<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 33-0612125
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 South Haddon Avenue, Haddonfield, New Jersey 08033
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (856) 547-7844
N/A
----------------------------------------------------
(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 .
--- ---
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 .
--- ----
1
<PAGE>
ClearLogic, Inc.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <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.................................10-12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.........................................13
Signatures........................................................................14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ClearLogic, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 15,715
Accounts receivable, net of allowance for doubtful accounts of
$16,953 91,001
Prepaid expenses 4,999
Other current assets 14,640
--------------------------------------------------------------------------------------------------
Total current assets 126,355
--------------------------------------------------------------------------------------------------
Property, equipment and software, net of accumulated
depreciation and amortization of $182,450 184,601
--------------------------------------------------------------------------------------------------
Other assets
Due from officer 8,570
Investment, at cost 433,600
Unamortized software costs, net of accumulated
amortization of $72,000 25,000
Deferred financing costs, net of accumulated
amortization of $6,946 18,054
Other 1,875
--------------------------------------------------------------------------------------------------
Total other assets 487,099
--------------------------------------------------------------------------------------------------
Total assets $ 798,055
---------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' (Deficiency)
Current liabilities
Accounts payable $ 266,450
Accrued expenses 134,347
Notes payable, net of discount 554,864
Capital lease obligations 8,603
-----------------------------------------------------------------------------------------------
Other 10,108
Total current liabilities 974,372
Notes payable, net of current maturities and discount 1,164,818
-----------------------------------------------------------------------------------------------
Total liabilities 2,139,190
-----------------------------------------------------------------------------------------------
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) (1,689,427)
-----------------------------------------------------------------------------------------------
Total stockholders' (deficiency) (1,341,135)
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders' (deficiency) $ 798,055
-----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 605,693 $ 131,632
Cost of revenues 113,923 49,590
---------------------------------------------------------------------------------------------------------
Gross profit 491,770 82,042
---------------------------------------------------------------------------------------------------------
Operating expenses
General and administrative 460,864 151,403
Product development 109,502 66,733
Depreciation and amortization 24,859 13,093
---------------------------------------------------------------------------------------------------------
Total operating expenses 595,225 231,229
---------------------------------------------------------------------------------------------------------
Operating income (loss) (103,454) (149,187)
Interest expense (32,465) (18,505)
Other income, net 184 1,500
---------------------------------------------------------------------------------------------------------
Net income (loss) $ (135,736) $ (166,192)
---------------------------------------------------------------------------------------------------------
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 13,355,371
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 1,628,784 $ 331,106
Cost of revenues 365,489 82,394
------------------------------------------------------------------------------------------------------
Gross profit 1,263,295 248,712
------------------------------------------------------------------------------------------------------
Operating expenses
General and administrative 1,084,447 344,620
Product development 292,170 153,675
Depreciation and amortization 63,127 35,045
------------------------------------------------------------------------------------------------------
Total operating expenses 1,439,744 533,340
------------------------------------------------------------------------------------------------------
Operating (loss) (176,448) (284,628)
Interest expense (107,988) (37,322)
Other income, net 2,345 7,266
------------------------------------------------------------------------------------------------------
Net (loss) $ (282,092) $ (314,684)
------------------------------------------------------------------------------------------------------
Loss per share of common stock (basic and diluted) $ (.02) $ (.02)
------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding used in
computing loss per share (basic and diluted) 14,827,226 13,355,371
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' (Deficiency)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ------------------------
Number Number
of of
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 2000 $ -- 14,827,226 $ 14,827
Net (loss)
-------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ -- 14,827,226 $ 14,827
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated Stockholders'
Capital (Deficit) (Deficiency)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, June 30, 2000 $ 333,465 $ (1,553,691) (1,205,399)
Net (loss) (135,736) (135,736)
------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 333,465 (1,689,427) $(1,341,135)
------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) (282,092) $ (314,684)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities
Depreciation and amortization 87,564 43,046
Allowance for doubtful accounts 9,690 4,500
Compensation related to issuance of options and 1,035
warrants
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable (84,728) (62,727)
Prepaid expenses 13,668 (418)
Other current assets (5,713) (12,250)
Investments, at cost (423,600)
Increase (decrease) in liabilities
Accounts payable 215,997 2,563
Accrued expenses 65,027 31,975
Other current liabilities 73,766 (205)
--------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (304,208) (253,579)
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of property, equipment and software (82,112) (76,075)
--------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (82,112) (76,075)
--------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
ClearLogic, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities
Proceeds from borrowings, net (30,000)
Exercise of stock options $ 38,000 $ 500
Net proceeds from sales of convertible notes 3,250 418,000
Principal payments on capital leases (43,592) (11,447)
----------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 2,342 377,053
----------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (388,662) 47,399
Cash and cash equivalents at beginning of year 404,377 2,353
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,715 $ 49,752
----------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing
activities
Equipment purchased under capital leases $ $ 79,829
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
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
three-month period ended September 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 $573,600 has been recognized as revenue
for the nine months ended September 30, 2000. At September 30, 2000, the
Company's carrying value of its investment amounted to $423,600. At September
30, 2000, the Company had completed work on one contract, and on October 2,
2000, the Company was discharged from work on the other contract.
Note 3. Losses and Uncertainties
The Company has incurred costs to develop and enhance its technology
and to create and introduce its products and services. As a result, the Company
has incurred significant losses and expects to continue to incur losses on a
quarterly and annual basis.
10
<PAGE>
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 13, 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,
11
<PAGE>
Inc. employee stock options to purchase 905,000 shares were converted in the
merger to options to purchase 1,635,542 shares of St. James at a price of
$.027666 per share. Upon 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. Immediately prior to the
closing of the merger, we issued 137,900 shares on conversion of a promissory
note and effected a four-for-one stock split.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months
Ended September 30, 1999
Net loss applicable to common stock for the three months ended
September 30, 2000 was ($135,736) or ($.01) per basic and diluted share as
compared to the net loss for the three months September 30, 1999 of ($166,192)
or ($.01) per basic and diluted share. The decrease in loss is the result of a
significant increase in revenues as compared to the revenues recognized for the
same period.
Revenues of $605,693 in 2000 increased from $131,632 in 1999 primarily
due to an increase in operations during the first and second quarter of 2000.
General and administrative expenses were $460,864 and $151,403 for the
three months ended September 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 76% and 115% for the
three months ended September 30, 2000 and 1999, respectively.
Product development expenses of $109,502 in 2000 increased from $66,733
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 51% for the three months ended September 30, 2000 and 1999, respectively.
Depreciation and amortization of $24,859 in 2000 increased from $13,093
in 1999 due to additional equipment purchases and software capitalization.
Net interest expense of $32,465 in 2000 increased from $18,505 in 1999
primarily due the accrued interest on the outstanding debt at September 30,
2000.
12
<PAGE>
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Net loss applicable to common stock for the nine months ended September
30, 2000 was ($282,092) or ($.02) per basic and diluted share as compared to the
net loss for the nine months September 30, 1999 of ($314,684) or ($.02) per
basic and diluted share. The increased loss is the result of a significant
increase in operating expenses as compared to the revenues recognized for the
same period.
Revenues of $1,628,784 in 2000 increased from $331,106 in 1999
primarily due to an increase in operations during the second and third quarter
of 2000. Revenues from certain website development contracts amounted to
$576,300, of which approximately $423,600 represents revenue recognized in
connection with the receipt of an equity interest in its customers.
General and administrative expenses were $1,084,447 and $344,620 for
the nine months ended September 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 67% and 104% for the
nine months ended September 30, 2000 and 1999, respectively.
Product development expenses of $292,170 in 2000 increased from
$153,675 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 46% for the nine months ended September 30,
2000 and 1999, respectively.
Depreciation and amortization of $63,127 in 2000 increased from $35,045
in 1999 due to additional equipment purchases and software capitalization.
Net interest expense of $107,988 in 2000 increased from $37,322 in 1999
primarily due the accrued interest on the outstanding debt at September 30,
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
13
<PAGE>
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 18 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.
Cash and cash equivalents as of September 30, 2000 amounted to $15,715.
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 $329,386 in 2000 was the
result of operating losses. ClearLogic does not anticipate that future cash used
by or provided from operations will include amounts related to the ClearLogic
merger, which became effective November 1999.
ClearLogic has no future material commitments for capital expenditures
at September 30, 2000. Through September 30, 2000, ClearLogic's capital
expenditures totaled approximately $82,112. 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. There is no assurance that we will be able to
obtain such financing on acceptable terms.
14
<PAGE>
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
15
<PAGE>
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: November 20, 2000 By: /s/ Philip S. Burnham, II
------------------------------------
Philip S. Burnham, II
Chief Executive Officer,
General Counsel and
Acting Chief Financial Officer
16
