1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2000.
CityXpress.com Corp.
----------------------------
Name of business
Florida 98-0232838
- ---------------------- -------------------------------
State of incorporation IRS Employer Identification No.
Suite 200 1727 West Broadway Vancouver, BC Canada V6J 4W
--------------------------------------------------------
Phone Number 604-638-3811 Fax Number 604-638-3808
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: November 9, 2000 23,008,098 common
shares.
Transitional Small Business Disclosure Format (check one) Yes [X] No [ ].
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
PART I....................................................................... 4
ITEM 1. FIRST QUARTER F/S ENDING SEPTEMBER 30, 2000.................. 4
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...... 18
PART II...................................................................... 21
ITEM 1. LEGAL PROCEEDINGS............................................ 21
ITEM 2. CHANGES IN SECURITIES........................................ 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................. 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 21
ITEM 5. OTHER INFORMATION............................................ 21
ITEM 6. EXHIBITS AND REPORTS......................................... 21
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3
NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
report constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the Company
to be materially different from any future results or achievements of the
Company expressed or implied by such forward-looking statements. Such factors
include, but are not limited to the following: the Company's limited operating
history; under capitalization; risks involving new product development;
unpredictability of future revenues; competition; management of business growth;
risks of technological change; the Company's dependence on key personnel;
ability to develop marketing relationships with strategic partners; dependence
on continued growth in use of the Internet; the Company's ability to protect its
intellectual property rights and uncertainty regarding infringing intellectual
property rights of others; government regulations; and the other risks and
uncertainties described in this report.
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4
PART I-FINANCIAL INFORMATION
ITEM 1. FIRST QUARTER FINANCIAL STATEMENTS ENDING SEPTEMBER 30, 2000
Consolidated unaudited financial statements of the Company for the
three months ended September 30, 2000 and September 30, 1999. All figures are
presented in U.S. Currency, unless otherwise stated.
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5
CITYXPRESS.COM CORP.
CONSOLIDATED BALANCE SHEETS
[See Nature of Operations and Basis of Presentation - Note 1]
As at September 30 (Expressed in U.S. dollars)
SEPTEMBER 30 JUNE 30
2000 2000
$ $
- -------------------------------------------------------------------------------------------------
ASSETS [note 4]
CURRENT
Cash and cash equivalents -- 38,963
Accounts receivable, net of allowance for doubtful accounts
of nil in 2000 34,666 28,903
Other receivables 8,064 26,220
Prepaid expenses and other 129,277 159,557
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 172,007 253,643
Property and equipment, net 59,629 67,348
eCommerce technology, net of amortization of $787,000
at September 30, 2000 and $668,950 at June 30, 2000 629,484 747,534
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 861,120 1,068,525
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness 22,952 --
Accounts payable and accrued liabilities 300,688 361,921
Demand instalment loan [note 4] 166,087 167,213
Shareholders' loans [note 5 (a)] 249,973 252,900
Loan payable [note 7] 290,000 --
Deferred revenue 808 1,206
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,030,508 783,240
Deferred tax liability 213,100 253,100
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,243,608 1,036,340
Commitments
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital [note 6]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,008,098 at September 30, 2000
and June 30, 2000 14,497 14,497
Additional paid in capital 5,719,581 5,687,761
Other comprehensive income 19,625 19,625
Deficit (6,136,191) (5,689,698)
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (382,488) 32,185
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 861,120 1,068,525
=================================================================================================
See accompanying notes
On behalf of the Board:
Director Director
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CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Nature of Operations and Basis of Presentation - Note 1]
Three months ended September 30 (Expressed in U.S. dollars)
2000 1999
$ $
- -------------------------------------------------------------------------------------------------
REVENUE
Development fees 8,862 --
Hosting fees 11,989 2,296
Training fees 7,439 --
Banner Advertising fees 31,065 --
Premier Listings fees 8,667 --
Coupons fees 3,265 --
E-commerce fees 4,429 --
License fees -- 2,019
- -------------------------------------------------------------------------------------------------
TOTAL REVENUES 75,716 4,315
Cost of sales 70,169 19
- -------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 5,547 4,296
OPERATING EXPENSES
Sales and marketing 81,018 58,648
Product development and technology 103,991 221,994
Finance and administration 176,935 177,309
Amortization of eCommerce technology 118,050 118,050
- -------------------------------------------------------------------------------------------------
479,994 576,001
- -------------------------------------------------------------------------------------------------
Operating loss (474,447) (571,705)
OTHER INCOME (EXPENSE)
Interest expense (14,909) (1,806)
Interest and miscellaneous income 152 171
Foreign exchange gain 2,711 --
- -------------------------------------------------------------------------------------------------
Total other expense (12,046) (1,635)
- -------------------------------------------------------------------------------------------------
Loss before income taxes (486,493) (573,340)
Deferred income tax recovery 40,000 40,000
- -------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (446,493) (533,340)
=================================================================================================
COMPREHENSIVE LOSS
Net loss for the period (446,493) (533,340)
Foreign currency translation -- 754
- -------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS FOR THE PERIOD (446,493) (532,586)
=================================================================================================
NET LOSS PER COMMON SHARE [NOTE 6(D)]
Basic and diluted (0.02) (0.03)
=================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES [NOTE 6(D)]
Basic 23,008,098 20,558,910
=================================================================================================
See accompanying notes
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CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Nature of Operations and Basis of Presentation - Note 1]
(Expressed in U.S. dollars)
COMMON
COMMON STOCK TO BE
STOCK ISSUED
# #
- --------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 800 1,756,380
Deemed common shares issued for cash received in the prior year [note 12(a)] 160,000 (160,000)
Deemed common shares issued for services rendered in the prior year [note 12(a)] 160,000 (160,000)
Deemed common shares issued for investment in the prior year [note 12(a)] 40,000 (40,000)
Deemed common shares issued for services rendered in the prior year [note 12(a)] 4,499,200 --
Deemed common shares issued for services rendered in the current year [note 12(a)] 1,337,248 --
Deemed common shares issued for cash [note 12(a)] 237,667 --
Deemed common shares issued to charitable organizations [note 12(a)] 80,000 --
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 [note 12(a)] 1,396,380 (1,396,380)
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 [note 12(a)] 598,705 --
- ------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 8,510,000 --
==================================================================================================================
Acquisition of CityXpress.com by WelcomeTo [note 2] 5,100,000 --
Acquisition of Xceedx [note 4] 6,250,000 --
Shares to be issued for services rendered [note 12(a)] -- 450,000
Finders fees acquisition costs [note 2] -- --
Shares issued pursuant to private placement [note 12(a)] 33,333 --
Shares to be issued [note 12(a)] -- 177,860
Net loss for the period -- --
Foreign currency translation -- --
- ------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,893,333 627,860
==================================================================================================================
Shares issued pursuant to share subscriptions [note 12(a)] 177,860 (177,860)
Shares issued for services [note 12(a)] 450,000 (450,000)
Shares issued pursuant to private placement, net of share
issue costs of $16,667 [note 12(a)] 2,234,438 --
Shares issued for services rendered or to be rendered [note 12(a)] 252,467 --
Stock based compensation [notes 10(b) and 12(b)] -- --
Beneficial conversion feature of warrants [note 12(a)] -- --
Net loss for the period -- --
- ------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 23,008,098 --
==================================================================================================================
Stock based compensation [note 12(b)] -- --
Net loss for the period -- --
- ------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF SEPTEMBER 30, 2000 23,008,098 --
==================================================================================================================
COMMON COMMON ADDITIONAL
STOCK ISSUED STOCK TO BE PAID IN
AND OUTSTANDING ISSUED CAPITAL
$ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] -- 276,903 5
Deemed common shares issued for cash received in the prior year [note 12(a)] -- (17,033) 17,033
Deemed common shares issued for services rendered in the prior year [note 12(a)] -- (30,521) 30,521
Deemed common shares issued for investment in the prior year [note 12(a)] -- (3,406) 3,406
Deemed common shares issued for services rendered in the prior year [note 12(a)] -- -- 863,718
Deemed common shares issued for services rendered in the current year [note 12(a)] -- -- 253,936
Deemed common shares issued for cash [note 12(a)] -- -- 40,337
Deemed common shares issued to charitable organizations [note 12(a)] -- -- 15,207
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 [note 12(a)] -- (225,943) 225,943
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 [note 12(a)] -- -- 143,318
- --------------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 -- -- 1,593,424
================================================================================================================================
Acquisition of CityXpress.com by WelcomeTo [note 2] 5,100 -- 719,889
Acquisition of Xceedx [note 4] 6,250 -- 868,750
Shares to be issued for services rendered [note 12(a)] -- -- 225,000
Finders fees acquisition costs [note 2] -- -- (225,000)
Shares issued pursuant to private placement [note 12(a)] 33 -- 99,966
Shares to be issued [note 12(a)] -- 266,790 --
Net loss for the period -- -- --
Foreign currency translation -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 11,383 266,790 3,282,029
================================================================================================================================
Shares issued pursuant to share subscriptions [note 12(a)] 178 (266,790) 266,612
Shares issued for services [note 12(a)] 450 -- (450)
Shares issued pursuant to private placement, net of share
issue costs of $16,667 [note 12(a)] 2,234 -- 1,007,268
Shares issued for services rendered or to be rendered [note 12(a)] 252 -- 290,518
Stock based compensation [notes 10(b) and 12(b)] -- -- 277,668
Beneficial conversion feature of warrants [note 12(a)] -- -- 564,116
Net loss for the period -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 14,497 -- 5,687,761
================================================================================================================================
Stock based compensation [note 12(b)] -- -- 31,820
Net loss for the period -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF SEPTEMBER 30, 2000 14,497 -- 5,719,581
================================================================================================================================
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT EQUITY (DEFICIT)
$ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 25,519 (1,096,067) (793,640)
Deemed common shares issued for cash received in the prior year [note 12(a)] -- -- --
Deemed common shares issued for services rendered in the prior year [note 12(a)] -- -- --
Deemed common shares issued for investment in the prior year [note 12(a)] -- -- --
Deemed common shares issued for services rendered in the prior year [note 12(a)] -- -- 863,718
Deemed common shares issued for services rendered in the current year [note 12(a)] -- -- 253,936
Deemed common shares issued for cash [note 12(a)] -- -- 40,337
Deemed common shares issued to charitable organizations [note 12(a)] -- -- 15,207
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 [note 12(a)] -- -- --
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 [note 12(a)] -- -- 143,318
- ---------------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 25,519 (1,096,067) 522,876
=================================================================================================================================
Acquisition of CityXpress.com by WelcomeTo [note 2] -- -- 724,989
Acquisition of Xceedx [note 4] -- -- 875,000
Shares to be issued for services rendered [note 12(a)] -- -- 225,000
Finders fees acquisition costs [note 2] -- -- (225,000)
Shares issued pursuant to private placement [note 12(a)] -- -- 99,999
Shares to be issued [note 12(a)] -- -- 266,790
Net loss for the period -- (1,642,078) (1,642,078)
Foreign currency translation (5,894) -- (5,894)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,625 (2,738,145) 841,682
=================================================================================================================================
Shares issued pursuant to share subscriptions [note 12(a)] -- -- --
Shares issued for services [note 12(a)] -- -- --
Shares issued pursuant to private placement, net of share
issue costs of $16,667 [note 12(a)] -- -- 1,009,502
Shares issued for services rendered or to be rendered [note 12(a)] -- -- 290,770
Stock based compensation [notes 10(b) and 12(b)] -- -- 277,668
Beneficial conversion feature of warrants [note 12(a)] -- (564,116) --
Net loss for the period -- (2,387,437) (2,387,437)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 19,625 (5,689,698) 32,185
=================================================================================================================================
Stock based compensation [note 12(b)] -- -- 31,820
Net loss for the period -- (446,493) (446,493)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF SEPTEMBER 30, 2000 19,625 (6,136,191) (382,488)
=================================================================================================================================
See accompanying notes
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CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Nature of Operations and Basis of Presentation - Note 1]
Three months ended September 30 (Expressed in U.S. dollars)
2000 1999
$ $
- --------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period (446,493) (533,340)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 118,050 118,050
Depreciation 11,257 11,114
Deferred income tax recovery (40,000) (40,000)
Stock based compensation 31,820 --
Foreign exchange gain (2,711) --
Changes in operating assets and liabilities:
Accounts receivable (6,267) 941
Other receivables 18,176 9,538
Prepaid expenses and other 30,301 (127,596)
Accounts payable and accrued liabilities (58,772) (93,080)
Deferred revenue (389) (1,899)
- -------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (345,028) (656,272)
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (3,213) (10,965)
Cash acquired on acquisition of subsidiaries [notes 1] -- --
- -------------------------------------------------------------------------------------------------
NET CASH (USED) IN INVESTING ACTIVITIES (3,213) (10,965)
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings under bank indebtedness -- (1,129)
Proceeds from loan payable 290,000 --
Repayments of demand loans (1,126) (1,521)
Repayments of shareholders' loans (44) --
Proceeds from stock issued and to be issued, net of share issue costs -- 450,790
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 288,830 448,140
- -------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash (2,504) 7,774
NET (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (61,915) (211,323)
Cash and cash equivalents, beginning of period 38,963 234,214
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD (22,952) 22,891
=================================================================================================
SUPPLEMENTAL DISCLOSURE
Interest paid 14,909 1,806
=================================================================================================
See accompanying notes
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CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements are the continuing financial statements
of WelcomeTo Search Engine ("WelcomeTo"), a British Columbia corporation which
was incorporated on October 27, 1997. On January 7, 1999, WelcomeTo acquired
100% of the common shares of CityXpress.com Corp. ("CityXpress.com"); a United
States non-operating company traded on the NASDAQ OTC Bulletin Board. After the
acquisition on January 7, 1999, the accounting entity continued under the name
of CityXpress.com.
CityXpress.com Corp. ("Company") is a software developer and Internet publisher.
The Company's consolidated financial statements for the three months ended
September 30, 2000 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company incurred a net loss of
$446,493 for the three months ended September 30, 2000 and has a working capital
deficiency of $858,501 and deficit in stockholder's equity of $6,136,191 at
September 30, 2000. The ability of the Company to continue as a going concern is
dependent upon its ability to achieve profitable operations and to obtain
additional capital. Management expects to raise additional capital through
private placements and other types of venture funding. The outcome of these
matters cannot be predicted at this time. No assurances can be given that the
Company will be successful in raising sufficient additional capital. Further,
there can be no assurance, assuming the Company successfully raises additional
funds, that the Company will achieve positive cash flow. If the Company is
unable to obtain adequate additional financing, management will be required to
curtail the Company's operating expenses. These consolidated financial
statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities, which might be necessary should the
Company be unable to continue in business.
These financial statements have been prepared by management in accordance with
generally accepted accounting principles in the United States and in the opinion
of management reflect all adjustments, which consist only of normal and
recurring adjustments necessary to present fairly the financial position and
results of operations and cash flows.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended June 30, 2000.
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CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
2. ECOMMERCE TECHNOLOGY
eCommerce technology arose as part of the acquisition of Xceedx Technologies
Inc. and is being amortized on a straight-line basis over its useful life, which
is 36 months.
3. CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses which, when realized, have been
within range of management's expectations.
For the three months ended September 30, 2000, approximately 99% of the
Company's total revenues were generated through sales to one customer [1999 -
nil]. At September 30, 2000, approximately 97% of the Company's accounts
receivable balance were due from this customer [1999 - nil].
4. DEMAND INSTALMENT LOAN
In January 2000, the Company restructured its credit facility with the bank. In
addition, the existing loan was refinanced into a demand instalment of $169,687
(Cdn $250,000). The loan bears interest at the bank prime rate plus 1% and is
repayable in equal monthly principal and interest instalments of $1,563 for the
period March 15, 2000 to February 15, 2015. At September 30, 2000 the balance
outstanding is $166,087.
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CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
5. RELATED PARTY TRANSACTIONS
[A] SHAREHOLDERS' LOANS
During the year ended June 30, 2000, the Company entered into unsecured
shareholder loan agreements with the Company's chief executive officer and chief
financial officer. The demand loans outstanding at September 30, all of which
are without stated terms of repayment unless otherwise stated, are summarized
below:
ANNUAL
INTEREST BALANCE OUTSTANDING
RATE AT AT SEPTEMBER 30,
SEPTEMBER 30, 2000 2000 1999
% $ $
- ----------------------------------------------------------------------------------------------------
Loans payable bearing interest at 10% and repayable
in equal monthly principal and interest instalments
of $1,510 10.00 166,633 --
Loan payable bearing interest at the CIBC Visa
monthly interest rate 19.50 16,668 --
Loan payable bearing interest at the Scotia McLeod
monthly interest rate 9.50 16,668 --
Loan payable bearing interest at 4.5% per annum 4.50 33,336 --
Loan payable bearing interest at Toronto Dominion Bank
monthly TD Select Line rate 10.25 16,668 --
- ----------------------------------------------------------------------------------------------------
249,973 --
====================================================================================================
Interest incurred on the loans amounted to $6,475 for the three months ended
September 30, 2000.
[B] OTHER
On June 13, 2000, the Company granted 541,600 warrants to two of the Company's
officers, as consideration for their guarantee of the demand instalment loan
[note 4] and as consideration for the shareholder loans [note 5(a)]. Each
warrant is exercisable for one common share of the Company at a price of $.25
per share through June 13, 2002. The estimated fair value of these warrants at
the date of issuance of $48,744 was recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000. The Black Scholes
option-pricing model was used to value the warrants with the following
assumptions: no dividend yield; risk-free interest rate of 6.0%; expected
volatility of 1.09; and an expected life of 1.5 years.
11
12
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
6. SHARE CAPITAL
[A] COMMON STOCK
On June 10, 1998, the Company agreed to reacquire and cancel 110 common shares
of the Company from certain shareholders. In exchange for these shares, in
November 1998, the Company issued 360,000 common shares upon amendment of the
authorized capital of the Company. The cost to reacquire these shares and
commitment to issue new shares was recorded as a reduction in common stock and
corresponding increase in stock subscriptions. This transaction was recorded
using the carrying values of the common stock reacquired of $50,960.
In November 1998, Company issued 1,396,380 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $236,130 less issue costs of $10,187.
In November 1998, the Company issued 4,499,200 common shares to certain
officers, directors and employees of the Company in exchange for services
provided in the period ended June 30, 1998. In addition, the Company issued
1,337,248 common shares to certain officers, directors and employees of the
Company in exchange for services provided in July and August 1998. These common
shares were issued at the fair value of the common stock of approximately $0.19
(Cdn. $0.28) per share, which was based on third party stock subscriptions. The
Company recorded compensation expense of $253,936 during the year ended June 30,
1999.
In November 1998, the Company issued 237,667 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $40,337.
In November 1998, the Company issued 80,000 shares to two charitable
organizations for services rendered in July and August 1998. These shares were
recorded at the fair value of the common stock of approximately $0.19 per share
(Cdn $0.28), which was based on third party stock subscription agreements.
In November 1998, the Company issued 274,900 common shares at $0.17 (Cdn. $0.25)
per share, 210,471 common shares at $0.34 (Cdn. $0.50) per share, and 113,334
common shares at $0.51 (Cdn. $0.75) per share pursuant to third party stock
subscription agreements. The Company received total cash proceeds of $175,805
less issue costs of $32,487.
In January 1999, the Company incurred one-time finders fee costs of $225,000
related to the reverse acquisition of the Company. These costs were paid by the
issuance of 450,000 common shares at $0.50 (Cdn. $0.74) per share, after the
year ended June 30, 1999.
On March 15, 1999, the Company issued 33,333 common shares pursuant to stock
subscription agreements at a price of $3.00 per share for cash of $99,999.
12
13
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
6. SHARE CAPITAL (CONT'D.)
[A] COMMON STOCK (CONT'D.)
In August 1999, the Company issued 177,860 common shares at $1.50 per share, for
$266,790, net of financing commissions payable. The net cash proceeds were
received prior to June 30, 1999. Each common share issued has an attached
warrant which entitles the holder to acquire one common share for $1.50 each for
a one-year period and $2.00 each after one year. The warrants expire on June 10,
2001.
On August 15, 1999, the Company issued 100,000 units to a vendor for marketing
and advertising services. Each unit comprised one common share and one warrant
entitling the vendor to acquire one common share for $1.50 each for a one-year
period and $2.00 each after one year [note 12(c)]. On May 18, 2000, the Company
issued an additional 140,000 units to this vendor for marketing and advertising
services. Each unit comprised one common share and one warrant entitling the
vendor to acquire one common share for $.25 each for a one year period, and $.75
each after one year [note 12(c)]. The Company has recorded, in additional paid
in capital, the units issued at their fair value of $281,200. Of this amount,
approximately $142,500 has been recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000 and the remainder has
been recorded as a prepaid expense to be amortized over the period the services
are rendered. The Black Scholes option-pricing model was used to value the
warrants with the following assumptions: no dividend yield; risk free interest
rate of 6.0%; expected volatility of 1.09 and an expected life of 1.5 years.
In October and December 1999, the Company issued 99,521 common shares and
warrants to acquire 99,521 common shares for cash proceeds of $136,069. Each
common share has one attached warrant which entitles the holder to acquire one
common share for exercise prices of $1.25 to $1.50 during the first year and
$1.75 to $2.00 during the second year. The warrants expire September 30, 2001 to
October 13, 2001. Pursuant to the subscription agreements, if at any time until
March 31, 2000 the Company issued common shares at a share price of less than
the subscription price paid by the investors, then additional common shares and
warrants would be issued, such that the effective issue price of the common
shares issued is equal to the lower price paid. In January 2000, the Company
issued an additional 172,617 common shares for no additional consideration,
pursuant to this subscription agreement. In addition, the number of warrants
granted was increased by 172,617 to 272,138 and the exercise price decreased to
$.50 during the first year and $.75 during the second year.
In March 2000, the Company issued 12,467 common shares at $.77 per share to a
vendor for marketing services with a fair market value of $9,570.
During the year ended June 30, 2000, the Company issued 1,962,300 units for cash
proceeds of $890,100 before share issue costs of $16,667. Each unit comprised
one common share and one warrant entitling the holder to acquire one common
share.
The total proceeds of $1,026,169 representing 2,234,438 common shares have been
allocated to the common shares and the warrants based on their relative fair
values. The beneficial conversion feature of the warrants has been determined to
be $564,116 and has been charged to the deficit.
13
14
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
6. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS
On August 25, 1999, the Board of Directors approved the creation of the
Corporate Stock Option Plan ("Plan") pursuant to which the Company has reserved
2,000,000 shares of common stock. The terms and vesting period of options are
determined by the directors at the date of grant. The majority of the options
granted to date are exercisable over a four-year period and vest on a cumulative
basis at 1/3 per year.
In August 1999, the Company granted 675,000 stock options to employees below the
fair market value of the underlying common shares on the date of grant.
Compensation expense of $31,820, calculated based on the intrinsic value method,
has been recorded in the consolidated statement of operations for the quarter
ended September 30, 2000.
Stock option transactions for the quarter ended September 30, 2000 are
summarized below:
OUTSTANDING OPTIONS
SHARES -----------------------------
AVAILABLE WEIGHTED AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
# # $
- --------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 -- -- --
Reserve shares 2,000,000 -- --
Granted, July 13, 1999 (675,000) 675,000 1.50
May 15, 2000 (872,500) 872,500 0.25
June 27, 2000 (200,000) 200,000 0.25
Forfeited -- (185,000) 1.50
-- (47,500) 0.25
- --------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 252,500 1,515,000 0.65
======================================================================================
The following table summarizes information about stock options that are
outstanding at September 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE AVERAGE OUTSTANDING AT AVERAGE
PRICES SEPTEMBER 30, REMAINING EXERCISE PRICE SEPTEMBER 30, EXERCISE PRICE
2000 CONTRACTUAL LIFE 2000
$ # $ # $
- ---------------------------------------------------------------------------------------------
0.25 1,025,000 3.64 yrs 0.25 200,000 0.25
1.50 490,000 2.78 yrs 1.50 163,333 1.50
- ---------------------------------------------------------------------------------------------
1,515,000 363,333
=============================================================================================
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15
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
6. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
The weighted average fair value of options granted during the quarter ended
September 30, 2000 was as follows:
WEIGHTED
AVERAGE
OPTIONS FAIR VALUE
# $
- ------------------------------------------------------------------
Exercise price:
Equal to fair market value 1,072,500 0.19
Greater than fair market value -- --
Less than fair market value 675,000 2.21
- ------------------------------------------------------------------
1,747,500 0.97
==================================================================
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard ("SFAS") No. 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value of each option granted during the year was estimated at the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions: risk free interest rates of 6%; dividend yield of nil; volatility
factors of the expected market price of the Company's common stock of 1.09 and a
weighted average expected life of the option of 3.8 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma
information for the quarter ended September 30, 2000 is as follows:
$
- -----------------------------------------------------------------------------------
Net loss As reported (446,493)
Beneficial conversion feature of warrants [note 12(a)] As reported --
APB 25 compensation expense As recorded --
SFAS 123 compensation expense Pro forma --
- -----------------------------------------------------------------------------------
Pro forma net loss Pro forma (446,493)
- -----------------------------------------------------------------------------------
Pro forma net loss per common share:
Basic and diluted Pro forma (0.02)
===================================================================================
15
16
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
6. SHARE CAPITAL (CONT'D.)
[C] WARRANTS
The following represents a summary of warrants outstanding September 30, 2000:
OUTSTANDING WARRANTS
---------------------------------------------------------
EXERCISE PRICE
SHARES YEAR 1 YEAR 2
GRANT DATE # $ $ EXPIRY DATE
- -------------------------------------------------------------------------------------------
June 10, 1999 177,860 1.50 2.00 June 10, 2001
July 14, 1999 45,260 1.50 2.00 July 14, 2001
August 15, 1999 100,000 1.50 2.00 August 15, 2001
September 30, 1999 465,800 0.50 0.75 September 30, 2001
October 13, 1999 132,138 0.50 0.75 October 13, 2001
December 10, 1999 408,000 0.50 0.75 December 10, 2001
January 18, 2000 138,000 0.50 0.75 January 18, 2002
January 31, 2000 500,000 0.50 0.75 January 31, 2002
May 1, 2000 405,240 0.25 0.75 May 1, 2002
May 18, 2000 280,000 0.25 0.75 May 18, 2002
June 13, 2000 541,600 0.25 0.25 June 13, 2002
- -------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 3,193,898
===========================================================================================
[D] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss per
share:
2000 1999
$ $
- ----------------------------------------------------------------------------------------
NUMERATOR
Net loss for the year (446,493) (533,340)
- ----------------------------------------------------------------------------------------
Net loss attributable to common shareholders (446,493) (533,340)
DENOMINATOR
Weighted average number of common shares outstanding 23,008,098 20,558,910
Basic loss per common share (0.02) (0.03)
========================================================================================
For the quarters ended September 30, 2000 and 1999, all of the Company's common
shares issuable upon the exercise of stock options and warrants were excluded
from the determination of diluted loss per share, as their effect would be
anti-dilutive.
16
17
CITYXPRESS.COM CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
Information as at September 30, 2000 and for the three months ended September
30, 2000 and 1999 is unaudited.
7. LOAN PAYABLE
On August 16, 2000, the Company entered into a Loan and Security Agreement with
Lee Enterprises Incorporated (Lee). Under this agreement, the Company received
$290,000 in funding in the form of promissory notes that bear interest at the
Wall Street Journal rate, as detailed below:
CURRENT
DATE AMOUNT MATURITY DATE INTEREST RATE
$ %
- -----------------------------------------------------------------------------
AUGUST 17, 2000 125,000 NOVEMBER 17, 2000 9.5
AUGUST 28, 2000 125,000 NOVEMBER 28, 2000 9.5
SEPTEMBER 19, 2000 40,000 DECEMBER 19, 2000 9.5
- -----------------------------------------------------------------------------
290,000
=============================================================================
As part of the loan and security agreement, the Company is obligated to grant
the note holder the option to acquire 2,223,285 common shares of the Company. In
conjunction with these agreements, the Company entered into a Collateral License
Agreement covering the licensing of the Company's software to Lee in the event
of a default pursuant to the loan and security agreement. Interest to September
30, 2000 on this loan amounted to $2,695.
8. SUBSEQUENT EVENT
As of November 1, 2000, the Company entered into an Investment Agreement with
Lee Enterprises Incorporated (Lee) whereby Lee would provide funding up to
$1,500,000 in the form of a floating rate subordinated convertible debenture.
The $1,500,000 subordinated convertible debenture would consist of a series of
six debentures of $250,000 that would be funded during the period from November
2000 to May 2001. The Company received $250,000 in funding under the debenture
in October 2000. The Investment Agreement provides Lee the right to convert the
floating rate subordinated convertible debenture into 6,902,429 common shares of
the Company at conversion price of $0.2173 per common share until October 31,
2003. The Investment Agreement also contains certain affirmative and negative
covenants that restrict the Company's activities. Each series of $250,000
subordinated convertible debenture bears interest at the Wall Street Journal
rate less 1%. Interest due on the convertible debenture will be converted to
CityXpress shares at fair market value on the date of conversion. As part of the
Investment Agreement, the Loan and Security Agreement dated August 16, 2000 was
amended by changing the repayment terms and maturity dates of the promissory
notes, as per note 7, to October 31, 2002. The amended agreement also cancelled
Lee's right under the Loan Security Agreement to acquire 2,223,285 common
shares. Under the Investment Agreement, the Company has entered into a
Registration Rights Agreement providing Lee the ability to register their shares
under the Investment Agreement based on certain conditions.
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18
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company incurred a net loss for the three months ended September
30, 2000 of $446,493 as compared to a loss of $533,340 for the same period in
1999 a decrease of $86,847. The Company recorded revenue of $75,716 in the
quarter ended September 30, 2000 resulting in an increase of $71,401 over the
same three-month period last year. This revenue increase resulted primarily from
our media partner Lee Enterprises Incorporated (Lee). The decrease in net loss
for the three months ended September 30, 2000 of $86,847 is the result of
decreased expenses resulting primarily from the following items compared to the
same three month period ended September 30, 1999:
- - Decrease in cost of the listing information for the database of $40.
- - Decrease in development and technology expenses caused by decrease in
salaries of $34,002.
- - Decrease in general office expenses caused by the decrease in employee
count of $24,435.
- - Increase in sales and marketing expenses as a result of increase in
employee count of $10,491.
Lee portal sites accounted for $74,477 of revenue for the quarter ended
September 30, 2000.
FINANCING AND LIQUIDITY
As of September 30, 2000, the Company had an overdraft cash balance of
$22,952, a working capital deficiency of $858,501 that included shareholders'
loans of $249,973 and loan payable of $290,000, demand loan of $166,087 and
accounts payables and accrued liabilities of $300,688.
As of August 16, 2000, the Company entered into a Loan and Security
Agreement with Lee. Under this agreement, the Company received $290,000 in
funding in the form of promissory notes that bear interest at the Wall Street
Journal rate. As part of the loan and security agreement, the Company is
obligated to grant the note holder the option to acquire 2,223,285 common shares
of the Company. In conjunction with these agreements, the Company entered into a
Collateral License Agreement covering the licensing of the Company's software to
Lee in the event of default pursuant to the loan and security agreement.
As of November 1, 2000, the Company entered into an Investment
Agreement with Lee Enterprises Incorporated (Lee) whereby Lee would provide
funding up to $1,500,000 in the form of a floating rate subordinated convertible
debenture. The $1,500,000 subordinated convertible debenture would consist of a
series of six debentures of $250,000 that would be funded during the period from
November 2000 to May 2001. The Company received $250,000 in funding under the
debenture in October 2000. The Investment Agreement provides Lee the right to
convert the floating rate subordinated convertible debenture into 6,902,429
common shares of the Company at conversion price of $0.2173 per common share
until October 31, 2003. The Investment Agreement also contains certain
affirmative and negative covenants that restrict the Company's activities. Each
series of $250,000 subordinated convertible debenture bears interest at the Wall
Street Journal rate less 1%. Interest due on the convertible debenture will be
converted to CityXpress shares at fair market value on the date of conversion.
As part of the Investment Agreement, the Loan and Security Agreement dated
August 16, 2000 was amended by changing the repayment terms and maturity dates
of the promissory notes, as per note 7, to
18
19
October 31, 2002. The amended agreement also cancelled Lee right under the Loan
Security Agreement to acquire 2,223,285 common shares. Under the Investment
Agreement, the Company has entered into a Registration Rights Agreement
providing Lee the ability to register their shares under the Investment
Agreement based on certain conditions.
Based on the expenditures for the three months ended September 30,
2000, the Company forecasts minimum annual operating cash requirements of
approximately $1.5 million. The Lee investment of $1.5 million provides
sufficient resources to maintain current operations for the next 12 months.
Revenue generated under agreements with additional media companies will also
improve the Company's cash flow over the next 12 months.
PLAN OF OPERATION
The Company is dependent on obtaining new financing for ongoing
operation, capital expenditures and working capital. There is no assurance that
such financing will be available when required by or under terms favorable to
the Company.
The Company anticipates that media revenue from Lee will grow as Lee
implements additional portal sites at their newspapers. Revenue from Lee for the
period ended September 30, 2000 amounted to $74,477. Revenue for the second
quarter from Lee is expected to exceed the previous period revenue as additional
portal sites are implemented. Lee is committed to implementing 54 Special
Sections by September 30, 2001, which will result in additional incremental
revenue. The Company has implemented a business development program with Lee
that will include a CityXpress.com business development employee working with
each Lee Newspaper sales manager to maximize the Internet revenue opportunities
using CityXpress.com products. The Company believes this direct contact with
each sales manager will ensure successful implementation of our products within
Lee and maximize the revenue potential at each Lee Newspaper.
The Company expects to see revenue from MediaNet commencing in December
2000 which will increase as they implement our eCommerce products at their
affiliate Radio Station Network.
The Company is actively calling on other media companies regarding its
product offerings. Each additional media company agreement will generate
additional revenue and cash flow. Management is confident that it will be
successful in closing additional media agreements.
The Company is presently seeking additional funding through private
offerings with individuals and institutions and is actively seeking other
private investors in the range of $100,000 to $500,000 to increase its cash
position.
The investment by Lee of $1,500,000 in the form of a floating rate
subordinated convertible debenture provides the minimum working capital required
by the Company for a year.
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20
BUSINESS RISKS
The Company faces three significant business risks on a going forward
basis:
- - Raising the equity financing needed to operate the Company at its
current operating level and providing the operating funds, capital
additions and repayment of liabilities in a timely manner. If the
Company is unsuccessful in this regard it will be required to reduce
operating expenditures to a level that will be in line with cash flows.
- - The Company may be unsuccessful in obtaining additional media partners
or the Lee agreement may be unsuccessful in generating revenues. In
either case, the Company would have to re-evaluate its business model
to determine if there was another partnership arrangement that would
provide the economic, cash flow or business advantages it currently
believes will be provided by media companies. The Company at this time
cannot assess whether it could find other business partners and
negotiate favorable terms that would provide the necessary revenue and
cash flow required by the Company.
- - A major competitor or new company could dominate the market sector
being targeted by the Company. The Company would then have to assess
the impact of the situation. The regional eCommerce market sector is
large and there may be room for two suppliers to media companies. If
not, then the Company would have to assess what other market sector it
could successfully operate in.
20
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings
ITEM 2. CHANGES IN SECURITIES
As of November 1, 2000, the Company entered into an Investment Agreement with
Lee Enterprises Incorporated (Lee) whereby Lee would provide funding up to
$1,500,000 in the form of a floating rate subordinated convertible debenture.
The $1,500,000 subordinated convertible debenture would consist of a series of
six debentures of $250,000 that would be funded during the period from November
2000 to May 2001. The Company received $250,000 in funding under the debenture
in October 2000. The Investment Agreement provides Lee the right to convert the
floating rate subordinated convertible debenture into 6,902,429 common shares of
the Company at conversion price of $0.2173 per common share until October 31,
2003. The Investment Agreement also contains certain affirmative and negative
covenants that restrict the Company's activities. Each series of $250,000
subordinated convertible debenture bears interest at the Wall Street Journal
rate less 1%. Interest due on the convertible debenture will be converted to
CityXpress shares at fair market value on the date of conversion. As part of the
Investment Agreement, the Loan and Security Agreement dated August 16, 2000 was
amended by changing the repayment terms and maturity dates of the promissory
notes, as per note 7, to October 31, 2002. The amended agreement also cancelled
Lee's right under the Loan Security Agreement to acquire 2,223,285 common
shares. Under the Investment Agreement, the Company has entered into a
Registration Rights Agreement providing Lee the ability to register their shares
under the Investment Agreement based on certain conditions.
A copy of the Investment Agreement, Second Amendment to the Loan and Security
Agreement and the Registration Rights Agreements are attached.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults by the Company regarding any senior
securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no submissions by the Company regarding a vote of
security holders.
ITEM 5. OTHER INFORMATION
The Company's Annual Form 10-KSB has been filed with the Securities and
Exchange Commission on October 13, 2000.
See Item # 2 above.
ITEM 6. EXHIBITS AND REPORTS
1. Investment Agreement by and between the Company and Lee
Enterprises Incorporated.
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2. Second Amendment to the Loan and Security Agreement by and
between the Company and Lee Enterprises Incorporated.
3. Registration Rights Agreement by and between the Company and
Lee Enterprises Incorporated.
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.
CityXpress.com Corp.
Date: November 14, 2000 /s/ Ken Bradley
-----------------------------------
Signature
Ken Bradley
-----------------------------------
Print Name
Chief Operating Officer & CFO
-----------------------------------
Title
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