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 December 31, 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 Identification No.)
incorporation or organization)
10100 West Sample Road, Suite 311
Coral Springs, Florida 33065
(954)796-7322
(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 February 15, 2002, there were outstanding 56,759,266 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
December 31, 2001
- unaudited -
ASSETS
CURRENT ASSETS:
Cash $ 122,023
Accounts receivable 289,059
Other current assets 18,037
----------------
TOTAL CURRENT ASSETS 429,119
----------------
PROPERTY AND EQUIPMENT, net 372,363
NET ASSETS OF DISCONTINUED OPERATIONS HELD FOR SALE 1,107,729
GOODWILL AND OTHER INTANGIBLE ASSETS, net 979,369
OTHER ASSETS 17,601
----------------
$ 2,906,181
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,409,033
Notes payable and advances -related parties 940,066
Line of credit - short term portion 32,685
Advances from stockholder 156,344
Other liability 340,223
----------------
TOTAL CURRENT LIABILITIES 2,878,351
----------------
LINE OF CREDIT - long term portion 148,376
----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $001 par value, 20,000,000 shares authorized;
298 and 305 issued and outstanding -
Common stock, $.001 par value, 100,000,000 shares authorized;
56,759,266 and 48,859,480 shares issued and outstanding 56,760
Additional paid-in capital 17,787,186
Unamortized stock compensation (2,690,438)
Accumulated deficit (15,274,054)
----------------
TOTAL STOCKHOLDERS' DEFICIT (120,546)
----------------
$ 2,906,181
================
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 Six Months Ended Six Months Ended
December 31, 2001 December 31, 2000 December 31, 2001 December 31, 2000
----------------- ------------------ ----------------- -----------------
REVENUES $ 429,646 $ 570,739 $ 903,715 $ 1,058,093
COST OF REVENUES 202,402 208,327 415,083 404,525
----------------- ------------------ ----------------- -----------------
GROSS PROFIT 227,244 362,412 488,632 653,568
----------------- ------------------ ----------------- -----------------
OPERATING EXPENSES
Selling, general and administrative expense 291,235 614,235 564,014 1,087,371
Depreciation and amortization of goodwill,
intangibles and stock compensation 416,125 558,806 881,766 838,448
----------------- ------------------ ----------------- -----------------
707,360 1,173,041 1,445,780 1,925,819
----------------- ------------------ ----------------- -----------------
LOSS FROM CONTINUING OPERATIONS (480,116) (810,629) (957,148) (1,272,251)
----------------- ------------------ ----------------- -----------------
OTHER EXPENSES:
Interest expense (28,202) (44,960) (59,276) (44,960)
Write-down on marketable securities - (2,675,000) - (2,675,000)
Loss on settlement of claim - - (104,000) -
----------------- ------------------ ----------------- -----------------
TOTAL OTHER EXPENSES (28,202) (2,719,960) (163,276) (2,719,960)
----------------- ------------------ ----------------- -----------------
NET LOSS FROM CONTINUING OPERATIONS (508,318) (3,530,589) (1,120,424) (3,992,211)
----------------- ------------------ ----------------- -----------------
DISCONTINUED OPERATIONS:
Income(loss) from operations of discontinued
segment, net of aplicable income taxes (35,459) 195,984 (25,939) 414,669
Estimated loss on disposal of discontinued
segment, net of applicable income taxes (2,998,135) - (2,998,135) -
----------------- ------------------ ----------------- -----------------
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (3,033,594) 195,984 (3,024,074) 414,669
----------------- ------------------ ----------------- -----------------
NET LOSS (3,541,912) (3,334,605) (4,144,498) (3,577,542)
----------------- ------------------ ----------------- -----------------
Dividends on preferred stock 44,733 26,250 90,217 52,500
----------------- ------------------ ----------------- -----------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (3,586,645) $ (3,360,855) $ (4,234,715) $ (3,630,042)
================= ================== ================= =================
NET INCOME (LOSS) PER COMMON SHARE - basic and dilutive
Continuing operations $ (0.01) $ (0.14) $ (0.02) $ (0.18)
Discontinued operations (0.05) 0.01 (0.06) 0.02
================= ================== ================= =================
NET LOSS PER COMMON SHARE $ (0.06) $ (0.13) $ (0.08) $ (0.16)
================= ================== ================= =================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 56,759,266 26,665,859 54,224,831 22,442,778
================= ================== ================= =================
NET LOSS $ (3,541,912) $ (3,334,605) $ (4,144,498) $ (3,577,542)
OTHER COMPREHENSIVE LOSS:
Unrealized holding loss arising during the period from
marketable securities - 312,000 - -
----------------- ------------------ ----------------- -----------------
COMPREHENSIVE LOSS $ (3,541,912) $ (3,646,605) $ (4,144,498) $ (3,577,542)
================= ================== ================= =================
See notes to consolidated financial statements.
3
CELEXX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
- unaudited -
Six Months Ended Six Months Ended
December 31, 2001 December 31, 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,144,498) $ (3,577,542)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Loss on impairment from discontinued operations
held for sale 2,706,953 -
Amortization and depreciation 716,075 498,153
Common stock issued for services 104,000 174,817
Write-down on marketable securities, available for sale - 2,675,000
Changes in assets and liabilities:
Accounts receivable 23,446 (192,677)
Other current assets (2,500) 22,318
Other assets (1,001) (74,995)
Net assets of discontinued operations 796,245 (220,512)
Accounts payable and accrued expenses (11,126) 265,436
Deferred revenue - 112,342
-------------- --------------
4,332,092 3,259,882
-------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 187,594 (317,660)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41,358) (112,674)
-------------- --------------
NET CASH USED IN INVESTING ACTIVIES (41,358) (112,674)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock - 234,000
Line of credit (71,605) (38,144)
Borrowings from related parties (5,000) 82,287
Decrease in due to related parties 28,640 (66,804)
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (47,965) 211,339
-------------- --------------
NET INCREASE (DECREASE) IN CASH 98,271 (218,995)
CASH - beginning of period 23,752 242,294
-------------- --------------
CASH - end of period $ 122,023 $ 23,299
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 58,047 $ 5,283
============== ==============
Noncash investing and financing activities:
Note payable issued in settlement of lawsuit $ 35,000 $ -
============== ==============
Accrued dividends payable on preferred stock $ 84,196 $ -
============== ==============
Common stock issued on conversion of
preferred stock and accrued dividends $ 5,901 $ -
============== ==============
Common stock issued for compensation and services $ - $ 3,267,199
============== ==============
Stock issued in settlement of lawsuit $ 52,000 $ 675,000
============== ==============
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 and six months ended December 31,
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. Discontinued Operations
On January 14, 2002, the Estate of David R. Burke, Sr. (the "Estate"),
a former principal officer and shareholder of the Company, filed suit against
the Company, accelerating the payment of a Note due the Estate for approximately
$914,000, plus interest, legal fees and associated costs. The Estate also sought
foreclosure on all Computer Marketplace, Inc. ("CMI ") common stock, which was
pledged as collateral for the Note, for sale by the Estate for the purpose of
satisfying the Company's obligations under the Note. The Company did not have
the ability to repay the Note without a financing or a disposition of certain
assets.
On January 18, 2002, the Company stipulated in open court to the
settlement and dismissal of a litigation between the Estate of David R. Burke,
Sr. and the Company that was pending in the Federal District Court for the State
of Massachusetts. The litigation related to a Note due the Estate from the
purchase of CMI by the Company in April 2000. The settlement is subject to
formal documentation, and the matter may be re-filed at the end of thirty days
if the parties fail to execute a written settlement agreement. The material
terms of the settlement are that the Estate will receive 100% of the CMI common
stock, which was pledged as collateral for the Note. The Company will receive
certain cash consideration, the return of approximately 16 million shares of
common stock of the Corporation (approximately 30% of the outstanding shares)
which was paid to David R. Burke, Sr. as partial consideration for the purchase
of CMI, and a full discharge of any previously existing obligations to the
Estate. There will also be an exchange of releases by and among the Estate, the
Corporation, CMI and the officers, directors and employees of the Corporation
and CMI, as to all matters concerning CMI.
5
At December 31, 2001 the carrying value and net assets of CMI offered
for sale was deemed to be impaired and, accordingly, was written down to fair
value based on the subsequent third party settlement and selling price less
costs to sell. The Company reported the results of the operations of CMI and the
estimated loss on disposal as discontinued operations. Included in estimated
loss on disposal of discontinued operations for the period ended December 31,
2001 is an impairment write-off of unamortized goodwill and intangible assets of
$2,706,953, and estimated operating losses from the measurement date to the
anticipated disposal date of $165,000, net of applicable income taxes.
Management expects to complete the settlement and sale by the end of the third
quarter fiscal 2002. The net carrying value of CMI held for sale has been
segregated on the December 31, 2001 Consolidated Balance Sheet. The results of
operations for all periods presented have been restated for the discontinued CMI
operation.
4. Stockholders' Deficit
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 made partial 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. Since
the Company was unable to comply with the scheduled cash payments resulting in a
default to the agreement, Wall Street took possession of the 2,000,000 shares of
security interest.
During the six months ended December 31, 2001, the preferred stock
holder had converted 8 shares of preferred stock plus accrued dividends into
5,899,786 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 is $340,223 of accrued
dividends payable as of December 31, 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 and distance learning (e-learning) solutions that
allow our clients to operate and grow their businesses more efficiently and
improve employee productivity. Our operations are organized into two groups
according to function: Performance Media, and Special Applications. Our
corporate headquarters, located in Coral Springs, Florida, provides certain
essential services to our operating companies and manage the synergies between
the operating units.
Computer Marketplace, Inc., or CMI, a wholly owned subsidiary of our
company, was the principal business in our former Integrated Solutions Group
(ISG) that performed systems engineering, networking, computer telephony
integration, and other large scale network support services. On January 18,
2002, the Company stipulated in open court to the settlement and dismissal of a
litigation between the Estate of David R. Burke, Sr.("Estate") and the Company
that was pending in the Federal District Court for the District of
Massachusetts. In reaching the foregoing settlement the Company committed to
sale CMI and its operations to the Estate, such transaction expected to be
completed by the end of February 2002. The Company reported the results of the
operations of CMI and the estimated loss on disposal as discontinued operations.
The net carrying value of CMI held for sale has been segregated on the December
31, 2001 Consolidated Balance Sheet. The results of operations for all periods
presented have been restated for the discontinued CMI operation.
Pinneast.com, 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. 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 Special Applications Group was established to market and distribute
select web-based software products and services. This division had no operations
or revenue during the period.
Currently Pinneast is the Company's only revenue-operating subsidiary.
7
Results of Operations
Continuing Operations:
Revenues for the three months ended December 31, 2001 totaled $ 429,646
compared with $ 570,739 during the same quarter of 2000, representing
a decrease of approximately $ 142,000 in revenues. Revenues for the six months
ended December 31, 2001 was $ 903,715 compared with $1,058,093 during the same
quarter of 2000, resulting in a decrease of approximately $ 155,000 in revenues.
The reduction in reported revenues for the quarter and for the six month period
are in great part due to 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 recession.
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 reflects an industry-wide decline and can also be
attributed to the general economic slowdown and fall in demand for IT products
and services.
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 Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
NET REVENUES 100% 100% 100% 100%
Cost of Revenues 47 37 46 38
Gross Profit 53 63 54 62
Selling, general and administrative 68 108 62 103
Depreciation and Amortization of goodwill, intangibles 97 98 98 79
& stock compensation
Total Operating Expenses 165 206 160 182
OPERATING INCOME (LOSSES)-CONTINUING OPERATIONS -112 -143 -106 -120
Other Income (Expenses) -7 -477 - 18 - 257
NET INCOME (LOSS)-CONTINUING OPERATIONS -119 -620 -124 - 377
NET INCOME (LOSS)-DISCONTINUED OPERATIONS -706 34 -335 39
NET LOSS -825 -586 -459 -338
The cost of revenues decreased slightly to $202,402 during the
three-month period ended December 31, 2001 from $ 208,327 for the same period
ended December 31, 2000. For the six-month period ended December 31, 2001 cost
of revenues increased to $ 415,083 from $ 404,525 in the comparable period. Cost
of revenues as a percentage of net revenues increased to 47% and 46% for the
three and six-month periods ended December 31, 2001, from 37% and 38% for the
three and six-month periods ended December 31, 2000 due in part to an increase
in the cost of certain outsourced services. Correspondingly, the gross profit
margins decreased during the three and six-month periods ended December 31, 2001
to 53% and 54%of net revenues, from 63% and 62% in the comparable periods ended
December 31, 2000. This drop in gross margin for the three and six month periods
ended December 31, 2001 results from the decline in service revenues and
under-utilization of direct fixed cost.
8
Selling, general and administrative expenses for the quarter and six
months ended December 31, 2001 decreased to $291,235 and $564,014 and 68% and
62% of net revenues, respectively, from $$614,235 and $1,087,371, and 108% and
103% of net revenues, respectively, for the corresponding periods in 2000. The
decrease resulted in part from lower overall revenues, but to a great extent
from decreased operating expenses at our corporate headquarters relating to
downsizing of management personnel 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 $416,125 and
$881,766, for the quarter and six months ended December 31, 2001, respectively,
compared to $558,806 and $838,448 and of the corresponding periods ended
December 31, 2000. This amortization, amounting to 97% and 98% of net revenues,
respectively, for periods ended December 31, 2001, and 98% and 79%, for periods
ended December 31, 2000, are non-cash items and reflect primarily the write down
of the excess of cost of the acquisition of our subsidiary, Pinneast, over the
net tangible book value of the assets of Pinneast at time of acquisition. Total
operating expenses for the quarter and six month period ended December 31, 2001,
amounted to $707,360 and $1,445,780, respectively; or 165% and 160% of net
revenues for the periods. This compares to $1,173,041 and $1,925,819,
respectively, for the corresponding quarter and six-month periods in 2000, when
total operating expenses amounted to 206% and 182% of total revenues. Operating
losses from continuing operations decreased as a percentage of revenues from
143% and 120% for the quarter and six months ended December 31, 2000,
respectively, to 112% and 106% of net revenues for the quarter and six months
ended December 31, 2001.
Other expenses, which included interest, miscellaneous income and
expense, and the settlement of threatened litigation, amounted to $28,202 and
$163,276, respectively, during the quarter and six-month period ended December
31, 2001, compared to approximately $2.7 million each, in the quarter and
six-month periods ended December 31, 2000.
Discontinued Operations:
On January 14, 2002, the Estate of David R. Burke, Sr. (the "Estate"),
a former principal officer and shareholder of the Company, filed suit against
the Company, accelerating the payment of a Note due the Estate for approximately
$914,000, plus interest, legal fees and associated costs. The Estate also sought
foreclosure on all Computer Marketplace, Inc. ("CMI ") common stock, which was
pledged as collateral for the Note, for sale by the Estate for the purpose of
satisfying the Company's obligations under the Note. The Company did not have
the ability to repay the Note without a financing or a disposition of certain
assets.
On January 18, 2002, the Company stipulated in open court to the
settlement and dismissal of a litigation between the Estate of David R. Burke,
Sr. and the Company that was pending in the Federal District Court for the State
of Massachusetts. The litigation related to a Note due the Estate from the
purchase of CMI by the Company in April 2000. The material terms of the
settlement are that the Estate will receive 100% of the CMI common stock, which
was pledged as collateral for the Note. The Company will receive certain cash
consideration, the return of approximately 16 million shares of common stock of
the Corporation (approximately 30% of the outstanding shares) which was paid to
David R. Burke, Sr. as partial consideration for the purchase of CMI, and a full
discharge of any previously existing obligations to the Estate. There will also
be an exchange of releases by and among the Estate, the Corporation, CMI and the
officers, directors and employees of the Corporation and CMI, as to all matters
concerning CMI.
9
At December31, 2001 the carrying value and net assets of CMI offered
for sale was deemed to be impaired and, accordingly, was written down to fair
value based on the subsequent third party settlement and selling price less
costs to sell. The Company reported the results of the operations of CMI and the
estimated loss on disposal as discontinued operations. The net carrying value of
CMI held for sale has been segregated on the December 31, 2001 Consolidated
Balance Sheet. The results of operations for all periods presented have been
restated for the discontinued CMI operation.
The loss from operations of discontinued segment for the quarter and
six-months ended December 31, 2001 before providing for the estimated loss on
disposal of discontinued segment, was $35,459 and $25,939, respectively,
compared with net income from discontinued segment of $195,984 and $414,669 in
the corresponding quarter and six-month periods for 2000. The aggregate loss
attributable to the discontinued CMI operations in quarter and six-month period
ended December 31, 2001, including the estimated loss on disposition, was
$3,033,594 and $3,024,074, respectively (see Note 3 of the financial
statements).
Including the results of discontinued operations, aggregate net loss
increased $207,307 and $566,956,or 6% and 16%, to $3,541,912 and $4,144,498 for
the quarter and six-months ended December 31, 2001; compared with $3,334,605 and
$3,577,542, in 2000. The net loss per common share decreased from $(0.13) for
the quarter ended December 31, 2000 to $(0.06) in the quarter ended December 31
2001, resulting in an increase of $.07 per share. Net loss per common share for
the six-months ended December 31, 2001 was $(0.08), representing a decrease of
$0.08 over the six-month period ended December 31, 2000. The primary factors
affecting the aforementioned changes was the impairment write-off of unamortized
goodwill and intangible assets of $2,706,953, estimated operating losses from
the measurement date to the anticipated disposal date of $165,000 from the
recognition of CMI operations as discontinued operations and, the effect on loss
per common share as the result of our company issuing additional shares of
common stock primarily in the third and fourth quarters of fiscal year ended
June 30,2001, principally on the 14.7 million contingent shares issued pursuant
to the acquisitions of CMI and Pinneast.
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 from asset based lenders. At December 31,
2001, we had $122,023 in cash on hand and in bank accounts, compared to $23,299
on December 31, 2000.
Cash provided by operating activities, which includes cash inflows
related to discontinued operations, for the six months ended December 31, 2001
of $187,594 exceeded cash used in financing activities and investing activities
amounting to $89,323, resulting in a $98,271 increase in cash. Net cash provided
by operations was primarily due to the increase in net assets of discontinued
operations held for sale.
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.
10
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.("Rosenthal"). 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. As a result of the
potential litigation between the Estate of David R. Burke, Sr. (the "Estate"), a
former principal officer and shareholder of the Company, against the Company,
Rosenthal in January 2002 subsequently provided notice of their termination of
borrowing line to CMI and proceeded to collect on their balance.
On January 14, 2002, the Estate filed suit against the Company,
accelerating the payment of a Note due the Estate for approximately $914,000,
plus interest, legal fees and associated costs. The Estate also sought
foreclosure on all Computer Marketplace, Inc. ("CMI ") common stock, which was
pledged as collateral for the Note, for sale by the Estate for the purpose of
satisfying the Company's obligations under the Note. The Company did not have
the ability to repay the Note without a financing or a disposition of certain
assets.
On January 18, 2002, the Company stipulated in open court to the
settlement and dismissal of a litigation between the Estate of David R. Burke,
Sr. and the Company that was pending in the Federal District Court for the State
of Massachusetts. The litigation related to a Note due the Estate from the
purchase of CMI by the Company in April 2000. The material terms of the
settlement are that the Estate will receive 100% of the CMI common stock, which
was pledged as collateral for the Note. The Company will receive certain cash
consideration, the return of approximately 16 million shares of common stock of
the Corporation (approximately 30% of the outstanding shares) which was paid to
David R. Burke, Sr. as partial consideration for the purchase of CMI, and a full
discharge of any previously existing obligations to the Estate. There will also
be an exchange of releases by and among the Estate, the Corporation, CMI and the
officers, directors and employees of the Corporation and CMI, as to all matters
concerning CMI. The Company anticipates to close on this transaction by the end
of the third quarter fiscal 2002.
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 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
our current fiscal year ending June 30, 2002 and management 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.
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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 settle with our
convertible preferred holder, trade creditors for the restructure of debt, 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.
The resolution of certain trade claims, debts and the convertible preferred
obligation is key to the current restructuring plans of management. 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.
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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. The Company was unable to
comply completely with the scheduled payments and, accordingly, Wall Street
implemented default rights and sought possession of the 2,000,000 shares of
common stock held as security interest.
During the six months ended December 30, 2001,the preferred stock
holder had converted 8 shares of preferred stock plus accrued dividends into
5,899,786 common shares.
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 December 31,
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
successfully settle the obligation with 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.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Item 5 disclosure filed on January 24,2002 stating that on January 24,
2002, CeleXx Corporation ("Corporation") issued a press release that reported
that on January 18, 2002, the Corporation stipulated in open court to the
settlement and dismissal of litigation between the Estate of David R. Burke, Sr.
and the Corporation. The Corporation also announced changes to its Board of
Directors.
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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.
Celexx Corporation
By: /s/ David C. Langle February 18, 2002
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David C. Langle
Vice President Finance
[Principal Executive Officer and Principal Accounting and Financial Officer]
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