UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended December 31, 2008.




OR




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from 
to .




Commission
File Number: 001-33495




COLLEXIS
HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)


Nevada
              
              30-0505595(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)




1201
      Main Street, Suite 980, Columbia, SC
                
                29201(Address
      of principal executive offices)
                
                (Zip
      Code)





(803)
727-1113


(Registrant’s
telephone number, including area code)




N/A


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes  ̈No x





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.




Large accelerated filer  ̈
                  
                  Accelerated filer   ̈
                  
                  Non-accelerated filer   ̈
                  
                  Smaller reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
 ̈No x





As of
February 18, 2009, there were 120,965,418 shares of the issuer’s common
stock outstanding.










SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
Quarterly Report on Form 10-Q for the three and six months ended
December  31, 2008, 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:




·
            the
      availability and adequacy of capital to pay the deferred payment
      obligations we owe and to support and grow our
  business;


·
              changes
      in economic conditions in the U.S. and in other countries in which we
      currently do business;




·
            currency
      exchange rates;




·
            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;




·
            fluctuations
      in operating results and earnings, including timing of cash flows and
      company performance;




·
            market
      acceptance of new products or the failure of new products to operate as
      anticipated;




·
            actions
      taken or not taken by others, including competitors, as well as
      legislative, regulatory, judicial and other governmental
      authorities;




·
            competition
      in our industry;




·
            changes
      in our business and growth strategy, capital improvements or development
      plans;




·
            disputes
      regarding our intellectual property;
and




·
            other
      factors discussed under the section entitled “Risk Factors” or elsewhere
      in this report.




These and
additional factors are set forth in Part II, Item 1A. of  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.










2




COLLEXIS
HOLDINGS, INC. and Subsidiaries




Quarterly
Report on Form 10-Q




TABLE
OF CONTENTS




Item
            
            
            
            PagePART
      I - FINANCIAL INFORMATION1.
            
            Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of December 31, 2008 and June 30, 2008
            
            5Consolidated
      Statements of Operations for the three months and six months ended
      December  31, 2008 and December  31,
    2007
            
            6Consolidated
      Statements of Comprehensive Loss for the three months and six months ended
      December  31, 2008 and December  31,
    2007.
            
            7Consolidated
      Statements of Cash Flows for the six months ended December 31, 2008 and
      December 31, 2007.
            
            8Notes
      to Consolidated Financial Statements
            
            92.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            183.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            224T.
            
            Controls
      and Procedures
            
            23PART
      II - OTHER INFORMATION1.
            
            Legal
      Proceedings
            
            231A.
            
            Risk
      Factors
            
            242.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            253.
            
            Defaults
      Upon Senior Securities
            
            254.
            
            Submission
      of Matters to a Vote of Security Holders
            
            255.
            
            Other
      Information
            
            266.
            
            Exhibits
            
            26




3





PART
I - FINANCIAL INFORMATION




ITEM 1.
            FINANCIAL
      STATEMENTS (UNAUDITED)




4




COLLEXIS
HOLDINGS, INC. and Subsidiaries




CONSOLIDATED
BALANCE SHEETS




As of December31,
                    
                    
                    As of June 30,2008
                    
                    
                    2008(Unaudited)
                    
                    
                    (Note)ASSETSCurrents
      assetsCash
      and cash equivalents
                    
                    $
                    831,134
                    
                    
                    $
                    1,476,234Accounts
      receivable, net of allowance for doubtful accounts of $ 269,905 and $
      302,492
                    
                    
                    997,783
                    
                    
                    
                    1,193,678Prepaid
      expenses and other current assets
                    
                    
                    197,952
                    
                    
                    
                    225,973Total
      current assets
                    
                    
                    2,026,869
                    
                    
                    
                    2,895,885Property
      and equipment, at cost, net of accumulated depreciation of $
      704,024 and $ 671,293
                    
                    
                    479,726
                    
                    
                    
                    540,485Intangibles,
      net of accumulated amortization of $1,655,829 and $998,584
                    
                    
                    6,459,342
                    
                    
                    
                    7,726,426Trade
      name
                    
                    
                    1,090,494
                    
                    
                    
                    1,090,494Goodwill
                    
                    
                    9,148,595
                    
                    
                    
                    9,616,603Security
      deposit - rent
                    
                    
                    20,954
                    
                    
                    
                    23,482Total
      assets
                    
                    $
                    19,225,980
                    
                    
                    $
                    21,893,375LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable trade
                    
                    $
                    1,585,489
                    
                    
                    $
                    1,152,230Accrued
      taxes and expenses
                    
                    
                    1,215,287
                    
                    
                    
                    1,299,416Deferred
      revenue
                    
                    
                    707,412
                    
                    
                    
                    762,566Other
      liabilities and deferred charges
                    
                    
                    -
                    
                    
                    
                    21,299Deferred
      tax liability, net
                    
                    
                    25,671
                    
                    
                    
                    22,706Current
      portion of deferred purchase price
                    
                    
                    3,434,070
                    
                    
                    
                    3,803,507Total
      current liabilities
                    
                    
                    6,967,929
                    
                    
                    
                    7,061,724Non-current
      liabilitiesDeferred
      tax liability
                    
                    
                    1,208,723
                    
                    
                    
                    1,532,977Deferred
      purchase price
                    
                    
                    6,611,685
                    
                    
                    
                    6,991,696Total
      non-current liabilities
                    
                    
                    7,820,408
                    
                    
                    
                    8,524,673Total
      liabilities
                    
                    
                    14,788,337
                    
                    
                    
                    15,586,397Stockholders'
      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
                    
                    
                    
                    109,744Additional
      paid-in capital
                    
                    
                    32,816,994
                    
                    
                    
                    30,314,289Accumulated
      other comprehensive income
                    
                    
                    103,444
                    
                    
                    
                    636,693Accumulated
      deficit
                    
                    
                    (28,603,760
                    )
                    
                    
                    (24,753,748
                    )Total
      stockholders' equity
                    
                    
                    4,437,643
                    
                    
                    
                    6,306,978Total
      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.




5





COLLEXIS
HOLDINGS, INC. and Subsidiaries




CONSOLIDATED
STATEMENTS OF OPERATIONS




(Unaudited)




Three Months Ended December 31,
                    
                    
                    Six Months Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007RevenueLicense
      Revenue
                    
                    $
                    85,637
                    
                    
                    $
                    234,906
                    
                    
                    $
                    203,807
                    
                    
                    $
                    278,371Service
      Revenue
                    
                    
                    770,586
                    
                    
                    
                    589,680
                    
                    
                    
                    1,112,676
                    
                    
                    
                    658,569Maintenance
      & Support Revenue
                    
                    
                    243,144
                    
                    
                    
                    95,225
                    
                    
                    
                    456,695
                    
                    
                    
                    276,550Hardware
      & Hosting Revenue
                    
                    
                    26,327
                    
                    
                    
                    37,604
                    
                    
                    
                    51,332
                    
                    
                    
                    50,687Database
      subscription revenue
                    
                    
                    744,591
                    
                    
                    
                    -
                    
                    
                    
                    1,489,673
                    
                    
                    
                    -Total
      revenue
                    
                    
                    1,870,285
                    
                    
                    
                    957,415
                    
                    
                    
                    3,314,183
                    
                    
                    
                    1,264,177Cost
      of RevenueCost
      of License Revenue
                    
                    
                    180,000
                    
                    
                    
                    33,986
                    
                    
                    
                    180,156
                    
                    
                    
                    42,975Cost
      of Service Revenue
                    
                    
                    359,753
                    
                    
                    
                    263,206
                    
                    
                    
                    676,566
                    
                    
                    
                    338,373Cost
      of Maintenance & Support Revenue
                    
                    
                    14,068
                    
                    
                    
                    75,051
                    
                    
                    
                    31,156
                    
                    
                    
                    209,802Cost
      of Hardware & Hosting Revenue
                    
                    
                    37,934
                    
                    
                    
                    29,287
                    
                    
                    
                    73,287
                    
                    
                    
                    37,219Cost
      of database subscription revenue
                    
                    
                    216,436
                    
                    
                    
                    -
                    
                    
                    
                    374,538
                    
                    
                    
                    -Total
      cost of revenue
                    
                    
                    808,191
                    
                    
                    
                    401,530
                    
                    
                    
                    1,335,703
                    
                    
                    
                    628,369Gross
      profit
                    
                    
                    1,062,094
                    
                    
                    
                    555,885
                    
                    
                    
                    1,978,480
                    
                    
                    
                    635,808Operating
      expensesGeneral
      & Administrative
                    
                    
                    2,121,213
                    
                    
                    
                    2,119,747
                    
                    
                    
                    4,418,314
                    
                    
                    
                    3,246,456Sales
      & Marketing
                    
                    
                    737,524
                    
                    
                    
                    799,692
                    
                    
                    
                    1,539,100
                    
                    
                    
                    1,407,904Research
      & Development
                    
                    
                    176,091
                    
                    
                    
                    511,143
                    
                    
                    
                    369,754
                    
                    
                    
                    778,521Total
      operating expenses
                    
                    
                    3,034,828
                    
                    
                    
                    3,430,582
                    
                    
                    
                    6,327,168
                    
                    
                    
                    5,432,881Loss
      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
                    
                    
                    
                    162Loss
      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
                    
                    
                    
                    132,072NET
      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
                    
                    
                    
                    63,949,494Basic
      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.





6





COLLEXIS
HOLDINGS, INC. and Subsidiaries




CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS




(Unaudited)




Three Months Ended December 31,
                
                
                Six Months Ended December 31,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      loss
                
                $
                (2,401,253
                )
                
                $
                (2,843,563
                )
                
                
                (4,066,828
                )
                
                $
                (4,759,880
                )Foreign
      currency translation adjustment
                
                
                382,269
                
                
                
                221,112
                
                
                
                (533,249
                )
                
                
                229,981Comprehensive
      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.





7





COLLEXIS
HOLDINGS, INC. and Subsidiaries




CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS




(Unaudited)




Six
                      
                      
                      SixMonths Ended
                      
                      
                      Months EndedDecember 31,
                      
                      
                      December 31,2008
                      
                      
                      2007Cash
      flows from operating activitiesNet
      loss
                      
                      $
                      (4,066,828
                      )
                      
                      $
                      (4,759,880
                      )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                      
                      
                      835,388
                      
                      
                      
                      256,201Stock
      option compensation expense
                      
                      
                      428,446
                      
                      
                      
                      393,230Foreign
      exchange gain
                      
                      
                      (366,955
                      )
                      
                      
                      -Gain
      on sale of assets
                      
                      
                      -
                      
                      
                      
                      15,086Allowance
      for bad debts
                      
                      
                      (32,587
                      )
                      
                      
                      -Deferred
      taxes
                      
                      
                      (321,289
                      )
                      
                      
                      (66,557
                      )Accounts
      Receivable
                      
                      
                      228,482
                      
                      
                      
                      (477,128
                      )Prepaid
      expenses
                      
                      
                      28,121
                      
                      
                      
                      (227,880
                      )Other
      receivables
                      
                      
                      -
                      
                      
                      
                      79,125Other
      assets & deferred charges
                      
                      
                      2,528
                      
                      
                      
                      -Accounts
      payable
                      
                      
                      433,259
                      
                      
                      
                      394,118Accrued
      taxes and expenses
                      
                      
                      (84,129
                      )
                      
                      
                      184,382Deferred
      revenue
                      
                      
                      (55,154
                      )
                      
                      
                      457,608Net
      cash (used in) operating activities
                      
                      
                      (2,970,718
                      )
                      
                      
                      (3,751,695
                      )Cash
      flows from investing activitiesPurchases
      of property and equipment
                      
                      
                      (10,175
                      )
                      
                      
                      (180,544
                      )Acquisition
      of intangibles
                      
                      
                      -
                      
                      
                      
                      (831
                      )Acquisition
      of SyynX, net of cash acquired
                      
                      
                      -
                      
                      
                      
                      96,719Net
      cash (used in) investing activities
                      
                      
                      (10,175
                      )
                      
                      
                      (84,656
                      )Cash
      flows from financing activitiesLoan
      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
                      
                      
                      -
                      
                      
                      
                      7,669,293Net
      cash provided by financing activities
                      
                      
                      2,200,176
                      
                      
                      
                      4,761,664Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (780,717
                      )
                      
                      
                      925,313Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      135,617
                      
                      
                      
                      (33,943
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      1,476,234
                      
                      
                      
                      187,261Cash
      and cash equivalents at end of period
                      
                      $
                      831,134
                      
                      
                      $
                      1,078,631Supplemental
      disclosures of cash flow information:Cash
      paid during the period forInterest
                      
                      $
                      -
                      
                      
                      $
                      39,616Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -





The
accompanying notes are an integral part of these consolidated financial
statements.





8





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.




9


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.


10




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.


11




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.”


12




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)


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, dashboard,
      and grant reviewer finder  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
                                AmountOSBA
                              
                              November
      1, 2008 (Paid on January 2, 2009)
                              
                              $
                              313,750OSBA
                              
                              February
      1, 2009
                              
                              
                              313,750$
                              627,500





Seller
                        
                        Payment Date
                        
                        Payment
                          AmountLawcorp
                        
                        February
      1, 2009
                        
                        $
                        750,000February
      1, 2010
                        
                        
                        750,000February
      1, 2011
                        
                        
                        750,000February
      1, 2012
                        
                        
                        750,000$
                        3,000,000


13


COLLEXIS
HOLDINGS, INC. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Unaudited)


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:


(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)
                            
                            $
                            5,927,728Cash
                            
                            
                            1,625,000Common
      shares issued
                            
                            
                            500,0008,052,728Direct
      costs of acquisition
                            
                            
                            232,707Total
      purchase price
                            
                            $
                            8,285,435Values
      assigned to assets and liabilities:Cash
                            
                            $
                            65,377Accounts
      receivable
                            
                            
                            247,676Property
      and equipment
                            
                            
                            104,216Acquired
      technology (estimated useful life of seven years)
                            
                            
                            1,170,000Trade
      name (estimated useful life indefinite)
                            
                            
                            1,090,000Customer
      contracts (estimated useful life of ten years)
                            
                            
                            726,000Goodwill
                            
                            
                            5,275,330Accounts
      payable and accrued expenses
                            
                            
                            (97,005
                            )Deferred
      revenue
                            
                            
                            (256,084
                            )Accrued
      restructuring charges
                            
                            
                            (40,075
                            )Total
      purchase price assigned
                            
                            $
                            8,285,435


14




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
                        US Dollars at
                        12-31-08
                        Exchange
                        RatesOctober
      1, 2008
                      
                      €
                      1,494,304
                      
                      
                      $
                      2,106,520October
      1, 2009
                      
                      
                      1,245,053
                      
                      
                      
                      1,755,151October
      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).


15




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)




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.




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)
                            
                            $
                            7,029,308Exercise
      of option
                            
                            
                            712,5507,741,858Direct
      costs of acquisition
                            
                            
                            189,878Write
      off of SyynX receivable from Collexis Holdings, Inc.
                            
                            
                            (200,587
                            )Total
      purchase price
                            
                            $
                            7,731,149Values
      assigned to assets and liabilities:Cash
                            
                            $
                            154,036Accounts
      receivable
                            
                            
                            320,820Deferred
      tax assets
                            
                            
                            48,005Property
      and equipment
                            
                            
                            71,435Trade
      name (estimated useful life of five years)
                            
                            
                            1,090,000Acquired
      technology (estimated useful life of seven years)
                            
                            
                            4,004,733Goodwill
                            
                            
                            3,918,673Accounts
      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.


16




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)




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
                
                
                2007Revenue
      as reported
                
                $
                1,870,285
                
                
                $
                957,415
                
                
                $
                3,314,183
                
                
                $
                1,264,177Revenue
      pro-forma
                
                $
                1,870,285
                
                
                $
                1,699,331
                
                
                $
                3,314,183
                
                
                $
                3,044,454Net
      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
                )


17


ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




Overview




Collexis
Holdings, Inc., sometimes referred to as “Collexis,” “we,” “us,” or “our” in
this report, is a global software 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, analyst or business
professional. We generate our revenues primarily from licensing our software and
content, 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 markets. In October 2007, we
acquired SyynX Solutions GmbH, this expanded our application solutions in health
sciences. In February 2008, we 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.





Results
of Operations





Three
Months Ended December 31, 2008 compared to Three Months Ended December 31,
2007





Total Revenues.Total
revenues increased approximately $913,000, or 95%, to approximately $1.87
million  for the three months ended December 31, 2008 as compared to
approximately $957,000 for the three months ended December 31, 2007. Of this
increase, approximately $168,000, or 18%, 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 $745,000.




License Revenue.License
revenue decreased approximately $149,000, or 63%, to approximately $86,000 for
the three months ended December 31, 2008 as compared to approximately $235,000
in the three 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 $181,000, or 31%, to approximately $771,000 for
the three months ended December 31, 2008 versus approximately $590,000 for the
three months ended December 31, 2007. This increase was primarily driven by our
US market, where approximately $283,000 of our period sales revenue was derived
from sales efforts to deliver services to new and existing clients who seek to
add profiles and libraries to subscription applications. This increase was
offset by reduced service revenue primarily from Collexis BV of approximately
$102,000.





Maintenance & Support Revenue.Maintenance and support revenue increased approximately $148,000, or
155%, to approximately $243,000 for the three months ended December 31, 2008
compared to approximately $95,000 for the three months ended December 31, 2007.
This increase is due primarily to sales of maintenance contracts to new and
existing license customers.





Hardware & Hosting Revenue.Hardware and hosting revenue decreased approximately $11,000, or 30%, to
approximately $26,000 for the three months ended December 31, 2008 versus
approximately $37,000 for the three months ended December 31, 2007. This
decrease is due primarily to our placing less emphasis on hosting client
applications.





Database Subscription Revenue.Database subscription revenue was approximately $745,000 for the three
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 three months ended December 31,
2007.


18


Cost of License Revenue.Cost
of license revenue was approximately $180,000 for the three months ended
December 31, 2008 as compared to approximately $34,000 for the three months
ended December 31, 2007, an increase of approximately $146,000, or
430%.   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 $97,000, or 37%, to approximately
$360,000 for the three months ended December 31, 2008 versus approximately
$263,000 for the three months ended December 31, 2007.   This was
due primarily to an increase in service revenue.





Cost of Maintenance & Support
Revenue.Cost of maintenance and support revenue
decreased  approximately $61,000, or 81%, to approximately $14,000 for
the three months ended December 31, 2008 compared to approximately $75,000 for
the three 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 $38,000
for the three months ended December 31, 2008 versus approximately $29,000 for
the three months ended December 31, 2007, an increase of approximately $9,000,
or 30%. This increase is a function of the increased costs we are incurring from
our third party hosting centers.





Cost of Subscription Revenue.Cost of subscription revenue was approximately $216,000 for the three
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 three months ended December 31,
2007.





General & Administrative
Expenses.General and administrative expenses remained flat at
approximately $2.12 million for the three months ended December 31, 2008
and  December 31, 2007.   Increased expenses were
incurred due to the incremental general and administrative expenses of
approximately $5,000 and $411,000 for SyynX and Lawriter respectively; increased
depreciation and amortization costs of approximately $72,000 associated with
intangibles and other assets acquired from SyynX and Lawriter; increased
computer expenses of approximately $18,000 and increased insurance costs of
approximately $32,000 primarily due to directors and officers insurance
costs.  These increases were offset by a decrease in costs relating to
the reduction of the Company’s Netherland’s operations of approximately
$357,000, decreased professional fees of approximately $145,000 and a decrease
in stock option expense of approximately $30,000.





Sales & Marketing.Sales
and marketing expenses decreased to approximately $738,000 for the three months
ended December 31, 2008 compared to approximately $800,000 for the three months
ended December 31, 2007, a decrease of approximately $62,000, or 8%. The SyynX
and Lawriter acquisitions contributed approximately $213,000 and $89,000,
respectively.  These increases were offset by reduced costs in the
Netherlands of approximately $202,000; reduced travel and entertainment costs of
approximately $54,000, reduced advertising costs of approximately $21,000; and
reduced salaries, commissions and vacation costs of approximately
$87,000.





Research & Development.Research and development costs decreased from approximately $511,000 for
the three months ended December 31, 2007 to approximately $176,000 for the three
months ended December 31, 2008, a decrease of approximately $335,000, or 66%.
This decrease was driven by the demands of client projects which have changed
our focus from traditional research and development initiatives.





Total Expenses and Net Loss.As a result of the above factors, total operating expenses decreased to
approximately $3.0 million for the three months ended December 31, 2008 compared
to approximately $3.4 million for the three months ended December 31, 2007, a
decrease of approximately $396,000, or 12%.  Decreased expenses were
offset by an unfavorable foreign exchange rate of approximately $313,000,
interest on acquisition debt of approximately $104,000 and a reduction in tax
benefits relating to deferred taxes recognized in Germany on the SyynX
assets.  For the three months ended December 31, 2008, the net loss of
$2.4 million was favorable when compared to the $2.8 million loss for
the  three months ended December 31, 2007.





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.


19


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.
  20
  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.
  Liquidity
and Capital Resources
 
 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 as of
December 31, 2008, we reported an accumulated deficit of $28.6
million.
 
 In 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 compared to a
deficit of $4.2 million as of June 30, 2008.
 
 Our
financing activities during the six months ended December 31, 2008 reflected
deferred payments associated with the Lawriter acquisition of approximately
$314,000 and cash received on stock sales of approximately $2.51
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:
  ·
              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 markets;
    and
 
 ·
              identifying
      sources of capital that will be sufficient to fund our operations until
      such time as we are cash flow
positive.
  21
  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.
  With the
full subscription of our $2.0 million private placement referred to above,
combined with any funds generated from our operations, we believe we will have
sufficient cash to fund our operations through March 31, 2009. However, this
will not provide sufficient capital to pay our deferred purchase obligations of
approximately $2.8 million due over the next three months.
  We expect
to raise additional capital through the sale of our common stock, mostly through
private placements but we can provide no assurances in that regard. With our
present negative cash flows from operating activities and our current level of
cash, we will require additional working capital to continue to grow our
operations, develop our products, pursue acquisitions, comply with our reporting
obligations as a public company and meet our deferred payment obligations. As a
result, we may seek both debt and equity financings to satisfy these working
capital needs. There can be no assurance that external financing will be
available when needed, or if available, that it would be available on terms
acceptable to our management. 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 business 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.
  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.
  Critical Accounting
Policies
  For a
summary of our significant accounting policies, please see Note 1 to the
consolidated unaudited financial statements included in Part I, Item 1 of this
report.
  Recent
Accounting Pronouncements
  For a
summary of recently issued accounting pronouncements, please see the Company’s
annual report on Form 10-K filed on October 14, 2008 and Note 1 to the
consolidated unaudited financial statements included in Part1, Item 1 of this
report.
 
 ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Not
applicable.
  22
  ITEM 4.
              CONTROLS
      AND PROCEDURES
 
 Our
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of December
31, 2008, and have concluded that, as of such date, our disclosure controls and
procedures were ineffective to ensure that information required to be disclosed
by us in reports that we file or submit under the Exchange Act are accumulated,
recorded, processed, summarized for management and reported within the time
periods specified in the rules and forms of the SEC.
  Our Chief
Executive Officer and Chief Financial Officer reached this conclusion due to
material weaknesses in internal control over financial reporting, as described
below.
  As
previously stated in the Company’s annual report on Form 10-K filed October 14,
2008, management and the Audit Committee retained RSM McGladrey to assist in an
evaluation of our internal control weaknesses. RSM McGladrey has performed a
review of our internal control over financial reporting as of June 30, 2008,
based on criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  Based on
the findings of RSM McGladrey and management’s assessment of the effectiveness
of our internal control over financial reporting as of June 30, 2008, we
identified the following deficiencies in our internal controls over financial
reporting. Management does not believe any one deficiency would qualify as a
material weakness but the combination of deficiencies may qualify as a
significant deficiency.
  Deficiencies
  Entity-Level Controls. We did
not maintain an effective control environment and certain entity-level controls
included in the information and communications and monitoring components of
internal control were not designed or operating effectively.
  Segregation of Duties. We did
not provide for adequate segregation of duties in our accounting and finance
functions, specifically with respect to access to and control of our cash flow
without any secondary review.
  Financial Reporting and Period
Closings. We did not maintain adequate policies and procedures to ensure
that timely, accurate and reliable consolidated financial statements were
prepared and reviewed.
  Remediation Efforts to Address
Deficiencies in Internal Control Over Financial Reporting
  As a
result of the findings from the study described above, management has taken
steps to address these findings, including formalizing monthly closing
procedures, utilizing monthly journal entry checklists and employing a monthly
financial closing checklist. Management
continues to implement the remedial recommendations identified in the RSM
McGladrey study and expects to have such implementation completed by the end of
the Company’s current fiscal year.
  Management
believes these changes implemented during the Company’s most recently completed
fiscal quarter have and will continue to favorably impact the Company’s internal
control over financial reporting.
  PART
II – OTHER INFORMATION
  ITEM 1.
              LEGAL
      PROCEEDINGS
  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
“Parties”). 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.
  23
  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.
  ITEM 1A.
              RISK
      FACTORS
  Various
risks and uncertainties could affect the Company’s business. Any of the risks
described below or elsewhere in this Quarterly Report on Form 10-Q or the
Company’s other SEC filings could have a material impact on the Company’s
business, financial condition or results of operations.
  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
February 18, 2009, we had cash and cash equivalents of approximately $140,000.
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 the next week 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 $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.
  We will
need to raise additional funds for the following purposes:
 
 ·
              to
      fund our operations, including sales, marketing and research and
      development programs;
 ·
              to
      fund our deferred payments on
acquisitions;
 ·
              to
      fund any growth we may experience;
 ·
              to
      enhance and/or expand the range of products and services we
      offer;
 ·
              to
      increase our promotional and marketing activities;
  and
 ·
              to
      respond to competitive pressures and/or perceived opportunities, such as
      investment, acquisition and international expansion
      activities.
 
 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.
  24
  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. See discussion under Part1 Item 4 “Controls and
Procedures”.
 
 ITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  On August
18, 2008, the Company’s board approved a private offering of up to 9,000,000
shares of our common stock at $0.45 per share for an aggregate offering of
$4,050,000. Under this offering, the Company sold 2,222,222 shares and received
proceeds of $1.0 million as of August 31, 2008. Because of the deteriorating
global economic situation and the impact it has had on our common stock price,
we were unable to continue this private offering at $0.45 per share so the
offering price was reduced to $0.30 per share. At this offering price, the
Company sold 1,753,333 shares and collected $526,000 in October and November
2008.
  As the
economic situation continued to deteriorate and our common stock price continued
to decline, it became apparent that we would not be successful in continuing to
raise funds at $0.30 per share. On December 17, 2008, the Company’s board gave
management the authority to negotiate terms of a private placement of the
Company’s common stock at an appropriate price and terms.
  As a
result, on January 2, 2009, the Company accepted a subscription for 6,363,636
shares at $0.11 per share for total proceeds of $700,000. On January 23, 2009,
the board approved an additional private placement of 11,818,182 shares at $0.11
per share or $1.3 million. As an inducement to the participants in this latest
offering, the board also approved the issuance to such participants warrants to
acquire shares of the Company’s common stock. As approved, the Company intends
to issue warrants to purchase 12,500,000 shares of common stock with an exercise
price of $0.145 per share and warrants to purchase 10,000,000 shares of common
stock with an exercise price of $0.07 per share. The warrants vest immediately
and are exercisable for two years from the date of issuance.
  We
anticipate completing our current private equity offering by March 31, 2009,
however, there can be no assurances that the offering will be fully subscribed,
if at all.
  We have
used or will use the proceeds of our recent private offerings to make
installment payments required under the terms of our acquisition agreements and
for working capital. Our private placements are conducted in reliance on
exemptions from registration contained in Section 4(2) of the Securities Act of
1933 and Rule 506 of Regulation D promulgated thereunder. Each investor has
agreed to hold the shares purchased in the offering for a minimum of one year.
No placement fees were payable in connection with this offering.
  ITEM 3.
              DEFAULTS
      UPON SENIOR SECURITIES
  None.
  ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  25
 
 ITEM 5.
              OTHER
      INFORMATION
  None.
  ITEM 6.
              EXHIBITS
  31.1
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as
amended.
 
 31.2
              Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as
amended.
 
 32.1
              Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002Section 1350 Certifications.
 
 32.2
              Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
  26
  SIGNATURES
  Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
  COLLEXIS
      HOLDINGS, INC.Dated: February 19, 2009
                      By:
                      /s/ Mark MurphyMark
      MurphyChief
      Financial
Officer
  27