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 December 31, 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: February 14, 2001 23,008,098 common
shares.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X].
================================================================================
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2
TABLE OF CONTENTS
PART I........................................................................................4
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEETS - December 31, 2000 and June 30, 2000............5
CONSOLIDATED STATEMENTS OF OPERATIONS - Three months ended December 31, 2000
and 1999; Six months ended December 31, 2000 and 1999.........................6
CONSOLIDATED STATEMENTS OF CASH FLOWS - Six months ended December 31, 2000
and 1999......................................................................8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - December 31, 2000................9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK.......................17
PART II......................................................................................18
ITEM 1. LEGAL PROCEEDINGS............................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................18
ITEM 5. OTHER INFORMATION............................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................18
2
3
NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
quarterly 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 quarterly
report.
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4
PART I-FINANCIAL INFORMATION
ITEM 1. SECOND QUARTER FINANCIAL STATEMENTS ENDING DECEMBER 31, 2000
Consolidated unaudited interim financial statements of the Company for
the three and six months ended December 31, 2000 and December 31, 1999. All
figures are presented in U.S. Currency, unless otherwise stated.
4
5
CITYXPRESS.COM CORP.
CONSOLIDATED BALANCE SHEETS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
DECEMBER 31 June 30
2000 2000
$ $
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 143,195 38,963
Accounts receivable, net of allowance for doubtful accounts
of nil at December 31, 2000 and June 30, 2000 61,305 28,903
Other receivables 28,543 26,220
Prepaid expenses and other 96,555 159,557
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 329,598 253,643
Property and equipment, net 62,758 67,348
eCommerce technology, net 511,434 747,534
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS 903,790 1,068,525
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 247,857 361,921
Demand instalment loan 165,017 167,213
Shareholders' loans 249,751 252,900
Deferred revenue 427 1,206
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 663,052 783,240
Loan payable [note 2] 290,000 --
Loan debenture [note 3] 750,000 --
- ---------------------------------------------------------------------------------------------------
Deferred tax liability 173,100 253,100
TOTAL LIABILITIES 1,876,152 1,036,340
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital [note 4]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,008,098 at December 31, 2000
and June 30, 2000 14,497 14,497
Additional paid in capital 5,751,454 5,687,761
Accumulated other comprehensive income 19,625 19,625
Deficit (6,757,938) (5,689,698)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (972,362) 32,185
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 903,790 1,068,525
- ---------------------------------------------------------------------------------------------------
See accompanying notes
5
6
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
THREE MONTHS Three Months SIX MONTHS Six Months
ENDED ended ENDED ended
DECEMBER 31 December 31 DECEMBER 31 December 31
2000 1999 2000 1999
$ $ $ $
- ------------------------------------------------------------------------------------------------------------
REVENUE
Development fees -- 395 8,863 496
Hosting fees 1,190 1,655 13,179 3,850
Training fees 7,994 -- 15,432 --
Banner Advertising fees 9,705 2,001 40,770 2,001
Premier Listings fees 5,115 -- 13,782 --
Coupons fees 1,267 -- 4,532 --
E-commerce fees 2,746 -- 7,175 --
License fees -- 2,037 -- 4,056
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 28,017 6,088 103,733 10,403
Cost of sales 77,534 161 147,703 180
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (49,517) 5,927 (43,970) 10,223
OPERATING EXPENSES
Sales and marketing 129,363 76,537 210,381 131,289
Product development and technology 99,164 266,536 203,155 488,530
Finance and administration 250,069 164,050 427,004 345,255
Amortization of eCommerce technology 118,050 118,050 236,100 236,100
- ------------------------------------------------------------------------------------------------------------
596,646 625,173 1,076,640 1,201,174
- ------------------------------------------------------------------------------------------------------------
Operating loss (646,163) (619,246) (1,120,610) (1,190,951)
OTHER INCOME (EXPENSE)
Interest expense (28,027) (2,542) (42,936) (4,348)
Loss on disposal of capital asset (423) -- (423) --
Miscellaneous income 17,080 243 17,232 414
Foreign exchange gain (1,503) -- (1,503) --
- ------------------------------------------------------------------------------------------------------------
Total other expense (12,873) (2,299) (27,630) (3,934)
- ------------------------------------------------------------------------------------------------------------
Loss before income taxes (659,036) (621,545) (1,148,240) (1,194,885)
Deferred income tax recovery 40,000 40,000 80,000 80,000
- ------------------------------------------------------------------------------------------------------------
NET LOSS AND COMPREHENSIVE LOSS
FOR THE PERIOD (619,036) (581,545) (1,068,240) (1,114,885)
- ------------------------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE [NOTE 4(C)]
Basic and diluted (0.03) (0.03) (0.05) (0.07)
- ------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES [NOTE 4(C)]
Basic and diluted 23,008,098 20,588,400 23,008,098 20,666,214
- ------------------------------------------------------------------------------------------------------------
See accompanying notes
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7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
COMMON COMMON
COMMON STOCK TO BE STOCK ISSUED
STOCK ISSUED AND OUTSTANDING
# # $
---------- ----------- ---------------
Deemed outstanding as of June 30, 1998 800 1,756,380 --
Deemed common shares issued for cash received in the prior year 160,000 (160,000) --
Deemed common shares issued for services rendered in the prior year 160,000 (160,000) --
Deemed common shares issued for investment in the prior year 40,000 (40,000) --
Deemed common shares issued for services rendered in the prior year 4,499,200 -- --
Deemed common shares issued for services rendered in the current year 1,337,248 -- --
Deemed common shares issued for cash 237,667 -- --
Deemed common shares issued to charitable organizations 80,000 -- --
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 1,396,380 (1,396,380) --
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 598,705 -- --
---------- ---------- ------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 8,510,000 -- --
========== ========== ======
Acquisition of CityXpress.com by WelcomeTo 5,100,000 -- 5,100
Acquisition of Xceedx 6,250,000 -- 6,250
Shares to be issued for services rendered -- 450,000 --
Finders fees acquisition costs -- -- --
Shares issued pursuant to private placement 33,333 -- 33
Shares to be issued -- 177,860 --
Net loss for the period -- -- --
Foreign currency translation -- -- --
---------- ---------- ------
BALANCE AS OF JUNE 30, 1999 19,893,333 627,860 11,383
========== ========== ======
Shares issued pursuant to share subscriptions 177,860 (177,860) 178
Shares issued for services 450,000 (450,000) 450
Shares issued pursuant to private placement, net of share
issue costs of $16,667 2,234,438 -- 2,234
Shares issued for services rendered or to be rendered 252,467 -- 252
Stock based compensation -- -- --
Beneficial conversion feature of warrants -- -- --
Net loss for the year -- -- --
---------- ---------- ------
BALANCE AS OF JUNE 30, 2000 23,008,098 -- 14,497
========== ========== ======
Stock based compensation [note 5(a)] -- -- --
---------- ---------- ------
Warrants issued for services -- -- --
Net loss for the period -- -- --
---------- ---------- ------
BALANCE AS OF DECEMBER 31, 2000 23,008,098 -- 14,497
========== ========== ======
COMMON ADDITIONAL ACCUMULATED OTHER
STOCK TO BE PAID IN COMPREHENSIVE
ISSUED CAPITAL INCOME
$ $ $
----------- ---------- -----------------
Deemed outstanding as of June 30, 1998 276,903 5 25,519
Deemed common shares issued for cash received in the prior year (17,033) 17,033 --
Deemed common shares issued for services rendered in the prior year (30,521) 30,521 --
Deemed common shares issued for investment in the prior year (3,406) 3,406 --
Deemed common shares issued for services rendered in the prior year -- 863,718 --
Deemed common shares issued for services rendered in the current year -- 253,936 --
Deemed common shares issued for cash -- 40,337 --
Deemed common shares issued to charitable organizations -- 15,207 --
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 (225,943) 225,943 --
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 -- 143,318 --
-------- ---------- -------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 -- 1,593,424 25,519
======== ========== =======
Acquisition of CityXpress.com by WelcomeTo -- 719,889 --
Acquisition of Xceedx -- 868,750 --
Shares to be issued for services rendered -- 225,000 --
Finders fees acquisition costs -- (225,000) --
Shares issued pursuant to private placement -- 99,966 --
Shares to be issued 266,790 -- --
Net loss for the period -- -- --
Foreign currency translation -- -- (5,894)
-------- ---------- -------
BALANCE AS OF JUNE 30, 1999 266,790 3,282,029 19,625
======== ========== =======
Shares issued pursuant to share subscriptions (266,790) 266,612 --
Shares issued for services -- (450) --
Shares issued pursuant to private placement, net of share
issue costs of $16,667 -- 1,007,268 --
Shares issued for services rendered or to be rendered -- 290,518 --
Stock based compensation -- 277,668 --
Beneficial conversion feature of warrants -- 564,116 --
Net loss for the year -- -- --
-------- ---------- -------
BALANCE AS OF JUNE 30, 2000 -- 5,687,761 19,625
======== ========== =======
Stock based compensation [note 5(a)] -- 49,693 --
-------- ---------- -------
Warrants issued for services -- 14,000 --
Net loss for the period -- -- --
-------- ---------- -------
BALANCE AS OF DECEMBER 31, 2000 -- 5,751,454 19,625
======== ========== =======
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
$ $
---------- ----------------
Deemed outstanding as of June 30, 1998 (1,096,067) (793,640)
Deemed common shares issued for cash received in the prior year -- --
Deemed common shares issued for services rendered in the prior year -- --
Deemed common shares issued for investment in the prior year -- --
Deemed common shares issued for services rendered in the prior year -- 863,718
Deemed common shares issued for services rendered in the current year -- 253,936
Deemed common shares issued for cash -- 40,337
Deemed common shares issued to charitable organizations -- 15,207
Prior year's subscription shares issued in the current year, net of share
issue costs of $10,187 -- --
Deemed common shares issued pursuant to private placement, net of
issue costs of $32,487 -- 143,318
---------- ----------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 (1,096,067) 522,876
========== ==========
Acquisition of CityXpress.com by WelcomeTo -- 724,989
Acquisition of Xceedx -- 875,000
Shares to be issued for services rendered -- 225,000
Finders fees acquisition costs -- (225,000)
Shares issued pursuant to private placement -- 99,999
Shares to be issued -- 266,790
Net loss for the period (1,642,078) (1,642,078)
Foreign currency translation -- (5,894)
---------- ----------
BALANCE AS OF JUNE 30, 1999 (2,738,145) 841,682
========== ==========
Shares issued pursuant to share subscriptions -- --
Shares issued for services -- --
Shares issued pursuant to private placement, net of share
issue costs of $16,667 -- 1,009,502
Shares issued for services rendered or to be rendered -- 290,770
Stock based compensation -- 277,668
Beneficial conversion feature of warrants (564,116) --
Net loss for the year (2,387,437) (2,387,437)
---------- ----------
BALANCE AS OF JUNE 30, 2000 (5,689,698) 32,185
========== ==========
Stock based compensation [note 5(a)] -- 49,693
---------- ----------
Warrants issued for services -- 14,000
Net loss for the period (1,068,240) (1,068,240)
---------- ----------
BALANCE AS OF DECEMBER 31, 2000 (6,757,938) (972,362)
========== ==========
See accompanying notes
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8
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
SIX Six
MONTHS Months
ENDED ended
DECEMBER 31 December 31
2000 1999
$ $
----------- -----------
OPERATING ACTIVITIES
Net loss for the period (1,068,240) (1,114,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 236,100 236,100
Depreciation 23,110 22,611
Loss on disposal of capital asset 423 --
Deferred income tax recovery (80,000) (80,000)
Stock based compensation 63,693 --
Foreign exchange gain 1,503 --
Changes in operating assets and liabilities:
Accounts receivable (32,106) 18,914
Other receivables (2,342) --
Prepaid expenses and other 60,626 (84,525)
Accounts payable and accrued liabilities (110,775) 29,981
Deferred revenue (763) (3,594)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (908,771) (975,398)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (19,533) (6,605)
Proceeds from sale of capital assets 910 --
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (18,623) (6,605)
----------- -----------
FINANCING ACTIVITIES
Borrowings under bank indebtedness -- 18,507
Proceeds from loan payable 290,000 --
Proceeds from loan debenture 750,000 --
Repayment of demand loans (2,197) (2,668)
Repayment of shareholders' loans (444) --
Proceeds from stock issued and
to be issued, net of share issue costs -- 727,353
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,037,359 743,192
----------- -----------
Effect of foreign exchange rate changes on cash (5,733) 4,597
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD 104,232 (234,214)
Cash and cash equivalents, beginning of period 38,963 234,214
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 143,195 --
=========== ===========
SUPPLEMENTAL DISCLOSURE
Interest paid 42,936 4,348
=========== ===========
See accompanying notes
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CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These unaudited interim 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.
For the three months ended December 31, 2000 and six months ended December 31,
2000, substantially all the Company's revenue was derived from Lee Enterprises
Incorporated.
The Company's consolidated unaudited interim financial statements for the six
months ended December 31, 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
$1,068,240 for the six months ended December 31, 2000 and has a working capital
deficiency of $333,454 and deficit of $6,757,938 at December 31, 2000.
Substantial doubt about 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
unaudited interim 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 consolidated unaudited interim financial statements have been prepared by
management in accordance with generally accepted accounting principles in the
United States for interim financial information 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 consolidated unaudited interim 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.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
2. 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
LOAN DATE AMOUNT $ MATURITY DATE INTEREST RATE(%)
-------- ---------------- ----------------
AUGUST 17, 2000 125,000 OCTOBER 31, 2002 9.5
AUGUST 28, 2000 125,000 OCTOBER 31, 2002 9.5
SEPTEMBER 19, 2000 40,000 OCTOBER 31, 2002 9.5
------- ---------------- ---
290,000
======= ================ ===
Pursuant to the Investment Agreement (see note 3), the maturity dates were
changed from November 17, 2000, November 28, 2000 and December 19, 2000
respectively, to October 31, 2002.
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 for the
quarter ending December 31, 2000 on this loan amounted to $6,944 and $9,639 for
the six months ended December 31, 2000.
3. LOAN DEBENTURE
On November 1, 2000, the Company entered into an Investment Agreement with Lee
Enterprises Incorporated (Lee) whereby Lee would provide funding of 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 $750,000 in funding under the debenture
from October 2000 to December 2000. The Company will receive the remainder of
the loan in three equal instalments of $250,000 on January 1, 2001, March 1,
2001 and May 1, 2001. 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 a conversion price of $0.2173 per common share, which
represented the fair market value of the Company's common stock on December 31,
2000. If Lee does not convert the debenture to common shares the Company will
have to repay the $1,500,000 loan on October 31, 2003. The Investment Agreement
also contains certain affirmative and negative covenants that restrict the
Company's activities. As of December 31, 2000, the Company is in compliance with
all the covenants in the Investment Agreement. Each series of $250,000
subordinated convertible debenture bears interest at the Wall Street Journal
rate less 1%. Interest due on the convertible debenture can be repaid or
converted to CityXpress shares at fair market value on the date of conversion.
The Investment Agreement, includes a Registration Rights Agreement providing Lee
the ability to register their shares under the Investment Agreement based on
certain conditions.
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11
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
4. SHARE CAPITAL
[A] STOCK OPTIONS
On November 29, 2000, at the Annual General Meeting the shareholders approved
changes to the Corporate Stock Option Plan ("Plan") pursuant to which the
Company has reserved a total of 3,000,000, [June 30, 2000 - 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 $17,873 and $49,693, calculated based on the intrinsic
value method, has been recorded in the consolidated statement of operations for
the three and six months ended December 31, 2000, respectively.
On December 8, 2000, the Company cancelled 490,000 granted stock options to
employees, which had an exercise price of $1.50.
Stock option transactions for the six months ended December 31, 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
---------- ---------- ----
BALANCE, DECEMBER 31, 1999 1,325,000 675,000 1.50
May 15, 2000 (872,500) 872,500 0.25
June 27, 2000 (200,000) 200,000 0.25
Forfeited 110,000 (110,000) 1.50
---------- ---------- ----
BALANCE, JUNE 30, 2000 362,500 1,637,500 0.68
Increase in reserve shares 1,000,000
November 10, 2000 (65,000) 65,000 0.25
November 29, 2000 (85,000) 85,000 0.25
Forfeited 75,000 (75,000) 1.50
Cancelled 490,000 (490,000) 1.50
Forfeited 47,500 (47,500) 0.25
---------- ---------- ----
BALANCE, DECEMBER 31, 2000 1,825,000 1,175,000 0.25
========== ========== ====
11
12
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
4. SHARE CAPITAL (CONT'D.)
[A] STOCK OPTIONS (CONT'D.)
The following table summarizes information about stock options that are
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE AVERAGE OUTSTANDING AT AVERAGE
PRICES DECEMBER 31, REMAINING EXERCISE PRICE DECEMBER 31, EXERCISE PRICE
2000 CONTRACTUAL LIFE 2000
$ # $ # $
-------- -------------- ---------------- -------------- -------------- --------------
0.25 1,175,000 3.46 yrs 0.25 200,000 0.25
---- --------- -------- ---- ------- ----
The weighted average fair value of options granted during the quarter ended
December 31, 2000 was as follows:
OPTIONS
#
-------
Exercise price:
Equal to fair market value 150,000
Greater than fair market value --
Less than fair market value --
-------
150,000
=======
12
13
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
4. SHARE CAPITAL (CONT'D.)
[B] WARRANTS
The following represents a summary of warrants outstanding December 31, 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
November 10, 2000 200,000 0.25 0.25 November 10, 2002
--------- ---- ----
BALANCE, DECEMBER 31, 2000 3,393,898
=========
During the quarter ended December 31, 2000, the Company granted 200,000 warrants
to certain officers and directors.
13
14
4. SHARE CAPITAL (CONT'D.)
[C] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss per
share:
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
December 31 December 31 December 31 December 31
2000 1999 2000 1999
$ $ $ $
------------ ------------ ------------ ------------
NUMERATOR
Net loss for the period ended December 31 (619,036) (581,545) (1,068,240) (1,114,885)
Beneficial conversion feature of warrants -- (110,068) -- (367,272)
------------ ------------ ------------ ------------
(619,036) (691,613) (1,068,240) (1,482,157)
DENOMINATOR
Weighted average number of common shares outstanding 23,008,098 20,588,400 23,008,098 20,666,214
Basic loss per common share (0.03) (0.03) (0.05) (0.07)
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For the three and six months ended December 31, 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.
5. COMPARTIVE FIGURES
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation adopted in the current quarter.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the United States Securities and Exchange Commission issued
Staff Accounting Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements of all public registrants. The
provisions of SAB 101 are effective for the Company's fourth quarter ending June
30, 2001. The Company has not determined the impact of SAB 101, if any, on the
consolidated financial statements.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company incurred a net loss for the three months ended December 31,
2000 of $619,036 as compared to a net loss of $581,545 for the same period in
1999, an increase of $37,491. The Company recorded revenue of $28,017 in the
quarter ended December 31, 2000 resulting in an increase of $21,929 over the
same three-month period last year. This revenue increase resulted primarily from
our media partner Lee Enterprises Incorporated (Lee). The increase in net loss
for the three months ended December 31, 2000 of $37,491 is the result of
increased expenses resulting primarily from the following items compared to the
same three month period ended December 31, 1999:
- - Decrease in cost of the listing information for the database of
$42,800.
- - Increase in general office expenses caused by the increase in investor
relations and consulting services of $38,080.
- - Increase in sales and marketing expenses as a result of increase in
promotional and consulting services of $45,995.
Lee portal sites accounted for $26,827 of revenue for the quarter ended
December 31, 2000.
FINANCING AND LIQUIDITY
As of December 31, 2000, the Company had a cash balance of $143,195, a
working capital deficiency of $333,454 that included shareholders' loans of
$249,751 a demand instalment loan of $165,017 and accounts payables and accrued
liabilities of $247,857.
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
November 2000 to May 2001. The Company received $750,000 in funding under the
debenture from October 2000 to December 2000. The Company will receive the
remainder of the loan in three equal instalments of $250,000 on January 1, 2001,
March 1, 2001 and May 1, 2001. The Investment Agreement provides Lee the right
to convert the floating rate subordinated convertible debentures into 6,902,429
common shares of the Company at a conversion price of $0.2173 per common share
until October 31, 2003. If Lee does not convert the debenture to common shares
the Company will have to repay the $1,500,000 loan on October 31, 2003. The
Investment Agreement also contains certain affirmative and negative covenants
that restrict the Company's activities. As of December 31, 2000, the Company is
in compliance with all the covenants. Each series of $250,000 subordinated
convertible debenture bears interest at the Wall Street Journal rate less 1%.
Interest due on the convertible debenture can be repaid or 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 3, to October 31, 2002. The amended agreement also cancelled
Lee's option under the Loan Security Agreement to acquire 2,223,285 common
shares. The Investment Agreement, includes a Registration Rights Agreement
providing Lee the ability to register their shares under the Investment
Agreement based on certain conditions.
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Based on the expenditures for the three months ended December 31, 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 anticipates that media revenue from Lee will grow as Lee
implements additional portal sites at their newspapers. Revenue from Lee for the
period ended December 30, 2000 amounted to $26,827. Revenue for the third
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 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. There is no assurance that such financing will be available when
required by or under terms favourable to the Company.
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. As at December 31, 2000, the Company has received
$750,000 of this investment.
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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.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's exposure to market risk is dependent upon the fluctuation
of interest rates. The risk of foreign currency is not significant and the
Company does not use derivative financial instruments.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
ITEM 2. CHANGES IN SECURITIES
There has been no change in securities.
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
The Company held its Annual General Meeting on November 29, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS
None.
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: February 14, 2001
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Signature
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Ken Bradley
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Print Name
Chief Operating Officer & CFO
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Title
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