Collexis (CLXS) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009.

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: 001-33495

COLLEXIS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)  

Nevada	30-0505595
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1201 Main Street, Suite 980, Columbia, SC	29201
(Address of principal executive offices)	(Zip Code)

(803) 727-1113

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨  No  x

Indicate by check mark weather the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes o      No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company x 

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ¨ No x

As of May 15, 2009, there were 170,064,073 shares of the issuer’s common stock outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three and nine months ended March  31, 2009, contains forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as other sections in this report. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that could cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock could decline, and you could lose all or part of the value of your shares of our common stock. These factors include, but are not limited to, the following:

· the availability and adequacy of capital to pay the deferred payment obligations we owe and to support and grow our business;

· changes in economic conditions in the U.S. and in other countries in which we currently do business;

· currency exchange rates;

· failure to integrate new products and newly acquired companies and the diversion of management resources relating to acquisitions, and the negative effect on our earnings relating to the amortization or potential write-down of acquired assets or goodwill;

· fluctuations in operating results and earnings, including timing of cash flows and company performance;

· market acceptance of new products or the failure of new products to operate as anticipated;

· actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities;

· competition in our industry;

· changes in our business and growth strategy, capital improvements or development plans;

· disputes regarding our intellectual property; and

· other factors discussed under the section entitled “Risk Factors” or elsewhere in this report.

These and additional factors are set forth in Part II, Item 1A. of  this report. You should carefully review these risks and additional risks described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K filed on October 14, 2008. The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.

We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.

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 COLLEXIS HOLDINGS, INC. and Subsidiaries

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

Item		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 31, 2009 and June 30, 2008	5
	Consolidated Statements of Operations for the three months and nine months ended March  31, 2009 and March  31, 2008	6
	Consolidated Statements of Comprehensive Loss for the three months and nine months ended March  31, 2009 and March  31, 2008.	7
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2009 and March 31, 2008.	8
	Notes to Consolidated Financial Statements	9
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
3.	Quantitative and Qualitative Disclosures About Market Risk	24
4.	Controls and Procedures	24
	PART II - OTHER INFORMATION
1.	Legal Proceedings	25
1A.	Risk Factors	25
2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
3.	Defaults Upon Senior Securities	27
4.	Submission of Matters to a Vote of Security Holders	27
5.	Other Information	27
6.	Exhibits	27

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

4

COLLEXIS HOLDINGS, INC. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	As of March 31,			As of June 30,
	2009			2008
	(unaudited)			(Note)
ASSETS
Currents assets
Cash and cash equivalents	$	220,093		$	1,476,234
Accounts receivable, net of allowance for doubtful accounts of $ 49,200
and $ 302,492		707,060			1,193,678
Prepaid expenses and other current assets		156,284			225,973
Total current assets		1,083,437			2,895,885
Property and equipment, at cost, net of accumulated depreciation of $ 268,815
and $ 671,293		381,678			540,485
Intangibles, net of accumulated amortization of $ 1,934,639 and $998,584		5,861,792			7,726,426
Trade Name		1,090,594			1,090,494
Goodwill		8,904,142			9,616,603
Security deposit - rent		-			23,482
Total assets	$	17,321,643		$	21,893,375
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable trade	$	1,482,570		$	1,152,230
Accrued taxes and expenses		1,019,814			1,299,416
Deferred revenue		1,157,695			762,566
Deferred gain		224,935			-
Other Liabilities and deferred charges		-			21,299
Deferred tax liability, net		12,490			22,706
Note payable		184,594			-
Current portion of deferred purchase price		3,434,070			3,803,507
Total current liabilities		7,516,168			7,061,724
Non-current liabilities
Deferred tax liability		1,057,960			1,532,977
Deferred purchase price		5,595,034			6,991,696
Total non-current liabilities		6,652,994			8,524,673
Total Liabilities		14,169,162			15,586,397
Stockholders' (deficiency) equity
Common stock, par value $0.001, 277,713,000 authorized  shares; 123,167,546
shares issued and outstanding as of March 31, 2009; authorized 277,713,000
shares; 109,743,727 issued and outstanding as of June 30, 2008		123,170			109,744
Additional paid-in capital		33,333,426			30,314,289
Stock Warrants Outstanding		323,909			-
Accumulated other comprehensive income (loss)		(418,627	)		636,693
Accumulated deficit		(30,209,397	)		(24,753,748	)
Total stockholders' (deficiency) equity		3,152,481			6,306,978
Total liabilities and stockholders' equity	$	17,321,643		$	21,893,375

Note: The Balance Sheet at June 30, 2008, has been derived from the Company's audited financial statements as of that date. 

The accompanying notes are an integral part of these consolidated financial statements.

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COLLEXIS HOLDINGS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
Revenue
License Revenue	$	68,647		$	287,360		$	272,454		$	618,448
Service Revenue		479,160			413,169			1,591,836			1,003,391
Maintenance & Support Revenue		90,131			172,725			546,826			446,676
Hardware & Hosting Revenue		47,542			45,218			98,874			99,568
Database subscription revenue		776,982			498,383			2,266,655			498,383
Total revenue		1,462,462			1,416,855			4,776,645			2,666,466
Cost of Revenue
Cost of License Revenue		-			4,175			180,156			47,895
Cost of Service Revenue		354,057			261,590			1,030,623			592,331
Cost of Maintenance & Support Revenue		(144	)		23,938			31,012			232,568
Cost of Hardware & Hosting Revenue		37,612			33,011			110,899			69,710
Cost of subscription revenue		197,611			173,206			572,149			173,206
Total cost of revenue		589,136			495,920			1,924,839			1,115,710
Gross profit		873,326			920,935			2,851,806			1,550,756
Operating expenses
General & Administrative		1,791,915			2,765,879			6,210,229			6,199,667
Sales & Marketing		609,884			750,043			2,148,984			2,158,386
Research & Development		100,169			276,302			469,923			1,059,930
Total operating expenses		2,501,968			3,792,224			8,829,136			9,417,983
Loss before other income and income tax		(1,628,642	)		(2,871,289	)		(5,977,330	)		(7,867,227	)
Other income		387,459			3,258			769,276			(5,439	)
Loss before interest income (expense)	$	(1,241,183	)	$	(2,868,031	)	$	(5,208,054	)	$	(7,872,666	)
Interest income (expense)		(233,741	)		(168,669	)		(487,734	)		(263,541	)
Loss before income tax benefit		(1,474,924	)		(3,036,700	)		(5,695,788	)		(8,136,207	)
Tax benefit		86,103			80,417			240,139			212,060
NET LOSS		(1,388,821	)		(2,956,283	)		(5,455,649	)		(7,924,147	)
Basic common shares outstanding		113,902,617			73,076,731			111,586,068			66,969,780
Basic net loss per share	$	(0.01	)	$	(0.04	)	$	(0.05	)	$	(0.12	)

The accompanying notes are an integral part of these consolidated financial statements.

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COLLEXIS HOLDINGS, INC. and Subsidiaries

 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 (Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
Net loss	$	(1,388,821	)	$	(2,956,283	)		(5,455,649	)	$	(7,924,147	)
Foreign currency translation adjustment		(522,071	)		374,160			(1,055,320	)		604,141
Comprehensive loss	$	(1,910,892	)	$	(2,582,123	)	$	(6,510,969	)	$	(7,320,006	)

The accompanying notes are an integral part of these consolidated financial statements.

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COLLEXIS HOLDINGS, INC. and Subsidiaries

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

	Nine			Nine
	Months Ended			Months Ended
	March 31,			March 31,
	2009			2008
Cash flows from operating activities
Net loss	$	(5,455,649	)	$	(7,924,147	)
Adjustments to reconcile net loss to net cash to net cash used in operating activities
Depreciation and amortization		1,233,440			648,953
Stock option compensation expense		622,556			533,959
Reduction to deferred payment obligation for revenue earned		-			(70,133	)
Foreign exchange gain and loss		(328,158	)		-
Gain and loss on BV bankruptcy		(436,415	)		-
Gain and loss on sale of assets		-			15,183
Discount		552,136
Allowance for bad debts		(10,230	)		194,391
Deferred taxes		(485,233	)		(156,229	)
Accounts Receivable		428,503			168,786
Prepaid expenses		58,399			(250,727	)
Other receivables		-			132,815
Other assets & deferred charges		(16,687	)		-
Accounts payable		429,831			764,012
Accrued expenses		(27,376	)		978,639
Deferred revenue		455,905			227,966
Net cash (used in) operating activities		(2,978,978	)		(4,736,532	)
Cash flows from investing activities
Purchases of property and equipment		(68,367	)		(226,853	)
Acquisition of intangibles		-			(105,615	)
Acquisition of SyynX, net of cash acquired		-			(78,128	)
Acquisition of Lawriter, net of cash acquired		-			(1,774,379	)
Net cash (used in) investing activities		(68,367	)		(2,184,975	)
Cash flows from financing activities
Loan from shareholder		-			(650,000	)
Repayment of loan for VersusLaw		-			(100,000	)
Fees paid to raise capital		-			(231,298	)
Payment on def. purchase obligation - Syynx		(406,290	)		(2,106,331	)
Payment on def. purchase obligation - Lawriter		(627,500	)		(497,076	)
Convertible note		560,000			-
Proceeds on stock issuance		2,319,250			-
Cash received on stock subscriptions		-			10,644,758
Net cash provided by financing activities		1,845,460			7,060,053
Net increase (decrease) in cash and cash equivalents		(1,201,885	)		138,546
Effect of exchange rate changes on cash and cash equivalents		(54,256	)		(61,308	)
Cash and cash equivalents at beginning of period		1,476,234			187,261
Cash and cash equivalents at end of period	$	220,093		$	264,499
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest	$	45,990		$	43,894
Income taxes	$	-		$	28,000

The accompanying notes are an integral part of these consolidated financial statements.

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COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organizational Matters

The company was formed when, on February 13, 2007, Collexis Holdings, Inc., a Delaware corporation, merged with and into Technology Holdings, Inc., a Nevada corporation. As the surviving company, Technology Holdings, Inc. changed its name to Collexis Holdings, Inc.  Immediately before the merger, Collexis Holdings, Inc. had acquired through a share exchange approximately 99.5% of the outstanding capital stock of Collexis B.V.   Before the merger, Technology Holdings, Inc. was a development stage company with no operations. Collexis B.V. was founded in 1999 in the Netherlands and through these transactions became the operating subsidiary of Collexis Holdings, Inc. and acquirer for accounting purposes.  On June 27, 2008, we acquired the remaining 0.5% of Collexis B.V. stock we did not previously own in exchange for 183,333 shares of our common stock.

On October 19, 2007, we acquired our long-time software development partner, SyynX WebSolutions GmbH, a privately-held software company based in Cologne, Germany. Additionally, on February 1, 2008, we acquired Lawriter, LLC, an Ohio based company that provides online legal research services to bar associations under the name Casemaker® via monthly database subscription fees. To further expand our offerings to legal industry clients, on January 18, 2008, we entered into a licensing and publishing agreement with VersusLaw, Inc., under which we acquired a perpetual, non-exclusive, transferable license to use VersusLaw’s legal-related collection of judicial opinions.

On February 26, 2009, we filed a petition with the Court in the Netherlands to file for bankruptcy protection for Collexis B.V.  The bankruptcy was declared effective on March 3, 2009 and a Trustee was appointed  to liquidate the subsidiary.  Since the acquisition of SyynX, our long time software development partner in October, 2007, management had implemented an aggressive strategy to reorganize Collexis B.V. in an attempt to make it profitable and economically viable.  It became apparent, through these efforts, that continuing the operations of Collexis B.V. was not in the best long-term interest of the Company.  To date, management believes this decision has had no negative impact on the Company’s business or prospects.  This filing did not result in discontinued cash flows to the Company based on the fact that for the last several months, Collexis B.V. contracts were being fulfilled by SyynX and other subsidiaries of the Company.

Description of Business

Collexis Holdings, Inc., sometimes referred to as “Collexis,” the “Company,” “we,” “us,” or “our” in this report, is a global software development company headquartered in Columbia, South Carolina with operations in Cincinnati, Ohio, Geldermalsen, the Netherlands and Cologne, Germany. We develop software that supports the knowledge intensive market, building tools to search and mine large sets of information. Our software enables search, aggregation, navigation and discovery of information. 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 - that can be used in turn to find the most relevant information for a researcher or business professional. We generate our revenues primarily from licensing our software, providing services to the users of our software, maintaining and supporting our software, selling related hardware and hosting software on an application service provider basis.

We operate several subsidiaries that support our core technology sales in the government, enterprise and life science sectors. In February, 2008 we  acquired an industry-dedicated subsidiary, Lawriter LLC, which provides online legal research services to lawyers in the United States primarily through state bar associations. In addition, we now offer the world’s first pre-populated professional social network for life science researchers, www.biomedexperts.com.

Our technology is based on the principle of fingerprinting or the semantic profiling of a document. The Collexis software 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, including thesaurus, taxonomies or ontologies. A thesaurus contains selected words, terms and concepts and their semantic relationships in a hierarchical structure also reflecting synonyms and homonyms. The profiled fingerprint of a document is the starting point for industry applications that we use in our primary markets. The document fingerprint depends not only on the capabilities of the resulting application, but also on the underlying functionality and scalability of the system architecture to perform in industries as diverse as the legal, life sciences, and defense/government markets.

9

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and in accordance with Article 8 of Regulation S-X. The results of operations of Collexis Holdings, Inc. and its wholly-owned subsidiary Collexis Inc. are included for all periods presented. The results of Collexis B.V. are included up through the period ended February 28, 2009.  The results of SyynX Solutions, GmbH are included from October 19, 2007 and the results of Lawriter, LLC are included from February 1, 2008, their respective acquisition dates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year End

The Company’s fiscal year end for financial reporting is June 30. The Company’s fiscal year end for income tax reporting has recently been changed to June 30 to correspond with its financial reporting period.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), and Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” The Company recognizes revenue from non-cancelable software licenses when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller. In multiple element arrangements, the Company defers the vendor-specific objective evidence of fair value (“VSOE”) related to the undelivered elements and recognizes revenue on the delivered elements using the percentage-of-completion method.

The most commonly deferred elements are initial maintenance and consulting services. The Company recognizes initial maintenance on a straight-line basis over the initial maintenance term. The Company determines VSOE of maintenance by using a consistent percentage of maintenance fees to license fee based on renewal rates. The Company recognizes maintenance fees in subsequent years on a straight-line basis over the life of the applicable agreement. The Company determines VSOE of services by using an average consulting rate per hour for consulting services sold separately, multiplied by the estimate of hours required to complete the consulting engagement.

For software license, services and maintenance revenue, the Company assesses whether the fee is fixed and determinable, the Company has performed the services and whether or not collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after the Company’s normal payment terms, which are 30 to 90 days from invoice date, the fee is not considered fixed and determinable. In these cases, the Company recognizes revenue as the fees become due.

The Company bills the majority of its training and consulting services based on hourly rates. The Company generally recognizes revenue as it performs these services. However, when an arrangement with a customer is based on a fixed fee or requires significant work either to alter the underlying software or to build additional complex interfaces to enable the software to perform as the customer requests, the Company recognizes the related revenue using the percentage of completion method of accounting.

The Company recognizes revenues from transaction fees associated with subscription arrangements, which are billable on a per transaction basis, based on the actual number of transactions processed during the period. The Company’s Lawriter subsidiary, invoices its subscription customers in advance of the month for which the subscription services are being provided. Recognition of revenue associated with such billing is recognized by Lawriter in the month the services are actually provided.

10

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Foreign Currency Risk

The Company has conducted significant sales activity through its subsidiaries in the Netherlands and Germany. The Company has experienced foreign exchange gains and losses to date without engaging in any hedging activities.

The Company’s foreign operations’ functional currency is the applicable local currency (primarily the Euro). Assets and liabilities for these foreign operations are translated at the exchange rate in effect at the balance sheet date, and income and expenses are translated at average exchange rates prevailing during the period. Translation gains or losses are reflected in the statements of operations.

Loss per Common Share

Loss per share (“EPS”) is computed based on a weighted average number of common shares outstanding and excludes any potential dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, which would then share in the earnings of the Company. During the periods presented, the Company had 71,482,343 and 18,347,119 options, warrants and restricted stock outstanding as of March 31, 2009 and 2008 respectively, that could potentially dilute basic earnings per share in the future. These instruments were excluded from the computation of diluted earnings per share, because their effect would have been anti-dilutive.

Impairment or Disposal of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company monitors events or changes in circumstances that may indicate carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of its assets by determining whether the carrying amount of its assets will be recovered through undiscounted, expected future cash flows. If the Company determines that the carrying values of specific long-lived assets are not recoverable, the Company will record a charge to operations to reduce the carrying value of those assets to their fair values. The Company considers various valuation factors, principally discounted cash flows, to assess the fair values of long-lived assets.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is reviewed for impairment utilizing a two-step process. The first step of the impairment test requires the identification of the reporting units, and comparison of the fair value of each of these reporting units to the respective carrying value. The fair value of the reporting units is determined based on valuation techniques using the best information that is available, such as discounted cash flow projections. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. SFAS No. 142 requires goodwill to be tested for impairment annually at the same time every year, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. The annual impairment tests are performed in the fourth quarter of each year.

Management does not believe there is any impairment to its Goodwill or Intangible Assets at March 31, 2009 based on the Company’s current market capitalization. Other intangible assets, which include customer lists, trademarks, and other identifiable intangible assets, are amortized on a straight-line basis over estimated useful lives of three to 10 years.

11

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Stock-Based Compensation

On January 1, 2006, Collexis adopted SFAS No. 123R, “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the cost of employee services received in exchange for equity instruments awarded or liabilities incurred to be recognized in the financial statements. Under this method, compensation cost beginning January 1, 2006 includes the portion vesting in the period for (1) all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (2) all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated using the Black-Scholes option pricing model.

The Company began using the modified prospective transition method when it adopted SFAS 123R as of January 1, 2006. The Company anticipates it will grant additional employee stock options and/or non-vested stock units in the future. The fair value of these grants is not included in the amount above, as the impact of these grants cannot be predicted at this time because it will depend on the number of share-based payments granted and the then current fair values.

Recent accounting pronouncements

Please see the Company’s annual report on Form 10-K filed on October 14, 2008 for a discussion of the impact of recent accounting pronouncements on the Company in addition to those listed below.

The SEC’s Office of the Chief Accountant and the staff of the Financial Accounting Standards Board (“FASB”) issued press release 2008-234 on September 30, 2008 (“Press Release”) to provide clarifications on fair value accounting.  The Press Release includes guidance on the use of management’s internal assumptions and the use of “market” quotes.  It also reiterates the factors in SEC Staff Accounting Bulletin (“SAB”) Topic 5M which should be considered when determining other-than-temporary impairment: the length of time and extent to which the market value has been less than cost; financial condition and near-term prospects of the issuer; and the intent and ability of the holder to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value.

On October 10, 2008, the FASB issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standard (“SFAS”) 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”.  This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements” in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active.  The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. For the Company, this FSP was effective for the quarter ended September 30, 2008.

The Company considered the guidance in the Press Release and in FSP SFAS 157-3 when conducting its review for other-than-temporary impairment as of March 31, 2009.

FSP SFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities,” was issued in December 2008 to require public entities to disclose additional information about transfers of financial assets and to require public enterprises to provide additional disclosures about their involvement with variable interest entities.  FSP SFAS 140-4 also requires certain disclosures for public enterprises that are sponsors and servicers of qualifying special purpose entities.  The FSP is effective for the first reporting period ending after December 15, 2008.  FSP SFAS 140-4 had no material impact on the financial position of the Company.

NOTE 2. GOING CONCERN

As noted in our annual report on Form 10-K filed on October 14, 2008, we incurred a net loss of $11.3 million for the year ended June 30, 2008, current liabilities exceeded current assets by $4.2 million and we reported an accumulated deficit of $24.8 million. As a result, the report of our Independent Registered Public Accounting Firm on our Consolidated Financial Statements for such period included an explanatory paragraph that expressed substantial doubt about our ability to continue as a going concern.  For the nine months ended March 31, 2009 we incurred a net loss of $5.5 million and reported an accumulated deficit of $30.2 million as of March 31, 2009.

12

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

For the nine months ended March 31, 2009, net cash used in operations was $3.0 million.  Our primary use of operating funds related to developing the Collexis Engine and other products and increasing our sales and marketing presence. Our working capital deficit was $6.4 million as of March 31, 2009.

Our financing activities during the nine months ended March 31, 2009 reflected a deferred payment associated with the Lawriter acquisition of approximately $628,000 and the SyynX acquisition of approximately $406,000.  We raised cash  from stock sales of approximately $2.3 million and received a loan for $560,000.   Net cash used in investing activities was approximately $68,000 for the nine months ended March 31, 2009.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3. ACQUISITIONS

Lawriter LLC

On February 1, 2008, we acquired Lawriter LLC (“Lawriter”), an Ohio limited liability company that provides online legal research services to a consortium of bar associations under the name Casemaker®. We purchased all of the limited liability company interests in Lawriter from OSBA.COM LLC, an Ohio limited liability company (“OSBA”), and the Institute of Legal Publishing, Inc., an Ohio corporation f/k/a Lawriter Corporation (“Lawcorp”), for an aggregate consideration of $9,000,000, or $4,500,000 to each of the sellers, plus an Earn-out (as defined below), if any.

The remaining cash balance due to Lawcorp to be paid in equal installments, are listed in the following table.

Seller	Payment Date	Payment Amount
OSBA	February 1, 2009(Extended until and Paid on April 1, 2009)	$	313,750
		$	313,750

Seller	Payment Date	Payment Amount
Lawcorp	February 1, 2009(Extended until and Paid on April 1, 2009)	$	750,000
	February 1, 2010		750,000
	February 1, 2011		750,000
	February 1, 2012		750,000
		$	3,000,000

13

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The $4.5 million due the OSBA was paid as follows: $1.125 million was paid at closing, and the remaining cash due was payable in four equal installments of $313,750.  The payment of the fourth and final installment was satisfied  on  April 1, 2009, by a cash payment of $213,750 and a credit against the balance of the monthly fee that would otherwise be payable by the Ohio State Bar Association to Lawriter for an additional 12 months beyond the 60 month period provided for in the original purchase agreement.     With respect to the remaining $2.12 million consideration due to OSBA, the purchase agreement provides that we may either:

(a) credit against the balance of that consideration the monthly fee that would otherwise be payable by the Ohio State Bar Association to Lawriter for the 60 months following the closing (which is estimated to equal a credit of approximately $424,000 per twelve month period or $2.12 million in total) or

(b) pay all or any portion of the balance directly to OSBA on a monthly basis for the 60 months following the closing, in which case the Ohio State Bar Association would resume making payments to Lawriter in the ordinary course of business.

The Lawcorp obligation was satisfied through two cash payments by us of $186,250 on April 1, 2009 and $100,000 on April 15, 2009.  The balance of the amount due by us to Lawcorp for this installment payment was satisfied by our transfer to Lawcorp of the computer server which is presently in active service for the fulfillment of the Casemaker service to the 28 state bar association members.  The data that resides on the server includes all digitalized data owned by Lawriter Corporation or Collexis, including the Casemaker search engine, version 2.1.  Pursuant to our agreement with Lawcorp, we are required to fully maintain the equipment and update the data as required by the agreement with the state bar associations.  We are still entitled to utilize this equipment, data and search engine to operate our Lawriter business until July 1, 2009.  At any time on or before July 1, 2009, we have the right to repurchase the server, data and search engine for approximately $464,000 plus annualized interest of 12% from April 1, 2009.  If any new state bar association signs a membership agreement with Lawriter on or before July 1, 2009, such agreement will be assigned to Lawcorp if we are unable to re-purchase the assets. 

Under the terms of the original purchase agreement, we also agreed to pay the Earn-out, if any, on a pro rata basis to OSBA and Lawcorp within 20 days following the end of each calendar quarterly period within the Earn-out period. The Earn-out period:

· begins on the earlier occurrence of (a) the first day of that calendar month on which the aggregate Net Sales derived from the products and services that we acquired under the terms of the Agreement, including intellectual property rights related to the Casemaker database and software and Collexis-related technology and enhancements that we intend to offer to our customers and clients (collectively, “Legal Research Services”), have been at least $2.75 million for each of the previous three consecutive calendar months following the closing or (b) the first day of the 18th month following the closing; and

· ends on the last day of the 60th calendar month thereafter.

The term “Net Sales” means gross revenues derived from Legal Research Services less returns, discounts, allowances, sales taxes and bad debt reserves, as determined in accordance with U.S. generally accepted accounting principles. The term “Earn-out” means a lump sum cash payment equal to the product of (x) the Earn-out percentage of 3.75%, or 3.9% in certain circumstances, multiplied by (y) Net Sales derived from Legal Research Services during each calendar quarterly period within the Earn-out period, reduced by any payment we may be required to make to the consortium of bar associations under the terms of their respective license agreements with Lawriter. The aggregate of any or all Earn-out payments, however, cannot exceed $15 million.

The total of remaining payments, $4,942,104, represents the actual payment amounts due on their respective due dates. The calculation of deferred purchase price on our consolidated balance sheet at March 31, 2009, $4,408,695, reflects the present value of these payments discounted at the implied interest rate of 8%. The difference of $533,409 represents the value of imputed interest.

14

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The transaction is accounted for in accordance with SFAS No. 141. The purchase price allocation, as of the purchase date, is as follows:

Purchase Price:
Deferred purchase price (net of imputed interest of $947,272)	$	5,927,728
Cash		1,625,000
Common shares issued		500,000
		8,052,728
Direct costs of acquisition		232,707
Total purchase price	$	8,285,435

Values assigned to assets and liabilities:
Cash	$	65,377
Accounts receivable		247,676
Property and equipment		104,216
Acquired technology (estimated useful life of seven years)		1,170,000
Trade name (estimated useful life indefinite)		1,090,000
Customer contracts (estimated useful life of ten years)		726,000
Goodwill		5,275,330
Accounts payable and accrued expenses		(97,005	)
Deferred revenue		(256,084	)
Accrued restructuring charges		(40,075	)
Total purchase price assigned	$	8,285,435

SyynX Solutions GmbH

On October 19, 2007, we entered into a Share Purchase Agreement with the shareholders and managing directors of SyynX Solutions GmbH (“SyynX”), for an aggregate cash consideration of €5,923,267, or approximately $8,488,343 at then current exchange rates. The table below reflects the remaining installment payments to be made.

Payment Date	Payment Amount in Euros		Remaining Payments in US Dollars at 3-31-09 Exchange Rates
October 1, 2008 (Remaining amount due)	€	1,194,304	$	1,577,437
October 1, 2009		1,245,053		1,644,466
October 1, 2010		1,248,152		1,648,558
	€	3,687,509	$	4,870,461

On January 6, 2009, the Company entered into an agreement amending the Share Purchase Agreement for SyynX.  The amendment relates to the payment terms of the second installment which was due on October 1, 2008 in the amount of €1,494,304 plus accrued interest at 8% for a period of 90 days (the payment grace period).  As of December 31, 2008, the second installment amount due with accrued interest is €1,524,006.  The amendment provides for the following payments:

(1) €300,000 on or before January 7, 2009 (paid on January 6, 2009);

15

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(2) €400,000 on or before February 3, 2009;

(3) €100,000 on or before February 17, 2009; and

(4) €724,006 on or before March 31, 2009 (which includes €29,702 accrued interest).

In addition, pursuant to the amendment, interest will accrue on the unpaid second installment balance at an annual rate of 12% from January 1, 2009, until paid.  Based on the remaining second installment payments above, the estimated interest payments accrued through March 31, 2009 are approximately €36,126 or approximately $47,715 based on the March  31, 2009 exchange rate. 

As of the filing date of this report, we have not made the €400,000 payment due on February 3, 2009, the €100,000 payment due on February 17, 2009, and the €724,006 payment due March 31, 2009.    Pursuant to the terms of the Share Purchase Agreement, during such time as any installment remains outstanding, the former SyynX shareholders have a contractual lien against the SyynX shares and the right to use the SyynX software and products developed by the Company with the right to grant sub-licenses until complete payment of the purchase price. We have reached a verbal agreement with the former shareholders of SyynX to extend these payment due dates and delay their contractual remedies during such extension.

All or a portion of the unpaid second installment may be accelerated in the event the Company raises funds through a sale of  its equity securities or a sale of all or a portion of its business and such sale results in the receipt of proceeds of more than $3.0 million.  Thirty percent of any amount received in excess of $3.0 million will be used to such payment plus any accrued interest thereon.

  The total of remaining payments, $4,870,461, represents the actual payment amounts due on their respective due dates, calculated at the March 31, 2009 exchange rate. The calculation of deferred purchase price on our consolidated balance sheet at March 31, 2009, $4,620,409, reflects the present value of these payments discounted at the implied interest rate of 8%. The difference of $250,052 represents the value of imputed interest.

The transaction is accounted for in accordance with SFAS No. 141, “Business Combinations.” The purchase price allocation, as of the purchase date, is as follows:

Purchase Price:
Deferred purchase price (net of imputed interest of $790,941)	$	7,029,308
Exercise of option		712,550
		7,741,858
Direct costs of acquisition		189,878
Write off of SyynX receivable from Collexis Holdings, Inc.		(200,587	)
Total purchase price	$	7,731,149
Values assigned to assets and liabilities:
Cash	$	154,036
Accounts receivable		320,820
Deferred tax assets		48,005
Property and equipment		71,435
Trade name (estimated useful life of five years)		1,090,000
Acquired technology (estimated useful life of seven years)		4,004,733
Goodwill		3,918,673
Accounts payable and accrued expenses		(21,183	)
Income taxes payable		(127,876	)
Deferred tax liability		(1,608,479	)
Other liabilities		(119,015	)
Total purchase price assigned	$	7,731,149

16

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In connection with the transactions contemplated by the SyynX share purchase agreement, we granted to each of the three managing directors of SyynX as a condition to their employment agreements an option to purchase 1,000,000 shares of our common stock at an exercise price of $0.75 per share. The options have a term of eight years. The options vested or will vest as follows: options to purchase 16,666 shares vested on October 19, 2007; options to purchase 16,666 shares vested or will vest each month through August 19, 2012, and options to purchase the final 16,706 shares will vest on September 19, 2012. Additionally, on February 15, 2008, we granted seven former SyynX employees and one consultant the option to purchase a total of 275,000 shares of our common stock at an exercise price of $0.75 per share, under a proportionally identical vesting schedule and as called for under the agreement.

Combined consolidated pro forma financial information

The operating results of SyynX and Lawriter are consolidated beginning October 19, 2007 and February 1, 2008, respectively. The following pro forma information reflects the impact on our statement of operations had these acquisitions occurred on July 1, 2007.

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
Revenue as reported	$	1,462,462		$	1,416,855		$	4,776,645		$	2,666,466
Revenue pro-forma	$	1,462,462		$	1,666,047		$	4,776,645		$	4,379,800
Net Loss as reported	$	(1,388,821	)	$	(2,956,283	)	$	(5,455,649	)	$	(7,924,147	)
Net Loss pro forma	$	(1,388,821	)	$	(2,929,587	)	$	(5,455,649	)	$	(8,388,060	)
Net Loss per share as reported	$	(0.01	)	$	(0.04	)	$	(0.05	)	$	(0.12	)
Net Loss per share pro forma	$	(0.01	)	$	(0.04	)	$	(0.05	)	$	(0.13	)

NOTE 4. SECURED CONVERTIBLE PROMISSORY NOTE

On March 4, 2009, we issued the selling stockholder, for aggregate consideration of $650,000, a Secured Convertible Promissory Note in the principal amount of $764,706, which was convertible at the time of issuance into 6,117,647 shares of common stock.  The Note matures on March 20, 2010 if not accelerated or converted prior to such date.  The Note bears interest at the annual rate of 7%, which is payable in arrears on August 31, 2009, November 30, 2009 and at maturity.  Following any sale and issuance by the Company of any debt or equity in excess of $3,000,000 or the sale of assets of the Company in excess of $3,000,000, the selling stockholder has the option to elect to have all amounts due under the Note paid in cash out of the net proceeds at a value of 135% of the outstanding principal amount and accrued interest, otherwise the Note is not available for prepayment by the Company.  Pursuant to the Note, the Company has five days within which to make any payment due, after the grace period a default interest rate of 18% per annum applies.  The note holder has the right to convert the principal and interest due into shares of common stock at an initial conversion price of $0.125 per share, subject to reduction to the lowest price per share for which we sell equity during the term of the Note, and otherwise subject to equitable adjustment in the event of a merger, consolidation, sale of assets, reclassification, stock dividend or stock split. In addition, we issued to the Subscriber an aggregate of 2,050,128 Incentive Shares of common stock.

On April 1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common stock at $0.07 per share for an aggregate investment of $400,000.  This issuance of shares at a price per share less than the conversion price of the Note triggered the anti-dilution provisions of the Note, resulting in the adjustment of the conversion price to $0.07 per share.  Following this adjustment, the Note is convertible into 10,924,370 shares of common stock.

The Note is secured by (1) a first priority security interest in the assets of the Company and its subsidiaries, including ownership of the subsidiaries and in the assets of the subsidiaries, to the extent permissible under the outstanding obligations of the Company, and (2) an unconditional guaranty of payment and performance by each of the Company’s subsidiaries.

17

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

If the Company fails within 3 business days to deliver certificates representing the Conversion Shares for which the Note is converted, the Company is required to pay the Note holder liquidated damages in the amount of $100 per business day thereafter until delivery for each $10,000 of principal and interest for which the Note is converted.  Further, if the Company fails to deliver the Conversion Shares for which the Note is converted within 7 business days, the holder may purchase that number of shares of Common Stock to which it is entitled to receive from the Company and the Company must pay in cash to the holder the amount by which the holder’s total purchase price for the common stock exceeds the aggregate principal and interest amount for which the Note was converted, together with interest thereon at a rate of 15% per annum.

Warrant

In conjunction with the issuance of the Note, we issued the selling stockholder a Class A Common Stock Purchase Warrant initially exercisable for 6,117,647 shares of common stock at a per share price of $0.165, which was 110% of the reported closing bid price of the common stock on the business day prior to the date of issuance.  On April 1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common stock at $0.07 per share for an aggregate investment of $400,000.  This issuance of shares at a price per share less than the exercise price for the Warrant triggered the anti-dilution provisions of the Warrant, resulting in the adjustment of the exercise price to $0.07 per share.  Following this adjustment, the Warrant is exercisable for 14,420,168 shares of common stock.

The Warrant has a term of five years from the issue date and may be exercised at any time in whole are in part by payment of the exercise price in cash or in a cashless transaction.  If the Company fails within 3 business days to deliver certificates representing the Warrant Shares for which the Warrant is exercised, the Company is required to pay the Warrant holder liquidated damages in the amount of $100 per business day thereafter until delivery for each $10,000 of exercise price for which the Warrant is exercised.  Further, if the Company fails to deliver the Warrant Shares for which the Warrant is exercised within 7 business days, the holder may purchase that number of shares of Common Stock to which it is entitled to receive from the Company and the Company must pay in cash to the holder the amount by which the holder’s total purchase price for the common stock exceeds the aggregate exercise price required to be delivered for the Warrant Shares, together with interest thereon at a rate of 15% per annum.  The number of Warrant Shares subject to the Warrant and the exercise price thereof is subject to equitable adjustment in the event of a merger, consolidation, sale of assets, reclassification, stock dividend or stock split.  The exercise price of the Warrant is also subject to reduction to the lowest price per share for which the Company sells equity during the term of the Warrant. 

Management adopted FSP APB 14-1 on January 1, 2009.  FSP APB 14-1 applies to convertible debt securities that, upon conversion, may be settled in cash.  FSP APB 14-1 requires an issuer to separately account for the liability and equity components in a manner that reflects the issuer’s nonconvertible borrowing rate resulting in higher interest expense over the life of the instrument due to amortization of the discount.

We used the Black-Scholes model to calculate the value of the warrant to be $0.147 per share.  The Warrant has a term of five years.  Management determined the computed volatility of the warrant value to be 210% by taking the closing price of the Company stock for each day from September 2007 to March 2009.  In addition, management performed its calculation with a discount rate of 1.830% which represents the interest rate for a five year treasury note.

The following table summarizes the liability and equity components of our Convertible Note:

Note Payable	$	650,000
Incentive Common Stock	$	256,266
Warrants	$	900,200
Total Fair Value	$	1,806,466
							Proceeds
	Fair Value		Total FV		Cash		Allocated
Note	$	650,000	$	1,806,466	$	650,000	$	233,882
Stock Warrants Outstanding	$	900,200	$	1,806,466	$	650,000	$	323,909
Incentive Common Stock	$	256,266	$	1,806,466	$	650,000	$	92,209
Total proceeds							$	650,000

18

COLLEXIS HOLDINGS, INC. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	31-Mar-09
Liability Component
Note Payable	$	764,706
Discount*	$	(496,013	)
Loan Cost*	$	(84,099	)
Net Carrying amount	$	184,594
Equity Component
Stock Warrant Outstanding	$	323,909
Additional Paid in Capital	$	90,159
Common Stock	$	2,050

* The discount and loan cost on the liability component will amortize through March 4, 2010.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Collexis Holdings, Inc., sometimes referred to as “Collexis,” “we,” “us,” or “our” in this report, is a global software company headquartered in Columbia, South Carolina with  operations in Cincinnati, Ohio, Geldermalsen, the Netherlands and Cologne, Germany. We develop software that supports the knowledge intensive market, building tools to search and mine large sets of information. Our software enables search, aggregation, navigation and discovery of information. 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 – that can be used in turn to find the most relevant information for a researcher, analyst or business professional. We generate our revenues primarily from licensing our software and content, providing services to the users of our software, maintaining and supporting our software, selling related hardware and hosting software on an application service provider basis.

We operate several subsidiaries that support our core technology sales in the government, enterprise and life science markets. In October 2007, we acquired SyynX Solutions GmbH, this expanded our application solutions in health sciences. In February 2008, we acquired an industry-dedicated subsidiary, Lawriter LLC that provides online legal research services to lawyers in the United States primarily through state bar associations. In addition, we now offer the world’s first pre-populated professional social network for life science researchers, www.biomedexperts.com.

Results of Operations

Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008

Total Revenues. Total revenues increased approximately $46,000, or 3%, to approximately $1.46 million  for the three months ended March 31, 2009 as compared to approximately $1.42 million for the three months ended March 31, 2008. The Science, technical and medical (“STM”) business was down approximately $233,000 due primarily to the delay in contract closings to our fourth quarter.  This decrease  was offset by the revenue contribution from our acquisition of Lawriter of approximately $279,000.

License Revenue. License revenue decreased approximately $218,000, or 76%, to approximately $69,000 for the three months ended March 31, 2009 as compared to approximately $287,000 in the three months ended March 31, 2008. This decrease is primarily due to fewer sales of new licenses and subscriptions in the government, university and research markets.

Service Revenue. Service revenue increased approximately $66,000, or 16%, to approximately $479,000 for the three months ended March 31, 2009 versus approximately $413,000 for the three months ended March 31, 2008. This increase was primarily driven by our US market, where approximately $63,000 of our period sales revenue was derived from sales efforts to deliver services to new and existing clients who seek to add profiles and libraries to subscription applications. The remaining increase was in Europe.

Maintenance & Support Revenue. Maintenance and support revenue decreased approximately $82,000, or 48%, to approximately $90,000 for the three months ended March 31, 2009 compared to approximately $172,000 for the three months ended March 31, 2008. This decrease is due primarily to the decreased license revenue for the quarter.

Hardware & Hosting Revenue. Hardware and hosting revenue increased approximately $3,000, or 7%, to approximately $48,000 for the three months ended March 31, 2009 versus approximately $45,000 for the three months ended March 31, 2008. We have been placing less emphasis on hosting client hosting applications and expect this revenue to remain relatively stagnant.

Database Subscription Revenue. Database subscription revenue was approximately $777,000 for the three months ended March 31, 2009. This was a new revenue line for us as a result of our acquisition of Lawriter, LLC on February 1, 2008. Two months of revenue existed for the three months ended March 31, 2008 or $498,000.

Cost of License Revenue. There was no cost of license revenue for the three months ended March 31, 2009 as compared to approximately $4,000 for the three months ended March 31, 2008.  The cost associated with this revenue is generally revenue sharing with a strategic partner of which there was none in the period ended March 31, 2009.

20

Cost of Service Revenue. Cost of service revenue increased approximately $92,000, or 35%, to approximately $354,000 for the three months ended March 31, 2009 versus approximately $262,000 for the three months ended March 31, 2008.   This was primarily driven by an increase in service revenue during the period.

Cost of Maintenance & Support Revenue. Cost of maintenance and support revenue decreased  approximately $24,000  to a small credit for the three months ended March 31, 2009 versus the three months ended March 31, 2008.  The decrease was due to the minimal support required to service our maintenance contracts.

Cost of Hardware & Hosting Revenue. Cost of hardware and hosting revenue was approximately $38,000 for the three months ended March 31, 2009 versus approximately $33,000 for the three months ended March 31, 2008, an increase of approximately $5,000, or 15%. This increase is a function of the increased costs we are incurring from our third party hosting centers.

Cost of Subscription Revenue. Cost of subscription revenue was approximately $198,000 for the three months ended March 31, 2009. This was a new expense for us due to the acquisition of Lawriter, LLC on February 1, 2008. Therefore, there are two months of comparable cost for this expense line or approximately $173,000 for the three months ended March 31, 2008.

General & Administrative Expenses. General and administrative expenses decreased by approximately $974,000 for the three months ended March 31, 2009 versus the three months ended March 31, 2008.   These decreases were driven by a reduction in the cost of the Company’s Netherland’s operations of approximately $600,000, reduced professional fees of approximately $349,000 and other miscellaneous savings of approximately $31,000.  These reduced costs were offset by the incremental general and administrative expenses of approximately $233,000 for Lawriter; increased salary costs of approximately $34,000; increased stock option expenses of approximately $55,000;  and increased insurance costs of approximately $19,000 primarily due to directors and officers insurance costs.  Additionally, there was a foreign exchange loss of approximately $335,000 reported as G&A expense for the three months ended March 31, 2008.  The impact of foreign exchange on the Company’s results for the three months ended March 31, 2009, was reported as Other income in the Consolidated Statement of Operations.   

Sales & Marketing. Sales and marketing expenses decreased to approximately $610,000 for the three months ended March 31, 2009 compared to approximately $750,000 for the three months ended March 31, 2008, a decrease of approximately $140,000, or 19%. The SyynX and Lawriter acquisitions increased sales and marketing expenses approximately $106,000 and $49,000, respectively.  These increases were offset by reduced costs in the Netherlands of approximately $144,000; reduced travel and entertainment costs of approximately $19,000, reduced advertising costs of approximately $58,000; and reduced salaries, commissions and vacation costs of approximately $74,000.

Research & Development. Research and development costs decreased from approximately $276,000 for the three months ended March 31, 2008 to approximately $100,000 for the three months ended March 31, 2009, a decrease of approximately $176,000, or 64%. This decrease was driven by the demands of client projects which have changed our focus from traditional research and development initiatives.

Total Expenses and Net Loss. As a result of the above factors, total operating expenses decreased to approximately $3.1 million for the three months ended March 31, 2009 compared to approximately $4.3 million for the three months ended March 31, 2008, a decrease of approximately $1.2 million, or 27.9%.  Additionally, a favorable foreign exchange rate of approximately $666,000 was realized and a benefit on forgiveness of indebtedness, with the bankruptcy of Collexis BV, of approximately  $436,000 was recognized.  These benefits were reduced by an increase in interest on acquisition debt of approximately $65,000.  For the three months ended March 31, 2009, the net loss of $1.4 million was favorable when compared to the $3.0 million loss for the three months ended March 31, 2008.

Nine Months Ended March 31, 2009 compared to Nine Months Ended March 31, 2008

Total Revenues. Total revenues increased approximately $2.1 million, or 78%, to approximately $4.8 million for the nine months ended March 31, 2009 as compared to approximately $2.7 million for the nine months ended March 31, 2008. Of this increase, approximately $342,000, or 16%, was due to the expansion of  sales efforts in the university and research markets.  The remaining increase was due primarily to the revenue contribution by our acquisition of Lawriter of approximately $1.77 million.

License Revenue. License revenue decreased approximately $346,000, or 56%, to approximately $272,000 for the nine months ended March 31, 2009 as compared to approximately $618,000 in the nine months ended March 31, 2008. This decrease is primarily due to fewer sales of new licenses and subscriptions in the government, university and research markets.

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Service Revenue. Service revenue increased approximately $588,000, or 59%, to approximately $1.6 million  for the nine months ended March 31, 2009 versus approximately $1.0 million for the nine months ended March 31, 2008. This increase was primarily driven by our US market, where approximately $488,000 of our period sales revenue was derived from sales efforts to deliver services to new existing clients who seek to add profiles and libraries to subscription applications. The remaining increase of approximately $103,000 was attributable to our European market.

Maintenance & Support Revenue. Maintenance and support revenue increased approximately $100,000, or 22%, to approximately $547,000 for the nine months ended March 31, 2009 compared to approximately $447,000 for the nine months ended March 31, 2008. This increase was due primarily to sales of maintenance contracts to new and existing license customers.

Hardware & Hosting Revenue. Hardware and hosting revenue remained flat year over year for the nine months ended March 31, 2009 and 2008 at approximately $99,000.  We are placing less of an emphasis on hosting client applications.

Database Subscription Revenue. Database subscription revenue was approximately $2.3 million for the nine months ended March 31, 2009. This was a new revenue line for us as a result of our acquisition of Lawriter, LLC on February 1, 2008. Therefore, only two months revenue, $498,000, for this service line existed for the nine months ended March 31, 2008.

Cost of License Revenue. Cost of license revenue was approximately $180,000 for the nine months ended March 31, 2009 as compared to approximately $48,000 for the nine months ended March 31, 2008, an increase of approximately $132,000, or 276%.   This increase was primarily due to a revenue sharing accrual resulting from the execution of a license contract, with one of our strategic partners at the end of December 2008.  The revenue associated with this license contract, of approximately $300,000, will be recognized as the work is completed which is expected in the fourth quarter of 2009.

Cost of Service Revenue. Cost of service revenue increased approximately $438,000, or 74%, to approximately $1.0 million for the nine months ended March 31, 2009 versus approximately $592,000 for the nine months ended March 31, 2008.   This increase was a direct result of the increase in service revenue experienced for the nine month period.

Cost of Maintenance & Support Revenue. Cost of maintenance and support revenue decreased approximately $202,000, or 87%, to approximately $31,000 for the nine months ended March 31, 2009 compared to approximately $233,000 for the nine months ended March 31, 2008.  The decrease was due to the minimal support required to service our maintenance contracts.

Cost of Hardware & Hosting Revenue. Cost of hardware and hosting revenue was approximately $111,000 for the nine months ended March 31, 2009 versus approximately $70,000 for the nine months ended March 31, 2008, an increase of approximately $41,000, or 59%. This increase is a function of the increased costs we are incurring from our third party hosting centers primarily incurred by SyynX.

Cost of Subscription Revenue. Cost of subscription revenue was approximately $572,000 for the nine months ended March 31, 2009. This was a new expense for us due to the acquisition of Lawriter, LLC on February 1, 2008. Therefore, only two months of comparable cost for this expense line, $173,000,  existed for the nine months ended March 31, 2008.

General & Administrative Expenses. General and administrative expenses remained flat at approximately $6.2 million for the nine months ended March 31, 2009 versus the nine months ended March 31, 2008.  Increased expenses were due primarily to incremental general and administrative expenses of approximately $37,000 and $1.1 million for SyynX and Lawriter respectively, increased depreciation and amortization costs of approximately $621,000 associated with intangibles and other assets acquired from SyynX and Lawriter,  increased salaries and commissions of approximately $145,000, increased insurance costs of approximately $99,000 primarily due to directors and officers insurance costs, and increased stock option expense of approximately $89,000.  These increases were offset by decreases in costs relating to the reduction of the Company’s Netherland’s operations of approximately $944,000 and a decrease in professional fees of approximately $591,000.  Additionally, there was a foreign exchange loss of approximately $549,000 reported as G&A expense for the nine months ended March 31, 2008.  The impact of foreign exchange on the Company’s results for the nine months ended March 31, 2009, was reported as Other income in the Consolidated Statement of Operations.   

Sales & Marketing. Sales and marketing expenses remained relatively flat for the nine months ended March 31, 2009 compared to the nine months ended March 31, 2008, decreasing by approximately $9,000.  The SyynX and Lawriter acquisitions contributed approximately $458,000 and $250,000, respectively.    These increases were offset by reduced costs in the Netherlands of approximately $478,000, reduced travel and entertainment costs of approximately $84,000 and  reduced salaries, commissions and vacation costs of approximately $154,000.

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Research & Development. Research and development costs decreased from approximately $1.06 million for the nine months ended March 31, 2008 to approximately $470,000 for the nine months ended March 31, 2009, a decrease of approximately $590,000, or 56%. This decrease was driven by the demands of client projects, which has changed our focus from traditional research and development initiatives.

Total Expenses and Net Loss. As a result of the above factors, total operating expenses increased to approximately $10.75 million for the nine months ended March 31, 2009 compared to approximately $10.5 million for the nine months ended March 31, 2008, an increase of approximately $250,000, or 2.3%.  Additionally, a favorable foreign exchange rate of approximately $872,000 was realized, a benefit on forgiveness of indebtedness, with the bankruptcy of Collexis BV, of approximately  $436,000 was recognized, and  an increase in tax benefits relating to deferred taxes recognized in Germany on the SyynX assets of approximately $28,000.   These benefits were reduced by an increase in interest on acquisition debt of approximately $224,000.  For the nine months ended March 31, 2009, the net loss of $5.45 million was favorable when compared to the $7.92 million loss for the nine months ended March 31, 2008.

Liquidity and Capital Resources

As noted in our annual report on Form 10-K filed on October 14, 2008, we incurred a net loss of $11.3 million for the year ended June 30, 2008, current liabilities exceeded current assets by $4.2 million and we reported an accumulated deficit of $24.8 million. As a result, the report of our Independent Registered Public Accounting Firm on our Consolidated Financial Statements for such period included an explanatory paragraph that expressed substantial doubt about our ability to continue as a going concern.  For the nine months ended March 31, 2009, we incurred a net loss of $5.45 million and as of March 31, 2009, we reported an accumulated deficit of $30.2 million.

In the nine months ended March 31, 2009, net cash used in operations was $3.0 million. Our primary use of operating funds related to developing the Collexis Engine and other products and increasing our sales and marketing presence. Our working capital deficit was $6.4 million as of March 31, 2009 compared to a deficit of $4.2 million as of June 30, 2008.

Our financing activities during the nine months ended March 31, 2009 reflected deferred payments associated with the Lawriter acquisition of approximately $628,000 and the SyynX acquisition of approximately $406,000.  Cash received on stock sales was approximately $2.3 million and cash received on a convertible note of $560,000.   Net cash used in investing activities was approximately $68,000 for the nine months ended March 31, 2009.

As of May 15, 2009, we had cash and cash equivalents of approximately $1.8 million. We believe our current cash balance together with any funds generated from our operations will be sufficient to meet our working capital needs for the next  two to three months.

Our principal cash requirements are for working capital and to make deferred payments relating to the SyynX and Lawriter acquisitions. The deferred payments due on these acquisitions over the next three months are approximately $2.2 million. See discussion under Note 3 “Acquisitions.”

In order to alleviate our working capital deficiency, provide capital for deferred acquisition payments and address our continued financing concerns, management intends to take affirmative steps towards:

· building on the momentum established in the market with our profiling and dashboard products and cultivating our strategic alliances to increase our market presence;

· developing new products to address the demands in our core markets; and

· identifying sources of capital that will be sufficient to fund our operations until such time as we are cash flow positive.

In order to meet our short-term working capital needs, we are currently conducting a private placement of our common stock for up to $4.0 million. As of the date of this report, we have accepted subscriptions for $3.12 million from a private investor who has funded the subscribed amount.  We anticipate receiving an additional $300,000 over the next fifteen days and the remaining $585,000 over the next forty-five days.

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With the full subscription of our $4.0 million private placement referred to above, combined with any funds generated from our operations, we believe we will have sufficient cash to fund our operations through July 31, 2009. However, this will not provide sufficient capital to pay our deferred purchase obligations of approximately $2.2 million due over the next three months.

We expect to raise additional capital through the sale of our common stock, mostly through private placements but we can provide no assurances in that regard. With our present negative cash flows from operating activities and our current level of cash, we will require additional working capital to continue to grow our operations, develop our products, pursue acquisitions, comply with our reporting obligations as a public company and meet our deferred payment obligations. As a result, we may seek both debt and equity financings to satisfy these working capital needs. There can be no assurance that external financing will be available when needed, or if available, that it would be available on terms acceptable to our management. Failure to achieve such funding will result in a significant negative impact to our business and our operating results, whereby we may be in breach of our acquisition agreements for SyynX and Lawriter and/or we may have to cease business operations.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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.

Critical Accounting Policies

For a summary of our significant accounting policies, please see Note 1 to the consolidated unaudited financial statements included in Part I, Item 1 of this report.

Recent Accounting Pronouncements

For a summary of recently issued accounting pronouncements, please see the Company’s annual report on Form 10-K filed on October 14, 2008 and Note 1 to the consolidated unaudited financial statements included in Part1, Item 1 of this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

 Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2009, and have concluded that, as of such date, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are accumulated, recorded, processed, summarized for management and reported within the time periods specified in the rules and forms of the SEC.

Our Chief Executive Officer and Chief Financial Officer reached this conclusion due to material weaknesses in internal control over financial reporting, as described below.

As previously stated in the Company’s annual report on Form 10-K filed October 14, 2008, management and the Audit Committee retained RSM McGladrey to assist in an evaluation of our internal control weaknesses. RSM McGladrey has performed a review of our internal control over financial reporting as of June 30, 2008, based on criteria established in  Internal Control—Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

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Based on the findings of RSM McGladrey and management’s assessment of the effectiveness of our internal control over financial reporting as of June 30, 2008, we identified the following deficiencies in our internal controls over financial reporting. Management does not believe any one deficiency would qualify as a material weakness but the combination of deficiencies may qualify as a significant deficiency.

Deficiencies

Entity-Level Controls. We did not maintain an effective control environment and certain entity-level controls included in the information and communications and monitoring components of internal control were not designed or operating effectively.

Segregation of Duties. We did not provide for adequate segregation of duties in our accounting and finance functions, specifically with respect to access to and control of our cash flow without any secondary review.

Financial Reporting and Period Closings. We did not maintain adequate policies and procedures to ensure that timely, accurate and reliable consolidated financial statements were prepared and reviewed.

Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting

As a result of the findings from the study described above, management has taken steps to address these findings, including formalizing monthly closing procedures, utilizing monthly journal entry checklists and employing a monthly financial closing checklist. Management continues to implement the remedial recommendations identified in the RSM McGladrey study and expects to have such implementation completed by the end of the Company’s current fiscal year.

Management believes these changes implemented during the Company’s most recently completed fiscal quarter have and will continue to favorably impact the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Collexis and its wholly-owned subsidiary Lawriter LLC are defendants in a case commenced by JuriSearch Holdings LLC (“JuriSearch”), a vendor of content to Lawriter (the “Parties”). The case was commenced on April 10, 2008, and asserts claims based on breach of contract, conversion, and replevin (an act to recover goods by somebody who claims to own them). JuriSearch alleges that it has been damaged in an amount exceeding $500,000 by Lawriter’s termination of the contract and asserted failure to return property belonging to JuriSearch. Lawriter believes that JuriSearch breached the contract by failing to provide accurate and timely data, as well as by communicating directly with Lawriter’s customers (the bar associations with whom Lawriter does business) concerning the contract in violation of the terms of the contract.

Collexis and Lawriter have successfully had the case moved from the Superior Court for Los Angeles County, California to the United States District Court for the Central District of California. The Parties have been through mediation without a resolution. We believe that JuriSearch’s claims are without merit and intend to defend the lawsuit vigorously.

ITEM 1A. RISK FACTORS

Various risks and uncertainties could affect the Company’s business. Any of the risks described below or elsewhere in this Quarterly Report on Form 10-Q or the Company’s other SEC filings could have a material impact on the Company’s business, financial condition or results of operations.

We need additional capital, and it may not be available on acceptable terms, or at all. If we do not receive the additional capital we need, our financial condition and future prospects will suffer, and our business could fail.

As of May 15, 2009, we had cash and cash equivalents of approximately $1.8 million. We believe our current balance of cash and cash equivalents combined with any funds generated from our operations will be sufficient to meet our working capital and capital expenditure requirements for the next two to three months based upon our estimates of funds required to operate our business during that period.

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In order to meet our short-term working capital needs, we are currently conducting a private placement of our common stock for up to $4.0 million. As of the date of this report, we have accepted subscriptions for $3.12 million from a private investor who has funded the subscribed amount. We anticipate receiving an additional $300,000 over the next fifteen days and the remaining $585,000 over the next forty-five days.

We will need to raise additional funds for the following purposes:

· to fund our operations, including sales, marketing and research and development programs;

· to fund our deferred payments on acquisitions;

· to fund any growth we may experience;

· to enhance and/or expand the range of products and services we offer;

· to increase our promotional and marketing activities; and

· to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition and international expansion activities.

We cannot be sure additional capital will be available, and if it is, it will be on terms beneficial to us. Historically, we obtained external financing primarily from sales of our common stock. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. If we are unable to obtain additional capital, we may then attempt to preserve our available resources by various methods including deferring the creation or satisfaction of commitments, reducing expenditures on our research and development programs or otherwise scaling back our operations. If we are unable to raise additional capital or defer costs, that inability would have a material adverse effect on our financial position, result of operations, prospects and our business could fail.

We have a history of operating losses and will likely incur future losses. If our losses continue, and we are unable to achieve profitability, our stock price will likely suffer.

We have operated at a loss since our inception. For the nine months ended March 31, 2009, and the nine months ended March 31, 2008, our net losses were approximately $5.5 million and $7.9 million, respectively. These losses include expenditures associated with developing and selling software products, including our Collexis Engine. We expect that our losses will continue for the foreseeable future as we continue to invest in Collexis Engine enhancements and other programs.

Accordingly, we cannot assure you that we will be able to achieve or maintain profitability in the future. If we do not achieve and sustain profitability, it will likely have a material adverse effect on the market price of our common stock and our financial condition.

We have concluded that as of March 31, 2009, our internal control systems over disclosure controls and procedures and financial reporting were ineffective and may have significant deficiencies or material weaknesses.  If we fail to meet our reporting obligations in a timely manner in the future due to ineffective internal control systems, our business could be harmed.

We have evaluated our internal control systems over disclosure controls and procedures and financial reporting as required by Section 404 of the Sarbanes-Oxley Act for the nine months ended March 31, 2009 and found them to be ineffective. If we identify significant deficiencies or material weaknesses in our internal controls over financial reporting that we cannot remediate in a timely manner, or if we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls over financial reporting for the year ending June 30, 2010, then we could be subject to scrutiny by regulatory authorities, the trading price of our common stock could decline and our ability to obtain any necessary equity or debt financing could suffer. See discussion under Part1 Item 4 “Controls and Procedures”.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In April, 2009, the Company accepted subscriptions for 39,500,000 shares of its common stock at $0.07 per share for total proceeds of $2,765,000 and in May 2009, we accepted a subscription for 5,000,000 shares of common stock at $0.07 per share for an additional $350,000 .

We have used or will use the proceeds of our recent private offerings to make installment payments required under the terms of our acquisition agreements and for working capital. Our private placements are conducted in reliance on exemptions from registration contained in Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder. Placement fees of 8% were payable in connection with this offering.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

10.1	Subscription Agreement, dated as of March 4, 2009, by and between Collexis Holdings, Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 10, 2009).
10.2	Secured Convertible Promissory Note, dated as of March 4, 2009, issued by Collexis Holdings, Inc. to Alpha Capital Anstalt (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 10, 2009).
10.3	Class A Common Stock Purchase Warrant, dated as of March 4, 2009, issued by Collexis Holdings, Inc. to Alpha Capital Anstalt (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 10, 2009).
10.4	Security Agreement, dated as of March 4, 2009, by and between Collexis Holdings, Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 10, 2009).
10.5	Subsidiary Guaranty, dated as of March 4, 2009, by Biomed Experts, Inc., a Nevada corporation, Collexis US, Inc., a Delaware corporation, Lawriter LLC, an Ohio limited liability company for the benefit of Alpha Capital Anstalt (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on March 10, 2009).
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Section 1350 Certifications.

32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.

	COLLEXIS HOLDINGS, INC.
Dated: May 20, 2009	By:	/s/ Mark Murphy
		Mark Murphy
		Chief Financial Officer

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