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
March 31, 2008
|
|
|
|
OR
|
o
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|
For the transition period
from__________
to__________
|
Commission
File No.
001-33495
COLLEXIS
HOLDINGS, INC.
(
Exact
name of small business issuer as specified in its charter)
Nevada
|
|
20-0987069
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
Number)
|
1201
Main Street, Suite 980
Columbia,
SC 29201
(Address
of principal executive offices)
(803)
727-1113
(Issuer’s
telephone number)
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.
x
Yes
o
No
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
x
No
The
number of outstanding shares of the registrant’s common stock on May 14, 2008
was 92,793,404
.
Transitional
Small Business Disclosure Format (Check one):
o
Yes
x
No
COLLEXIS
HOLDINGS, INC.
Form 10-QSB
For
the Quarter Ended March 31, 2008
Table
of Contents
|
|
|
|
|
|
Part
I - Financial Information
|
Page
No.
|
|
|
|
|
Item
1
|
Financial
Statements
|
4
|
|
|
|
|
|
Item
2
|
Management’s
Discussion and Analysis or Plan of Operation
|
21
|
|
|
|
|
|
|
Risk
Factors
|
28
|
|
|
|
|
|
Item
3A(T)
|
Controls
and Procedures
|
30
|
|
|
|
|
|
Part
II - Other Information
|
|
|
|
|
|
|
Item
1
|
Legal
Proceedings
|
30
|
|
|
|
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
31
|
|
|
|
|
|
Item
3
|
Defaults
Upon Senior Securities
|
31
|
|
|
|
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
31
|
|
|
|
|
|
Item
5
|
Other
Information
|
31
|
|
|
|
|
|
Item
6
|
Exhibits
|
32
|
|
|
|
|
|
Signatures
|
|
33
|
|
|
|
|
|
Exhibits
|
|
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements that involve a number of risks and
uncertainties. Although our forward-looking statements reflect the good faith
judgment of our management, these statements can be based only on facts and
factors of which we are currently aware. Consequently, forward-looking
statements are inherently subject to risks and uncertainties. Actual results
and
outcomes may differ materially from results and outcomes discussed in the
forward-looking statements.
Forward-looking
statements can be identified by the use of forward-looking words such as “may,”
“will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,”
“could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative
of these terms or other similar expressions. These statements include, but
are
not limited to, statements under the caption “Management’s Discussion and
Analysis or Plan of Operation” as well as other sections in this report. Such
forward-looking statements are based on our management’s current plans and
expectations and are subject to risks, uncertainties and changes in plans that
could cause actual results to differ materially from those anticipated in the
forward-looking statements. You should be aware that, as a result of any of
these factors materializing, the trading price of our common stock could
decline, and you could lose all or part of the value of your shares of our
common stock. These factors include, but are not limited to, the
following:
|
·
|
the
availability and adequacy of capital to pay the deferred payment
obligations we owe and to support and grow our
business;
|
|
·
|
our
ability to integrate our European operations successfully after our
recent
acquisition of SyynX Solutions GmbH;
|
|
·
|
our
ability to integrate our recent acquisition of
Lawriter;
|
|
·
|
our
ability to enhance the products and services of Lawriter’s
Casemaker
®
online legal research service;
|
|
·
|
our
ability to increase participation in and generate revenues from our
new
BioMedExperts social networking
website;
|
|
·
|
whether
our strategic alliance with Thomson Scientific to create a custom
data
mining solution for the research community will be
successful;
|
|
·
|
competition
in our industry;
|
|
·
|
changes
in our business and growth strategy, capital improvements or development
plans;
|
|
·
|
whether
our research and development efforts will produce software products
that
will be attractive to our customers and profitable to us;
|
|
·
|
currency
exchange rates; and
|
|
·
|
other
factors discussed under (a) the section of Item 2 below entitled
“Risk
Factors” and (b) the section entitled “Risk Factors” in our transition
report on Form 10-KSB, as amended, and in our quarterly reports on
Form
10-QSB filed with the SEC or discussed elsewhere in this
report.
|
The
cautionary statements made in this report are intended to apply to all related
forward-looking statements wherever they may appear in this report.
We
urge
you not to place undue reliance on these forward-looking statements, which
speak
only as of the date of this report. We undertake no obligation to publicly
update any forward looking-statements, whether as a result of new information,
future events or otherwise.
PART
I - FINANCIAL INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS
Our
unaudited consolidated financial statements included in this report on Form
10-QSB are as follows:
Consolidated
Balance Sheet as of March 31, 2008
|
|
|
|
Consolidated
Statements of Operations for the three and nine months ended March
31,
2008 and 2007
|
|
|
|
Consolidated
Statements of Comprehensive Loss for the three and nine months
ended March
31, 2008 and 2007
|
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended March 31, 2008
and
2007
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheet
(Unaudited)
|
|
March
31,
|
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
Currents
assets
|
|
|
|
Cash
and cash equivalents
|
|
$
|
264,505
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$216,144
|
|
|
806,170
|
|
Prepaid
expenses and other current assets
|
|
|
493,579
|
|
Total
current assets
|
|
|
1,564,254
|
|
|
|
|
|
|
Property
and equipment, at cost, net of accumulated depreciation of
$587,910
|
|
|
525,673
|
|
|
|
|
|
|
Intangibles,
net of accumulated amortization of $597,150
|
|
|
9,207,832
|
|
|
|
|
|
|
Goodwill
|
|
|
9,638,517
|
|
|
|
|
|
|
Other
assets
|
|
|
119,077
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
21,055,353
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable trade
|
|
$
|
1,230,699
|
|
Accrued
expenses
|
|
|
2,236,936
|
|
Deferred
revenue
|
|
|
749,673
|
|
Deferred
tax liability, net
|
|
|
58,474
|
|
Current
portion of deferred purchase price
|
|
|
4,488,251
|
|
Total
current liabilities
|
|
|
8,764,033
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
Deferred
tax liability
|
|
|
1,622,239
|
|
Deferred
purchase price
|
|
|
6,334,296
|
|
Total
non-current liabilities
|
|
|
7,956,535
|
|
|
|
|
|
|
Total
liabilities
|
|
|
16,720,568
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
Common
stock, par value $0.001; authorized 277,713,000 shares;
74,672,507
shares
|
|
|
|
|
issued
and outstanding as of March 31, 2008
|
|
|
74,673
|
|
Additional
paid-in capital
|
|
|
24,128,024
|
|
Accumulated
other comprehensive income
|
|
|
630,224
|
|
Subscribed
stock
|
|
|
920,000
|
|
Accumulated
deficit
|
|
|
(21,418,136
|
)
|
|
|
|
4,334,785
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
21,055,353
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
License
revenue
|
|
$
|
287,360
|
|
$
|
205,151
|
|
$
|
618,448
|
|
$
|
274,195
|
|
Service
revenue
|
|
|
413,169
|
|
|
287,378
|
|
|
1,003,391
|
|
|
1,026,883
|
|
Maintenance
& support revenue
|
|
|
172,725
|
|
|
82,946
|
|
|
446,676
|
|
|
272,532
|
|
Hardware
& hosting revenue
|
|
|
45,218
|
|
|
3,080
|
|
|
99,568
|
|
|
12,928
|
|
Database
subscription revenue
|
|
|
498,383
|
|
|
-
|
|
|
498,383
|
|
|
-
|
|
Total
revenue
|
|
|
1,416,855
|
|
|
578,555
|
|
|
2,666,466
|
|
|
1,586,538
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of license revenue
|
|
|
4,175
|
|
|
12,809
|
|
|
47,895
|
|
|
12,784
|
|
Cost
of service revenue
|
|
|
261,590
|
|
|
226,026
|
|
|
592,331
|
|
|
490,320
|
|
Cost
of maintenance & support revenue
|
|
|
23,938
|
|
|
34,778
|
|
|
232,568
|
|
|
320,913
|
|
Cost
of hardware & hosting revenue
|
|
|
33,011
|
|
|
-
|
|
|
69,710
|
|
|
11,006
|
|
Cost
of database subscription revenue
|
|
|
173,206
|
|
|
-
|
|
|
173,206
|
|
|
-
|
|
Total
cost of revenue
|
|
|
495,920
|
|
|
273,613
|
|
|
1,115,710
|
|
|
835,023
|
|
Gross
profit
|
|
|
920,935
|
|
|
304,942
|
|
|
1,550,756
|
|
|
751,515
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,765,879
|
|
|
1,759,081
|
|
|
6,199,667
|
|
|
4,276,808
|
|
Sales
and marketing
|
|
|
750,043
|
|
|
66,882
|
|
|
2,158,386
|
|
|
257,615
|
|
Research
and Development
|
|
|
276,302
|
|
|
249,199
|
|
|
1,059,930
|
|
|
520,008
|
|
Total
operating expenses
|
|
|
3,792,224
|
|
|
2,075,162
|
|
|
9,417,983
|
|
|
5,054,431
|
|
Operating
loss
|
|
|
(2,871,291
|
)
|
|
(1,770,220
|
)
|
|
(7,867,227
|
)
|
|
(4,302,916
|
)
|
Other
income (expense)
|
|
|
3,258
|
|
|
-
|
|
|
(5,439
|
)
|
|
-
|
|
Loss
before interest income (expense)
|
|
|
(2,868,033
|
)
|
|
(1,770,220
|
)
|
|
(7,872,666
|
)
|
|
(4,302,916
|
)
|
Interest
income (expense)
|
|
|
(168,669
|
)
|
|
3,975
|
|
|
(263,541
|
)
|
|
34,627
|
|
Loss
before income tax benefit
|
|
|
(3,036,702
|
)
|
|
(1,766,245
|
)
|
|
(8,136,207
|
)
|
|
(4,268,289
|
)
|
Tax
benefit
|
|
|
80,417
|
|
|
-
|
|
|
212,060
|
|
|
-
|
|
NET
LOSS
|
|
$
|
(2,956,285
|
)
|
$
|
(1,766,245
|
)
|
$
|
(7,924,147
|
)
|
$
|
(4,268,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted common shares outstanding
|
|
|
73,076,731
|
|
|
58,400,549
|
|
|
66,969,780
|
|
|
57,448,195
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.12
|
)
|
$
|
(0.07
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Certain
prior period amounts have been reclassified to conform to current period
presentation.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Comprehensive Loss
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
loss
|
|
$
|
(2,956,285
|
)
|
$
|
(1,766,245
|
)
|
$
|
(7,924,147
|
)
|
$
|
(4,268,289
|
)
|
Foreign
currency translation adjustment
|
|
|
374,160
|
|
|
232,782
|
|
|
604,141
|
|
|
(48,136
|
)
|
Comprehensive
loss
|
|
$
|
(2,582,125
|
)
|
$
|
1,533,463
|
|
$
|
(7,320,006
|
)
|
$
|
(4,316,425
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,924,147
|
)
|
$
|
(4,268,289
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
648,953
|
|
|
33,778
|
|
Compensation
paid through issuance of stock options
|
|
|
533,959
|
|
|
874,489
|
|
Loss
on disposition of assets
|
|
|
15,183
|
|
|
-
|
|
Allowance
for bad debts
|
|
|
194,391
|
|
|
32,160
|
|
Reduction
to deferred payment obligation for revenue earned
|
|
|
(70,133
|
)
|
|
-
|
|
Deferred
taxes
|
|
|
(156,229
|
)
|
|
-
|
|
Changes
in operating assets and liabilities, net of acquired
items:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
168,786
|
|
|
659,096
|
|
Prepaid
expenses
|
|
|
(250,727
|
)
|
|
(442,673
|
)
|
Other
receivables
|
|
|
132,815
|
|
|
(26,955
|
)
|
Other
assets & deferred charges
|
|
|
-
|
|
|
(504,035
|
)
|
Accounts
payable
|
|
|
764,012
|
|
|
107,518
|
|
Accrued
expenses
|
|
|
978,639
|
|
|
386,145
|
|
Deferred
revenue
|
|
|
227,966
|
|
|
121,220
|
|
Net
cash used in operating activities
|
|
|
(4,735,526
|
)
|
|
(3,027,546
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Additions
to equipment
|
|
|
(226,853
|
)
|
|
(102,244
|
)
|
Acquisition
of intangible
|
|
|
(105,615
|
)
|
|
-
|
|
Acquisition
of SyynX, net of cash acquired
|
|
|
(78,128
|
)
|
|
-
|
|
Acquisition
of Lawriter, net of cash acquired
|
|
|
(1,774,379
|
)
|
|
-
|
|
Option
to purchase SyynX
|
|
|
-
|
|
|
(937,510
|
)
|
Net
cash used in investing activities
|
|
|
(2,184,975
|
)
|
|
(1,039,754
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Repayment
of loan from stockholder
|
|
|
(650,000
|
)
|
|
-
|
|
Repayment
of loan for VersusLaw
|
|
|
(100,000
|
)
|
|
-
|
|
Partial
payment on deferred obligation - SyynX
|
|
|
(2,106,331
|
)
|
|
-
|
|
Partial
payment on deferred obligation - Lawriter
|
|
|
(497,076
|
)
|
|
-
|
|
Fees
paid to raise capital
|
|
|
(231,298
|
)
|
|
-
|
|
Cash
received on stock subscriptions
|
|
|
920,000
|
|
|
-
|
|
Cash
received on sale of stock
|
|
|
9,724,758
|
|
|
4,898,263
|
|
Net
cash provided by financing activities
|
|
|
7,060,053
|
|
|
4,898,263
|
|
Net
increase in cash and cash equivalents
|
|
|
138,552
|
|
|
830,963
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(61,308
|
)
|
|
(146,180
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
187,261
|
|
|
848,972
|
|
Cash
and cash equivalents at end of period
|
|
$
|
264,505
|
|
$
|
1,533,755
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
Cash
paid during the period for
|
|
|
|
|
|
Interest
|
|
$
|
43,894
|
|
$
|
38,730
|
|
Franchise
taxes
|
|
|
28,000
|
|
|
-
|
|
Non
cash financing and investing activity:
|
|
|
|
|
|
|
|
Deferred
obligation on acquisition of SyynX
|
|
|
8,583,352
|
|
|
-
|
|
Credit
for option to acquire SyynX paid
|
|
|
790,000
|
)
|
|
-
|
|
Deferred
obligation on acquisition of Lawriter
|
|
|
6,875,000
|
|
|
-
|
|
Common
stock issued to sellers of Lawriter
|
|
|
500,000
|
|
$
|
-
|
|
Common
stock issued to VersusLaw
|
|
$
|
635,000
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1.
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
Collexis
Holdings, Inc., sometimes referred to as Collexis (and “we,” “us,” or “our”) in
these Notes, is a global software development company headquartered in Columbia,
South Carolina with major operations in Cincinnati, Ohio, Geldermalsen, the
Netherlands and Cologne, Germany. Collexis develops software that supports
the
knowledge intensive market-building tools to search and mine large sets of
information. The Collexis Engine 6.0 and 6.5 software enables discovery through
identification, ordering and aggregation of ideas and concepts. Using public
as
well as proprietary thesauri of industry specific language, Collexis can create
“fingerprints” of texts - such as articles, web pages, books and internal and
external databases - that can be used in turn to find the most relevant
information for a researcher or business professional. Collexis operates several
subsidiaries that support its core technology sales in the government,
enterprise and life science sectors. Collexis recently acquired an
industry-dedicated subsidiary - Lawriter - that provides online legal research
services to lawyers in the United States primarily through state bar
associations. Collexis now offers the world’s first pre-populated professional
social network for life science researchers,
www.biomedexperts.com
.
Technology
Holdings, Inc., which subsequently changed its name to Collexis Holdings, Inc.,
filed a Current Report on Form 8-K with the U.S. Securities and Exchange
Commission (“SEC”) on February 14, 2007 to report the reverse merger whereby
Collexis B.V., an operating company, became a wholly owned subsidiary of
Technology Holdings, Inc., a reporting shell company. Collexis B.V., which
was
the acquirer in the merger for accounting purposes, had a calendar fiscal year.
Technology Holdings, Inc., which was the acquiree in the merger for accounting
purposes, had a fiscal year that ends on June 30. Because we adopted the
July-June fiscal year of Technology Holdings, Inc., the consolidated financial
statements in this report are for the third quarter of our fiscal
year.
We
have prepared the unaudited consolidated interim financial statements included
in this report in accordance with accounting principles generally accepted
in
the United States and pursuant to the rules and regulations of the SEC,
including Form 10-QSB and Regulation S-B. The financial information contained
in
this report is unaudited; however, in the opinion of management, we have
included all adjustments necessary for a fair presentation of such financial
information. All such adjustments are of a normal recurring nature. The results
of operations for the nine months ended March 31, 2008 are not necessarily
indicative of the results expected for the full year ending June 30,
2008.
NOTE
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Collexis Holdings,
Inc. and its subsidiaries, Collexis B.V. and Collexis, Inc. (99.5% owned),
for
all periods presented. The accounts of SyynX Solutions GmbH, and Lawriter LLC
are presented as of their respective purchase dates, October 19, 2007 and
February 1, 2008, respectively. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal
Year End
The
company’s fiscal year end for financial reporting is June 30. The company’s
fiscal year end for income tax reporting is December 31.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards (“SFAS”) No. 107, “Disclosure About Fair Value
of Financial Instruments,” requires the company to disclose, when reasonably
attainable, the fair market values of its assets and liabilities that are deemed
to be financial instruments. The carrying amounts and estimated fair values
of
the company’s financial instruments approximate their fair value due to their
short-term nature.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. Significant estimates include: the valuation of shares issued
for services or in connection with acquisitions; the valuation of fixed assets
and intangibles and their estimated useful lives; and contingencies. The company
evaluates its estimates on an ongoing basis. Actual results could differ from
those estimates under different assumptions or conditions.
Cash
and Cash Equivalents, and Marketable Securities
We
invest our excess cash in money market funds. All highly liquid investments
with original maturities of three months or less from date of purchase are
classified as cash equivalents.
Revenue
Recognition
We
recognize revenue in accordance with Statement of Position 97-2, “Software
Revenue Recognition” (“SOP 97-2”), and Statement of Position 98-9, “Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions.” We recognize revenue from non-cancelable software licenses when
the license agreement has been signed, delivery has occurred, the fee is fixed
or determinable and collection is probable. We recognize license revenue from
resellers when an end user has placed an order with the reseller and the above
revenue recognition criteria have been met with respect to the reseller. In
multiple element arrangements, we defer the vendor-specific objective evidence
of fair value (“VSOE”) related to the undelivered elements and recognize revenue
on the delivered elements using the percentage-of-completion
method.
The
most commonly deferred elements are initial maintenance and consulting services.
We recognize initial maintenance on a straight-line basis over the initial
maintenance term. We determine VSOE of maintenance by using a consistent
percentage of maintenance fee to license fee based on renewal rates. We
recognize maintenance fees in subsequent years on a straight-line basis over
the
life of the applicable agreement. Maintenance contracts entitle the customer
to
hot-line support and all unspecified product upgrades released during the term
of the maintenance contract. Upgrades include any and all unspecified patches
or
releases related to a licensed software product. Maintenance does not include
implementation services to install these upgrades. We determine VSOE of services
by using an average consulting rate per hour for consulting services sold
separately, multiplied by the estimate of hours required to complete the
consulting engagement.
Delivery
of software generally occurs when the product (on CDs) is delivered to a common
carrier. Occasionally, delivery occurs through electronic means whereby the
company makes the software available to the customer through the company’s
secure FTP (File Transfer Protocol) site. We do not offer any customers or
resellers a right of return.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
For
software license, services and maintenance revenue, we assess whether the fee
is
fixed and determinable, we have performed the services and whether or not
collection is probable. We assess whether the fee is fixed and determinable
based on the payment terms associated with the transaction.
If
a significant portion of a fee is due after the company’s normal payment terms,
which are 30 to 90 days from invoice date, the fee is not considered fixed
and
determinable. In these cases, we recognize revenue as the fees become
due.
We
assess probability of collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not ask customers for collateral. If we determine that collection of
a fee
is not probable, we defer the fee and recognize the revenue when collection
becomes probable, which is generally when we receive payment.
Our
arrangements do not generally include acceptance clauses. If an arrangement
includes an acceptance provision, however, acceptance occurs upon the earliest
of receipt of a written customer acceptance or expiration of the acceptance
period.
We
bill the majority of our training and consulting services based on hourly rates.
We generally recognize revenue as we perform these services. However, when
an
arrangement with a customer is based on a fixed fee or requires significant
work
either to alter the underlying software or to build additional complex
interfaces to enable the software to perform as the customer requests, we
recognize the related revenue using the percentage of completion method of
accounting. The percentage of completion method of accounting applies to our
custom programming services, which are generally contracted on a fixed fee
basis. We charge anticipated losses, if any, to operations in the period that
we
determine such losses are probable.
We
recognize revenues from transaction fees associated with subscription
arrangements, which are billable on a per transaction basis, based on the actual
number of transactions processed during the period.
In
accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income
Statement Characterization of Reimbursement Received for ‘Out of Pocket’
Expenses Incurred,” we classify reimbursements received for out-of-pocket
expenses as revenue.
Development
Costs
Our
policy is to charge the costs of software development to the year in which
these
costs occurred. We establish technological feasibility and completion of the
existing
core
data
processing
engine.
Generally, costs related to projects that reach technological feasibility upon
completion of a working model are not capitalized, because the period between
establishment of the working model and general availability is of short
duration. The nature of our current development for software products is
generally such that we can measure technological feasibility most effectively
using the working model method, in which the time between establishment of
a
working model and general availability is short, which results in no costs
that
qualify for capitalization.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Allowance
for Doubtful Accounts
We
evaluate the collectability of accounts receivable based on a combination of
factors. When we are aware of circumstances that may impair a specific
customer’s ability to meet its financial obligations, we record a specific
allowance against amounts due, thereby reducing the net receivable to the amount
our management believes is probable of collection. For all other customers,
we
recognize allowances for doubtful accounts based on the length of time the
receivables are outstanding, the current business environment and historical
experience.
Foreign
Currency Risk
We
have conducted significant sales activity through our subsidiaries based in
Geldermalsen, the Netherlands and Cologne, Germany. The majority of the sales
activity has occurred in the Netherlands and Germany. We have experienced
foreign exchange gains and losses to date without engaging in any hedging
activities.
Our
foreign operations’ functional currency is the applicable local currency
(primarily, the Euro). Assets and liabilities for these foreign operations
are
translated at the exchange rate in effect at the balance sheet date, and income
and expenses are translated at average exchange rates prevailing during the
period. Translation gains or losses are reflected in general and administrative
expense.
Under
the terms of a share purchase agreement, we are required to make payments to
the
selling shareholders and managing directors of SyynX Solutions GmbH in three
installments through October 2010 (see Note 3 below). Because these payment
obligations are denominated in Euros, we face foreign exchange gains or losses
that may have a significant impact on our net income or loss and cash
requirements in future periods.
Amortization
of Intangible Assets
Intangible
assets are carried at cost less accumulated amortization. We amortize the
intangible assets with finite lives using the straight-line method over the
estimated economic lives of the assets, which is five to 10 years.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. The asset and
liability method requires that deferred tax assets be reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely
than
not that some portion or all of such assets will not be realized. Deferred
tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities, and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.
Loss
per Common Share
Loss
per share is computed based on weighted average number of common shares
outstanding and excludes any potential dilution. Diluted loss per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in
the issuance of common stock, which would then share in the earnings of the
company.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
We
had 18,347,119 options outstanding at March 31, 2008 and 15,731,120 options
outstanding at March 31, 2007 that could potentially dilute basic earnings
per
share in the future, but we excluded those options from the computation of
diluted loss per share because their effect would have been
anti-dilutive
.
Recently
Issued Accounting Standards
In
February 2007,
the
Financial Accounting Standards Board (FASB)
issued
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities.” SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. SFAS No. 159 is effective
for
fiscal years beginning after November 15, 2007. We do not expect the adoption
of
SFAS No. 159 to have a material effect on our consolidated financial position,
results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
will become effective in 2009 via prospective application to new business
combinations. SFAS No. 141(R) requires that the acquisition method of accounting
be applied to a broader set of business combinations, amends the definition
of a
business combination, provides a definition of a business, requires an acquirer
to recognize an acquired business at its fair value at the acquisition date
and
requires the assets and liabilities assumed in a business combination to be
measured and recognized at their fair values as of the acquisition date (with
limited exceptions). We will adopt SFAS No. 141(R) in fiscal year 2009, and
its
effects on future periods will depend on the nature and significance of any
acquisitions subject to SFAS No. 141(R).
In
February 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 157-1, “Application of FASB Statement No. 157 to FASB Statement
No. 13 and Its Related Interpretive Accounting Pronouncements That Address
Leasing Transactions,” and FSP FAS 157-2, “Effective Date of FASB Statement No.
157.” FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value
Measurements.” FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008
to 2009 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements
on a
recurring basis (at least annually).
We
do not expect the adoption of
FSP
FAS
157-1
to
have a material effect on our consolidated financial position, results of
operations or cash flows.
In
March
2008, the FASB issued
-SFAS-
No. 161
,
“Disclosures about Derivative Instruments and Hedging Activities - an amendment
of FASB Statement No. 133.” SFAS No. 161 expands the current disclosure
requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” such that entities must now provide enhanced disclosures on a
quarterly basis regarding how and why the entity uses derivatives; how
derivatives and related hedged items are accounted for under SFAS No. 133 and
how derivatives and related hedged items affect the entity’s financial position,
performance and cash flow. Pursuant to the transition provisions of SFAS No.
161, we will adopt SFAS No. 161 in fiscal year 2009 and will present the
required disclosures in the prescribed format on a prospective basis. SFAS
No.
161will not affect our consolidated financial statements, as it is
disclosure-only in nature.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
3.
ACQUISITIONS
SyynX
Solutions GmbH
On
October 19, 2007, we entered into a Share Purchase Agreement with the
shareholders and managing directors of SyynX Solutions GmbH (“SyynX”), for an
aggregate cash consideration of €5,923,267, or approximately $8,488,343 at then
current exchange rates. We are required to make these payments in installments
over three years as follows (due to rounding of the payments to be made to
several sellers, the reflection of a credit as noted below, and changes in
the
exchange rate as of March 31, 2008, the amounts below do not equal the gross
amounts above):
Payment
Date
|
|
Payment
Amount
in
Euros
|
|
Scheduled
Payments
in
US
Dollars at
3-31-08
Exchange Rates
|
|
Remaining
Payments
in
US
Dollars at
3-31-08
Exchange Rates
|
|
|
|
|
|
|
|
|
|
December
31, 2007*
|
|
€
|
1,500,000
|
|
$
|
2,370,000
|
|
$
|
-
|
|
October
1, 2008
|
|
|
1,485,149
|
|
|
2,346,535
|
|
|
2,346,535
|
|
October
1, 2009
|
|
|
1,224,918
|
|
|
1,935,370
|
|
|
1,935,370
|
|
October
1, 2010
|
|
|
1,212,871
|
|
|
1,916,336
|
|
|
1,916,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
€
|
5,422,938
|
|
$
|
8,568,241
|
|
$
|
6,198,241
|
|
*
|
The
payment amount on December 31, 2007, which we made as scheduled,
reflected
a €500,000 reduction in light of the termination of our right to receive
reimbursement of the €500,000 option payment previously made by Collexis
B.V.
|
The
total of remaining payments, $6,198,241, represents the actual payment amounts
due on their respective due dates, calculated at March 31, 2008 exchange rates.
The calculation of deferred purchase price on our consolidated balance sheet
at
March 31, 2008, $5,458,077, reflects the present value of these payments
discounted at the implied interest rate of 8%. The difference of $740,164
represents the value of imputed interest.
The
transaction is accounted for in accordance with SFAS No. 141, “Business
Combinations.” The preliminary purchase price allocation, as of the purchase
date, is as follows:
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Purchase
Price:
|
|
|
|
Deferred
purchase price
|
|
$
|
7,029,308
|
|
Exercise
of option
|
|
|
712,550
|
|
Direct
costs of acquisition
|
|
|
189,878
|
|
Less
SyynX cash on hand
|
|
|
(154,036
|
)
|
|
|
|
|
|
Total
purchase price
|
|
$
|
7,777,700
|
|
Value
assigned to assets and liabilities:
|
|
|
|
Assets:
|
|
|
|
Accounts
receivable
|
|
$
|
461,756
|
|
Prepaid
and other assets
|
|
|
59,652
|
|
Deferred
tax assets
|
|
|
48,005
|
|
Property
and equipment
|
|
|
71,435
|
|
Trade
name (estimated useful life of five years)
|
|
|
1,090,000
|
|
Acquired
technology (estimated useful life of five years)
|
|
|
4,004,733
|
|
Goodwill/unidentified
intangibles
|
|
|
3,918,672
|
|
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
(21,183
|
)
|
Income
taxes payable
|
|
|
(127,876
|
)
|
Deferred
tax liability
|
|
|
(1,608,479
|
)
|
Other
liabilities
|
|
|
(119,015
|
)
|
|
|
|
|
|
Total
net assets
|
|
$
|
7,777,700
|
|
We
continue to evaluate and value the identifiable intangible assets and
acquisition costs of SyynX. Therefore, this preliminary allocation is subject
to
refinement, as permitted for a period of 12 months from the date of
acquisition.
In
connection with the transactions contemplated by the SyynX share purchase
agreement, we granted to each of the three managing directors of SyynX as a
condition to their employment agreements an option to purchase 1,000,000 shares
of our common stock at an exercise price of $0.75 per share. We granted options
to purchase a total of 3,000,000 shares. The options have a term of eight years.
The options vested or will vest as follows: options to purchase 16,666 shares
vested on October 19, 2007; options to purchase 16,666 shares vested or will
vest each month through August 19, 2012, and options to purchase the final
16,706 shares will vest on September 19, 2012. Additionally, on February 15,
2008, we granted seven former SyynX employees and one consultant the option
to
purchase a total of 275,000 shares of our common stock at an exercise price
of
$0.75 per share, under a proportionally identical vesting schedule and as called
for under the agreement.
Lawriter
LLC
On
February 1, 2008, we acquired
Lawriter
LLC
(“Lawriter”),
an Ohio limited liability company that provides online legal research services
to a consortium of bar associations under the name Casemaker
®
.
We
purchased all of the limited liability company interests in Lawriter from
OSBA.COM LLC, an Ohio limited liability company (“OSBA”), and the Institute of
Legal Publishing, Inc., an Ohio corporation f/k/a Lawriter Corporation
(“Lawcorp”), for an aggregate consideration of $9,000,000, or $4,500,000 to each
of the sellers, plus an Earnout (as defined below), if any.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Under
the
terms of the purchase agreement, at the closing:
|
·
|
we
made a cash payment of $1,125,000 to
OSBA;
|
|
·
|
we
made a cash payment of $500,000 to Lawcorp;
and
|
|
·
|
we
issued 666,666 unregistered shares of our common stock at an agreed-upon
value of $0.75 per share, or $500,000, to Lawcorp in a private offering.
|
We
also
agreed to pay Lawcorp $500,000 on or before February 8, 2008, which obligation
we mutually extended until, and paid on, February 27, 2008. In addition, we
agreed to pay a total of $1,255,000 to OSBA and $3,000,000 to Lawcorp, with
the
remaining balance to each seller to be paid in four equal installments,
respectively, as listed in the following table.
Seller
|
|
Payment
Date
|
|
Payment
Amount
|
|
|
|
|
|
|
|
|
|
OSBA
|
|
|
May
1, 2008
|
|
$
|
313,750
|
|
|
|
|
|
August
1, 2008
|
|
|
313,750
|
|
|
|
|
|
November
1, 2008
|
|
|
313,750
|
|
|
|
|
|
February
1, 2009
|
|
|
313,750
|
|
|
|
|
|
|
|
$
|
1,255,000
|
|
|
|
|
|
|
|
|
|
|
|
Lawcorp
|
|
|
February
1, 2009
|
|
$
|
750,000
|
|
|
|
|
|
February
1, 2010
|
|
|
750,000
|
|
|
|
|
|
February
1, 2011
|
|
|
750,000
|
|
|
|
|
|
February
1, 2012
|
|
|
750,000
|
|
|
|
|
|
|
|
$
|
3,000,000
|
|
|
With
respect to the remaining $2,120,000 consideration due to OSBA, the Agreement
provides that we may either:
|
(a)
|
credit
against the balance of that consideration the monthly fee that would
otherwise be payable by the Ohio State Bar Association to Lawriter
for the
60 months following the closing (which is estimated to equal a credit
of
approximately $424,000 per twelve month period or $2,120,000 in total)
or
|
|
(b)
|
pay
all or any portion of the balance directly to OSBA on a monthly basis
for
the 60 months following the closing, in which case the Ohio State
Bar
Association would resume making payments to Lawriter in the ordinary
course of business.
|
As
of March 31, 2008, we have taken a credit of $70,798 against the outstanding
consideration for the value of the monthly fees payable to us by
OSBA.
Under
the
terms of the Agreement, we also agreed to pay the Earnout (as defined below),
if
any, on a pro rata basis to OSBA and Lawcorp within 20 days following the end
of
each calendar quarterly period within the Earnout period. The Earnout
period:
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
|
·
|
begins
on the earlier occurrence of (a) the first day of that calendar month
on
which the aggregate Net Sales derived from the products and services
that
we acquired under the terms of the Agreement, including intellectual
property rights related to the Casemaker database and software and
Collexis-related technology and enhancements that we intend to offer
to
our customers and clients (collectively, “Legal Research Services”), have
been at least $2,750,000 for each of the previous three consecutive
calendar months following the closing or (b) the first day of the
18th
month following the closing; and
|
|
·
|
ends
on the last day of the 60th calendar month
thereafter.
|
The
term
“Net Sales” means gross revenues derived from Legal Research Services less
returns, discounts, allowances, sales taxes and bad debt reserves, as determined
in accordance with U.S. generally accepted accounting principles. The term
“Earnout” means a lump sum cash payment equal to the product of (x) the Earnout
percentage of 3.75%, or 3.9% in certain circumstances, multiplied by (y) Net
Sales derived from Legal Research Services during each calendar quarterly period
within the Earnout period, reduced by any payment we may be required to make
to
the consortium of bar associations under the terms of their respective license
agreements with Lawriter. The aggregate of any or all Earnout payments, however,
cannot exceed $15,000,000.
The
total of remaining payments, $6,304,202, represents the actual payment amounts
due on their respective due dates. The calculation of deferred purchase price
on
our consolidated balance sheet at March 31, 2008, $5,364,470, reflects the
present value of these payments discounted at the implied interest rate of
8%.
The difference of $939,732 represents the value of imputed
interest.
The
transaction is accounted for in accordance with SFAS No. 141. The preliminary
purchase price allocation, as of the purchase date, is as follows:
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Purchase
Price:
|
|
|
|
Deferred
purchase price
|
|
$
|
5,931,679
|
|
Cash
paid, net
|
|
|
1,559,623
|
|
Direct
costs of acquisition
|
|
|
228,756
|
|
Common
shares issued
|
|
|
500,000
|
|
Total
purchase price net of cash acquired
|
|
$
|
8,220,058
|
|
Value
assigned to assets and liabilities:
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts
receivable
|
|
|
247,676
|
|
Property
and equipment
|
|
|
104,216
|
|
Acquired
technology (estimated useful life of seven years)
|
|
|
1,170,000
|
|
Trade
name (estimated useful life indefinite)
|
|
|
1,090,000
|
|
Customer
contracts (estimated useful life of ten years)
|
|
|
726,000
|
|
Goodwill/unidentified
intangibles
|
|
|
5,275,330
|
|
Liabilities:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(97,005
|
)
|
Deferred
revenue
|
|
|
(256,084
|
)
|
Accrued
restructuring charges
|
|
|
(40,075
|
)
|
Total
net assets
|
|
$
|
8,220,058
|
|
We
continue to evaluate and value the identifiable intangible assets and
acquisition costs of Lawriter. Thus, this preliminary allocation is subject
to
refinement, including an increase in purchase price for the reasonably estimable
value of the Earnout, as permitted for a period of 12 months from the date
of
acquisition.
Combined
consolidated pro forma financial information
The
operating results of SyynX and Lawriter are included with ours beginning October
19, 2007 and February 1, 2008, respectively. The following pro forma information
reflects the impact on our statements of operations had these acquisitions
occurred on July 1, 2007 and 2006, respectively:
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Collexis
Holdings, Inc.
Consolidated
summary pro forma data
|
|
Three
months ended March 31,
|
|
Nine
months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
- as reported
|
|
$
|
1,416,855
|
|
$
|
578,555
|
|
$
|
2,666,466
|
|
$
|
1,586,538
|
|
Revenue
- pro forma
|
|
|
1,666,047
|
|
|
1,656,081
|
|
|
4,379,800
|
|
|
4,437,370
|
|
Net
loss - as reported
|
|
|
(2,956,285
|
)
|
|
(1,766,245
|
)
|
|
(7,924,147
|
)
|
|
(4,268,289
|
)
|
Net
loss - pro forma
|
|
|
(2,929,587
|
)
|
|
(1,593,732
|
)
|
|
(8,388,060
|
)
|
|
(4,013,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - as reported
|
|
|
(0.04
|
)
|
|
(0.03
|
)
|
|
(0.12
|
)
|
|
(0.07
|
)
|
Net
loss per share - pro forma
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.13
|
)
|
$
|
(0.07
|
)
|
NOTE
4.
LICENSE
AND PUBLISHING AGREEMENT WITH VERSUSLAW
On
January 18, 2008, we entered into a licensing and publishing agreement with
VersusLaw, Inc. (“VersusLaw”), under which we acquired a non-exclusive,
transferable license to use VersusLaw’s legal-related collection of judicial
opinions. In exchange for the rights granted to us under the agreement, we
paid
to VersusLaw a licensing fee of $1,385,000, which was composed of: $100,000
in
cash; a secured promissory note for $650,000; and 846,666 shares of our common
stock with an agreed value of $0.75 per share, or $635,000. The principal of
the
note was due on February 18, 2008. Under the terms of the agreement, if the
note
was not paid by that date, the outstanding principal would begin to accrue
interest at a default rate of 18% per annum. The note is secured by our accounts
receivables. On March 18, 2008, we paid $100,000 toward the outstanding
principal. As of March 31, 2008, we owed $550,000 in principal and $13,000
in
accrued interest. We paid the principal due of $550,000 on April 14,
2008.
The
agreement gives us the non-exclusive right to advertise and distribute copies
of
the data to end users, and to permit our customers to download, print and
electronically copy the data. The term of the license granted to us is
perpetual, without payment of any additional licensing fees.
NOTE
5.
SALES
OF COMMON STOCK AND OPTION GRANTS
In
addition to issuing shares of our common stock in the Lawriter and VersusLaw
transactions as described above, we also issued shares of our common stock
as
follows:
On
February 1, 2008, we closed the sale of 2,453,333 shares of common stock at
$0.75 per share to a single investor in a private offering. We received gross
proceeds from the offering of approximately $1,840,000. No placement fees were
payable in connection with this offering. We used the proceeds to pay the
closing cash consideration in the Lawriter acquisition described above and
for
working capital.
On
February 27, 2008, we closed the sale of 1,226,667 shares of common stock at
$0.75 per share to a single investor in a private offering. We received gross
proceeds from the offering of approximately $920,000. No placement fees were
payable in connection with this offering. We used the proceeds to make a
$500,000 payment to Lawcorp in connection with the Lawriter acquisition
described above and for working capital. Although we received the subscription
proceeds and agreement on February 27, the shares were not issued by our
transfer agent until April 7, which is why we reflect the offering as
subscription proceeds on our consolidated balance sheet.
Collexis
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
On
February 15, 2008, we granted seven employees and one consultant the option
to
purchase a total of 275,000 shares of our common stock at an exercise price
of
$0.75 per share.
NOTE
6.
INTANGIBLE
ASSETS AND GOODWILL
As
a result of our acquisition of SyynX, we recorded intangible assets and
goodwill. The amortizable intangible assets include trade name and acquired
technology, recorded at fair value with estimated useful lives of five years.
Goodwill reflects the excess of the purchase price over the net assets acquired
in the transaction. Goodwill is not amortized but tested for impairment annually
under the rules prescribed by SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”
As
a result of our acquisition of Lawriter, we recorded intangible assets and
goodwill. The amortizable intangible assets include acquired technology and
customer contracts, recorded at fair value with estimated useful lives of seven
and 10 years, respectively. We also recorded a trade name with an indefinite
useful life. Goodwill reflects the excess of the purchase price over the net
assets acquired in the transaction. Neither the trade name nor goodwill are
amortized, but are tested for impairment annually under the rules prescribed
by
SFAS No. 144.
NOTE
7.
SUBSEQUENT
EVENTS
Private
Offering of Common Stock Commenced in April 2008
On
April 7, 2008, we initiated a private offering of up to 30,000,000 shares of
common stock at $0.15 per share ($4,500,000) to our stockholders who have
previously purchased shares from us in private placements. The shares were
offered principally in proportion to the number of shares each investor had
previously purchased at $0.75 per share. As of May 14, 2008, we have received
subscription proceeds of $2,522,976 for a total of 16,819,841 shares. We
accepted subscription agreements for these shares on May 14 and instructed
our
transfer agent to issue the shares. Each investor agreed to hold the shares
purchased in the offering for a minimum of one year. No placement fees were
payable in connection with this offering. We have used or will use the proceeds
of this offering to make installment payments required under the terms of our
recent acquisitions and for working capital.
Grant
of Restricted Shares to New CFO
As
of April 7, 2008, we agreed to issue 400,000 shares of restricted stock to
our
new Chief Financial Officer. The restricted stock will vest annually over five
years.
ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Summary
of Our Business
.
Collexis is a global software development company headquartered in Columbia,
South Carolina with operations in Geldermalsen, the Netherlands, Cologne,
Germany and Cincinnati, Ohio. We recently acquired Lawriter, the leading legal
online research provider to the small and medium size law firm market. We now
offer the world’s first pre-populated professional social network for life
science researchers, www.biomedexperts.com. We develop software that supports
knowledge intensive markets, building tools to search and mine large sets of
information. Our Collexis Engine 6.0 and 6.5 software enables discovery through
identification, ordering and aggregation of ideas and concepts. We generate
our
revenues primarily from licensing our software, providing services to the users
of our software, maintaining and supporting our software, selling related
hardware and hosting software on an application service provider basis.
Acquisition
of SyynX
.
On October 19, 2007, we acquired our long-time software development partner,
SyynX Solutions GmbH (“SyynX”), a privately-held software company based in
Cologne, Germany. We agreed to purchase all of the capital stock of SyynX for
an
aggregate cash consideration of €5,923,267, or approximately $8,488,343 at then
current exchange rates. We paid SyynX approximately $852,000 in the 12 months
ended June 30, 2007 for development, customer support and related services.
Our
consolidated financial results reflect the financial results of SyynX beginning
on October 19, 2007.
Licensing
and Publishing Agreement with VersusLaw, Inc.
On January 18, 2008, we entered into a licensing and publishing agreement with
VersusLaw, Inc. (“VersusLaw”), under which we acquired a non-exclusive,
transferable license to use VersusLaw’s legal-related collection of judicial
opinions. In exchange for the rights granted to us under the agreement, we
paid
to VersusLaw a licensing fee of $1,385,000, which was composed of: $100,000
in
cash; a secured promissory note for $650,000; and 846,666 shares of our common
stock with an agreed value of $0.75 per share, or $635,000. The principal of
the
note was due on February 18, 2008. We paid the note in two installments:
$100,000 on February 18, 2008 and the remaining $550,000 on April 14, 2008.
Acquisition
of Lawriter LLC.
On February 1, 2008, we acquired Lawriter LLC (“Lawriter”), an Ohio limited
liability company that provides online legal research services to a consortium
of bar associations under the name Casemaker
®
via monthly database subscription fees. We purchased all of the limited
liability company interests in Lawriter for an aggregate consideration of
$9,000,000, or $4,500,000 to each of the sellers, plus an Earnout, if
any.
For
more information about our acquisitions of SyynX and Lawriter and our license
agreement with VersusLaw, please see Notes 3 and 4 to the consolidated unaudited
financial statements included in Part I, Item 1, in this quarterly
report.
Need
for Additional Capital
.
We had cash and cash
equivalents
of approximately $265,000 as of March 31, 2008 and approximately $
791,000
as of
May 13, 2008. For the nine months ended March 31, 2008, we used a total of
approximately $4,735,000 in cash in connection with operating activities. We
anticipate continuing losses as we build out our platforms and develop the
sales
force to market our products. In addition, we must make payments totaling
approximately $4,460,000,
plus interest, in the next 12 months under the terms of the transactions
described above. Accordingly, we will need substantial additional capital for
these purposes as well as to pursue our growth plans, and we can give no
assurance that we will be able to raise the additional capital we need on
commercially acceptable terms or at all.
Results
of Operations
Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007
Total
Revenues
.
Total revenues increased by $838,000, or 145%, to over $1.4 million for the
three months ended March 31, 2008 compared to $578,000 for the three months
ended March 31, 2007. This increase was due primarily to database subscription
fees from Lawriter.
License
Revenue
.
License revenue increased by $82,000 or 40% to $287,000 for the three months
ended March 31, 2008 as compared to $205,000 for the three months ended March
31, 2007.
This
increase is primarily due to an increase in sales of new licenses and
subscriptions in the university and research markets.
Service
Revenue
.
Service revenue increased by $126,000, or 44%, to $413,000 for the three months
ended March 31, 2008 versus $287,000 for the three months ended March 31, 2007.
This increase is due to an increase in services revenues from SyynX, partially
offset by a minor decrease in services revenues from add-on profiles and
libraries sold to other clients.
Maintenance
& Support Revenue
.
Maintenance and support revenue increased by $90,000, or 108%, to $173,000
for
the three months ended March 31, 2008 as compared to $83,000 for the three
months ended March 31, 2007. This increase is due to an increase in the number
and value of maintenance contracts sold to new licensees.
Hardware
& Hosting Revenue
.
Hardware and hosting revenue increased to $45,000 for the three months ended
March 31, 2008 as compared to $3,000 for the three months ended March 31, 2007.
This increase is due primarily to an increase in revenues from SyynX, as well
as
an increase in hosting contracts sold in the period.
Database
Subscription Revenue
.
Database subscription revenues were $498,000 for the three months ended March
31, 2008. These revenues relate to Lawriter since the date of acquisition on
February 1, 2008.
Cost
of License Revenue
.
Cost of license revenue was $4,000 for the three months ended March 31, 2008
as
compared to $13,000 for the three months ended March 31, 2007. Cost of license
revenue is primarily comprised of third party fees charged on some product
sales.
Cost
of Service Revenue
.
Cost of service revenue increased $36,000, or 16%, to $262,000 for the three
months ended March 31, 2008 versus $226,000 for the three months ended March
31,
2007.
This
increase was due to an increase in costs associated with SyynX, partially offset
by an overall decrease in personnel costs associated with a reduction of our
professional services staff and the elimination of monthly fees paid to SyynX
prior to the acquisition.
Cost
of Maintenance & Support Revenue
.
Cost of maintenance and support revenue decreased $11,000, or 31%, to $24,000
for the three months ended March 31, 2008 versus $35,000 for the three months
ended March 31, 2007. This decrease is due primarily to a decrease in costs
associated with support personnel.
Cost
of Hardware & Hosting Revenue
.
Cost of hardware and hosting revenue was $33,000 for the three months ended
March 31, 2008 and is primarily due to costs related to SyynX.
Cost
of Database Subscription Revenue
.
Cost of database subscription revenue was $173,000 for the three months ended
March 31, 2008, and is composed primarily of data access fees and support
costs.
General
& Administrative Costs
.
General and administrative costs increased to
$2.8
million
for the three months ended March 31, 2008, compared to $1.8 million for the
three months ended March 31, 2007, an increase
of
$1
million, or
57%. This increase is due primarily to the cumulative effect of the following
costs:
|
·
|
a
$360,000 increase in depreciation and amortization expense, including
$308,000 in amortization of intangibles related to the SyynX and
Lawriter
acquisitions;
|
|
·
|
a
$200,000 increase in bad debt
expense;
|
|
·
|
$187,000
in costs related to Lawriter, including approximately $46,000 in
cash
compensation costs;
|
|
·
|
a
$143,000 increase in professional services and consulting fees
generally;
|
|
·
|
approximately
$126,000 in professional and other expenses related to our SyynX,
Lawriter
and VersusLaw transactions;
|
|
·
|
a
$103,000 increase in professional costs related to our being a public
company in the 2008 period;
|
|
·
|
a
$90,000 increase in cash compensation to the former SyynX managing
directors;
|
|
·
|
a
$78,000 increase in cash compensation for personnel we hired to expand
our
global headquarters in Columbia, South
Carolina
|
|
·
|
a
$63,000 increase in compensation costs for the additional SyynX personnel
post-acquisition;
|
|
·
|
a
$50,000 increase in insurance expense, including $41,000 in director
and
officer insurance expense;
and
|
|
·
|
a
$28,000 increase in state corporate license tax expense.
|
These
increases were partially offset by:
|
·
|
a
$396,000 decrease in stock option compensation costs;
and
|
|
·
|
a
$90,000 decrease in costs related to staff
reductions.
|
Sales
& Marketing
.
Sales and marketing costs increased substantially to $750,000 for the three
months ended March 31, 2008 compared to $67,000 for the three months ended
March
31, 2007, an increase of $683,000. This increase is due primarily to the salary
and travel costs associated with the enhanced efforts of our expanded sales
and
marketing team, which grew via organic changes and the SyynX and Lawriter
acquisitions from
seven
full-time employees as of March 31, 2007 to
15
full-time employees and a Chief Marketing Officer as of March 31, 2008. The
increase in sales and marketing costs in the period also reflects higher
expenses incurred in expanding our global marketing efforts.
Research
& Development
.
Research and development costs were $276,000 for the three months ended March
31, 2008, compared to $249,000 for the three months ended March 31, 2007, an
increase of $27,000. This cost is primarily due to increases in salary, travel
and related personnel costs associated with the expansion of our operations
and
the continued efforts to develop our Collexis Engine 6.0 and 6.5, as well as
an
increase in costs related to SyynX.
Total
Expenses and Net Loss
.
As a result of the above factors, as well as an increase in net interest expense
to $173,000 primarily related to our SyynX and Lawriter deferred acquisition
obligations, total expenses increased to $4.5 million for the three months
ended
March 31, 2008 compared to $2.3 million for the three months ended March 31,
2007. Consequently, our net loss increased to $3 million for the three months
ended March 31, 2008 versus a net loss of $1.8 million for the three months
ended March 31, 2007.
Nine
Months Ended March 31, 2008 Compared to Nine Months Ended March 31,
2007
Total
Revenues
.
Total revenues increased by $1.1 million, or 68% to over $2.7 million for the
nine months ended March 31, 2008 compared to $1.6 million for the nine months
ended March 31, 2007. This increase was due primarily to database subscription
fees from Lawriter and an increase in license revenue.
License
Revenue
.
License revenue increased $344,000 to $618,000 for the nine months ended March
31, 2008 compared to $274,000 for the nine months ended March 31, 2007. This
increase is primarily due to sales of new licenses and subscriptions in the
university and research markets.
Service
Revenue
.
Service revenue decreased $23,000 or 2% to $1 million for the nine months ended
March 31, 2008.
This
slight decrease is due to a decrease in services revenues generated via delivery
of add-on profiles and libraries sold to other clients, partially offset by
an
increase in services revenues related to SyynX
.
Maintenance
& Support Revenue
.
Maintenance and support revenue increased $174,000, or 64% to $447,000 for
the
nine months ended March 31, 2008 compared to approximately $273,000 for the
nine
months ended March 31, 2007. This increase is due to an increase in the number
and value of maintenance contracts sold to new licensees.
Hardware
& Hosting Revenue
.
Hardware and hosting revenue was $100,000 for the nine months ended March 31,
2008 compared to $13,000 for the nine months ended March 31, 2007. This increase
is due primarily to an increase in revenues related to SyynX, as well as an
increase in hosting contracts sold in the period.
Database
Subscription Revenue
.
Database subscription revenues were $498,000 for the nine months ended March
31,
2008. These revenues relate to Lawriter since the date of acquisition on
February 1, 2008.
Cost
of License Revenue
.
Cost of license revenue was $48,000 for the nine months ended March 31, 2008
compared to $13,000 for the nine months ended March 31, 2007. Cost of license
revenue is primarily comprised of third party fees charged on some of our
product sales.
Cost
of Service Revenue
.
Cost of service revenue increased $102,000, or 21%, to $592,000 for the nine
months ended March 31, 2008 compared to $490,000 for the nine months ended
March
31, 2007.
This
increase was due to an increase in costs associated with SyynX, partially offset
by an overall decrease in personnel costs associated with a reduction of our
professional services staff and the elimination of monthly fees paid to SyynX
prior to the acquisition.
Cost
of Maintenance & Support Revenue
.
Cost of maintenance and support revenue decreased $88,000, or 28% to $233,000
for the nine months ended March 31, 2008 compared to $321,000 for the nine
months ended March 31, 2007.
This
decrease is due primarily to a decrease in costs associated with support
personnel, partially offset by severance expense associated with staff
reductions during the period.
Cost
of Hardware & Hosting Revenue
.
Cost of hardware and hosting revenue was $70,000 for the nine months ended
March
31, 2008, compared to $11,000 for the nine months ended March 31, 2007. This
increase is primarily due to an increase in costs related to SyynX.
Cost
of Database Subscription Revenue
.
Cost of database subscription revenue was $173,000 for the nine months ended
March 31, 2008, and is composed primarily of data access fees and support
costs.
General
& Administrative Costs
.
General and administrative costs increased to $
6.2
million for the nine months ended March 31, 2008, compared to $4.3 million
for
the nine months ended March 31, 2007, an increase of
$1.9
million, or 45%. This increase is due primarily to the cumulative effect of
the
following costs
:
|
·
|
a
$580,000 increase in depreciation and amortization expense, including
$308,000 in amortization of intangibles related to the SyynX and
Lawriter
acquisitions;
|
|
·
|
a
$540,000 increase in foreign exchange
losses;
|
|
·
|
a
$288,000 increase in professional costs related to our being a public
company in the 2008 period;
|
|
·
|
a
$271,000 increase in cash compensation for personnel we hired to
expand
our global headquarters in Columbia, South
Carolina;
|
|
·
|
$203,000
in professional and other expenses related to our SyynX, Lawriter,
and
VersusLaw transactions;
|
|
·
|
a
$200,000 increase in bad debt
expense;
|
|
·
|
$187,000
in costs related to Lawriter, including approximately $46,000 in
cash
compensation costs; and
|
|
·
|
a
$165,000 increase in cash compensation to the former SyynX managing
directors.
|
These
increases are partially offset by:
|
·
|
a
$342,000 decrease in stock option compensation costs;
and
|
|
·
|
a
$135,000 decrease in costs related to staff
reductions.
|
Sales
& Marketing
.
Sales and marketing costs increased to $2.2 million for the nine months ended
March 31, 2008 compared to $258,000 for the nine months ended March 31, 2007,
an
increase of $1.9 million. This increase is due primarily to the salary and
travel costs associated with the enhanced efforts of our expanded sales and
marketing team, which grew via organic changes and via the SyynX and Lawriter
acquisitions from seven full-time employees as of March 31, 2007 to 15 full-time
employees and a Chief Marketing Officer as of March 31, 2008. The increase
in
sales and marketing costs in the period also reflects higher expenses we
incurred in expanding our global marketing efforts.
Research
& Development
.
Research and development costs increased to $1.1 million for the nine months
ended March 31, 2008, compared to $520,000 for the nine months ended March
31,
2007, an increase of $540,000. The increase is due to increases in salary,
travel and related personnel costs associated with the expansion of our
operations and the continued efforts to develop our Collexis Engine 6.0 and
6.5,
as well as an increase in costs related to SyynX.
Total
Expenses and Net Loss
.
As a result of the above factors, as well as an increase in net interest expense
to $299,000 primarily related to our SyynX and Lawriter deferred acquisition
payment obligations, total expenses increased to $10.6 million for the nine
months ended March 31, 2008 compared to $5.9 million for the nine months ended
March 31, 2007. Consequently, our net loss increased to $7.9 million for the
nine months ended March 31, 2008 versus a net loss of $4.3 million for the
nine
months ended March 31, 2007.
Liquidity
and Capital Resources
As
of March 31, 2008, we had cash and cash equivalents of approximately $265,000.
Our working capital deficit as of March 31, 2008 was approximately $7.2 million,
versus a working capital surplus of approximately $1.0 million at March 31,
2007, representing an increase in working capital deficit of approximately
$8.2
million. As of June 30, 2007, we had a working capital deficit of approximately
$550,000, thus our approximately $7.2 million working capital deficit as of
March 31, 2008 represented an increase in working capital deficit of
approximately $6.65 million during the nine months ended March 31, 2008. As
of
March 31, 2008, we had no outstanding indebtedness for borrowed money but owed
approximately $11,886,000 in deferred payment obligations related to our
acquisitions of SyynX and Lawriter and our agreement with
VersusLaw.
During
the nine months ended March 31, 2008, we used net cash of approximately
$4,735,000 for operating activities, primarily for developing our Collexis
Engine 6.0 and 6.5, building out our worldwide headquarters and adding to our
sales and marketing staff. We used additional cash of approximately $2,185,000
for investing activities, for the acquisition of SyynX and Lawriter, the
acquisition of the VersusLaw license, and the purchase of capital assets related
to the continued expansion of our facilities. During the nine months ended
March
31, 2008, net cash provided by financing activities was approximately
$7,060,000. We received net cash proceeds of approximately
$10,645,000
from sales of our common stock in private offerings, we used cash of $650,000
to
repay a series of loans obtained in June 2007 from a stockholder, and we used
cash to make payments of approximately $2,106,000 to the selling shareholders
of
SyynX and $500,000 to the sellers of Lawriter.
As
of May 13, 2008, we had cash and cash equivalents of approximately
$
791,000,
which reflects approximately $2,523,000 of proceeds received from our latest
private offering described under Note 7 to our consolidated unaudited financial
statements included in Part I, Item 1 in this report. We believe our current
cash balance, together with the additional $1,977,000 we expect to raise from
some of our existing stockholders in our latest private offering and any funds
generated from our operations, will be sufficient to meet our working capital
and capital expenditure requirements for approximately three months based upon
our estimates of funds required to operate our business during that period.
With
our present negative cash flows from operating activities and our current level
of cash, we will require additional working capital:
|
·
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to
make payments totaling approximately $4,460,000, plus interest, in
the
next 12 months under the terms of the SyynX, Lawriter and VersusLaw
transactions described above;
|
|
·
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to
fund our operations, including sales and
marketing;
|
|
·
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to
continue to research, develop and enhance our products,
particularly:
|
|
§
|
the
Casemaker online legal research service we recently acquired via
our
acquisition of Lawriter LLC;
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|
§
|
our
BioMedExperts social networking website; and
|
|
§
|
our
other
high-definition search and discovery
software;
|
|
·
|
to
respond to competitive pressures and/or perceived opportunities,
such as
investment, acquisition and international expansion activities;
and
|
|
·
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to
comply with our reporting obligations as a public company.
|
As
a result, we must seek additional capital to meet these needs, but we can
provide no assurances in that regard. We can give no assurance that we will
be
able to raise the additional capital needed on commercially acceptable terms
or
at all. See “Risk Factors” below.
Off-Balance
Sheet Arrangements
We
have not entered into any transactions with unconsolidated entities in which
we
have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material
continuing risks, contingent liabilities or any other obligations under a
variable interest in an unconsolidated entity that provides us with financing,
liquidity, market risk or credit risk support.
Accounting
Policies
For
a summary of our significant accounting policies, please see Note 2 to the
consolidated unaudited financial statements included in Part I, Item 1 in this
report.
Recent
Accounting Pronouncements
For
a summary of recently issued accounting standards, please see Note 2 to the
consolidated unaudited financial statements included in Part I, Item 1 in this
report.
RISK
FACTORS
In
addition to the other information set forth in this quarterly report, you should
carefully consider the risk factors described below as well as the risk factors
discussed in Part I, Item 1, “Description of Business - Risk Factors,” of our
transition report on Form 10-KSB, as amended, as of and for the six months
ended
June 30, 2007. These risk factors could materially affect our business,
financial condition or future results. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and operating
results.
We
need additional capital, and it may not be available on acceptable terms, or
at
all. If we do not receive the additional capital we need, our financial
condition and future prospects will suffer and our business could
fail.
As
of May 13, 2008, we had cash and cash equivalents of approximately
$791,000
.
We
believe our current balance of cash, cash equivalents and short-term
investments, combined with any funds generated from our operations and from
our
latest private offering, will be sufficient to meet our working capital and
capital expenditure requirements for approximately three months based upon
our
estimates of funds required to operate our business during that period. During
or after that time, however, we may need to raise additional funds for the
purposes described above in
Liquidity
and Capital Resources.
We
cannot
reassure our investors that if we need additional capital it will be available,
and if so, on terms beneficial to us. Historically, we have obtained external
financing primarily from sales of our common stock. To the extent we raise
additional capital by issuing equity securities, our shareholders may experience
substantial dilution (as occurred in our most recent private offering). If
we
are unable to obtain additional capital, we may then attempt to preserve our
available resources by various methods, including deferring the creation or
satisfaction of commitments, reducing expenditures on our research and
development programs or otherwise scaling back our operations. If we are unable
to raise additional capital or defer costs, that inability would have a material
adverse effect on our financial position, results of operations and prospects,
and our business could fail.
We
have had a history of operating losses and will likely incur future losses.
If
our losses continue and we are unable to achieve profitability, our stock price
will likely suffer.
We
have operated at a loss since our inception. For the nine months ended March
31,
2008, our net loss was approximately $7.92 million. We expect that our losses
will continue for the foreseeable future. Accordingly, we cannot assure you
that
we will be able to achieve or maintain profitability in the future. If we do
not
achieve and sustain profitability, it will likely negatively affect the market
price of the common stock and our financial condition.
Our
acquisitions could result in integration difficulties, unexpected expenses,
diversion of management’s attention and other negative
consequences.
Our
growth strategy is partly based on making acquisitions. We have recently
acquired SyynX and Lawriter, as described elsewhere in this report. We plan
to
continue to acquire complementary businesses, products and services if we have
the capital resources to do so. We must integrate the technology, products
and
services, operations, systems and personnel of acquired businesses, including
our recent acquisitions, with our own and attempt to grow the acquired
businesses as part of our company. The integration of other businesses is a
complex process and places significant demands on our management, financial,
technical and other resources. The successful integration of businesses we
acquire is critical to our future success, and if we are unsuccessful in
integrating these businesses, our financial and operating performance could
suffer. The risks and challenges associated with acquisitions
include:
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·
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the
inability to centralize and consolidate our financial, operational
and
administrative functions with those of the businesses we
acquire;
|
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·
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the
diversion of our management’s attention from other business
concerns;
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·
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our
inability to retain and motivate key employees of an acquired
company;
|
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·
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our
entrance into markets in which we have little or no prior direct
experience, such as Lawriter;
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·
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litigation,
indemnification claims and other unforeseen claims and liabilities
that
may arise from the acquisition or operation of acquired
businesses;
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·
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the
costs necessary to complete integration exceeding our expectations
or
outweighing some of the intended benefits of the acquisitions we
close;
|
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·
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the
inability to maintain the customer relationships of an acquired business;
and
|
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·
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the
costs necessary to improve or replace the operating systems, products
and
services of acquired businesses exceeding our
expectations.
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We
may be unable to integrate our acquisitions with our operations on schedule
or
at all. For example, we may be unable to enhance the service offerings of
Lawriter as we intend. We cannot assure you that we will not incur large
accounting charges or other expenses in connection with any of our acquisitions
or that our acquisitions will result in cost savings or sufficient revenues
or
earnings to justify our investment in, or our expenses related to, these
acquisitions.
We
are in extremely competitive markets, and if we fail to compete effectively
or
respond to rapid technological change, our revenues and market share will be
adversely affected.
Our
business environment and the search and software industries in general are
characterized by intense competition, rapid technological changes, changes
in
customer requirements and emerging new market segments. Our competitors include
many companies that are larger and more established and have substantially
more
resources than we do, such as Google, Yahoo, FASTsearch, Autonomy and Convera.
In our Lawriter online legal research business, we face strong competition
from
Reed LexisNexis
®
and Westlaw
®
.
Current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability
of
their products to address the needs of the markets that we serve. Accordingly,
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on our business, financial condition or results of
operations.
For
our strategy to succeed and to remain competitive, we must leverage our core
technology to develop new product offerings, update existing features and add
new components to our current products such as support for new data types and
taxonomies for specific vertical markets. These development efforts are
expensive, and we plan to fund these developments with our existing capital
resources, and other sources, such as equity issuances and borrowings that
may
be available to us. If these developments do not generate substantial revenues,
or we are unable to access other sources of capital on acceptable terms, our
business and results of operations will be adversely affected. We cannot assure
you that we will successfully develop any new products, complete them on a
timely basis or at all, achieve market acceptance or generate significant
revenues with them.
To
the extent our revenues are paid in foreign currencies, and currency exchange
rates become unfavorable, we may lose some of the economic value of the revenues
in U.S. dollar terms.
Conducting
business in currencies other than U.S. dollars subjects us to fluctuations
in
currency exchange rates. If the currency exchange rates were to change
unfavorably, the value of net receivables we receive in foreign currencies
and
later convert to U.S. dollars after the unfavorable change would be diminished.
This could have a negative impact on our reported operating
results.
ITEM
3A(T).
CONTROLS
AND PROCEDURES.
Based
on our management’s evaluation, with the participation of our Chief Executive
Officer, Mr. William D. Kirkland, and our Chief Financial Officer, Mark Murphy,
as of March 31, 2008, the end of the period covered by this report, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended, (the “Exchange Act”)) were effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act are recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC and is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There
have been no changes in our internal control over financial reporting identified
in the evaluation that occurred during the third quarter of fiscal year 2008
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1.
LEGAL
PROCEEDINGS
Collexis
and its wholly-owned subsidiary Lawriter LLC (“Lawriter”) are defendants in a
case commenced by JuriSearch Holdings LLC (“JuriSearch”), a vendor of
content
to Lawriter
,
in the
Superior Court for Los Angeles County, California. The case was commenced on
April 10, 2008, and asserts claims based on breach of contract, conversion,
and
replevin (an act to recover goods by somebody who claims to own them).
JuriSearch alleges that it has been damaged in an amount exceeding $500,000
by
Lawriter’s termination of the contract and asserted failure to return property
belonging to JuriSearch.
Lawriter believes that JuriSearch breached the contract by failing to provide
accurate and timely data, as well as by communicating directly with Lawriter’s
customers (the bar associations with whom Lawriter does business) concerning
the
contract in violation of the terms of the contract.
Collexis
and Lawriter have filed papers in the United States District Court for the
Central District of California to remove the suit to that court, and have filed
an answer and counterclaim. In addition, Lawriter filed a case against
JuriSearch on April 14, 2008 in the Court of Common Pleas of Hamilton County,
Ohio. Lawriter’s case asserts claims against JuriSearch for defamation, tortuous
interference with contracts, and breach of contract based on JuriSearch’s
communications with Lawriter’s customers. We believe that JuriSearch’s claims
are without merit and intend to defend the California lawsuit vigorously and
prosecute the Ohio lawsuit vigorously.
ITEM
2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We
have reported on Form 8-K all sales of unregistered securities that we made
in
the quarter ended March 31, 2008.
ITEM
3.
DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5.
OTHER
INFORMATION
On
April 7, 2008, we initiated a private offering of up to 30,000,000 shares of
common stock at $0.15 per share ($4,500,000) to our stockholders who have
previously purchased shares from us in private placements. The shares were
offered principally in proportion to the number of shares each investor had
previously purchased at $0.75 per share. As of May 14, 2008, we have received
subscription proceeds of $2,522,976 for a total of 16,819,841 shares. We
accepted subscription agreements for these shares on May 14 and instructed
our
transfer agent to issue the shares. Each investor agreed to hold the shares
purchased in the offering for a minimum of one year.
This
private offering is being conducted under the exemption from registration
contained in Section 4(2) of the Securities Act of 1933. In relying on the
exemption from registration provided by Section 4(2), we relied in part on
the
fact that the investors (a) acquired the securities for their own accounts,
for
investment only and not for distribution or resale to others; and (b) have
represented that they are accredited investors. There was no general
solicitation, given that the offering is being made only to a limited group
of
our current stockholders. No placement fees are payable in connection with
this
offering. The share certificates evidencing the purchased shares will be affixed
with a legend to indicate that the shares were sold in a private offering and
their transfer is restricted.
ITEM
6.
EXHIBITS
Exhibit
No.
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Description
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10.1
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Licensing
and Publishing Agreement by and between Collexis Holdings, Inc. and
VersusLaw, Inc. (incorporated by reference to Exhibit 10.1 to our
Current
Report on Form 8-K filed on January 25, 2008).
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10.2
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Secured
Promissory Note by Collexis Holdings, Inc. as maker to VersusLaw,
Inc. as
payee (incorporated by reference to Exhibit 10.2 to our Current Report
on
Form 8-K filed on January 25, 2008).
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10.3
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LLC
Interests Purchase Agreement dated February 1, 2008 by and among
Collexis
Holdings, Inc., Lawriter, Inc., Lawriter LLC, OSBA.COM LLC, and the
Institute of Legal Publishing, Inc. and other ancillary parties
(incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
on
February 4, 2008).
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10.4
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Security
Agreement dated February 1, 2008 by Lawriter LLC in favor of Institute
of
Legal Publishing, Inc.
(incorporated
by reference to Exhibit 10.2 to our Current Report on Form 8-K filed
on
February 4, 2008).
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10.5
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Three
Party Escrow Agreement dated February 1, 2008 by and among Collexis
Holdings, Inc., OSBA.COM LLC and Escrow Associates, LLC
(incorporated
by reference to Exhibit 10.3 to our Current Report on Form 8-K filed
on
February 4, 2008).
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10.6
|
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Letter
Agreement dated February 13, 2008 between Collexis Holdings, Inc.
and the
Institute of Legal Publishing, Inc. related to LLC Interests Purchase
Agreement dated February 1, 2008 by and among Collexis Holdings,
Inc.,
Lawriter, Inc., Lawriter LLC, OSBA.COM LLC, and
the
Institute of Legal Publishing, Inc.
and
other ancillary parties
(incorporated
by reference to Exhibit 10.8 to our Quarterly Report on Form 10-QSB
filed
on February 14, 2008)
.
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31.1
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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31.2
|
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
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32.1
|
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Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. This exhibit is not “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 but is instead furnished as provided
by
applicable rules of the SEC.
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32.2
|
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. This exhibit is not “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 but is instead furnished as provided
by
applicable rules of the SEC.
|
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.
Date:
May
15, 2008
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COLLEXIS
HOLDINGS, INC.
|
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By:
|
/s/
William D. Kirkland
|
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William
D. Kirkland
|
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Chief
Executive Officer
|
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(Principal
Executive Officer)
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