UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: July 31, 2005
|_| Transition Report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to _________
Commission File Number: 333-116045
XL GENERATION INTERNATIONAL INC.
(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)
Cygni Systems Corporation
(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 |_|
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 25,517,000 shares of Common Stock, par value $.001, outstanding
as of September 12, 2005.
Transitional Small Business Disclosure format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION ............................................ 3
Item 1. Financial Statements .............................................. 3
Balance Sheet ............................................................. 3
Statement of Expenses ..................................................... 4
Statement of Cash Flows ................................................... 5
Notes to Financial Statements ............................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation ......... 7
Item 3. Controls and Procedures ........................................... 9
PART II-OTHER INFORMATION ................................................. 11
Item 1. Legal Proceedings ................................................. 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ....... 11
Item 3. Defaults Upon Senior Securities ................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ............... 11
Item 5. Other Information ................................................. 11
Item 6. Exhibits and Reports on Form 8-K .................................. 11
SIGNATURES ................................................................ 12
2
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
(A Development Stage Company)
BALANCE SHEET
July 31, 2005
(Unaudited)
ASSETS
Cash $ 45,142
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 13,156
Loans payable - related party 10,000
---------
TOTAL LIABILITIES 23,156
---------
STOCKHOLDERS' EQUITY
Common stock, 100,000,000 shares authorized
at $0.001 par value; 5,051,700 shares
issued and outstanding 5,052
Additional paid in capital 100,612
Deficit accumulated during development stage (83,678)
---------
Total Stockholders' Equity 21,986
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,142
=========
3
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
(A Development Stage Company)
STATEMENTS OF EXPENSES
Three months ended July 31, 2005 and 2004, and
Period from March 18, 2004, (Inception) through July 31, 2005
(Unaudited)
Inception
Three Months Ended Through
July 31, July 31,
2005 2004 2005
---------- ---------- ---------
General & administrative 53,400 $ 2,273 $ 83,141
Interest expense 393 -- 537
---------- ---------- --------
NET LOSS $ (53,793) $ (2,273) $(83,678)
========== ========== ========
Basic and diluted net loss per share $ (.01) $ (.00)
Weighted average shares outstanding 5,051,700 4,000,000
4
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Three Months ended July 31, 2005 and 2004, and
Period from March 18, 2004 (Inception) through July 31, 2005
(Unaudited)
Inception
Three Months Ended Through
July 31, July 31,
2005 2004 2005
-------- ------- ---------
Cash Flows Used in Operating Activities
Net loss $(53,793) $(2,273) $ (83,678)
Adjustments to reconcile net loss to
net cash used in operating activities:
Imputed interest -- -- 144
Changes in:
Accounts payable 13,156 2,211 13,156
-------- ------- ---------
Net Cash Used in Operating Activities (40,637) (62) (70,378)
-------- ------- ---------
Cash Flows Provided by Financing Activities
Proceeds from sales of common stock -- -- 105,520
Proceeds from loans payable - related 10,000 -- 12,907
Payment of loans payable - related (2,907) -- (2,907)
-------- ------- ---------
Net Cash Provided By Financing Activities 7,093 -- 115,520
-------- ------- ---------
Net Change in Cash (33,544) (62) 45,142
Cash at beginning of period 78,686 400 --
-------- ------- ---------
Cash at end of period $ 45,142 $ 338 $ 45,142
======== ======= =========
Supplemental Information:
Cash paid for interest $ 393 $ -- $ 393
5
XL GENERATION INTERNATIONAL INC.
(formerly CYGNI SYSTEMS CORPORATION)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of XL Generation
International Inc. ("XL") (formerly Cygni Systems Corporation ("Cygni")), have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
("SEC"), and should be read in conjunction with the audited financial statements
and notes thereto contained in XL's latest annual report filed with the SEC on
Form 10-KSB. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for fiscal year 2005, as reported
in the Form 10-KSB, have been omitted.
NOTE 2 - SUBSEQUENT EVENT
On August 19, 2005 Cygni entered into a Share Exchange Agreement with XL
Generation AG ("XLG") whereby Cygni acquired all of the issued and outstanding
shares of common stock of XLG in exchange for the issuance of 15 Million shares
of Cygni's restricted common stock. Immediately after the share exchange, the
XLG shareholders owned approximately 60% of the issued and outstanding shares of
Cygni's common stock. The transaction will be accounted for as a reverse merger.
In connection with the Share Exchange Agreement, Cygni:
o entered into a Share Cancellation Agreement with DT Crystal Holdings
("DT") regarding 4,000,000 shares of Cygni common stock owned by DT.
Cygni and DT agreed to cancel the 4,000,000 shares of common stock
held by DT in exchange for Cygni granting 500,000 options to DT with
an exercise price of $1.00.
o approved a stock dividend of nine shares of Cygni common stock for
each currently issued and outstanding share of Cygni's common stock.
The record date and the payable date were fixed for August 29, 2005.
Per the Share Exchange Agreement, the shareholders of XLG did not
participate in the stock dividend.
On August 23, 2005, Cygni changed its name to "XL Generation International".
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's Operations
The following discussion of the financial condition and results of operations of
XL Generation International Inc. (formerly known as Cygni Systems Corporation,
and 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 July 31, 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. The
initial business plan of the Company was to attempt to create a business engaged
in (i) software product development and sales; and (ii) consulting services
targeted to small business and individual consumers. During the period covered
by this Report, the Company experienced a change of control and changed its
business plan. In the interests of clarity, we intend to set forth in this
Report both (i) the Company's business plans as of the commencement of the
period covered by this Report; and (ii) those business plans for the Company
which were put into place upon the change in control.
The Company's initial business plan was to create and sell computer software and
consulting services relating to security. The software that we intended to
develop was to provide online and network security management. The software was
to complement the second revenue generator of our business, the provision of
online and network security consulting services, i.e., comprehensive provision
of consulting services focusing on securing data such as: assessing system
vulnerability, risk assessment, virus control policy, and network traffic
analysis. The scope of services to be provided was to have depended on the
customers needs. Software products that we were to have developed would be
distributed to the customer via download from the Internet and/or through mail
delivery of a compact disc containing the software program. It was expected that
most of our consulting services would be undertaken from our office as our
services could be performed by accessing a customer's desktop or network through
the Internet and via email communication and other telecommunication. Depending
on the scope of the services agreed to be undertaken, we would consider
attending at a customer's office for the purpose of providing consulting
services.
A change of control occurred at the Company on June 17, 2005. In connection with
this change in control, the Company's purpose became to seek, investigate and,
if such investigation warranted, merge or acquire an interest in business
opportunities presented to it by persons or companies who or which desired to
seek the perceived advantages of a Securities Exchange Act of 1934 registered
corporation. The Company's discretion in the selection of business opportunities
was unrestricted, subject to the availability of such opportunities, economic
conditions, and other factors.
On June 29, 2005, the Company entered into a Letter of Intent (the "Letter of
Intent") regarding a share exchange with XL Generation AG ("XLG"). Pursuant to
the terms of the Letter of Intent, the Company agreed to acquire 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 (the "Exchange Offer"). The Letter of
Intent provided that in the event that substantially all of XLG's shareholders
agreed to participate in the Exchange Offer on that date, such shareholders
would thereafter collectively own approximately 60% of the issued and
outstanding shares of the Company's Common Stock as of such date, and the
Company would hold all or substantially all of the issued and outstanding shares
of XLG's common stock. It was determined that XLG is domiciled in Zug,
Switzerland, and that, to the knowledge of the Company, XLG's shareholders are
non-U.S. persons. The Exchange Offer was made to the shareholders of XLG
pursuant to the exemption from registration provided by Regulation S promulgated
under the U.S. Securities Act of 1933, as amended. The Letter of Intent also
provided that the Company's Common Stock would be issued directly to the
shareholders of XLG who accepted the Exchange Offer. The Exchange Offer was
conditioned on its acceptance by at least 90% of the stockholders of XLG,
7
the completion of due diligence by the Company, the absence of litigation
related to XLG, and other conditions contained in the Letter of Intent which
were to be performed or waived no later than August 31, 2005. The Letter of
Intent provided that at the closing of the Exchange Offer, the Company was to
appoint a minimum of five (5) new Directors and Officers. The Letter of Intent
furthermore provided that the Company was permitted to change its name to "XL
Generation International".
On August 19, 2005, the Company entered into and closed a Share Exchange
Agreement (the "Share Exchange Agreement") with XLG, as contemplated by the
Letter of Intent. Pursuant to the terms of the Share Exchange Agreement, the
Company acquired all of the issued and outstanding shares of common stock of
XLG. The parties have agreed to make certain post-closing deliveries (the
"Post-Closing Deliveries") as discussed in further detail below. Until the
completion of the Post-Closing Deliveries, all of shares of the common stock of
the Company and XLG will be held in escrow. The Exchange Offer was conditioned
on its acceptance by at least 90% of the stockholders of XLG. All of XLG's
shareholders agreed to the Exchange Offer. The Post-Closing Deliveries included
the filing of a report on Form 8-K by the Company and the preparation and
delivery by XLG of audited financial information no later than seventy-five days
from August 19, 2005. Following the closing, the Company intends to complete its
recapitalization (as discussed in further detail below). In connection with the
closing of the Exchange Offer, the Company has appointed four (4) new officers,
who replaced the sole officer of the Company, and four (4) new directors, who
supplemented the sole director of the Company. Following completion of the
actions required in connection with the Post-Closing Deliveries, all of the
issued and outstanding shares of XLG's common stock will be released from escrow
to the Company and the Company Common Stock held in escrow will be delivered to
the shareholders of XLG.
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 Cygni 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 currently 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 have waived their respective rights to
such stock dividend (the record date for such dividend was set as August 29,
2005). After giving effect to such cancellation, stock dividend and such
dividend waivers, the Alain Lemieux Trust, a trust formed in the Jersey Islands,
and Mr. Albert Beerli now jointly control approximately 60% of the Company's
issued and outstanding stock and DT Crystal Holdings Ltd. will hold the right to
acquire approximately 2% of the Company's issued and outstanding stock upon
exercise of an option at an exercise price of $1.00 per share.
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.
Plan of Operations
Management is currently devoting much of its time to integrating XLG into the
Company and considering other avenues of obtaining funds. At the present time,
the Company has no paid employees, on either a full or part-time basis. All of
the Company's current officers and directors are presently serving without
compensation.
Our Company has not had revenues since inception. Until the Company consummates
the transaction and commences business operations, it anticipates surviving with
its current cash reserves and if possible, from shareholder loans and/or funding
from sales of its securities. Our Company has no long-term debt and does not
regard long-term borrowing as a good prospective source of financing.
In connection with the completion of the aforementioned Exchange Offer, the
Company incurred certain legal expenses, and the Company borrowed a total amount
of $10,000 from Capex Investments (Canada) Limited, a Company related to Claude
Pellerin, who was at that time the Company's sole officer and director.
8
We do not expect to purchase or sell any significant equipment nor do we expect
any significant changes in the number of our employees. XL Generation AG is
expected to have sales of approximately $8-10 million, for the last three
quarter of our fiscal year and has 18 employees.
For the near future it is anticipated that the Company will not be able to
diversify, but will essentially be limited to the present acquisition because of
the Company's limited financing. This lack of diversification will not permit
the Company to offset potential losses from one business opportunity against
profits from another, and should be considered as a factor in any decision to
purchase the Company's securities.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Capital Resources
Since the Company's inception on March 18, 2004, our principal capital resources
have been acquired through issuance of common stock. On October 13, 2004, the
Securities and Exchange Commission issued an order declaring our SB-2
Registration Statement effective pursuant to section 8(a) of the Securities Act
of 1933, as amended. On January 19, 2005, we completed our public offering by
raising $105,120. We sold 1,051,700 shares of our common stock at an offering
price of ten cents per share. Our common stock has been approved for listing on
the Over the Counter Bulletin Board with NASD.
Liquidity
At July 31, 2005, we had positive working capital of $21,986 compared to
positive working capital of $75,779 at April 30, 2005. This change is primarily
the result of payment of administration, and professional fees.
At July 31, 2005, our Company had total assets of $45,142 consisting of cash,
which compares with our Company's total assets at April 30, 2005, of $78,686
consisting of cash. This change is the result of payment of administration,
professional fees and reimbursement of a loan.
At July 31, 2005, our Company's only liabilities consisted of accounts payable
of $13,156 and a loan of $10,000 to a related party. Our total liabilities at
April 30, 2005, were $2,907. This amount represented the balance owing of a
related party loan, and was reimbursed by July 31, 2005.
Results of Operations
Our Company posted a loss of $53,793 for the three months ending July 31, 2005.
The principal components of the loss were administration and professional fees
and reimbursement of a related party loan. Operating expenses for the three
months ending July 31, 2005, were $53,793, compared to operating expenses of
$2,273 for the three months ending July 31, 2004.
Off-Balance Sheet Arrangements
At July 31, 2005, the Company was not a party to any off-balance sheet
arrangements.
Item 3. Controls and Procedures
It is the responsibility of the officers of the Company to ensure that the
Company maintains disclosure controls and procedures designed to provide
reasonable assurance that material information, both financial and
non-financial, and other information required under the securities laws to be
disclosed is identified and communicated to senior management on a timely basis.
The Company's disclosure controls and procedures include mandatory communication
of material events, automated accounting processing and reporting, management
review of monthly results and an established system of internal controls.
As of July 31, 2005, management conducted an evaluation of the Company's
disclosure controls and procedures pursuant to the Exchange Act. Based upon that
evaluation, management has concluded that our current disclosure controls and
procedures are effective as of July 31, 2005. The design of any system of
controls and procedures is based in part upon certain assumptions about the
likelihood of future events.
9
There have been no significant changes in our internal controls over financial
reporting during the fiscal quarter ended July 31, 2005 or subsequent to that
date that have materially affected, or are reasonably likely to materially
affect, our 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 our
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.
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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
None.
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
and 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 June 22, 2005, a Report on Form 8-K was filed in connection with a change of
control at the Company, the resignation of Kim Friesen and Andrea Meakin as
officers and directors of the Company, and the appointment of Claude Pellerin as
the Company's sole officer and director.
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.
(b) Exhibits
Exhibit No. Description of Exhibits
- ----------- -----------------------
31.1 Certification of Principal Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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.
11
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.
(Registrant)
Date: September 13, 2005 By: /s/ Alain Lemieux
-------------------------
Name: Alain Lemieux
Title: President, Chief Executive
Officer, and Director
12