UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 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.
-------------------------
(Name of small business issuer in its charter)
Nevada 88-0224219
------------------------ ------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Argentia Road, Suite #1000
Mississauga, Ontario Canada L5N 5V4
-----------------------------------------------------------
(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:
June 30, 1999
common - 17,906,965 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 JUNE 30, 1999
(in US$ and US GAAP)
June 30, December 31, June 30,
1999 1998 1998
(unaudited) (audited) (unaudited)
ASSETS
Current
Cash 142 12,720
Prepaid Expenses 6,922 20,109 8,563
6,922 20,251 21,283
Capital assets (note 4) 242,205 263,362 358,121
Patent costs (note 1) 16,734 15,401 15,401
258,939 278,764 373,522
265,861 299,014 394,805
LIABILITIES
Current
Bank Overdraft 6,802
Accounts payable and accrued
costs 511,581 325,226 417,704
518,382 325,226 417,704
SHAREHOLDERS' EQUITY
Paid up share capital (note 5) 2,284,889 1,629,063 649,039
Deficit (2,537,410) (1,655,275) (671,937)
(252,521) (26,212) (22,989)
265,861 299,014 394,806
CENTRAXX, INC.
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
(in US$ and US GAAP)
Cumulative
from
inception
6 months 6 months 3 months 3 months to
June 30, June 30, June 30, June 30, June 30,
1999 1998 1999 1998 1999
Revenue 0 0 0 0 0
General and Administrative
costs
Marketing 67,328 0 42,280 0 183,811
Management fees 89,964 60,264 45,583 30,132 261,495
Professional fees 31,727 7,852 463 2,009 148,761
Rent 49,651 58,255 25,077 26,617 199,823
Loss on write down of
investment in subsidiary 0 36,493 0 0 53,800
Salaries and other
administration 253,643 80,506 136,533 81,374 469,036
492,313 243,371 249,935 140,131 1,316,725
Research and product
development costs
Manpower 273,130 31,787 140,608 23,913 722,706
Materials 27,152 39,702 9,258 31,935 133,885
Expenses 55,912 67,875 25,777 19,749 245,423
356,194 139,363 175,643 75,597 1,102,014
Loss for the period before
amortization 848,507 382,734 425,579 215,728 2,418,739
Amortization 33,628 34,018 16,927 17,010 118,671
Loss for the period 882,135 416,752 442,506 232,738 2,537,410
Deficit, at the beginning
of the period 1,655,275 255,185 2,094,904 439,199 0
Deficit, at the end of
the period 2,537,410 671,937 2,537,410 671,937 2,537,410
Basic loss per share
(note 2d) $0.06 $0.03 $0.03 $0.02
# of weighted average
shares 16,024,044 12,315,672 16,024,044 12,315,672
CENTRAXX, INC.
STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
(in US$ and US GAAP)
6 months 6 months 3 months 3 months
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Operating Activities
Loss for the period (882,135) (416,752) (442,506) (232,738)
Add back non cash outlays:
Amortization of capital assets 33,628 34,018 16,927 17,010
Loss on write-down of investment
in subsidiary 36,493
(848,507) (346,241) (425,579) (215,728)
Changes in working capital items:
(Increase) Decrease in Prepaid
Expenses 13,186 (7,876) 23,454 (5,472)
Increase (Decrease) in Accounts
Payable 186,354 371,471 177,869 247,869
Cash Generated (Used) in
Operating Activities (648,966) 17,354 (224,256) 26,669
Financing Activities
Issuance of common shares (net) 655,826 51,834 229,057 0
Cash Generated by Financing
Activities 655,826 51,834 229,057 0
Investing Activities
Capital assets (acquired) sold (12,471) (53,995) (12,471) (10,002)
Patent costs (1,333) (3,774) (1,333) (3,774)
Cash (Used) Provided by Investing
Activities (13,804) (57,769) (13,804) (13,776)
Increase (Decrease) in cash for the
period (6,944) 11,420 (9,002) 12,892
Cash (Overdraft) at the Beginning of
the year 142 1,300 2,200 (172)
Cash (Overdraft) at the end of the
period (6,802) 12,720 (6,802) 12,720
CENTRAXX, Inc.
Notes to the Financial Statements
For the six months ended June 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
June 30, December 31,
1999 1998
Research and Development $310,672 $103,417 $207,255 $223,796
General Office 33,133 11,424 21,709 24,866
Other 17,684 6,614 11,070 12,755
$361,489 $121,455 $240,034 $261,416
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 Share Capital
(a) Authorized and Issued Share Capital
Authorized common shares 200,000,000
At par value of $0.001
Issued 1999 17,906,965
The number of issued and outstanding shares of the Company prior to the
Transaction (see note 2a) was 1,069,020, an amount which had not changed since
December 31, 1996. This amount was increased, immediately preceding the
closing of the Transaction, on the basis of 2.5-for-one to 2,672,550 shares. A
further 15,234,415 shares were then issued as part of the Transaction, on a
post-split basis, in exchange for all of the outstanding securities of
Centraxx Corp., resulting in an aggregate of 17,906,965 outstanding shares of
the Company.
(b) 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
June 30, 1999, the total number of Options which were granted at an exercise
price of $0.70 totaled 1,365,000 of which 546,747 were vested.
Note 6 Income Taxes
For tax purposes, the Company has loss carry forwards of approximately $2.7
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 $110,000 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 7 Subsequent Event
The Company entered into a $2,000,000 funding arrangement with Frankopan and
Co. Inc., 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.
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 first report to stockholders following the acquisition (the
"Transaction") on May 18, 1999 by the Company of all of the outstanding and
issued shares of Centraxx Corp., a corporation organized under the laws of the
Province of Ontario, Canada. Following the Transaction, Centraxx Corp. became
a wholly owned subsidiary of the Company. As stated in note 2(a) to the
financial statements, for accounting purposes, Centraxx Corp. 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 June 30, 1999 compared to June 30, 1998.
The Company generated a gross loss of ($442,506) during the second quarter
compared to the corresponding 1998 second quarter loss of ($232,738). The
Company's general and administrative costs increased $110,000 primarily as a
result of increased sales, marketing and administrative personnel and related
infrastructure costs.
The Company's research and product development costs increased $100,000 during
the second quarter compared to the corresponding prior year period primarily
as a result of increased manpower expenditures in order to assist in the
development of its technology.
Amortization incurred was not materially changed between the respective
3-month periods.
Six Months Ended June 30, 1999 compared to June 30, 1998.
The cumulative current 6 months gross loss was ($882,135) compared to
($416,752) for the corresponding 1998 period. The Company's general and
administrative costs increased $249,000 primarily as a result of increased
sales, marketing and administrative personnel and related infrastructure
costs.
The Company's research and product development costs increased $217,000 during
the six-month period ended June 30, 1999 as compared to the prior years
period. The primary reasons are the increase in manpower expenditures of
$241,000 as the Company hired a significant number of additional personnel to
assist in the development of its technology together with a decrease in
materials and expenses directly related to the technology development during
this period.
Amortization incurred was not materially changed between the respective
6-month periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a financing arrangement on August 10, 1999 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 advances is included in note 7
of the financial statements. The amount advanced is in the form of a
convertible 8% debenture. The Company's obligations under the debenture have
been guaranteed by Centraxx Corp. 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.
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 $3.3 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 by Q1/ 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 UNCERTANTIES
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.
No matters were submitted to a vote of the Company's security holders
during the three month period ended June 30, 1999.
Item 5. Other Information.
None, not applicable.
Item 6. Exhibits and Other Reports on Form 8-K.
(a) Exhibits.
10.1 Letter of Intent regarding Debenture
10.2 Debenture
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended June 30, 1999, the Company filed
an 8-K Current Report dated May 18, 1999, reflecting the
Share Exchange Agreement with Centraxx Corp.
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: 8/16/99 /s/Michael Ivezic
-------------- -----------------------------
Michael Ivezic, President and
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: 8/16/99 /s/Michael Ivezic
-------------- -----------------------------
Michael Ivezic, President and
Director
Date: 8/16/99 /s/Stewart Somers
--------------- -----------------------------
Stewart Somers
Chief Financial Officer