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 September 30, 2001
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
________________ to ________________
Commission File Number 000-30468
-------------------
CeleXx Corporation
(Exact Name of Small Business Issuer in Its Charter)
Nevada 65-0728991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
885 Main Street, Unit 4
Tewksbury, Massachusetts 01876
(978) 851-5317
(Address, including zip code, and telephone number, including area code, of
issuer's executive offices)
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 |_|
As of November 15, 2001, there were outstanding 54,287,730 shares of the
Company's common stock, $.001 par value per share
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, June 30,
2001 2001
------------------- ---------------
-unaudited -
ASSETS
CURRENT ASSETS:
Cash $ 539,429 $ 209,281
Accounts receivable, net of allowance for doubtful
accounts of $122,000 and $72,000, respectively 2,638,742 2,588,495
Inventory 124,194 213,353
Other current assets 15,537 15,537
--------------- ------------------
TOTAL CURRENT ASSETS 3,317,902 3,026,666
--------------- ------------------
PROPERTY AND EQUIPMENT, net 486,690 503,005
DEFERRED FINANCING COST, net 144,582 -
GOODWILL AND OTHER INTANGIBLE ASSETS, net 3,892,196 4,009,304
OTHER ASSETS 17,712 31,712
--------------- ------------------
$ 7,859,082 7,570,687
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,494,837 $ 2,620,273
Notes payable and advances -related parties 945,066 945,066
Line of credit - short term portion 662,968 202,666
Advances from stockholder 163,844 127,704
Other liability 297,385 256,027
--------------- ------------------
TOTAL CURRENT LIABILITIES 4,564,100 4,151,736
--------------- ------------------
LINE OF CREDIT - long term portion 148,376 -
---------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $001 par value, 20,000,000 shares authorized;
299 and 305 issued and outstanding - -
Common stock, $.001 par value, 100,000,000 shares authorized;
54,287,730 and 48,859,480 shares issued and outstanding 54,288 48,859
Additional paid-in capital 17,832,496 17,825,283
Unamortized stock compensation (3,008,037) (3,325,636)
Accumulated deficit (11,732,141) (11,129,555)
--------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 3,146,606 3,418,951
--------------- ------------------
$ 7,859,082 $ 7,570,687
=============== ==================
See notes to consolidated financial statements.
2
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
- unaudited -
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
-------------------- --------------------
REVENUES $ 3,936,277 $ 5,234,652
COST OF REVENUES 2,865,889 3,999,196
-------------------- --------------------
GROSS PROFIT 1,070,388 1,235,456
OPERATING EXPENSES
Selling, general and administrative expense 1,032,853 1,207,398
Depreciation and amortization of goodwill , intangibles
and stock compensation 468,641 279,642
-------------------- --------------------
1,501,494 1,487,040
LOSS FROM OPERATIONS (431,106) (251,584)
OTHER INCOME (EXPENSES):
Interest expense (51,247) (16,941)
Other income (expense) (16,233) 25,589
Loss on settlement of claim (104,000) -
-------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) (171,480) 8,648
-------------------- --------------------
NET LOSS (602,586) (242,936)
Dividends on preferred stock 45,484 52,500
-------------------- --------------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (648,070) $ (295,436)
==================== ====================
NET LOSS $ (602,586) $ (242,936)
OTHER COMPREHENSIVE LOSS:
Unrealized holding loss arising during the period from
marketable securities - (312,000)
-------------------- --------------------
COMPREHENSIVE LOSS $ (602,586) $ (554,936)
==================== ====================
NET LOSS PER COMMON SHARE - basic $ (0.01) $ (0.02)
==================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic 51,690,397 15,223,878
==================== ====================
See notes to consolidated financial statements.
3
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- unaudited -
Three Months Ended Three Months Ended
September 30, 2001 September130, 2000
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (602,586) $ (242,936)
------------------- -------------------
Adjustments to reconcile net loss to net cash used in operations:
Amortization and depreciation 468,641 286,620
Common stock issued in legal settlement 104,000 -
Provision for uncollectible accounts receivable 50,000 -
Changes in assets and liabilities net of effects from acquisition:
Accounts receivable (100,247) (641,694)
Inventory 89,159 (151,472)
Other current assets - (46,320)
Other assets 14,000 (40,000)
Accounts payable and accrued expenses (140,436) 252,641
Deferred financing costs (144,582) -
Deferred revenue - 111,618
------------------- -------------------
340,535 (228,607)
------------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (262,051) (471,543)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,619) (108,498)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVIES (17,619) (108,498)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit 608,678 585,917
Borrowings from related parties - 17,901
Decrease in due to related parties 1,139 -
------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 609,818 603,818
------------------- -------------------
NET INCREASE IN CASH 330,148 23,777
CASH - beginning of period 209,281 522,471
------------------- -------------------
CASH - end of period $ 539,429 546,248
=================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 72,557 $ 22,184
=================== ===================
Noncash investing and financing activities:
Note payable issued in settlement of lawsuit $ 35,000 $ -
=================== ===================
Accrued dividends payable on preferred stock $ 45,484 $ -
=================== ===================
Common stock issued on conversion of
preferred stock and accrued dividends $ 4,126 $ -
=================== ===================
Common stock issued for compensation and services $ - $ 2,895,400
=================== ===================
Stock issued in settlement of lawsuit $ 52,000 $ -
=================== ===================
See notes to consolidated financial statements.
4
CeleXx Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of CeleXx
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related footnotes included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2001.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation have been included. The
results for the three months ended September 30, 2001 and 2000 are not
necessarily indicative of financial information for the full year. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission for the year ended June 30, 2001.
2. Business
The Company acquires, develops, integrates and manages private businesses
that produce, service, maintain or support the information technology industry.
3. Goodwill and Other Intangibles, Net
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived
Assets." SFAS 144 supercedes Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transaction". SFAS 144 also amends
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provision of SFAS 144 will be effective for fiscal
years beginning after December 15, 2001. The Company has not yet determined the
effect SFAS 144 will have on its financial position or results of operations in
future periods.
4. Lines of Credit
On July 20, 2001, the Company's Pinneast subsidiary modified and combined
three existing credit lines into a single bank note of $200,972, payable in 47
monthly installments of principal and interest of $5,100, commencing August 20,
2001 to July 20, 2005. The modified note bears interest at the bank's prime rate
5
plus 1.5%, and is secured by substantially all the assets of Pinneast and a
corporate guaranty by the Parent.
In August 2001, CMI entered into a two-year financing agreement for a $3
million secured Revolving Credit Line ("Credit Line") maturing in August 2003
from Rosenthal & Rosenthal, Inc. Availability under the Credit Line is based on
a formula of eligible accounts receivable and inventory and allows for an
increase in the credit facility to be considered. Borrowings bear interest at
the prime rate plus 2% per annum and are secured by essentially all the assets
of CMI, including accounts receivable, inventory, and general intangibles, and a
corporate guaranty by the Company. The Credit Line also requires, among other
conditions, compliance with certain covenants. As of September 30, 2001 CMI had
approximately $1.1 million in availability under the Credit Line.
In connection with the Credit Line, the Company incurred $154,221 in
financing cost that is being amortized over the term of the Credit Line. The
remaining unamortized financing cost of $144,582 as of September 30, 2001 is
reflected in the accompanying balance sheet as deferred financing cost.
5. Stockholders' Equity
On August 15, 2001 the Company and Fifth Street Capital Corporation, Wall
Street Capital Communications Group, Inc. ("Wall Street") and certain principals
of these companies, entered into a Settlement and Release Agreement to settle a
notice of complaint against the Company for violation of federal and state
securities laws, breach of consulting agreements with Wall Street and any claims
that the companies and certain principals may have had with respect to each
other. The settlement included unconditional releases and was subject to
documentation and delivery of all considerations. The settlement provided for,
among other things, the issuance of 2,000,000 shares of the Company's restricted
common stock to Wall Street and $50,000 in cash, payable in two installments of
$15,000 and $35,000 on or before August 23, 2001 and November 15, 2001,
respectively. The Company complied with the stock issuance on August 29, 2001
and scheduled cash payments. The Company was also required to provide piggyback
registration rights on the settlement shares. To secure performance of the
obligations of the Company pursuant to the settlement agreement, a company
officer and director was required to grant to Wall Street a security interest in
2,000,000 shares of common stock of the Company held by such individual.
During the three months ended September 30, 2001, the preferred stock
holder had converted 6 shares of preferred stock plus accrued dividends into
3,428,250 common shares. Dividends on the convertible preferred stock accrue
daily at the rate of 6% per annum, whether or not earned or declared and whether
or not there are profits or other funds of the Company legally available for the
payment of dividends. Included in other liabilities are $297,385 of accrued
dividends payable as of September 30 , 2001.
6
Item 2. Management's Discussion and Analysis
This Quarterly Report on form 10-QSB contains forward-looking statements
that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on our
current expectations, estimates and projections, beliefs and assumptions. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. These risks and uncertainties include those contained in our Form
10-KSB for the year ended June 30, 2001, as filed with the Securities and
Exchange Commission.
Overview
We deliver technology solutions that allow our clients to operate and grow
their businesses more efficiently. The products and services we offer are
designed to
o improve the performance of our clients' information technology
systems;
o improve profitability and production at client companies through the
delivery of services and solutions essential to Customer Relational
Management (CRM) and Enterprise Resource Planning (ERP); and
o deliver other advanced technologies designed specifically to improve
our clients' delivery of services to their customers or to communicate
with and manage their employees.
These products and solutions often include improved communications applications
for order tracking, customer management, employee training, inventory control,
customer service, knowledge tools, and a variety of other network-based
solutions that help businesses operate more efficiently.
We deliver these products and services through technology businesses we
acquire and by pairing the competencies of these businesses to deliver complete
solutions to customers. We reach our customers through
o direct corporate sales;
o partnering with software developers and hardware suppliers; and
o partnering with large solutions providers who expand and broaden our
capabilities and expertise to deliver essential products, services,
and solutions.
7
Our operations are organized into four groups according to function:
Integrated Solutions, Performance Media, Information Engineering, and Special
Applications. Our corporate headquarters, based in Tewksbury, Massachusetts,
provides certain essential services to our operating companies and manage the
synergies between those companies. Our corporate headquarters also provides the
type of environment that allows our operating companies to flourish by
delivering complete solutions to clients and expanding their own capabilities
through collaboration, referral, and collocation.
Computer Marketplace, Inc., or CMI, a wholly owned subsidiary of our
company, is the principal business in our Integrated Solutions Group (ISG) and
performs systems engineering, networking, computer telephony integration, and
other large scale network support services. Revenue for the Integrated Solutions
Group increased during fiscal 2001 due in part to expanding contractual services
primarily with Sodexho-Marriott, Investors Bank, Cisco, Hewlett Packard, and
other major clients for which we are providing custom systems and/or solutions.
In addition, ISG continued to expand its partnering base by partnering with such
companies as Hewlett-Packard, Exodus, Citrix, major OEMs, and solution
providers.
Pinneast East, Inc., or Pinneast, a wholly owned subsidiary of our company,
is the principal business of our Performance Media Group (PMG) that develops
high-end multimedia applications and delivers e-Learning, Distance Learning, and
other Internet solutions that integrate seamlessly into customer relations
management systems for our clients. This group also increased revenue during
fiscal 2001 due in part to the more universal acceptance of the Internet as a
means of delivering education and training across great distances. The
operations of our Performance Media Group include the development of complex
electronic databases and specialized engineering functions in graphics,
facilities management, hosting, and wireless technologies to provide clients
with customized solutions for handling large-scale data.
The Information Engineering Group was established to develop and implement
large-scale data base applications, and the Special Applications Group were
established to market and distribute select web-based software products and
services. These two divisions do not have any operations or revenue.
Results of Operations
Revenues for the three months ended September 30, 2001 were
approximately $ 3.9 million compared with $5.2 million during the same quarter
of 2000, representing a decrease of $1.3 million in revenues. The reduction in
reported revenues for the quarter is primarily due to the decline in continuing
impact of the industry-wide slowdown in demand in the United States for PC and
related information technology ("IT") products and services, which we believe
has been exacerbated by the September 11th terrorist attack on the World Trade
Center in New York City and subsequent economic uncertainty. The largest sector
of our market that attributed to this decline was the lack of IT spending from
the company's call center business. Revenues from the sale of e-Learning
systems and web-based training solutions also posted a decline when compared to
the same period in 2000, as a result of a loss in approximately 30% of revenues
from the Learning Management System business. This decline can also be
attributed to the general economic slowdown and fall in demand for IT products
and services.
8
The following table sets forth certain statement of operations data of
the Company expressed as a percentage of revenues for the periods indicated:
Three Months Ended
September 30,
----------- ---------
2001 2000
---- ----
NET REVENUES 100% 100%
---- ----
Cost of Revenues 73 76
---- ----
Gross Profit 27 24
---- ----
Selling, general and administrative 26 24
---- ----
Depreciation and Amortization of goodwill, 12 5
intangibles & stock compensation
---- ----
Total Operating Expenses 38 29
---- ----
OPERATING INCOME (LOSSES) -11 - 5
---- ----
Other Income (Expenses) - 4 - 0
---- ----
NET INCOME (LOSS) -15 - 5
---- ----
The cost of revenues decreased to $2.9 million during the three month
period ended September 30, 2001 from $4 million for the same period ended
September 30, 2000. This decrease was due to a corresponding decrease in gross
revenues from $5.2 million for the quarter ended September 30, 2000 to $3.9
million for the quarter ended September 30, 2001 and, reflects the overall trend
in the IT industry in the United States and the economy in general. Cost of
revenues as a percentage of net revenues improved slightly to 73% for the
quarter ended September 30, 2001 from 76% for the quarter ended September 30,
2000. Correspondingly, the gross profit margin increased during the quarter
ended September 30, 2001 to 27% of net revenues, from 24% in the quarter ended
September 30, 2000. We believe that this modest performance improvement was due
in part to the Company's emphasis on the sale of IT solutions and services over
the sale of hardware solutions. CMI's business involves substantial systems
design and installation work where profit margins on hardware components are
historically low in comparison to gross profit margins on the sale of IT
solutions and services.
Selling, general and administrative expenses for the quarter ended
September 30, 2001 decreased to $ 1 million and 26% of net revenues,
respectively, from $1.2 million and 24% of net revenues, respectively, for the
corresponding quarter in 2000. The decrease resulted in part from lower overall
revenues but to a great extent from decreased expenses at our corporate
headquarters relating to the relocation of our offices and reduction of
administrative expenditures.
Included in the results of operations and table above are depreciation and
amortization of goodwill, intangibles and stock compensation of $468,641 and
$279,642, for the quarters ended September 30, 2001 and September 30, 2000,
respectively. This amortization, amounting to 12% and 5% of net revenues,
respectively, are non-cash items and reflect primarily the write down of the
excess of cost of the acquisition of our subsidiaries, Pinneast and CMI, over
the net tangible book value of the assets of those businesses at time of
acquisition. Total operating expenses for the quarters ended September 30, 2001
9
and September 30, 2000, amounted to $1.5 million in each period, or 33% and 28%
of net revenues for the periods, respectively. Operating losses increased
$180,000 to $431,000 and -11% of net revenues, respectively, from $251,000 and
- -5% of net revenues during the three month period ended September 30, 2000.
Other income and expenses, which included interest, miscellaneous income
and expense, and the settlement of threatened litigation, amounted to $171,480
and $8,648, respectively, for the quarter ended September 30, 2001 and the
quarter ended September 30, 2000.
Net losses increased $ 359,650, or 248 %, to $602,586 for the quarter ended
September 30, 2001 compared with $242,936 in 2000. However, the net loss per
common share decreased from -$0.02 for the quarter ended September 30, 2000 to
- -$0.01 in the quarter ended September 30 2001, resulting in a change of +$.01
per share or 50%. The primary factor affecting the aforementioned changes was an
increase in interest cost resulting from the CMI acquisition, settlement of
threatened litigation, and the effect on loss per common share as the result of
our company issuing additional shares of common stock during the quarter.
Liquidity and Capital Resources
We historically have satisfied our operating cash requirements primarily
through cash flow from operations, from borrowings from shareholders and from a
revolving line of credit with limits up to $5 million (currently $3 million)
from asset based lenders. At September 30, 2001, we had $539,429 in cash on hand
and in bank accounts, compared to $209,281 on September 30, 2000.
During the three months ended September 30, 2001, cash provided by
financing activities of $609,818 exceeded cash used in operating activities and
investing activities amounting to $279,670, resulting in a $330,148 increase in
cash. Net cash provided by financing was primarily due to the line of credit
secured from Rosenthal.
On July 20, 2001, we modified and combined three credit lines carried by
Pinneast into a single bank note of approximately $201,000, payable in 47
monthly installments of principal and interest of $5,100. The monthly payments
commence during August 2001 and continue through July 2005. The modified note
bears interest at the bank's prime rate plus 2% and is secured by substantially
all the assets of Pinneast and a corporate guaranty by our company.
On April 6, 2001, we received a two year financing agreement for a $3
million secured Revolving Credit Line ("Credit Line") for our subsidiary,
Computer Marketplace, Inc. (CMI) maturing in May 2003 from Rosenthal &
Rosenthal, Inc. Availability under the Credit Line is based on a formula of
eligible accounts receivable and inventory and allows for an increase in the
credit facility as considered necessary. Borrowings bear interest at the Chase
Bank rate plus 2% per annum and are collateralized by essentially all assets of
CMI, such as accounts receivable, inventory, and general intangibles, and a
corporate guaranty by the Parent. The Credit Line also requires, among other
conditions, compliance with certain covenants.
Our subsidiaries have been generating sufficient cash flow to sustain their
own operations; however, their growth will be constrained if we do not secure
additional financing to support their growth. Unless additional capital is
secured from third party financing and/or loans from its officers, our
headquarters will be incapable of meeting its current obligations and may
require utilization of cash flow from its subsidiaries, which can result in
additional constraints on the future growth of our subsidiaries.
We currently have no commitments for additional financing, and we cannot be
sure that any additional financing would be available in a timely manner, on
terms acceptable to us, or at all. Further, any additional equity financing
could reduce ownership of existing stockholders and any borrowed money could
involve restrictions on future capital raising activities and other financial
10
and operational matters. If we were unable to obtain additional financing as
needed, we could be required to reduce our operations or any anticipated
expansion, which could hurt us financially.
We believe that we will require additional cash infusions to meet our
projected working capital, strategic acquisitions and other cash requirements in
its current fiscal year ending June 30, 2002 and is working closely with
lenders, investment bankers and others to meet these projected needs. The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The report of our independent public
accountants on our financial statements for the year ended June 30, 2001 states
that our recurring operating losses, reduced working capital, and other factors
raise substantial doubt about our ability to continue as a going concern. We
believe that our working capital, together with any cash provided by operations,
will be adequate to meet our cash requirements working capital through the third
quarter of fiscal 2002. Substantial additional capital will be needed in order
to fund operations beyond that time.
Our working capital requirements for future periods depend on numerous
factors, including the timing of expenditures related to product development and
marketing, the rate at which we expand our staff, and our ability to meet
revenue projections, among other items. While we cannot predict the timing or
amount of our future expenditures, we believe that we will have sufficient cash
on hand to fund our current operations through the third quarter of fiscal 2002,
provided we meet our expected revenue targets. Beyond the third fiscal quarter
of fiscal 2002, we may require additional financing, which may come from future
equity or debt offerings that could result in further dilution to our
stockholders. We are currently in the process of attempting to raise additional
capital in the next three to six months that will be used to acquire additional
companies, build our management team, and provide working capital. Adequate
capital may not be available and the lack of such capital could adversely affect
our business. In the event our ability to obtain future capital looks doubtful,
we will exercise prudent business practices and curtail spending to maximize our
remaining resources.
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds
On August 29, 2001 the Company issued 2,000,000 shares of common stock to
Wall Street Capital Communications Group, Inc. ("Wall Street") pursuant to a
Settlement and Release Agreement entered into between the Company and Fifth
Street Capital Corporation, Wall Street Capital Communications Group, Inc.
("Wall Street") and certain principals of these companies, to settle a notice of
complaint against the Company for violation of federal and state securities
laws, breach of consulting agreements with Wall Street and any claims that the
companies and certain principals may have had with respect to each other. The
Company was also required to provide piggyback registration rights on the
settlement shares. To secure performance of the obligations of the Company
pursuant to the settlement agreement, a company officer and director was
required to grant to Wall Street a security interest in 2,000,000 shares of
common stock of the Company held by such individual.
During the three months ended September 30, 2001,the preferred stock holder
had converted 6 shares of preferred stock plus accrued dividends into 3,428,250
common shares.
11
Item 3. Defaults upon Senior Securities
The terms of our Series A preferred stock require us to at all times
reserve and keep available authorized and unissued shares of common stock
sufficient to cover the conversion of the Series A preferred stock and payment
of dividends on the Series A preferred stock. The holders of shares of Series A
preferred stock have the right, at the option of the holder, to convert the
shares of Series A preferred stock into common stock at a conversion price per
share equal to the lesser of (a) $2.50; or (b) 80% of the five-day floating
average trading price of our common stock. As a result of the decline in the
fair market value our common stock as quoted on the OTCBB, as of October 30,
2001, there were 298 shares of Series A preferred stock outstanding that were
convertible into approximately 373,000,000 shares of common stock at a
conversion price per share of less than $0.01. We do not have sufficient shares
of common stock authorized to cover such conversions. Unless we increase the
authorized shares of common stock to a sufficient level, or otherwise negotiate
successfully an amendment to this provision of the terms of the Series A
preferred stock, the holders of Series A preferred stock have the right to force
us to redeem the Series A preferred stock and any shares of common stock issued
upon conversion of the Series A preferred stock at a redemption price of 125% of
the stated value of the Series A preferred and the market value of the common
stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.
Celexx Corporation
By: /s/ David Burke, Sr. November 19, 2001
-----------------------------------
David Burke, Sr.
Chairman of the Board and Chief
Executive Officer
[Principal Executive Officer]
By: /s/ David C. Langle November 19, 2001
----------------------------------
David C. Langle
Vice President Finance
[Principal Accounting and Financial Officer]