UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ------ to ---------------
Commission File Number 33-3358-NY
CENTRAXX, INC.
-------------------------
(Name of small business issuer in its charter)
Nevada 88-0224219
------------------------ ------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
267 Matheson Blvd. E
Mississauga, Ontario Canada L4Z 1X8
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (905) 502-5212
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes [x] No [ ] (2) Yes [x] No [ ]
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of outstanding shares of each of the Issuer's classes of
common equity, as of the latest practicable date:
March 31, 2001
common - 18,142,142 shares
Transitional Small Business Disclosure Format (Check One) : Yes [x] No [ ]
Item 1. Financial Statements
The consolidated financial statements of the Company required to be filed
with this Form 10-QSB Quarterly Report were prepared by management and
reviewed by the Company's Independent Auditor and commence on the following
page, together with related Notes. In the opinion of management, these
Consolidated Financial Statements fairly present the financial condition of
the Company.
Centraxx, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Expressed in U.S. Dollars)
(Unaudited)
Aug 8, 1997 to
March 31, 2001
Three Months Ending March 31 2001 2000 Cumulative
Sales $ - $ - $ -
Cost of sales - - -
Gross margin - - -
Expenses
Marketing and public relations 454 55,859 579,817
Management fees 29,454 61,644 483,035
Professional fees 1,417 15,745 708,937
Salaries and other administration 115,418 162,925 2,076,660
Research and development costs 175,386 320,158 4,486,284
Depreciation and amortization 22,904 20,279 275,460
Interest 69,010 27,776 275,111
Foreign exchange (gain) loss 339,123 130 442,596
753,166 664,516 9,327,900
Net loss $753,166 $664,516 $9,327,900
Net loss per share, basic and
diluted (Note 1) $ (0.04) $ (0.04)
Weighted average shares, basic
and diluted 18,039,779 17,946,481
See accompanying notes to the condensed consolidated financial statements.
1
Centraxx, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
March 31, December 31,
2001 2000
Assets
Current
Cash $ 1,899 $ 3,990
Prepaid expenses 7,450 11,967
9,349 15,957
Capital assets 260,975 297,677
Other assets 17,899 18,816
$ 288,223 $ 332,450
Liabilities
Current
Accounts payable and
accrued liabilities $2,872,594 $ 2,600,266
Short Term Loan 1,000,000 1,000,000
Long term convertible debentures 2,000,000 2,158,114
5,872,594 5,758,380
Shareholders' Deficiency
Capital stock 18,142 18,142
Contributed surplus 3,065,133 3,065,133
Accumulated other comprehensive loss 660,254 65,529
Deficit (9,327,900) (8,574,734)
(5,584,371) (5,425,930)
$ 288,223 $ 332,450
See accompanying notes to the condensed consolidated financial statements.
2
Centraxx, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
Three Months Ending March 31 2001 2000
Cash flows from (applied to)
Operating
Net loss $(753,166) $(664,516)
Depreciation and amortization 22,904 20,279
(730,262) (644,237)
Changes in
Prepaid expenses 4,517 8,212
Accounts payable and accrued liabilities 272,328 (156,834)
(453,417) (792,859)
Financing
Issue of shares - -
Issue of convertible debenture - 1,093,681
- 1,093,681
Investing
Purchase of capital assets - (49,647)
Foreign currency effect on cash 451,326 (759)
Net increase in cash during the year (2,091) 250,416
Cash, beginning of period 3,990 234
Cash, end of period $ 1,899 $ 250,650
See accompanying notes to the condensed consolidated financial statements.
3
Centraxx, Inc.
(A Development Stage Company)
Notes to the Condensed Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
March 31, 2001
1. General
The unaudited condensed consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-
01 of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial
statements and footnotes thereto. For further information, refer to the
consolidated financial statements and related footnotes for the year ended
December 31, 2000 included in the Company's Annual Report on Form 10-KSB.
Basis of presentation
The condensed consolidated financial statements include the accounts of
Centraxx, Inc. and its wholly owned subsidiaries, Centraxx Corporation,
Centraxx Research Inc., Wireless Location Services Inc. and Centraxx
International Inc.
On May 18, 1999, Centraxx, Inc. acquired 100% of the outstanding common stock
of Centraxx Corp. from various shareholders (the Acquisition). The Acquisition
resulted in the owners and management of Centraxx Corp. having effective
control of the combined entity.
Under reverse takeover accounting, the post reverse-acquisition comparative
historical financial statements of the "legal acquirer" (Centraxx, Inc.), are
those of the "legal acquiree" (Centraxx Corp.) (i.e. the accounting acquirer).
Income taxes
Income taxes for the interim periods were computed using the effective tax
rate estimated to be applicable for the full fiscal year, which is subject to
ongoing review and evaluation by management.
Loss per share
The Company reports earnings per share in accordance with the provisions of
SFAS No. 128, Earnings Per Share. SFAS No. 128 requires presentation of basic
and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per
share excludes dilution and is computed by dividing income available to common
shares by the weighted average common shares outstanding during the period.
Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised and converted into common stock.
4
Centraxx, Inc.
(A Development Stage Company)
Notes to the Condensed Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
March 31, 2001
1. General (continued)
There were stock options outstanding at March 31, 2001, to purchase 885,500
shares of common stock which were not included in the computation of diluted
earnings per share because to do so would be antidilutive.
Basic weighted average shares outstanding for the period were 18,039,799 (2001
17,946,481).
2 The Company initiated a stock option plan on January 18, 1999 for employees
and on October 1, 1999 for Directors. The plan allows the Company to grant
options to directors and employees up to an aggregate of 20% of the
outstanding common shares of the company. The options have a term expiring
five (5) years after the grant date or 30 days after the individual ceases to
be an employee. The exercise price for each option will be at fair market
value per share at the date the options are granted. A large decrease can be
noted in the options outstanding due to those which expired as a result of the
staff reductions.
A summary of the status of the Company's option plans as of March 31, 2000 and
changes during the period ending on that date is represented below:
. Shares
Outstanding, beginning of period 2,878,500
Granted -
Exercised -
Forfeited (1,993,000)
Outstanding, end of period 885,500
3. Investment
In 2000, the Company and Samsung SDS Co. Ltd. incorporated Centraxx Korea Co.
ltd. to jointly market and distribute the Company's products in South Korea.
The Company's 30% equity interest, at a cost of $250,000, is to be financed,
by agreement between the parties, with future product. Until the product is
delivered the liability will bear interest at Libor + 1%, per annum. The
Company has provided no product, therefore no balance sheet or income
statement effect has been recorded.
Centraxx Korea Co. Ltd. generated a net loss in the first quarter. The
Company has not recorded its' share of the equity loss ($40,102) in these
financial statements.
5
4. Subsequent events
During May 2001 equipment totalling a value of $16,744 was returned to the
manufacturer.
6
Management's Discussion and Analysis
Plan of Operation
To date, the Company's focus has been on research and development of
its UNI-POINT (trademark) technology, the engineering sample of which was
successfully demonstrated on December 9, 1999. However, management feels that
the Company must move quickly into revenue generation. As reflected in this
report, Centraxx is currently focusing its efforts to become self-sustaining
through the sale of hardware and services that operate on existing public
networks with the PN Tag while continuing development of the UniPoint
technology. Ultimately, the PN tag system can complement the UniPoint system
to form a complete end-to-end supply chain management system, combining the
low cost advantages of UniPoint with the Network coverage afforded by the
Public Networks.
The Company has entered into some geographic joint ventures and is
negotiating with other joint venture partners and distributors, to form
alliances to penetrate the potential market. There can be no assurances that
any agreements will be obtained or that if they are obtained that they will
provide material financial benefit to the Company.
Frankopan, a merchant bank focused on developing technology-based
companies, has directly or indirectly supplied the initial and ongoing funding
to Centraxx. Frankopan is under contract with Centraxx to manage the business
of Centraxx including financial affairs, legal and corporate governance,
public and investor relations service. Overall management of Centraxx, is
being provided by Michael Ivezic, CEO & Chairman of Centraxx Inc. and Managing
Director of Frankopan & Co. Inc.
Although a nominal amount of funding has been advanced from Frankopan,
Centraxx has continued to reduce its workforce. Further cost savings were
realized by relocating to a smaller office at 267 Matheson Blvd. during the
first quarter of 2001. The company is actively seeking other sources of
finance. Failure to secure adequate financing in the near future will
adversely effect the Company's ability to continue to operate. The board is
cautiously optimistic that financing can be found given the nature of the
Company's technology and its potential. The Company is in discussions with a
number of potential sources.
The Company has not yet generated any revenues except some deposits
from potential joint venture partners.
The $2.0M Debenture owed by the Company to Frankopan and all the
outstanding Frankopan additional advances were assigned to a third party on
May, 28 2001. The third party, Eribesdur Corporation B. V., currently holds a
$1.0M secured Promissory Note payable by Centraxx.
On June 7, 2001, Eribesdur issued a final demand that all monies owed
be repaid, due to Centraxx being in default of both the Debenture Loan
Agreement and the Promissory Note. Centraxx is currently in the process of
negotiating a debt restructuring plan with Eribesdur.
Results of Operations
For Three Months Ended March 31, 2001, compared to March 31, 2000
The current period loss was $(753,166) compared to $(664,516) for the
corresponding three months in 2000.
General and administrative costs decreased by $149,429 or 50.5% in
the first quarter 2001 over the same period in 2000, due to decreased
marketing, management and "salaries and other administrative" expenses. This
overall decrease in general and administrative costs reflects the
restructuring initiated during Q4 2000 and continued in Q1 2001.
The Company's research and product development costs decreased by
$144,772 during the three months ended March 31, 2001 as compared to the three
month period end March 31, 2000. The primary reasons for this included reduced
development staff and effectively no spending on R&D materials. Centraxx has
invested $4,486,284 in R&D since inception, which represents approximately
48.1% of the companies operating expenses.
Interest charges totaled $69,010 in Q1 2001, an increase of $41,234
over the same period in 2000. This increase is due to the financing costs
associated with both the note payable of $1.0M which was not in place during
Q1 2000, along with the entire $2.0M convertible debenture amount which was
not fully in place at the beginning of Q1 2000. Depreciation and amortization
were not materially different during Q1 2001 versus Q1 2000.
A large increase in the foreign exchange adjustment was noted in first
quarter 2001 compared to the first quarter in 2000. The increase of $338,993
resulted from the significant devaluation in the Canadian dollar relative to
the US dollar. The ending March 2000 exchange rate was C$1.4553/US$1.00 while
the ending exchange rate at March 31, 2001 was C$1.5763/US$1.00
Liquidity
The Company anticipates that during the next twelve months its working capital
requirements will be $0.6 million for the PN tag product. The planned use
from such funding will be for the production and marketing of the PN tag.
Funding requirements to complete the commercialization of the UniPoint
technology are $1.5M-2.5M. Thereafter, the Company expects that it
will need to seek additional capital through one or more public or private
offerings of debt or equity to fund network deployment. There can be no
assurance that the Company will be successful in obtaining any such funds on
terms acceptable to it, if at all.
An increase in the number of employees, primarily in marketing, sales and
distribution are anticipated during the third quarter of 2001, when
the Company's products are expected to be ready for market launch.
Risks and Uncertainties
As of the date of this report, the Company anticipates that its UniPoint
technology will not be available for sale for distribution for at
least the next 4 quarters and that the PN tag will not be available until the
3rd quarter 2001. The Company has no established source of revenues and is
dependent on its ability to raise further funding. There can be no assurance
that the Company will be successful in obtaining any funding at reasonable
terms. There can be no assurance that the Company will be able to complete
the commercial development of the UniPoint technology at that time or at any
time, or that the Company will be able to sell or distribute its PN tag
product or the UniPoint technology to generate profitable operations at that
time or in the foreseeable future. There can be no assurance that the
technology will be successfully released to the market or that the Company
will profit therefrom. The Company is currently in financial difficulty and
without a source of funds in the near future the Company's ability to launch
the PN tag product is unlikely. The Company is currently in default of its
obligations to Revenue Canada and has in excess of $3 million of debt
outstanding. Even with a successful launch of the PN tag product, there is no
assurance that the Company can meet the operational funding requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None, not applicable.
Item 2. Changes in Securities.
None, not applicable.
Item 3. Defaults Upon Senior Securities.
The $2.0M Debenture owed by the Company to Frankopan and all the
outstanding Frankopan additional advances were assigned to a third party on
May, 28 2001. The third party, Eribesdur Corporation B. V., currently holds a
$1.0M secured Promissory Note payable by Centraxx.
On June 7, 2001, Eribesdur issued a final demand that all monies owed be
repaid, due to Centraxx being in default of both the Debenture Loan Agreement
and the Promissory Note. Centraxx is currently in the process of negotiating a
debt restructuring plan with Eribesdur.
Item 4. Submission of Matters to a Vote of Security Holders.
None, not applicable.
Item 5. Other Information.
None, not applicable.
Item 6. Exhibits and Other Reports on Form 8-K.
(a) Exhibits.
Annual Report on Form 10-KSB for the calendar year ended December
31, 2000, incorporated herein by reference.
(b) Reports on Form 8-K.
None, not applicable.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAXX, INC.
Date: 6/15/2001 /s/Mike Ivezic
-------------- -----------------------------
Mike Ivezic, CEO, President and
Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
CENTRAXX, INC.
Date: 6/15/2001 /s/Mike Ivezic
-------------- -----------------------------
Mike Ivezic, CEO, President and
Director