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, 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 4W6
---------------------------------------------------------
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: October 17, 2001, 23,143,898 common
shares.
Transitional Small Business Disclosure Format (check one) Yes X No
--- --
- --------------------------------------------------------------------------------
1
TABLE OF CONTENTS
PART I................................................................................................4
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEETS - September 30, 2001 and June 30, 2001...................5
CONSOLIDATED STATEMENTS OF LOSS - Three months ended September 30, 2001
and 2000..............................................................................6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT.......................................7
CONSOLIDATED STATEMENTS OF CASH FLOWS - Three months ended
September 30, 2001 and 2000...........................................................8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - September 30, 2001.......................9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK.................................18
PART II..............................................................................................19
ITEM 1. LEGAL PROCEEDINGS.....................................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................19
ITEM 5. OTHER INFORMATION.....................................................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................19
2
NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
quarterly report includes "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: under capitalization;
unpredictability of future revenues; competition; risks of technological change;
the Company's dependence on key personnel; 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.
3
PART I-FINANCIAL INFORMATION
ITEM 1. FIRST QUARTER FINANCIAL STATEMENTS ENDING SEPTEMBER 30, 2001
Consolidated unaudited interim financial statements of the Company for
the three months ended September 30, 2001 and September 30, 2000. All figures
are presented in U.S. Currency, unless otherwise stated.
4
CITYXPRESS.COM CORP.
CONSOLIDATED BALANCE SHEETS
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
SEPTEMBER 30 JUNE 30
2001 2001
$ $
- -------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 64,288 32,274
Accounts receivable, net of allowance for doubtful accounts
of $nil at September 30, 2001 and June 30, 2001 35,445 19,087
Other receivables 12,516 7,192
Prepaid expenses and other 27,907 23,647
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 140,156 82,200
Property and equipment,net 196,404 199,178
eCommerce technology, net of amortization of $1,259,200 at
September 30, 2001 and $1,141,150 at June 30, 2001 157,284 275,334
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 493,844 556,712
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT
Accounts payable and accrued liabilities 302,459 320,906
Demand instalment loan 159,775 161,830
Stockholders' loans 283,651 284,246
Deferred revenue 296 514
Current portion of obligations under capital leases 18,081 17,209
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 764,262 784,705
Obligations under capital leases 36,081 40,960
Loans payable [note 2] 350,000 290,000
Convertible loan debentures [note 3] 2,010,000 1,500,000
Deferred tax liability 53,100 93,100
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,213,443 2,708,765
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT
Share capital [note 4]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,143,898 at September 30, 2001 and
23,043,898 at June 30, 2001 14,633 14,533
Additional paid in capital 5,846,726 5,821,826
Accumulated other comprehensive income 19,625 19,625
Deficit (8,600,583) (8,008,037)
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (2,719,599) (2,152,053)
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 493,844 556,712
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes
5
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF LOSS
[See Basis of Presentation - Note 1]
[Unaudited]
Three months ended September 30 (Expressed in U.S. dollars)
2001 2000
$ $
- -------------------------------------------------------------------------------------------------------------------
REVENUE
Advertising and promotional fees 35,040 59,415
Editorial content fees 7,193 --
Training fees 12,065 7,439
Custom development fees 12,000 8,862
- -------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 66,298 75,716
Cost of sales 143,356 70,169
- -------------------------------------------------------------------------------------------------------------------
GROSS LOSS (77,058) 5,547
OPERATING EXPENSES
Sales and marketing 126,951 81,018
Product development and technology 98,169 103,991
Finance and administration 171,257 176,935
Amortization of eCommerce technology 118,050 118,050
- -------------------------------------------------------------------------------------------------------------------
514,426 479,994
- -------------------------------------------------------------------------------------------------------------------
Operating loss (591,484) (474,447)
OTHER INCOME (EXPENSE)
Interest expense (42,880) (14,909)
Interest and miscellaneous income 15 152
Foreign exchange gain 1,803 2,711
- -------------------------------------------------------------------------------------------------------------------
Total other expense (41,062) (12,046)
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes (632,546) (486,493)
Deferred income tax recovery 40,000 40,000
- -------------------------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (592,546) (446,493)
- -------------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE [note 4[d]]
Basic and diluted (0.03) (0.02)
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES [note 4[d]]
Basic and diluted 23,110,565 23,008,098
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes
6
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
[See Basis of Presentation - Note 1]
[Unaudited]
(Expressed in U.S. dollars)
COMMON COMMON COMMON ADDITIONAL
COMMON STOCK TO BE STOCK ISSUED STOCK TO BE PAID IN
STOCK ISSUED AND OUTSTANDING ISSUED CAPITAL
# # $ $ $
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 19,893,333 627,860 11,383 266,790 3,282,029
Shares issued pursuant to share subscriptions 177,860 (177,860) 178 (266,790) 266,612
Shares issued for services rendered 450,000 (450,000) 450 -- (450)
Shares issued pursuant to private placement, net of share
issue costs of $16,667 2,234,438 -- 2,234 -- 1,007,268
Shares issued for services rendered or to be rendered 252,467 -- 252 -- 290,518
Stock based compensation -- -- -- -- 277,668
Beneficial conversion feature -- -- -- -- 564,116
Loss for the year -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 23,008,098 -- 14,497 -- 5,687,761
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued for services rendered 35,800 -- 36 -- 8,914
Stock based compensation -- -- -- -- 125,151
Loss for the year -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 23,043,898 -- 14,533 -- 5,821,826
- ----------------------------------------------------------------------------------------------------------------------------------
Shares issued for services rendered [notes 4[a] 100,000 -- 100 -- 24,900
Loss for the period -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001 23,143,898 -- 14,633 -- 5,846,726
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT EQUITY (DEFICIT)
$ $ $
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 19,625 (2,738,145) 841,682
Shares issued pursuant to share subscriptions -- -- --
Shares issued for services rendered -- -- --
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 -- (564,116) --
Loss for the year -- (2,387,437) (2,387,437)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 19,625 (5,689,698) 32,185
- -------------------------------------------------------------------------------------------------------------
Shares issued for services rendered -- -- 8,950
Stock based compensation -- -- 125,151
Loss for the year -- (2,318,339) (2,318,339)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 19,625 (8,008,037) (2,152,053)
- -------------------------------------------------------------------------------------------------------------
Shares issued for services rendered [notes 4[a] -- -- 25,000
Loss for the period -- (592,546) (592,546)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2001 19,625 (8,600,583) (2,719,599)
- -------------------------------------------------------------------------------------------------------------
See accompanying notes
7
CITYXPRESS.COM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Basis of Presentation - Note 1]
[Unaudited]
Three months ended September 30 (Expressed in U.S. dollars)
2001 2000
$ $
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (592,546) (446,493)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 118,050 118,050
Depreciation 25,887 11,257
Deferred income tax recovery (40,000) (40,000)
Stock based compensation -- 31,820
Unrealized foreign exchange gain (1,803) (2,711)
Changes in operating assets and liabilities:
Accounts receivable (16,358) (6,267)
Other receivables (5,324) 18,176
Prepaid expenses and other (4,260) 30,301
Accounts payable and accrued liabilities 6,553 (58,772)
Deferred revenue (218) (389)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (510,019) (345,028)
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (22,928) (3,213)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (22,928) (3,213)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from loans payable 60,000 290,000
Proceeds from convertible loan debentures 510,000 --
Borrowings under bank indebtedness -- 22,952
Repayment of demand instalment loan (2,055) (1,126)
Repayments under capital leases (4,007) --
Repayment of shareholders' loans (595) (44)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 563,343 311,782
- -------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 1,618 (2,504)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD 32,014 (38,963)
Cash and cash equivalents, beginning of period 32,274 38,963
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 64,288 --
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
Interest paid 14,147 14,909
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes
8
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
CityXpress.com Corp.("Company") was incorporated under the laws of the state of
Florida. On September 27, 2001, the Board of Directors approved a change in name
of the Company to Cityxpress Corp., subject to shareholder approval in the
Annual General Meeting on November 29, 2001.
The Company has developed a suite of online products that provide newspapers
with solutions through which they can defend and extend their position as the
dominant means for local advertisers to promote themselves to local consumers.
The Company's suite of proprietary products, delivered to the market as the
online version of a newspaper Special Section, integrates niche editorial
content with advertising and promotional tools that offer a newspaper's brand
and traffic. The Company intends to build further alliances with media companies
who own newspaper and television stations. The Company currently operates in
only one industry segment and its marketing efforts are currently targeted to
the North American market. For the three months ended September 30, 2001, 68% of
the Company's revenue was derived from Lee Enterprises Incorporated [2000 -
99%].
The Company's unaudited interim consolidated financial statements for the three
months ended September 30, 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 for the foreseeable future. The
Company incurred a loss of $592,546 for the three months ended September 30,
2001 and has a working capital deficiency of $624,106 and accumulated deficit of
$8,600,583 at September 30, 2001. These factors raise substantial doubt about
the Company's ability 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
fundings and through financing agreements with its clients. 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 unaudited interim 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.
9
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (CONT'D)
These unaudited interim consolidated 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 of the Company at September
30, 2001 and results of its operations and cash flows for the three months then
ended.
These consolidated unaudited interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended June 30, 2001.
2. LOANS PAYABLE
On July 12, 2001, the Company received an additional $60,000 loan from
Lee Enterprises Incorporated (Lee). The terms of the loan are similar to the
previous $290,000 loan received from Lee in the form of promissory notes that
bear interest at the monthly Wall Street Journal rate, as detailed below:
WEIGHTED AVERAGE
EFFECTIVE
INTEREST RATE (%)
FOR THE QUARTER ENDED
LOAN DATE AMOUNT $ MATURITY DATE SEPTEMBER 30, 2001
- ---------------------------------------------------------------------------------------------------
August 17, 2000 125,000 October 31, 2002 7.88
August 28, 2000 125,000 October 31, 2002 7.88
September 19, 2000 40,000 October 31, 2002 7.88
July 12, 2001 60,000 October 31, 2002 7.88
- ---------------------------------------------------------------------------------------------------
350,000
===================================================================================================
Interest payable on these loans is payable on demand.
10
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
3. CONVERTIBLE LOAN DEBENTURES
On November 1, 2000, the Company entered into an Investment Agreement with Lee
Enterprises Incorporated "Lee" whereby Lee provided funding of $1,500,000 in the
form of a floating rate subordinated convertible debenture. The $1,500,000
subordinated convertible debenture consists of a series of six debentures of
$250,000 that were received by the Company during the year ended June 30, 2001.
On July 30, 2001, the Company amended this Investment Agreement dated November
1, 2000 with Lee whereby Lee will provide additional funding of up to $1,500,000
in the form of a floating rate subordinated convertible debenture. This will
result in a total investment by Lee of $3,000,000 if all debentures are funded.
The additional $1,500,000 subordinated convertible debenture consists of a firm
commitment of $710,000 and a discretionary commitment of $790,000 in the form of
a series of twelve debentures (debentures "G-R") ranging in value from $50,000
to $310,000 each that will be funded during the period from August 10, 2001 to
July 1, 2002. The Company received $310,000 under the series "G" debenture and
$200,000 under the Series H debenture through September 30, 2001. The Amended
Investment Agreement provides Lee the right to convert the second $1,500,000
floating rate subordinated convertible debenture into 8,522,727 common shares of
the Company at a conversion price of $0.176. Should Lee convert the $3,000,000
in debentures it would result in the Company issuing 15,425,156 common shares.
If Lee does not convert the debentures to common shares the Company is required
to repay all outstanding debentures on October 31, 2003. The Amended Investment
Agreement also contains certain affirmative and negative covenants that restrict
the Company's activities. As of September 30, 2001, the Company is in compliance
with all the covenants in the Investment Agreement. Each of the subordinated
convertible debentures bears interest at the Wall Street Journal rate less 1%.
Interest due on the convertible debenture can be repaid or converted into shares
of the Company's common stock at fair market value on the date of conversion at
the option of Lee. In conjunction with the Amended Investment Agreement dated
July 30, 2001, the Company also amended the November 30, 2000 Loan and Security
Agreement and the Collateral License Agreement and the Registration Rights
Agreement to reflect the Series G-R debentures.
11
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
4. SHARE CAPITAL
[A] COMMON STOCK
On July 25, 2001, the Company issued 100,000 common shares at $0.25 per share
upon exercise of warrants. In lieu of cash payment, the exercise price was
settled in payment of accounts payable of $25,000.
[B] STOCK OPTIONS
On August 25, 1999, and as amended on November 29, 2000 the Board of Directors
approved the creation of the Corporate Stock Option Plan ("Plan") pursuant to
which the Company has reserved 3,000,000 [June 30, 2001 - 3,000,000] shares of
common stock. The term 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.
Stock option transactions for the quarter ending September 30, 2001 are
summarized below:
OUTSTANDING OPTIONS
SHARES -------------------------------------
AVAILABLE WEIGHTED AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
# # $
-------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 1,100,000 1,900,000 0.25
Forfeited 25,000 (25,000) 0.25
-------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 1,125,000 1,875,000 0.25
==================================================================================================
The following table summarizes information about stock options that are
outstanding at September 30, 2001:
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING -----------------------------------
NUMBER WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE OUTSTANDING AT AVERAGE
PRICE SEPTEMBER 30, 2001 REMAINING SEPTEMBER 30, 2001 EXERCISE PRICE
$ # CONTRACTUAL LIFE # $
- ---------------------------------------------------------------------------------------------------
0.25 1,875,000 2.99 658,333 0.25
===================================================================================================
12
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
4. SHARE CAPITAL (CONT'D.)
[C] WARRANTS
The following represents a summary of warrants outstanding at September 30,
2001:
OUTSTANDING WARRANTS
-------------------------------------------------------------
SHARES EXERCISE PRICE
GRANT DATE # $ EXPIRY DATE
- ------------------------------------------------------------------------------------------------------
September 30, 1999 465,800 0.25 September 30, 2002
October 13, 1999 132,138 0.25 October 13, 2002
December 10, 1999 408,000 0.25 December 10, 2002
January 18, 2000 138,000 0.25 January 18, 2003
January 31, 2000 500,000 0.25 January 31, 2003
May 1, 2000 405,240 0.25 May 1, 2003
May 18, 2000 280,000 0.25 May 18, 2003
June 13, 2000 541,600 0.25 June 13, 2003
November 10, 2000 200,000 0.25 November 10, 2003
June 26, 2001 160,000 0.25 June 26, 2004
- ------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 3,230,778
======================================================================================================
On September 27, 2001, the Company extended the warrant expiry dates on all
outstanding warrants issued by extending the expiry date by one year. As of
September 27, 2001, the Company had 3,230,778 warrants with expiry dates between
September 30, 2001 and June 26, 2003. The amended expiry dates would have an
extended expiry period from September 30, 2002 to June 26, 2004.
13
CITYXPRESS.COM CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(Expressed in U.S. dollars)
4. SHARE CAPITAL (CONT'D.)
[D] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss per
share:
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2000
$ $
- --------------------------------------------------------------------------------------------------
NUMERATOR
Loss for the year (592,546) (446,493)
- --------------------------------------------------------------------------------------------------
Loss attributable to common shareholders (592,546) (446,493)
DENOMINATOR
Weighted average number of common shares outstanding 23,110,565 23,008,098
- --------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (0.03) (0.02)
==================================================================================================
For the quarters ended September 30, 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 common share as their effect would be
anti-dilutive.
[D] AUTHORIZED SHARE CAPITAL
On September 27, 2001, the board of directors approved an increase in the
Company's authorized share capital from 50,000,000 no par value common shares to
100,000,000 no par value common shares, subject to shareholder approval in the
Annual General Meeting on November 29, 2001.
5. COMPARATIVE FIGURES
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation adopted in the current quarter.
6. SUBSEQUENT EVENT
On October 9, 2001, The Company received $200,000 from Lee representing the
fourth instalment,Series "I", of its amended Investment Agreement with Lee
Enterprises Incorporated.
14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company incurred a loss for the three months ended September 30,
2001 of $592,546 as compared to a loss of $446,493 for the same period in 2000,
an increase of $146,053. The Company recorded revenue of $66,298 in the three
months ended September 30, 2001 a decrease of $9,418 over the same three month
period in 2000. This revenue decrease resulted primarily from less customer
advertisements sold by our media partner Lee Enterprises Incorporated "Lee" with
their newspaper portal sites. Although advertising and promotional revenue
decreased by $24,375, other revenue items increased by $14,957. This increase is
due primarily to the launch by the Company's other media partners of additional
newspaper portal sites in the three months ended September 30, 2001 compared to
the same period ended September 30, 2000.
The increase in loss for the three months ended September 30, 2001 of $146,053
is the result of net increases in expenses resulting primarily from the
following items compared to the same three months ended September 30, 2000:
Cost of sales increased by $73,187 for this quarter compared to the same quarter
ended September 30, 2000 due primarily to increased licencing fees of
approximately $54,500, associated with acquiring additional content information
such as business listings and editorial content. Also, cost of sales increases
were the result of hiring additional staff of $9,300 and traveling expenses of
$9,200.
Operating expenses increased by $34,432 for the quarter ended September 30, 2001
compared to the same quarter ended September 30, 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 of $45,932 this quarter is the
result of additional promotional sales staff and marketing consultants
at a cost of approximately $35,200 and additional rent for sales our
office in Kirkland, Washington of approximately $9,700.
- - Decrease in development and technology expenses this quarter of
approximately $5,800 was primarily due to fewer technology consultants
hired for specialized projects compared to the previous quarter ended
September 30, 2000.
- - Decrease in finance and administration expenses of approximately $5,600
is primarily attributable to fewer management consultants hired this
quarter compared to the quarter ended September 30, 2000.
Other interest expense increased by $27,971 for this quarter compared to the
previous quarter ended September 30, 2000. The increase in interest expense is
the result of interest paid and interest payable on the loans from Lee and other
shareholders.
Lee portal sites accounted for $45,171 of revenue for the quarter ended
September 30, 2001.
15
FINANCING AND LIQUIDITY
As of September 30, 2001, the Company had a cash balance of $64,288, a
working capital deficiency of $624,106 that included shareholders' loans of
$283,651, a demand instalment loan of $159,775, accounts payables and accrued
liabilities of $302,459, deferred revenue of $296 and current portion of
obligations under capital lease of $18,081.
On July 12, 2001, the Company received an additional $60,000 loan from
Lee Enterprises Incorporated (Lee). The terms of the loan are similar to the
previous $290,000 loan received from Lee in the form of promissory notes that
bear interest at the monthly Wall Street Journal rate.
On July 30, 2001, the Company amended the Investment Agreement dated
November 1, 2000 with Lee, whereby Lee will provide additional funding of up to
$1,500,000 in the form of a floating rate subordinated convertible debenture
(series G-R debentures). This will result in a total investment by Lee of
$3,000,000 if all debentures are funded. The additional $1,500,000 subordinated
convertible debenture consists of a firm commitment of $710,000 and a
discretionary commitment of $790,000 in the form of a series of twelve
debentures (series G-R) ranging in value from $50,000 to $310,000 each. The
series G-R debentures would be funded from August 10, 2001 to July 1, 2002. The
Company received $310,000 under the series "G" debenture by August 14, 2001 and
$200,000 under series H debenture by September 30, 2001. The Amended Investment
Agreement provides Lee the right to convert the second $1,500,000 floating rate
subordinated convertible debenture into 8,522,727 common shares of the Company
at a conversion price of $0.176 per common share. The first investment of
$1,500,000 allowed Lee to convert their series "A-F" debentures to 6,902,429
common shares of the Company at a conversion price of $0.2173 per common share.
Should Lee convert the $3,000,000 in debentures it would result in the Company
issuing 15,425,156 common shares. If Lee does not convert the debentures to
common shares the Company will have to repay all outstanding debentures on
October 31, 2003. The Amended Investment Agreement also contains certain
affirmative and negative covenants that restrict the Company's activities. As of
September 30, 2001, the Company is in compliance with all the covenants in the
Investment Agreement. Each of the subordinated convertible debentures bears
interest at the Wall Street Journal rate less 1%. Interest due on the
convertible debenture can be repaid or converted to shares of the Company at
fair market value on the date of conversion at Lee's option. In conjunction with
the Amended Investment Agreement dated July 30, 2001, the Company also amended
the November 30, 2000 Loan and Security Agreement, the Collateral License
Agreement and the Registration Rights Agreements to reflect the series G-R
debentures.
Based on the forecasted expenditures for the three months ended
September 30, 2001, the Company forecast minimum annual operating cash
requirements of approximately $2.4 million. The Lee investment of $1.5 million
provides the Company 63% of its forecasted operating cash requirement until July
1, 2002. Revenue from new media companies under contracts in June 2001 will help
to offset the Company's cash flow shortfall of $900,000. The Company expects to
see additional revenues from clients signed in the later part of fiscal 2001 as
they will continue to launch additional Special Sections over their original
Special Section launched. A number of clients signed in the later part of the
year have multiple newspapers which are commencing to launch Special Sections
across their newspapers such as Freedom Newspapers. Based on the Company's
success of signing new contracts CityXpress expects to sign additional contracts
with new media companies that will provide additional operating cash.
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PLAN OF OPERATION
The Company is dependent on obtaining additional 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 the Company's products at more of its daily newspapers. Revenue
generated from Lee for the first quarter ended September 30, 2001 amounted to
$45,171. Revenue from Lee over the second quarter is expected to increase as Lee
is continuing to roll out Special Sections across their daily newspaper
properties, which will result in increased revenue to the Company. The Company
also expects revenue to grow because each newspaper will launch multiple Special
Sections. The Company also expects to see increasing revenues from the Special
Sections launched by Freedom, VanNet, Scripps and Buffalo.com. Most of these
newspapers launched their first Special Sections between May 2001 and August
2001, so the majority of the revenue generated will be recorded in our June 30,
2002 year-end. Freedom, VanNet and Buffalo.com are scheduled to launch
additional Special Sections over the original Special Sections launched.
The Company also is developing additional products in conjunction with
its media partners that will leverage the sales relationship it has developed
with each media partner. These future products will allow the media company's
sales force to have additional products that they can sell to their local
markets. These additional products will result in incremental revenue for the
Company from its established newspaper customer base.
The Company's Kirkland sales office representatives are actively
pursuing other media companies regarding its product offerings. Each additional
media company agreement will generate additional revenue and cash flow.
Management is confident it will be successful in closing additional media
agreements in this fiscal year ended June 30, 2002.
The Company believes it will see additional revenue from its
partnership with Tribune Media Services. The Company believes it will see
revenue from the Print Special Section it sells to existing clients plus revenue
for Xpress Special Sections sold by the Tribune Media sales force.
The Company is presently seeking additional funding through private
offerings with individuals, institutions and media partners. The Company
believes it can raise additional funds through these offerings.
The management of the Company believes that it will generate sufficient
cash to fund its operations for the 12-month period ending June 30, 2002 through
private placements and other types of venture fundings and through financing
arrangements with its clients.
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BUSINESS RISKS
The Company faces significant business risks on a going forward basis,
which could negatively impact the Company:
- - 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
and its agreement with contracted clients may result in lower revenues
than projected. 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. 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.
- - 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 United States and Canadian newspaper
markets are large and there may be room for multiple suppliers to
service existing media companies. If not, then the Company would have
to assess other market sectors it could penetrate successfully. 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 is dependent on key senior development personnel who have
developed the Company's core product offering. Should these individuals
leave the employ of the Company it would have a setback to its future
development plans. This setback would be overcome by hiring new senior
developers that would have to become familiar with the Company's
products.
- - The Company is dependent on the continual growth of the Internet as an
advertising medium for local advertisers. Should this prove untrue the
Company will have to assess other business strategies for selling
promotional products to local advertisers.
- - Technologies may change making the Company's products obsolete. The
Company is aware of changes in technology and is integrating new
technologies into its product offerings to ensure that they do not
become obsolete because of changing technology.
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 AND USES OF PROCEEDS
During the first quarter ended September 30, 2001, the Company received
$510,000 in funding from Lee Enterprises Incorporated under a
convertible debenture. The Company received the first payment of
$60,000 on August 1, 2001, the second payment of $250,000 on August 14,
2001 and a third payment of $200,000 on September 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.
On July 25, 2001, the Company issued 100,000 common shares at $0.25 per
share upon exercise of warrants. In lieu of cash payment, the exercise
price was settled in payment of accounts payable of $25,000.
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 ON FORM 8-K
Filed a Form 8K relating to the Lee Enterprises Incorporated Investment
on September 18, 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CityXpress.com Corp.
Date: November 14, 2001 /s/ Ken Bradley
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Signature
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Ken Bradley
Print Name
Chief Operating Officer & CFO
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Title
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