UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: September 30, 2005
|_| Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to _________
Commission File Number: 0-51213
XL GENERATION INTERNATIONAL INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 20-0909393
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
460 Saint-Gabriel, Suite 21
Montreal, Quebec H2Y 2Z9
Canada
(Address of principal executive offices)
(514) 397-0575
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
The Issuer had 30,050,333 shares of Common Stock, par value $.001, outstanding
as of December 29, 2005.
Transitional Small Business Disclosure format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION .................................................................3
Item 1. Financial Statements...................................................................3
Balance Sheet..........................................................................3
Statement of Operations................................................................4
Statement of Cash Flows................................................................5
Notes to Financial Statements..........................................................6
Item 2. Management's Discussion and Analysis or Plan of Operation.............................11
Item 3. Controls and Procedures...............................................................13
PART II OTHER INFORMATION.....................................................................14
Item 1. Legal Proceedings.....................................................................14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...........................14
Item 3. Defaults Upon Senior Securities.......................................................14
Item 4. Submission of Matters to a Vote of Security Holders...................................14
Item 5. Other Information.....................................................................14
Item 6. Exhibits and Reports on Form 8-K......................................................14
SIGNATURES ....................................................................16
2
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
BALANCE SHEET
September 30, 2005
(Unaudited)
PROFORMA
September 30 December 31,
2005 2004
ASSETS
Unaudited Unaudited
CURRENT ASSETS:
Cash 57,613 434,194
Inventory 56,121 0
Due from shareholder 416,047
Prepaid expenses and sundry current assets 330,244 49,355
---------- ----------
TOTAL CURRENT ASSETS 443,978 899,596
PROPERTY AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION 776 1,768
---------- ----------
OTHER ASSETS:
TOTAL ASSETS 444,754 901,364
========== ==========
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Note payable-shareholder 2,459,222 489,220
Note payable- supplier 2,903,546 2,352,333
Accrued expenses and sundry current liabilities 76,275
---------- ----------
TOTAL CURRENT LIABILITIES 5,362,768 2,917,828
TOTAL OTHER LIABILITIES
STOCKHOLDERS' DEFICIENCY
Common stock 88,390 88,390
Additional paid in capital
Retained earnings (4,856,507) (1,954,958)
Other comprhensive income (loss) (149,897) (149,897)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIENCY (4,918,014) (2,016,465)
TOTAL LIABILITIES AND STOCKHOLDERS
DEFICIENCY 444,754 901,364
========== ==========
3
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
STATEMENTS OF OPERATIONS
Three months ended September 30, 2005 and 2004, and
Nine months ended September 30, 2005 and September 30, 2004
(Unaudited)
Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended
September 30 September 30 September 30 September 30
2005 2004 2005 2004
Unaudited Unaudited
SALES 1,200,074 131,273 501,929 11,015
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 1,356,781 132,914 861,905 10,951
Selling, general and administrative 3,189,636 206,571 835,555 85,201
Interest 3,831 3,034 1,519 492
Foreign exchange loss (348,612) (201,141)
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 4,201,636 342,519 1,497,838 96,644
LOSS BEFORE TAXES (3,001,562) (211,246) (995,909) (85,629)
INCOME TAXES 0 0 0 0
---------- ---------- ---------- ----------
NET LOSS (3,001,562) (211,246) (995,909) (85,629)
========== ========== ========== ==========
4
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2005 and 2004
(Unaudited)
Nine Months Ended Nine Months Ended
September 30 September 30
2005 2004
Unaudited
Net loss (3,001,562) (96,175)
Adjustment to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 0
Changes in operating assets and liabilities:
Inventory (56,121)
Accounts receivable (330,244) (23,938)
Prepaid expenses and sundry current assets 49,355
Accounts payable and accrued Expenses (89,065) 79,291
---------- ----------
Net cash provided by operating activities (3,427,637) (40,822)
Financing activities
Repayments of advances to stockholders (489,220)
Advances to related party (2,907) 28,545
Issuance of common stock 0 3,999
Proceeds of shareholder loans 2,216,192 2,907
Proceeds of loans payable supplier 1,224,218
---------- ----------
Net cash provide by (used) financing activities 2,948,283 35,451
Increase (decrease) in cash (479,354) (5,371)
Cash- beginning of period 536,967 7,076
---------- ----------
Cash- end of period 57,613 1,705
5
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
XL Generation International Inc. (the "Company") was incorporated in the State
of Nevada on March 18, 2004 as Cygni Systems Corporation. On August 19, 2005,
the Company entered into a Share Exchange Agreement (the "Share Exchange
Agreement") with XL Generation AG ("XLG"). Pursuant to the terms of the Share
Exchange Agreement, the Company acquired all of the issued and outstanding
shares of common stock of XLG in exchange for the issuance at closing of an
aggregate of 15 Million shares of restricted common stock (the "Common Stock")
of the Company.
In connection with the Share Exchange Agreement, the Company commenced actions
to provide for the revision of the Company's capital structure. Pursuant to such
actions, DT Crystal Holdings Ltd., the controlling shareholder of the Company
prior to entry into the Share Exchange Agreement, as inducement to the
shareholders of XLG to enter into the Share Exchange Agreement, agreed to cancel
four million shares of the Company Common Stock and accept in consideration
thereof an option exercisable for 500,000 shares of the Company. In addition,
the Company made a stock dividend to shareholders of record of the Company of 9
shares of Common Stock for each share of Common Stock held, provided, however,
each of DT Crystal Holdings Ltd. and the Alain Lemieux Trust, a trust formed in
the Jersey Islands, and Mr. Albert Beerli waived their respective rights to such
stock dividend (the record date for such dividend was set as August 29, 2005).
On August 23, 2005, the Company filed a Certificate of Amendment with the States
of Nevada, changing its name to "XL Generation International Inc." The Company
also changed its stock symbol to XLGI.
The Company now serves as the holding company for XLG. The Company has no other
operations other than XLG.
XLG was incorporated in 1991, and was inactive until March of 2004, when it was
granted the exclusive worldwide right to manufacture, promote and sell XL Turf
products. XL Turf is an artificial pitch used primarily in soccer stadiums and
indoor recreational facilities. XLG has its operational headquarters in Zug,
Switzerland. XLG is a provider of artificial turf to international soccer clubs,
educational institutions and other leisure providers across North America,
Europe and Asia. XLG has developed new artificial turf systems for sports
fields. XLG holds the worldwide commercial and manufacturing rights for the "XL
technology" patented in 42 countries. XLG produces its owned product lines under
the "XL" trademark, including the "genuine" XLTURF sport systems. XLG also
distributes its products worldwide through an extensive licensed distribution
network, designing and manufacturing private labeled products using the "XL
technology."
XLG's products were developed in Canada beginning in 2000. In September, 2004,
its Canadian subsidiary was transferred to a third party, who was a significant
stockholder in XLG.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary XLG after the elimination of inter-company accounts and
transactions up to the transaction date. As required by the SEC in Reverse
Takeover transactions, the operating entity, in this case XLG, is deemed to be
the acquirer whose results are reported in these financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents. At September 30,
2005, the Company did hold cash equivalents of $0 ($0 December 31, 2004). As at
September 30th the Company held cash of $57,613 ($434,194 as per December 31,
2004).
6
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The company periodically reviews for obsolete and slow-moving inventory
based on historical usage, and future requirements. At September 30, 2005, the
Company held $56,121in inventory ($0 as per December 31, 2004).
OFFICE EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the straight-line
method over 3 to 10 years.
Computer equipment--3 yrs..........................................................................$2,903
Furniture & fixtures--10 yrs.......................................................................
----------------
Less: accumulated depreciation..................................................................(2,127)
----------------
Balance December 31, 2005 $776
----------------
Balance December 31, 2004 $1,768
================
REVENUE RECOGNITION
The Company recognizes revenue when it is realized or realizable and earned. The
Company considers revenue realized or realizable and earned when persuasive
evidence of an arrangement exists, the product has been shipped or the services
have been provided to the customer, the sales price is fixed or determinable and
collectibility is reasonably assured. The Company reduces revenue for estimated
customer returns, rotations and sales rebates when such amounts are estimable.
When not estimable, the Company defers revenue until the product is sold to the
end customer. As part of its product sales price, the Company provides support,
which is generally utilized by the customer shortly after the sale.
INCOME TAXES
The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. The Company records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be
realized.
LOSS PER COMMON SHARE
The basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss, adjusted
on an "as if converted" basis, by the weighted average number of common shares
outstanding plus potential dilutive securities.
USE OF ESTIMATES
In preparing financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheet
and revenue and expenses in the income statement. Actual results could differ
from those estimates.
STOCK BASED COMPENSATION
The Company does not currently promote or utilize Stock-Based Compensation
plans.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial position or cash flow. For further information regarding recent
accounting pronouncements, please see Note 10.
7
CONTROL PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Company's Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the Company's disclosure controls and
procedures. Based on the evaluation, which disclosed no significant deficiencies
or material weaknesses, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective as of the end of the period covered by this report.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
NOTE 2--GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and settlement of
liabilities and commitments in the normal course of business for the foreseeable
future. With respect to the nine-months ending September 30, 2005, the Company
has incurred losses of $3,001,562 ($211,246 losses for the nine-months ending
September 2004). The Company has negative working capital for the year of
$3,427,637 ($40,822 negative working capital for the nine-months ending
September 30, 2004), and a stockholders' deficit of $4,918,014 as of September
2005 ($2,016,465 deficit for the nine-months ending September 30, 2004), all of
which raise substantial doubt about the Company's ability to continue as a going
concern.
Management's plans for the Company's continued existence include selling
additional stock or borrowing additional funds to pay overhead expenses while
current marketing efforts continue to raise its sales volume.
The Company's future success is dependent upon its ability to achieve profitable
operations, generate cash from operating activities and obtain additional
financing. There is no assurance that the Company will be able to generate
sufficient cash from operations, sell additional shares of common stock or
borrow additional funds.
The Company's inability to obtain additional cash could have a material adverse
effect on its financial position, results of operations and its ability to
continue in existence. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3--ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2005:
September 30, 2005: December 31 , 2004:
Accrued interest.......................................................$14,000...................$23,999
Accrued operating expenses..............................................12,277....................52,276
Warranty 600,000
---------------------- -------------------------
$626,277 $76,275
====================== =========================
NOTE 4--NOTE PAYABLE
During 2004, the Company received a total of $2,352,333 for an unsecured demand
note payable from SOREVE, a former parent company of its French distributor. The
note balance at September 30, 2005 was $1,528,361 at September 30, 2005
($2,352,333 as of December 31, 2004).
Mr. Albert Beerli, a significant shareholder continued to support the Company
with additional funds through payment of overheads in the Head Office. The total
note balance at September 30, 2005 was $459,223 ($489,220 as of December 31,
2004).
8
During the third quarter the Company received loans from shareholders, CAPEX
Investment Limited of $2,000,000 in aggregates. These loans were advances on
Private Placements to be executed and converted to shares in the near future.
NOTE 5--CAPITAL STOCK
The total number of shares of capital stock which the Company has the authority
to issue is 100,000,000 shares, of which 25,517,000 were issued and fully paid
up as of September 30, 2005.
NOTE 6--INCOME TAXES
Income taxes are not due since the Company has incurred a loss since inception.
The Company has deductible net operating losses of approximately $4,856,000 at
September 30, 2005. These expire 20 years after incurred. Components of deferred
tax assets and liabilities at September 30, 2005 are as follows:
September 30, 2005: December 31 , 2004:
Deferred tax asset.......................................................$2,000...................$1,000
Valuation allowance.....................................................(2,000)..................(1,000)
-------------------------- ------------------------
Net deferred tax asset.......................................................$0.......................$0
========================== ========================
The Company has recorded a full valuation allowance against its deferred tax
asset since it believes it is more likely than not that such deferred tax asset
will not be realized. The valuation allowance for deferred tax assets as of
September 30, 2005 was approximately $2,000.
NOTE 7--COMMITMENTS AND CONTINGENCIES
The Company had no contingent liabilities as of September 30, 2005.
NOTE 8--RELATED PARTY TRANSACTIONS
Mr. Beerli undertook to advance payments during the year to cover general
overheads and running cost of the of Zug office. The balance as of September 30,
2005 was $459,223.
NOTE 9--SUBSEQUENT EVENTS
Subsequent to the quarter ended September 30, 2005, the Company closed private
placement offerings of restricted Common Stock pursuant to which the Company
issued 4,033,333 shares of Common Stock at a purchase price of $1.00 per share
which resulted in aggregate proceeds to the Company of $4,033,333.00. In
connection with the private placements, the Company also issued Series A
Warrants exercisable for an aggregate of 1,441,111 shares of Common Stock at a
purchase price of $1.25 per share and Series B Warrants exercisable for an
aggregate of 1,400,000 shares of Common Stock at a purchase price of $1.25 per
share. None of the warrants have been exercised as of the filing of this report.
On December 19, 2005, DT Crystal Holdings Ltd. fully exercised its option to buy
500,000 shares of restricted Common Stock at a purchase price of $1.00 per share
which resulted in aggregate proceeds to the Company of $500,000. The Company has
undertaken to register for resale all of the foregoing shares and shares
underlying warrants.
Note 10- RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation Number 46-R ("FIN 46-R") "Consolidation of Variable Interest
Entities." FIN 46-R, which modifies certain provisions and effective dates of
FIN 46, sets forth criteria to be used in determining whether an investment in a
variable interest entity should be consolidated. These provisions are based on
the general premise that if a company controls another entity through interests
other than voting interests, that company should consolidate the controlled
entity. The Company believes that currently, it does not have any material
arrangements that meet the definition of a variable interest entity, which would
require consolidation.
9
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment
of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 requires all companies to
recognize a current-period charge for abnormal amounts of idle facility expense,
freight, handling costs and wasted materials. This statement also requires that
the allocation of fixed production overhead to the costs of conversion be based
on the normal capacity of the production facilities. SFAS No. 151 will be
effective for fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of this statement to have a material effect on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No.123(R), "Share-Based Payment" (SFAS
No. 123(R). This statement replaces SFAS No. 123 and supersedes APB 25. SFAS 123
(R) requires all stock-based compensation to be recognized as an expense in the
financial statements and that such compensation be measured according to the
grant-date fair value of stock options. SFAS 123 (R) will be effective for
annual periods beginning after June 15, 2005. The Company currently does not
provide for any stock-based compensation and it will evaluate the impact this
statement will have on its consolidated financial statements if such
compensation were to take place in the future.
In December 2004, the FASB issued SFAS No. 153, "Exchanges on Nonmonetary Assets
- - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
(SFAS 153) SFAS eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for fiscal periods beginning after June 15,
2005. The Company does not expect the adoption of this statement to have a
material effect on its consolidated financial statements.
In March 2005, the FASB issued Interpretation No. 47 ("FIN 47), "Accounting for
Conditional Asset Retirement Obligations", an interpretation of FASB Statement
No. 143, "Accounting for Asset Retirement Obligations." The interpretation
clarifies that the term conditional asset retirement obligation refers to a
legal obligation to perform an asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event that may or may not
be within the control of the entity. An entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The effective date of this
interpretation is no later than the end of fiscal years ending after December
15, 2005. The Company is currently investigating the effect, if any, that FIN 47
would have on the Company's financial position, cash flows and results of
operations.
In May 2005, the FASB issued SFAS No. 154, "ACCOUNTING FOR CHANGES AND ERROR
CORRECTIONS, A REPLACEMENT OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3" SFAS
154 applies to all voluntary changes in accounting principle and requires
retrospective application to prior periods' financial statements of changes in
accounting principle. This statement also requires that a change in
depreciation, amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate effected by a change
in accounting principle. SFAS 154 carries forward without change the guidance
contained in Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate. This
statement is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. The Company does not expect the
adoption of this standard to have a material impact on its financial condition,
results of operations, or liquidity.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's Operations
The following discussion of the financial condition and results of operations of
XL Generation International Inc. (referred to herein as the "Company") should be
read in conjunction with the financial statements and the related notes thereto
included elsewhere in this quarterly report for the period ended September 30,
2005 (this "Report"). This Report contains certain forward-looking statements
and the Company's future operating results could differ materially from those
discussed herein. Certain statements contained in this Report, including,
without limitation, statements containing the words "believes", "anticipates,"
"expects" and the like, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to announce publicly the results of any revisions of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
The Company was incorporated in the State of Nevada on March 18, 2004 as Cygni
Systems Corporation. On August 19, 2005, the Company entered into a Share
Exchange Agreement (the "Share Exchange Agreement") with XL Generation AG
("XLG"). Pursuant to the terms of the Share Exchange Agreement, the Company
acquired all of the issued and outstanding shares of common stock of XLG in
exchange for the issuance at closing of an aggregate of 15 Million shares of
restricted common stock (the "Common Stock") of the Company.
In connection with the Share Exchange Agreement, the Company commenced actions
to provide for the revision of the Company's capital structure. Pursuant to such
actions, DT Crystal Holdings Ltd., the controlling shareholder of the Company
prior to entry into the Share Exchange Agreement, as inducement to the
shareholders of XLG to enter into the Share Exchange Agreement, agreed to cancel
four million shares of the Company Common Stock and accept in consideration
thereof an option exercisable for 500,000 shares of the Company. In addition,
the Company made a stock dividend to shareholders of record of the Company of 9
shares of Common Stock for each share of Common Stock held, provided, however,
each of DT Crystal Holdings Ltd. and the Alain Lemieux Trust, a trust formed in
the Jersey Islands, and Mr. Albert Beerli waived their respective rights to such
stock dividend (the record date for such dividend was set as August 29, 2005).
XLG, based in Zug, Switzerland, designs specific flooring products for sports,
recreational and commercial markets. XLG has developed new artificial turf
systems for sports fields. XLG holds the worldwide commercial and manufacturing
rights for the "XL technology" patented in 42 countries. XLG produces its owned
product lines under the "XL" trademark, including the "genuine" XLTURF sport
systems. XLG also distributes its products worldwide through an extensive
licensed distribution network, designing and manufacturing private labeled
products using the "XL technology."
On August 23, 2005, the Company filed a Certificate of Amendment with the States
of Nevada, changing its name to "XL Generation International Inc." The Company
also changed its stock symbol to XLGI.
The Company now serves as the holding company for XLG. The Company has adopted
XLG's fiscal year end, and the following Management's Discussion and Analysis of
Financial Condition and Results of Operations describes the financial condition
and results of operations for XLG. The Company has no other operations other
than XLG.
XLG was incorporated in 1991, and was inactive until March of 2004, when it was
granted the exclusive worldwide right to manufacture, promote and sell XL Turf
products. XL Turf is an artificial pitch used primarily in soccer stadiums and
indoor recreational facilities.
11
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended September 30, 2005 and 2004
The Company posted a net loss of $995,909 for the three months ending September
30, 2005, compared to a net loss of $85,629 for the three months ended September
30, 2004. Total sales for the three months ended September 30, 2005 were
$501,929, compared to total sales for the three months ended September 30, 2004
of $11,015. Total costs and expenses for the three months ended September 30,
2005 were $1,497,838, compared to total costs and expenses for the three months
ended September 30, 2004 of $96,644.
Nine Months Ended September 30, 2005 and 2004
The Company posted a net loss of $3,001,562 for the nine months ending September
30, 2005, compared to a net loss of $211,246 for the nine months ending
September 30, 2004. Total sales for the nine months ended September 30, 2005
were $1,200,074, compared to total sales for the nine months ended September 30,
2004 of $131,273. Total costs and expenses for the nine months ended September
30, 2005 were $4,201,636, compared to total costs and expenses for the nine
months ended September 30, 2004 of $342,519.
Liquidity and Capital Resources
At September 30, 2005, the Company had $57,613 in cash, as opposed to $1,705 in
cash at September 30, 2004.
At September 30, 2005, the Company had total assets of $444,754 compared to
total assets of $1,440,721 at December 31, 2004.
At September 30, 2005, the Company had total current liabilities of $5,362,768
compared to total current liabilities of $2,917,828 at December 31, 2004.
During 2004 the Company received a total of $2,352,333 for an unsecured demand
note payable from SOREVE, a former parent company of its French distributor. The
note balance at December 31, 2004 was $2,352,333. The note bears interest at a
rate based upon a percentage of sales pursuant to a related sales agreement. In
March 2004 the Company received $173,100 for an unsecured demand note payable
from Mr. Albert Beerli, a stockholder. During the year, Mr. Beerli continued to
support the Company with additional funds through the payments of overhead in
the Zug office. The total note balance at December 31, 2004 was $489,220.
Between April of 2005 and September of 2005, Capex Investments Limited (which is
affiliated with Capex Investments (Canada) Limited) loaned the Company
$1,500,000. On September 12, 2005, Capex Investments Limited entered into a Loan
Agreement with the Company, pursuant to which Capex Investments Limited loaned
the Company an additional $500,000.
In the third quarter of 2005, the Company focused considerable resources on
further developing its outdoor turf products. In the third quarter, the Company
also experienced increased costs on sales and marketing, employee travel and
operational expenses in connection with entering into new sales agreements.
Since that time, the Company has raised funds through private placements to
ensure its liquidity.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plan for the Company's continued existence
includes selling additional stock through private placements or borrowing
additional funds to pay overhead expenses while current marketing efforts
continue to raise its sales volume. The future success of the Company is
dependent upon its ability to achieve profitable operations, generate cash from
operating activities and obtain additional financing. There is no assurance that
the Company will be able to generate sufficient cash from operations, sell
additional shares of common stock or borrow additional funds. The inability of
the Company to obtain additional cash could have a material adverse effect on
its financial position, results of operations and its ability to continue in
existence.
12
Off-Balance Sheet Arrangements
At September 30, 2005, the Company was not a party to any off-balance sheet
arrangements.
Item 3. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that are
designed to provide reasonable assurance that material information related to
the Company, including its consolidated subsidiaries, is made known to its
principal executive and principal financial officers on a regular basis. As of
September 30, 2005, the Company's principal executive and principal financial
officers conducted an evaluation of the Company's disclosure controls and
procedures pursuant to the Exchange Act. Based upon that evaluation, management
has concluded that its current disclosure controls and procedures are effective
as of September 30, 2005. The Company's principal executive and principal
financial officers concluded there were no significant deficiencies or material
weaknesses in the Company's disclosure controls and procedures and that the
design and operation of these disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time period specified in
SEC rules and forms. The design of any system of controls and procedures is
based in part upon certain assumptions about the likelihood of future events.
There have been no changes in the Company's internal controls over financial
reporting during the fiscal quarter ended September 30, 2005 or subsequent to
that date that have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting.
The term "disclosure controls and procedures" as used in this report means, as
defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of
1934, as amended, (the "Exchange Act"), controls and other procedures of the
Company that are designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act (15
U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Act is accumulated and communicated to
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not, and has not been during the period covered by this report, a
party to any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
All unregistered equity securities sold by the Company during the period covered
by this report were reported on a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On July 8, 2005, Mr. Claude Pellerin (who was serving as the sole director of
the Company on such date) approved and recommended that the Company amend its
Certificate of Incorporation, changing the Company's name from "Cygni Systems
Corporation" to "XL Generation International Inc." On July 11, 2005,
stockholders holding 4,000,000 of the 5,051,700 shares of the Company's voting
stock which was then outstanding voted in favor of this amendment by written
consent, and the remaining stockholders received notification of this vote by
means of an Information Statement provided by the Company to such stockholders
as filed with the U.S. Securities Exchange Commission.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
On July 6, 2005, a Report on Form 8-K was filed in connection with the Company's
entry into a Letter of Intent regarding a share exchange with XL Generation AG.
On July 19, 2005, a Report on Form 8-K was filed in connection with a change in
the location of the Company's offices.
On August 19, 2005, a Report on Form 8-K was filed in connection with the
Company's entry into a share exchange agreement with XL Generation AG, pursuant
to which the Company received all of the issued and outstanding shares of XL
Generation AG in exchange for 15,000,000 shares of the Company's Common Stock.
On August 26, 2005, a Report on Form 8-K was filed in connection with the
Company's change of its name from "Cygni Systems Corporation" to "XL Generation
International Inc."
On September 14, 2005, a Report on Form 8-K was filed in connection with entry
by XL Generation AG, a wholly-owned subsidiary of the Company, into a loan
agreement with Capex Investments Limited (the "Loan Agreement"). Pursuant to the
Loan Agreement, XL Generation AG has borrowed an additional sum of $500,000 from
Capex Investments Limited, bringing the total amount of its current obligations
to Capex Investments Limited to $2,000,000.
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(b) Exhibits
Exhibit No. Description of Exhibits
Exhibit 3.3 Certificate of Amendment to Articles of Incorporation, as filed with the State of Nevada on
August 23, 2005.
Exhibit 10.1 Letter of Intent, dated as of June 29, 2005, between the Company and XL Generation AG,
incorporated by reference to the exhibits to the Company's Report on Form 8-K, filed with the
Securities and Exchange Commission on July 6, 2005.
Exhibit 10.2 Share Exchange Agreement, dated as of August 19, 2005, between the Company and XL Generation
AG, incorporated by reference to the exhibits to the Company's Report on Form 8-K, filed with
the Securities and Exchange Commission on August 19, 2005.
Exhibit 10.3 Loan Agreement, dated as of September 12, 2005, between Capex Investments Limited and XL
Generation AG, incorporated by reference to the exhibits to the Company's Report on Form 8-K,
filed with the Securities and Exchange Commission on September 14, 2005.
Exhibit 10.16 Lease Agreement, dated as of August, 2005, between 866 U.N. Plaza Associates LLC and XL
Generation AG.
Exhibit 10.17 Exclusive Manufacturing License Agreement and Non Exclusive Distribution Agreement, dated as of
September 23, 2005, by and between APW Inc. and XL Generation AG.
Exhibit 31.1 Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 32.1 Certification of Principal Executive Officer filed pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Principal Financial Officer filed pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
XL GENERATION INTERNATIONAL INC.
Date: December 29, 2005 By: /s/ Alain Lemieux
--------------------------------------
Name: Alain Lemieux
Title: President, Chief Executive
Officer, and Director
16