Collexis, based in Columbia, South Carolina, is a software development company. Our core technology is centered around our ability to develop software that enables discovery through identification, ordering and aggregation of ideas and concepts. Using public as well as proprietary thesauri of industry specific language, we can create “fingerprints” of texts, such as articles, web pages, books and internal and external databases, which can be used in turn to find the most relevant information to answer any question a researcher or business professional might have. Our initial focus is on five key markets – university and medical research, government, healthcare, biotechnology / pharmaceuticals and legal - each representing a software sales market with current opportunities in excess of $1 billion.
Our company was founded in 1999 in the Netherlands. Our mission is to develop software that supports knowledge extraction and discovery across multiple industries and in multiple languages. Our technology, in addition to having customary data and information retrieval capabilities, is also able to discover relationships between elements of different information sources through clustering and aggregation.
Our technology is based on the principle of fingerprinting. The system can create a fingerprint for any piece of text containing relevant information. This process makes use of a structure of professional terminology in a particular field, called a thesaurus, taxonomy or ontology. A thesaurus contains selected words, terms and concepts and their semantic relationships in a hierarchical structure also reflecting synonyms and homonyms. Our system architecture has three tiers. The first tier, an applications layer, is configured according to customer specifications and made available only to authorized users via intranet or extranet for specialized database searches. A proprietary interface arranges for communications between the user and our technology, thus providing easy integration in existing environments. The second tier, our Collexis Engine, forms a core that executes commands that extract, match and relate pieces of text. Our third tier, a permanent storage layer, stores the location of all information used by the Collexis Engine for later retrieval. Actual source material, however, is not typically stored on our system.
Our business plan involves three related marketing strategies. With regard to large government and business users, we offer customized software search and mining applications on a licensed basis with additional service contracts and software development tools. In the United States we have been engaged by the National Institutes of Health for work in connection with their analysis of grant applications. Similar arrangements have been worked out in Europe with the World Health Organization, the Royal Dutch Academy of Arts and Science, the University of Rotterdam, and many others. Our second strategy is a subscription service for our Collexis Engine or relevant 6.0 applications, in which we function as an application service provider. This approach provides little or no customization of the software. Access can be purchased by subscribers on a daily or annual basis, based on the number of users. In the area of life sciences, for example, our search engine can be used to search and mine patent literature, grant application, clinical trials, medical literature and other data bases. Our third approach is a hybrid of the two other methods, providing customers with some customizations from the basic search and mining technology, but still delivered primarily in an application software provider (“ASP”) mode. Our German development partner, Syynx, builds these customized applications for specific clients, particularly in the healthcare, life sciences and legal areas. We have a 2-year option to acquire Syynx for (euro)5 million, which expires on October 9, 2008.
Results of Operations
Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
Net Loss. We incurred a net loss of $1.1 million for the three months ended March 31, 2007 versus a net loss of $266,000 for the prior year quarter.
The increase in net loss of $834,000 for the three months ended March 31, 2007 as compared to the prior year quarter resulted primarily from:
the ramp up of personnel and operations in the US market;
an increase in legal, professional, and accounting fees associated with the requirements of the Merger of the Company and Collexis Delaware.
Our ability to achieve profitable operations depends in part on increasing revenue through planned expansion. Given the uncertainties surrounding the timing of adding new customers and developing new markets, we cannot provide any assurance regarding when we will show profitable results, if at all.
Net Sales. Net sales for the three months ended March 31, 2007 decreased to $579,000 from $626,000 in the prior year quarter. The decrease is due to a concerted effort by the Company to sell its products on a subscription basis rather than on a one-time license fee basis.
Cost of Sales. Cost of sales for the three months ended March 31, 2007 was $274,000 compared to $184,000 for the three months ended March 31, 2006. The increase in cost of sales is directly related to an increase in payments to Syynx, a related party vendor, a third party vendor associated with the implementation of our clients.
Gross Profit. Gross profit for the three months ended March 31, 2007 was $305,000, or 53.0% of net sales, versus a gross profit of $442,000, or 71% of net sales for the three months ended March 31, 2006. The reason are as outlined above.
General and Administrative Expenses. General and administrative expenses were $1.5 million for the three months ended March 31, 2007, compared to $707,000 for the three months ended March 31, 2006, reflecting an increase of $749,000. The increase is due primarily to hiring of additional employees in the areas of management, administration and sales. The increase is also due to an increase in professional services costs related to our public company requirements and costs related to the ramp up of our US operations.
Sales and Marketing. Sales and marketing expense for the three months ended March 31, 2007 was $67,000 compared to $31,000 in the same period last year. This increase is related to the build out of our US sales force and the ramp up of our sales efforts in the US market.
Depreciation. Depreciation expense for the three months ended March 31, 2007 was $16,000 compared to $7,000 for the prior year quarter. This increase is primarily attributable to the fixed asset additions associated with the start-up of the corporate headquarters in the US.
Nine Months Ended March 31, 2007 Compared to Nine Months Ended March 31, 2006
Net Loss. We incurred a net loss of $2.9 million for the nine months ended March 31, 2007 versus a net loss of $947,000 for the prior year period. The increase in net loss of $2 million resulted primarily from:
the ramp up of personnel and operations in the US market;
an increase in legal, professional, and accounting fees associated with the requirements of the Merger of the Company and Collexis Delaware.
Our ability to achieve profitable operations depends in part on increasing revenue through planned expansion. Given the uncertainties surrounding the timing of adding new customers and developing new markets, we cannot provide any assurance regarding when we will show profitable results, if at all.
Net Sales. Net sales for the nine months ended March 31, 2007 increased to $1.6 million from $1 million in the prior year period. The increase is due to a ramp up of business efforts in the US partially offset by a concerted effort of the Company to sell its products on a subscription basis rather than on a one-time license fee basis.
Cost of Sales. Cost of sales for the nine months ended March 31, 2007 was $835,000 compared to $557,000 for the nine months ended March 31, 2006. The increase in cost of sales is directly related to an increase in payments to Syynx, a related party vendor, a third party vendor associated with the implementation of our clients.
Gross Profit. Gross profit for the nine months ended March 31, 2007 was $752,000, or 47% of net sales, versus a gross profit of $487,000, or 47% of net sales for the nine months ended March 31, 2006 . The reasons are as outlined above.
General and Administrative Expenses. General and administrative expenses were $3.9 million for the nine months ended March 31, 2007, compared to $1.7 million for the nine months ended March 31, 2006, reflecting an increase of $749,000. The increase is due primarily to hiring of additional employees in the areas of management, administration and sales. The increase is also due to an increase in professional services costs related to our public company requirements and costs related to the establishment of our global headquarters and the ramp up of our US operations.
Sales and Marketing. Sales and marketing expense for the nine months ended March 31, 2007 was $204,000 compared to $39,000 in the same period last year. This increase is related to the build out of our US sales force and the ramp up of efforts in the US.
Depreciation. Depreciation expense for the nine months ended March 31, 2007 was $34,000 compared to $20,000 for the prior year quarter. This increase is primarily attributable to the fixed asset additions associated with the start-up of the corporate headquarters in the US.
Liquidity and Capital Resources
As of March 31, 2007, we had cash and cash equivalents of $1.5 million. Our working capital as of March 31, 2007 was $1.0 million, representing an increase in working capital of $280,000 compared to working capital of $720,000 at June 30, 2006. As of March 31, 2007 we had no outstanding debt.
During the nine months ended March 31, 2007, we used net cash of $4.0 million for operating activities. We used additional cash of $100,000 for investing activities which was primarily for the purchase of capital assets. During the nine months ended March 31, 2007, we received cash proceeds of $4.9 million arising from the issuance of additional shares.
We will need substantial additional capital to pursue our growth plans. We may seek to raise capital through additional equity offerings, debt financing, bond financing, asset sales or a combination of these methods. We are currently in preliminary discussions with several intermediaries, advisors and investors to structure and raise additional funds. We currently have no commitments for any additional financing, and we can give no assurance that we will be able to raise additional capital we need on commercially acceptable terms or at all. Our failure to raise capital as needed would significantly restrict our growth and hinder our ability to compete. We may need to curtail expenses, reduce planned investments in technology and research and development and forgo business opportunities. Additional equity financings are likely to be dilutive to holders of our common stock, and debt financing, if available, may involve significant payment obligations and covenants that restrict how we operate our business.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We had no material exposure to market risk from derivatives or other financial instruments as of March 31, 2007, other than for currency risk associated with receivables and payables not denominated in dollars.
Item 4. Controls and Procedures
Based on our management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, as of March 31, 2007, the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and 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.
There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not party to any material litigation at this time.
Item 1A. Risk Factors.
In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed under the heading “Information Regarding Collexis” in Item 2.01, “Completion of Acquisition or Disposition of Assets,” in our Current Report on Form 8-K dated February 14, 2007. These risk factors could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 23, 2007, we issued 2,836,358 shares of common stock to several individuals. These individuals paid us $0.75 per share, or $2,127,269. We issued these shares without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(2) of the Securities Act of 1933. These individuals acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof. An appropriate legend was affixed to the share certificate issued to these individuals. These individuals have such knowledge and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in our common stock, and given his positions with us, he had adequate access to information about us.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits
| 31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certificate Pursuant To 10 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
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.
Date: May 21, 2007
| | COLLEXIS HOLDINGS, INC. |
| | By: |
/s/ William D. Kirkland
|
| | | William D. Kirkland, Chief Executive Officer
(The Registrant’s Principal Executive Officer,
who is duly authorized to sign this report) |
| | By: |
/s/ William D. Kirkland
|
| | | William D. Kirkland, Chief Financial Officer
(The Registrant’s Principal Financial Officer,
who is duly authorized to sign this report) |
