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 March 31, 2001.
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: May 11, 2001 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. FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEETS - March 31, 2001 and June 30, 2000........................ 5
CONSOLIDATED STATEMENTS OF OPERATIONS - Three months ended
March 31, 2001 and 2000; Nine months ended March 31, 2001 and 2000..................... 6
CONSOLIDATED STATEMENTS OF CASH FLOWS - Nine months ended March 31, 2001 and 2000...... 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - March 31, 2001............................ 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
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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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PART I-FINANCIAL INFORMATION
ITEM 1. THIRD QUARTER FINANCIAL STATEMENTS ENDING MARCH 31, 2001
Consolidated unaudited interim financial statements of the Company for
the three and nine months ended March 31, 2001 and March 31, 2000. All figures
are presented in U.S. Currency, unless otherwise stated.
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5
CITYXPRESS.COM CORP.
CONSOLIDATED BALANCE SHEETS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
March 31 June 30
2001 2000
$ $
- ------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 121,484 38,963
Accounts receivable, net of allowance for doubtful accounts
of nil at March 31, 2001 and June 30, 2000 54,118 28,903
Other receivables 18,333 26,220
Prepaid expenses and other 28,579 159,557
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 222,514 253,643
Property and equipment, net 72,658 67,348
eCommerce technology, net 393,384 747,534
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS 688,556 1,068,525
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 198,806 361,921
Demand installment loan 163,741 167,213
Shareholders' loans 218,600 252,900
Deferred revenue 691 1,206
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 581,838 783,240
Loan payable [note 2] 290,000 --
Loan debenture [note 3] 1,250,000 --
Deferred tax liability 133,100 253,100
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,254,938 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 March 31, 2001 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 (7,351,958) (5,689,698)
- ------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,566,382) 32,185
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 688,556 1,068,525
======================================================================================================
See accompanying notes
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6
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
THREE MONTHS Three Months NINE MONTHS Nine Months
ENDED ended ENDED ended
MARCH 31 March 31 MARCH 31 March 31
2001 2000 2001 2000
$ $ $ $
- -----------------------------------------------------------------------------------------------------------
REVENUE
Development fees 297 -- 9,160 496
Hosting fees 671 2,752 13,850 6,602
Training fees 6,677 49,289 22,109 49,289
Banner Advertising fees 13,013 -- 53,783 2,001
Premier Listings fees 5,987 -- 19,769 --
Coupons fees 1,387 -- 5,919 --
E-commerce fees 5,593 -- 12,768 --
License fees -- 1,136 -- 5,192
- -----------------------------------------------------------------------------------------------------------
TOTAL REVENUES 33,625 53,177 137,358 63,580
Cost of sales 108,928 52,572 256,631 167,810
- -----------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (75,303) 605 (119,273) (104,230)
OPERATING EXPENSES
Sales and marketing 152,176 32,869 362,557 170,475
Product development and technology
[note 5] 118,118 160,815 304,293 534,288
Finance and administration 139,541 157,534 566,545 496,472
Amortization of eCommerce technology 118,050 118,050 354,150 354,150
527,885 469,268 1,587,545 1,555,385
- -----------------------------------------------------------------------------------------------------------
Operating loss (603,188) (468,663) (1,706,818)
(1,659,615)
OTHER INCOME (EXPENSE)
Interest expense (34,436) (5,174) (77,372) (9,522)
Loss on disposal of capital asset -- -- (423) --
Miscellaneous income 177 -- 429 415
Foreign exchange gain 3,427 -- 1,924 --
- -----------------------------------------------------------------------------------------------------------
Total other (expense) (30,832) (5,174) (75,442) (9,107)
- -----------------------------------------------------------------------------------------------------------
Loss before income taxes (634,020) (473,837) (1,782,260)
(1,668,722)
Deferred income tax recovery 40,000 40,000 120,000 120,000
- -----------------------------------------------------------------------------------------------------------
NET LOSS AND COMPREHENSIVE LOSS FOR THE
PERIOD (594,020) (433,837) (1,662,260) (1,548,722)
===========================================================================================================
NET LOSS PER COMMON SHARE [NOTE 4(C)]
Basic and diluted (0.03) (0.02) (0.07) (0.07)
===========================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
[NOTE 4(C)]
Basic and diluted 23,008,098 21,201,148 23,008,098 20,683,028
===========================================================================================================
See accompanying notes
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CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
COMMON COMMON COMMON
COMMON STOCK TO BE STOCK ISSUED STOCK TO BE
STOCK ISSUED AND OUTSTANDING ISSUED
# # $ $
- ----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 800 1,756,380 -- 276,903
Deemed common shares issued for cash received in the
prior year 160,000 (160,000) -- (17,033)
Deemed common shares issued for services rendered
in the prior year 160,000 (160,000) -- (30,521)
Deemed common shares issued for investment
in the prior year 40,000 (40,000) -- (3,406)
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) -- (225,943)
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 -- 266,790
Net loss for the period -- -- -- --
Foreign currency translation -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF JUNE 30, 1999 19,893,333 627,860 11,383 266,790
===================================================================================================================================
Shares issued pursuant to share subscriptions 177,860 (177,860) 178 (266,790)
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 4(a)] -- -- -- --
Warrants issued for services -- -- -- --
Net loss for the period -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 2001 23,008,098 -- 14,497 --
===================================================================================================================================
(Expressed in U.S. dollars)
ADDITIONAL ACCUMULATED OTHER TOTAL
PAID IN COMPREHENSIVE STOCKHOLDERS'
CAPITAL INCOME DEFICIT EQUITY (DEFICIT)
$ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 5 25,519 (1,096,067) (793,640)
Deemed common shares issued for cash received in the
prior year 160,000 (160,000) 17,033 -- -- --
Deemed common shares issued for services rendered
in the prior year 30,521 -- -- --
Deemed common shares issued for investment
in the prior year 3,406 -- -- --
Deemed common shares issued for services rendered
in the prior year 863,718 -- -- 863,718
Deemed common shares issued for services rendered in the
current year 253,936 -- -- 253,936
Deemed common shares issued for cash 40,337 -- -- 40,337
Deemed common shares issued to charitable organizations 15,207 -- -- 15,207
Prior year's subscription shares issued in the current
year, net of share issue costs of 225,943 -- -- --
Deemed common shares issued pursuant to private
placement, net of issue costs of 143,318 -- -- 143,318
- ----------------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 1,593,424 25,519 (1,096,067) 522,876
===================================================================================================================================
Acquisition of CityXpress.com by WelcomeTo 719,889 -- -- 724,989
Acquisition of Xceedx 868,750 -- -- 875,000
Shares to be issued for services rendered 225,000 -- -- 225,000
Finders fees acquisition costs (225,000) -- -- (225,000)
Shares issued pursuant to private placement 99,966 -- -- 99,999
Shares to be issued -- -- -- 266,790
Net loss for the period -- -- (1,642,078) (1,642,078)
Foreign currency translation -- (5,894) -- (5,894)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF JUNE 30, 1999 3,282,029 19,625 (2,738,145) 841,682
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued pursuant to share subscriptions 266,612 -- -- --
Shares issued for services (450) -- -- --
Shares issued pursuant to private placement, net of
share issue costs of $16,667 1,007,268 -- -- 1,009,502
Shares issued for services rendered or to be rendered 290,518 -- -- 290,770
Stock based compensation 277,668 -- -- 277,668
Beneficial conversion feature of warrants 564,116 -- (564,116) --
Net loss for the year -- -- (2,387,437) (2,387,437)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF JUNE 30, 2000 5,687,761 19,625 (5,689,698) 32,185
- ----------------------------------------------------------------------------------------------------------------------------------
Stock based compensation [note 4(a)] 49,693 -- -- 49,693
- ----------------------------------------------------------------------------------------------------------------------------------
Warrants issued for services 14,000 -- -- 14,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss for the period -- -- (1,662,260) (1,662,260)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF MARCH 31, 2001 5,751,454 19,625 (7,351,958) (1,566,382)
===================================================================================================================================
See accompanying notes
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CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
NINE Nine
MONTHS Months
ENDED ended
MARCH 31 March 31
2001 2000
$ $
- -------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the period (1,662,260) (1,548,722)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 354,150 354,150
Depreciation 35,850 34,180
Loss on disposal of capital asset 423 --
Deferred income tax recovery (120,000) (120,000)
Stock based compensation and warrants issued for services 63,693 9,570
Unrealized foreign exchange gain (3,427) --
Changes in operating assets and liabilities:
Accounts receivable (25,215) (22,921)
Other receivables 7,887 (5,667)
Prepaid expenses and other 130,978 (80,338)
Accounts payable and accrued liabilities (163,115) (4,862)
Deferred revenue (515) (3,371)
- -------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,381,551) (1,387,981)
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (41,095) (8,435)
Proceeds from sale of capital assets 910 --
- -------------------------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (40,185) (8,435)
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings under bank indebtedness -- 2,666
Proceeds from loan payable 290,000 169,687
Proceeds from loan debenture 1,250,000 --
Repayment of demand loans (3,472) (76,314)
Proceeds from shareholders' loans -- 51,550
Repayment of shareholders' loans (34,300) --
Proceeds from stock issued and
to be issued, net of share issue costs -- 1,023,192
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,502,228 1,170,781
- -------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 2,029 8,587
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD 82,521 (217,048)
Cash and cash equivalents, beginning of period 38,963 234,214
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 121,484 17,166
=================================================================================================
SUPPLEMENTAL DISCLOSURE
Interest paid 31,557 9,522
=================================================================================================
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 March 31, 2001 and nine months ended March 31, 2001,
substantially all the Company's revenue was derived from Lee Enterprises
Incorporated.
The Company's unaudited interim consolidated financial statements for the nine
months ended March 31, 2001 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
$1,662,260 for the nine months ended March 31, 2001 and has a working capital
deficiency of $359,324 and deficit of $7,351,958 at March 31, 2001. There is
substantial doubt about the ability of the Company to continue as a going
concern. 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
monthly Wall Street Journal rate, as detailed below:
CURRENT
LOAN DATE AMOUNT $ MATURITY DATE INTEREST RATE (%)
- -----------------------------------------------------------------------------------------
AUGUST 17, 2000 125,000 OCTOBER 31, 2002 8.0
AUGUST 28, 2000 125,000 OCTOBER 31, 2002 8.0
SEPTEMBER 19, 2000 40,000 OCTOBER 31, 2002 8.0
- -----------------------------------------------------------------------------------------
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 March 31, 2001 on this loan amounted to $6,078 and $15,717 for
the nine months ended March 31, 2001.
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 $1,250,000 in funding under the debenture
from October 2000 to March 2001. The Company will receive the remainder of the
loan of $250,000 on 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.
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 March 31, 2001, 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%.
The weighted average effective rate for the nine months ended March 31, 2001 is
8.4%. 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
require the company to register the shares issuable under the Investment
Agreement based on certain conditions.
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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 $49,693, calculated based on the intrinsic value method,
has been recognized over the vesting term of the options to December 8, 2000, at
which time the Company cancelled the remaining 490,000 stock options
outstanding, which had an exercise price of $1.50.
Stock option transactions for the nine months ended March 31, 2001 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
Granted: 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 -- --
Granted: November 10, 2000 (65,000) 65,000 0.25
November 29, 2000 (85,000) 85,000 0.25
March 26, 2001 (90,000) 90,000 0.25
Forfeited 147,500 (147,500) 0.86
Cancelled 490,000 (490,000) 1.50
--------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2001 1,760,000 1,240,000 0.25
--------------------------------------------------------------------------------------
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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 at March 31, 2001:
OUTSTANDING WARRANTS
---------------------------------------------------------------
EXERCISE PRICE
SHARES YEAR 1 YEAR 2
GRANT DATE # $ $ EXPIRY DATE
---------------------------------------------------------------------------------------------
June 10, 1999 177,860 1.50 0.25 June 10, 2001
July 14, 1999 45,260 1.50 0.25 July 14, 2001
August 15, 1999 100,000 1.50 0.25 August 15, 2001
September 30, 1999 465,800 0.50 0.25 September 30, 2001
October 13, 1999 132,138 0.50 0.25 October 13, 2001
December 10, 1999 408,000 0.50 0.25 December 10, 2001
January 18, 2000 138,000 0.50 0.25 January 18, 2002
January 31, 2000 500,000 0.50 0.25 January 31, 2002
May 1, 2000 405,240 0.25 0.25 May 1, 2002
May 18, 2000 280,000 0.25 0.25 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, MARCH 31, 2001 3,393,898
---------------------------------------------------------------------------------------------
On March 29, 2001, the Company re-priced outstanding warrants issued in
connection with private placements between June 10, 1999 and May 18, 2000. A
total of 2,652,298 warrants with a second year warrant price ranging from $0.75
to $2.00 have been re-priced to $0.25.
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CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
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 Nine Nine
Months Months Months Months
Ended Ended Ended Ended
March 31 March 31 March 31 March 31
2001 2000 2001 2000
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------
NUMERATOR
Net loss for the period ended March 31 (594,020) (433,837) (1,662,260) (1,548,722)
Beneficial conversion feature of warrants -- (72,174) -- (549,634)
- -----------------------------------------------------------------------------------------------------------------
Net loss attributable to common shareholders (594,020) (506,011) (1,662,260) (2,098,356)
DENOMINATOR
Weighted average number of common shares outstanding 23,008,098 21,201,148 23,008,098 20,683,028
Basic loss per common share (0.03) (0.02) (0.07) (0.10)
- -----------------------------------------------------------------------------------------------------------------
For the three and nine months ended March 31, 2001 and 2000, 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. PRODUCT DEVELOPMENT AND TECHNOLOGY
Government grants of $14,278 for the three months ended March 31, 2001 [2000 -
$10,330] and $31,258 for the nine months ended March 31, 2001 [2000 - $10,330]
have been applied to reduce product development and technology expenditures in
the consolidated statements of loss.
6. COMPARATIVE FIGURES
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation adopted in the current quarter.
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CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(expressed in U.S. dollars)
7. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the United States Securities and Exchange Commission issued
Staff 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 does not expect the adoption of SAB 101 to have a material
impact on the Company's operations or financial position.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company incurred a net loss for the three months ended March 31,
2001 of $594,020 as compared to a net loss of $433,837 for the same period in
2000, an increase of $160,183. The Company recorded revenue of $33,625 in the
quarter ended March 31, 2001 a decrease of $19,552 over the same three-month
period in 2000. This revenue decrease resulted primarily from our media partner
Lee Enterprises Incorporated (Lee) requiring less training in connection with
their newspaper portal sites. Although training revenue has decreased by
$42,612, other revenue items have increased by $23,060. This increase is due
primarily to the launch by Lee of additional newspaper portal sites in the three
months ended March 31, 2001 compared to the same period ended March 31, 2000.
The increase in net loss for the three months ended March 31, 2001 of $160,183
is the result of net increases in expenses resulting primarily from the
following items compared to the same three month period ended March 31, 2000:
Cost of sales increased by $56,356 for this quarter compared to same quarter
ended March 31, 2000 due primarily to additional consulting services provided to
the Company to improve the products sold to customers which cost the Company
approximately $14,700, and the hiring of additional support staff at a cost to
the Company of approximately $35,000.
Operating expenses increased by $58,617 for the quarter ended March 31, 2001
compared to the same quarter ended March 31, 2000. The increase is due primarily
to a combination of increases in sales and marketing expenses and decreases in
both development and technology and finance and administration expenses.
- - Increase in sales and marketing expenses this quarter is the result of
additional promotional materials produced for distribution to
prospective customers and additional tradeshows attended totalling
approximately $74,800. Also, the Company added additional sales staff
and marketing consultants at a cost of approximately $31,300 for the
quarter ended March 31, 2001.
- - Decrease in development and technology expenses this quarter of
approximately $42,697 was primarily due to the charging of such cost to
cost of sales compared to the charging of such costs in the previous
quarter ended March 31, 2000 equally between cost of sales and
development and technology.
- - Decrease in finance and administration expenses of approximately
$18,000 is primarily in part attributable to fewer consultants working
in the finance and administration area in this quarter compared to the
quarter ended March 31, 2000.
Other interest expense has increased by $29,262 for this quarter compared to the
previous quarter ended March 31, 2000. The increase in interest expense is the
result of interest paid and payable on the loans from Lee Enterprises
Incorporated and shareholders.
Lee portal sites accounted for $32,651 of revenue for the quarter ended
March 31, 2001.
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FINANCING AND LIQUIDITY
As of March 31, 2001, the Company had a cash balance of $121,484, a
working capital deficiency of $359,324 that included shareholders' loans of
$218,600, a demand instalment loan of $163,741 and accounts payables and accrued
liabilities of $198,806.
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 $1,250,000 in funding under the
debenture from October 2000 to March 2001. The Company will receive the
remainder of the loan of $250,000 on 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 March 31, 2001,
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 Investment
Agreement, includes 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 March 31, 2001,
the Company forecasts minimum annual operating cash requirements of
approximately $1.7 million. The Lee investment of $1.5 million provides
sufficient resources to maintain current operations until July 1, 2001. The
Company anticipates that revenue from current and new contracts will improve its
current cash flow. The Company is also actively seeking private placements from
corporations and individuals in the range of $100,000 to $500,000. It is also
seeking investments from other media companies.
PLAN OF OPERATION
The Company anticipates that media revenue from Lee will grow as Lee
implements additional portal sites at their newspapers. Total sales revenue from
Lee has increased by 22% in the third quarter ended March 31, 2001 to $32,651
from $26,827 in the second quarter ended December 31, 2000. Revenue for the
fourth quarter from Lee is expected to exceed the previous period revenue as
additional portal sites are implemented at other Lee properties. 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.
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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.
On April 10, 2001, the Company announced that it had signed an
agreement with Torstar Corporation's York region newspaper group, a division of
Metroland Printing, Publishing and Distributing Ltd. Under this agreement
Metroland will launch a Home and Garden Special Section for their York Region in
May 2001.
The Company is presently seeking additional funding through private
offerings with individuals and institutions in the range of $100,000 to $500,000
to increase its cash position. The Company is also actively seeking an
investment from other media companies. 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 to maintain operations until July 1, 2001. As at March 31, 2001,
the Company has received $1,250,000 of this investment.
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
During the third quarter ended March 31, 2001, the Company received
$500,000 in funding from Lee Enterprises Incorporated under a
convertible debenture. The Company received two instalments of
$250,000, the first payment on January 1, 2001 and the second payment
on March 1, 2001.
For additional information please refer to the Financing and Liquidity
section in this Form 10-QSB under Item 2 Management's Discussion and
Analysis.
The Company claims exemption from the registration requirements of the
Securities Act of 1933 as amended under Section 4(2) and Regulation D
under that Act.
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS
None. No reports on Form 8-K were filed during the fiscal quarter ended
March 31, 2001.
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: May 14, 2001
---------------------- Signature
/s/ Ken Bradley
------------------------------
Print Name
Chief Operating Officer & CFO
------------------------------
Title
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