Stockholders' (Deficiency)..............6
Consolidated Statement of Cash Flows.......................................7-8
Notes to Condensed Consolidated Financial Statements.........................9
Item 2. Management's Discussion and Analysis of Results
Of Operations and Financial Condition....................................11-14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................15
Signatures...........................................................................16
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ClearLogic, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 2000
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<S> <C>
Assets
Current assets
Cash and cash equivalents $ 51,001
Accounts receivable, net of allowance for doubtful accounts of
$15,453 164,572
Prepaid expenses 9,276
Other current assets 9,656
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Total current assets 234,505
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Property, equipment and software, net of accumulated
depreciation and amortization of $164,029 192,129
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Other assets
Due from officer 8,401
Investment, at cost 251,655
Unamortized software costs, net of accumulated
amortization of $64,166 32,834
Deferred financing costs, net of accumulated
amortization of $4,864 20,131
Other 14,222
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Total other assets 327,243
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Total assets $ 753,877
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</TABLE>
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ClearLogic, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
June 30, 2000
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<S> <C>
Liabilities and Stockholders' (Deficiency)
Current liabilities
Accounts payable $ 170,332
Accrued expenses 111,583
Notes payable, net of discount 503,523
Capital lease obligations 20,857
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Total current liabilities 806,295
Notes payable, net of current maturities and discount 1,152,981
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Total liabilities 1,959,276
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Commitments and contingencies
Stockholders' (deficiency)
Preferred stock, no par value
Authorized 5,000,000 shares
Issued and outstanding - none --
Common stock, $.001 par value
Authorized 20,000,000 shares
Issued and outstanding 14,827,226 shares 14,827
Additional paid-in capital 333,465
Accumulated (deficit) (1,553,691)
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Total stockholders' (deficiency) (1,205,399)
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Total liabilities and stockholders' (deficiency) $ 753,877
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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ClearLogic, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
June 30,
2000 1999
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<S> <C> <C>
Net revenues $ 805,932 $ 114,723
Cost of revenues 209,984 18,226
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Gross profit 595,948 96,497
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Operating expenses
General and administrative 318,390 110,777
Product development 83,296 75,102
Depreciation and amortization 18,726 12,101
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Total operating expenses 420,412 197,980
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Operating income (loss) 175,536 (101,483)
Interest expense (37,674) (12,287)
Other income, net 417 1,820
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Net income (loss) $ 138,279 $ (111,950)
========================================================================================================================
Income (loss) per share of common stock (basic and diluted) $ .01 $ (.01)
========================================================================================================================
Weighted average common shares outstanding used in
computing income (loss) per share (basic and diluted) 14,827,226 13,350,841
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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ClearLogic, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Net revenues $ 1,023,091 $ 199,474
Cost of revenues 251,566 32,804
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Gross profit 771,525 166,670
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Operating expenses
General and administrative 623,583 193,217
Product development 182,668 86,942
Depreciation and amortization 38,268 21,952
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Total operating expenses 844,519 302,111
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Operating (loss) (72,994) (135,441)
Interest expense (75,523) (18,817)
Other income, net 2,161 5,766
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Net (loss) $ (146,356) $ (148,492)
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Loss per share of common stock (basic and diluted) $ (.01) $ (.01)
========================================================================================================================
Weighted average common shares outstanding used in
computing loss per share (basic and diluted) 14,823,217 13,355,371
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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ClearLogic, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' (Deficiency)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
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Number Number Additional
of of Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital (Deficit) (Deficiency)
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ -- 14,806,535 $ 14,806 $ 332,451 $(1,407,335) $(1,060,078)
Shares issued as compensation for
services rendered by employees 20,691 21 1,014 1,035
Net (loss) (146,356) (146,356)
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Balance, June 30, 2000 $ -- 14,827,226 $ 14,827 $ 333,465 $(1,553,691) $(1,205,399)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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ClearLogic, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (146,356) $ (148,492)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities
Depreciation and amortization 56,885 24,451
Allowance for doubtful accounts 8,190 3,000
Compensation related to issuance of options and 1,035
warrants
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable (156,799) (48,474)
Prepaid expenses 9,391 (1,502)
Other current assets 2,521 (7,750)
Investments, at cost (251,655)
Increase (decrease) in liabilities
Accounts payable 119,879 3,874
Accrued expenses 42,263 (2,036)
Other current liabilities 63,827 (205)
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Net cash (used in) operating activities (250,819) (177,134)
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Cash flows from investing activities
Purchases of property, equipment and software (71,219) (57,059)
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Net cash (used in) investing activities (71,219) (57,059)
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</TABLE>
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ClearLogic, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Cash flows from financing activities
Exercise of stock options $ $ 500
Net proceeds from sales of convertible notes 356,000
Principal payments on capital leases (31,338)
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Net cash (used in) provided by financing activities (31,338) 356,500
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Net (decrease) increase in cash and cash equivalents (353,376) 122,307
Cash and cash equivalents at beginning of year 404,377 2,353
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Cash and cash equivalents at end of period $ 51,001 $ 124,660
==================================================================================================================
Supplemental schedule of noncash investing and financing
activities
Equipment purchased under capital leases $ $ 79,829
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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ClearLogic, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared by ClearLogic, Inc. and subsidiary (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission and, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of results for the interim
periods presented. Certain financial information and footnote disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted pursuant to such
rules and regulations, although the company believes that the accompanying
disclosures are adequate to make the information presented not misleading. These
financial statements and notes included herein should be read in conjunction
with the Company's audited financial statements and notes for the year ended
December 31, 1999 included in the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission. The results of operations for the
six month period ended June 30, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
Note 2. Website Development Contracts
During 2000, the Company entered into two contracts to develop websites
for customers. Under the terms of the contracts, the Company will receive cash
and an equity interest in their customers. The total value of the contracts
which amounted to $1,364,200 consists of the fair value of the common stock
received of $587,100 and $777,100 in cash. The Company has accounted for the
contracts in accordance with AICPA Statement of Position ("SOP") No. 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts". As a result, approximately $532,700 has been recognized as revenue
for the six months ended June 30, 2000. At June 30, 2000, the Company's carrying
value of its investment amounted to $251,655.
Note 3. Losses and Uncertainties
The Company has accumulated losses of approximately $1,553,691, a
stockholders' deficiency of $1,205,399 and has incurred costs to develop and
enhance its technology and to create and introduce its products and services to
its customers. The Company has had negative operating cash flows since inception
which likely will continue as it continues to develop and market its products.
The Company faces intense competition as there are many current
competitors already established in this business and new competitors can
establish themselves quickly as barriers to entry and the costs of entry are
relatively low.
The Company has not yet begun to generate income and cash flow from
operations sufficient to maintain its operations or satisfy its future
commitments and is reliant on its continuing ability to secure capital from a
variety of outside financing sources.
The emerging nature of the Company's products and services and their
rapid evolution will require the Company to continually improve the performance,
features and reliability of its services. The Company's success will depend, in
part, on its ability to enhance its existing services, to develop new services
and technology that address the increasingly sophisticated and varied needs of
its customers and to respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. If the Company is
unable, for technical, legal, financial or other reasons, to adapt in a timely
manner in response to changing market conditions or customer demands, its
business, operating results and financial condition could be materially
adversely affected.
The Company believes that it can secure additional financing sufficient
to fully develop its technologies into commercially viable products and
services. If adequate funds are not available, the Company may be required to
curtail its operations or seek other remedies such as the sale of its
operations. There can be no assurance that the Company will be successful in
such endeavors.
The Company's plan of operation and prospects must be considered in
light of the risks, expenses, difficulties and problems frequently encountered
in the establishment of a new business.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
The following Management's Discussion and Analysis of Results of
Operations and Financial Condition should be read in conjunction with our
audited financial statements and notes thereto for the year ended December 31,
1999 included in our Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission (the "1999 Form 10-KSB").
The information in this discussion contains forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause our actual results, performance, or achievements
or industry results to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. Such factors include those described in "Risk Factors" in the 1999
10-KSB. The forward-looking statements included in this report may prove to be
inaccurate. In light of the significant uncertainties inherent in these
forward-looking statements, you should not consider this information to be a
guarantee by us or any other person that our objectives and plans will be
achieved.
Overview
We founded ClearLogic, the e-media solutions company(TM), in 1997 to
develop custom and off-the-shelf software and provide creative multimedia
services to address certain niches within the Internet business-to-business
environment. During the past three years, we have built a solid customer base
with our services and custom software, and are poised to take the next step
toward delivering not only customized products, but also off-the-shelf
repeatable solutions for electronic media-related uses, via shrink-wrap, online
delivery and Application Service Provider, or ASP, channels. We presently offer
e-business solutions in two general product or service categories:
o Software, both custom services and packaged. ClearLogic offers
NetProof(R), a platform-independent interactive digital image and
document proofing solution designed for businesses that can use the
Internet to enable them to proof, markup, approve and manage
pictures, graphics and text.
o NewMedia services and solutions. ClearLogic also offers various
NewMedia professional services, which include electronic commerce web
sites, database-to-web programming, web site design, web site
hosting, multimedia production, digital video production, three
dimensional modeling and animation, and custom software development.
The Company also intends to use its NewMedia expertise to develop
special content Internet sites built and managed by ClearLogic that
will generate incremental revenue for the Company. The Company also
intends to package some of the software created for these sites and
remarket the components. ClearLogic also provides Network security
services and solutions.
In November 1999, ClearLogic merged with St. James Group, Inc. pursuant
to an Agreement and Plan of Reorganization dated November 23, 1999. Under the
agreement, ClearLogic Acquisition Corporation, a wholly owned subsidiary of St.
James, merged into ClearLogic, Inc., the New Jersey corporation. In
consideration of the merger, 11,096,385 shares of common stock of St. James were
issued to the shareholders of ClearLogic, Inc. ClearLogic, Inc. employee stock
options to purchase 905,000 shares were converted in the merger to options to
purchase 1,635,543 shares of St. James at a price of $.027666 per share. Upon
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consummation of the merger, St. James changed its name to ClearLogic, Inc., and
the operating company became our wholly owned subsidiary. Officers and directors
of ClearLogic, Inc., the New Jersey corporation, were elected as the new
directors and officers. Prior to the closing, St. James had no affiliation with
ClearLogic.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net income applicable to common stock for the three months ended June
30, 2000 was $138,279 or $.01 per basic and diluted share as compared to the net
loss for the three months ended June 30, 1999 of ($111,950) or ($.01) per basic
and diluted share. The increase in income is the result of a significant
increase in revenues as compared to the revenues recognized for the same period.
Revenues of $805,932 in 2000 increased from $114,723 in 1999 primarily
due to an increase in operations during the second quarter of 2000. Revenues
from certain website development contracts amounted to 462,700 of which
approximately $207,000 represents revenue recognized in connection with the
receipt of equity interests in its customers.
General and administrative expenses were $318,390 and $110,777 for the
three months ended June 30, 2000 and 1999, respectively. This increase was
primarily due to payroll and related costs resulting from the addition of
personnel to support the growth of our business as well as increased expenses
for recruiting, travel, professional fees and insurance. General and
administrative expenses as a percentage of revenue were 40% and 97% for the
three months ended June 30, 2000 and 1999, respectively.
Product development expenses of $83,296 in 2000 increased from $75,102
in 1999 primarily due to the development and enhancement of our NetProof product
and also due to an increase in payroll and related costs. We believe that our
product development investment is essential in order to maintain our market and
technological competitiveness. These costs as a percentage of revenue were 10%
and 65% for the three months ended June 30, 2000 and 1999, respectively.
Depreciation and amortization included as part of operating expenses of
$18,726 in 2000 increased from $12,101 in 1999 due to additional equipment
purchases and software capitalization.
Net interest expense of $37,674 in 2000 increased from $12,287 in 1999
primarily due increased to levels of indebtedness at June 30, 2000.
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Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net loss applicable to common stock for the six months ended June 30,
2000 was $(146,356) or ($.01) per basic and diluted share as compared to the net
loss for the six months June 30, 1999 of ($148,492) or ($.01) per basic and
diluted share.
Revenues of $1,023,091 in 2000 increased from $199,474 in 1999
primarily due to an increase in operations during the first six months of 2000.
Revenues from certain website development contracts amounted to $532,700, of
which approximately $252,000 represents revenue recognized in connection with
the receipt of an equity interest in its customers.
General and administrative expenses were $623,583 and $193,217 for the
six months ended June 30, 2000 and 1999, respectively. This increase was
primarily due to payroll and related costs resulting from the addition of
personnel to support the growth of our business as well as increased expenses
for recruiting, travel, professional fees and insurance. General and
administrative expenses as a percentage of revenue were 61% and 97% for the six
months ended June 30, 2000 and 1999, respectively.
Product development expenses of $182,668 in 2000 increased from $86,942
in 1999 primarily due to the development and enhancement of our NetProof product
and also due to an increase in payroll and related costs. We believe that our
product development investment is essential in order to maintain our market and
technological competitiveness. These costs as a percentage of revenue were 18%
and 44% for the six months ended June 30, 2000 and 1999, respectively.
Depreciation and amortization included as part of operating expenses of
$38,268 in 2000 increased from $21,952 in 1999 due to additional equipment
purchases and software capitalization.
Net interest expense of $75,523 in 2000 increased from $18,817 in 1999
primarily due interest on the increased outstanding debt during 2000.
Plan of Operation, Liquidity and Capital Resources
A major objective of the Company is to maintain sufficient liquidity to
fund growth and meet all cash requirements with cash and short-term equivalents
plus funds generated from operating cash flows.
During 1998 and 1999, we relied on borrowings under private placements
from accredited investors, for which the Company issued $608,200 of 8%
convertible notes with warrants to fund operations. In addition, in September
1998, ClearLogic entered into a line of credit for up to $30,000 with a bank for
working capital purposes. That line of credit was repaid and canceled in
December 1999. During 1999, ClearLogic issued $1.0 million of 8% convertible
debentures, the net proceeds of which were used for working capital and other
general purposes. The notes, debentures and accrued interest bear interest at 8%
per annum, which is due at maturity that ranges from 24 to 37 months from the
date of issuance. With the exception of the debentures, the notes and any
accrued interest are convertible at the holder's option, in their entirety, into
common stock at a conversion price determined at the time the Company sells such
stock in an equity offering of at least $500,000. The debentures are convertible
at a conversion price equal to the lower of the market price on the first day of
trading or 75% of the market price averaged over the five trading days prior to
the date of the conversion.
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Cash and cash equivalents as of June 30, 2000 amounted to $51,001. The
Company anticipates the need to obtain additional financing from outside sources
to fund its operations and general corporate expenditures.
Net cash used in operating activities of $254,069 in 2000 was the
result of operating losses.
ClearLogic has no future material commitments for capital expenditures
at June 30, 2000. For the six months ended June 30, 2000, ClearLogic's capital
expenditures totaled approximately $71,219. Capital expenditures were primarily
for equipment, software and building improvements.
If we are able to obtain sufficient capital to pursue our strategic
goals, we intend to transition our NetProof software to a customized Application
Service Provider-model. However, in the absence of capital, ClearLogic is
maintaining its operations through a balanced offering of custom software,
commodity mid-to-high-end e-commerce web development and multimedia services.
We derive substantially all of our revenues from fees for services
generated on a project-by-project basis. ClearLogic's services are provided on
both a fixed-time, fixed-price basis and on a time and materials basis.
Historically, ClearLogic has not operated on a retainer basis; however, in the
future, ClearLogic may utilize such arrangements.
We anticipate that we will continue to expand our sales operations
throughout the U.S. within the next twelve months and, therefore, we expect to
incur increases in our sales and marketing expenditures. We also expect to incur
increases in our product development expenditures as we continue to enhance our
products.
We believe that our existing capital resources are not sufficient to
meet our capital requirements for the next twelve months. We intend to seek
financing from outside sources (including but not limited to our current
investment bankers and strategic partners) to meet our capital requirements for
at least the next twelve months.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Change in securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule (in electronic format only).
(b) Reports on Form 8-K:
None
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CLEARLOGIC, INC.
Dated: August 21, 2000 By: /s/ Philip S. Burnham, II
------------------------
Philip S. Burnham, II
Chief Operating Officer, General
Counsel and Chief Financial Officer
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