As filed
with the Securities and Exchange Commission on May 7, 2009
Registration No.
333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
COLLEXIS
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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7372
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30-0505595
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
No.)
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1201 Main
Street, Suite 980
Columbia,
South Carolina 29201
Tel: (803)
727-1113
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
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Copies
to:
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Leigh
Els Wilde, Esq.
McDaniel
& Henry LLP
1170
Peachtree St. NE, Suite 1200
Atlanta,
Georgia 30309
Tel: (404)
733-9000 Fax: (404)
880-0804
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(Name,
address and telephone number of agent for service)
Approximate
date of commencement of proposed sale to public: As soon as practicable after
this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
¨
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Accelerated
filer
¨
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Non-accelerated
filer
¨
(Do not check if
smaller reporting company)
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Smaller
reporting company
x
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CALCULATION
OF REGISTRATION FEE
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Title of each class of securities to be registered
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Amount to be
registered
(1)
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Proposed
maximum offering
price per share
(2)
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Proposed
maximum
aggregate
offering
price
(2)
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Amount of
registration fee
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Common
stock, $0.001 par value per share
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3,660,943
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$
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0.11
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$
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402,704
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$
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22.47
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Common
stock, $0.001 par value per share, issuable upon conversion of convertible
promissory note
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10,924,370
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$
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0.11
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$
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1,201,681
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$
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67.05
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Common stock, $0.001 par value per share, issuable
upon exercise of warrant
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14,420,168
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$
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0.11
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$
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1,586,218
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$
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88.51
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Total
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29,005,481
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N/A
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$
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3,190,603
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$
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178.03
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(1)
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In
accordance with Rule 416(a), the Registrant is also registering hereunder
an indeterminate number of shares that may be issued and resold resulting
from stock splits, stock dividends or similar
transactions.
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(2)
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Estimated
pursuant to Rule 457(c) of the Securities Act of 1933 solely for the
purpose of computing the amount of the registration fee based on the
average of the high and low prices reported on the OTC Bulletin Board on
April 30, 2009.
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
PROSPECTUS
Subject
to completion, dated May , 2009
COLLEXIS
HOLDINGS, INC.
29,005,481
Shares of Common Stock
This
prospectus relates to 29,005,481 shares of common stock of Collexis Holdings,
Inc. that may be sold from time to time by the selling stockholders named in
this prospectus, which includes:
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•
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3,660,943 shares
of common stock;
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•
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10,924,370
shares of common stock issuable upon the conversion of a secured
convertible promissory note held by the selling stockholders;
and
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•
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14,420,168
shares of common stock issuable upon the exercise of warrants held by the
selling stockholders.
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We will
not receive any of the proceeds from the sale of shares of our common stock by
the selling stockholders but we will receive funds from the exercise of the
warrants held by the selling stockholders if and when those warrants are
exercised for cash. We will utilize any proceeds from the exercise of such
warrants for general corporate and working capital purposes.
Our
common stock is quoted on the OTC Bulletin Board maintained by the Financial
Industry Regulatory Authority, or FINRA, under the symbol
“CLXS.OB.” The closing bid price for our common stock on April 30,
2009 was $0.11 per share, as reported on the OTC Bulletin Board.
Any
participating broker-dealers and any selling stockholders who are affiliates of
broker-dealers may be “underwriters” within the meaning of the Securities Act of
1933, as amended, or the Securities Act, and any commissions or discounts given
to any such broker-dealer or affiliate of a broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act. The
selling stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock.
Investing in our common stock
involves a high degree of risk. See “Risk Factors” beginning on page 5 to
read about factors you should consider before buying shares of our common
stock.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal
offense.
The date
of this Prospectus is May , 2009.
TABLE OF
CONTENTS
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PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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5
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SPECIAL
NOTES REGARDING FORWARD-LOOKING STATEMENTS
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9
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MARKET
DATA AND FORECASTS
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10
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USE
OF PROCEEDS
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10
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MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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10
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BUSINESS
AND PROPERTIES
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12
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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15
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MANAGEMENT
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22
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EXECUTIVE
COMPENSATION
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25
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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29
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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30
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CHANGES
IN ACCOUNTANTS
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30
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SELLING
STOCKHOLDERS
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30
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DESCRIPTION
OF CAPITAL STOCK
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32
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SHARES
ELIGIBLE FOR FUTURE SALE
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34
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PLAN
OF DISTRIBUTION
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35
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LEGAL
MATTERS
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36
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EXPERTS
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36
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AVAILABLE
INFORMATION
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37
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SEC
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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37
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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You
should only rely on the information contained in this prospectus. We have
not, and the selling stockholders have not, authorized any other person to
provide you with different information. This prospectus is not an offer to
sell, nor is it seeking an offer to buy, these securities in any state where the
offer or sale is not permitted. The information in this prospectus is accurate
only as of the date on the front cover, but the information may have changed
since that date.
PROSPECTUS
SUMMARY
The items in the following
summary are described in more detail later in this prospectus. This
summary provides an overview of selected information and does not contain all of
the information you should consider. Therefore, you should also read the
more detailed information set out in this prospectus, including the financial
statements and matters set forth under
“
Risk Factors.
”
Our
Business
Collexis
Holdings, Inc., sometimes referred to as “Collexis,” the “Company,” “we,” “us,”
or “our” in this prospectus, is a global software development company
headquartered in Columbia, South Carolina with operations in Cincinnati, Ohio,
Geldermalsen, the Netherlands and Cologne, Germany. We develop software that
supports the knowledge intensive market, building tools to search and mine large
sets of information. Our software enables search, aggregation, navigation and
discovery of information. Using public as well as proprietary thesauri of
industry specific language, we 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. 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.
We
operate several subsidiaries that support our core technology sales in the
government, enterprise and life science sectors. In February, 2008 we acquired
an industry-dedicated subsidiary, Lawriter LLC, which provides online legal
research services to lawyers in the United States primarily through state bar
associations. In addition, we now offer the world’s first pre-populated
professional social network for life science researchers,
www.biomedexperts.com.
Our
technology is based on the principle of fingerprinting or the semantic profiling
of a document. The Collexis software can create a fingerprint for any piece of
text containing relevant information. This process makes use of a structure of
professional terminology in a particular field, including thesaurus, taxonomies
or ontologies. A thesaurus contains selected words, terms and concepts and their
semantic relationships in a hierarchical structure also reflecting synonyms and
homonyms. The profiled fingerprint of a document is the starting point for
industry applications that we use in our primary markets. The document
fingerprint depends not only on the capabilities of the resulting application,
but also on the underlying functionality and scalability of the system
architecture to perform in industries as diverse as the legal, life sciences,
and defense/government markets.
Our
Industry
We focus
on three key markets:
• life
sciences (university and medical research, healthcare, biopharma);
• government
(defense and intelligence, and enterprise business intelligence);
and
• legal.
We
believe that each of these markets represents a search and discovery software
sales market of more than $1 billion according to Outsell, Inc. These
markets are highly competitive, however, and are served by many companies with
significantly greater capital resources than those available to
us. Our competitors include Google, Yahoo, FAST search, Autonomy,
Convera and others. In our Lawriter online legal research
business, we face strong competition from Reed LexisNexis® and
Westlaw®. These organizations span from large search providers like
Google, who continue to move into broad groups of commercial and government
sectors, to smaller competitors like Convera that compete with us in a specific
market – defense and intelligence.
Our
Competitive Strengths
The
superior Collexis approach is known as high definition search and knowledge
discovery. Collexis makes significant improvements to standard data
and information retrieval capabilities by discovering the relationships between
the elements of different content sources and uncovering unique information.
Additionally, Collexis can look at aggregate information from multiple content
sources to create potentially new hypotheses based on large volumes of
unstructured content.
Our
Growth Strategy
We have
four growth strategies:
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a
full service strategy in which we provide access to public or private
content through our customized software search and mining
applications;
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•
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a
subscription/application service provider (ASP) service in which we
function as an ASP with little or no
customization;
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•
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a
hybrid of these two strategies – mixing internal and external content in
pre-built interfaces as a hosted or onsite solution;
and
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providing
portal or community platforms/networks for key
markets.
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Risk
Factors
Our
ability to successfully operate our business and achieve our goals and
strategies is subject to numerous risks as discussed more fully in the section
titled “Risk Factors,” including for example:
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Our
auditors have substantial doubt as to our ability to continue as a going
concern.
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•
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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.
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•
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We
depend heavily on sales to our significant customers, and our business
could be adversely affected if any of them reduce or terminate their
purchases from us.
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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.
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•
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We
design our products to work with certain systems, and changes to these
systems may render our products incompatible with these
systems.
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•
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Our
software products are complex and may contain errors that could damage our
reputation and decrease sales.
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Because
of the technical nature of our business, our intellectual property is
extremely important to our business, and adverse changes to our
intellectual property could harm our competitive
position.
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The
costs of being an SEC reporting company are proportionately higher for
small companies like us.
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•
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We
have concluded that as of December 31, 2008, our internal control systems
over disclosure controls and procedures and financial reporting were
ineffective and may have significant deficiencies or material
weaknesses.
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•
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Our
common stock is not listed on a stock exchange, and trading on the OTC
Bulletin Board lacks the depth, liquidity and orderliness necessary to
maintain a liquid market in our common
stock.
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•
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Our
stock price has been and may continue to be
volatile.
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•
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Privacy
concerns relating to our technology could damage our reputation and deter
current and potential users from using our products and
services.
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•
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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.
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Any of
the above risks could materially and adversely affect our business, financial
position and results of operations. An investment in our common stock
involves risks. You should read and consider the information set forth in
“Risk Factors” and all other information set forth in this prospectus before
investing in our common stock.
Corporate
Information
Collexis
Holdings’ corporate headquarters are located at 1201 Main Street, Suite 980,
Columbia, South Carolina 29201. Our telephone number is (803)
727-1113. Additional information concerning Collexis, its
subsidiaries, history, products and markets is set forth in the “
Busine
ss and Properties
” section
below.
The
Offering
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Common
stock offered by selling stockholders
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29,005,481
shares, including 10,924,370 shares of common stock that are issuable upon
the conversion of a secured convertible promissory note held by the
selling stockholder and 14,420,168 shares of common stock that are
issuable upon the exercise of warrants held by the selling
stockholders. This number represents 16.17% of our outstanding
common stock, assuming conversion in full of the secured convertible
promissory note and exercise of the warrant in its entirety, based on
165,064,073 shares of common stock issued and outstanding as of April 30,
2009.
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Proceeds
to us
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We
will not receive proceeds from the resale of shares by the Selling
Stockholders. To the extent that the selling stockholders exercise, for
cash, all of the warrants covering the 14,420,168 shares of common stock
registered for resale under this prospectus, we would receive $1,009,412
in aggregate from such exercises. We intend to use such proceeds for
general corporate and working capital purposes.
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Dividends
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We
have never paid dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our
business, and do not anticipate paying any cash dividends in the
foreseeable future. See “Dividend Policy.”
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Trading
Symbol
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CLXS.OB
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Risk
Factors
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You
should consider carefully all of the information set forth in this
prospectus prior to investing in the securities. In particular, we urge
you to consider carefully the factors set forth under the heading “Risk
Factors.”
|
Summary
Consolidated Financial Information
The
following table summarizes selected historical financial data regarding our
business and should be read in conjunction with our consolidated financial
statements and related notes contained elsewhere in this prospectus and the
information under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
The
summary consolidated statement of income for the years ended June 30, 2008 and
2007 and the summary balance sheet data as of June 30, 2008 and 2007 are derived
from the audited consolidated financial statements of Collexis included
elsewhere in this prospectus. We derive our summary consolidated financial data
for the six months ended December 31, 2008 and 2007 from our unaudited
consolidated financial statements included elsewhere in this prospectus, which
include all adjustments, consisting of normal recurring adjustments, that our
management considers necessary for a fair presentation of our financial position
and results of operations as of the dates and for the periods presented. The
results of operations for past accounting periods are not necessarily indicative
of the results to be expected for any future accounting period.
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Six Months Ended
December
31,
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Fiscal Year Ended
June
30,
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2008
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2007
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2008
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2007
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Summary
Consolidated Statement of Operations:
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Net
sales
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$
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3,314,183
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$
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1,264,177
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$
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4,105,321
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$
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1,808,001
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Cost
of products sold
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1,335,703
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628,369
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1,653,617
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1,347,452
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Gross
profit
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1,978,480
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635,808
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2,451,704
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460,549
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Selling,
general and administrative expenses
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6,327,168
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5,432,881
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13,483,832
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7,083,918
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Operating
loss
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(4,348,688
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)
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(4,797,073
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)
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(11,032,128
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)
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(6,623,369
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)
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Interest
(expense)
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(253,993
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)
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(95,041
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)
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(553,148
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)
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48,141
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Other
income(expense)
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381,817
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162
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2,263
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11,693
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Income
before income taxes
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(4,220,864
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)
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(4,891,952
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)
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(11,583,013
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)
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(6,563,535
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)
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Provision
for income taxes
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154,036
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132,072
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323,255
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41,635
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Net
loss
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(4,066,828
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)
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(4,759,880
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)
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(11,259,758
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)
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|
(6,521,900
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)
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|
|
|
|
|
|
|
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|
|
|
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Summary
balance sheet data:
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|
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|
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Cash
and cash equivalent
|
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$
|
831,134
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$
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1,078,631
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$
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1,476,234
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|
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$
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187,261
|
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|
Working
capital
|
|
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(4,941,060
|
)
|
|
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(1,667,433
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)
|
|
|
(4,165,839
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)
|
|
|
(544,085
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)
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Total
assets
|
|
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19,225,980
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|
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12,514,625
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|
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21,893,375
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2,024,077
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Current
liabilities
|
|
|
6,967,929
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4,704,376
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7,061,724
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1,581,576
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Total
long-term liabilities
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|
7,820,408
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|
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4,636,416
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8,524,673
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650,0000
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Total
liabilities
|
|
|
14,788,337
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|
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9,340,792
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15,586,397
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2,231,576
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Total
stockholders’ equity
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|
|
4,437,643
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|
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|
3,173,833
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|
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6,306,978
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(207,499
|
)
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RISK
FACTORS
An investment in our common stock
involves a high degree of risk. You should carefully consider the risks
described below, together with all of the other information included in this
prospectus, before making an investment decision. If any of the following
risks actually occurs, our business, financial condition or results of
operations could suffer. In that case, the trading price of our common
stock could decline and you may lose all or part of your investment. You should
read the section entitled “Special Notes Regarding Forward-Looking Statements”
immediately following these risk factors for a discussion of what types of
statements are forward-looking statements, as well as the significance of such
statements in the context of this prospectus.
RISKS
RELATED TO OUR FINANCIAL CONDITION
Our auditors have
substantial doubt as to our ability to continue as a going
concern.
Our
independent registered public accounting firm issued its report dated October
14, 2008 on our financial statements for the year ended June 30, 2008, which
included an explanatory paragraph that expressed substantial doubt about
Collexis’ ability to continue as a going concern. As discussed in
Note 2 to the Financial Statements, as of June 30, 2008 and December 31, 2008,
we have incurred substantial operating losses, net cash outflows from operations
and we have a working capital deficiency. We anticipate that such
conditions will continue in the foreseeable future. Because we have
been issued an opinion by our auditors that includes an explanatory paragraph
that substantial doubt exists as to whether we can continue as a going concern,
it may be more difficult for us to attract investors. Our future is
dependent upon our ability to obtain financing and upon future profitable
operations from the development and commercialization of our
products. We intend to seek additional funds through private
placements of equity or the incurrence of debt. Our financial
statements have been prepared on a going concern basis and do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event we cannot continue in existence.
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
April 30, 2009, we had cash and cash equivalents of approximately $1.7
million. We believe our current balance of cash and cash equivalents
combined with any funds generated from our operations will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
two months based upon our estimates of funds required to operate our business
during that period.
In order
to meet our short-term working capital needs, we are currently conducting a
private placement of our common stock for up to $4.0 million. As of
the date of this report, we have accepted subscriptions for $2,765,000 from an
investor who has orally agreed to finance our working capital needs through the
purchase of shares of our common stock, up to the amount of this private
placement, on an as needed basis until this offering is fully
subscribed. The investor is not contractually obligated to purchase
additional shares of our common stock, therefore, there can be no assurance that
we will receive additional funding through the private placement of our common
stock and failure to achieve such funding will result in a significant negative
impact to our business and our operating results.
We will
need to raise additional funds for the following purposes:
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to
fund our operations, including sales, marketing and research and
development programs;
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•
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to
fund our deferred payments on
acquisitions;
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•
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to
fund any growth we may experience;
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•
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to
enhance and/or expand the range of products and services we
offer;
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to
increase our promotional and marketing activities;
and
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to
respond to competitive pressures and/or perceived opportunities, such as
investment, acquisition and international expansion
activities.
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We cannot
be sure additional capital will be available, and if it is, it will be on terms
beneficial to us. Historically, we obtained external financing
primarily from sales of our common stock. To the extent we raise
additional capital by issuing equity securities, our stockholders may experience
substantial dilution. 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, result of operations, prospects and our business could
fail.
We
have 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 six months ended December 31,
2008, and the six months ended December 31, 2007, our net losses were
approximately $4.1 million and $4.8 million, respectively. These losses include
expenditures associated with developing and selling software products, including
our Collexis Engine. We expect that our losses will continue for the foreseeable
future as we continue to invest in Collexis Engine enhancements and other
programs.
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
have a material adverse effect on the market price of our common stock and our
financial condition.
We have concluded
that as of December 31, 2008, our internal control systems over disclosure
controls and procedures and financial reporting were ineffective and may have
significant deficiencies or material weaknesses.
If we fail to
meet our reporting obligations in a timely manner in the future due to
ineffective internal control systems, our business could be
harmed.
We have
evaluated our internal control systems over disclosure controls and procedures
and financial reporting as required by Section 404 of the Sarbanes-Oxley Act for
the six months ended December 31, 2008 and found them to be ineffective. If we
identify significant deficiencies or material weaknesses in our internal
controls over financial reporting that we cannot remediate in a timely manner,
or if we are unable to receive a positive attestation from our independent
registered public accounting firm with respect to our internal controls over
financial reporting for the year ending June 30, 2010, then we could be subject
to scrutiny by regulatory authorities, the trading price of our common stock
could decline and our ability to obtain any necessary equity or debt financing
could suffer.
The
costs of being an SEC registered company are proportionately higher for small
companies like us.
The
Sarbanes-Oxley Act of 2002 and the related SEC rules and regulations have
increased the scope, complexity and cost of corporate governance, reporting and
disclosure practices. We expect to experience increasing compliance
costs, including costs related to internal controls, as a result of the
Sarbanes-Oxley Act. These necessary costs are proportionately higher
for a company of our size and will affect our profitability more than that of
some of our larger competitors.
RISKS
RELATED TO OUR BUSINESS
Our ability to
achieve profitability depends on the Collexis Engine and other product
offerings. If our products fail to achieve market acceptance, we will
be unable to grow our business and achieve profitability.
We have
expended significant financial resources, as well as management attention, on
the Collexis Engine and related product offerings and expect our expenditures
will continue to be significant. We believe that our future
profitability will depend on our ability to successfully market and achieve
market acceptance for these products. The degree of market acceptance
of the Collexis Engine and related products will depend upon a number of
factors, including:
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the
advantages of the Collexis Engine over competing
products;
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our
ability to innovate and develop new features for the Collexis
Engine;
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customer
needs for search products and knowledge
discovery;
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the
price and cost-effectiveness of the Collexis Engine;
and
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the
strength of sales, marketing and distribution
support.
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We are
aware of a significant number of competing well-established search products
offered by companies with significantly greater financial and marketing
resources than us, such as Google, Yahoo, FASTsearch, Autonomy and
Convera. Even if the Collexis Engine achieves market acceptance, we
may not be able to maintain that market acceptance over time if competing
products are introduced that are viewed as more effective or are more favorably
received than ours. If the Collexis Engine does not achieve and
maintain market acceptance, we believe that we will not be able to generate
sufficient revenue to attain profitability.
We
depend heavily on sales to our significant customers, and our business could be
adversely affected if any of them reduce or terminate their purchases from
us.
Seven
customers represented approximately 50% of our total gross revenues for the year
ended June 30, 2008. One customer, National Institutes of Health,
represented 21% of our gross revenues for the fiscal year ended June 30,
2008. We may continue to depend on a limited number of companies for
a significant portion of our revenue. If a significant customer
reduces or delays orders from us, terminates its relationship with us or fails
to pay its obligations to us, our revenues could decrease
significantly.
We
are at an early stage of development, which makes it difficult to evaluate our
future prospects and may increase the risk that we will not be
successful.
We are a
company in the early stages of development, with a short operating history to
use in assessing our future prospects. We will encounter risks and
challenges as an early-stage company in a new and rapidly evolving
market. Our inability to address these challenges successfully could
materially harm our business, operating results and financial
condition
We
have limited marketing experience and capacity.
We
currently have 14 sales and marketing employees and independent
contractors. We anticipate committing significant additional
resources to develop and grow a marketing and sales force. If we
decide to license or sell our products to distributors, those licensees or
distributors, rather than us, may realize a significant portion of the profits
from those products.
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 existing 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.
We
design our products to work with certain systems, and changes to these systems
may render our products incompatible with these systems. As a result,
we may be unable to sell our products.
Our
ability to sell our products depends on the compatibility of our products with
other software and hardware products. These products may change or
new products may appear that are incompatible with our products. If
we fail to adapt our products to remain compatible with other vendors’ software
and hardware products or fail to adapt our products as quickly as our
competitors, we may be unable to sell our products.
Our
software products are complex and may contain errors that could damage our
reputation and decrease sales.
Our
complex software products may contain errors that people may detect at any point
in the products’ life cycles. We cannot be assured that, despite our
testing and quality assurance efforts and similar efforts by current and
potential customers, errors will not be found in our products. The
discovery of an error may result in loss of or delay in market acceptance and
sales.
Because
of the technical nature of our business, our intellectual property is extremely
important to our business, and adverse changes to our intellectual property
could harm our competitive position.
We
believe that our success depends, in part, on our ability to protect our
proprietary rights and technology. Historically, we have relied on a combination
of copyright, patents, trademark and trade secret laws, employee confidentiality
and invention assignment agreements, distribution and OEM software protection
agreements and other methods to safeguard our technology and software
products. Risks associated with our intellectual property include the
following:
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pending
patent applications may not be
issued;
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intellectual
property laws may not protect our intellectual property
rights;
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others
may challenge, invalidate, or circumvent any patent issued to
us;
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rights
granted under patents issued to us may not provide competitive advantages
to us;
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unauthorized
parties may attempt to obtain and use information that we regard as
proprietary despite our efforts to protect our proprietary
rights;
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others
may independently develop similar technology or design around any patents
issued to us; and
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effective
protection of intellectual property rights may be limited or unavailable
in some foreign countries in which we
operate.
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We
may be subject to intellectual property rights claims, which are costly to
defend, could require us to pay damages and could limit our ability to use
certain technologies in the future.
Companies
in the software and technology industries own large numbers of patents,
copyrights, trademarks and trade secrets and frequently enter into litigation
based on allegations of infringement or other violations of intellectual
property rights. We face the possibility of intellectual property
rights claims against us. Our technologies may not be able to
withstand any third-party claims or rights against their use. Any
intellectual property claims, with or without merit, could be time-consuming,
expensive to litigate or settle and could divert management resources and
attention.
With
respect to any intellectual property rights claim, we may have to pay damages or
stop using technology if it is ultimately found by a court to be in violation of
a third party’s rights. We may have to seek a license for the
technology, which may not be available on reasonable terms and may significantly
increase our operating expenses. The technology also may not be
available for license to us at all. As a result, we may also be
required to develop alternative, non-infringing technology, which could require
significant effort and expense. If we cannot license or develop
technology for the infringing aspects of our business, we may be forced to limit
our product and service offerings and may be unable to compete
effectively. Any of these results could harm our operating results
and financial condition.
We
depend on key personnel.
Our
ability to develop our business depends upon our attracting and retaining
qualified management, marketing and technical personnel, including
consultants. Because the number of qualified technical personnel,
including software developers, is limited and competition for such personnel is
intense, there can be no assurance that we will be able to attract or retain
such persons. The loss of key personnel or the failure to recruit
additional key personnel could significantly impede attainment of our objectives
and have a material adverse effect on our financial condition and results of
operations.
RISKS
RELATED TO THE MARKET FOR OUR STOCK GENERALLY
Our
common stock is not listed on a stock exchange, and trading on the OTC Bulletin
Board lacks the depth, liquidity and orderliness necessary to maintain a liquid
market in our common stock.
Although
shares of our common stock sometimes trade on the OTC Bulletin Board, there is
only limited trading in our common stock. Trading on the OTC Bulletin
Board lacks the depth, liquidity and orderliness necessary to maintain a liquid
market in our common stock. For these reasons, we do not expect a
liquid market for our common stock to develop on the OTC Bulletin
Board.
Our
common stock is not listed on a stock exchange, and the bid price for our common
stock remains below $5.00 per share. Our common stock is subject to
additional federal and state regulatory requirements that require, among other
things, broker-dealers to satisfy special sales practice requirements, including
making individualized written suitability determinations and receiving a
purchaser’s consent before consummating any transaction in the common
stock. Our common stock is considered a “penny stock” pursuant to the
rules adopted under Section 15(g) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. The penny stock rules require, among
other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided
not to trade penny stocks because of the requirements of the penny stock rules
and, as a result, the number of broker-dealers willing to act as market makers
in such securities is limited. If our common stock are subject to the
penny stock rules, investors will find it more difficult to dispose of their
shares. Further, these restricted market and additional regulatory
requirements limit the liquidity of our common stock, and they may adversely
affect our ability to raise additional financing by issuing our
securities.
We
may issue shares of preferred stock in the future that could have superior
rights to our common stock.
Our
articles of incorporation permit our board of directors to authorize and issue
“blank check” preferred stock. Accordingly, our board of directors has the
authority to fix and determine the relative rights and preferences of preferred
shares, as well as the authority to issue such shares, without further
stockholder approval. As a result, our board of directors could authorize the
issuance of a series of preferred stock that would grant to holders preferred
rights to our assets upon liquidation, the right to receive dividend coupons
before dividends would be declared to common stockholders and the right to the
redemption of such shares, together with a premium, prior to the redemption of
the common stock. To the extent that we issue shares of preferred stock, the
rights of the holders of the common stock could be impaired, including with
respect to liquidation.
Our
stock price has been and may continue to be volatile.
The
securities of software companies, particularly those whose shares are traded on
the OTC Bulletin Board, have experienced significant price and volume
fluctuations that have often been unrelated to the companies’ operating
performance. The trading prices and volumes of our shares of common
stock have fluctuated widely since the shares began trading on the OTC Bulletin
Board on July 2, 2007. Announcements of technological innovations for
new commercial products by us or our competitors, developments concerning
proprietary rights or general conditions in the information technology and
software industries may have a significant effect on our business and on the
market price of our common stock. Sales of shares of our common stock
by existing security holders could also have an adverse effect on the market
price of our common stock, given the limited trading volume of our common
stock.
We
do not intend to pay dividends on our common stock.
We have
not declared any dividends or made any distributions on our common
stock. We currently intend to retain any future earnings and do not
expect to pay any dividends in the foreseeable future.
SPECIAL
NOTES REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve a number of risks
and uncertainties. Such forward-looking statements are made pursuant to the
“safe-harbor” provisions of the Private Securities Litigation Reform Act of
1995. 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 captions “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
“Description of Business,” 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:
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the
availability and adequacy of capital to pay the deferred payment
obligations we owe and to support and grow our
business;
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changes
in economic conditions in the U.S. and in other countries in which we
currently do business;
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currency
exchange rates;
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failure
to integrate new products and newly acquired companies and the diversion
of management resources relating to acquisitions, and the negative effect
on our earnings relating to the amortization or potential write-down of
acquired assets or goodwill;
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fluctuations
in operating results and earnings, including timing of cash flows and
company performance;
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market
acceptance of new products or the failure of new products to operate as
anticipated;
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actions
taken or not taken by others, including competitors, as well as
legislative, regulatory, judicial and other governmental
authorities;
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competition
in our industry;
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changes
in our business and growth strategy, capital improvements or development
plans;
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disputes
regarding our intellectual property;
and
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other
factors discussed under the section entitled “Risk Factors” or elsewhere
in this report.
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These and
additional factors are set forth under Risk Factors above in this
report. You should carefully review these risks and additional risks
described in other documents we file from time to time with the Securities and
Exchange Commission (“SEC”), including our annual report on Form 10-K filed on
October 14, 2008. The cautionary statements made in this report are intended to
be applicable 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.
MARKET
DATA AND FORECASTS
Unless
otherwise indicated, information in this prospectus concerning economic
conditions and our industry is based on information from independent industry
analysts and publications, as well as our estimates. Except where otherwise
noted, our estimates are derived from publicly available information released by
third-party sources, as well as data from our internal research, and are based
on such data and knowledge of our industry, which we believe to be reasonable.
None of the independent industry publications used in this prospectus was
prepared on our or our affiliates’ behalf. Market data contained in
this prospectus includes estimates and projections that are based on a number of
assumptions. If any one or more of the assumptions underlying the market data
turn out to be incorrect, actual results may differ significantly from the
projections.
USE
OF PROCEEDS
We will
not receive any of the proceeds from the sale of shares of our common stock by
the selling stockholders but we would receive $1,009,412 in aggregate from the
exercise of the warrants held by the selling stockholders if and when those
warrants are exercised for cash. We will utilize any proceeds from
the exercise of such warrants for general corporate and working capital
purposes. We will have complete discretion over how we may use the proceeds, if
any, from any exercise of the warrants.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our
common stock began being quoted on the Over-the-Counter Bulletin Board on July
2, 2007 under the symbol “CLXS.OB.” The following table sets forth,
for the periods indicated, the high and low bid prices for our common stock as
reported on the Over-the-Counter Bulletin Board. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
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Closing Bid Prices
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High
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Low
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Year
Ending June 30, 2009
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Third
Quarter (through April 30)
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$
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0.30
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$
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0.10
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Second
Quarter
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$
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0.55
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$
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0.10
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First
Quarter
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$
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0.60
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$
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0.30
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Year
Ended June 30, 2008
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Fourth
Quarter
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$
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0.75
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$
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0.23
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Third
Quarter
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$
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0.77
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$
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0.22
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Second
Quarter
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$
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2.00
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$
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0.41
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First
Quarter
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$
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12.00
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$
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1.90
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Holders
As of
April 30, 2009, there were approximately 98 stockholders of record of our common
stock. The number of record holders does not include persons who held our
common stock in nominee or “street name” accounts through brokers. The last
reported sale price of our common stock on April 30, 2009 was $0.11 per
share.
Transfer
Agent and Registrar
Our
independent stock transfer agent is American Stock Transfer and Trust Company,
located in New York, New York. Their mailing address is 59 Maiden
Lane, Plaza Level, New York, NY 10038. Their phone number is (718)
921-8124.
Dividend
Policy
We have
never declared dividends or paid cash dividends. Our board of directors
will make any future decisions regarding dividends. We currently intend to
retain and use any future earnings for the development and expansion of our
business and do not anticipate paying any cash dividends in the foreseeable
future.
Our board
of directors has complete discretion on whether to pay dividends. Even if
our board of directors decides to pay dividends, the form, frequency and amount
will depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors
that the board of directors may deem relevant.
Securities Authorized for Issuance
Under Equity Compensation Plans
The
following chart provides information regarding our equity compensation plans
(including individual compensation arrangements) for the period ended March 31,
2009:
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Plan category
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Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
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Weighted-average
exercise price of
outstanding options,
warrants and rights
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Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
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Equity
compensation plans not approved by security holders
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17,370,280
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$
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0.4283
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—
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Director
Options
. Options granted to our directors are fully vested as
of the date of grant and expire five years from the date of grant, if not
terminated earlier under the terms of the nonqualified stock option
agreement. We have granted nonqualified stock options to certain of
our directors as follows:
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Mark
S. Germain –1,000,000 shares at an exercise price of $0.75 per
share;
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Mark
Auerbach – 270,000 shares at an exercise price of $0.75 per
share;
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Frank
C. Carlucci – 270,000 shares at an exercise price of $0.75 per
share;
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John
D. Macomber – 270,000 shares at an exercise price of $0.75 per share;
and
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John
J. Regazzi – 270,000 shares at an exercise price of $0.75 per
share.
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•
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Andrew
A. Sorensen – 270,000 shares at an exercise price of $0.18 per
share.
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Post-Merger Employee Options
.
We have granted certain individuals and entities, including certain of our
executive officers, nonqualified options to purchase 6,305,000 shares of our
common stock at an exercise price of $0.75 per share. These options vest
quarterly over a three-year period and expire between three and eight years from
the date of grant, if not terminated earlier under the terms of the nonqualified
stock option agreement. In certain of these agreements, the options vest
immediately upon a change in control or if the employee is terminated without
cause or resigns for good reason (as each term is defined in the stock option
agreement).
Pre-Merger Employee
Options
. Before the reverse merger on February 13,
2007, Collexis B.V. granted nonqualified stock options to several of
its officers, directors and employees. These options were converted in the
reverse merger to options to acquire shares of our common stock, and the
exercise price and amount of shares were adjusted accordingly. These
options vest quarterly over a three-year period and expire three to five years
from the date of grant, if not terminated earlier under the terms of the
agreement. As of March 31, 2009, nonqualified options to purchase
8,315,280 share of our common stock have been granted under these terms with
exercise prices ranging from $0.10 per share to $0.3875 per
share.
In
addition, the Company’s Chief Financial Officer was granted 400,000 shares of
restricted stock with a three year vesting period beginning April 7,
2008.
BUSINESS
AND PROPERTIES
Overview
Collexis
Holdings, Inc. is a global software development company headquartered in
Columbia, South Carolina with operations in Cincinnati, Ohio, Geldermalsen, the
Netherlands and Cologne, Germany. We develop software that supports
the knowledge intensive market, building tools to search and mine large sets of
information. Our software enables search, aggregation, navigation and
discovery of information. Using public as well as proprietary
thesauri of industry specific language, we 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. 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.
We
operate several subsidiaries that support our core technology sales in the
government, enterprise and life science sectors. We recently acquired an
industry-dedicated subsidiary, Lawriter LLC, that provides online legal research
services to lawyers in the United States primarily through state bar
associations. In addition, we now offer the world’s first
pre-populated professional social network for life science researchers,
www.biomedexperts.com.
Our
technology is based on the principle of fingerprinting or the semantic profiling
of a document. The Collexis software can create a fingerprint for any
piece of text containing relevant information. This process makes use
of a structure of professional terminology in a particular field, including
thesaurus, taxonomies or ontologies. A thesaurus contains selected
words, terms and concepts and their semantic relationships in a hierarchical
structure also reflecting synonyms and homonyms. The profiled fingerprint of a
document is the starting point for industry applications that we use in our
primary markets. The document fingerprint depends not only on the
capabilities of the resulting application, but also on the underlying
functionality and scalability of the system architecture to perform in
industries as diverse as the legal, life sciences, and defense/government
markets.
Our
system architecture has three tiers. We configure the first tier, an
application interface, according to customer specifications and made available
only to authorized users via intranet or extranet for specialized database
searches. A proprietary interface arranges for communications between
the user and our technology, thus providing easy integration in existing
environments. The second tier, Collexis Engine, is a core data
processing engine that executes commands that extract, match and relate pieces
of text. Our third tier of architecture is a permanent storage layer,
which stores the location of all information used by the Collexis Engine for
later retrieval; however, actual source material is not typically stored on our
system.
Corporate
History
Collexis
was formed when, on February 13, 2007, Collexis Holdings, Inc., a Delaware
corporation, merged with and into Technology Holdings, Inc., a Nevada
corporation. As the surviving company, Technology Holdings, Inc. changed its
name to Collexis Holdings, Inc. Immediately before the merger, Collexis
Holdings, Inc. had acquired through a share exchange approximately 99.5% of the
outstanding capital stock of Collexis B.V. On June 27, 2008, we acquired the
remaining 0.5% of Collexis B.V. stock we did not previously own in exchange for
183,333 shares of our common stock. Before the merger, Technology Holdings, Inc.
was a development stage company with no operations. Collexis B.V. was founded in
1999 in the Netherlands and through these transactions became the operating
subsidiary of Collexis Holdings and acquirer for accounting
purposes.
On
October 19, 2007, we acquired our long-time software development partner, SyynX
WebSolutions GmbH, a privately-held software company based in Cologne,
Germany. Additionally, on February 1, 2008, we acquired Lawriter,
LLC, an Ohio based company that provides online legal research services to bar
associations under the name Casemaker® via monthly database subscription
fees. Currently, Lawriter has 28 state bar associations as
customers. See “Financial Statements – Note 3, Acquisitions” for more
information. To further expand our offerings to legal industry
clients, on January 18, 2008, we entered into a licensing and publishing
agreement with VersusLaw, Inc., under which we acquired a perpetual,
non-exclusive, transferable license to use VersusLaw’s legal-related collection
of judicial opinions.
On
February 26, 2009, we filed a petition with the Court in the Netherlands to file
for bankruptcy protection for Collexis B.V. The bankruptcy was
declared effective on March 3, 2009 and a Trustee was appointed to liquidate the
subsidiary. Since the acquisition of SyynX, our long time software
development partner in October, 2007, management had implemented an aggressive
strategy to reorganize Collexis B.V. in an attempt to make it profitable and
economically viable. It became apparent, through these efforts, that
continuing the operations of Collexis B.V. was not in the best long-term
interest of the Company. To date, management believes this decision
has had no negative impact on the Company’s business or
prospects.
Our
Markets and Competition
We focus
on three key markets:
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life
sciences (university and medical research, healthcare,
biopharma);
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government
(defense and intelligence, and enterprise business intelligence);
and
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We
believe that each of these markets represents a search and discovery software
sales market of more than $1 billion according to Outsell, Inc. These
markets are highly competitive, however, and are served by many companies with
significantly greater capital resources than those available to
us. Our competitors include Google, Yahoo, FAST search, Autonomy,
Convera and others. In our Lawriter online legal research
business, we face strong competition from Reed LexisNexis® and
Westlaw®. These organizations span from large search providers like
Google, who continue to move into broad groups of commercial and government
sectors, to smaller competitors like Convera that compete with us in a specific
market – defense and intelligence.
Our
Competitive Strengths
The
superior Collexis approach is known as high definition search and knowledge
discovery.
Collexis
makes significant improvements to standard data and information retrieval
capabilities by discovering the relationships between the elements of different
content sources and uncovering unique information. Additionally, Collexis can
look at aggregate information from multiple content sources to create
potentially new hypotheses based on large volumes of unstructured content.
We have
four related growth strategies:
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a
full service strategy in which we provide access to public or private
content through our customized software search and mining
applications;
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a
subscription/application service provider (ASP) service in which we
function as an ASP with little or no
customization;
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a
hybrid of these two strategies – mixing internal and external content in
pre-built interfaces as a hosted or onsite solution;
and
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providing
portal or community platforms/networks for key
markets.
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For our
full service customer, generally large government and business users, we offer
customized software search and mining applications on a licensed basis with
add-on service contracts and software development tools. In the
United States, we have licensed our software to the National Institutes of
Health for work in connection with its analysis of grant
applications. In Europe, we have entered into similar arrangements
with the World Health Organization, Wellcomes Trust, the Royal Dutch Academy of
Arts and Science, and the University of Rotterdam, among others.
Our
second sales strategy is a subscription service for our Collexis Engine or other
relevant applications, in which we function as an application service provider.
In this sales approach we provide little or no customization of our software.
Subscribers can purchase access on a daily, monthly, or annual basis, price
based on the number of users. For example, in the life sciences field, our
clients can use the Collexis Engine to search and mine patent literature, grant
applications, clinical trials, medical literature and other databases.
Representative clients using our software in this manner include Mayo Clinic,
Johns Hopkins University and the University of South Carolina.
Our third
sales approach provides customers with some customizations of our basic search
and mining technology, but we still serve primarily as an ASP.
Our
fourth and newest sales strategy is based on the development of a community
portal (Biomed Experts) that allows our target markets to communicate and
collaborate with experts and broaden their knowledge in their respective
fields.
Currently
we are transitioning from being a traditional license and maintenance software
company to a subscription based application provider. Working with
internal and external development resources, we believe that recurring
subscription application solutions will enhance our future growth opportunities
and financial performance. We intend to offer our solutions on an
annual per-user basis or priced based on enterprise access.
Our
Products
Science,
Technical, and Medical Business
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Expertise
Profiling – building automated profiles of experts, based on the ideas
derived from their publications, grants, or other materials. These
solutions are typically delivered as a service – with Collexis hosting the
applications, managing the quality, managing the applications, and
building the interfaces.
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Knowledge
Dashboards – building topic-specific applications from one or more data
sources for researchers. These solutions are also delivered as a
service, with Collexis hosting the application, managing quality, managing
the applications and customizing the interfaces. These applications
would be described as “faceted search” or “navigation” applications with
visualization tools and do involve expert analysis on the topic
selected.
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Search
and Aggregation – creating high precision search applications within
specific domain areas based on controlled vocabularies (Thesauri,
Taxonomies, Ontologies, etc). These applications can be delivered
locally or hosted, and some of them are prepackaged solutions like the
Collexis Mediator platform for searching papers, grants, clinical trials,
and other topics in the Biomedical
Domain.
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Core
Indexing Technology – for large enterprises, and primarily for government
agencies, our core search platform can be purchased for local installation
and to do custom indexing and application build/design for very specific
large agency projects. In particular, in fields where information is
highly sensitive to a company or classified by the US government, this is
an effective option for Collexis to still deliver our core services to
this community. These engagements are billed as license &
maintenance engagements and will often require training and SME services
from Collexis.
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BiomedExperts
– Collexis has
created a social networking website for the Biomedical community. The site
generates advertising revenue, but is also the technical underpinning for the
Collexis profiling offerings in the Biomedical Domain area.
Legal
Business
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Casemaker
2.1 -
Casemaker
is a
legal research service for State Bar Associations and their members.
Currently, 28 of the 50 state bar associations in the US subscribe
to the Casemaker service, and they comprise the group that we refer to as
the Casemaker Consortium. Our legal research service provides access to a
library of over 12 Million legal documents for our participating Bar
Association and their members. The service is sold as a multi-year
contract where Lawriter, our legal subsidiary, provides the service on our
equipment, in our hosting environment, but through the local state bar
association website.
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CasemakerX
– a jobs site with basic networking components, which is aimed at US
College Law Students. The system is offered in conjunction with the
state bar associations and accredited law schools. It is not a
for-profit offering, but a separated part of the Casemaker service
provided to State bars.
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Casemaker
Medical – a version of the Collexis search and aggregation platform built
for attorneys who specialize in medical case work. This solution is
a hosted subscription product which allows attorneys to identify research
work and biomedical experts to use in their legal
research.
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Marketing,
Sales and Distribution
We
have 14 sales and marketing staff of which nine are employees and four are
independent contractors. We operate primarily using a direct sales
model through these employees. We also conduct indirect sales through
partners, such as Lockheed Martin, that incorporate our products into their bids
and technologies. We grant limited, royalty-free licenses to selected
projects supporting healthcare advancement in developing
countries. We have sales representation, either through sales
representatives or through indirect partners, in the United States, Europe,
South America and in the Asian-Pacific region.
We
generally deliver our software on CDs, although we occasionally deliver our
software electronically through our secure File Transfer Protocol site or
through a web download. We do not offer any customers or resellers a
right of return.
Intellectual
Property
We
recently filed international and domestic patent applications directed to
multiple improvements we have made to the version 6.0 release of the Collexis
Engine. We believe these patent applications substantially strengthen
our ability to protect our technology, particularly as it relates to our
enhanced Collexis Engine. While intellectual property rights are
governed by a variety of laws in numerous countries and there is a risk that our
business could infringe on the intellectual property rights of third parties, we
believe we will be able to conduct our business without infringing on the
intellectual property rights of others.
We have
registered a patent in the Netherlands, which covers a method, including
apparatus and software, for generating knowledge profiles from textual
information in at least one structured datafile, resulting in a list containing
a cluster of related concepts that can be used interactively to find other
datafiles containing similar clusters. This patent expires on May 9,
2020
Our
Employees
As
of March 31, 2009, we had 51 employees and 11 independent contractors. All of
our employees are full-time employees. We consider our relationship
with our employees to be good. In the U.S., we had 35 employees, and
16 of our employees are based in Europe.
Litigation
Collexis
and its wholly-owned subsidiary Lawriter LLC are defendants in a case commenced
by JuriSearch Holdings LLC (“JuriSearch”), a vendor of content to Lawriter. 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 successfully had the case moved from the Superior Court for
Los Angeles County, California to the United States District Court for the
Central District of California. The parties have been through
mediation without a resolution. We believe that JuriSearch’s claims
are without merit and intend to defend the lawsuit vigorously.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
We are a
global software development company with worldwide headquarters in Columbia,
South Carolina. We develop software that supports the knowledge intensive
market, building tools to search and mine large sets of information. Our
Collexis Engine 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.
Acquisitions
and Expansions
Acquisition of SyynX Solutions
GmbH
. On October 19, 2007, we acquired our long-time software development
partner, SyynX Solutions GmbH. For the six months ended June 30, 2007, we paid
SyynX approximately $457,000 for software development services, customer support
and related services. We purchased all of the capital stock of SyynX for an
aggregate cash consideration of €5,923,267, or $8,488,343 at then current
exchange rates. Our consolidated financial results reflect the financial results
of SyynX beginning on October 19, 2007.
On
January 6, 2009, we entered into an agreement amending the Share Purchase
Agreement for SyynX. The amendment relates to the payment terms of
the second installment which was due on October 1, 2008 in the amount of
€1,494,304 plus accrued interest at 8% for a period of 90 days (the payment
grace period). As of December 31, 2008, the second installment amount
due with accrued interest was €1,524,006. The amendment provides for
the following payments, which as of the date of this prospectus have been paid
only as set forth below:
(1) €300,000
on or before January 7, 2009 (paid on January 6, 2009);
(2) €400,000
on or before February 3, 2009;
(3) €100,000
on or before February 17, 2009; and
(4) €724,006
on or before March 31, 2009 (which includes €29,702 accrued
interest).
In
addition, pursuant to the amendment, interest accrues on the unpaid second
installment balance at an annual rate of 12% from January 1, 2009, until
paid. Based on the remaining second installment payments above, the
estimated interest payments accrued through April 30, 2009 are approximately
€49,181 or approximately $64,182 based on the April 30, 2009 exchange
rate.
As noted
above, we have not satisfied the agreed upon payment schedule for the second
installment. Pursuant to the terms of the Share Purchase Agreement,
during such time as any installment remains outstanding, the former SyynX
shareholders have a contractual lien against the SyynX shares and the right to
use the SyynX software and products developed by the Company with the right to
grant sub-licenses until complete payment of the purchase price. We
have reached a verbal agreement with the former shareholders of SyynX to extend
these payment due dates and delay their contractual remedies during such
extension.
Licensing and Publishing Agreement
with VersusLaw, Inc.
On January 18, 2008, we entered into a licensing and
publishing agreement with VersusLaw, Inc., under which we acquired a perpetual,
non-exclusive, transferable license to use VersusLaw’s legal-related collection
of judicial opinions. In exchange for the rights granted to us, we paid
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 upon 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.
The
licensing and publishing 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.
Acquisition of Lawriter LLC.
On February 1, 2008, we acquired Lawriter LLC, an Ohio based company that
provides online legal research services to bar associations under the name
Casemaker
®
via
monthly database subscription fees. 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, plus an earn out, if any.
On
February 1, 2009, we entered into an agreement with the OSBA and Lawcorp to
extend the due date of their February 1, 2009 payments of $313,750 and $750,000,
respectively, until April 1, 2009. On April 1, 2009, the OSBA
obligation was satisfied by a cash payment of $213,750 and a credit against the
balance of the monthly fee that would otherwise be payable by the Ohio State Bar
Association to Lawriter for an additional 12 months beyond the 60 month period
provided for in the original purchase agreement.
The
Lawcorp obligation was satisfied through two cash payments by us of $186,250 on
April 1, 2009 and $100,000 on April 15, 2009. The balance of the
amount due by us to Lawcorp for this installment payment was satisfied by our
transfer to Lawcorp of the computer server which is presently in active service
for the fulfillment of the Casemaker service to the 28 state bar association
members. The data that resides on the server includes all digitalized data
owned by Lawriter Corporation or Collexis, including the Casemaker search
engine, version 2.1. Pursuant to our agreement with Lawcorp, we are
required to fully maintain the equipment and update the data as required by the
agreement with the state bar associations. We are still entitled to
utilize this equipment, data and search engine to operate our Lawriter business
until July 1, 2009. At any time on or before July 1, 2009, we have
the right to repurchase the server, data and search engine for $464,000 plus
annualized interest of 12%. If any new state bar association
signs a membership agreement with Lawriter on or before July 1, 2009, such
agreement will be assigned to Lawcorp if we are unable to re-purchase the
assets.
Results
of Operations
We
developed the table below to provide a comparison of our operating results for
the years ending June 30, 2008 and 2007. In the prior year, our Form
10-KSB/A transitional report filed on October 29, 2007 included Results of
Operations for the six months ended June 30, 2007. Therefore, to make
management’s discussion and analysis of results more meaningful, comparable full
year results are presented below.
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6 Months Ended
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12 Months Ended
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December 31,
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June 30,
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2006
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June 30,
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2007
|
|
|
June 30,
|
|
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|
Unaudited
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2007
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|
Unaudited
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2008
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|
Revenue
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|
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|
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|
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License
revenue
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|
$
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45,877
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|
|
$
|
367,650
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|
$
|
413,527
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|
$
|
728,326
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Service
revenue
|
|
|
652,743
|
|
|
|
410,661
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|
|
|
1,063,404
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|
|
|
1,613,660
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|
|
Maintenance
& support revenue
|
|
|
166,559
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|
|
|
121,891
|
|
|
|
288,450
|
|
|
|
368,907
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|
|
Hardware
& hosting revenue
|
|
|
8,756
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|
|
|
33,864
|
|
|
|
42,620
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|
|
|
143,430
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|
|
Database
subscription revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,250,998
|
|
|
Total
Revenue
|
|
$
|
873,935
|
|
|
$
|
934,066
|
|
|
$
|
1,808,001
|
|
|
$
|
4,105,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of license revenue
|
|
$
|
929
|
|
|
$
|
26,873
|
|
|
$
|
27,802
|
|
|
$
|
49,940
|
|
|
Cost
of service revenue
|
|
|
300,884
|
|
|
|
223,509
|
|
|
|
524,393
|
|
|
|
955,826
|
|
|
Cost
of maintenance & support revenue
|
|
|
310,083
|
|
|
|
457,348
|
|
|
|
767,431
|
|
|
|
148,586
|
|
|
Cost
of hardware & hosting revenue
|
|
|
11,827
|
|
|
|
15,999
|
|
|
|
27,826
|
|
|
|
104,573
|
|
|
Cost
of subscription revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394,692
|
|
|
General
and administrative
|
|
|
2,172,275
|
|
|
|
2,591,298
|
|
|
|
4,763,573
|
|
|
|
9,525,514
|
|
|
Sales
and marketing
|
|
|
179,110
|
|
|
|
1,242,995
|
|
|
|
1,422,105
|
|
|
|
3,065,258
|
|
|
Research
and development
|
|
|
399,842
|
|
|
|
498,398
|
|
|
|
898,240
|
|
|
|
1,446,208
|
|
|
Total
Expenses
|
|
|
3,374,950
|
|
|
|
5,056,420
|
|
|
|
8,431,370
|
|
|
|
15,690,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income
|
|
|
(2,501,015
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)
|
|
|
(4,122,354
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)
|
|
|
(6,623,369
|
)
|
|
|
(11,585,276
|
)
|
|
Other
income
|
|
|
30,228
|
|
|
|
29,606
|
|
|
|
59,834
|
|
|
|
2,263
|
|
|
Loss
before income tax
|
|
|
(2,470,787
|
)
|
|
|
(4,092,748
|
)
|
|
|
(6,563,535
|
)
|
|
|
(11,583,013
|
)
|
|
Income
tax benefit (expense)
|
|
|
41,635
|
|
|
|
-
|
|
|
|
41,635
|
|
|
|
323,255
|
|
|
NET
LOSS
|
|
$
|
(2,429,152
|
)
|
|
$
|
(4,092,748
|
)
|
|
$
|
(6,521,900
|
)
|
|
$
|
(11,259,758
|
)
|
Fiscal
Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30,
2007
Total
Revenues
. Total revenues increased approximately $2,297,000,
or 127%, to approximately $4,105,000 for the twelve months ended June 30, 2008
as compared to approximately $1,808,000 for the twelve months ended June 30,
2007. This increase was due to the expansion of efforts in the
university and research markets resulting in increases in license revenue,
service revenue, and maintenance and support revenue, and more notably, revenue
contribution by our acquisitions of Lawriter and SyynX, of $1,251,000 and
$428,000, respectively.
License
Revenue
. License revenue increased approximately $314,000, or
76%, to approximately $728,000 for the twelve months ended June 30, 2008 as
compared to approximately $414,000 in the twelve months ended June 30,
2007. This increase is primarily due to sales of new licenses and
subscriptions in the government, university and research markets.
Service
Revenue
. Service revenue increased approximately $550,000, or
52%, to approximately $1,614,000 for the twelve months ended June 30, 2008
versus approximately $1,063,000 for the twelve months ended June 30,
2007. This increase arises from sales efforts to deliver services to
new clients, and to existing clients who seek to add profiles and libraries to
new and existing subscription applications. Additionally, the SyynX
acquisition contributed approximately $351,000 to such growth.
Maintenance & Support
Revenue
. Maintenance and support revenue increased
approximately $81,000, or 28%, to approximately $369,000 for the twelve months
ended June 30, 2008 compared to approximately $288,000 for the twelve months
ended June 30, 2007. This increase is due primarily to sales of
maintenance contracts to new and existing license customers.
Hardware & Hosting
Revenue
. Hardware and hosting revenue increased approximately
$100,000, or 236%, to approximately $143,000 in the twelve months ended June 30,
2008 versus approximately $43,000 in the twelve months ended June 30,
2007. This increase is due primarily to the SyynX acquisition,
approximately $79,000, and an increase in both Collexis, B.V. and Collexis, Inc.
hosting activities.
Database Subscription Revenue.
Database subscription revenue was approximately $1,251,000 in the twelve
months ended June 30, 2008. This was a new revenue line for us as a
result of our acquisition of Lawriter, LLC on February 1,
2008. Therefore, no revenue for this service line existed in the
twelve months ended June 30, 2007.
Cost of License
Revenue
. Cost of license revenue was approximately $50,000 in
the twelve months ended June 30, 2008 as compared to approximately $28,000 in
the twelve months ended June 30, 2007, an increase of approximately $22,000, or
79%. This increase was driven by increased license revenue year over
year.
Cost of Service
Revenue
. Cost of service revenue increased approximately
$432,000, or 82%, to approximately $956,000 for the twelve months ended June 30,
2008 versus approximately $524,000 for the twelve months ended June 30,
2007. This was due primarily to an increase in service revenue and
SyynX costs to support our services contracts.
Cost of Maintenance & Support
Revenue
. Cost of maintenance and support revenue decreased
approximately $619,000, or 81%, to approximately $148,000 for the twelve months
ended June 30, 2008 compared to approximately $767,000 for the twelve months
ended June 30, 2007. Prior year costs were primarily driven by
increased staff, infrastructure and costs in the Netherlands. Since
October 2007, management has undertaken an aggressive approach to reduce the
costs of our operations in the Netherlands, including staff
reductions.
Cost of Hardware & Hosting
Revenue
. Cost of hardware and hosting revenue was
approximately $105,000 in the twelve months ended June 30, 2008 versus
approximately $28,000 in the twelve months ended June 30, 2007, an increase of
approximately $77,000, or 275%. This increase was a function of the
SyynX acquisition which added approximately $73,000 of incremental
costs.
Cost of Subscription
Revenue
. Cost of subscription revenue was approximately
$395,000 in the twelve months ended June 30, 2008. This was a new expense for us
due to the acquisition of Lawriter, LLC on February 1,
2008. Therefore, no comparable cost for this expense line existed in
the twelve months ended June 30, 2007.
General & Administrative
Expenses
. General and administrative expenses increased to
approximately $9.5 million for the twelve months ended June 30, 2008 versus
approximately $4.8 million for the twelve months ended June 30, 2007, an
increase of $4.8 million, or 100%. This increase was due primarily to
the expansion of our business and product lines, including higher costs
associated with: compensation expense of approximately $452,000;
increases in legal and accounting fees of approximately $1,033,000 associated
with the SyynX, Lawriter, and VersusLaw license acquisitions as well as the
costs of being a public company; SyynX and Lawriter incremental general and
administrative expenses of approximately $568,000; increased depreciation and
amortization costs of approximately $1,084,000 associated with intangibles and
other assets acquired from SyynX and Lawriter; increased insurance cost of
approximately $192,000 primarily due to directors and officers insurance costs;
increased interest expense of approximately $553,000 due to deferred acquisition
costs; increased bad debts and travel costs of approximately $180,000 and
$140,000, respectively; and other costs including the impact of foreign exchange
losses of approximately $335,000.
Sales &
Marketing
. Sales and marketing expenses increased to
approximately $3.1 million for the twelve months ended June 30, 2008 compared to
approximately $1.4 million for the twelve months ended June 30, 2007, an
increase of approximately $1.7 million, or 121%.. The SyynX and
Lawriter acquisitions contributed approximately $317,000 and $138,000,
respectively, to the increase. Additionally, due to our enhanced
efforts of an expanded sales and marketing staff, salaries, commissions and
travel costs increased approximately $535,000, $47,000 and $189,000,
respectively. Advertising and professional services relating to
marketing increased by approximately $314,000 and $222,000, respectively, as we
expanded marketing efforts to build our visibility in the
marketplace. This increase was offset by a decrease of approximately
$110,000 in miscellaneous sales and marketing expenses primarily in the
Netherlands.
Research &
Development
. Research and development costs increased from
approximately $898,000 for the twelve months ended June 30, 2007 to
approximately $1,446,000 for the twelve months ended June 30, 2008, an increase
of approximately $548,000, or 61%. This increase is due
primarily to the SyynX acquisition. Historically, Collexis B.V. would
use SyynX as its third party development and support
provider. Collexis B.V. reflected all these costs as R&D in the
twelve months ended June 30, 2007, or approximately $782,000. In
fiscal 2008, prior to the acquisition, they reflected approximately $60,000 as
R&D. Since the acquisition, SyynX is the primary provider of
R&D type services to Collexis and we track these costs based on a review of
work performed.
Total Expenses and Net
Loss
. As a result of the above factors, as well as our
decision to fully reserve our deferred tax asset in 2006, total expenses
increased to approximately $15.7 million for the twelve months ended June 30,
2008 compared to approximately $8.4 million for the twelve months ended June 30,
2007, an increase of approximately $7.3 million, or 87%. Our net loss
increased to approximately $11.6 million for the twelve months ended June 30,
2008 compared to approximately $6.5 million for the twelve months ended June 30,
2007, an increase of approximately $5.1 million, or 78%.
Six
Months Ended December 31, 2008 Compared to Six Months Ended December 31,
2007
Total Revenues.
Total
revenues increased approximately $2.05 million, or 162%, to approximately $3.31
million for the six months ended December 31, 2008 as compared to approximately
$1.26 million for the six months ended December 31, 2007. Of this increase,
approximately $560,000, or 27%, was due to the expansion of sales efforts in the
university and research markets. The remaining increase was due
primarily to the revenue contribution by our acquisition of Lawriter of
approximately $1.49 million.
License Revenue.
License
revenue decreased approximately $75,000, or 27%, to approximately $204,000 for
the six months ended December 31, 2008 as compared to approximately $278,000 in
the six months ended December 31, 2007. This decrease is primarily due to fewer
sales of new licenses and subscriptions in the government, university and
research markets.
Service Revenue.
Service
revenue increased approximately $454,000, or 69%, to approximately $1.1 million
for the six months ended December 31, 2008 versus approximately $659,000 for the
six months ended December 31, 2007. This increase was primarily driven by our US
market, where approximately $331,000 of our period sales revenue was derived
from sales efforts to deliver services to new existing clients who seek to add
profiles and libraries to subscription applications. The remaining increase of
approximately $123,000 was attributable to our European market.
Maintenance & Support Revenue.
Maintenance and support revenue increased approximately $180,000, or 65%,
to approximately $457,000 for the six months ended December 31, 2008 compared to
approximately $277,000 for the six months ended December 31, 2007. This increase
was due primarily to sales of maintenance contracts to new and existing license
customers.
Hardware & Hosting Revenue.
Hardware and hosting revenue remained flat year over year for the six
months ended December 31, 2008 and 2007 at approximately $51,000. We
are placing less of an emphasis on hosting client applications.
Database Subscription Revenue.
Database subscription revenue was approximately $1.49 million for the six
months ended December 31, 2008. This was a new revenue line for us as a result
of our acquisition of Lawriter, LLC on February 1, 2008. Therefore, no revenue
for this service line existed for the six months ended December 31,
2007.
Cost of License Revenue.
Cost
of license revenue was approximately $180,000 for the six months ended December
31, 2008 as compared to approximately $43,000 for the six months ended December
31, 2007, an increase of approximately $137,000, or 319%. This
increase was primarily due to a revenue sharing accrual resulting from the
execution of a license contract, with one of our strategic partners at the end
of December 2008. The revenue associated with this license contract,
of approximately $300,000, will be recognized as the work is completed which is
expected in the third quarter of 2009.
Cost of Service Revenue.
Cost
of service revenue increased approximately $339,000, or 100%, to approximately
$677,000 for the six months ended December 31, 2008 versus approximately
$338,000 for the six months ended December 31, 2007. This
increase was a direct result of the increase in service revenue experienced for
the six month period.
Cost of Maintenance & Support
Revenue.
Cost of maintenance and support revenue decreased approximately
$179,000, or 85%, to approximately $31,000 for the six months ended December 31,
2008 compared to approximately $210,000 for the six months ended December 31,
2007. The decrease was due to the minimal support required to service
our maintenance contracts.
Cost of Hardware & Hosting
Revenue.
Cost of hardware and hosting revenue was approximately $73,000
for the six months ended December 31, 2008 versus approximately $37,000 for the
six months ended December 31, 2007, an increase of approximately $36,000, or
97%. This increase is a function of the increased costs we are incurring from
our third party hosting centers as well as approximately $25,000 of added costs
from SyynX.
Cost of Subscription Revenue.
Cost of subscription revenue was approximately $375,000 for the six
months ended December 31, 2008. This was a new expense for us due to the
acquisition of Lawriter, LLC on February 1, 2008. Therefore, no comparable cost
for this expense line existed for the six months ended December 31,
2007.
General & Administrative
Expenses.
General and administrative expenses increased to approximately
$4.42 million for the six months ended December 31, 2008 versus approximately
$3.25 million for the six months ended December 31, 2007, an increase of
approximately $1.17 million, or 36%. This increase was due primarily to
incremental general and administrative expenses of approximately $60,000 and
$861,000 for SyynX and Lawriter respectively, increased depreciation and
amortization costs of approximately $579,000 associated with intangibles and
other assets acquired from SyynX and Lawriter, increased salaries and
commissions of approximately $111,000, increased insurance costs of
approximately $79,000 primarily due to directors and officers insurance costs,
increased costs associated with computer expenses of approximately $35,000 and
increased stock option expense of approximately $35,000. These
increases were offset by decreases in costs relating to the reduction of the
Company’s Netherland’s operations of approximately $352,000 and a decrease in
professional fees of approximately $242,000.
Sales & Marketing.
Sales
and marketing expenses increased to approximately $1.54 million for the six
months ended December 31, 2008 compared to approximately $1.41 million for the
six months ended December 31, 2007, an increase of approximately $131,000, or
9%. The SyynX and Lawriter acquisitions contributed approximately $376,000 and
$200,000, respectively, and we incurred increased professional fees of
$47,000. These increases were offset by reduced costs in the
Netherlands of approximately $298,000, reduced travel and entertainment costs of
approximately $67,000, reduced salaries, commissions and vacation costs of
approximately $102,000, and miscellaneous other expenses of approximately
$25,000.
Research & Development.
Research and development costs decreased from approximately $779,000 for
the six months ended December 31, 2007 to approximately $370,000 for the six
months ended December 31, 2008, a decrease of approximately $409,000, or 53%.
This decrease was driven by the demands of client projects, which has changed
our focus from traditional research and development initiatives.
Total Expenses and Net Loss.
As a result of the above factors, total operating expenses increased to
approximately $6.33 million for the six months ended December 31, 2008 compared
to approximately $5.43 million for the six months ended December 31, 2007, an
increase of approximately $900,000, or 16%. Additionally, interest
expense due to acquisition debt increased by approximately
$159,000. These increased expenses were offset by a favorable foreign
exchange rate of approximately $382,000, an increase in tax benefits relating to
deferred taxes recognized in Germany on the SyynX assets of approximately
$22,000, and the revenue increase of approximately $2.1 million. For
the six months ended December 31, 2008, the net loss of $4.1 million was
favorable when compared to the $4.8 million loss for the six months ended
December 31, 2007.
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.
Recent
Accounting Pronouncements
The SEC’s
Office of the Chief Accountant and the staff of the Financial Accounting
Standards Board (“FASB”) issued press release 2008-234 on September 30, 2008
(“Press Release”) to provide clarifications on fair value
accounting. The Press Release includes guidance on the use of
management’s internal assumptions and the use of “market” quotes. It
also reiterates the factors in SEC Staff Accounting Bulletin (“SAB”) Topic 5M
which should be considered when determining other-than-temporary impairment: the
length of time and extent to which the market value has been less than cost;
financial condition and near-term prospects of the issuer; and the intent and
ability of the holder to retain its investment for a period of time sufficient
to allow for any anticipated recovery in market value.
On
October 10, 2008, the FASB issued FASB Staff Position (“FSP”) Statement of
Financial Accounting Standard (“SFAS”) 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”. This
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that asset is not active. The FSP is effective upon
issuance, including prior periods for which financial statements have not been
issued. For the Company, this FSP was effective for the quarter ended September
30, 2008. The Company considered the guidance in the Press Release
and in FSP SFAS 157-3 when conducting its review for other-than-temporary
impairment as of December 31, 2008.
FSP SFAS
140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest Entities,” was
issued in December 2008 to require public entities to disclose additional
information about transfers of financial assets and to require public
enterprises to provide additional disclosures about their involvement with
variable interest entities. FSP SFAS 140-4 also requires certain
disclosures for public enterprises that are sponsors and servicers of qualifying
special purpose entities. The FSP is effective for the first
reporting period ending after December 15, 2008. FSP SFAS 140-4 had
no material impact on the financial position of the Company.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which clarifies that fair value is the amount that would be exchanged to
sell an asset or transfer a liability in an orderly transaction between market
participants. Further, the standard establishes a framework for
measuring fair value in generally accepted accounting principles and expands
certain disclosures about fair value investments. SFAS 157 is
effective for fiscal years beginning after November 15, 2007. The
Company does not expect the adoption of SFAS 157 to have a material effect on
its consolidated financial position, results of operations or cash
flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not expect the
adoption of SFAS 159 to have a material effect on its consolidated financial
position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS
141(R)”) which replaces SFAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FAS 141(R) is effective for acquisitions by the Company taking
place on or after July 1, 2009. Early adoption is prohibited. The
Company will assess the impact of SFAS 141(R) if and when a future acquisition
occurs.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Before this statement, limited guidance existed for reporting
noncontrolling interests (minority interest). As a result, diversity in practice
exists. In some cases minority interest is reported as a liability and in others
it is reported in the mezzanine section between liabilities and equity.
Specifically, SFAS 160 requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financials statements and
separate from the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. SFAS 160 clarifies that changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interests. SFAS 160
is effective for the Company on July 1, 2009. Earlier adoption
is prohibited. The Company is currently evaluating the impact, if any, the
adoption of SFAS 160 will have on its financial position, results of operations
and cash flows.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improving the transparency of financial reporting. It is intended to
enhance the current disclosure framework in SFAS 133 by requiring that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. This disclosure better conveys the purpose of
derivative use in terms of the risks that the entity is intending to manage.
SFAS 161 is effective for the Company on July 1, 2009. This pronouncement does
not impact accounting measurements but will result in additional disclosures if
the Company is involved in material derivative and hedging activities at that
time.
In
February 2008, the FASB issued FASB Staff Position No. 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP
140-3”). This FSP provides guidance on accounting for a transfer of a
financial asset and the transferor’s repurchase financing of the asset.
This FSP presumes that an initial transfer of a financial asset and a
repurchase financing are considered part of the same arrangement (linked
transaction) under SFAS No. 140. However, if certain criteria are met, the
initial transfer and repurchase financing are not evaluated as a linked
transaction and are evaluated separately under Statement 140. FSP 140-3
will be effective for financial statements issued for fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years and
earlier application is not permitted. Accordingly, this FSP is effective for the
Company on July 1, 2009. The Company is currently evaluating the impact,
if any, the adoption of FSP 140-3 will have on its financial position, results
of operations and cash flows.
In April
2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP 142-3”). This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets”. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141(R), “Business
Combinations,”
and
other U.S. generally accepted accounting principles. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited. Accordingly, this FSP is effective for the
Company on July 1, 2009. The Company does not believe the adoption of
FSP 142-3 will have a material impact on its financial position, results of
operations or cash flows.
In May,
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (GAAP)
in the United States (the GAAP hierarchy). SFAS No. 162 will be
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board’s amendments to AU Section 411, “The Meaning of
Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The FASB
has stated that it does not expect SFAS No. 162 will result in a change in
current practice. The application of SFAS No. 162 will have no effect on the
Company’s financial position, results of operations or cash flows.
In June,
2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities,” (“FSP EITF 03-6-1”). The Staff Position provides that
unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents are participating securities and must be
included in the earnings per share computation. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. All prior-period
earnings per share data presented must be adjusted retrospectively. Early
application is not permitted. The adoption of this Staff Position
will have no material effect on the Company’s financial position, results of
operations or cash flows.
MANAGEMENT
Directors
The
following information is furnished with respect to each our directors as of
April 30, 2009. Each director’s term lasts until the 2009 Annual
Meeting of Stockholders and until he is succeeded by another qualified director
who has been elected. There are no family relationships between any
of the directors or executive officers.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Mark
S. Germain
|
|
58
|
|
Chairman
and Director
|
|
Frank
C. Carlucci
|
|
78
|
|
Vice-Chairman
and Director
|
|
William
D. Kirkland
|
|
47
|
|
Chief
Executive Officer and Director
|
|
Mark
Auerbach
|
|
71
|
|
Director
|
|
John
D. Macomber
|
|
81
|
|
Director
|
|
John
J. Regazzi
|
|
60
|
|
Director
|
|
Dr.
Andrew A. Sorensen
|
|
70
|
|
Director
|
Mark S. Germain
has served as
our Chairman of the Board since March 2007, as a Director since January 2006,
and as a consultant to Collexis since October 2005. For more than the
past five years, Mr. Germain has served as the Managing Director of The Olmsted
Group, LLC. He has been involved as a founder, director, chairman of
the board, and/or investor in over twenty companies in the biotech field, and
assisted many of them in acquiring technology and in arranging corporate
partnerships, mergers and acquisitions and financings. Mr. Germain is
a founding member and director of ChomaDex, Inc. and serves as co-chairman of
the board of directors of Pluristem Life Systems, Inc. In addition,
Mr. Germain has served as a director of Reis, Inc. since May 1997 and serves as
chairman of its audit committee. Mr. Germain also serves as a
director of several privately-held biotechnology companies and of Stem Cell
Innovations, Inc., a publicly traded company. He is a graduate of NYU
School of Law, cum laude, and Order of the Coif, and was previously a partner in
a New York law firm.
Frank C. Carlucci
has served
as Vice-Chairman of the Board since June 2007. Mr. Carlucci currently
serves as Chairman Emeritus for The Carlyle Group, in Washington
D.C. From November 1987 to January 1989, Mr. Carlucci served as U.S.
Secretary of Defense, following his service as Assistant to the President for
National Security Affairs under President Ronald Reagan in
1987. Prior to serving in these positions, he was Chairman and CEO of
Sears World Trade, a business he joined in 1983. Mr. Carlucci has had
a career in government service, including serving as Deputy Secretary of Defense
from 1980 to 1982, Deputy Director of Central Intelligence from 1978 to 1980,
U.S. Ambassador to Portugal from 1975 to 1978, Under Secretary of Health
Education and Welfare from 1973 to 1975, Deputy Director of OMB from 1970 to
1972, and Director of the Office of Economic Opportunity in 1969. Mr.
Carlucci was a Foreign Service Officer from 1956 to 1980, and served as an
officer in the U.S. Navy from 1952 to 1954.
Mark Auerbach
was appointed
as a Director in June 2007. Mr. Auerbach is Chairman of our Audit
Committee, and our Board of Directors has determined that he qualifies as an
independent “audit committee financial expert” as defined under SEC
rules. From 1993 to 2005, Mr. Auerbach served as Chief Financial
Officer of Central Lewmar LLC, a national fine paper distributor. He
is currently a director for Optimer Pharmaceuticals, and Chairman of
the Board of Directors for Neuro Hitech. Mr. Auerbach serves as the
Chairman of the audit committee for Optimer Pharmaceuticals. From
September 2003 through October 2006, he served as Executive Chairman of the
Board of Directors for Par Pharmaceutical Companies, Inc. A Certified
Public Accountant, Mr. Auerbach has also been a board member of several small
cap companies over the last twenty years. Mr. Auerbach holds a
Bachelor of Science in Commerce from Rider College.
William D. Kirkland
has
served as a Director since January 2006, as well as Chief Executive Officer and
President of Collexis since February 2007. Mr. Kirkland also served
as Chief Executive Officer and President of Collexis, Inc., a subsidiary of
Collexis B.V., from February 2006 to February 2007. From August 2001
until February 2006, Mr. Kirkland was Business Unit Executive, (Americas) Life
Sciences Business Consulting Services for IBM. He was Vice President,
Life Sciences Division, of Nutec Sciences, Inc., from October 2000 until August
2001. From 1991 until October 2000, Mr. Kirkland was Director,
Training and Development – Pfizer Limited, United Kingdom. He
currently serves as a director for SEBIO and Georgia BioMed
Partners. Mr. Kirkland holds a Bachelor of Science in Criminal
Justice from the University of South Carolina.
John D. Macomber
was
appointed as a Director in June 2007. Mr. Macomber has served as
Principal of JDB Investment Group since 1992. He currently serves as
a director of AEA Investors LLC. Mr. Macomber is also Chairman of the
Council for Excellence in Government, Vice Chairman of The Atlantic Council of
the United States, a Trustee of the Carnegie Institution of Washington, and The
Folger Library. Mr. Macomber serves as a director of the National
Campaign to Prevent Teen Pregnancy and the Smithsonian National
Board. He has held director positions at numerous companies,
including Mettler-Toledo International Inc., Bristol-Myers Squibb Company, The
Brown Group, Inc., Celgene Corporation, Chase Manhattan Bank, Florida Power
& Light, IRI International, Mirror World Technologies, Norlin Industries,
Rand McNally, RJR Nabisco, Pilkington Ltd., Textron Inc. and Xerox
Corporation. Mr. Macomber’s former non-profit directorships include
the Lincoln Center for the Performing Arts, New York Philharmonic and the New
York Zoological Society. Mr. Macomber is a former Trustee of The
Rockefeller University and Adelphi University, Charter Trustee of Phillips
Academy, and Chairman of the Advisory Board of the Yale School of
Management. Prior to joining JDB Investment Group, Mr. Macomber
served as Chairman and President of the Export-Import Bank of the United States
from 1989 to 1992, and served as Chairman and Chief Executive Officer of
Celanese Corporation from 1973 to 1986. Mr. Macomber was a Senior
Partner at McKinsey & Co. from 1954 to 1973. Mr. Macomber
graduated from Yale University in 1950 and Harvard Business School in
1952.
Dr. John J. Regazzi
was
appointed as a Director in June 2007. Dr. Regazzi has served as Dean,
College of Information and Computer Science, and Dean, Palmer School of Library
and Information Science at the C.W. Post Campus of Long Island University since
July 2005. He is a tenured professor in the departments of Computer
Science and Library and Information Science. Dr. Regazzi currently
serves as a director of the boards of BSI Group, Engineering Information, Inc.
Foundation, CABI, Elsevier Foundation and St. John’s Home for
Boys. Dr. Regazzi served as Vice President of The H.W. Wilson Company
from 1983-1988, leaving to become President and CEO of Engineering Information,
Inc. In 1998, Dr. Regazzi led the integration of Engineering
Information, Inc. into Elsevier, a world leading scientific, technical and
medical publisher, and was subsequently appointed CEO of Elsevier North
America. Dr. Regazzi has served as a director of Elsevier, NFAIS and
the Division of Scholarly Communications of the American Association of
Publishers. Dr. Regazzi holds a Bachelor of Arts in Psychology from
St. John’s University, a Master of Arts in Religion from the University of Iowa,
a Master of Science in Library and Information Science from Columbia University,
and a Ph.D. in Information Science from Rutgers University.
Dr. Andrew A. Sorensen
was
appointed as a Director in September 2008. Dr. Sorensen retired as
the President of the University of South Carolina in July of 2008 where he
served since 2002. He currently is a professor at the University of
South Carolina School of Medicine. From 1996-2002, Dr. Sorensen was
the President of the University of Alabama. From 1990-1996 he served
as the Provost and Vice President for Academic Affairs at the University of
Florida. Prior to 1990 he spent three years as the Executive
Director, AIDS Institute at Johns Hopkins Medical Institutions and four years as
the Dean of the School of Public Health at the University of
Massachusetts. In addition to his distinguished career in academia,
Dr. Sorensen serves on a number of boards, including Carolina First Bank, Health
Sciences of South Carolina, Southeastern Universities Research Association and
the Southeastern Conference. Additionally, he serves on the National
Institutes of Health National Science Advisory Board for Biosecurity and the
Bioterrorism Advisory Committee of the State of South Carolina.
Executive
Officers
The
following table provides certain information about our executive officers as of
the date of this report. For biographical information about Mr.
Kirkland please see “Directors” above.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
William
D. Kirkland
|
|
47
|
|
Chief
Executive Officer, President and Director
|
|
Mark
Murphy
|
|
56
|
|
Chief
Financial Officer
|
|
Stephen
A. Leicht
|
|
33
|
|
Executive
Vice President and Chief Operating Officer
|
|
Darrell
W. Gunter
|
|
49
|
|
Executive
Vice President and Chief Marketing Officer
|
|
Bob
J.A. Schijvenaars
|
|
43
|
|
Chief
Scientific Officer
|
|
Martin
Schmidt
|
|
42
|
|
Chief
Technology Officer
|
Mark Murphy
joined Collexis
in April of 2008 as Chief Financial Officer. Prior to joining
Collexis, Mr. Murphy served as senior vice president of finance for PCA
International, Inc. from 2006 to March of 2008 where he directed all finance and
treasury functions. From 1998 to 2005, Mr. Murphy held a variety of
financial and operational leadership positions in the Kellogg Company including
business unit CFO of Warehouse Club and Specialty Products and director of
operations for the Kellogg Snacks DSDD distribution channel. Mr.
Murphy holds a Bachelor of Science in Business Administration and Accounting
from Ohio University.
Stephen A. Leicht
has served
as our Executive Vice President and Chief Operating Officer since October 29,
2007. He previously served as our Vice President of Sales since
February 2006. Prior to joining Collexis, Mr. Leicht served in
increasing roles of responsibility within IBM’s Sales and Distribution
organization from 2001 to 2006. Mr. Leicht founded, ran and sold
International Telecommunications Distributors, acting as Chairman and CEO until
late 2001. Mr. Leicht currently serves on the Board of Advisors of
iAdvantage Software and the University of South Carolina, College of Engineering
and Computing. In addition, Mr. Leicht serves on the United Way of
the Midlands Food Shelter Safety and Transportation Board. Mr. Leicht
has previously served as a director for the Center for Entrepreneurial
Development, SEBIO, and International Telecommunications Distributors, Inc., and
served on the Board of Advisors for Saffron Technology. Mr. Leicht
holds a business degree from Bucknell University and a Master of Business
Administration from Pennsylvania State University.
Darrell W. Gunter
has served
as our Executive Vice President and Chief Marketing Officer since April
2007. Prior to joining Collexis, Mr. Gunter served as Senior Vice
President of Sales and Marketing for the Americas for Elsevier from March 1996
to April 2007. He currently serves as a director of the Women’s
Venture Fund. Mr. Gunter holds a Bachelor of Science in Business
Administration and Marketing from Seton Hall University and a Master of Business
Administration from Lake Forest Graduate School of Management.
Bob J.A. Schijvenaars
has
served as Chief Scientific Officer of Collexis B.V. since 2005. From
2001 to 2005, Mr. Schijvenaars served as Manager of Research and Consulting for
Collexis B.V. He served as an assistant professor for Erasmus
University from 2000 to 2006. Mr. Schijvenaars holds a Master of
Science in Computer Science from Leiden University and a Ph.D. in Medical
Informatics from Erasmus University.
Martin Schmidt
was appointed
as our Chief Technology Officer in October 2007 after we acquired SyynX
Solutions GmbH, a German company he founded in 1999. Mr. Schmidt
previously served as a Managing Director of SyynX. Under the
leadership of Mr. Schmidt, SyynX became the global leader in application
development on top of the Collexis core environment, including high profile
engagements at Johns Hopkins University, Harvard University, Asklepios Health
System, Bristol Myers Squibb and other leading institutions. Before
joining SyynX, Mr. Schmidt was an independent consultant for
SHARED –
a project funded by the European Commission to bring better healthcare
information to developing nations via the Internet. For the decade
proceeding Mr. Schmidt’s foray into information technology, he was a successful
full time independent musician and composer in jazz and modern music, giving
concerts all over Europe. Mr. Schmidt serves on the supervisory board
of e.Consult AG.
Director
Independence
Our board
of directors currently consists of seven members. Our board of
directors has evaluated whether each of these committee members is “independent”
within the meaning of the federal securities laws concerning independence of
directors generally and of members of the audit committee. Shares of
our common stock are traded on the OTC Bulletin Board and not on NASDAQ or
another national securities exchange. As permitted under applicable
SEC rules, we have elected to apply NASDAQ listing standards in determining
whether our directors are independent. The board has determined that
Mr. Auerbach, Dr. Regazzi, Mr. Carlucci and Mr. Macomber are independent under
the NASDAQ listing standards. In determining that Dr. Regazzi is
independent, the board took into account that we have a consulting arrangement
with Dr. Regazzi under which we pay him $6,000 per month for his consulting
services. Therefore, a majority of our board of directors is
independent, and our compensation committee is composed solely of independent
directors.
We have
three standing committees:
|
Committee
|
|
Members
|
|
|
|
|
|
Audit
Committee
|
|
Mark
Auerbach (Chairman), Frank C. Carlucci and John D.
Macomber
|
|
|
|
|
|
Compensation
Committee
|
|
John
J. Regazzi (Chairman), Frank C. Carlucci, John D. Macomber and Mark
Auerbach
|
|
|
|
|
|
Nomination
and Corporate Governance
|
|
John
D. Macomber (Chairman), Frank C. Carlucci and Mark S.
Germain
|
The board
determined that Mr. Auerbach, a member of the audit committee, meets the higher
standards of independence for members of an audit committee under the NASDAQ
listing standards and the SEC rules. Neither Mr. Germain nor Dr.
Regazzi were found by the board to be “independent” for the purposes of serving
on our audit committee under either the NASDAQ listing standards or the SEC
rules applicable to audit committee members.
EXECUTIVE
COMPENSATION
Compensation Discussion and
Analysis
Our
executive compensation philosophy is to enable Collexis to attract, retain and
motivate key executives to achieve our long-term objectives. Attracting and
retaining key executives is particularly challenging in the software industry
where executives are required to remain focused and committed throughout long
periods of product development and, at times, financial instability. The market
for executive talent in the software industry is highly
competitive.
Setting
Executive Compensation
The
Compensation Committee has responsibility for our executive compensation
philosophy and the design of executive compensation programs, based on
consideration of our strategic and financial goals, competitive forces,
fairness, individual responsibilities, challenges and economic factors. In
addition to evaluating our executives’ contributions and performance in light of
corporate objectives, we also base our compensation decisions on market
considerations. All forms of compensation are evaluated relative to the market
in our industry. Individual compensation pay levels may vary from this reference
point based on recent individual performance and other considerations, including
breadth of experience, length of service, the anticipated level of difficulty in
replacing an executive with someone of comparable experience and skill, and the
initial compensation levels required to attract qualified new
hires.
Elements
of Compensation
Our total
compensation program consists of fixed elements, such as base salary and
benefits, and variable performance-based elements, such as annual and long-term
incentives. Our fixed compensation elements are designed to provide a
predictable source of income to our executives. Our variable performance-based
elements are designed to reward performance at three levels: individual
performance, actual corporate performance compared to annual business goals, and
long-term shareholder value creation.
We
compensate our executives principally through base salary, performance-based
annual cash incentives and equity awards. The objective of this three-part
approach is to remain competitive with other companies in our industry, while
ensuring that our executives are given the appropriate incentives to achieve
near-term objectives and at the same time create long-term shareholder
value.
Base
Salary
. We provide our
executive officers with a level of assured cash compensation in the form of a
base salary that reflects their professional status and accomplishments. As
described above, our compensation philosophy allows the Compensation Committee
to take into account, for both current and new executive officers, recent
individual performance, breadth of experience, length of service, the
anticipated level of difficulty in replacing an executive with someone of
comparable experience and skill, and the initial compensation levels required to
attract qualified new hires. In setting base salaries for our executive officers
(other than the Chief Executive Officer), the Compensation Committee also
considers the recommendation of our Chief Executive Officer.
Annual Executive Bonuses.
We do not have a formal incentive or bonus plan for executives.
However, our board of directors has the right in its discretion to pay our
executives annual cash performance bonuses pursuant to the terms of each
executive’s employment agreement. The board may consider our corporate goals and
objectives and our actual performance against those criteria in its
determination of whether cash incentive or bonus payments should be made to our
executives. In addition, our board may consider an executive’s individual
performance in its determination of whether cash incentive or bonus payments
should be made to the executive.
Equity Compensation
.
Consistent with our approach described above for allocating overall targeted
compensation among the three components of compensation, we have granted our
officers and key employees nonqualified stock options to acquire shares of our
common stock. All equity incentive awards to our executive officers are granted
by the Compensation Committee. We believe that equity participation is a key
component of our executive compensation program. We intend to present a
comprehensive equity compensation plan to our stockholders for approval at our
2009 annual meeting.
Employee Benefits
. We provide
employee benefits on a company-wide basis with the selection of specific plans
made based on management’s analysis of plans available in the marketplace as
well as the necessary elements to attract and retain employees. We offer
employee benefit programs that are intended to provide financial protection and
security for our employees and to reward them for the total commitment we expect
from them in service to Collexis. Company-wide benefits such as medical, dental
life insurance and profit sharing 401(k) are available to executives under plans
and policies that are available to all of our U.S. based employees.
Employment
Agreements
. Named executive officers are hired pursuant to
written employment agreements which establish base compensation, eligibility for
performance based bonuses, equity awards, severance and other benefits. We
believe employment agreements promote retention and provide for various
covenants to protect our intellectual property. The Compensation Committee
reviews and approves executive employment agreements. We believe that the
benefits provided by these agreements are reasonable and are consistent with
practices in our industry. For more details concerning our employment
agreements, please refer to “Employment Agreements” below.
Summary
Compensation Table
|
Name and Principal Position
|
|
Year
(1)
|
|
Salary
($)
|
|
|
Option
Awards
(2)
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
D. Kirkland
(3)
|
|
2008
|
|
|
250,000
|
|
|
|
40,857
|
|
|
|
—
|
|
|
|
290,857
|
|
|
Chief
Executive Officer
|
|
2007
|
|
|
250,000
|
|
|
|
40,745
|
|
|
|
—
|
|
|
|
290,745
|
|
|
|
|
2006
|
|
|
104,167
|
|
|
|
16,634
|
|
|
|
—
|
|
|
|
120,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Murphy
(4)
|
|
2008
|
|
|
47,051
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,051
|
|
|
Chief
Financial Officer
|
|
2007
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Schmidt
(5)
|
|
2008
|
|
|
162,223
|
|
|
|
150,431
|
|
|
|
16,488
|
(6)
|
|
|
329,142
|
|
|
Chief
Technology Officer
|
|
2007
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
A. Leicht
(7)
|
|
2008
|
|
|
200,000
|
|
|
|
45,449
|
|
|
|
30,463
|
(8)
|
|
|
275,912
|
|
|
Executive
Vice President Sales
|
|
2007
|
|
|
170,000
|
|
|
|
34,668
|
|
|
|
—
|
|
|
|
204,668
|
|
|
|
|
2006
|
|
|
62,500
|
|
|
|
5,696
|
|
|
|
—
|
|
|
|
68,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darrell
W. Gunter
(9)
|
|
2008
|
|
|
228,750
|
|
|
|
78,643
|
|
|
|
—
|
|
|
|
307,393
|
|
|
Chief
Marketing Officer
|
|
2007
|
|
|
56,250
|
|
|
|
19,339
|
|
|
|
—
|
|
|
|
75,589
|
|
|
|
|
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1)
|
2006
is from July 1, 2005 through June 30, 2006. 2007 is from July 1, 2006
through June 30, 2007. 2008 is from July 1, 2007 through June 30,
2008.
|
|
|
(2)
|
These
amounts reflect amounts we recognized for financial statement reporting
purposes for the fiscal years ended June 30, 2008, 2007 and 2006 in
accordance with SFAS 123(R) for awards granted after December 31, 2005. No
executive officer listed above received grants before January 1, 2006. We
adopted SFAS 123(R) effective January 1, 2006. Because we were not a
public company in prior years, in preparing our financial statements for
all periods ending before January 1, 2007, we used the minimum value
method for valuing options we granted in those years as permitted by APB
25, SFAS 123 and SFAS 148. We were not required to expense over the
vesting period the options that we granted before 2006. For purposes of
the amounts shown in the above table, our compensation expense for all
option grants since January 1, 2006 is based on the grant date fair market
value but is recognized over the period in which the executive officer
must provide services to earn the award. Our executive officers will not
realize any value of these awards in cash unless and until they exercise
the options and sell the underlying
shares.
|
|
|
(3)
|
Mr.
Kirkland joined Collexis Holdings, Inc. as Chief Executive Officer on
February 1, 2006. On February 1, 2006, we granted options to purchase
shares 2,920,000 of our common stock at an exercise price of $0.10 per
share (as adjusted for the reverse merger) to Mr. Kirkland as compensation
for his employment. As of the date of this report, these options are fully
vested. Mr. Kirkland’s current salary is $300,000
annually.
|
|
|
(4)
|
Mr.
Murphy joined Collexis Holdings, Inc. as Chief Financial Officer on April
7, 2008. Our board of directors has approved the grant of 400,000 shares
of restricted stock to Mr. Murphy. The restricted stock will vest three
years from his anniversary date. Mr. Murphy’s current salary is
$200,000 annually.
|
|
|
(5)
|
Mr.
Schmidt has been with the Company since October 19, 2007, the acquisition
date of SyynX. On October 19, 2007, we granted options to
purchase 1,000,000 shares of our common stock at an exercise price of
$0.75 per share to Mr. Schmidt. Currently, Mr. Schmidt’s
annually salary is €156,526 which at current exchange rates is
approximately $206,708.
|
|
|
(6)
|
These
amounts represent the costs of an automobile provided to Mr. Schmidt and
reimbursement to him for his home office
costs.
|
|
|
(7)
|
On
February 1, 2006, we granted options to purchase 1,000,000 shares of our
common stock at an exercise price of $0.10 per share (as adjusted for the
reverse merger) to Mr. Leicht as compensation for his employment. These
option shares are fully vested. On November 1, 2006, we granted
options to purchase an additional 300,000 shares of our common stock at an
exercise price of $0.75 per share to Mr. Leicht as compensation for his
employment. Under these options, shares vest quarterly in equal amounts
over three years on the first day of each February, May, August and
November beginning February 1, 2006 until November 1, 2009, when the final
25,000 shares will vest. The options have a three-year
term. Mr. Leicht’s current annual salary is
$250,000.
|
|
|
(8)
|
Represents
commissions earned on sales.
|
|
|
(9)
|
Mr.
Gunter joined Collexis Holdings, Inc. as Chief Marketing Officer on April
1, 2007. On April 1, 2007, we granted options to purchase 750,000 shares
of our common stock at an exercise price of $0.75 per share to Mr. Gunter
as compensation for his employment. Under these options shares vest
quarterly in equal amounts over three years on the first day of each July,
October, January and April beginning July 1, 2007 until November 1, 2010,
when the final 62,500 shares will vest. The options have a four-year
term. Mr. Gunter’s current annual salary is
$240,000.
|
Employment
Agreements
William D.
Kirkland
. William Kirkland entered into an employment
agreement with Collexis, Inc. and Collexis B.V. to serve as the Chief Executive
Officer and President of Collexis, Inc., a subsidiary of Collexis B.V., on
January 5, 2006, as amended on February 12, 2007. Additionally, Mr.
Kirkland has performed the duties of the Chief Executive Officer of Collexis
B.V. since February 2006. The agreement with Mr. Kirkland is for a
term of three years, which is automatically extended for a consecutive twelve
month periods thereafter on the same terms and conditions, unless either party
gives written notice not to renew 180 days prior to the end of any
term. Mr. Kirkland’s right to receive an incentive bonus is based on
the satisfaction of performance criteria as determined by our board of directors
in its sole and absolute discretion. Under the terms of his
employment agreement, Mr. Kirkland entered into an option agreement with
Collexis B.V. on February 1, 2006, under which Mr. Kirkland was granted options
to purchase 292,000 shares of the common stock of Collexis B.V. These
options were converted in our February 2007 reverse merger to options to acquire
2,920,000 shares of our common stock at $0.10 per share, which expire on
February 1, 2009. Under the terms of his employment agreement, Mr.
Kirkland is entitled to participate in all bonus and benefit programs we
establish for our executive employees, including health care and life insurance
plans.
Stephen A.
Leicht
. Stephen Leicht entered into an employment agreement
with Collexis, Inc. and Collexis B.V. to serve as the Director of Operations on
January 25, 2006, which agreement was amended and restated in April 2006, and
further amended on February 12, 2007. The amended and restated
agreement is for a term of three years, which is automatically extended for a
consecutive twelve month periods thereafter on the same terms and conditions,
unless either party gives written notice not to renew 180 days prior to the end
of any term. Mr. Leicht’s right to receive an incentive bonus is
based on the satisfaction of performance criteria as determined by our board of
directors in its sole and absolute discretion. Under the terms of his
employment agreement, Mr. Leicht entered into an option agreement with Collexis
B.V. on February 1, 2006, under which Mr. Leicht was granted options to purchase
100,000 shares of the common stock of Collexis B.V. On the reverse
merger, these options were converted into options to acquire 1,000,000 shares of
our common stock at $0.10 per share, which expire on February 1,
2009. Under the terms of his employment agreement, Mr. Leicht is
entitled to participate in all benefit programs established for other executives
of Collexis, Inc.
Darrell W.
Gunter
. Darrell Gunter entered into an employment agreement
with Collexis to serve as the Chief Marketing Officer in April
2007. The agreement with Mr. Gunter is for a term of three years,
which is automatically extended for a consecutive twelve month periods
thereafter on the same terms and conditions, unless either party gives written
notice not to renew 180 days prior to the end of any term. As part of
his compensation arrangement, on April 1, 2007, we granted Mr. Gunter options to
purchase 750,000 shares of our common stock at an exercise price of $0.75 per
share. These options vest quarterly over a three-year period
beginning July 1, 2007 and expire on April 1, 2011.
Outstanding
Equity Awards at April 30, 2009
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Option
Exercise
Price ($)
|
|
|
Option Expiration
Date
|
|
|
Number of Shares
or Units of Stock
That Have Not
Vested (#)
|
|
|
Market Value of
Shares or Units of
Stock That Have
Not Vested ($)
|
|
|
William
D. Kirkland
|
|
|
2,920,000
|
|
|
|
|
|
$
|
0.10
|
|
|
February
1, 2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Murphy
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
400,000
|
(4)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Schmidt
|
|
|
316,654
|
(1)
|
|
|
683,346
|
(1)
|
|
$
|
0.75
|
|
|
October
19, 2015
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
A. Leicht
|
|
|
1,000,000
|
|
|
|
|
|
|
$
|
0.10
|
|
|
February
1, 2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
225,000
|
(2)
|
|
|
75,000
|
(2)
|
|
$
|
0.75
|
|
|
November 1, 2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darrell
W. Gunter
|
|
|
437,500
|
(3)
|
|
|
312,500
|
(3)
|
|
$
|
0.75
|
|
|
April
1, 2011
|
|
|
|
—
|
|
|
|
|
|
|
|
(1)
|
Options
vest monthly in approximately equal amounts over five years on the
nineteenth day of each month until January 19,
2012.
|
|
|
(2)
|
Options
vest quarterly in approximately equal amounts over three years on the
first day of each May, August, November and February until November 1,
2009.
|
|
|
(3)
|
Options
vest quarterly in approximately equal amounts over three years on the
first day of each May, August, November and February until November 1,
2010.
|
|
|
(4)
|
Restricted
stock vests on the third anniversary of Mr. Murphy’s hiring, April 7,
2011.
|
Compensation
of Directors
The
following table summarizes the total compensation we paid to our non-employee
directors during the fiscal year ended June 30, 2008. We pay cash
compensation to our independent directors of $1,500 per meeting.
|
Name
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
S. Germain
|
|
|
—
|
|
|
|
80,000
|
(1)
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
C. Carlucci
|
|
|
9,000
|
|
|
|
—
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Auerbach
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Macomber
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
J. Regazzi
|
|
|
—
|
|
|
|
57,000
|
(2)
|
|
|
57,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Andrew Sorensen
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
We
have an oral consulting arrangement with Mark S. Germain. Under
this arrangement, we pay Mr. Germain $10,000 per month for his consulting
services.
To
the extent Mr. Germain does not request payment, the amounts owed him are
accrued as an expense on our books.
|
|
(2)
|
We
have a consulting arrangement with John J. Regazzi. Under this
arrangement, we currently pay Dr. Regazzi $6,000 per month for his
consulting services.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of April 30, 2009 the number of shares of our
common stock beneficially owned by (1) each of our directors; (2) each of our
named executive officers; (3) each beneficial owner of more than 5% of our
outstanding common stock; and (4) all of our executive officers and directors as
a group.
|
Name of Beneficial Owner
(1)
|
|
Amount and Nature of
Beneficial Ownership
(2)
|
|
|
Percent of Class
(3)
|
|
|
|
|
|
|
|
|
|
|
Directors
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
S. Germain
(4)
|
|
|
3,497,360
|
|
|
|
2.11
|
%
|
|
Mark
Auerbach
(5)
|
|
|
1,236,667
|
|
|
|
*
|
|
|
Frank
C. Carlucci
(6)
|
|
|
3,603,333
|
|
|
|
2.18
|
%
|
|
William
D. Kirkland
(7)
|
|
|
2,920,000
|
|
|
|
1.74
|
%
|
|
John
D. Macomber
(8)
|
|
|
1,603,332
|
|
|
|
*
|
|
|
John
J. Regazzi
(9)
|
|
|
1,203,333
|
|
|
|
*
|
|
|
Andrew
A. Sorensen
(10)
|
|
|
270,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive
Officers
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Murphy
|
|
|
—
|
|
|
|
*
|
|
|
Martin
Schmidt
(11)
|
|
|
349,986
|
|
|
|
*
|
|
|
Stephen
A. Leicht
(12)
|
|
|
1,250,000
|
|
|
|
*
|
|
|
Darrell
W. Gunter
|
|
|
500,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive
Officers as a Group (12 persons)
(13)
|
|
|
17,494,011
|
|
|
|
10.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other 5%
Stockholders
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margie
Chassman
(14)
|
|
|
21,609,426
|
|
|
|
13.05
|
%
|
|
Search
Dynamics Corp. and Ltd.
(15)
|
|
|
32,258,623
|
|
|
|
19.54
|
%
|
|
Alpha
Capital Anstalt
(16)
|
|
|
30,791,195
|
|
|
|
16.17
|
%
|
|
(1)
|
Unless
otherwise indicated, the address for each of our directors and executive
officers is in care of Collexis Holdings, Inc., 1201 Main Street, Suite
980, Columbia, South Carolina
29201.
|
|
(2)
|
In
setting forth this information, we relied on our stock and transfer
records and other information provided by the persons or entities listed
in the table. Beneficial ownership is reported in accordance with SEC
regulations and therefore includes shares of common stock that may be
acquired within 60 days after April 30, 2009 upon the exercise of
outstanding stock options. Shares of common stock issuable upon the
exercise of such options are deemed outstanding for purposes of computing
the percentage of common stock owned by the beneficial owner listed in the
table, but are not deemed outstanding for purposes of computing the
percentage of outstanding common stock owned by any other shareholder.
Except as otherwise stated below, all shares are owned directly and of
record, and each named person or entity has sole voting and investment
power with regard to the shares shown as owned by such person or
entity.
|
|
(3)
|
Based
on 165,064,073 shares outstanding as of April 30, 2009 and assumes the
exercise by the indicated stockholder or group of all options to purchase
our common stock held by that stockholder or group that are exercisable on
or before 60 days from April 30, 2009, and the conversion in full of the
note and warrant that are the subject of this
offering.
|
|
(4)
|
Includes
1,000,000 shares of common stock issuable to Mr. Germain on the exercise
of vested stock options. Also includes 2,497,360 shares of
common stock owned by Margery Germain, Mr. Germain’s spouse, as to which
he disclaims beneficial ownership.
|
|
(5)
|
Includes
270,000 shares of common stock issuable to Mr. Auerbach on the exercise of
vested stock options. Also includes 966,667 shares of common
stock owned by Susan Auerbach, Mr. Auerbach’s
spouse.
|
|
(6)
|
Includes
270,000 shares of common stock issuable to Mr. Carlucci on the exercise of
vested stock options.
|
|
(7)
|
Includes
2,920,000 shares of common stock issuable to Mr. Kirkland on the exercise
of vested stock options.
|
|
(8)
|
Includes
270,000 shares of common stock issuable to Mr. Macomber on the exercise of
vested stock options.
|
|
(9)
|
Includes
270,000 shares of common stock issuable to Dr. Regazzi on the exercise of
vested stock options.
|
|
(10)
|
Includes
270,000 shares of common stock issuable to Dr. Sorensen on the exercise of
vested stock options.
|
|
(11)
|
Includes
316,654 shares of common stock issuable to Mr. Schmidt on the exercise of
vested stock options and 33,332 shares of common stock issuable on the
exercise of stock options that will vest in the next 60
days.
|
|
(12)
|
Includes
1,225,000 shares of common stock issuable to Mr. Leicht on the exercise of
vested stock options and 25,000 shares of common stock issuable on the
exercise of stock options that will vest in the next 60
days.
|
|
(13)
|
Includes
8,262,488 shares of common stock issuable on the exercise of vested stock
options and 120,832 shares of common stock issuable on the exercise of
stock options that will vest in the next 60
days.
|
|
(14)
|
Includes
516,120 shares of common stock issuable on the exercise of vested stock
options. The address for Ms. Chassman is 465 W. 23
rd
Street, Apt. 12J, New York, NY
10011.
|
|
(15)
|
Includes
shares of common stock owned by each of Search Dynamics Limited, Youssef
El Zein and Oussama Salam, who are shareholders we deem to be controlling
or under common control with Search Dynamics
Corp.
|
|
(16)
|
Includes
10,924,370 shares underlying the secured convertible promissory note, and
14,420,168 shares underlying the warrant to purchase shares of our common
stock at an exercise price of $0.07 per share. The address for
Alpha Capital Anstalt is Pradafant 7, 9490 Furstentums, Vaduz,
Lichtenstein.
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
On
October 15, 2007, we entered into a voting trust agreement with Margie Chassman
and William D. Kirkland, our Chief Executive Officer, as trustee under the
voting trust agreement. By its terms, the voting trust terminates
upon the earlier of: (a) October 15, 2017; or (b) when the shares in the trust
represent less than 19% of the voting interest of our outstanding capital
stock. As of April 30, 2009, Ms. Chassman owned 21,609,426 shares and
options exercisable for shares, or 13.05% of our issued and outstanding common
stock. As a result, of the percentage of subject share ownership, the
voting trust terminated pursuant to its terms.
All
transactions, if any, between Collexis and its officers, directors and principal
shareholders and their affiliates and any transactions between us and any entity
with which its officers, directors or principal shareholders are affiliated are
subject to the approval of a majority of the board of directors, including the
majority of the independent and disinterested outside directors of the board and
must be on terms no less favorable to Collexis than could be obtained from
unaffiliated third parties.
CHANGES
IN ACCOUNTANTS
All
changes in our independent registered public accounting firms have previously
been reported in our Current Reports on Form 8-K filed on each of March 31,
2007, May 25, 2007, and January 7, 2008.
SELLING
STOCKHOLDERS
This
prospectus relates to the resale by the selling stockholders named below from
time to time of up to a total of 29,005,481 shares of our common stock that were
issued to the selling stockholders pursuant to transactions exempt from
registration under the Securities Act. All of the common stock offered by
this prospectus is being offered by the selling stockholders, was acquired from
the Company in a private placement transaction, and is being offered for the
selling stockholders’ own accounts.
Private
Placement Transaction
On March
4, 2009, we issued and sold to the selling stockholder for aggregate
consideration of $650,000 (1) a Secured Convertible Promissory Note (the “Note”)
in the principal amount of $764,705.88, which principal amount is convertible
into 6,117,647 shares of common stock (the “Conversion Shares”), (2) 2,050,128
shares of common stock (the “Incentive Shares”) and (3) a Class A Common Stock
Purchase Warrant (the “Warrant”) exercisable for 6,117,647 shares of common
stock (the “Warrant Shares”, together with the Incentive Shares and Conversion
Shares, the “Registerable Securities”) at a per share price of $0.165, pursuant
to a Subscription Agreement dated as of March 4, 2009 (the “Subscription
Agreement”). The issuance of these securities was made in reliance on
the exemption provided by Section 4(2) of the Securities Act for the offer and
sale of securities not involving a public offering and Rule 506 of Regulation D
promulgated thereunder. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment, and who
represented to us that the shares were being acquired for
investment.
On April
1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common
stock at $0.07 per share for an aggregate investment of
$400,000. This issuance of shares at a price per share less than the
conversion price of the Note and less than the exercise price for the Warrant
triggered the anti-dilution provisions of both documents, resulting in the
adjustment of both the conversion price and exercise price to $0.07 per
share. Following this adjustment, the Note is convertible into
10,924,370 shares of common stock and the Warrant is exercisable for 14,420,168
shares of common stock.
The
Subscription Agreement imposes certain covenants, restrictions and obligations
on the Company. For example, until the last to occur of (i) two
years after the closing, (ii) until all of the Registerable Securities have been
resold or transferred by the selling stockholder pursuant to a registration
statement or Rule 144, or (iii) the Note and Warrant are no longer outstanding,
the Company will maintain its registration of the common stock under the
Exchange Act, comply with all reporting obligations required thereby, take no
action to terminate the registration of the common stock and maintain the
quotation or listing of its common stock on the OTC Bulletin Board or other
principal trading exchange for the common stock. The Company can use
the proceeds of the private placement for offering expenses and general working
capital, they may not be used for accrued and unpaid officer and director
salaries, payment of financing related debt, redemption of outstanding notes or
equity instruments nor outstanding non-trade obligations. For so long
the Note is outstanding, the Company cannot prepay or redeem any financing
related debt, past due obligations, or any outstanding equity
instrument. In addition, for so long as the Note is outstanding, the
Company cannot enter into any equity line of credit or similar agreement, nor
issue or agree to issue any floating or variable priced equity linked
instruments or equity with price reset rights.
The
Subscription Agreement provides that in certain events such as (1) the Company
is prohibited from issuing Conversion Shares or Warrant Shares, (2) the Company
redeems any securities junior to the Notes, (3) the occurrence of any Event of
Default (as defined in the Subscription Agreement) that continues for more than
10 days, (4) the Company no longer having a class of shares publicly traded or
listed on an exchange or other electronic trading system, (5) the Company
becoming a subsidiary of another entity (other than for the purposes of a
redomestication), (6) a majority of the board of directors of the Company no
longer serving as directors of the Company except due to natural causes, (7) the
sale, lease or transfer of substantially all the assets of the Company or its
subsidiaries, or (8) the liquidation, dissolution or winding up of the Company,
then at the selling stockholder's election, the Company must pay to the selling
stockholder within 10 business days after request by selling stockholder, a sum
of money up to 120% of the outstanding principal amount of the Note designated
by selling stockholder, plus accrued but unpaid interest and any other amounts
due under the transaction documents.
Subject
to certain excepted transactions, if at any time the Note or Warrant is
outstanding, the Company issues or agrees to any common stock or securities
convertible into or exercisable for common stock (or modifies any of the
foregoing which may be outstanding) at a price per share or conversion or
exercise price per share which is less than the Note conversion price or the
Warrant exercise price in effect at such time, then the Company shall issue, for
each such occasion, additional shares of common stock to the selling stockholder
with respect to those Registerable Securities that are then still owned by the
selling stockholder so that the average per share purchase price of all
securities of the Company purchased and owned by the selling stockholder at such
date is equal to such other lower price per share and the Note conversion price
and Warrant exercise price shall automatically be reduced to such other lower
price.
In
connection with the private placement, the Company granted registration rights
to the selling stockholder with respect to the Registrable Securities such that
the Company is filing a Form S-1 registration statement to which this prospectus
is a part to register the Registrable Securities for resale within 60 calendar
days after the closing, and cause the registration statement to be declared
effective not later than 120 days after the closing date or 150 days after the
closing date if the registration statement is the subject of a “full review” by
the Securities and Exchange Commission. If (A) the registration
statement is not filed on or before such date, (B) the registration statement is
not declared effective on or before the required effective date, or (C) the
registration statement is filed and declared effective but thereafter ceases to
be effective without being succeeded by an effective replacement, then the
Company must deliver in cash to the holder of Registrable Securities as
liquidated damages an amount equal to 1% for each 30 days (or such lesser
pro-rata amount for any period of less than 30 days) of the outstanding
principal amount of the Note and purchase price of Registerable Securities,
subject to a cap of 9% in the aggregate. Further, in the event
commencing 6 months after the closing and ending 36 months
thereafter, the selling stockholder is not permitted to resell any of the
Registrable Securities without any restrictive legend or if such sales are
permitted but subject to volume limitations or further restrictions on resale as
a result of the unavailability to non-affiliate selling stockholders of Rule
144(b)(1)(i) under the Securities Act or any successor rule, then the Company
shall pay to the selling stockholder as liquidated damages an amount equal to 1%
for each 30 days (or such lesser pro-rata amount for any period less than 30
days) not to exceed 9% in the aggregate of the purchase price of the Conversion
Shares and Warrant Shares.
Selling
Stockholders
The
following table sets forth certain information regarding the selling
stockholders and the shares offered by them in this prospectus. Beneficial
ownership is determined in accordance with the rules of the SEC. In
computing the number of shares beneficially owned by a selling stockholder and
the percentage of ownership of that selling stockholder, shares of common stock
underlying shares of convertible promissory notes or warrants held by that
selling stockholder that are convertible or exercisable, as the case may be,
within 60 days of April 30, 2009 are included. Those shares, however,
are not deemed outstanding for the purpose of computing the percentage ownership
of any other selling stockholder. Each selling stockholder’s percentage of
ownership in the following table is based upon 165,064,073 shares of
common stock outstanding as of April 30, 2009.
None of
the selling stockholders has held a position as an officer or director of the
Company, nor has any selling stockholder had any material relationship of any
kind with us or any of our affiliates. All information with respect to
share ownership has been furnished by the selling stockholders. The shares
being offered are being registered to permit public secondary trading of the
shares and each selling stockholder may offer all or part of the shares owned
for resale from time to time. In addition, none of the selling
stockholders has any family relationships with our officers, directors or
controlling stockholders. No selling stockholder is a registered
broker-dealer or an affiliate of a registered broker-dealer. The selling
stockholders have represented to the Company that they purchased their shares in
the ordinary course of business, and at the time of the purchase of the shares,
they had no agreements or understandings, directly or indirectly, with any
person to distribute such shares.
The term
“selling stockholders” also includes any transferees, pledges, donees, or other
successors in interest to the selling stockholders named in the table below.
To our knowledge, subject to applicable community property laws, each
person named in the table has sole voting and investment power with respect to
the shares of common stock set forth opposite such person’s name. We will
file a supplement to this prospectus to name successors to any named selling
stockholders who are able to use this prospectus to resell the securities
registered hereby.
|
Name
|
|
Securities
Included in
Prospectus
|
|
|
Percentage of
Beneficial
Ownership
Before Offering
(1)
|
|
|
Beneficial
Ownership
After Offering
(2)
|
|
|
Percentage of
Beneficial
Ownership After
Offering
(1)
|
|
|
Alpha
Capital Anstalt
|
|
|
29,005,481
|
(3)
|
|
|
16.17
|
%
|
|
|
1,785,714
|
|
|
|
0.94
|
%
|
|
(1)
|
As
of April 30, 2009, a total of 165,064,073 shares of our common stock are
considered to be outstanding pursuant to SEC Rule
13d-3(d)(1). For each beneficial owner above, any securities
exercisable within 60 days have been included in the
denominator.
|
|
(2)
|
Assumes
that all securities offered are sold, selling stockholder will continue to
own 1,785,714 shares of common
stock.
|
|
(3)
|
Includes
10,924,370 shares underlying the secured convertible promissory note and
14,420,168 shares underlying the warrant to purchase shares of our common
stock.
|
Although
we are registering 29,005,481 shares of our common stock for resale by the
selling stockholders, the amount issuable upon conversion of the Note and
exercise of the Warrant is capped. Pursuant to the terms of the Note
and the Warrant, the number of shares of our common stock that may be acquired
by the selling stockholder upon any conversion of the Note and exercise of the
Warrant is limited, to the extent necessary, to ensure that following such
conversion and/or exercise, the number of shares of our common stock then
beneficially owned by the selling stockholder and any other persons or entities
whose beneficial ownership of common stock would be aggregated with the selling
stockholder for purposes of the Exchange Act does not exceed 4.99% of the total
number of shares of our common stock then outstanding. In light of
the beneficial ownership cap, the maximum number of shares of common stock
issuable to the selling stockholder as of April 30, 2009 is 2,936,575, resulting
in aggregate holdings by the selling stockholder of 8,383,232
shares.
We will
not receive any of the proceeds from the sale of any shares by the selling
stockholder but we will receive funds from the exercise of the warrants held by
the selling stockholder if and when those warrants are exercised for cash. We
have agreed to bear expenses incurred by the selling stockholder that relate to
the registration of the shares being offered and sold by the selling
stockholder, including the SEC registration fee and legal, accounting, printing
and other expenses of this offering.
DESCRIPTION
OF CAPITAL STOCK
Common
Stock
We are
authorized to issue up to 277,713,000 shares of common stock, par value $0.001
per share. On April 30, 2009, there were approximately 165,064,073
shares of our common stock outstanding and 69,085,814 shares of common stock
subject to issuance pursuant to outstanding options, warrants and convertible
promissory notes, including those being offered by this prospectus.
Each
outstanding share of common stock entitles the holder thereof to one vote per
share on all matters. Stockholders do not have preemptive rights to
purchase shares in any future issuance of our common stock. The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. Our
board of directors has never declared a dividend and does not anticipate
declaring a dividend in the foreseeable future. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to receive, ratably, the net assets available to stockholders after payment of
all creditors.
All of
the issued and outstanding shares of our common stock are duly authorized,
validly issued, fully paid and non-assessable. To the extent that
additional shares of our common stock are issued, the relative interests of
existing stockholders will be diluted.
Preferred
Stock
We may
issue up to 10,000,000 shares of preferred stock in one or more classes or
series within a class as may be determined by our board of directors, who may
establish, from time to time, the number of shares to be included in each class
or series, may fix the designation, powers, preferences and rights of the shares
of each such class or series and any qualifications, limitations or restrictions
thereof. Any preferred stock so issued by the board of directors may
rank senior to the common stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up of us, or both. Moreover,
under certain circumstances, the issuance of preferred stock or the existence of
the un-issued preferred stock might tend to discourage or render more difficult
a merger or other change in control.
No shares
of preferred stock are currently outstanding. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
Secured
Convertible Promissory Note
On March
4, 2009, we issued the selling stockholder, for aggregate consideration of
$650,000, a Secured Convertible Promissory Note in the principal amount of
$764,705.88, which was convertible at the time of issuance into 6,117,647 shares
of common stock. The Note matures on March 20, 2010 if not
accelerated or converted prior to such date. The Note bears interest
at the annual rate of 7%, which is payable in arrears on August 31, 2009,
November 30, 2009 and at maturity. Following any sale and issuance by
the Company of any debt or equity in excess of $3,000,000 or the sale of assets
of the Company in excess of $3,000,000, the selling stockholder has the
option to elect to have all amounts due under the Note paid in cash out of the
net proceeds at a value of 135% of the outstanding principal amount and accrued
interest, otherwise the Note is not available for prepayment by the
Company. Pursuant to the Note, the Company has five days within which
to make any payment due, after the grace period a default interest rate of 18%
per annum applies. The note holder has the right to convert the
principal and interest due into shares of common stock at an initial conversion
price of $0.125 per share, subject to reduction to the lowest price per share
for which we sell equity during the term of the Note, and otherwise subject to
equitable adjustment in the event of a merger, consolidation, sale of assets,
reclassification, stock dividend or stock split.
On April
1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common
stock at $0.07 per share for an aggregate investment of
$400,000. This issuance of shares at a price per share less than the
conversion price of the Note triggered the anti-dilution provisions of the Note,
resulting in the adjustment of the conversion price to $0.07 per
share. Following this adjustment, the Note is convertible into
10,924,370 shares of common stock.
The Note
is secured by (1) a first priority security interest in the assets of the
Company and its subsidiaries, including ownership of the subsidiaries and in the
assets of the subsidiaries, to the extent permissible under the outstanding
obligations of the Company, and (2) an unconditional guaranty of payment and
performance by each of the Company’s subsidiaries.
If the
Company fails within 3 business days to deliver certificates representing the
Conversion Shares for which the Note is converted, the Company is required to
pay the Note holder liquidated damages in the amount of $100 per business day
thereafter until delivery for each $10,000 of principal and interest for which
the Note is converted. Further, if the Company fails to deliver the
Conversion Shares for which the Note is converted within 7 business days, the
holder may purchase that number of shares of Common Stock to which it is
entitled to receive from the Company and the Company must pay in cash to the
holder the amount by which the holder’s total purchase price for the common
stock exceeds the aggregate principal and interest amount for which the Note was
converted, together with interest thereon at a rate of 15% per
annum.
Warrant
In
conjunction with the issuance of the Note, we issued the selling stockholder a
Class A Common Stock Purchase Warrant initially exercisable for 6,117,647 shares
of common stock at a per share price of $0.165, which was 110% of the reported
closing bid price of the common stock on the business day prior to the date of
issuance.
On April
1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common
stock at $0.07 per share for an aggregate investment of
$400,000. This issuance of shares at a price per share less than the
exercise price for the Warrant triggered the anti-dilution provisions of the
Warrant, resulting in the adjustment of the exercise price to $0.07 per
share. Following this adjustment, the Warrant is exercisable for
14,420,168 shares of common stock.
The
Warrant has a term of five years from the issue date and may be exercised at any
time in whole are in part by payment of the exercise price in cash or in a
cashless transaction. If the Company fails within 3 business days to
deliver certificates representing the Warrant Shares for which the Warrant is
exercised, the Company is required to pay the Warrant holder liquidated damages
in the amount of $100 per business day thereafter until delivery for each
$10,000 of exercise price for which the Warrant is
exercised. Further, if the Company fails to deliver the Warrant
Shares for which the Warrant is exercised within 7 business days, the holder may
purchase that number of shares of Common Stock to which it is entitled to
receive from the Company and the Company must pay in cash to the holder the
amount by which the holder’s total purchase price for the common stock exceeds
the aggregate exercise price required to be delivered for the Warrant Shares,
together with interest thereon at a rate of 15% per annum. The number
of Warrant Shares subject to the Warrant and the exercise price thereof is
subject to equitable adjustment in the event of a merger, consolidation, sale of
assets, reclassification, stock dividend or stock split. The exercise
price of the Warrant is also subject to reduction to the lowest price per share
for which the Company sells equity during the term of the
Warrant.
SHARES
ELIGIBLE FOR FUTURE SALE
As
of April 30, 2009, there were approximately 165,064,073 shares of our common
stock outstanding.
Shares
Covered by this Prospectus
All of
the 29,005,481 shares being registered in this offering may be sold without
restriction under the Securities Act, so long as the registration statement of
which this prospectus is a part is, and remains, effective.
Rule 144
The SEC
has recently adopted amendments to Rule 144 which became effective on February
15, 2008 and applies to securities acquired both before and after that date.
Under these amendments, a person who has beneficially owned restricted
shares of our common stock for at least six months would be entitled to sell
their securities provided that (1) such person is not deemed to have been one of
our affiliates at the time of, or at any time during the three months preceding,
a sale, (2) we are subject to the Exchange Act reporting requirements for at
least 90 days before the sale and (3) if the sale occurs prior to satisfaction
of a one-year holding period, we provide current information at the time of
sale.
Persons
who have beneficially owned restricted shares of our common stock for at least
six months but who are our affiliates at the time of, or at any time during the
three months preceding, a sale would be subject to additional restrictions, by
which such person would be entitled to sell within any three-month period only a
number of securities that does not exceed the greater of:
|
|
•
|
1%
of the total number of securities of the same class then outstanding,
which equals approximately 1,605,641 shares as of April 30, 2009;
or
|
|
|
•
|
the
average weekly trading volume of such securities during the four calendar
weeks preceding the filing of a notice on Form 144 with respect to
such sale.
|
Provided,
that, in each case,
we are subject to the Exchange Act periodic reporting requirements for at least
three months before the sale.
However,
since we anticipate that our shares will be quoted on the OTC Bulletin Board,
which is not an “automated quotation system,” our stockholders will not be able
to rely on the market-based volume limitation described in the second bullet
above. If, in the future, our securities are listed on an exchange or
quoted on NASDAQ, then our stockholders would be able to rely on the
market-based volume limitation. Unless and until our stock is so listed or
quoted, our stockholders can only rely on the percentage based volume limitation
described in the first bullet above.
Such
sales by affiliates must also comply with the manner of sale, current public
information and notice provisions of Rule 144. The selling stockholders
will not be governed by the foregoing restrictions when selling their shares
pursuant to this prospectus.
PLAN
OF DISTRIBUTION
The
selling stockholders may, from time to time, sell, transfer or otherwise dispose
of any or all of their shares of common stock or interests in shares of common
stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. These dispositions may be at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale,
or at negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
•
|
privately
negotiated transactions;
|
|
|
•
|
short
sales effected after the date the registration statement of which this
prospectus is a part is declared effective by the
SEC;
|
|
|
•
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
and
|
|
|
•
|
a
combination of any such methods of
sale.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders
also may transfer the shares of common stock in other circumstances, in which
case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right
to accept and, together with their agents from time to time, to reject, in whole
or in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this
offering.
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholders (or, if any broker-dealer acts as agent for the
purchase of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
Any
underwriters, agents, or broker-dealers, and any selling stockholders who are
affiliates of broker-dealers, that participate in the sale of the common stock
or interests therein may be “underwriters” within the meaning of Section 2(11)
of the Securities Act. Any discounts, commissions, concessions or profit
they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling stockholders who are
“underwriters” within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. We
know of no existing arrangements between any of the selling stockholders and any
other stockholder, broker, dealer, underwriter, or agent relating to the sale or
distribution of the shares, nor can we presently estimate the amount, if any, of
such compensation. See “Selling Stockholders” for description of any
material relationship that a stockholder has with us and the description of such
relationship.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not
be sold unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition,
we will make copies of this prospectus (as it may be supplemented or amended
from time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have
agreed to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling
stockholders against liabilities, including liabilities under the Securities Act
and state securities laws, relating to the registration of the shares offered by
this prospectus.
We have
agreed with the selling stockholders to keep the registration statement of which
this prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
LEGAL
MATTERS
The
validity of the common stock offered by this prospectus will be passed upon for
us by McDaniel & Henry, LLP.
EXPERTS
The
audited financial statements for Collexis Holdings, Inc. included in this
prospectus and in the registration statement have been audited by Elliott Davis
LLC, an independent registered public accounting firm, to the extent and for the
periods set forth in their report appearing elsewhere herein and in the
registration statement, and are included in reliance on such report, given on
the authority of said firm as experts in auditing and accounting.
The
audited financial statements for Collexis Holdings, Inc. and Collexis B.V.
included in this prospectus and in the registration statement have been audited
by Bernstein & Pinchuk LLP, an independent registered public accounting
firm, to the extent and for the periods set forth in their report appearing
elsewhere herein and in the registration statement, and are included in reliance
on such report, given on the authority of said firm as experts in auditing and
accounting.
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the Company or any of its subsidiaries. Nor was any such person
connected with the Company or any of its subsidiaries as a promoter, managing or
principal underwriter, voting trustee, director, officer or
employee.
AVAILABLE
INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered in this
offering. This prospectus, which forms a part of the registration
statement, does not contain all of the information set forth in the registration
statement. For further information with respect to us and the securities,
reference is made to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete.
We have
historically filed annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we have or
will file with the SEC at the SEC’s public website (
www.sec.gov
) or at the Public
Reference Room of the SEC located at 100 F Street, N.E., Washington,
DC 20549. Copies of such materials can be obtained from the Public Reference
Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to
obtain information on the operation of the Public Reference
Room.
You
should rely only upon the information provided in this prospectus. We have not
authorized anyone to provide you with different information. You should not
assume that the information in this prospectus is accurate as of any date other
than the date of this prospectus.
SEC
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the registrant, the
registrant has been informed that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
INDEX
TO FINANCIAL STATEMENTS
Unaudited
Interim Financial Statements of Collexis Holdings, Inc.
The
unaudited interim financial statements of Collexis Holdings, Inc. included in
this prospectus are as follows:
|
F-2
|
Consolidated Balance Sheets as of
December 31, 2008 and June 30,
2008
|
|
F-3
|
Consolidated Statements of
Operations for the three months and six months ended
December 31, 2008 and December 31,
2007
|
|
F-4
|
Consolidated Statements of
Comprehensive Loss for the three months and six months ended December 31,
2008 and December 31,
2007.
|
|
F-5
|
Consolidated Statements of Cash
Flows for the six months ended December 31, 2008 and December 31,
2007.
|
|
F-6
|
Notes to Consolidated Financial
Statements (unaudited)
|
Audited
Financial Statements of Collexis Holdings, Inc.
The
audited financial statements of Collexis Holdings, Inc. included in this
prospectus are as follows:
|
F-14
|
Report
of Independent Public Accounting Firm Elliott Davis LLC relating to the
year ended June 30, 2008
|
|
F-15
|
Report
of Independent Public Accounting Firm Bernstein & Pinchuk LLP relating
to the period ended June 30,
2007
|
|
F-16
|
Consolidated
Balance Sheets as of June 30, 2008 and
2007
|
|
F-17
|
Consolidated
Statements of Operations for the year ended June 30, 2008 and six months
ended June 30, 2007
|
|
F-18
|
Consolidated
Statements of Comprehensive Loss for the year ended June 30, 2008 and six
months ended June 30, 2007
|
|
F-19
|
Consolidated
Statements of Cash Flows for the year ended June 30, 2008 and six months
ended June 30, 2007
|
|
F-20
|
Statement
of Stockholders’ Equity (Deficit) for the year ended June 30, 2008 and six
months ended June 30, 2007
|
|
F-21
|
Notes
to Consolidated Financial
Statements
|
Audited
Financial Statements of Collexis B.V.
The
audited financial statements of Collexis B.V. included in this prospectus are as
follows:
|
F-39
|
Report
of Independent Public Accounting Firm Bernstein & Pinchuk LLP relating
to the years ended December 31, 2006 and
2005
|
|
F-40
|
Consolidated
Balance Sheets as of December 31, 2006 and
2005
|
|
F-41
|
Consolidated
Statements of Operations for the years ended December 31, 2006 and
2005
|
|
F-42
|
Consolidated
Statements of Comprehensive Loss for the years ended December 31, 2006 and
2005
|
|
F-42
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years ended December
31, 2006 and 2005
|
|
F-43
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006 and
2005
|
|
F-44
|
Notes
to Consolidated Financial
Statements
|
COLLEXIS
HOLDINGS, INC. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
|
|
|
As
of
December
31,
|
|
|
As
of
June
30,
|
|
|
|
|
2008
|
|
|
2008
|
|
|
ASSETS
|
|
(Unaudited)
|
|
|
(Note)
|
|
|
Currents
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
831,134
|
|
|
$
|
1,476,234
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $ 269,905 and $
302,492
|
|
|
997,783
|
|
|
|
1,193,678
|
|
|
Prepaid
expenses and other current assets
|
|
|
197,952
|
|
|
|
225,973
|
|
|
Total
current assets
|
|
|
2,026,869
|
|
|
|
2,895,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost, net of accumulated depreciation of $
704,024 and $ 671,293
|
|
|
479,726
|
|
|
|
540,485
|
|
|
Intangibles,
net of accumulated amortization of $1,655,829 and $998,584
|
|
|
6,459,342
|
|
|
|
7,726,426
|
|
|
Trade
name
|
|
|
1,090,494
|
|
|
|
1,090,494
|
|
|
Goodwill
|
|
|
9,148,595
|
|
|
|
9,616,603
|
|
|
Security
deposit - rent
|
|
|
20,954
|
|
|
|
23,482
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
19,225,980
|
|
|
$
|
21,893,375
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable trade
|
|
$
|
1,585,489
|
|
|
$
|
1,152,230
|
|
|
Accrued
taxes and expenses
|
|
|
1,215,287
|
|
|
|
1,299,416
|
|
|
Deferred
revenue
|
|
|
707,412
|
|
|
|
762,566
|
|
|
Other
liabilities and deferred charges
|
|
|
-
|
|
|
|
21,299
|
|
|
Deferred
tax liability, net
|
|
|
25,671
|
|
|
|
22,706
|
|
|
Current
portion of deferred purchase price
|
|
|
3,434,070
|
|
|
|
3,803,507
|
|
|
Total
current liabilities
|
|
|
6,967,929
|
|
|
|
7,061,724
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
1,208,723
|
|
|
|
1,532,977
|
|
|
Deferred
purchase price
|
|
|
6,611,685
|
|
|
|
6,991,696
|
|
|
Total
non-current liabilities
|
|
|
7,820,408
|
|
|
|
8,524,673
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
14,788,337
|
|
|
|
15,586,397
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficiency)
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001, authorized shares 277,713,000; 120,965,418
shares issued and outstanding as of December 31, 2008; 109,743,727
issued and oustanding as of June 30, 2008
|
|
|
120,965
|
|
|
|
109,744
|
|
|
Additional
paid-in capital
|
|
|
32,816,994
|
|
|
|
30,314,289
|
|
|
Accumulated
other comprehensive income
|
|
|
103,444
|
|
|
|
636,693
|
|
|
Accumulated
deficit
|
|
|
(28,603,760
|
)
|
|
|
(24,753,748
|
)
|
|
Total
stockholders' equity
|
|
|
4,437,643
|
|
|
|
6,306,978
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
19,225,980
|
|
|
$
|
21,893,375
|
|
Note: The
Balance Sheet at June 30, 2008, has been derived from the Company's audited
financial statements
as of
that date. 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 December 31,
|
|
|
Six Months
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
Revenue
|
|
$
|
85,637
|
|
|
$
|
234,906
|
|
|
$
|
203,807
|
|
|
$
|
278,371
|
|
|
Service
Revenue
|
|
|
770,586
|
|
|
|
589,680
|
|
|
|
1,112,676
|
|
|
|
658,569
|
|
|
Maintenance
& Support Revenue
|
|
|
243,144
|
|
|
|
95,225
|
|
|
|
456,695
|
|
|
|
276,550
|
|
|
Hardware
& Hosting Revenue
|
|
|
26,327
|
|
|
|
37,604
|
|
|
|
51,332
|
|
|
|
50,687
|
|
|
Database
subscription revenue
|
|
|
744,591
|
|
|
|
-
|
|
|
|
1,489,673
|
|
|
|
-
|
|
|
Total
revenue
|
|
|
1,870,285
|
|
|
|
957,415
|
|
|
|
3,314,183
|
|
|
|
1,264,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of License Revenue
|
|
|
180,000
|
|
|
|
33,986
|
|
|
|
180,156
|
|
|
|
42,975
|
|
|
Cost
of Service Revenue
|
|
|
359,753
|
|
|
|
263,206
|
|
|
|
676,566
|
|
|
|
338,373
|
|
|
Cost
of Maintenance & Support Revenue
|
|
|
14,068
|
|
|
|
75,051
|
|
|
|
31,156
|
|
|
|
209,802
|
|
|
Cost
of Hardware & Hosting Revenue
|
|
|
37,934
|
|
|
|
29,287
|
|
|
|
73,287
|
|
|
|
37,219
|
|
|
Cost
of database subscription revenue
|
|
|
216,436
|
|
|
|
-
|
|
|
|
374,538
|
|
|
|
-
|
|
|
Total
cost of revenue
|
|
|
808,191
|
|
|
|
401,530
|
|
|
|
1,335,703
|
|
|
|
628,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,062,094
|
|
|
|
555,885
|
|
|
|
1,978,480
|
|
|
|
635,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
& Administrative
|
|
|
2,121,213
|
|
|
|
2,119,747
|
|
|
|
4,418,314
|
|
|
|
3,246,456
|
|
|
Sales
& Marketing
|
|
|
737,524
|
|
|
|
799,692
|
|
|
|
1,539,100
|
|
|
|
1,407,904
|
|
|
Research
& Development
|
|
|
176,091
|
|
|
|
511,143
|
|
|
|
369,754
|
|
|
|
778,521
|
|
|
Total
operating expenses
|
|
|
3,034,828
|
|
|
|
3,430,582
|
|
|
|
6,327,168
|
|
|
|
5,432,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income (expense), interest expense and income
taxes
|
|
|
(1,972,734
|
)
|
|
|
(2,874,697
|
)
|
|
|
(4,348,688
|
)
|
|
|
(4,797,073
|
)
|
|
Other
income (expense)
|
|
|
(306,422
|
)
|
|
|
166
|
|
|
|
381,817
|
|
|
|
162
|
|
|
Loss
before interest (expense)
|
|
|
(2,279,156
|
)
|
|
|
(2,874,531
|
)
|
|
|
(3,966,871
|
)
|
|
|
(4,796,911
|
)
|
|
Interest
(expense)
|
|
|
(188,344
|
)
|
|
|
(104,582
|
)
|
|
|
(253,993
|
)
|
|
|
(95,041
|
)
|
|
Loss
before income tax benefit
|
|
|
(2,467,500
|
)
|
|
|
(2,979,113
|
)
|
|
|
(4,220,864
|
)
|
|
|
(4,891,952
|
)
|
|
Tax
benefit
|
|
|
66,247
|
|
|
|
135,550
|
|
|
|
154,036
|
|
|
|
132,072
|
|
|
NET
LOSS
|
|
$
|
(2,401,253
|
)
|
|
$
|
(2,843,563
|
)
|
|
$
|
(4,066,828
|
)
|
|
$
|
(4,759,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted common shares outstanding
|
|
|
112,859,226
|
|
|
|
65,976,003
|
|
|
|
111,129,757
|
|
|
|
63,949,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
|
|
Three Months Ended December
31,
|
|
|
Six Months Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net
loss
|
|
$
|
(2,401,253
|
)
|
|
$
|
(2,843,563
|
)
|
|
|
(4,066,828
|
)
|
|
$
|
(4,759,880
|
)
|
|
Foreign
currency translation adjustment
|
|
|
382,269
|
|
|
|
221,112
|
|
|
|
(533,249
|
)
|
|
|
229,981
|
|
|
Comprehensive
loss
|
|
$
|
(2,018,984
|
)
|
|
$
|
(2,622,451
|
)
|
|
$
|
(4,600,077
|
)
|
|
$
|
(4,529,899
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Six
|
|
|
Six
|
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,066,828
|
)
|
|
$
|
(4,759,880
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
835,388
|
|
|
|
256,201
|
|
|
Stock
option compensation expense
|
|
|
428,446
|
|
|
|
393,230
|
|
|
Foreign
exchange gain
|
|
|
(366,955
|
)
|
|
|
-
|
|
|
Gain
on sale of assets
|
|
|
-
|
|
|
|
15,086
|
|
|
Allowance
for bad debts
|
|
|
(32,587
|
)
|
|
|
-
|
|
|
Deferred
taxes
|
|
|
(321,289
|
)
|
|
|
(66,557
|
)
|
|
Changes
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
228,482
|
|
|
|
(477,128
|
)
|
|
Prepaid
expenses
|
|
|
28,121
|
|
|
|
(227,880
|
)
|
|
Other
receivables
|
|
|
-
|
|
|
|
79,125
|
|
|
Other
assets & deferred charges
|
|
|
2,528
|
|
|
|
-
|
|
|
Accounts
payable
|
|
|
433,259
|
|
|
|
394,118
|
|
|
Accrued
taxes and expenses
|
|
|
(84,129
|
)
|
|
|
184,382
|
|
|
Deferred
revenue
|
|
|
(55,154
|
)
|
|
|
457,608
|
|
|
Net
cash (used in) operating activities
|
|
|
(2,970,718
|
)
|
|
|
(3,751,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(10,175
|
)
|
|
|
(180,544
|
)
|
|
Acquisition
of intangibles
|
|
|
-
|
|
|
|
(831
|
)
|
|
Acquisition
of SyynX, net of cash acquired
|
|
|
-
|
|
|
|
96,719
|
|
|
Net
cash (used in) investing activities
|
|
|
(10,175
|
)
|
|
|
(84,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Loan
from shareholder
|
|
|
-
|
|
|
|
(650,000
|
)
|
|
Fees
paid to raise capital
|
|
|
-
|
|
|
|
(151,298
|
)
|
|
Partial
payment on def. purchase obligation - Lawriter
|
|
|
(313,750
|
)
|
|
|
(2,106,331
|
)
|
|
Proceeds
on stock issuance
|
|
|
2,513,926
|
|
|
|
-
|
|
|
Cash
received on stock subscriptions
|
|
|
-
|
|
|
|
7,669,293
|
|
|
Net
cash provided by financing activities
|
|
|
2,200,176
|
|
|
|
4,761,664
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(780,717
|
)
|
|
|
925,313
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
135,617
|
|
|
|
(33,943
|
)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,476,234
|
|
|
|
187,261
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
831,134
|
|
|
$
|
1,078,631
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
39,616
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
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 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organizational
Matters
The
company was formed when, on February 13, 2007, Collexis Holdings, Inc., a
Delaware corporation, merged with and into Technology Holdings, Inc., a Nevada
corporation. As the surviving company, Technology Holdings, Inc. changed its
name to Collexis Holdings, Inc. Immediately before the merger,
Collexis Holdings, Inc. had acquired through a share exchange approximately
99.5% of the outstanding capital stock of Collexis B.V. On June 27, 2008, we
acquired the remaining 0.5% of Collexis B.V. stock we did not previously own in
exchange for 183,333 shares of our common stock. Before the merger, Technology
Holdings, Inc. was a development stage company with no operations. Collexis B.V.
was founded in 1999 in the Netherlands and through these transactions became the
operating subsidiary of Collexis Holdings, Inc. and acquirer for accounting
purposes.
On
October 19, 2007, we acquired our long-time software development partner, SyynX
WebSolutions GmbH, a privately-held software company based in Cologne, Germany.
Additionally, on February 1, 2008, we acquired Lawriter, LLC, an Ohio based
company that provides online legal research services to bar associations under
the name Casemaker® via monthly database subscription fees. To further expand
our offerings to legal industry clients, on January 18, 2008, we entered into a
licensing and publishing agreement with VersusLaw, Inc., under which we acquired
a perpetual, non-exclusive, transferable license to use VersusLaw’s
legal-related collection of judicial opinions.
Description
of Business
Collexis
Holdings, Inc., sometimes referred to as “Collexis,” the “Company,” “we,” “us,”
or “our” in this report, is a global software development company headquartered
in Columbia, South Carolina with operations in Cincinnati, Ohio, Geldermalsen,
the Netherlands and Cologne, Germany. We develop software that supports the
knowledge intensive market, building tools to search and mine large sets of
information. Our software enables search, aggregation, navigation and discovery
of information. Using public as well as proprietary thesauri of industry
specific language, we 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. 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.
We
operate several subsidiaries that support our core technology sales in the
government, enterprise and life science sectors. In February, 2008
we acquired an industry-dedicated subsidiary, Lawriter LLC, which
provides online legal research services to lawyers in the United States
primarily through state bar associations. In addition, we now offer the world’s
first pre-populated professional social network for life science researchers,
www.biomedexperts.com.
Our
technology is based on the principle of fingerprinting or the semantic profiling
of a document. The Collexis software can create a fingerprint for any piece of
text containing relevant information. This process makes use of a structure of
professional terminology in a particular field, including thesaurus, taxonomies
or ontologies. A thesaurus contains selected words, terms and concepts and their
semantic relationships in a hierarchical structure also reflecting synonyms and
homonyms. The profiled fingerprint of a document is the starting point for
industry applications that we use in our primary markets. The document
fingerprint depends not only on the capabilities of the resulting application,
but also on the underlying functionality and scalability of the system
architecture to perform in industries as diverse as the legal, life sciences,
and defense/government markets.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial reporting and in accordance with Article 8 of Regulation S-X. The
results of operations of Collexis Holdings, Inc. and its wholly-owned
subsidiaries Collexis Inc. and Collexis B.V. are included for all
periods presented. The results of SyynX Solutions, GmbH are included from
October 19, 2007 and the results of Lawriter, LLC are included from February 1,
2008, their respective acquisition dates.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. 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 has recently been changed to June 30 to
correspond with its financial reporting period.
Revenue
Recognition
The
Company recognizes 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.” The Company recognizes revenue from non-cancelable software
licenses when the license agreement has been signed, delivery has occurred, the
fee is fixed or determinable and collectability is probable. The Company
recognizes 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, the Company defers
the vendor-specific objective evidence of fair value (“VSOE”) related to the
undelivered elements and recognizes revenue on the delivered elements using the
percentage-of-completion method.
The most
commonly deferred elements are initial maintenance and consulting services. The
Company recognizes initial maintenance on a straight-line basis over the initial
maintenance term. The Company determines VSOE of maintenance by using a
consistent percentage of maintenance fees to license fee based on renewal rates.
The Company recognizes maintenance fees in subsequent years on a straight-line
basis over the life of the applicable agreement. The Company determines 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.
For
software license, services and maintenance revenue, the Company assesses whether
the fee is fixed and determinable, the Company has performed the services and
whether or not collection is probable. The Company assesses 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, the Company recognizes
revenue as the fees become due.
The
Company bills the majority of its training and consulting services based on
hourly rates. The Company generally recognizes revenue as it performs 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, the Company recognizes the related revenue using the percentage of
completion method of accounting.
The
Company recognizes 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. The Company’s Lawriter
subsidiary, invoices its subscription customers in advance of the month for
which the subscription services are being provided. Recognition of revenue
associated with such billing is recognized by Lawriter in the month the services
are actually provided.
Foreign
Currency Risk
The
Company has conducted significant sales activity through its subsidiaries in the
Netherlands and Germany. The Company has experienced foreign exchange gains and
losses to date without engaging in any hedging activities.
The
Company’s 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 the
statements of operations.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Loss
per Common Share
Loss per
share (“EPS”) is computed based on a weighted average number of common shares
outstanding and excludes any potential dilution. Diluted EPS 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.
During the periods presented, the Company had 17,773,276 and 19,237,630 options,
warrants and restricted stock outstanding as of December 31, 2008 and 2007
respectively, that could potentially dilute basic earnings per share in the
future. These instruments were excluded from the computation of diluted earnings
per share, because their effect would have been anti-dilutive.
Impairment
or Disposal of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
monitors events or changes in circumstances that may indicate carrying amounts
of its long-lived assets may not be recoverable. When such events or changes in
circumstances are present, the Company assesses the recoverability of its assets
by determining whether the carrying amount of its assets will be recovered
through undiscounted, expected future cash flows. If the Company determines that
the carrying values of specific long-lived assets are not recoverable, the
Company will record a charge to operations to reduce the carrying value of those
assets to their fair values. The Company considers various valuation factors,
principally discounted cash flows, to assess the fair values of long-lived
assets.
Goodwill
and Intangible Assets
Goodwill
represents the excess of the cost of an acquisition over the fair value of net
assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets”, goodwill is reviewed for impairment utilizing a two-step process. The
first step of the impairment test requires the identification of the reporting
units, and comparison of the fair value of each of these reporting units to the
respective carrying value. The fair value of the reporting units is determined
based on valuation techniques using the best information that is available, such
as discounted cash flow projections. If the carrying value is less than the fair
value, no impairment exists and the second step is not performed. If the
carrying value is higher than the fair value, there is an indication that
impairment may exist and the second step must be performed to compute the amount
of the impairment. In the second step, the impairment is computed by comparing
the implied fair value of reporting unit goodwill with the carrying amount of
that goodwill. SFAS No. 142 requires goodwill to be tested for impairment
annually at the same time every year, and when an event occurs or circumstances
change such that it is reasonably possible that an impairment may exist. The
annual impairment tests are performed in the fourth quarter of each
year.
Management
does not believe there is any impairment to its Goodwill or Intangible Assets at
December 31, 2008 based on the Company’s current market
capitalization. Other intangible assets, which include customer lists,
trademarks, and other identifiable intangible assets, are amortized on a
straight-line basis over estimated useful lives of three to 10
years.
Stock-Based
Compensation
On
January 1, 2006, Collexis adopted SFAS No. 123R, “Share-Based Payment,” which
replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
to Employees.” SFAS No. 123R requires the cost of employee services received in
exchange for equity instruments awarded or liabilities incurred to be recognized
in the financial statements. Under this method, compensation cost beginning
January 1, 2006 includes the portion vesting in the period for (1) all
share-based payments granted prior to, but not vested as of December 31, 2005,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (2) all share-based payments granted subsequent
to December 31, 2005, based on the grant date fair value estimated using the
Black-Scholes option pricing model.
The
Company began using the modified prospective transition method when it adopted
SFAS 123R as of January 1, 2006. The Company anticipates it will grant
additional employee stock options and/or non-vested stock units in the future.
The fair value of these grants is not included in the amount above, as the
impact of these grants cannot be predicted at this time because it will depend
on the number of share-based payments granted and the then current fair
values.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Recent
accounting pronouncements
Please
see the Company’s annual report on Form 10-K filed on October 14, 2008 for a
discussion of the impact of recent accounting pronouncements on the Company in
addition to those listed below.
The SEC’s
Office of the Chief Accountant and the staff of the Financial Accounting
Standards Board (“FASB”) issued press release 2008-234 on September 30, 2008
(“Press Release”) to provide clarifications on fair value
accounting. The Press Release includes guidance on the use of
management’s internal assumptions and the use of “market” quotes. It
also reiterates the factors in SEC Staff Accounting Bulletin (“SAB”) Topic 5M
which should be considered when determining other-than-temporary impairment: the
length of time and extent to which the market value has been less than cost;
financial condition and near-term prospects of the issuer; and the intent and
ability of the holder to retain its investment for a period of time sufficient
to allow for any anticipated recovery in market value.
On
October 10, 2008, the FASB issued FASB Staff Position (“FSP”) Statement of
Financial Accounting Standard (“SFAS”) 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”. This
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements” in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that asset is not active. The FSP is effective upon
issuance, including prior periods for which financial statements have not been
issued. For the Company, this FSP was effective for the quarter ended September
30, 2008.
The
Company considered the guidance in the Press Release and in FSP SFAS 157-3 when
conducting its review for other-than-temporary impairment as of December 31,
2008.
FSP SFAS
140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest Entities,” was
issued in December 2008 to require public entities to disclose additional
information about transfers of financial assets and to require public
enterprises to provide additional disclosures about their involvement with
variable interest entities. FSP SFAS 140-4 also requires certain
disclosures for public enterprises that are sponsors and servicers of qualifying
special purpose entities. The FSP is effective for the first
reporting period ending after December 15, 2008. FSP SFAS 140-4 had
no material impact on the financial position of the Company.
NOTE
2. GOING CONCERN AND LIQUIDITY
As noted
in our annual report on Form 10-K filed on October 14, 2008, we incurred a net
loss of $11.3 million for the year ended June 30, 2008, current liabilities
exceeded current assets by $4.2 million and we reported an accumulated
deficit of $24.8 million. As a result, the report of our Independent
Registered Public Accounting Firm on our Consolidated Financial Statements for
such period included an explanatory paragraph that expressed substantial doubt
about our ability to continue as a going concern. For the six months
ended December 31, 2008 we incurred a net loss of $4.1 million and reported an
accumulated deficit of $28.6 million as of December 31, 2008.
For the
six months ended December 31, 2008, net cash used in operations was $3.0
million. Our primary use of operating funds related to developing the
Collexis Engine and other products and increasing our sales and marketing
presence. Our working capital deficit was $4.9 million as of December 31,
2008.
Our
financing activities during the six months ended December 31, 2008 reflected a
deferred payment associated with the Lawriter acquisition of approximately
$314,000 and cash raised from stock sales of approximately $2.5
million. Net cash used in investing activities was
approximately $10,000 for the six months ended December 31, 2008.
As of
February 18, 2009, we had cash and cash equivalents of approximately $140,000.
We believe our current cash balance together with any funds generated from our
operations will be sufficient to meet our working capital needs for the next
week.
Our
principal cash requirements are for working capital and to make deferred
payments relating to the SyynX and Lawriter acquisitions. The deferred payments
due on these acquisitions over the next three months are approximately $2.8
million. See discussion under Note 3 “Acquisitions.”
In order
to alleviate our working capital deficiency, provide capital for deferred
acquisition payments and address our continued financing concerns, management
intends to take affirmative steps towards:
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
|
|
•
|
building
on the momentum established in the market with our profiling and dashboard
products and cultivating our strategic alliances to increase our market
presence;
|
|
|
•
|
developing
new products to address the demands in our core and legal markets;
and
|
|
|
•
|
identifying
sources of capital that will be sufficient to fund our operations until
such time as we are cash flow
positive.
|
In order
to meet our short-term working capital needs, we are currently conducting a
private placement of our common stock for up to $2.0 million. As of the date of
this report, we have accepted subscriptions for $700,000 from a private investor
who has funded the subscribed amount. We anticipate receiving the
remaining $1.3 million over the next fifteen to forty- five days.
There can
be no assurances that we can continue to receive additional funding through the
private placement of our common stock and/or continue to raise funds through
debt or equity financing. Failure to achieve such funding will result
in a significant negative impact to our business and our operating results,
whereby we may be in breach of our acquisition agreements for SyynX and Lawriter
and/or we may have to cease operations.
The
accompanying consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
NOTE
3. ACQUISITIONS
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
Earn-out (as defined below), if any.
The
remaining cash balance due to each seller to be paid in equal installments, are
listed in the following table.
|
Seller
|
|
Payment Date
|
|
Payment
Amount
|
|
|
|
|
|
|
|
|
|
OSBA
|
|
November
1, 2008 (Paid on January 2, 2009)
|
|
$
|
313,750
|
|
|
|
|
|
|
|
|
|
|
OSBA
|
|
February
1, 2009
|
|
|
313,750
|
|
|
|
|
|
|
$
|
627,500
|
|
|
Seller
|
|
Payment Date
|
|
Payment
Amount
|
|
|
Lawcorp
|
|
February
1, 2009
|
|
$
|
750,000
|
|
|
|
|
February
1, 2010
|
|
|
750,000
|
|
|
|
|
February
1, 2011
|
|
|
750,000
|
|
|
|
|
February
1, 2012
|
|
|
750,000
|
|
|
|
|
|
|
$
|
3,000,000
|
|
The $4.5
million due the OSBA was to be paid as follows: $1.125 million was paid at
closing, the remaining cash due is payable in four equal installments of
$313,750, of which, as of the date of this report, one payment
remains. The purchase agreement provides for a thirty day grace
period on this payment and we anticipate making this payment prior to the
expiration of such period. With respect to the remaining $2.12
million consideration due to OSBA, the purchase agreement provides that we may
either:
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
|
|
(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 $2.12 million 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 the
filing date of this report, the Company has not paid the $750,000 payment due
Lawcorp on February 1, 2009. Lawcorp has agreed, in writing to extend
the payment due date until April 1, 2009.
Under the
terms of the purchase, we also agreed to pay the Earn-out, if any, on a pro rata
basis to OSBA and Lawcorp within 20 days following the end of each calendar
quarterly period within the Earn-out period. The Earn-out period:
|
|
·
|
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 $2.75 million 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
“Earn-out” means a lump sum cash payment equal to the product of (x) the
Earn-out 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 Earn-out 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
Earn-out payments, however, cannot exceed $15 million.
The total
of remaining payments, $5,362,051, represents the actual payment amounts due on
their respective due dates. The calculation of deferred purchase price on our
consolidated balance sheet at December 31, 2008, $4,754,723, reflects the
present value of these payments discounted at the implied interest rate of 8%.
The difference of $607,328 represents the value of imputed
interest.
The
transaction is accounted for in accordance with SFAS No. 141. The purchase price
allocation, as of the purchase date, is as follows:
|
Purchase
Price:
|
|
|
|
|
Deferred
purchase price (net of imputed interest of $947,272)
|
|
$
|
5,927,728
|
|
|
Cash
|
|
|
1,625,000
|
|
|
Common
shares issued
|
|
|
500,000
|
|
|
|
|
|
8,052,728
|
|
|
Direct
costs of acquisition
|
|
|
232,707
|
|
|
Total
purchase price
|
|
$
|
8,285,435
|
|
|
|
|
|
|
|
|
Values
assigned to assets and liabilities:
|
|
|
|
|
|
Cash
|
|
$
|
65,377
|
|
|
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
|
|
|
5,275,330
|
|
|
Accounts
payable and accrued expenses
|
|
|
(97,005
|
)
|
|
Deferred
revenue
|
|
|
(256,084
|
)
|
|
Accrued
restructuring charges
|
|
|
(40,075
|
)
|
|
Total
purchase price assigned
|
|
$
|
8,285,435
|
|
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
The
Company continues 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 Earn-out, as permitted for a period of 12 months from the date of
acquisition.
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. The table below reflects the remaining installment
payments to be made.
|
Payment Date
|
|
Payment
Amount in
Euros
|
|
|
Remaining
Payments in USD at
12-31-08
Exchange Rates
|
|
|
|
|
|
|
|
|
|
|
October
1, 2008
|
|
€
|
1,494,304
|
|
|
$
|
2,106,520
|
|
|
October
1, 2009
|
|
|
1,245,053
|
|
|
|
1,755,151
|
|
|
October
1, 2010
|
|
|
1,248,152
|
|
|
|
1,759,520
|
|
|
|
|
€
|
3,987,509
|
|
|
$
|
5,621,191
|
|
On
January 6, 2009, the Company entered into an agreement amending the Share
Purchase Agreement for SyynX. The amendment relates to the payment
terms of the second installment which was due on October 1, 2008 in the amount
of €1,494,304 plus accrued interest at 8% for a period of 90 days (the payment
grace period). As of December 31, 2008, the second installment amount
due with accrued interest is €1,524,006. The amendment provides for
the following payments:
|
|
(1)
|
€300,000
on or before January 7, 2009 (paid on January 6,
2009);
|
|
|
(2)
|
€400,000
on or before February 3, 2009;
|
|
|
(3)
|
€100,000
on or before February 17, 2009; and
|
|
|
(4)
|
€724,006
on or before March 31, 2009 (which includes €29,702
accrued).
|
In
addition, pursuant to the amendment, interest will accrue on the unpaid second
installment balance at an annual rate of 12% from January 1, 2009, until
paid. Based on the scheduled payments above, the estimated interest
payments will be approximately €28,400 or approximately $40,035 based on the
December 31, 2008 exchange rate. All accrued interest is due on or
before March 31, 2009.
As of the
filing date of this report, we have not made the €400,000 payment due on
February 3, 2009 or the €100,000 payment due on February 17, 2009. We
have reached a verbal agreement with the former shareholders of SyynX to extend
such payment due date; however, pursuant to the terms of the Share Purchase
Agreement, during such time as any installment remains outstanding, the former
SyynX shareholders have a contractual lien against the SyynX shares and the
right to use the SyynX software and products developed by the Company with the
right to grant sub-licenses until complete payment of the purchase
price.
All or a
portion of the final scheduled payment of the second installment for
€714,851 may be accelerated in the event the Company raises funds through a sale
of its equity securities or a sale of all or a portion of its
business and such sale results in the receipt of proceeds of more than $3.0
million. Thirty percent of any amount received in excess of $3.0
million will be used to offset the March 31, 2009 payment plus any accrued
interest thereon.
The total
of remaining payments, $5,621,191, represents the actual payment amounts due on
their respective due dates, calculated at the December 31, 2008 exchange rate.
The calculation of deferred purchase price on our consolidated balance sheet at
December 31, 2008, $5,291,032, reflects the present value of these payments
discounted at the implied interest rate of 8%. The difference of $330,159
represents the value of imputed interest.
COLLEXIS
HOLDINGS, INC. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
The
transaction is accounted for in accordance with SFAS No. 141, “Business
Combinations.” The purchase price allocation, as of the purchase date, is as
follows:
|
Purchase
Price:
|
|
|
|
|
Deferred
purchase price (net of imputed interest of $790,941)
|
|
$
|
7,029,308
|
|
|
Exercise
of option
|
|
|
712,550
|
|
|
|
|
|
7,741,858
|
|
|
Direct
costs of acquisition
|
|
|
189,878
|
|
|
Write
off of SyynX receivable from Collexis Holdings, Inc.
|
|
|
(200,587
|
)
|
|
Total
purchase price
|
|
$
|
7,731,149
|
|
|
|
|
|
|
|
|
Values
assigned to assets and liabilities:
|
|
|
|
|
|
Cash
|
|
$
|
154,036
|
|
|
Accounts
receivable
|
|
|
320,820
|
|
|
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 seven years)
|
|
|
4,004,733
|
|
|
Goodwill
|
|
|
3,918,673
|
|
|
Accounts
payable and accrued expenses
|
|
|
(21,183
|
)
|
|
Income
taxes payable
|
|
|
(127,876
|
)
|
|
Deferred
tax liability
|
|
|
(1,608,479
|
)
|
|
Other
liabilities
|
|
|
(119,015
|
)
|
|
Total
purchase price assigned
|
|
$
|
7,731,149
|
|
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. 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.
Combined
consolidated pro forma financial information
The
operating results of SyynX and Lawriter are consolidated beginning October 19,
2007 and February 1, 2008, respectively. The following pro forma information
reflects the impact on our statement of operations had these acquisitions
occurred on July 1, 2007.
|
|
|
Three
Months
Ended
December
31,
|
|
|
Six
Months
Ended
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
as reported
|
|
$
|
1,870,285
|
|
|
$
|
957,415
|
|
|
$
|
3,314,183
|
|
|
$
|
1,264,177
|
|
|
Revenue
pro-forma
|
|
$
|
1,870,285
|
|
|
$
|
1,699,331
|
|
|
$
|
3,314,183
|
|
|
$
|
3,044,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss as reported
|
|
$
|
(2,401,253
|
)
|
|
$
|
(2,843,563
|
)
|
|
$
|
(4,066,828
|
)
|
|
$
|
(4,759,880
|
)
|
|
Net
Loss pro forma
|
|
$
|
(2,401,253
|
)
|
|
$
|
(2,721,966
|
)
|
|
$
|
(4,066,828
|
)
|
|
$
|
(4,507,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share as reported
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
Net
Loss per share pro forma
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Collexis
Holdings, Inc. and Subsidiaries
We have
audited the consolidated balance sheet of Collexis Holdings, Inc. and
Subsidiaries as of June 30, 2008, and the related consolidated statements of
operations, comprehensive loss, stockholders’ equity (deficit) and cash flows
for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Collexis Holdings, Inc. and
Subsidiaries as of June 30, 2008, and the results of their operations and their
cash flows for the year then ended, in conformity with U.S. generally accepted
accounting principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Company has suffered recurring
losses from operations, has continuing net cash outflows from operations and its
current liabilities exceed its current assets. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We were
not engaged to examine management's assertion about the effectiveness of
Collexis Holdings, Inc.’s internal control over financial reporting as of June
30, 2008 included in the accompanying Management’s Report on Internal Control
Over Financial Reporting in Item 9A(T) of Form 10-K and, accordingly, we do not
express an opinion thereon.
/s/
Elliott Davis, LLC
Columbia,
South Carolina
October
14, 2008
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Members
of the Audit Committee of
Collexis
Holdings, Inc.
We have
audited the accompanying consolidated balance sheet of Collexis Holdings, Inc.,
and subsidiaries ("the Company") as of June 30, 2007 and the related statements
of operations, stockholders' equity (deficit), comprehensive loss, and cash
flows for the six month period ended June 30, 2007. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the financial statements referred above present fairly, in all material
respects, the financial position of the Company as of June 30, 2007 and the
results of its operations and its cash flows for the six month period ended June
30, 2007 in conformity with accounting principles generally accepted in the
United States of America.
/s/
Bernstein & Pinchuk
LLP
New York,
New York
September
28, 2007 except for the correction of an error concerning overstated general and
administrative expenses as disclosed in Note 1 to the financial statements
included in the transition report for the transition period from January 1, 2007
to June 30, 2007 included in form 10-KSB/A and its effect on the Consolidated
Statements of Operations and loss per share, Comprehensive loss, and Cash Flows
for the six months ended June 30, 2007 and 2006, and the related cumulative
effect on the equity section of the Balance Sheets as of June 30, 2007 and 2006,
as to which the date is October 29, 2007.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
As of June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Currents
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,476,234
|
|
|
$
|
187,261
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $ 302,492 and $
84,422, respectively
|
|
|
1,193,678
|
|
|
|
618,462
|
|
|
Prepaid
expenses and other current assets
|
|
|
225,973
|
|
|
|
231,768
|
|
|
Total
current assets
|
|
|
2,895,885
|
|
|
|
1,037,491
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost, net of accumulated depreciation of $
671,293 and $ 430,760, respectively
|
|
|
540,485
|
|
|
|
211,282
|
|
|
Intangibles,
net of accumulated amortization of $998,584
|
|
|
7,726,426
|
|
|
|
-
|
|
|
Trade
Name
|
|
|
1,090,494
|
|
|
|
-
|
|
|
Goodwill
|
|
|
9,616,603
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
Security
deposit - rent
|
|
|
23,482
|
|
|
|
34,179
|
|
|
Other
long term assets
|
|
|
-
|
|
|
|
67,375
|
|
|
Option
to purchase Syynx
|
|
|
-
|
|
|
|
673,750
|
|
|
Total
other assets
|
|
|
23,482
|
|
|
|
775,304
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
21,893,375
|
|
|
$
|
2,024,077
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable trade
|
|
$
|
1,152,230
|
|
|
$
|
409,931
|
|
|
Accrued
taxes and expenses
|
|
|
1,299,416
|
|
|
|
923,319
|
|
|
Other
and deferred charges
|
|
|
21,299
|
|
|
|
9,645
|
|
|
Deferred
revenue
|
|
|
762,566
|
|
|
|
238,681
|
|
|
Deferred
tax liability
|
|
|
22,706
|
|
|
|
-
|
|
|
Current
portion of deferred purchase price
|
|
|
3,803,507
|
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
7,061,724
|
|
|
|
1,581,576
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from shareholder
|
|
|
-
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
1,532,977
|
|
|
|
-
|
|
|
Deferred
purchase price
|
|
|
6,991,696
|
|
|
|
-
|
|
|
Total
non-current liabilities
|
|
|
8,524,673
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit)
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001, authorized 277,713,000 shares;
109,743,727 shares issued and outstanding as of June 30, 2008;
authorized 277,713,000 shares; 59,818,728 issued and oustanding as of June
30, 2007
|
|
|
109,744
|
|
|
|
59,819
|
|
|
Additional
paid-in capital
|
|
|
30,314,289
|
|
|
|
13,200,590
|
|
|
Accumulated
other comprehensive income
|
|
|
636,693
|
|
|
|
26,082
|
|
|
Accumulated
deficit
|
|
|
(24,753,748
|
)
|
|
|
(13,493,990
|
)
|
|
Total
stockholders' equity (deficit)
|
|
|
6,306,978
|
|
|
|
(207,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
21,893,375
|
|
|
$
|
2,024,077
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
Six
|
|
|
|
|
Year
Ended
|
|
|
Months
Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
License
revenue
|
|
$
|
728,326
|
|
|
$
|
367,650
|
|
|
Service
revenue
|
|
|
1,613,660
|
|
|
|
410,661
|
|
|
Maintenance
& support revenue
|
|
|
368,907
|
|
|
|
121,891
|
|
|
Hardware
& hosting revenue
|
|
|
143,430
|
|
|
|
33,864
|
|
|
Database
subscription revenue
|
|
|
1,250,998
|
|
|
|
-
|
|
|
Total
revenue
|
|
|
4,105,321
|
|
|
|
934,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
|
|
|
|
|
|
|
Cost
of license revenue
|
|
|
49,940
|
|
|
|
26,873
|
|
|
Cost
of service revenue
|
|
|
955,826
|
|
|
|
223,509
|
|
|
Cost
of maintenance & support revenue
|
|
|
148,586
|
|
|
|
457,348
|
|
|
Cost
of hardware & hosting revenue
|
|
|
104,573
|
|
|
|
15,999
|
|
|
Cost
of subscription revenue
|
|
|
394,692
|
|
|
|
-
|
|
|
Total
cost of revenue
|
|
|
1,653,617
|
|
|
|
723,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,451,704
|
|
|
|
210,337
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
General
& administrative
|
|
|
8,972,366
|
|
|
|
2,591,298
|
|
|
Sales
& marketing
|
|
|
3,065,258
|
|
|
|
1,242,995
|
|
|
Research
& development
|
|
|
1,446,208
|
|
|
|
498,398
|
|
|
Total
operating expenses
|
|
|
13,483,832
|
|
|
|
4,332,691
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income and income tax
|
|
|
(11,032,128
|
)
|
|
|
(4,122,354
|
)
|
|
Other
income
|
|
|
2,263
|
|
|
|
29,606
|
|
|
Loss
before interest income (expense)
|
|
|
(11,029,865
|
)
|
|
|
(4,092,748
|
)
|
|
Interst
income (expense)
|
|
|
(553,148
|
)
|
|
|
-
|
|
|
Loss
before income tax benefit
|
|
|
(11,583,013
|
)
|
|
|
(4,092,748
|
)
|
|
Tax
benefit
|
|
|
323,255
|
|
|
|
-
|
|
|
NET
LOSS
|
|
$
|
(11,259,758
|
)
|
|
$
|
(4,092,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted common shares outstanding
|
|
|
74,996,816
|
|
|
|
58,039,205
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.07
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements Of Comprehensive Loss
|
|
|
Year Ended June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
loss
|
|
$
|
(11,259,758
|
)
|
|
$
|
(4,092,748
|
)
|
|
Foreign
currency translation adjustment
|
|
|
610,611
|
|
|
|
(46,293
|
)
|
|
Comprehensive
loss
|
|
$
|
(10,649,147
|
)
|
|
$
|
(4,139,041
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
Six
|
|
|
|
|
Year
Ended
|
|
|
Months
Ended
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,259,758
|
)
|
|
$
|
(4,092,748
|
)
|
|
Adjustments
to reconcile net loss to net cash to net cash used in
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,122,755
|
|
|
|
27,516
|
|
|
Stock
option compensation expense
|
|
|
752,350
|
|
|
|
677,962
|
|
|
Loss
on sale of assets
|
|
|
25,327
|
|
|
|
-
|
|
|
Allowance
for bad debts
|
|
|
218,070
|
|
|
|
83,293
|
|
|
Reduction
to deferred payment obligation for revenue earned
|
|
|
(176,995
|
)
|
|
|
-
|
|
|
Deferred
tax liability
|
|
|
(4,791
|
)
|
|
|
-
|
|
|
Changes
in operating assets and liabilities, net of acquired
items:
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(145,795
|
)
|
|
|
(82,890
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
5,795
|
|
|
|
223,850
|
|
|
Other
receivables
|
|
|
-
|
|
|
|
79,711
|
|
|
Other
assets & deferred charges
|
|
|
(106,437
|
)
|
|
|
-
|
|
|
Accounts
payable
|
|
|
624,111
|
|
|
|
(49,856
|
)
|
|
Accrued
expenses
|
|
|
758,146
|
|
|
|
99,359
|
|
|
Deferred
revenue
|
|
|
267,801
|
|
|
|
(53,422
|
)
|
|
Net
cash (used in) operating activities
|
|
|
(7,919,421
|
)
|
|
|
(3,087,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Acquisition
of property, plant & equipment
|
|
|
(178,879
|
)
|
|
|
(104,666
|
)
|
|
Acquisition
of intangibles
|
|
|
(105,615
|
)
|
|
|
-
|
|
|
Acquisition
VersusLaw license
|
|
|
(550,000
|
)
|
|
|
|
|
|
Acquisition
of SyynX, net of cash acquired
|
|
|
(74,642
|
)
|
|
|
-
|
|
|
Acquisition
of Lawriter, net of cash acquired
|
|
|
(1,792,330
|
)
|
|
|
-
|
|
|
Partial
payment on def. purchase obligation - Lawriter
|
|
|
(813,750
|
)
|
|
|
-
|
|
|
Partial
payment on def. purchase obligation - SyynX
|
|
|
(2,106,330
|
)
|
|
|
-
|
|
|
Net
cash (used in) investing activities
|
|
|
(5,621,546
|
)
|
|
|
(104,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Loan
from shareholder
|
|
|
(650,000
|
)
|
|
|
650,000
|
|
|
Fees
paid to raise capital
|
|
|
(66,398
|
)
|
|
|
-
|
|
|
Proceeds
on stock issuance
|
|
|
14,632,935
|
|
|
|
-
|
|
|
Cash
received on stock subscriptions
|
|
|
920,000
|
|
|
|
1,602,939
|
|
|
Net
cash provided by financing activities
|
|
|
14,836,537
|
|
|
|
2,252,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
1,295,570
|
|
|
|
(938,952
|
)
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(6,597
|
)
|
|
|
4,043
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
187,261
|
|
|
|
1,122,170
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,476,234
|
|
|
$
|
187,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
54,132
|
|
|
$
|
17,913
|
|
|
Income
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing activity:
|
|
|
|
|
|
|
|
|
|
Deferred
obligation on acquisition of SyynX
|
|
$
|
7,029,308
|
|
|
$
|
-
|
|
|
Deferred
obligation on acquisition of Lawriter
|
|
$
|
5,927,728
|
|
|
$
|
-
|
|
|
Common
stock issued to sellers of Lawriter
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
Common
stock issued to sellers of VersusLaw
|
|
$
|
414,867
|
|
|
$
|
-
|
|
|
Common
stock issued for services
|
|
$
|
80,000
|
|
|
$
|
-
|
|
|
Common
stock issued to purchase Collexis BV shares from minority
shareholder
|
|
$
|
55,000
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consoldiated financial
statements.
Collexis
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
Balance
- December 31, 2006
|
|
|
4,300,495
|
|
|
$
|
276,612
|
|
|
$
|
7,656,631
|
|
|
$
|
(9,401,242
|
)
|
|
$
|
(208,544
|
)
|
|
$
|
(1,676,543
|
)
|
|
Merger
transaction and recapitalization
|
|
|
52,681,875
|
|
|
|
(219,629
|
)
|
|
|
3,265,894
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,046,265
|
|
|
Shares
issued in private placement
|
|
|
2,836,358
|
|
|
|
2,836
|
|
|
|
1,600,103
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,602,939
|
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
677,962
|
|
|
|
-
|
|
|
|
-
|
|
|
|
677,962
|
|
|
Effect
of foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234,626
|
|
|
|
234,626
|
|
|
Net
loss for the six months ended June 30, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,092,748
|
)
|
|
|
-
|
|
|
|
(4,092,748
|
)
|
|
Balance
- June 30, 2007
|
|
|
59,818,728
|
|
|
|
59,819
|
|
|
|
13,200,590
|
|
|
|
(13,493,990
|
)
|
|
|
26,082
|
|
|
|
(207,499
|
)
|
|
Proceeds
from common stock issued in private placement
|
|
|
46,013,503
|
|
|
|
46,013
|
|
|
|
14,464,413
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,510,426
|
|
|
Fees
paid with stock and private placement fees
|
|
|
-
|
|
|
|
-
|
|
|
|
(191,527
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(191,527
|
)
|
|
Common
stock issued to purchase Lawriter
|
|
|
666,666
|
|
|
|
667
|
|
|
|
499,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
Common
stock issued to purchase VersusLaw license
|
|
|
846,666
|
|
|
|
847
|
|
|
|
414,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,867
|
|
|
Proceeds
from common stock issued other
|
|
|
52,858
|
|
|
|
53
|
|
|
|
39,591
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,644
|
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
752,350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
752,350
|
|
|
Proceeds
from common stock isssued on exercise of stock options
|
|
|
828,639
|
|
|
|
829
|
|
|
|
82,035
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,864
|
|
|
Common
stock issued for services
|
|
|
106,667
|
|
|
|
107
|
|
|
|
79,893
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,000
|
|
|
Common
stock issued to purchase Collexis BV shares from minority
shareholder
|
|
|
183,333
|
|
|
|
183
|
|
|
|
54,817
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,000
|
|
|
Cash
received on stock subscription shares issued 4/7/2008
|
|
|
1,226,667
|
|
|
|
1,226
|
|
|
|
918,774
|
|
|
|
-
|
|
|
|
-
|
|
|
|
920,000
|
|
|
Effect
of foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610,611
|
|
|
|
610,611
|
|
|
Net
loss for the year ended June 30, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,259,758
|
)
|
|
|
-
|
|
|
|
(11,259,758
|
)
|
|
Balance
- June 30, 2008
|
|
|
109,743,727
|
|
|
$
|
109,744
|
|
|
$
|
30,314,289
|
|
|
$
|
(24,753,748
|
)
|
|
$
|
636,693
|
|
|
$
|
6,306,978
|
|
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organizational
Matters
Our
company was formed when, on February 13, 2007, Collexis Holdings, Inc., a
Delaware corporation, merged with and into Technology Holdings, Inc., a Nevada
corporation. As the surviving company, Technology Holdings, Inc. changed its
name to Collexis Holdings, Inc. Immediately before the merger, Collexis
Holdings, Inc. had acquired through a share exchange approximately 99.5% of the
outstanding capital stock of Collexis B.V. On June 27, 2008, we acquired the
remaining 0.5% of Collexis B.V. stock we did not previously own in exchange for
183,333 shares of our common stock. Before the merger, Technology Holdings, Inc.
was a development stage company with no operations. Collexis B.V. was founded in
1999 in the Netherlands and through these transactions became the operating
subsidiary of Collexis Holdings, Inc. and acquirer for accounting
purposes.
On
October 19, 2007, we acquired our long-time software development partner, SyynX
WebSolutions GmbH, a privately-held software company based in Cologne, Germany.
Additionally, on February 1, 2008, we acquired Lawriter, LLC, an Ohio based
company that provides online legal research services to bar associations under
the name Casemaker ® via monthly database subscription fees. To further expand
our offerings to legal industry clients, on January 18, 2008, we entered into a
licensing and publishing agreement with VersusLaw, Inc., under which we acquired
a perpetual, non-exclusive, transferable license to use VersusLaw’s
legal-related collection of judicial opinions.
Description
of Business
Collexis
Holdings, Inc., sometimes referred to as “Collexis,” the “Company,” “we,” “us,”
or “our” in this report, is a global software development company headquartered
in Columbia, South Carolina with major operations in Cincinnati, Ohio,
Geldermalsen, the Netherlands and Cologne, Germany. We develop software that
supports the knowledge intensive market, building tools to search and mine large
sets of information. Our software enables search, aggregation, navigation and
discovery of information. Using public as well as proprietary thesauri of
industry specific language, we 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. 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.
We
operate several subsidiaries that support our core technology sales in the
government, enterprise and life science sectors. We recently acquired an
industry-dedicated subsidiary, Lawriter LLC, that provides online legal research
services to lawyers in the United States primarily through state bar
associations. In addition, we now offer the world’s first pre-populated
professional social network for life science researchers,
www.biomedexperts.com.
Our
technology is based on the principle of fingerprinting or the semantic profiling
of a document. The Collexis software can create a fingerprint for any piece of
text containing relevant information. This process makes use of a structure of
professional terminology in a particular field, including thesaurus, taxonomies
or ontologies. A thesaurus contains selected words, terms and concepts and their
semantic relationships in a hierarchical structure also reflecting synonyms and
homonyms. The profiled fingerprint of a document is the starting point for
industry applications that we use in our primary markets. The document
fingerprint depends not only on the capabilities of the resulting application,
but also on the underlying functionality and scalability of the system
architecture to perform in industries as diverse as the legal, life sciences,
and defense/government markets.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for financial
reporting and in accordance with Article 8 of Regulation S-X. The
results of operations of Collexis Holdings, Inc. and its wholly-owned
subsidiaries Collexis B.V. and Collexis, Inc. are included for all periods
presented. The results of SyynX Solutions, GmbH are included
from October 19, 2007 and the results of Lawriter, LLC are included from
February 1, 2008, their respective acquisition dates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 has recently been changed to
June 30 to correspond with its financial reporting period.
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; the valuation of
investments; contingencies; and litigation. The Company evaluates its
estimates on an ongoing basis. Actual results could differ from those
estimates under different assumptions or conditions.
Revenue
Recognition
The
Company recognizes 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.” The Company recognizes revenue from non-cancelable
software licenses when the license agreement has been signed, delivery has
occurred, the fee is fixed or determinable and collectability is
probable. The Company recognizes 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, the Company defers the vendor-specific objective
evidence of fair value (“VSOE”) related to the undelivered elements and
recognizes revenue on the delivered elements using the percentage-of-completion
method.
The most
commonly deferred elements are initial maintenance and consulting services. The
Company recognizes initial maintenance on a straight-line basis over the initial
maintenance term. The Company determines VSOE of maintenance by using a
consistent percentage of maintenance fees to license fee based on renewal rates.
The Company recognizes 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.
The Company determines 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. The Company does
not offer any customers or resellers a right of return.
For
software license, services and maintenance revenue, the Company assesses whether
the fee is fixed and determinable, the Company has performed the services and
whether or not collection is probable. The Company assesses 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, the
Company recognizes revenue as the fees become due.
The
Company assesses assuredness of collection based on a number of factors,
including past transaction history with the customer and the credit-worthiness
of the customer. The Company does not ask customers for
collateral. If the Company determines that collection of a fee is not
probable, the Company defers the fee and recognizes the revenue when collection
becomes probable, which is generally when the Company receives
payment.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s 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.
The
Company bills the majority of its training and consulting services based on
hourly rates. The Company generally recognizes revenue as it performs
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, the Company recognizes the related revenue
using the percentage of completion method of accounting. The
percentage of completion method of accounting applies to the Company’s custom
programming services, which are generally contracted on a fixed fee
basis. The Company charges anticipated losses, if any, to operations
in the period that the Company determines such losses are probable.
The
Company recognizes 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. The Company’s
Lawriter subsidiary, invoices its subscription customers in advance of the month
for which the subscription services are being provided. Recognition of revenue
associated with such billing is recognized by Lawriter in the month the services
are actually provided.
In
accordance with Emerging Issues Task Force (“EITF”) No. 01-14, “Income Statement
Characterization of Reimbursement Received for ‘Out of Pocket’ Expenses
Incurred,” the Company classifies reimbursements received for out-of-pocket
expenses as revenue.
Foreign
Currency Risk
The
Company has conducted significant sales activity through its subsidiaries
in the Netherlands and Germany. The Company
has experienced foreign exchange gains and losses to date without engaging in
any hedging activities.
The
Company’s 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 the statements of operations.
Cash
and Cash Equivalents, and Marketable Securities
The
Company invests its excess cash in money market funds. All highly
liquid investments with stated maturities of three months or less from date of
purchase are classified as cash equivalents; all highly liquid investments with
stated maturities of greater than three months are classified as marketable
securities.
Loss
per Common Share
Loss per
share (“EPS”) is computed based on a weighted average number of common shares
outstanding and excludes any potential dilution. Diluted EPS 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. During the periods presented, the Company had 19,015,809
options, warrants and restricted stock outstanding that could potentially dilute
basic earnings per share in the future. These instruments were
excluded from the computation of diluted earnings per share, because their
effect would have been anti-dilutive.
Allowance
for Doubtful Accounts
The
Company evaluates the collectability of accounts receivable based on a
combination of factors. In cases where the Company is aware of
circumstances that may impair a specific customer’s ability to meet its
financial obligations, the Company records a specific allowance against amounts
due, and thereby reduces the net receivable to the amount management believes is
probable of collection. For all other customers, the Company
recognizes allowances for doubtful accounts based on the length of time the
receivables are outstanding, the current business environment and historical
experience. The Company charges off receivables when the Company
becomes aware of circumstances indicating that the receivables are
uncollectible. The Dutch tax authorities reimburse any VAT tax that
the Company previously paid on the uncollectible receivables.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Equipment
and Leasehold Improvements
Equipment
and leasehold improvements are stated at cost, less accumulated depreciation and
amortization. The Company computes depreciation expense using the
straight-line method over the estimated useful lives of the assets (five years
for cars, furniture and fittings and three years for computers, website and
software). The Company amortizes leasehold improvements using the
straight-line method over the lesser of the remaining term of the lease or its
estimated useful life.
Property
and equipment, net consists of:
|
|
|
As of June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Property
and Equipment, at cost
|
|
|
|
|
|
|
|
Computers
and software
|
|
$
|
968,603
|
|
|
$
|
418,318
|
|
|
Furniture
and fittings
|
|
|
191,445
|
|
|
|
152,054
|
|
|
Website
|
|
|
31,568
|
|
|
|
30,161
|
|
|
Cars
|
|
|
-
|
|
|
|
23,510
|
|
|
Leasehold
improvements
|
|
|
20,162
|
|
|
|
17,999
|
|
|
|
|
|
1,211,778
|
|
|
|
642,042
|
|
|
Less: Accumulated
Depreciation and Amortization
|
|
|
671,293
|
|
|
|
430,760
|
|
|
Net
Property and Equipment
|
|
$
|
540,485
|
|
|
$
|
211,282
|
|
Software
Development Costs
The
Company’s policy is to charge the costs of software development to expense in
the year in which the Company incurs these costs. Generally, the
Company does not capitalize costs related to projects that reach technological
feasibility upon completion of a working model. Given the general
nature of the Company’s current development of software products, the Company
uses the working model method to measure technological
feasibility. Because the time between establishment of a working
model and general availability is short, no costs qualify for
capitalization. Software development costs aggregated approximately
$1,446,000 for the year ended June 30, 2008 and $ 498,000 for the six months
ended June 30, 2007.
Impairment
or Disposal of Long-Lived Assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company monitors events or changes in circumstances that
may indicate carrying amounts of its long-lived assets may not be
recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of its assets by determining
whether the carrying amount of its assets will be recovered through
undiscounted, expected future cash flows. If the Company determines
that the carrying values of specific long-lived assets are not recoverable, the
Company will record a charge to operations to reduce the carrying value of those
assets to their fair values. The Company considers various valuation
factors, principally discounted cash flows, to assess the fair values of
long-lived assets.
Goodwill
and Intangible Asset
Goodwill
represents the excess of the cost of an acquisition over the fair value of net
assets acquired. In accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets” , goodwill is reviewed for impairment utilizing a two-step
process. The first step of the impairment test requires the
identification of the reporting units, and comparison of the fair value of each
of these reporting units to the respective carrying value. The fair
value of the reporting units is determined based on valuation techniques using
the best information that is available, such as discounted cash flow
projections. If the carrying value is less than the fair value, no
impairment exists and the second step is not performed. If the
carrying value is higher than the fair value, there is an indication that
impairment may exist and the second step must be performed to compute the amount
of the impairment. In the second step, the impairment is computed by
comparing the implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. SFAS No. 142 requires goodwill to be tested
for impairment annually at the same time every year, and when an event occurs or
circumstances change such that it is reasonably possible that an impairment may
exist. The annual impairment tests are performed in the fourth
quarter of each year.
Because
of the proximity of the acquisition (Note 3) to year end, management does not
believe there is any impairment to its Goodwill or Intangible Assets at June 30,
2008.
Other
intangible assets, which include customer lists, trademarks, and other
identifiable intangible assets, are amortized on a straight-line basis over
estimated useful lives of three to 10 years.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income
Taxes
Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of the changes in tax laws and rates of the date of
enactment.
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination.
Interest
and penalties associated with unrecognized tax benefits are classified as
additional income taxes in the statement of income.
Concentration
of Credit Risk
The
Company has no off-balance sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging
arrangements. The Company maintains its cash balances with one
financial institution that appears to be adequately capitalized, and its
accounts receivable credit risk is not concentrated within any geographic
area. The Company’s revenues are derived primarily from large
organizations involved in the life sciences, government and legal
markets. Significant technological changes in the industry or
customer requirements, or the emergence of competitive products with new
capabilities or technologies, could adversely affect the Company’s operating
results.
Major
Customers
For the
year ended June 30, 2008, thirteen customers represented 67% of gross
revenues. For the six months ended June 30, 2007, three customers
represented 52% of total gross revenues.
Stock-Based
Compensation
On
January 1, 2006, Collexis adopted SFAS No. 123R, “Share-Based Payment,” which
replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
to Employees.” SFAS No. 123R requires the cost of employee services
received in exchange for equity instruments awarded or liabilities incurred to
be recognized in the financial statements. Under this method,
compensation cost beginning January 1, 2006 includes the portion vesting in the
period for (1) all share-based payments granted prior to, but not vested as of
December 31, 2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123, and (2) all share-based payments
granted subsequent to December 31, 2005, based on the grant date fair value
estimated using the Black-Scholes option pricing model.
The
Company began using the modified prospective transition method when it adopted
SFAS 123R as of January 1, 2006. The Company anticipates it will
grant additional employee stock options and/or non-vested stock units in the
future. The fair value of these grants is not included in the amount
above, as the impact of these grants cannot be predicted at this time because it
will depend on the number of share-based payments granted and the then current
fair values.
Reclassifications
Certain
prior year amounts have been reclassified to conform to current year
classifications.
These reclassifications
had no effect on previously reported results of operations or stockholders’
equity.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recent
accounting pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies that fair value
is the amount that would be exchanged to sell an asset or transfer a liability
in an orderly transaction between market participants. Further, the
standard establishes a framework for measuring fair value in generally accepted
accounting principles and expands certain disclosures about fair value
investments. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Company does not expect the adoption of SFAS
157 to have a material effect on its consolidated financial position, results of
operations or cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not expect the
adoption of SFAS 159 to have a material effect on its consolidated financial
position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS
141(R)”) which replaces SFAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FAS 141(R) is effective for acquisitions by the Company taking
place on or after July 1, 2009. Early adoption is prohibited. The
Company will assess the impact of SFAS 141(R) if and when a future acquisition
occurs.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Before this statement, limited guidance existed for reporting
noncontrolling interests (minority interest). As a result, diversity in practice
exists. In some cases minority interest is reported as a liability and in others
it is reported in the mezzanine section between liabilities and equity.
Specifically, SFAS 160 requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and
separate from the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. SFAS 160 clarifies that changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interests. SFAS 160
is effective for the Company on July 1, 2009. Earlier adoption
is prohibited. The Company is currently evaluating the impact, if any, the
adoption of SFAS 160 will have on its financial position, results of operations
and cash flows.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improving the transparency of financial reporting. It is intended to
enhance the current disclosure framework in SFAS 133 by requiring that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. This disclosure better conveys the purpose of
derivative use in terms of the risks that the entity is intending to manage.
SFAS 161 is effective for the Company on July 1, 2009. This pronouncement does
not impact accounting measurements but will result in additional disclosures if
the Company is involved in material derivative and hedging activities at that
time.
In
February 2008, the FASB issued FASB Staff Position No. 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP
140-3”). This FSP provides guidance on accounting for a transfer of a
financial asset and the transferor’s repurchase financing of the asset.
This FSP presumes that an initial transfer of a financial asset and a
repurchase financing are considered part of the same arrangement (linked
transaction) under SFAS No. 140. However, if certain criteria are met, the
initial transfer and repurchase financing are not evaluated as a linked
transaction and are evaluated separately under Statement 140. FSP 140-3
will be effective for financial statements issued for fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years and
earlier application is not permitted. Accordingly, this FSP is effective for the
Company on July 1, 2009. The Company is currently evaluating the impact,
if any, the adoption of FSP 140-3 will have on its financial position, results
of operations and cash flows.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In April
2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP 142-3”). This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets”. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141(R), “Business
Combinations,” and other U.S. generally accepted accounting
principles. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years and early adoption is prohibited. Accordingly, this FSP
is effective for the Company on July 1, 2009. The Company does not
believe the adoption of FSP 142-3 will have a material impact on its financial
position, results of operations or cash flows.
In May,
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 162, “The Hierarchy of Generally
Accepted Accounting Principles,” (“SFAS No. 162”). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy). SFAS No. 162 will be effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” The FASB has stated that it does not
expect SFAS No. 162 will result in a change in current practice. The application
of SFAS No. 162 will have no effect on the Company’s financial position, results
of operations or cash flows.
In June,
2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities,” (“FSP EITF 03-6-1”). The Staff Position provides that
unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents are participating securities and must be
included in the earnings per share computation. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. All prior-period
earnings per share data presented must be adjusted retrospectively. Early
application is not permitted. The adoption of this Staff Position
will have no material effect on the Company’s financial position, results of
operations or cash flows.
Advertising
Costs
The
Company expenses all advertising costs as incurred. For the year
ended June 30, 2008 the Company incurred approximately $432,000 in advertising
expenses and approximately $119,000 for the six months ended June 30,
2007.
NOTE
2. GOING CONCERN AND
LIQUIDITY
As shown
in the accompanying consolidated financial statements, we incurred a net loss of
$11.3 million for the year ended June 30, 2008, and current liabilities
exceeded current assets by $4.2 million and we reported an accumulated
deficit of $24.8 million as of June 30, 2008. As a result, the
report of our Independent Registered Public Accounting Firm on these
Consolidated Financial Statements, includes an explanatory paragraph
that expresses substantial doubt about our ability to continue as a going
concern.
In the
year ended June 30, 2008, net cash used in operations was $7.9
million. Our primary use of operating funds related to developing the
Collexis Engine, increasing our sales and marketing presence and the
professional services costs related to being a public company. Our
working capital deficit was $4.2 million for the fiscal year ended June 30, 2008
compared to a deficit of $544,000 for fiscal year ended June 30,
2007.
Our
investing activities during the fiscal year ended June 30, 2008 reflected
payments made to purchase SyynX, Lawriter and the Versus Law license, as well as
the deferred payments associated with such
acquisitions. Net cash used in investing activities was
$5.6 million for the year ended June 30, 2008.
As of
October 14, 2008, we had cash and cash equivalents of approximately
$200,000. We believe our current cash balance together with any funds
generated from our operations will be sufficient to meet our working capital
needs for two weeks.
Our
principal cash requirements are for working capital and to make deferred
payments relating to the SyynX and Lawriter acquisitions. The
deferred payments due on these acquisitions over the next twelve months are
approximately $5.7 million. See discussion under Note 3
“Acquisitions.”
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In order
to alleviate our working capital deficiency, provide capital for deferred
acquisition payments and address our continued financing concerns, management
intends to take affirmative steps towards:
|
|
•
|
building
on the momentum established in the market with our profiling and dashboard
products and cultivating our strategic alliances to increase our market
presence;
|
|
|
•
|
developing
new products to address the demands in our core and legal markets;
and
|
|
|
•
|
identifying
sources of capital that will be sufficient to fund our operations until
such time as we are cash flow
positive.
|
To guide
us in how to progress towards the above goals, we have retained an independent
consulting firm to objectively evaluate our markets and growth potential, assist
us with long range strategic planning, assist us in identifying capital and
other resource needs and the deployment of such resources to maximize our
product development and commercialization potential. However, there can be
no assurance that this process will be successful.
In order
to meet our short-term working capital needs, we are currently conducting a
private placement of our common stock for up to $4.05 million. As of
the date of this report, we have accepted subscriptions for $1.0 million from a
private investor who has orally agreed to finance our working capital needs
through the purchase of shares of our common stock, up to the amount of this
private placement, on an as needed basis until this offering is fully
subscribed. The investor is not contractually obligated to purchase
additional shares of our common stock, therefore, there can be no assurance that
we will receive additional funding through the private placement of our common
stock and failure to achieve such funding will result in a significant negative
impact to our business and our operating results.
The
accompanying consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
NOTE
3. ACQUISITIONS
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.
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, the first installment of which was
paid in May 2008, and $3,000,000 to Lawcorp, with the remaining balance to each
seller to be paid in equal installments, as listed in the following
table.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Payment
|
|
|
Seller
|
|
Payment
Date
|
|
Amount
|
|
|
|
|
|
|
|
|
|
OSBA
|
|
August
1, 2008
|
|
$
|
313,750
|
|
|
|
|
November
1, 2008
|
|
|
313,750
|
|
|
|
|
February
1, 2009
|
|
|
313,750
|
|
|
|
|
|
|
$
|
941,250
|
|
|
|
|
|
|
|
|
|
|
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 purchase
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.
|
Under the
terms of the purchase, we also agreed to pay the Earnout , 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:
|
|
·
|
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, $5,884,255, represents the actual payment amounts due on
their respective due dates. The calculation of deferred purchase price on our
consolidated balance sheet at June 30, 2008, $5,090,407, reflects the present
value of these payments discounted at the implied interest rate of 8%. The
difference of $793,848 represents the value of imputed interest.
The
transaction is accounted for in accordance with SFAS No. 141. The purchase price
allocation, as of the purchase date, is as follows:
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Purchase
Price:
|
|
|
|
|
Deferred
purchase price (net of imputed interest of $947,272)
|
|
$
|
5,927,728
|
|
|
Cash
|
|
|
1,625,000
|
|
|
Common
shares issued
|
|
|
500,000
|
|
|
|
|
|
8,052,728
|
|
|
Direct
costs of acquisition
|
|
|
232,707
|
|
|
Total
purchase price
|
|
$
|
8,285,435
|
|
|
Values
assigned to assets and liabilities:
|
|
|
|
|
Cash
|
|
$
|
65,377
|
|
|
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
|
|
|
5,275,330
|
|
|
Accounts
payable and accrued expenses
|
|
|
(97,005
|
)
|
|
Deferred
revenue
|
|
|
(256,084
|
)
|
|
Accrued
restructuring charges
|
|
|
(40,075
|
)
|
|
Total
purchase price assigned
|
|
$
|
8,285,435
|
|
The
Company continues 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.
On August
28, 2008, we paid to OSBA their $313,750 installment referenced in the table
above. This payment was within the 30 day grace period permitted
under the purchase agreement.
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. The Company made the first installment
payment of €1,500,000 on December 31, 2007 ($2,208,350 as the average exchange
rate on the payment date). This payment reflects a €500,000 reduction
for an option payment previously made by Collexis B.V. The Company is
required to make the remaining 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 June 30, 2008, the amounts below do not equal the gross amounts
above):
|
|
|
|
|
|
Scheduled
|
|
|
Remaining
|
|
|
|
|
|
|
|
Payments in
|
|
|
Payments in
|
|
|
|
|
|
|
|
US Dollars at
|
|
|
US Dollars at
|
|
|
|
|
Payment
|
|
|
6-30-08
|
|
|
6-30-08
|
|
|
|
|
Amount
|
|
|
Exchange
|
|
|
Exchange
|
|
|
Payment Date
|
|
in Euros
|
|
|
Rates
|
|
|
Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2008
|
|
€
|
1,485,149
|
|
|
$
|
2,346,386
|
|
|
$
|
2,346,386
|
|
|
October
1, 2009
|
|
|
1,224,918
|
|
|
|
1,935,247
|
|
|
|
1,935,247
|
|
|
October
1, 2010
|
|
|
1,212,871
|
|
|
|
1,916,215
|
|
|
|
1,916,215
|
|
|
|
|
€
|
3,922,938
|
|
|
$
|
6,197,848
|
|
|
$
|
6,197,848
|
|
The total
of remaining payments, $6,197,848, represents the actual payment amounts due on
their respective due dates, calculated at June 30, 2008 exchange rates. The
calculation of deferred purchase price on our consolidated balance sheet at June
30, 2008, $5,704,796, reflects the present value of these payments discounted at
the implied interest rate of 8%. The difference of $544,381 represents the value
of imputed interest.
The
transaction is accounted for in accordance with SFAS No. 141, “Business
Combinations.” The purchase price allocation, as of the purchase date, is as
follows:
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Purchase
Price:
|
|
|
|
|
Deferred
purchase price (net of imputed interest of $790,941)
|
|
$
|
7,029,308
|
|
|
Exercise
of option
|
|
|
712,550
|
|
|
|
|
|
7,741,858
|
|
|
Direct
costs of acquisition
|
|
|
189,878
|
|
|
Write
off of Synnx receivable from Collexis Holdings, Inc.
|
|
|
(200,587
|
)
|
|
Total
purchase price
|
|
$
|
7,731,149
|
|
|
Values
assigned to assets and liabilities:
|
|
|
|
|
Cash
|
|
$
|
154,036
|
|
|
Accounts
receivable
|
|
|
320,820
|
|
|
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 seven years)
|
|
|
4,004,733
|
|
|
Goodwill
|
|
|
3,918,673
|
|
|
Accounts
payable and accrued expenses
|
|
|
(21,183
|
)
|
|
Income
taxes payable
|
|
|
(127,876
|
)
|
|
Deferred
tax liability
|
|
|
(1,608,479
|
)
|
|
Other
liabilities
|
|
|
(119,015
|
)
|
|
Total
purchase price assigned
|
|
$
|
7,731,149
|
|
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. 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.
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 statement of operations had these acquisitions
occurred on July 1, 2007 and 2006 respectively.
|
|
|
Year
Ended
|
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
|
Revenue
as reported
|
|
|
4,105,321
|
|
|
|
1,808,001
|
|
|
Revenue
pro-forma
|
|
|
5,818,655
|
|
|
|
6,092,606
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss as reported
|
|
|
(11,259,758
|
)
|
|
|
(6,521,900
|
)
|
|
Net
Loss pro forma
|
|
|
(11,723,671
|
)
|
|
|
(5,761,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per share as reported
|
|
$
|
(0.15
|
)
|
|
$
|
(0.11
|
)
|
|
Net
Loss per share pro forma
|
|
$
|
(0.16
|
)
|
|
$
|
(0.10
|
)
|
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4. INTANGIBLE ASSETS AND
GOODWILL
Intangible
assets and goodwill at June 30, 2008 consisted of the following:
|
|
|
Useful
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
|
|
Life
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Purchased
software license
|
|
7
years
|
|
$
|
1,164,866
|
|
|
$
|
(104,837
|
)
|
|
$
|
1,060,029
|
|
|
Acquired
technology Lawriter, LLC
|
|
7
years
|
|
|
1,170,000
|
|
|
|
(69,643
|
)
|
|
|
1,100,357
|
|
|
Acquired
technology Syynx, GmbH
|
|
7
years
|
|
|
4,439,519
|
|
|
|
(622,964
|
)
|
|
|
3,816,555
|
|
|
Customer
contracts Lawriter, LLC
|
|
10
years
|
|
|
726,000
|
|
|
|
(30,250
|
)
|
|
|
695,750
|
|
|
Software
license Syynx, GmbH
|
|
5
years
|
|
|
15,110
|
|
|
|
(1,188
|
)
|
|
|
13,922
|
|
|
Trade
name Syynx, GmbH
|
|
5
years
|
|
|
1,209,515
|
|
|
|
(169,702
|
)
|
|
|
1,039,813
|
|
|
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name Lawriter, LLC
|
|
Indefinite
|
|
|
1,090,494
|
|
|
|
-
|
|
|
|
1,090,494
|
|
|
Goodwill
Lawriter, LLC
|
|
Indefinite
|
|
|
5,272,269
|
|
|
|
-
|
|
|
|
5,272,269
|
|
|
Goodwill
Syynx, GmbH
|
|
Indefinite
|
|
|
4,344,334
|
|
|
|
-
|
|
|
|
4,344,334
|
|
|
|
|
|
|
$
|
19,432,107
|
|
|
$
|
(998,584
|
)
|
|
$
|
18,433,523
|
|
Aggregate
amortization expense on existing acquired intangible assets was $ 998,584 in
2008. Estimated amortization expense in each of the next five years
is as follows: 2009 - $1.6 million; 2010 - $1.6 million; 2011 - $ 1.6
million; 2012 - $ 1.6 million; and 2013 - $ 706,853.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1,164,866, 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. We paid the principal due of $550,000 on April 14, 2008.
The
purchase accounting adjustments for the SyynX acquisition were pushed down to
the subsidiary. As a result, the amounts for acquired technology and
goodwill differ from the amounts initially set up at the acquisition date
because of changes in the exchange rate between the Euro and the U.S.
dollar.
NOTE
5. ACCRUED EXPENSES AND
AMOUNTS PAYABLE
|
|
|
As of June 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued
expenses
|
|
$
|
637,573
|
|
|
$
|
499,424
|
|
|
Wage
tax and premium Social Security
|
|
|
109,561
|
|
|
|
306,820
|
|
|
Staff
expense payable
|
|
|
86,439
|
|
|
|
69,822
|
|
|
Accrued
commissions
|
|
|
19,820
|
|
|
|
12,287
|
|
|
Accrued
professional fees
|
|
|
158,124
|
|
|
|
24,861
|
|
|
Accrued
rent
|
|
|
3,844
|
|
|
|
-
|
|
|
Administration
fee payable
|
|
|
-
|
|
|
|
10,105
|
|
|
Accrued
interest
|
|
|
191,147
|
|
|
|
-
|
|
|
Accrued
restructuring
|
|
|
30,000
|
|
|
|
-
|
|
|
Income
taxes payable
|
|
|
62,908
|
|
|
|
-
|
|
|
Totals
|
|
$
|
1,299,416
|
|
|
$
|
923,319
|
|
NOTE
6. LONG-TERM
DEBT
On
October 19, 2007 we purchased 100% of the outstanding shares of SyynX Solutions
GmbH. In connection with the acquisition we issued debt to the former
shareholders of €5,422,938 or approximately $7,728,229 at the exchange rate at
the date of the acquisition, October 19, 2007. The payments are non-interest
bearing and we have recorded them net of unamortized discount of $790,941
imputed at the rate of 8%. At June 30, 2008, the total unpaid balance of this
note payable is $5,704,796. Aggregate maturities during the next
three years are 2009 $2,018,300; 2010 $1,753,785; 2011 $1,878,339.
On
February 1, 2008, we purchased 100% of the outstanding shares of Lawriter, LLC.
In connection with the acquisition we issued debt to the former shareholders of
$6,875,000. The payments are non-interest bearing and we have recorded them net
of unamortized discount of $793,848 imputed at the rate of 8%. At June 30, 2008,
the total unpaid balance of this note payable is
$5,090,407. Aggregate maturities during the next five years are 2009
$1,785,207; 2010 $941,128; 2011 $1,019,242; 2012 $1,103,577; 2013
$241,253.
NOTE
7. LEASE
OBLIGATIONS
The
Company leases office space, vehicles and equipment under non-cancelable
operating leases. Rent expense charged to operations in the
accompanying consolidated statements of operations for office space, vehicles
and equipment under operating leases was approximately $413,353 and $170,379 for
the year ended June 30, 2008 and six months ended June 30, 2007,
respectively.
We lease
approximately 4,500 square feet of office space in Geldermalsen, the
Netherlands, for €4,152 (approximately US$5,970 at current exchange
rates). The lease expires on June 30, 2011. Our Dutch
facility houses primarily research and development staff.
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
We lease
approximately 3,300 square feet for our offices in Columbia, South Carolina, for
approximately $5,500 per month. The lease expires on September 30,
2009. Our Columbia location serves as our global
headquarters and as an administrative and support facility for our United States
activities.
We lease
a small office facility in Cologne, Germany, less than 500 square feet, for
approximately $735 per month at current exchange rates. The core of
our research and development staff, located in Germany work in
virtual offices.
We lease
approximately 5,200 square feet of office space in two facilities in Cincinnati,
Ohio, for our Lawriter business for approximately $6,700. Both leases
will expire within the next twelve months. We are in the process of
negotiating a new lease in one facility. We also lease an apartment
for $2,200 per month; this lease ends September 30, 2008 and will not be
renewed.
Scheduled
future minimum payments required for non-cancelable operating leases are as
follows:
|
|
|
Office
Rent
|
|
|
Car
Lease
|
|
|
Equipment
|
|
|
Total
|
|
|
2008
|
|
$
|
211,376
|
|
|
$
|
104,705
|
|
|
$
|
13,322
|
|
|
$
|
329,403
|
|
|
2009
|
|
|
88,678
|
|
|
|
44,885
|
|
|
|
6,578
|
|
|
|
140,141
|
|
|
2010
|
|
|
71,637
|
|
|
|
3,616
|
|
|
|
-
|
|
|
|
75,253
|
|
|
|
|
$
|
371,691
|
|
|
$
|
153,206
|
|
|
$
|
19,900
|
|
|
$
|
544,797
|
|
NOTE
8. RELATED PARTY
TRANSACTIONS
On June
27, 2008, Collexis Holdings, Inc. acquired the .5% interest in Collexis B.V. it
did not previously own from a minority shareholder who is the spouse of Peter
van Praag, the former CEO of Collexis B.V. As consideration for the
interest in Collexis B.V., Collexis Holdings, Inc. issued 183,333 shares of its
common stock, at an agreed-upon value of $0.30 per share or
$55,000.
The
Company pays a consulting fee of $10,000 per month to its Chairman of the Board,
based on an oral consulting arrangement. As of June 30, 2008 and
2007, the Company owed $100,000 and $60,000, respectively, under this
agreement. Additionally, the Company pays a Director, Dr. John
Regazzi, $6,000 per month for consulting services. These services are
based on a written consulting agreement dated April 1, 2007, the agreement has
no expiration date.
In June
2007, the Company received a $650,000 loan from its largest shareholder for
working capital purposes. This loan did not bear interest and was
repaid in full upon the completion of the Company’s private placement in July
2007 in which the Company raised approximately $2,072,000.
NOTE
9. INCOME TAXES
Net
deferred tax assets and liabilities consist of the following components at June
30, 2008 and 2007:
|
|
|
2008
|
|
|
2007
|
|
|
Deferred
tax assets items:
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
$
|
194,316
|
|
|
$
|
-
|
|
|
Stock
option compensation expense
|
|
|
1,430,312
|
|
|
|
677,962
|
|
|
Net
operating loss carryforward
|
|
|
23,498,646
|
|
|
|
11,505,705
|
|
|
Allowance
for doubtful accounts
|
|
|
302,492
|
|
|
|
84,422
|
|
|
Total
deferred tax asset items
|
|
$
|
25,425,766
|
|
|
$
|
12,268,089
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability items:
|
|
|
|
|
|
|
|
|
|
Acquired
technology
|
|
$
|
3,645,665
|
|
|
$
|
-
|
|
|
Trade
mark
|
|
|
1,209,515
|
|
|
|
-
|
|
|
Total
deferred tax liability items
|
|
$
|
4,855,180
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
$
|
61,977
|
|
|
$
|
-
|
|
|
Stock
option compensation expense
|
|
|
486,306
|
|
|
|
237,287
|
|
|
Allowance
for doubtful accounts
|
|
|
77,135
|
|
|
|
21,527
|
|
|
Net
operating loss carry forward
|
|
|
6,055,515
|
|
|
|
3,222,573
|
|
|
|
|
|
6,680,933
|
|
|
|
3,481,387
|
|
|
Less
valuation allowance
|
|
|
6,680,933
|
|
|
|
3,481,387
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Acquired
technology
|
|
$
|
1,219,376
|
|
|
$
|
-
|
|
|
Trade
mark
|
|
|
336,307
|
|
|
|
-
|
|
|
|
|
$
|
1,555,683
|
|
|
$
|
-
|
|
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
provision for income taxes charged to operations for the year ended June 30,
2008 and the six months ended June 30, 2007 consists of the
following:
|
|
|
2008
|
|
|
2007
|
|
|
Current
tax (benefit)
|
|
$
|
(100,329
|
)
|
|
$
|
-
|
|
|
Deferred
tax (benefit)
|
|
|
(222,926
|
)
|
|
|
-
|
|
|
|
|
$
|
(323,255
|
)
|
|
$
|
-
|
|
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
June 30, 2008 and 2007.
Income
(loss) from continuing operations before income taxes included the
following:
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
loss
|
|
$
|
(7,317,949
|
)
|
|
$
|
-
|
|
|
Non-U.S.
loss - Collexis B.V.
|
|
|
(3,256,556
|
)
|
|
|
-
|
|
|
Non-U.S.
loss - Syynx
|
|
|
(1,008,508
|
)
|
|
|
-
|
|
|
Total
|
|
$
|
(11,583,013
|
)
|
|
$
|
-
|
|
The
components of the provision for income taxes are as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Current
income tax expense (benefit):
|
|
|
|
|
|
|
|
U.S.
federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Non-U.S.
|
|
|
(100,329
|
)
|
|
|
-
|
|
|
U.S.
state and local
|
|
|
-
|
|
|
|
-
|
|
|
Total
current
|
|
$
|
(100,329
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
U.S.
federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Non-U.S.
|
|
|
(222,926
|
)
|
|
|
-
|
|
|
U.S.
state and local
|
|
|
-
|
|
|
|
-
|
|
|
Total
current
|
|
$
|
(222,926
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense (benefit)
|
|
$
|
(323,255
|
)
|
|
$
|
-
|
|
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As of
June 30, 2008, the Company has approximately $ 13,754,000 in non-U.S. and $
9,745,000 in U.S. in net operating loss carryforwards. The non-U.S.
carryforwards will begin to expire in 2011 and the U.S. carryforward will begin
to expire in 2026.
The
principal reasons for the differences between the consolidated income tax
(benefit) expense and the amount computed by applying the statutory federal
income tax rate of 34% to pre-tax income were as follows for the years ended
June 30:
|
|
|
2008
|
|
|
2007
|
|
|
Tax
at federal statutory rate
|
|
$
|
(3,938,224
|
)
|
|
$
|
(2,217,446
|
)
|
|
Change
in valuation allowance
|
|
|
3,199,546
|
|
|
|
1,370,004
|
|
|
Effect
of lower foreign income tax rates
|
|
|
305,655
|
|
|
|
689,367
|
|
|
Effect
of exchange rate changes on valuation allowance
|
|
|
109,768
|
|
|
|
158,075
|
|
|
Total
income tax benefit
|
|
$
|
(323,255
|
)
|
|
$
|
-
|
|
NOTE
10. STOCKHOLDERS’ EQUITY
Collexis
Stock Options
The
Company believes stock option awards better align the interests of its employees
with those of its shareholders.
Pre-Merger Employee Options.
Before the reverse merger on February 13, 2007, Collexis
B.V. granted nonqualified stock options to several of its officers,
directors and employees. These options were converted in the reverse
merger to options to acquire shares of our common stock, and the exercise price
and amount of shares were adjusted accordingly. These options vest
quarterly over a three-year period and expire three to five years from the date
of grant, if not terminated earlier under the terms of the agreement. As
of October 9, 2008, nonqualified options to purchase 9,463,621 share of our
common stock have been granted under these terms with exercise prices ranging
from $0.10 per share to $0.3875 per share.
Post-Merger Employee
Options
. We have granted certain individuals and entities,
including certain of our executive officers, nonqualified options to purchase
6,474,192 shares of our common stock at an exercise price of $0.75 per
share. These options vest quarterly over a three-year period and expire
between three and eight years from the date of grant, if not terminated earlier
under the terms of the nonqualified stock option agreement. In certain of
these agreements, the options vest immediately upon a change in control or if
the employee is terminated without cause or resigns for good reason (as each
term is defined in the stock option agreement).
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes valuation model. We used no dividend yield, an expected volatility
rate of 63.64%, a risk free interest rate range of 4.5%-4.8% and an average
expected life of 2.3 years
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary
of our stock option activity is set forth below:
|
|
|
Number of
Shares
|
|
Exercise Price
Per Share
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2006
|
|
|
13,181,120
|
|
$.10-.75
|
|
$
|
0.23
|
|
|
Granted
|
|
|
4,020,000
|
|
$0.75
|
|
$
|
0.75
|
|
|
Exercised
|
|
|
-
|
|
-
|
|
|
-
|
|
|
Cancelled
|
|
|
(50,000
|
)
|
$0.30
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2007
|
|
|
17,151,120
|
|
$.10-.75
|
|
$
|
0.35
|
|
|
Granted
|
|
|
3,275,000
|
|
$0.75
|
|
$
|
0.75
|
|
|
Exercised
|
|
|
(828,639
|
)
|
$0.10
|
|
$
|
0.453
|
|
|
Cancelled
|
|
|
(1,579,668
|
)
|
$.10-.75
|
|
$
|
0.578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008 Options
|
|
|
18,017,813
|
|
$.10-.75
|
|
$
|
0.418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
597,996
|
|
$0.75
|
|
$
|
0.750
|
|
|
Restricted
stock
|
|
|
400,000
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
|
19,015,809
|
|
$0.0-$.75
|
|
$
|
0.420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
June 30, 2008
|
|
|
12,379,924
|
|
$.10-.75
|
|
$
|
0.353
|
|
The
following table summarizes additional information about stock options
outstanding at June 30, 2008:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Exercise
Price
Per Share
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
$
0.100
|
|
|
8,897,501
|
|
1.57
|
|
$
|
0.10
|
|
7,272,469
|
|
$
|
0.10
|
|
|
$
0.300
|
|
|
25,000
|
|
1.09
|
|
$
|
0.30
|
|
14,600
|
|
$
|
0.30
|
|
|
$
0.3875
|
|
|
516,120
|
|
3.03
|
|
$
|
0.3875
|
|
516,120
|
|
$
|
0.3875
|
|
|
$
0.75
|
|
|
8,579,192
|
|
4.61
|
|
$
|
0.75
|
|
4,576,735
|
|
$
|
0.75
|
|
|
|
|
|
18,017,813
|
|
3.06
|
|
$
|
0.42
|
|
12,379,924
|
|
$
|
0.353
|
|
NOTE
11. OPERATING SEGMENTS
The
Company sells to companies primarily within the European Union and the United
States. The Company’s operating activities consist of a single
segment. The following is a summary of operations within geographic
areas:
|
|
|
|
|
|
Six
Months
|
|
|
|
|
Year
Ended
|
|
|
Ended
|
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
|
Revenues
from sales to unaffiliated customers
|
|
|
|
|
|
|
|
from
continuing operations:
|
|
|
|
|
|
|
|
United
States
|
|
$
|
2,558,248
|
|
|
$
|
250,834
|
|
|
Europe
|
|
|
1,547,073
|
|
|
|
683,232
|
|
|
|
|
$
|
4,105,321
|
|
|
$
|
934,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
212,212
|
|
|
$
|
82,336
|
|
|
Europe
|
|
|
328,273
|
|
|
|
128,946
|
|
|
|
|
$
|
540,485
|
|
|
$
|
211,282
|
|
COLLEXIS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12. CONTINGENCIES
Collexis
and its wholly-owned subsidiary Lawriter LLC 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.
NOTE
13. SUBSEQUENT EVENT
On July 15, 2008, Collexis Holdings,
Inc. acquired the shares of Collexis Inc. from its wholly owned subsidiary
Collexis B.V. for the nominal value of $1. Collexis Inc.
is incorporated in the U.S. and is our primary operating subsidiary in the
U.S. We determined that the transfer value of Collexis Inc. was
nominal based on the subsidiary’s accumulated losses.
On August
18, 2008 the board approved a private offering of 9,000,000 shares of our common
stock at a price per share of $0.45 or $4,050,000 in the
aggregate. No placement fees will be paid in connection with this
offering. As of
October
9, 2008, we have accepted subscriptions from a single investor in the amount of
$1.0 million for 2,222,222 shares. Additionally, the investor has
orally agreed to acquire the remaining offered shares throughout October and
November 2008. The investor has agreed to hold the shares
purchased in the offering for a minimum of one year. 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.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
Collexis
B.V. and Subsidiaries
We have
audited the accompanying balance sheets of Collexis B.V. and subsidiaries ("the
Company") as of December 31, 2006 and 2005 and the related statements of
operations, shareholders' (deficiency) equity, comprehensive loss, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the financial statements referred above present fairly, in all material
respects, the financial position of the Company as of December 31, 2006 and 2005
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/
Bernstein & Pinchuk
LLP
New York,
New York
September
28, 2007, except for the correction of an error concerning overstated general
and administrative expenses as disclosed in Note 1 to the financial statements
included in the transition report for the transition period from January 1, 2007
to June 30, 2007 included in form 10-KSB/A, and its effect on the Consolidated
Statements of Operations and loss per share, Comprehensive loss, and Cash Flows
for the year ended December 31, 2006, and the related cumulative effect on the
equity section of the Balance Sheet as of December 31, 2006, as to which the
date is October 29, 2007.
Collexis
B.V. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Currents
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,122,170
|
|
|
$
|
442,796
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $82,530 and $51,514,
respectively
|
|
|
436,066
|
|
|
|
267,333
|
|
|
Receivables
from related parties
|
|
|
44,996
|
|
|
|
55,896
|
|
|
Deferred
tax asset
|
|
|
-
|
|
|
|
1,606,615
|
|
|
Prepaid
expenses and other current assets
|
|
|
385,305
|
|
|
|
66,841
|
|
|
Total
current assets
|
|
|
1,988,537
|
|
|
|
2,439,481
|
|
|
Property
and equipment, at cost, net of accumulated depreciation of $394,154 and
$323,081, respectively
|
|
|
132,713
|
|
|
|
31,209
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
Security
deposit - rent
|
|
|
28,455
|
|
|
|
13,093
|
|
|
Other
long term assets
|
|
|
78,653
|
|
|
|
-
|
|
|
Option
to purchase Syynx
|
|
|
658,650
|
|
|
|
-
|
|
|
|
|
|
765,758
|
|
|
|
13,093
|
|
|
|
|
$
|
2,887,008
|
|
|
$
|
2,483,783
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable trade
|
|
$
|
451,731
|
|
|
$
|
81,962
|
|
|
Accrued
taxes and expenses
|
|
|
815,542
|
|
|
|
610,576
|
|
|
Deferred
revenue
|
|
|
287,848
|
|
|
|
171,376
|
|
|
Total
current liabilities
|
|
|
1,555,121
|
|
|
|
863,914
|
|
|
Other
liability - common stock to be issued
|
|
|
3,008,430
|
|
|
|
850,442
|
|
|
Stockholders'
(deficiency) equity
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.06, authorized 10,000,000 shares, 4,300,495 shares
issued and outstanding at December 31, 2006; 2,580,495 shares issued and
outstanding at December 31, 2005
|
|
|
276,612
|
|
|
|
162,533
|
|
|
Additional
paid-in capital
|
|
|
7,656,631
|
|
|
|
4,696,784
|
|
|
Accumulated
other comprehensive income
|
|
|
(208,544
|
)
|
|
|
6,636
|
|
|
Accumulated
deficit
|
|
|
(9,401,242
|
)
|
|
|
(4,096,526
|
)
|
|
|
|
|
(1,676,543
|
)
|
|
|
769,427
|
|
|
|
|
$
|
2,887,008
|
|
|
$
|
2,483,783
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
B.V. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
Years ended December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
Services
|
|
$
|
1,027,592
|
|
|
$
|
777,741
|
|
|
Licenses
|
|
|
225,223
|
|
|
|
242,437
|
|
|
Maintenance
and support
|
|
|
376,069
|
|
|
|
275,179
|
|
|
Hardware
and hosting
|
|
|
54,972
|
|
|
|
74,133
|
|
|
Total
Revenue
|
|
|
1,683,856
|
|
|
|
1,369,490
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
655,821
|
|
|
|
212,187
|
|
|
Licenses
|
|
|
9,298
|
|
|
|
85,413
|
|
|
Hardware
and hosting
|
|
|
23,613
|
|
|
|
31,532
|
|
|
Cost
of maintenance and support
|
|
|
577,906
|
|
|
|
200,969
|
|
|
Commissions
|
|
|
63,642
|
|
|
|
331,408
|
|
|
Selling
and marketing
|
|
|
150,976
|
|
|
|
19,453
|
|
|
General
and administrative
|
|
|
3,089,075
|
|
|
|
886,771
|
|
|
Research
and development
|
|
|
744,859
|
|
|
|
512,764
|
|
|
|
|
|
5,315,190
|
|
|
|
2,280,497
|
|
|
Loss
before other income and income taxes
|
|
|
(3,631,334
|
)
|
|
|
(911,007
|
)
|
|
Interest
income
|
|
|
31,092
|
|
|
|
6,668
|
|
|
Loss
before income taxes
|
|
|
(3,600,242
|
)
|
|
|
(904,339
|
)
|
|
Income
tax benefit (expense)
|
|
|
(1,704,474
|
)
|
|
|
176,389
|
|
|
NET
LOSS
|
|
$
|
(5,304,716
|
)
|
|
$
|
(727,950
|
)
|
|
Basic
and diluted common shares outstanding
|
|
|
4,239,235
|
|
|
|
2,580,495
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(1.25
|
)
|
|
$
|
(0.28
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Certain
prior year amounts have been reclassified to conform with current year
presentation.
Collexis
B.V. and Subsidiaries
Consolidated
Statements Of Comprehensive Loss
for
the years ended December 31,
|
|
|
2006
|
|
|
2005
|
|
|
Net
loss
|
|
$
|
(5,304,716
|
)
|
|
$
|
(727,950
|
)
|
|
Foreign
currency translation adjustment
|
|
|
(201,908
|
)
|
|
|
(180,517
|
)
|
|
Comprehensive
Loss
|
|
$
|
(5,506,624
|
)
|
|
$
|
(908,467
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
B.V. and Subsidiaries
Consolidated Statement
of Stockholders' (Deficiency) Equity
|
|
|
Common Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Total
|
|
|
Balance
- December 31, 2004
|
|
|
2,580,495
|
|
|
$
|
162,533
|
|
|
$
|
4,785,734
|
|
|
$
|
(3,368,576
|
)
|
|
$
|
187,153
|
|
|
$
|
1,766,844
|
|
|
Cancelled
stock subscription
|
|
|
-
|
|
|
|
-
|
|
|
|
(88,950
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(88,950
|
)
|
|
Effect
of foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(180,517
|
)
|
|
|
|
|
|
Net
loss for the period ended December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(727,950
|
)
|
|
|
-
|
|
|
|
(727,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2005
|
|
|
2,580,495
|
|
|
|
162,533
|
|
|
|
4,696,784
|
|
|
|
(4,096,526
|
)
|
|
|
6,636
|
|
|
|
769,427
|
|
|
Shares
issued in private placement
|
|
|
1,720,000
|
|
|
|
114,079
|
|
|
|
2,564,152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,678,231
|
|
|
Effect
of foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(215,180
|
)
|
|
|
(215,180
|
)
|
|
Stock
option compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
395,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
395,695
|
|
|
Net
loss for the period ended December 31, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,304,716
|
)
|
|
|
-
|
|
|
|
(5,304,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
4,300,495
|
|
|
$
|
276,612
|
|
|
$
|
7,656,631
|
|
|
$
|
(9,401,242
|
)
|
|
$
|
(208,544
|
)
|
|
$
|
(1,676,543
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Collexis
B.V. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
Years Ended December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,304,716
|
)
|
|
$
|
(727,950
|
)
|
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
150,974
|
|
|
|
24,856
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(263,317
|
)
|
|
|
212,743
|
|
|
Allowance
for bad debts
|
|
|
-
|
|
|
|
(759
|
)
|
|
Prepaid
expenses
|
|
|
(267,726
|
)
|
|
|
12,621
|
|
|
Other
receivables
|
|
|
(118,587
|
)
|
|
|
(24,935
|
)
|
|
Deferred
tax assets
|
|
|
1,787,193
|
|
|
|
(176,380
|
)
|
|
Stock
option compensation expense
|
|
|
395,695
|
|
|
|
-
|
|
|
Accounts
payable
|
|
|
360,559
|
|
|
|
(192,483
|
)
|
|
Accrued
expenses
|
|
|
(54,480
|
)
|
|
|
105,559
|
|
|
Deferred
revenue
|
|
|
287,848
|
|
|
|
(363,559
|
)
|
|
Net
cash (used in) provided by operating activities
|
|
|
(3,026,557
|
)
|
|
|
(1,130,287
|
)
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment
|
|
|
(256,058
|
)
|
|
|
(20,367
|
)
|
|
Option
to purchase Syynx
|
|
|
(658,650
|
)
|
|
|
-
|
|
|
Net
cash used in investing activities
|
|
|
(914,708
|
)
|
|
|
(20,367
|
)
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Cash
received on sale of stock
|
|
|
1,732,202
|
|
|
|
(88,950
|
)
|
|
Cash
received on stock subscriptions
|
|
|
3,008,430
|
|
|
|
850,442
|
|
|
Net
cash provided by financing activities
|
|
|
4,740,632
|
|
|
|
761,492
|
|
|
Net
increase (decrease) in cash
|
|
|
799,367
|
|
|
|
(389,162
|
)
|
|
Effect
of exchange rate changes on cash
|
|
|
(119,993
|
)
|
|
|
(48,914
|
)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
442,796
|
|
|
|
880,872
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,122,170
|
|
|
$
|
442,796
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
31,092
|
|
|
$
|
535
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1.
|
OPERATIONS, BUSINESS CONDITIONS,
LIQUIDITY AND SIGNIFICANT ACCOUNTING
POLICIES
|
Collexis
B.V. (the “Company”) was incorporated under Dutch laws in August 1998. Through
that date, the Company’s principal purpose was to develop market and implement
information technology. The Company also offers consulting, implementation,
training, technical support, subscription and maintenance services in support of
its customers’ use of its software products.
On June
21, 2001, the capital stock of the Company was changed into 10,000,000 shares of
€ 0.05 each. As at December 31, 2005, 2,580,495 shares were issued. On January
13
th
2006 another 1,720,000 shares were issued in exchange for an obligation to pay $
2,500,000.
On
October 1, 2000, Collexis Healthcare B.V. and Collexis Publishing B.V. were
incorporated under Dutch law. Collexis Inc. was incorporated under the
provisions and subject to the requirements of the Delaware General Corporation
Law on September 23, 2005. The Dutch subsidiaries did not commence activities.
The Company generated net losses of $5,304,716 and $ 727,950 for the periods
ended December 31, 2006 and 2005, respectively.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company; its
wholly owned subsidiaries located in The Netherlands and in the United States.
All intercompany transactions and balances have been eliminated.
Revenue
Recognition
The
Company recognizes 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.’’ Revenue from non-cancelable software licenses is
recognized when the license agreement has been signed, delivery has occurred,
the fee is fixed or determinable and collectability is probable. The Company
recognizes 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, the Company defers
the vendor-specific objective evidence of fair value (‘‘VSOE’’) related to the
undelivered elements and recognizes revenue on the delivered elements using the
percentage-of-completion method.
The most
commonly deferred elements are initial maintenance and consulting services.
Initial maintenance is recognized on a straight-line basis over the initial
maintenance term. The VSOE of maintenance is determined by using a consistent
percentage of maintenance to license fee based on renewal rates. Maintenance
fees in subsequent years are recognized 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. The VSOE of services is
determined 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 where the
software is made available through our secure FTP (File Transfer Protocol) site.
The Company does not offer any customers or resellers a right of
return.
For
software license, services and maintenance revenue, the Company assesses whether
the fee is fixed and determinable, the services have been performed and whether
or not collection is probable. The Company assesses 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 our normal payment terms, which are 30
to 90 days from invoice date, the fee is not considered fixed and determinable.
In these cases, the Company recognizes revenue as the fees become
due.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company assesses assuredness of collection based on a number of factors,
including past transaction history with the customer and the credit-worthiness
of the customer. Collateral is not requested from customers. If it is determined
that collection of a fee is not probable, the fee is deferred and revenue is
recognized at the time collection becomes probable, which is generally upon
receipt of cash.
The
Company’s arrangements do not generally include acceptance clauses. However, if
an arrangement includes an acceptance provision, acceptance occurs upon the
earliest of receipt of a written customer acceptance or expiration of the
acceptance period.
The
majority of our training and consulting services are billed based on hourly
rates. The Company generally recognizes revenue as these services are performed.
However, when there is an arrangement that is based on a fixed fee or requires
significant work either to alter the underlying software or to build additional
complex interfaces so that the software performs as the customer requests, the
Company recognizes the related revenue using the percentage of completion method
of accounting. This would apply to our custom programming services, which are
generally contracted on a fixed fee basis. Anticipated losses, if any, are
charged to operations in the period such losses are determined to be
probable.
Revenues
from transaction fees associated with subscription arrangements, billable on a
per transaction basis and included in services revenue on the Consolidated
Statements of Operations, are recognized based on the actual number of
transactions processed during the period.
In
accordance with EITF Issue No. 01-14, “Income Statement Characterization of
Reimbursement Received for ‘Out of Pocket’ Expenses Incurred,” reimbursements
received for out-of-pocket expenses incurred are classified as services revenue
in the Consolidated Statements of Operations.
Use
of Management Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results could differ
from those estimates. Some of the significant estimates involve allowance for
doubtful accounts, recoverability of capitalized software development costs,
accrued expenses, provision for income taxes in foreign jurisdictions,
assessment of contingencies, revenue recognition, valuation of deferred tax
assets, and pro forma compensation expense pursuant to SFAS No.
123.
Cash
and Cash Equivalents and Restricted Cash
Cash
equivalents are stated at cost, which approximates market, and consist of
short-term, highly liquid investments with original maturities of less than
three months. At December 31, 2006 and 2005, there was no restricted
cash.
Allowance
for Doubtful Accounts
The
Company evaluates the collectability of accounts receivable based on a
combination of factors. In cases where the Company is aware of circumstances
that may impair a specific customer’s ability to meet its financial obligations,
the Company records a specific allowance against amounts due, and thereby
reduces the net receivable to the amount management believes is probable of
collection. For all other customers, the Company recognizes allowances for
doubtful accounts based on the length of time the receivables are outstanding,
the current business environment and historical experience. The Company charges
off receivables in cases where the Company is aware of circumstances that these
are uncollectible. Any VAT tax paid is then reimbursed by the Dutch tax
authorities.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Equipment
and Leasehold Improvements
Equipment
and leasehold improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation expense is computed using the straight-line method
over the estimated useful lives of the assets (five years for cars, furniture
and fittings and three years for computers and software). Leasehold improvements
are amortized using the straight-line method over the lesser of the remaining
term of the lease or their estimated useful lives.
Property
and equipment, net consists of:
|
|
|
Years ended December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Property
and equipment, at cost
|
|
|
|
|
|
|
|
Cars
|
|
$
|
22,983
|
|
|
$
|
20,661
|
|
|
Furniture
and fittings
|
|
|
102,149
|
|
|
|
66,110
|
|
|
Website
|
|
|
22,561
|
|
|
|
-
|
|
|
Leasehold
improvements
|
|
|
14,365
|
|
|
|
-
|
|
|
Computers
and software
|
|
|
364,809
|
|
|
|
267,519
|
|
|
|
|
|
526,867
|
|
|
|
354,290
|
|
|
Less:
accumulated depreciation
|
|
|
394,154
|
|
|
|
323,081
|
|
|
Net
property and equipment
|
|
$
|
132,713
|
|
|
$
|
31,209
|
|
Software
Development Costs
The
Company’s policy is to charge the costs of software development to expense in
the year in which these costs occurred. Generally, costs related to projects
that reach technological feasibility upon completion of a working model are not
capitalized the time between establishment of the working model and general
availability is of short duration. The nature of the Company’s current
development for software products is generally such that it can measure
technological feasibility most effectively using the working model method where
the time between establishment of a working model and general availability is of
short duration, which results in no costs that qualify for
capitalization.
Research
and Development
The
Company incurred research and development expenditures of approximately $740,000
in the year ended December 31, 2006 and $510,000 in the year ended December 31,
2005, consisting of internal research and development expenditures, as well as
expenditures related to research and development that we outsourced to
SyynX.
Impairment
or Disposal of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
‘‘Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
monitors events or changes in circumstances that may indicate carrying amounts
of its long-lived assets may not be recoverable. When such events or changes in
circumstances are present, the Company assesses the recoverability of its assets
by determining whether the carrying amount of its assets will be recovered
through undiscounted, expected future cash flows.
Should
the Company determine that the carrying values of specific long-lived assets are
not recoverable, the Company would record a charge to operations to reduce the
carrying value of such assets to their fair values. The Company considers
various valuation factors, principally discounted cash flows, to assess the fair
values of long-lived assets.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Concentration
of Credit Risk
SFAS No.
105, “Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentration of Credit Risk,”
requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no off-balance sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company maintains the cash balances with one financial
institution that appears to be adequately capitalized and its accounts
receivable credit risk is not concentrated within any geographic area. The
Company’s revenues are concentrated in large organizations related to
healthcare, science and knowledge institutes, which are not very competitive and
not rapidly changing. Significant technological changes in the industry or
customer requirements, or the emergence of competitive products with new
capabilities or technologies, could adversely affect operating
results.
As of
December 31, 2006, three customers represented approximately 77% of total gross
receivables. For the year ended December 31, 2006, 2 customers represented
approximately 75 % of total gross revenues and for the year ended December 31,
2005 one customer represents approximately 60% total revenues.
Foreign
Currency Translation
The
functional currency for the company and its subsidiaries is the local currency
(the Euro). The results of operations for these companies are translated (FAS
52) from local currencies into U.S. dollars using the average exchange rates
during each period. Assets and liabilities are translated using exchange rates
at the end of the period with translation adjustments accumulated in
stockholders’ deficit. Intercompany loans are denominated in Euros.
Stock-Based
Compensation
FASB
Statement No. 148, “Accounting for Stock Based Compensation-Transition and
Disclosure, an Amendment of FASB Statement No. 123” (“SFAS 148”) provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based compensation. However, it allows an entity
to continue to measure compensation cost for stock instruments granted to
employees using the intrinsic-value method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (‘‘APB 25’’), “Accounting for Stock
Issued to Employees,” provided it discloses the effect of SFAS 123, as amended
by SFAS 148, in the footnotes to the financial statements. In December 2004, the
FASB issued SFAS 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which
replaces SFAS 123 and supersedes APB Opinion No. 25. SFAS 123R requires all
share-based payments to employees, including grants of employee stock options
and non-vested stock grants, to be recognized as a compensation cost based on
their fair values. The pro forma disclosures previously permitted under SFAS 123
no longer will be an alternative to financial statement recognition. The Company
is required to adopt SFAS 123R no later than January 1, 2006. Through December
31, 2005, the Company has chosen to continue to account for stock-based
compensation using the intrinsic-value method. Accordingly, no stock option
related compensation expense has been recognized in the consolidated statements
of operations as all options granted had an exercise price equal to the market
value of the underlying stock on the date of grant.
On
December 1, 2005, the Company granted 36,000 stock options shares of non-vested
stock, to a certain employee with a vesting term of one year subject to
acceleration in accordance with the grant stipulations. The fair value of the
non-vested granted stock options on the date of grant was $ 22,754. For the
twelve months ended December 31, 2005, the Company has not recognized
compensation expenses related to non-vested stock options awards.
In
December 2005, the granting of 75,000 stock options to a certain third party was
cancelled and the Company has paid off the related reimbursement of $118,420 in
2006.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company is using the modified prospective transition method when it adopted SFAS
123R beginning January 1, 2006. The company anticipates it will grant additional
employee stock options and/or non-vested stock units in the future. The fair
value of these grants is not included in the amount above, as the impact of
these grants cannot be predicted at this time because it will depend on the
number of share-based payments granted and the then current fair
values.
Had the
Company, however, elected to recognize compensation cost based on the fair value
of the stock options at the date of grant under SFAS 123, as amended by SFAS 148
and SFAS 123R, such costs would have been recognized ratably over the vesting
period of the underlying instruments. However, the Company’s net income (loss)
and net income (loss) per common share would have changed to the pro-forma
amounts indicated in the table below.
|
|
|
Year ended
December 31,
2005
|
|
|
Net
loss as reported
|
|
$
|
(727,950
|
)
|
|
Deduct:
Total stock based employee compensation expense determined under fair
value based method for
all
awards
|
|
|
(22,754
|
)
|
|
Pro
forma net loss
|
|
|
(750,704
|
)
|
|
Net
loss per common share
|
|
|
|
|
|
Basic
and diluted - as reported
|
|
$
|
(0.28
|
)
|
|
Basic
and diluted - pro forma
|
|
$
|
(0.29
|
)
|
Fair
Value of Financial Instruments
Cash and
cash equivalents, restricted cash, accounts receivable, accounts payable,
accrued expenses, other current liabilities and debt reported in the
consolidated balance sheets equal or approximate fair values.
Deferred
Revenue
Deferred
revenues primarily relate to customer software maintenance agreements that have
been invoiced to customers prior to the performance of those services and, to a
lesser extent, prepaid consulting and deferred license fees.
When we
recently restated (a) our financial statements for the three and nine months
ended March 31, 2007 and 2006 in Amendment No. 1 to our Quarterly Report on Form
10-QSB for the quarter ended March 31, 2007, and (b) our financial statements
for the nine months ended September 30, 2006 in Amendment No. 1 to our Current
Report on Form 8-K dated February 14, 2007, we determined that the audited
financial statements for the six months ended June 30, 2007 and the year ended
December 31, 2006 included in our transition report in Form 10-KSB filed on
October 16, 2007 contained an error in the calculation of the expense related to
the application of FASB Statement No. 123(R) that caused the expense to be
overstated. Accordingly, we have restated our audited financial statements for
the six months ended June 30, 2007 and the year ended December 31, 2006 to
reflect the proper expense calculation. As a result of this correction, certain
financial statement line items and per share data have been adjusted as
follows:
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Changes to Consolidated Balance
Sheets
|
|
As of
December 31,
2006
|
|
|
|
|
|
|
|
Additional
Paid-in Capital:
|
|
|
|
|
as
restated:
|
|
$
|
7,656,631
|
|
|
as
originally filed:
|
|
|
8,453,426
|
|
|
effect
of correction:
|
|
$
|
(796,795
|
)
|
|
|
|
|
|
|
|
Accumulated
Deficit:
|
|
|
|
|
|
as
restated:
|
|
$
|
(9,401,242
|
)
|
|
as
originally filed:
|
|
|
(10,198,037
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
Changes to Consolidated Statements of
Operations
|
|
Year Ended
December
31, 2006
|
|
|
|
|
|
|
|
General
& Administrative Expenses:
|
|
|
|
|
as
restated:
|
|
$
|
3,089,075
|
|
|
as
originally filed:
|
|
|
3,885,870
|
|
|
effect
of correction:
|
|
$
|
(796,795
|
)
|
|
|
|
|
|
|
|
Loss
before interest income and income tax
|
|
|
|
|
|
as
restated:
|
|
$
|
(3,631,334
|
)
|
|
as
originally filed:
|
|
|
(4,428,129
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Loss
before income tax expense
|
|
|
|
|
|
as
restated:
|
|
$
|
(3,600,242
|
)
|
|
as
originally filed:
|
|
|
(4,397,037
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
as
restated:
|
|
$
|
(5,304,716
|
)
|
|
as
originally filed:
|
|
|
(6,101,511
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
|
|
|
as
restated:
|
|
$
|
(1.25
|
)
|
|
as
originally filed:
|
|
|
(1.44
|
)
|
|
effect
of correction:
|
|
$
|
0.19
|
|
|
|
|
|
|
|
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Changes to Consolidated Statements of
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
as
restated:
|
|
$
|
(5,304,716
|
)
|
|
as
originally filed:
|
|
|
(6,101,511
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
|
|
|
|
as
restated:
|
|
$
|
(5,506,624
|
)
|
|
as
originally filed:
|
|
|
(6,303,419
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Changes to Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
as
restated:
|
|
$
|
(5,304,716
|
)
|
|
as
originally filed:
|
|
|
(6,101,511
|
)
|
|
effect
of correction:
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
Stock option compensation
expense
|
|
|
|
|
|
as
restated:
|
|
$
|
395,695
|
|
|
as
originally filed:
|
|
|
1,192,490
|
|
|
effect
of correction:
|
|
$
|
(796,795
|
)
|
Changes to Consolidated
Statement of Stockholders’ (Deficiency) Equity
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Stock
option compensation expense
|
|
|
|
|
|
|
|
as
restated:
|
|
$
|
395,695
|
|
|
|
-
|
|
|
as
originally filed:
|
|
|
1,192,490
|
|
|
|
-
|
|
|
effect
of correction:
|
|
$
|
(796,795
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
as
restated:
|
|
|
-
|
|
|
$
|
(5,304,716
|
)
|
|
as
originally filed:
|
|
|
-
|
|
|
|
(6,101,511
|
)
|
|
effect
of correction:
|
|
|
-
|
|
|
$
|
796,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
|
|
|
|
|
|
|
as
restated:
|
|
$
|
7,656,631
|
|
|
$
|
(9,401,242
|
)
|
|
as
originally filed:
|
|
|
8,453,426
|
|
|
|
(10,198,037
|
)
|
|
effect
of correction:
|
|
$
|
(796,795
|
)
|
|
$
|
796,795
|
|
The
cumulative effect of the above changes on Additional Paid-in Capital and
Accumulated Deficit since July 1, 2005 is a decrease of $796,795 in each amount.
There are no changes to periods prior to January 1, 2006. Total Stockholder’s
(Deficiency) Equity remains unchanged.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2.
ACCRUED TAX EXPENSES
AND AMOUNTS PAYABLE
|
|
|
As of December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Commission
payable to business partner
|
|
$
|
110,809
|
|
|
$
|
177,630
|
|
|
Invoices
to be received
|
|
|
48,218
|
|
|
|
161,383
|
|
|
Stock
options buy off
|
|
|
-
|
|
|
|
143,090
|
|
|
Staff
expenses
|
|
|
104,432
|
|
|
|
45,471
|
|
|
Auditor's
fee
|
|
|
13,173
|
|
|
|
29,605
|
|
|
Accrued
general expenses
|
|
|
46,813
|
|
|
|
20,595
|
|
|
Administration
and advice
|
|
|
3,574
|
|
|
|
16,875
|
|
|
Board
of directors
|
|
|
20,352
|
|
|
|
15,927
|
|
|
Stock
option Syynx payable
|
|
|
263,460
|
|
|
|
-
|
|
|
WBSO
Subsidy repayable
|
|
|
169,419
|
|
|
|
-
|
|
|
Wage
tax and social security premiums
|
|
|
35,292
|
|
|
|
-
|
|
|
|
|
$
|
815,542
|
|
|
$
|
610,576
|
|
NOTE
3.
LEASE
OBLIGATIONS
The
Company leases office space, vehicles and equipment under non-cancelable
operating leases. Rent expense charged to operations in the accompanying
consolidated statements of operations for office space, vehicles and equipment
under operating leases was $ 148,588 and $ 144,344 for the periods ended
December 31, 2006 and 2005, respectively.
The
Company is obligated under two operating leases for real property. The first
lease was for the period June 1, 2001 to May 31, 2004 and it included two
extensions, the first for two years to May 31, 2006 and the second for 5 years
to May 31, 2011, both of which were exercised. This lease contains annual
escalations based on the consumer price index of the Netherlands. The second
lease is for additional space for a period of one year from January 1 to
December 31, 2007.
Scheduled
future minimum payments required for non-cancelable operating leases are as
follows
|
|
|
Office rent
|
|
|
Car leases
|
|
|
Computer
|
|
|
Total
|
|
|
2007
|
|
$
|
56,724
|
|
|
$
|
107,153
|
|
|
$
|
1,094
|
|
|
$
|
164,971
|
|
|
2008
|
|
|
43,336
|
|
|
|
81,367
|
|
|
|
-
|
|
|
|
124,703
|
|
|
2009
|
|
|
43,336
|
|
|
|
55,091
|
|
|
|
-
|
|
|
|
98,427
|
|
|
2010
|
|
|
43,336
|
|
|
|
3,887
|
|
|
|
-
|
|
|
|
47,223
|
|
|
2011
|
|
|
18,057
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,057
|
|
|
|
|
$
|
204,789
|
|
|
$
|
247,498
|
|
|
$
|
1,094
|
|
|
$
|
453,381
|
|
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has entered into a lease for office space in Columbia, South Carolina
expiring September 30, 2009. Minimum future rentals under this lease as of
December 31, 2006 were as follows:
|
|
|
Years ended
December 31,
|
|
|
2007
|
|
$
|
53,760
|
|
|
2008
|
|
|
56,672
|
|
|
2009
|
|
|
43,296
|
|
|
|
|
$
|
153,728
|
|
NOTE
4.
RELATED PARTY
TRANSACTIONS
Two
stockholders of the Company have invoiced management fees for the years ended
December 31, 2006 and 2005 respectively, in the amount of $527,646 and $398,368
respectively, in accordance with executed management agreements. The amount
receivable from these stockholders was $44,819 and $16,264 as at December 31,
2006 and 2005, respectively. These receivables bear an interest at 3.5% per
annum.
In
December 2005, the granting of 75,000 stock options to SyynX WebSolutions GmbH,
was cancelled, and the Company has paid off the related reimbursement for the
amount of $ 118,420 in 2006.
NOTE
5.
INCOME
TAXES
The
Company’s deferred tax assets consist exclusively of net operating loss carry
forwards. At December 31, 2005, the Company had Dutch net operating loss
carry-forwards of $4,483,478 which are available to offset future Dutch taxable
income, if any, and which does not expire.
As of
December 31, 2006 and 2005, the company had deferred tax assets, principally
based on net operating loss carryforwards of $2,052,298 and $1,606,615,
respectively, which may be applied against future taxable income and which
expire beginning in 2011. At December 31, 2006 and 2005, the deferred tax assets
(representing the potential future tax savings) related to the carryforwards
were as follows:
|
|
|
2006
|
|
|
2005
|
|
|
Deferred
Tax Asset
|
|
$
|
2,052,298
|
|
|
$
|
1,606,615
|
|
|
Less:
Valuation Allowance
|
|
|
(2,052,298
|
)
|
|
|
-
|
|
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
1,606,615
|
|
As a
result of the uncertainty that net operating loss carryforwards will be able to
be utilized against taxable income in either the Netherlands or the United
States in the foreseeable future, the company has provided for a full valuation
allowance during fiscal year 2006.
NOTE
6.
STOCKHOLDERS’
EQUITY
Subscribed
Stock
On
January 30, 2006, 1,720,000 shares were issued for $ 2,500,000 to a new
stockholder who in 2005 already had paid $ 850,442. This prepayment was based on
an investment agreement, which was agreed on August 31, 2005. Before the end of
June 2006, the Company received the remaining payments.
During
the year ended December 31, 2006, subscriptions of $3,008,430 were received from
new stockholders, which was classified as other liabilities in the December 31,
2006 financial statements.
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Stock
Options
Collexis
Stock Option Plan
Collexis
considers a stock option plan as a powerful and strategic instrument for
binding, stimulating, committing and awarding important key players to Collexis.
Therefore, a Stock Option Plan has been developed consisting of:
|
|
·
|
a wide range of long term call
option provided to key people, summarized in a Collexis Stock Option
Detail Table.
|
|
|
·
|
a set of documents in which the
legal rules, regulations and conditions are described, together forming
the Collexis Option
Agreement.
|
Collexis
has developed a procedure to appoint, approve and control all stock options and
to guarantee that the individual Call Option Agreements are always signed and
filed and that the Collexis Stock Option Detail Table will continuously be kept
up to date.
The
Company may grant statutory and non-statutory options to purchase shares of
Common Stock. A total of 153,000 shares are reserved as Collexis Pool for
employees.
A summary
of stock option activity under the plan is as follows:
|
|
|
Number of
shares
|
|
|
Exercise Price
Per Share
|
|
|
Weighted
Average
Exercise Price
|
|
|
Balance,
December 31, 2004
|
|
|
95,000
|
|
|
$
|
1.24 - 1.65
|
|
|
$
|
1.56
|
|
|
Granted
|
|
|
36,000
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
(75,000
|
)
|
|
$
|
1.65
|
|
|
$
|
1.65
|
|
|
Balance,
December 31, 2005
|
|
|
56,000
|
|
|
$
|
1.00 - $ 1.18
|
|
|
$
|
1.06
|
|
|
Granted
|
|
|
1,292,112
|
|
|
$
|
1.00 - $ 7.50
|
|
|
$
|
2.40
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
(30,000
|
)
|
|
$
|
1.00 - $ 1.18
|
|
|
$
|
1.10
|
|
|
Balance,
December 31, 2006
|
|
|
1,318,112
|
|
|
$
|
1.00 - $ 7.50
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2006
|
|
|
396,401
|
|
|
$
|
1.00 - $ 7.50
|
|
|
$
|
2.90
|
|
The
following table summarize additional information about stock options outstanding
at December 31, 2006:
|
|
|
Options
Outstanding
|
|
Options Exercisable
|
|
|
Exercise Price Per Share
|
|
Number Of
Shares
|
|
Weighted
Average
Remaining
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
$1.00
|
|
|
1,007,500
|
|
2.08
|
|
$
|
1.00
|
|
253,623
|
|
$
|
1.00
|
|
|
$3.00
|
|
|
17,500
|
|
2.70
|
|
$
|
3.00
|
|
834
|
|
$
|
3.00
|
|
|
$3.88
|
|
|
51,612
|
|
4.52
|
|
$
|
3.88
|
|
51,613
|
|
$
|
3.88
|
|
|
$7.50
|
|
|
241,500
|
|
3.47
|
|
$
|
7.50
|
|
90,331
|
|
$
|
7.50
|
|
|
|
|
|
1,318,112
|
|
2.44
|
|
$
|
2.30
|
|
396,401
|
|
$
|
2.90
|
|
COLLEXIS
B.V. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7.
OPERATING
SEGMENTS
The
Company sells to profit and nonprofit companies within The Netherlands, European
Union and United States. The Company’s operating activities consist of a single
segment.
NOTE
8.
CONTINGENCIES
The
Company has not been involved in disputes and/or litigation encountered in its
normal course of business. The Company does not expect proceedings that will
have a material adverse effect on the Company’s business, consolidated financial
condition, results of operations or cash flows.
NOTE
9.
OPTION TO PURCHASE SYYNX
WEBSOLUTIONS
On
October 9, 2006, the stockholders of SyynX WebSolutions GmbH (“SyynX”), a German
corporation, granted to the Company, in exchange for 500,000 euros
(approximately $700,000USD), the right to demand, for a two year period ending
October, 2008, that these stockholders sell their shares in SyynX to the Company
for a purchase price of 5,000,000 euros (approximately $7.0 million USD). The
amounts paid can be used as a reduction of the purchase price if and when the
company exercises the option. Additionally, if the merger is consummated, the
Company will grant 210,000 options to purchase shares of the Company’s stock to
certain shareholders and employees of SyynX at an exercise price of $7.50 per
share.
NOTE
10.
SUBSEQUENT
EVENTS
On
February 13, 2007, the stockholders of the Company agreed to transfer their
shares in the Company in exchange for 3,000 par value $ .001 for the shares of
Collexis Holdings, Inc.
In
connection with the completion of the merger on February 14, 2007, the Company
issued 46,182,370 shares of Common Stock in exchange for the common stock of
Collexis Delaware. This includes 3,284,090 shares of Common Stock issued in
exchange for shares of our common shares that had been sold in a private
placement in October 2006 for the post-merger equivalent of $.75 per share of
Common Stock. On the same date, the Company completed the private sale of
2,836,358 shares of its Common Stock for $.75 per share.
29,005,481
Shares
COLLEXIS
HOLDINGS, INC.
Common
Stock
PROSPECTUS
May ,
2009
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts, other than the SEC registration fee,
are estimates. We will pay all these expenses.
|
|
|
Amount to be
Paid
|
|
|
SEC
Registration Fee
|
|
$
|
178
|
|
|
Printing
Fees and Expenses
|
|
|
1,000
|
|
|
Legal
Fees and Expenses
|
|
|
25,000
|
|
|
Accounting
Fees and Expenses
|
|
|
15,000
|
|
|
Blue
Sky Fees and Expenses
|
|
|
—
|
|
|
Transfer
Agent and Registrar Fees
|
|
|
1,000
|
|
|
Miscellaneous
|
|
|
1,000
|
|
|
Total
|
|
$
|
43,178
|
|
Item
14. Indemnification of Directors and Officers
Our
articles of incorporation and bylaws provide for the indemnification of our
directors and officers or employee or other agent, against expenses actually and
necessarily incurred by them in connection with the defense of any actions,
suits or proceedings in which they, or any of them, are made parties, or a
party, by reason of being or having been our director or officer, in the absence
of negligence or misconduct in the performance of their duties. This
indemnification policy could result in substantial expenditure by us, which we
may be unable to recoup.
Insofar
as indemnification by us for liabilities arising under the Securities Exchange
Act of 1934 may be permitted to our directors, officers and controlling persons
pursuant to provisions of the articles of incorporation and bylaws, or
otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable.
In the event that a claim for indemnification by such director, officer or
controlling person in the successful defense of any action, suit or proceeding
is asserted by such director, officer or controlling person in connection with
the securities being offered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Exchange Act and will be governed by
the final adjudication of such issue.
At the
present time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of ours in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
Item
15. Recent Sales of Unregistered Securities
Since
shares of the company’s common stock began being quoted on the OTC Bulletin
Board on July 2, 2007 there have been the following sales of unregistered
securities, all sales have been of our common stock. From July 2007
through February 2008, 13,906,837 shares of common stock were sold at $0.75 per
share; for the period April 2008 through July 2008, 31,940,436 shares of common
stock were sold at $0.15 per share; in August and September 2008, 2,222,222
shares of common stock were sold at $0.45 per share; in November 2008, 1,753,333
shares were sold at $0.30 per share; in December 2008, 6,363,636 shares were
sold at $0.11 per share; and in April 2009, 39,500,000 shares of common stock
were sold at $0.07 per share.
In
instances described above where we issued securities in reliance upon Regulation
D, we relied upon Rule 506 of Regulation D of the Securities Act. The
stockholders who received the securities in such instances made representations
that (a) the stockholder is acquiring the securities for his, her or its own
account for investment and not for the account of any other person and not with
a view to or for distribution, assignment or resale in connection with any
distribution within the meaning of the Securities Act, (b) the stockholder
agrees not to sell or otherwise transfer the purchased shares unless they are
registered under the Securities Act and any applicable state securities laws, or
an exemption or exemptions from such registration are available, (c) the
stockholder has knowledge and experience in financial and business matters such
that he, she or it is capable of evaluating the merits and risks of an
investment in us, (d) the stockholder had access to all of our documents,
records, and books pertaining to the investment and was provided the opportunity
ask questions and receive answers regarding the terms and conditions of the
offering and to obtain any additional information which we possessed or were
able to acquire without unreasonable effort and expense, and (e) the stockholder
has no need for the liquidity in its investment in us and could afford the
complete loss of such investment. Management made the determination that
the investors in instances where we relied on Regulation D are accredited
investors (as defined in Regulation D) based upon management’s inquiry into
their sophistication and net worth. In addition, there was no general
solicitation or advertising for securities issued in reliance upon Regulation
D.
In
instances described above where we indicate that we relied upon Section 4(2) of
the Securities Act in issuing securities, our reliance was based upon the
following factors: (a) the issuance of the securities was an isolated private
transaction by us which did not involve a public offering; (b) there were only a
limited number of offerees; (c) there were no subsequent or contemporaneous
public offerings of the securities by us; (d) the securities were not broken
down into smaller denominations; and (e) the negotiations for the sale of the
stock took place directly between the offeree and us.
Item
16. Exhibits.
The
following exhibits are included as part of this Form S-1.
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated February 13, 2007, by and between Technology
Holdings, Inc. and Collexis Holdings, Inc. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on February 14,
2007).
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation (incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed on February 7, 2006).
|
|
|
|
|
|
3.1.1
|
|
Certificate
of Change, dated February 12, 2007 (incorporated by reference to Exhibit
3.1 to our Current Report on Form 8-K filed on February 15,
2007).
|
|
|
|
|
|
3.1.2
|
|
Articles
of Merger, dated February 14, 2007 (incorporated by reference to Exhibit
3.4 to our Annual Report on Form 10-KSB filed on October 16,
2007).
|
|
|
|
|
|
3.2
|
|
Bylaws
(incorporated by reference to Exhibit 3.4 to our Current Report on Form
8-K filed on February 7, 2006).
|
|
|
|
|
|
9.1
|
|
Voting
Trust Agreement by and among Margie Chassman, Collexis Holdings, Inc. and
William D. Kirkland dated October 15, 2007 (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on October 16,
2007).
|
|
|
|
|
|
10.1
|
|
Employment
Agreement, dated January 5, 2006, by and between Collexis BV, Collexis,
Inc., and William Kirkland, as amended by the First Amendment dated
February 12, 2007 (incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on February 14, 2007).
|
|
|
|
|
|
10.2
|
|
Amended
and Restated Employment Agreement, dated April 2006, by and between
Collexis BV, Collexis, Inc., and Stephen A. Leicht (incorporated by
reference to Exhibit 10.5 to our Current Report on Form 8-K filed on
February 14, 2007).
|
|
|
|
|
|
10.3
|
|
Summary
of Consulting Arrangement between Collexis Holdings, Inc. and Mark S.
Germain (incorporated by reference to Exhibit 10.7 to our Annual Report on
Form 10-KSB filed on October 16, 2007).
|
|
|
|
|
|
10.4
|
|
Consulting
Arrangement, effective as of April 1, 2007, between Collexis Holdings,
Inc. and John Regazzi (incorporated by reference to Exhibit 10.8 to our
Annual Report on Form 10-KSB filed on October 16,
2007).
|
|
|
|
|
|
10.5
|
|
Share
Purchase Agreement dated October 19, 2007 by and among Collexis Holdings,
Inc. and the shareholders and managing directors of SyynX Solutions GmbH
(incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed on October 25, 2007).
|
|
|
|
|
|
10.6
|
|
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).
|
|
|
|
|
|
10.7
|
|
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).
|
|
10.8
|
|
LLC
Interests Purchase Agreement dated February 1, 2008 by and among Collexis
Holdings, Inc., Lawriter, Inc., Lawriter LLC, OSBA.COM LLC, 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).
|
|
|
|
|
|
10.9
|
|
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).
|
|
|
|
|
|
10.10
|
|
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).
|
|
|
|
|
|
10.11
|
|
Letter
Agreement dated February 13, 2008 between Collexis Holdings, Inc. and the
Institute of Legal Publishing, Inc. (incorporated by reference to Exhibit
10.8 to our Current Report on Form 10-QSB filed on February 14,
2008).
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10.12
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Separation
and Settlement Agreement, effective as of June 30, 2008, by and among
Collexis Holdings, Inc., Collexis B.V., Peter van Praag, van Praag
Informatisering B.V. and Anna Adriana Wilhelmina Prinse (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
August 6, 2008).
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10.13
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Lock-Up
Agreement, effective as of June 30, 2008, by and among Collexis Holdings,
Inc., Collexis B.V., Peter van Praag, and van Praag Informatisering B.V.
(incorporated by reference to Exhibit 10.2 to our Current Report on Form
8-K filed on August 6, 2008).
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10.14
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Separation
and Settlement Agreement, effective as of June 30, 2008, by and among
Collexis Holdings, Inc., Collexis B.V., Henk Buurman and V.D.B. Pacific
B.V. (incorporated by reference to Exhibit 10.3 to our Current Report on
Form 8-K filed on August 6, 2008).
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10.15
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Lock-Up
Agreement, effective as of June 30, 2008, by and among Collexis Holdings,
Inc., Collexis B.V., Henk Buurman and V.D.B. Pacific B.V. (incorporated by
reference to Exhibit 10.4 to our Current Report on Form 8-K filed on
August 6, 2008).
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10.16
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Consulting
Agreement, dated August 14, 2008 between Booz & Co. and Collexis
Holdings, Inc. (incorporated by reference to Exhibit 10.27 to our Annual
Report on Form 10-K filed on October 14, 2008).
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10.17
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Form
of Subscription Agreement for the purchase of shares of Collexis Holdings,
Inc. in a private placement (incorporated by reference to Exhibit 10.28 to
our Annual Report on Form 10-K filed on October 14,
2008).
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10.18
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Letter
Agreement to Amend the Share Purchase Agreement dated October 19th, 2007
between Collexis Holdings, Inc. and SyynX Solutions, GmbH (incorporated by
reference to Exhibit 11.1 to our Current Report on Form 8-K filed on
January 12, 2009).
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10.19
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Letter
Agreement to Extend the Installment Payment Due the Institute of Legal
Publishing, Inc. According to the Terms of the LLC Interests Purchase
Agreement entered into as of February 1, 2008 (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed on February 5,
2009).
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10.20
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Subscription
Agreement, dated as of March 4, 2009, by and between Collexis Holdings,
Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K filed on March 10,
2009).
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10.21
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Secured
Convertible Promissory Note, dated as of March 4, 2009, issued by Collexis
Holdings, Inc. to Alpha Capital Anstalt (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on March 10,
2009).
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10.22
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Class
A Common Stock Purchase Warrant, dated as of March 4, 2009, issued by
Collexis Holdings, Inc. to Alpha Capital Anstalt (incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March
10, 2009).
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10.23
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Security
Agreement, dated as of March 4, 2009, by and between Collexis Holdings,
Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.4
to our Current Report on Form 8-K filed on March 10,
2009).
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10.24
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Subsidiary
Guaranty, dated as of March 4, 2009, by Biomed Experts, Inc., a Nevada
corporation, Collexis US, Inc., a Delaware corporation, Lawriter LLC, an
Ohio limited liability company for the benefit of Alpha Capital Anstalt
(incorporated by reference to Exhibit 10.5 to our Current Report on Form
8-K filed on March 10, 2009).
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16.1
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Letter
on Change of Accountant, dated May 24, 2007 (incorporated by reference to
Exhibit 16.1 to our Current Report on Form 8-K/A filed on May 25,
2007).
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16.2
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Letter
on Change of Accountant, dated January 7, 2008 (incorporated by reference
to Exhibit 16.1 to our Current Report on Form 8-K filed on January 7,
2008).
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5.1*
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Opinion
of McDaniel & Henry, LLP as to the legality of the
shares.
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21.1
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List
of Subsidiaries (herein incorporated by reference to Exhibit 21.1 to the
Company’s Annual Report on Form 10-K filed on October 14,
2008).
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23.1*
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Consent
of Elliott Davis LLC.
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23.2*
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Consent
of Bernstein & Pinchuk LLP.
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23.3*
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Consent
of McDaniel & Henry, LLP (included in Exhibit 5.1).
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24.1*
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Power
of Attorney (included in signature pages of this Registration
Statement).
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* Filed
herewith.
Item
17. Undertakings
(A) The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To
include any prospectus required by Section 10(a) (3) of the Securities
Act;
(b)
To reflect in the prospectus any facts or events arising after the effective
date of this Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective Registration Statement; and
(c) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(a) Each
prospectus filed by the registrant pursuant to 424(b)(3) shall be deemed to be
part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(b) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in
Rule 430B, for liability purposes of the issuer and any person that is at
that date an underwriter, such date shall be deemed to be a new effective date
of the registration statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering
thereof.
Provided
,
however
, that no statement
made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such
effective date.
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(a) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(b)
Any free writing prospectus relating to the offering prepared by or on behalf of
the undersigned registrant or used or referred to by the undersigned
registrant;
(c) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(d) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(B)
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant’s annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan’s
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide
offering
thereof.
(C)
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 7th day of May,
2009.
|
COLLEXIS
HOLDINGS, INC.
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|
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By:
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/s/William D. Kirkland
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William
D. Kirkland
Chief
Executive Officer
|
SIGNATURES AND POWERS OF
ATTORNEY
Each
person whose signature appears below authorizes William D. Kirkland or Mark
Murphy, or any of them, as his or her attorney in fact and agent, with full
power of substitution and resubstitution, to execute, in his name and on his
behalf, in any and all capacities, a Registration Statement on Form S-1 and
any amendments including post-effective amendments thereto (and any additional
registration statement related thereto permitted by Rule 462(b) promulgated
under the Securities Act of 1933 (and all further amendments including
post-effective amendments thereto)), relating to offers and sales from time to
time of up to 29,005,481 shares of common stock of Collexis Holdings, Inc., and
any amendments including post-effective amendments thereto, and to file the
same, with all the exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, necessary or advisable
to enable the registrant to comply with the Securities Act of 1933, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in respect thereof, in connection with the registration of the Securities which
are the subject of such Registration Statement, as the case may be, which
amendments may make such changes in such Registration Statement, as the case may
be, as such attorney may deem appropriate, and with full power and authority to
perform and do any and all acts and things, whatsoever which any such attorney
or substitute may deem necessary or advisable to be performed or done in
connection with any or all of the above-described matters, as fully as each of
the undersigned could do if personally present and acting, hereby ratifying and
approving all acts of any such attorney or substitute.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
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Signature
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Title
|
|
Date
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/s/ William D. Kirkland
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Chief Executive Officer
and Director
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May
7, 2009
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William
D. Kirkland
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/s/ Mark Murphy
|
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Chief Financial Officer
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May
7, 2009
|
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Mark
Murphy
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|
/s/ Mark Auerbach
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Director
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|
May
5, 2009
|
|
Mark
Auerbach
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|
/s/ Frank C. Carlucci
|
|
Director
|
|
May
6, 2009
|
|
Frank
C. Carlucci
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|
/s/ Mark S. Germain
|
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Director
|
|
May
7, 2009
|
|
Mark
S. Germain
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|
/s/ John D. Macomber
|
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Director
|
|
May
5, 2009
|
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John
D. Macomber
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/s/ John Regazzi
|
|
Director
|
|
May
5, 2009
|
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John
Regazzi
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|
/s/ Andrew Sorensen
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Director
|
|
May
5, 2009
|
|
Andrew
Sorensen
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