UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB-A1
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ------ to ---------------
Commission File Number 33-3358-NY
CENTRAXX, INC.
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(Name of small business issuer in its charter)
Nevada 88-0224219
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Argentia Road, Suite #1000
Mississauga, Ontario Canada L5N 5V4
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (905) 826-9988
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 Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes [x] No [ ] (2) Yes [x] No [ ]
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of outstanding shares of each of the Issuer's classes of
common equity, as of the latest practicable date:
September 30, 1999
common - 17,907,081 shares
Transitional Small Business Disclosure Format (Check One) : Yes [x] No [ ]
Item 1. Financial Statements
The consolidated financial statements of the Company required to be filed
with this Form 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, these Consolidated Financial Statements faily present the
financial condition of the Company.
CENTRAXX, INC
BALANCE SHEET
AS AT SEPTEMBER 30, 1999
ASSETS
30-Sep-99 31-Dec-98 30-Sep-98
(unaudited) (audited) (unaudited)
Current
Cash 0 142 24,606
Prepaid expenses 4,949 20,109 5,455
4,949 20,251 30,061
Capital assets (note 3) 224,028 263,362 271,753
Patent costs (note 1) 16,734 15,401 15,401
240,762 278,764 287,154
245,711 299,014 317,215
LIABILITIES
Current
Bank overdraft 326 0 0
Accounts payable and accrued costs 721,045 325,226 241,162
721,371 325,226 241,162
Long Term
Convertible Debenture (note 5) 251,482 0 0
972,853 325,226 241,162
SHAREHOLDERS' EQUITY
Paid up Share Capital (note 6) 2,284,889 1,629,063 1,286,542
Deficit -3,012,032 -1,655,275 -1,210,490
-727,143 -26,212 76,052
245,711 299,014 317,215
CENTRAXX, INC
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1999
Cumulative
from
9 months 9 months 3 month 3 months inception to
30-Sep-99 30-Sep-98 30-Sep-99 30-Sep-98 30-Sep-99
(unaudited) (unaudited) (unaudited)(unaudited) (unaudited)
Revenue 0 0 0 0 0
Expenses
Marketing 88,488 80,794 21,160 80,794 204,971
Management fees 135,527 90,396 45,563 30,132 307,058
Professional
fees 39,471 37,673 7,744 29,821 156,505
Rent 26,750 28,826 9,373 8,437 79,311
Salaries and
other adminis-
tration 420,759 84,051 167,115 3,545 636,152
Loss on write-
down of invest-
ment in subsi-
diary 0 53,800 0 17,306 53,800
Total general and
administrative
costs 710,994 375,540 250,954 170,035 1,437,795
Research and
product develop-
ment costs 593,959 528,740 205,492 351,511 1,437,390
Loss for the
period before
amortization -1,304,953 -904,280 -456,446 -521,546 -2,875,185
Amortization 51,804 51,026 18,176 17,007 136,847
Loss for the
period -1,356,757 -955,305 -474,622 -538,553 -3,012,032
Deficit, at the
beginning of
the period -1,655,275 -255,185 -2,537,410 -671,937 0
Deficit, at the
end of the
period -3,012,032 -1,210,490 -3,012,032 -1,210,490 -3,012,032
Basic loss per
share
(note 2d) ($0.08) ($0.08) ($0.03) ($0.04)
# of weighted
average
shares 16,775,408 12,707,333 16,775,408 12,707,333
CENTRAXX, INC
STATEMENT OF CASH FLOW
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1999
9 months 9 months 3 months 3 months
30-Sep-99 30-Sep-98 30-Sep-99 30-Sep-98
(unaudited) (unaudited) (unaudited) (unaudited)
Operating Activities
Loss for the period -1,356,757 -955,305 -474,622 -538,553
Add back non cash outlays:
Amortization of
capital assets 51,804 51,026 18,176 17,007
Loss on write-down
of investment in subsidiary 0 53,800 0 17,306
-1,304,954 -850,480 -456,446 -504,239
Changes in working
capital items:
(Increase) Decrease
in Prepaid Expenses 15,160 -4,768 1,973 3,108
Increase (Decrease)
in Accounts payable 395,821 194,932 209,466 -176,539
Cash Generated (Used)
in Operating Activities -893,973 -660,316 -245,007 -677,670
Financing Activities
Advances to subsidiary 0 -17,306 0 -17,306
Issuance of Convertible
Debenture 251,482 0 251,482 0
Issuance of common shares(net) 655,826 689,338 0 637,502
Cash Generated by
Financing Activities 907,308 672,031 251,482 620,196
Investing Activities
Capital assets (acquired) sold -12,471 15,365 0 69,360
Patent costs -1,333 -3,774 0 0
Cash (Used) Provided
by Investing Activities -13,804 11,591 0 69,360
Increase (Decrease) in Cash
for the Period -469 23,306 6,476 11,886
Cash (Overdraft) at the
Beginning of the Period 142 1,300 -6,802 12,720
Cash (Overdraft) at the
End of the Period -326 24,606 -326 24,606
CENTRAXX, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1999
Note 1 Organization and Description of Business
The Company, incorporated as SRS Technical Inc. under the laws of the State of
Nevada on January 15, 1986, changed its name to Composite Design Inc.
following its purchase of Composite Design Corporation on May 29, 1997. On May
18, 1999, the Company purchased all of the outstanding shares of Centraxx
Corp. through an exchange of one of its shares for each share of Centraxx
Corp. following which the Company changed its name on May 19, 1999 to
Centraxx, Inc.
Centraxx Corp., incorporated under the laws of the Province of Ontario of
Canada on August 8, 1997, is a wireless data communications company
specializing in providing location technology solutions. The Company is
developing a proprietary radio location two-way land-based system utilizing
single-point tracking ("UNI-POINT(tm) "technology) which can be deployed to
provide effective solutions for numerous safety, security and location
information needs in multiple network and stand-alone applications.
Note 2 Significant Accounting Policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States. Significant accounting
policies are outlined below:
a) BASIS OF PRESENTATION
On May 18, 1999, the Company, formerly Composite Design Inc.,
purchased all of the outstanding shares of Centraxx Corp.
through an exchange of one of its shares for each share of
Centraxx Corp. (the "Transaction"). As a result of the
Transaction, the shareholders of Centraxx Corp. owned
approximately 85% of the outstanding shares of the Company
and, accordingly, the purchase of Centraxx Corp. by the
Company is accounted for as a reverse takeover transaction
under generally accepted accounting principles.
Under the principles of reverse takeover accounting, the
consolidated financial statements of the Company, the legal
parent, are presented as a continuation of the financial
position and results from operations of Centraxx Corp., the
legal subsidiary. Application of reverse takeover accounting
results in the following:
(i) The consolidated financial statements of the combined
entity are issued under the name of the legal parent,
Centraxx Inc, but are considered a continuation of the
financial statements of the legal subsidiary, Centraxx
Corp.;
(ii) As Centraxx Corp. is deemed to be the acquirer for
accounting purposes, its assets and liabilities are
included in the consolidated financial statements at
their historical carrying values;
(iii) Any comparative numbers are those of Centraxx Corp.;
and;
(iv) For purposes of the accounting for the Transaction,
control of the net assets and operations of the
Company is deemed to have been acquired by Centraxx
Corp. effective April 30,1999. Accordingly, the net
asset value of the Company in the amount of -$12,024
plus $ 52,000 of transaction costs has been applied
to reduce the share capital of the Company
immediately prior to the reverse takeover.
b) CAPITAL ASSETS
Capital assets are recorded at the lower of cost less
accumulated amortization and net recoverable amount. All
capital assets are amortized over 5 years on a straight-line
basis.
c) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial
statements and reported amounts of expenses during the
reporting period. Actual results could differ from those
estimates.
d) BASIC LOSS PER COMMON SHARE
Basic loss per common share has been calculated based on the
weighted average number of common stock outstanding during
the period.
e) RESEARCH AND PRODUCT DEVELOPMENT COSTS
Research and product development costs are expensed as they
are incurred.
f) PATENT COSTS
Costs incurred for filing for patents are being capitalized
and no amortization is taken until all steps necessary to
establish the patent have been taken.
g) MONETARY ASSETS
Monetary assets and liabilities denominated in currencies
other than the US dollar are translated at the rate of
exchange in effect at the end of the period. Expense items
are translated at the rate of exchange in effect on the
dates they occur. Exchange gains and losses are reflected in
operations immediately.
h) ACCOUNTING FOR LEASES
A lease that transfers substantially all the benefits and
risks incident to ownership of property is treated as a
capital lease, otherwise the lease is accounted for as an
operating lease.
Note 3 Capital Assets
Capital assets comprise the following:
Cost Accumulated Net Book Net Book
Amortization Value Value
September 30, December 31,
1999 1998
Research and Development $310,821 $117,271 $193,550 225,446
General Office 33,150 12,950 20,200 25,049
Other 17,695 67,417 10,278 12,867
$361,666 $197,638 $224,028 $263,362
Note 4 Commitments
The Company has the following commitments for equipment:
Operating Leases
1999 44,442
2000 88,883
2001 73,011
2002 8,133
2003 0
Note 5 Convertible Debenture
The Company entered into a $2,000,000 funding arrangement on August 10, 1999,
to be advanced in the minimum monthly amounts as follows:
August 15, 1999 $100,000
September 15, 1999 $150,000
October 15, 1999 $200,000
November 15, 1999 $200,000
December 15, 1999 $200,000
January 15, 2000 $200,000
February 15, 2000 $350,000
March 31, 2000 $600,000
$2,000,000
Advances are in the form of an 8% debenture on the assets of the Company
together with a guarantee by the Company's subsidiary. The debenture provides
for a deferment of interest for 2 years, thereafter to be paid quarterly, and
a conversion to stock privilege at any time at the rate of $2.00 per share.
As at September 30, 1999, interest of $1,492 has been accrued on advances
received of $250,000.
Note 6 Share Capital
(a) AUTHORIZED AND ISSUED SHARE CAPITAL
Authorized common shares
At par value of $.001 200,000,000
Issued 1999 17,907,081
(b) CAPITALIZATION AND STOCK DATA, INCLUDING CAPITAL CHANGES.
Deficit
Accumulated
Additional During the
Paid Up Development
Shares Amount Capital Stage
At inception,
January 15, 1986 25,000 25 -
Common stock issued for
cash at approximately
$8.20 per share 204,975
Stock order offering costs - - (45,853) -
Common stock issued for
purchasing subsidiary
at approximately $5.77
per share 20,000 20 115,395 -
Recision of common stock
by SEC (8,102) (8) 8 -
Contributed capital
by shareholder - - 82,024 -
Loss from inception
January 15, 1986 to
December 31, 1994 - - (356,586)
Balance December 31, 1994 36,898 37 356,549 (356,586)
Loss for the year ended
December 31, 1995 - - - -
Balance, December 31, 1995 36,898 37 356,549 (356,586)
Common Stock issued for
services at $1.00 per share 162,000 162 161,838 -
Contributed capital by
shareholder - - 2,149 -
Common stock issued for
services at $0.001
per share 870,000 870 - -
Stock split adjustment 122 - - -
Loss for the year ended
December 31,1996 - - - (165,019)
Balance, December 31,
1996 1,069,020 1,069 520,536 (521,605)
Contributed capital
by shareholder - - 1,484 -
Loss for the year ended
December 31, 1997 - - - (2,179)
Balance, December 31,
1997 1,069,020 1,069 522,020 (523,784)
Contributed capital
by shareholder - - 3,173 -
Loss for the year ended
December 31, 1998 - - - (11,647)
Balance, December 31,
1998 1,069,020 1,069 525,193 (535,431)
Contributed capital
by shareholder - - 796 -
Loss for the three months
ended March 31, 1999 - - - (3,651)
Balance, March 31, 1999 1,069,020 1,069 525,989 (539,082)
Stock split adjustment 1,603,530 1,604 - -
Balance, May 18, 1999-
Composite Design Inc. 2,672,550 2,673 525,989 (539,082)
Purchase of Centraxx
Corp. 15,234,415 15,234 1,792,993 (1,655,275)
Stock offering costs (52,000)
Cancellation of Deficit
of Composite Design
under reverse takeover
accounting 539,082
Loss for the six months
ended June 30, 1999 (882,135)
Balance, June 30, 1999 17,906,965 17,907 2,266,982 (2,537,410)
Fractional shares
rounded up 116
Loss for the 3 months
ended September 30, 1999 (474,622)
Balance, September 30,
1999 17,907,081 17,907 2,266,982 (3,012,032)
(c) STOCK OPTION PLAN
The Company has provided a means for Directors and employees to be
granted Options to purchase common shares of the Company or to
receive a cash amount that is equivalent of the opportunity to
exercise an Option. The Stock Option Plan provides that a maximum
of 20% of the Company's issued common shares can be granted unless
approved by the shareholders of the Company. Options may be
exercised over a period not to exceed 5 years from the date they
are granted. The price at which each Option can be exercised can
not be less than the market price of the common share at the time
the Options are granted. As at September 30, 1999, 1,290,000
Options of which 612,151 were vested have been granted at an
exercise price of $0.70 and 90,000 Options of which 4,055 were
vested have been granted at an exercise price of $2.00. Options
vest quarterly.
Note 7 Income Taxes
For tax purposes, the Company has loss carry forwards of approximately $2.8
million available to reduce future taxable income in Canada subject to
qualified investment tax credits. If not utilized, these losses will expire in
the year 2004, 2005 and 2006. In addition, amortization for tax purposes in
the approximate amount of $138,000 may be filed with the tax authorities. The
potential future tax benefits which may result from the application of these
loss carry forwards have not been recorded in these financial statements.
Note 8 Risks and Uncertainties
As a development stage company the business of Centraxx Inc., entails risks
and uncertainties that affect its outlook and eventual results of its business
and commercialization plan. The primary risks relate to meeting its product
development and commercialization milestones which require that the Company's
products exhibit the cost, durability and performance required in a commercial
product. There is also a risk that market acceptance might take longer to
develop than anticipated. The Company's business plan recognizes and, to the
extent possible, attempts to manage these risks by pursuing diverse end
markets for UNI-POINT(tm) technology. Within these markets the Company's
commercialization plan is focused on products that it believes have a
competitive advantage. Further, the plan for product and market development
is to work closely with potential strategic partners and key customers who
together have the capability and understanding of their specific markets to
develop products that incorporate Centraxx's UNI-POINT(tm) technology to meet
consumer requirements.
Item 2. Management's Discussion and Analysis or Plan or Operation.
Plan of Operation
- -----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This is the second report to stockholders following the acquisition on
May 18, 1999, of all of the outstanding and issued shares of Centraxx Corp., a
corporation organized under the laws of the Province of Ontario, Canada. For
accounting purposes, Centraxx Corp., which became a wholly owned subsidiary of
the Company, is deemed to be the acquirer under a reverse takeover
transaction; accordingly, all figures including comparatives are those of the
legal subsidiary.
Because of the Company's focus on research and development of its
UNI-POINT technology, which technology is still under development, the Company
has not yet generated any revenues.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 compared to September 30, 1998.
The Company generated a gross loss of ($474,622) during the third quarter
compared to the corresponding 1998 third quarter loss of ($538,553). The
Company's general and administrative costs increased $164,000 primarily as a
result of increased sales, marketing and administrative personnel, hired in
September 1998, together with related infrastructure costs. Marketing
expenditures were lower in the current quarter compared to the previous year
as a result of the initial ramp up of activities, including trade shows, in
1998.
The Company's research and product development costs during the third
quarter were lower by $147,000 compared to the corresponding prior year period
primarily as a result of a decreased use of materials and related
infrastructure costs.
Amortization incurred was not materially changed between the respective
3-month periods.
Nine Months Ended September 30, 1999 compared to September 30, 1998.
The current nine months gross loss was ($1,356,757) compared to
($955,305) for the corresponding 1998 period. The Company's general and
administrative costs increased $336,000 primarily as a result of increased
sales, marketing and administrative personnel, hired in September 1998,
together with related infrastructure costs.
The Company's research and product development costs increased $69,000
during the current nine month period ended September 30, 1999, as compared to
the prior years period. The primary reasons are the increase in manpower
expenditures of $137,000 as the Company hired a significant number of
additional personnel to assist in the development of its technology offset by
a decrease in materials and expenses directly related to the technology
development during this period. The Company's commitment to UNI-POINT (tm)
technology is reflected by its total cumulative investment in research and
product development since inception in the amount of $1,437,000, representing
50% of the Company's operating cash activities.
Amortization incurred was not materially changed between the respective
6-month periods.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter, the Company entered into a financing
arrangement with Frankopan & Co. Inc., a corporation subject to significant
influence by one of the Company's directors, to facilitate ongoing monthly
funding to a total amount of $2 million. A schedule of the monthly amounts,
advanced in the form of a convertible 8% debenture, is included in note 5 of
the financial statements. Centraxx Corp has guaranteed the Company's
obligations under this debenture. Pursuant to the terms of the debenture,
interest is to be deferred for 2 years. The principal amount of the debenture
and all accrued interest is convertible in whole or in part at any time and
from time to time into shares of the Company's common stock at a conversion
price, subject to adjustment, of $2.00 per share. The Company expects to
utilize the funds received from such financing for the continuation of the
development of its UNI-POINT(tm) technology and for general operating
purposes. To September 30, 1999, the amount of the advances and accrued
interest amounted to $251,482.
The Company anticipates that it will require further financing to
effectuate its business plan and to continue its operations for the next
twelve months. During the balance of the current fiscal year, the Company
expects that its operating capital requirements will be $1 million. The
Company has engaged Ernst and Young Corporate Finance Inc. to assist it with a
private equity placement of up to $10,000,000. The planned use from such
offering will be for the implementation of the Company's UNI-POINT(tm)
technology in the corporate markets of Southern Ontario, Canada and Southern
California as well as for the Company's operating capital requirements.
Thereafter, the Company expects that it will need to seek additional capital
through one or more public or private offerings of debt or equity. There can
be no assurance that the Company will be successful in obtaining any such
funds on terms acceptable to it, if at all.
The Company is in the process of searching for a President who it expects
will be hired in the last quarter of the current fiscal year. In the interim,
overall management of the Company is being provided by Mr. Michael Ivezic, the
Managing Director of Frankopan & Co., Inc. Significant increases in the
number of employees, primarily in manufacturing and distribution, are
anticipated during Q2/ 2000 when the Company's products are expected to be
ready for market launch and the Southern Ontario network is expected to be
established.
RISKS AND UNCERTAINTIES
As of the date of this Quarterly Report, the Company anticipates that its
technology will not be available for sale or distribution for at least the
next two quarters. There can be no assurance that the Company will be able to
complete the development of its technology as of that time, or at any time, or
that the Company will be able to sell or distribute its UNI-POINT(tm)
technology to generate profitable operations at that time or in the
foreseeable future. There can be no assurance that the technology will be
successfully released to the market or that the Company will profit therefrom.
Year 2000
- ---------
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failures which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None, not applicable.
Item 2. Changes in Securities.
None, not applicable.
Item 3. Defaults Upon Senior Securities.
None, not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None, not applicable.
Item 5. Other Information.
None, not applicable.
Item 6. Exhibits and Other Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None, not applicable.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAXX, INC.
Date: 1/5/2000 /s/Tony Monga
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Tony Monga, Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
CENTRAXX, INC.
Date: 1/5/2000 /s/Tony Monga
-------------- -----------------------------
Tony Monga, Director