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 March 31, 2009.




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  ̈  Nox





Indicate
by check mark weather the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     
Yeso  
   Nox





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


(Do not
check if a smaller reporting company)





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


Yes ̈ Nox





As of May
15, 2009, there were 170,064,073 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 nine months ended
March  31, 2009, 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 March 31, 2009 and June 30, 2008
                  
                  5Consolidated
      Statements of Operations for the three months and nine months ended
      March  31, 2009 and March  31, 2008
                  
                  6Consolidated
      Statements of Comprehensive Loss for the three months and nine months
      ended March  31, 2009 and March  31,
    2008.
                  
                  7Consolidated
      Statements of Cash Flows for the nine months ended March 31, 2009 and
      March 31, 2008.
                  
                  8Notes
      to Consolidated Financial Statements
                  
                  92.
                  
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  203.
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  244.
                  
                  Controls
      and Procedures
                  
                  24PART
      II - OTHER INFORMATION1.
                  
                  Legal
      Proceedings
                  
                  251A.
                  
                  Risk
      Factors
                  
                  252.
                  
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  273.
                  
                  Defaults
      Upon Senior Securities
                  
                  274.
                  
                  Submission
      of Matters to a Vote of Security Holders
                  
                  275.
                  
                  Other
      Information
                  
                  276.
                  
                  Exhibits
                  
                  27


3




PART
I - FINANCIAL INFORMATION




ITEM 1.
            FINANCIAL
      STATEMENTS (UNAUDITED)


4


COLLEXIS
HOLDINGS, INC. and Subsidiaries




CONSOLIDATED
BALANCE SHEETS




As of March 31,
                                      
                                      
                                      As of June 30,2009
                                      
                                      
                                      2008(unaudited)
                                      
                                      
                                      (Note)ASSETSCurrents
      assetsCash
      and cash equivalents
                                      
                                      $
                                      220,093
                                      
                                      
                                      $
                                      1,476,234Accounts
      receivable, net of allowance for doubtful accounts of $
    49,200and
      $ 302,492
                                      
                                      
                                      707,060
                                      
                                      
                                      
                                      1,193,678Prepaid
      expenses and other current assets
                                      
                                      
                                      156,284
                                      
                                      
                                      
                                      225,973Total
      current assets
                                      
                                      
                                      1,083,437
                                      
                                      
                                      
                                      2,895,885Property
      and equipment, at cost, net of accumulated depreciation of $
      268,815and
      $ 671,293
                                      
                                      
                                      381,678
                                      
                                      
                                      
                                      540,485Intangibles,
      net of accumulated amortization of $ 1,934,639 and
$998,584
                                      
                                      
                                      5,861,792
                                      
                                      
                                      
                                      7,726,426Trade
      Name
                                      
                                      
                                      1,090,594
                                      
                                      
                                      
                                      1,090,494Goodwill
                                      
                                      
                                      8,904,142
                                      
                                      
                                      
                                      9,616,603Security
      deposit - rent
                                      
                                      
                                      -
                                      
                                      
                                      
                                      23,482Total
      assets
                                      
                                      $
                                      17,321,643
                                      
                                      
                                      $
                                      21,893,375LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable trade
                                      
                                      $
                                      1,482,570
                                      
                                      
                                      $
                                      1,152,230Accrued
      taxes and expenses
                                      
                                      
                                      1,019,814
                                      
                                      
                                      
                                      1,299,416Deferred
      revenue
                                      
                                      
                                      1,157,695
                                      
                                      
                                      
                                      762,566Deferred
      gain
                                      
                                      
                                      224,935
                                      
                                      
                                      
                                      -Other
      Liabilities and deferred charges
                                      
                                      
                                      -
                                      
                                      
                                      
                                      21,299Deferred
      tax liability, net
                                      
                                      
                                      12,490
                                      
                                      
                                      
                                      22,706Note
      payable
                                      
                                      
                                      184,594
                                      
                                      
                                      
                                      -Current
      portion of deferred purchase price
                                      
                                      
                                      3,434,070
                                      
                                      
                                      
                                      3,803,507Total
      current liabilities
                                      
                                      
                                      7,516,168
                                      
                                      
                                      
                                      7,061,724Non-current
      liabilitiesDeferred
      tax liability
                                      
                                      
                                      1,057,960
                                      
                                      
                                      
                                      1,532,977Deferred
      purchase price
                                      
                                      
                                      5,595,034
                                      
                                      
                                      
                                      6,991,696Total
      non-current liabilities
                                      
                                      
                                      6,652,994
                                      
                                      
                                      
                                      8,524,673Total
      Liabilities
                                      
                                      
                                      14,169,162
                                      
                                      
                                      
                                      15,586,397Stockholders'
      (deficiency) equityCommon
      stock, par value $0.001, 277,713,000 authorized  shares;
      123,167,546shares
      issued and outstanding as of March 31, 2009; authorized
      277,713,000shares;
      109,743,727 issued and outstanding as of June 30, 2008
                                      
                                      
                                      123,170
                                      
                                      
                                      
                                      109,744Additional
      paid-in capital
                                      
                                      
                                      33,333,426
                                      
                                      
                                      
                                      30,314,289Stock
      Warrants Outstanding
                                      
                                      
                                      323,909
                                      
                                      
                                      
                                      -Accumulated
      other comprehensive income (loss)
                                      
                                      
                                      (418,627
                                      )
                                      
                                      
                                      636,693Accumulated
      deficit
                                      
                                      
                                      (30,209,397
                                      )
                                      
                                      
                                      (24,753,748
                                      )Total
      stockholders' (deficiency) equity
                                      
                                      
                                      3,152,481
                                      
                                      
                                      
                                      6,306,978Total
      liabilities and stockholders' equity
                                      
                                      $
                                      17,321,643
                                      
                                      
                                      $
                                      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 March
31,
                  
                  
                  Nine Months Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008RevenueLicense
      Revenue
                  
                  $
                  68,647
                  
                  
                  $
                  287,360
                  
                  
                  $
                  272,454
                  
                  
                  $
                  618,448Service
      Revenue
                  
                  
                  479,160
                  
                  
                  
                  413,169
                  
                  
                  
                  1,591,836
                  
                  
                  
                  1,003,391Maintenance
      & Support Revenue
                  
                  
                  90,131
                  
                  
                  
                  172,725
                  
                  
                  
                  546,826
                  
                  
                  
                  446,676Hardware
      & Hosting Revenue
                  
                  
                  47,542
                  
                  
                  
                  45,218
                  
                  
                  
                  98,874
                  
                  
                  
                  99,568Database
      subscription revenue
                  
                  
                  776,982
                  
                  
                  
                  498,383
                  
                  
                  
                  2,266,655
                  
                  
                  
                  498,383Total
      revenue
                  
                  
                  1,462,462
                  
                  
                  
                  1,416,855
                  
                  
                  
                  4,776,645
                  
                  
                  
                  2,666,466Cost
      of RevenueCost
      of License Revenue
                  
                  
                  -
                  
                  
                  
                  4,175
                  
                  
                  
                  180,156
                  
                  
                  
                  47,895Cost
      of Service Revenue
                  
                  
                  354,057
                  
                  
                  
                  261,590
                  
                  
                  
                  1,030,623
                  
                  
                  
                  592,331Cost
      of Maintenance & Support Revenue
                  
                  
                  (144
                  )
                  
                  
                  23,938
                  
                  
                  
                  31,012
                  
                  
                  
                  232,568Cost
      of Hardware & Hosting Revenue
                  
                  
                  37,612
                  
                  
                  
                  33,011
                  
                  
                  
                  110,899
                  
                  
                  
                  69,710Cost
      of subscription revenue
                  
                  
                  197,611
                  
                  
                  
                  173,206
                  
                  
                  
                  572,149
                  
                  
                  
                  173,206Total
      cost of revenue
                  
                  
                  589,136
                  
                  
                  
                  495,920
                  
                  
                  
                  1,924,839
                  
                  
                  
                  1,115,710Gross
      profit
                  
                  
                  873,326
                  
                  
                  
                  920,935
                  
                  
                  
                  2,851,806
                  
                  
                  
                  1,550,756Operating
      expensesGeneral
      & Administrative
                  
                  
                  1,791,915
                  
                  
                  
                  2,765,879
                  
                  
                  
                  6,210,229
                  
                  
                  
                  6,199,667Sales
      & Marketing
                  
                  
                  609,884
                  
                  
                  
                  750,043
                  
                  
                  
                  2,148,984
                  
                  
                  
                  2,158,386Research
      & Development
                  
                  
                  100,169
                  
                  
                  
                  276,302
                  
                  
                  
                  469,923
                  
                  
                  
                  1,059,930Total
      operating expenses
                  
                  
                  2,501,968
                  
                  
                  
                  3,792,224
                  
                  
                  
                  8,829,136
                  
                  
                  
                  9,417,983Loss
      before other income and income tax
                  
                  
                  (1,628,642
                  )
                  
                  
                  (2,871,289
                  )
                  
                  
                  (5,977,330
                  )
                  
                  
                  (7,867,227
                  )Other
      income
                  
                  
                  387,459
                  
                  
                  
                  3,258
                  
                  
                  
                  769,276
                  
                  
                  
                  (5,439
                  )Loss
      before interest income (expense)
                  
                  $
                  (1,241,183
                  )
                  
                  $
                  (2,868,031
                  )
                  
                  $
                  (5,208,054
                  )
                  
                  $
                  (7,872,666
                  )Interest
      income (expense)
                  
                  
                  (233,741
                  )
                  
                  
                  (168,669
                  )
                  
                  
                  (487,734
                  )
                  
                  
                  (263,541
                  )Loss
      before income tax benefit
                  
                  
                  (1,474,924
                  )
                  
                  
                  (3,036,700
                  )
                  
                  
                  (5,695,788
                  )
                  
                  
                  (8,136,207
                  )Tax
      benefit
                  
                  
                  86,103
                  
                  
                  
                  80,417
                  
                  
                  
                  240,139
                  
                  
                  
                  212,060NET
      LOSS
                  
                  
                  (1,388,821
                  )
                  
                  
                  (2,956,283
                  )
                  
                  
                  (5,455,649
                  )
                  
                  
                  (7,924,147
                  )Basic
      common shares outstanding
                  
                  
                  113,902,617
                  
                  
                  
                  73,076,731
                  
                  
                  
                  111,586,068
                  
                  
                  
                  66,969,780Basic
      net loss per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.12
                  )





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 March
31,
                
                
                Nine Months Ended March 31,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      loss
                
                $
                (1,388,821
                )
                
                $
                (2,956,283
                )
                
                
                (5,455,649
                )
                
                $
                (7,924,147
                )Foreign
      currency translation adjustment
                
                
                (522,071
                )
                
                
                374,160
                
                
                
                (1,055,320
                )
                
                
                604,141Comprehensive
      loss
                
                $
                (1,910,892
                )
                
                $
                (2,582,123
                )
                
                $
                (6,510,969
                )
                
                $
                (7,320,006
                )





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)





Nine
                    
                    
                    NineMonths
      Ended
                    
                    
                    Months
      EndedMarch
      31,
                    
                    
                    March
      31,2009
                    
                    
                    2008Cash
      flows from operating activitiesNet
      loss
                    
                    $
                    (5,455,649
                    )
                    
                    $
                    (7,924,147
                    )Adjustments to reconcile net loss to net cash to net cash used in
      operating activitiesDepreciation
      and amortization
                    
                    
                    1,233,440
                    
                    
                    
                    648,953Stock
      option compensation expense
                    
                    
                    622,556
                    
                    
                    
                    533,959Reduction
      to deferred payment obligation for revenue earned
                    
                    
                    -
                    
                    
                    
                    (70,133
                    )Foreign
      exchange gain and loss
                    
                    
                    (328,158
                    )
                    
                    
                    -Gain
      and loss on BV bankruptcy
                    
                    
                    (436,415
                    )
                    
                    
                    -Gain
      and loss on sale of assets
                    
                    
                    -
                    
                    
                    
                    15,183Discount
                    
                    
                    552,136Allowance
      for bad debts
                    
                    
                    (10,230
                    )
                    
                    
                    194,391Deferred
      taxes
                    
                    
                    (485,233
                    )
                    
                    
                    (156,229
                    )Accounts
      Receivable
                    
                    
                    428,503
                    
                    
                    
                    168,786Prepaid
      expenses
                    
                    
                    58,399
                    
                    
                    
                    (250,727
                    )Other
      receivables
                    
                    
                    -
                    
                    
                    
                    132,815Other
      assets & deferred charges
                    
                    
                    (16,687
                    )
                    
                    
                    -Accounts
      payable
                    
                    
                    429,831
                    
                    
                    
                    764,012Accrued
      expenses
                    
                    
                    (27,376
                    )
                    
                    
                    978,639Deferred
      revenue
                    
                    
                    455,905
                    
                    
                    
                    227,966Net
      cash (used in) operating activities
                    
                    
                    (2,978,978
                    )
                    
                    
                    (4,736,532
                    )Cash
      flows from investing activitiesPurchases
      of property and equipment
                    
                    
                    (68,367
                    )
                    
                    
                    (226,853
                    )Acquisition
      of intangibles
                    
                    
                    -
                    
                    
                    
                    (105,615
                    )Acquisition
      of SyynX, net of cash acquired
                    
                    
                    -
                    
                    
                    
                    (78,128
                    )Acquisition
      of Lawriter, net of cash acquired
                    
                    
                    -
                    
                    
                    
                    (1,774,379
                    )Net
      cash (used in) investing activities
                    
                    
                    (68,367
                    )
                    
                    
                    (2,184,975
                    )Cash
      flows from financing activitiesLoan
      from shareholder
                    
                    
                    -
                    
                    
                    
                    (650,000
                    )Repayment
      of loan for VersusLaw
                    
                    
                    -
                    
                    
                    
                    (100,000
                    )Fees
      paid to raise capital
                    
                    
                    -
                    
                    
                    
                    (231,298
                    )Payment
      on def. purchase obligation - Syynx
                    
                    
                    (406,290
                    )
                    
                    
                    (2,106,331
                    )Payment
      on def. purchase obligation - Lawriter
                    
                    
                    (627,500
                    )
                    
                    
                    (497,076
                    )Convertible
      note
                    
                    
                    560,000
                    
                    
                    
                    -Proceeds
      on stock issuance
                    
                    
                    2,319,250
                    
                    
                    
                    -Cash
      received on stock subscriptions
                    
                    
                    -
                    
                    
                    
                    10,644,758Net
      cash provided by financing activities
                    
                    
                    1,845,460
                    
                    
                    
                    7,060,053Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (1,201,885
                    )
                    
                    
                    138,546Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    (54,256
                    )
                    
                    
                    (61,308
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    1,476,234
                    
                    
                    
                    187,261Cash
      and cash equivalents at end of period
                    
                    $
                    220,093
                    
                    
                    $
                    264,499Supplemental
      disclosures of cash flow information:Cash
      paid during the period forInterest
                    
                    $
                    45,990
                    
                    
                    $
                    43,894Income
      taxes
                    
                    $
                    -
                    
                    
                    $
                    28,000





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.   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 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.





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.





On
February 26, 2009, we filed a petition with the Court in the Netherlands to file
for bankruptcy protection for Collexis B.V.  The bankruptcy was
declared effective on March 3, 2009 and a Trustee was appointed  to
liquidate the subsidiary.  Since the acquisition of SyynX, our
long time software development partner in October, 2007, management had
implemented an aggressive strategy to reorganize Collexis B.V. in an attempt to
make it profitable and economically viable.  It became apparent,
through these efforts, that continuing the operations of Collexis B.V. was not
in the best long-term interest of the Company.  To date, management
believes this decision has had no negative impact on the Company’s business or
prospects.  This filing did not result in discontinued cash flows to
the Company based on the fact that for the last several months, Collexis B.V.
contracts were being fulfilled by SyynX and other subsidiaries of the
Company.





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.


9




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)




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 subsidiary
Collexis Inc. are included for all periods presented. The results of Collexis
B.V. are included up through the period ended February 28, 2009.  The
results of SyynX Solutions, GmbH are included from October 19, 2007 and the
results of Lawriter, LLC are included from February 1, 2008, their respective
acquisition dates.




Principles of
Consolidation





The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.





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.


10




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





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.





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 71,482,343 and 18,347,119 options,
warrants and restricted stock outstanding as of March 31, 2009 and 2008
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
March 31, 2009 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.


11


COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





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.





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 March 31,
2009.




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





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 nine months
ended March 31, 2009 we incurred a net loss of $5.5 million and reported an
accumulated deficit of $30.2 million as of March 31, 2009.


12




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





For the
nine months ended March 31, 2009, 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 $6.4 million as of March 31,
2009.





Our
financing activities during the nine months ended March 31, 2009 reflected a
deferred payment associated with the Lawriter acquisition of approximately
$628,000 and the SyynX acquisition of approximately $406,000.  We
raised cash  from stock sales of approximately $2.3 million and
received a loan for $560,000.   Net cash used in investing
activities was approximately $68,000 for the nine months ended March 31,
2009.





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 Lawcorp to be paid in equal installments, are
listed in the following table.





Seller
                          
                          Payment Date
                          
                          Payment
                            AmountOSBA
                          
                          February
      1, 2009(Extended until and Paid on April 1, 2009)
                          
                          $
                          313,750$
                          313,750





Seller
                          
                          Payment Date
                          
                          Payment
                            AmountLawcorp
                          
                          February
      1, 2009(Extended until and Paid on April 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 paid as follows: $1.125 million was paid at closing,
and the remaining cash due was payable in four equal installments of
$313,750.  The payment of the fourth and final installment was
satisfied  on  April 1, 2009, by a cash payment of $213,750
and a credit against the balance of the monthly fee that would otherwise be
payable by the Ohio State Bar Association to Lawriter for an additional 12
months beyond the 60 month period provided for in the original purchase
agreement.     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.





The
Lawcorp obligation was satisfied through two cash payments by us of $186,250 on
April 1, 2009 and $100,000 on April 15, 2009.  The balance of the
amount due by us to Lawcorp for this installment payment was satisfied by our
transfer to Lawcorp of the computer server which is presently in active service
for the fulfillment of the Casemaker service to the 28 state bar association
members.  The data that resides on the server includes all digitalized data
owned by Lawriter Corporation or Collexis, including the Casemaker search
engine, version 2.1.  Pursuant to our agreement with Lawcorp, we are
required to fully maintain the equipment and update the data as required by the
agreement with the state bar associations.  We are still entitled to
utilize this equipment, data and search engine to operate our Lawriter business
until July 1, 2009.  At any time on or before July 1, 2009, we have
the right to repurchase the server, data and search engine for approximately
$464,000 plus annualized interest of 12% from April 1, 2009.  If
any new state bar association signs a membership agreement with Lawriter on or
before July 1, 2009, such agreement will be assigned to Lawcorp if we are unable
to re-purchase the assets.





Under the
terms of the original purchase agreement, 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, $4,942,104, represents the actual payment amounts due on
their respective due dates. The calculation of deferred purchase price on our
consolidated balance sheet at March 31, 2009, $4,408,695, reflects the present
value of these payments discounted at the implied interest rate of 8%. The
difference of $533,409 represents the value of imputed interest.


14




COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)




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
                    
                    $
                    8,285,435





Values
      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





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
                    3-31-09
                    Exchange
                    RatesOctober
      1, 2008 (Remaining amount due)
                  
                  €
                  1,194,304
                  
                  
                  $
                  1,577,437October
      1, 2009
                  
                  
                  1,245,053
                  
                  
                  
                  1,644,466October
      1, 2010
                  
                  
                  1,248,152
                  
                  
                  
                  1,648,558€
                  3,687,509
                  
                  
                  $
                  4,870,461




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);


15





COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





(2)
            €400,000
      on or before February 3, 2009;





(3)
            €100,000
      on or before February 17, 2009; and





(4)
            €724,006
      on or before March 31, 2009 (which includes €29,702 accrued
      interest).





In
addition, pursuant to the amendment, interest will accrue on the unpaid second
installment balance at an annual rate of 12% from January 1, 2009, until
paid.  Based on the remaining second installment payments above, the
estimated interest payments accrued through March 31, 2009 are approximately
€36,126 or approximately $47,715 based on the March  31, 2009 exchange
rate.





As of the
filing date of this report, we have not made the €400,000 payment due on
February 3, 2009, the €100,000 payment due on February 17, 2009, and the
€724,006 payment due March 31, 2009.    Pursuant to the
terms of the Share Purchase Agreement, during such time as any installment
remains outstanding, the former SyynX shareholders have a contractual lien
against the SyynX shares and the right to use the SyynX software and products
developed by the Company with the right to grant sub-licenses until complete
payment of the purchase price. We have reached a verbal agreement with the
former shareholders of SyynX to extend these payment due dates and delay their
contractual remedies during such extension.





All or a
portion of the unpaid second installment 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 such payment plus any accrued
interest thereon.





The total of
remaining payments, $4,870,461, represents the actual payment amounts due on
their respective due dates, calculated at the March 31, 2009 exchange rate. The
calculation of deferred purchase price on our consolidated balance sheet at
March 31, 2009, $4,620,409, reflects the present value of these
payments discounted at the implied interest rate of 8%. The difference of
$250,052 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


16





COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





In
connection with the transactions contemplated by the SyynX share purchase
agreement, we granted to each of the three managing directors of SyynX as a
condition to their employment agreements an option to purchase 1,000,000 shares
of our common stock at an exercise price of $0.75 per share. The options have a
term of eight years. The options vested or will vest as follows: options to
purchase 16,666 shares vested on October 19, 2007; options to purchase 16,666
shares vested or will vest each month through August 19, 2012, and options to
purchase the final 16,706 shares will vest on September 19, 2012. Additionally,
on February 15, 2008, we granted seven former SyynX employees and one consultant
the option to purchase a total of 275,000 shares of our common stock at an
exercise price of $0.75 per share, under a proportionally identical vesting
schedule and as called for under the agreement.





Combined
consolidated pro forma financial information


The
operating results of SyynX and Lawriter are consolidated beginning October 19,
2007 and February 1, 2008, respectively. The following pro forma information
reflects the impact on our statement of operations had these acquisitions
occurred on July 1, 2007.





Three
      Months Ended March 31,
                
                
                Nine
      Months Ended March 31,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      as reported
                
                $
                1,462,462
                
                
                $
                1,416,855
                
                
                $
                4,776,645
                
                
                $
                2,666,466Revenue
      pro-forma
                
                $
                1,462,462
                
                
                $
                1,666,047
                
                
                $
                4,776,645
                
                
                $
                4,379,800Net
      Loss as reported
                
                $
                (1,388,821
                )
                
                $
                (2,956,283
                )
                
                $
                (5,455,649
                )
                
                $
                (7,924,147
                )Net
      Loss pro forma
                
                $
                (1,388,821
                )
                
                $
                (2,929,587
                )
                
                $
                (5,455,649
                )
                
                $
                (8,388,060
                )Net
      Loss per share as reported
                
                $
                (0.01
                )
                
                $
                (0.04
                )
                
                $
                (0.05
                )
                
                $
                (0.12
                )Net
      Loss per share pro forma
                
                $
                (0.01
                )
                
                $
                (0.04
                )
                
                $
                (0.05
                )
                
                $
                (0.13
                )





NOTE
4. SECURED CONVERTIBLE PROMISSORY NOTE





On March
4, 2009, we issued the selling stockholder, for aggregate consideration of
$650,000, a Secured Convertible Promissory Note in the principal amount of
$764,706, which was convertible at the time of issuance into 6,117,647 shares of
common stock.  The Note matures on March 20, 2010 if not accelerated
or converted prior to such date.  The Note bears interest at the
annual rate of 7%, which is payable in arrears on August 31, 2009, November 30,
2009 and at maturity.  Following any sale and issuance by the Company
of any debt or equity in excess of $3,000,000 or the sale of assets of the
Company in excess of $3,000,000, the selling stockholder has the option to
elect to have all amounts due under the Note paid in cash out of the net
proceeds at a value of 135% of the outstanding principal amount and accrued
interest, otherwise the Note is not available for prepayment by the
Company.  Pursuant to the Note, the Company has five days within which
to make any payment due, after the grace period a default interest rate of 18%
per annum applies.  The note holder has the right to convert the
principal and interest due into shares of common stock at an initial conversion
price of $0.125 per share, subject to reduction to the lowest price per share
for which we sell equity during the term of the Note, and otherwise subject to
equitable adjustment in the event of a merger, consolidation, sale of assets,
reclassification, stock dividend or stock split. In addition, we issued to the
Subscriber an aggregate of 2,050,128 Incentive Shares of common
stock.





On April
1, 2009, we accepted a subscription to purchase 5,714,286 shares of our common
stock at $0.07 per share for an aggregate investment of
$400,000.  This issuance of shares at a price per share less than the
conversion price of the Note triggered the anti-dilution provisions of the Note,
resulting in the adjustment of the conversion price to $0.07 per
share.  Following this adjustment, the Note is convertible into
10,924,370 shares of common stock.





The Note
is secured by (1) a first priority security interest in the assets of the
Company and its subsidiaries, including ownership of the subsidiaries and in the
assets of the subsidiaries, to the extent permissible under the outstanding
obligations of the Company, and (2) an unconditional guaranty of payment and
performance by each of the Company’s subsidiaries.


17


COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)





If the
Company fails within 3 business days to deliver certificates representing the
Conversion Shares for which the Note is converted, the Company is required to
pay the Note holder liquidated damages in the amount of $100 per business day
thereafter until delivery for each $10,000 of principal and interest for which
the Note is converted.  Further, if the Company fails to deliver the
Conversion Shares for which the Note is converted within 7 business days, the
holder may purchase that number of shares of Common Stock to which it is
entitled to receive from the Company and the Company must pay in cash to the
holder the amount by which the holder’s total purchase price for the common
stock exceeds the aggregate principal and interest amount for which the Note was
converted, together with interest thereon at a rate of 15% per
annum.




Warrant




In
conjunction with the issuance of the Note, we issued the selling stockholder a
Class A Common Stock Purchase Warrant initially exercisable for 6,117,647 shares
of common stock at a per share price of $0.165, which was 110% of the reported
closing bid price of the common stock on the business day prior to the date of
issuance.  On April 1, 2009, we accepted a subscription to purchase
5,714,286 shares of our common stock at $0.07 per share for an aggregate
investment of $400,000.  This issuance of shares at a price per share
less than the exercise price for the Warrant triggered the anti-dilution
provisions of the Warrant, resulting in the adjustment of the exercise price to
$0.07 per share.  Following this adjustment, the Warrant is
exercisable for 14,420,168 shares of common stock.





The
Warrant has a term of five years from the issue date and may be exercised at any
time in whole are in part by payment of the exercise price in cash or in a
cashless transaction.  If the Company fails within 3 business days to
deliver certificates representing the Warrant Shares for which the Warrant is
exercised, the Company is required to pay the Warrant holder liquidated damages
in the amount of $100 per business day thereafter until delivery for each
$10,000 of exercise price for which the Warrant is
exercised.  Further, if the Company fails to deliver the Warrant
Shares for which the Warrant is exercised within 7 business days, the holder may
purchase that number of shares of Common Stock to which it is entitled to
receive from the Company and the Company must pay in cash to the holder the
amount by which the holder’s total purchase price for the common stock exceeds
the aggregate exercise price required to be delivered for the Warrant Shares,
together with interest thereon at a rate of 15% per annum.  The number
of Warrant Shares subject to the Warrant and the exercise price thereof is
subject to equitable adjustment in the event of a merger, consolidation, sale of
assets, reclassification, stock dividend or stock split.  The exercise
price of the Warrant is also subject to reduction to the lowest price per share
for which the Company sells equity during the term of the
Warrant.





Management
adopted FSP APB 14-1 on January 1, 2009.  FSP APB 14-1 applies to
convertible debt securities that, upon conversion, may be settled in
cash.  FSP APB 14-1 requires an issuer to separately account for the
liability and equity components in a manner that reflects the issuer’s
nonconvertible borrowing rate resulting in higher interest expense over the life
of the instrument due to amortization of the discount.





We used
the Black-Scholes model to calculate the value of the warrant to be $0.147 per
share.  The Warrant has a term of five years.  Management
determined the computed volatility of the warrant value to be 210% by taking the
closing price of the Company stock for each day from September 2007 to March
2009.  In addition, management performed its calculation with a
discount rate of 1.830% which represents the interest rate for a five year
treasury note.





The
following table summarizes the liability and equity components of our
Convertible Note:





Note
      Payable
                                    
                                    $
                                    650,000Incentive
      Common Stock
                                    
                                    $
                                    256,266Warrants
                                    
                                    $
                                    900,200Total
      Fair Value
                                    
                                    $
                                    1,806,466ProceedsFair
      Value
                                    
                                    
                                    Total
      FV
                                    
                                    
                                    Cash
                                    
                                    
                                    AllocatedNote
                                    
                                    $
                                    650,000
                                    
                                    
                                    $
                                    1,806,466
                                    
                                    
                                    $
                                    650,000
                                    
                                    
                                    $
                                    233,882Stock
      Warrants Outstanding
                                    
                                    $
                                    900,200
                                    
                                    
                                    $
                                    1,806,466
                                    
                                    
                                    $
                                    650,000
                                    
                                    
                                    $
                                    323,909Incentive
      Common Stock
                                    
                                    $
                                    256,266
                                    
                                    
                                    $
                                    1,806,466
                                    
                                    
                                    $
                                    650,000
                                    
                                    
                                    $
                                    92,209Total
      proceeds
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    650,000


18





COLLEXIS
HOLDINGS, INC. and Subsidiaries


Notes
to Consolidated Financial Statements


(Unaudited)




31-Mar-09Liability
      ComponentNote
      Payable
                        
                        $
                        764,706Discount*
                        
                        $
                        (496,013
                        )Loan
      Cost*
                        
                        $
                        (84,099
                        )Net
      Carrying amount
                        
                        $
                        184,594Equity
      ComponentStock
      Warrant Outstanding
                        
                        $
                        323,909Additional
      Paid in Capital
                        
                        $
                        90,159Common
      Stock
                        
                        $
                        2,050





* The
discount and loan cost on the liability component will amortize through March 4,
2010.


19





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  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 March 31, 2009 compared to Three Months Ended March 31,
2008





Total Revenues. Total
revenues increased approximately $46,000, or 3%, to approximately $1.46
million  for the three months ended March 31, 2009 as compared to
approximately $1.42 million for the three months ended March 31, 2008. The
Science, technical and medical (“STM”) business was down approximately $233,000
due primarily to the delay in contract closings to our fourth
quarter.  This decrease  was offset by the revenue
contribution from our acquisition of Lawriter of approximately
$279,000.




License Revenue. License
revenue decreased approximately $218,000, or 76%, to approximately $69,000 for
the three months ended March 31, 2009 as compared to approximately $287,000 in
the three months ended March 31, 2008. 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 $66,000, or 16%, to approximately $479,000 for
the three months ended March 31, 2009 versus approximately $413,000 for the
three months ended March 31, 2008. This increase was primarily driven by our US
market, where approximately $63,000 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. The remaining increase was
in Europe.





Maintenance & Support
Revenue. Maintenance and support revenue decreased approximately $82,000,
or 48%, to approximately $90,000 for the three months ended March 31, 2009
compared to approximately $172,000 for the three months ended March 31, 2008.
This decrease is due primarily to the decreased license revenue for the
quarter.





Hardware & Hosting
Revenue. Hardware and hosting revenue increased approximately $3,000, or
7%, to approximately $48,000 for the three months ended March 31, 2009 versus
approximately $45,000 for the three months ended March 31, 2008. We have been
placing less emphasis on hosting client hosting applications and expect this
revenue to remain relatively stagnant.





Database Subscription
Revenue. Database subscription revenue was approximately $777,000 for the
three months ended March 31, 2009. This was a new revenue line for us as a
result of our acquisition of Lawriter, LLC on February 1, 2008. Two months of
revenue existed for the three months ended March 31, 2008 or
$498,000.





Cost of License Revenue.
There was no cost of license revenue for the three months ended March 31, 2009
as compared to approximately $4,000 for the three months ended March 31,
2008.  The cost associated with this revenue is generally revenue
sharing with a strategic partner of which there was none in the period ended
March 31, 2009.


20


Cost of Service Revenue. Cost
of service revenue increased approximately $92,000, or 35%, to approximately
$354,000 for the three months ended March 31, 2009 versus approximately $262,000
for the three months ended March 31, 2008.   This was primarily
driven by an increase in service revenue during the period.





Cost of Maintenance &
Support Revenue.
Cost of maintenance and support revenue decreased  approximately
$24,000  to a small credit for the three months ended March 31, 2009
versus the three months ended March 31, 2008.  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 March 31, 2009 versus approximately $33,000 for the
three months ended March 31, 2008, an increase of approximately $5,000, or 15%.
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 $198,000 for the three months
ended March 31, 2009. This was a new expense for us due to the acquisition of
Lawriter, LLC on February 1, 2008. Therefore, there are two months of comparable
cost for this expense line or approximately $173,000 for the three months ended
March 31, 2008.





General &Administrative Expenses.
General and administrative expenses decreased by approximately $974,000 for the
three months ended March 31, 2009 versus the three months ended March 31,
2008.   These decreases were driven by a reduction in the cost of
the Company’s Netherland’s operations of approximately $600,000, reduced
professional fees of approximately $349,000 and other miscellaneous savings of
approximately $31,000.  These reduced costs were offset by the
incremental general and administrative expenses of approximately $233,000
for Lawriter; increased salary costs of approximately $34,000; increased stock
option expenses of approximately $55,000;  and increased insurance
costs of approximately $19,000 primarily due to directors and officers insurance
costs.  Additionally, there was a foreign exchange loss of
approximately $335,000 reported as G&A expense for the three months ended
March 31, 2008.  The impact of foreign exchange on the Company’s
results for the three months ended March 31, 2009, was reported as Other
income in the Consolidated Statement of Operations.





Sales & Marketing. Sales
and marketing expenses decreased to approximately $610,000 for the three months
ended March 31, 2009 compared to approximately $750,000 for the three months
ended March 31, 2008, a decrease of approximately $140,000, or 19%. The SyynX
and Lawriter acquisitions increased sales and marketing expenses approximately
$106,000 and $49,000, respectively.  These increases were offset by
reduced costs in the Netherlands of approximately $144,000; reduced travel and
entertainment costs of approximately $19,000, reduced advertising costs of
approximately $58,000; and reduced salaries, commissions and vacation costs of
approximately $74,000.





Research & Development.
Research and development costs decreased from approximately $276,000 for the
three months ended March 31, 2008 to approximately $100,000 for the three months
ended March 31, 2009, a decrease of approximately $176,000, or 64%. 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 $3.1 million for the three months ended March 31, 2009 compared to
approximately $4.3 million for the three months ended March 31, 2008, a decrease
of approximately $1.2 million, or 27.9%.  Additionally, a favorable
foreign exchange rate of approximately $666,000 was realized and a benefit on
forgiveness of indebtedness, with the bankruptcy of Collexis BV, of
approximately  $436,000 was recognized.  These benefits were
reduced by an increase in interest on acquisition debt of approximately
$65,000.  For the three months ended March 31, 2009, the net loss of
$1.4 million was favorable when compared to the $3.0 million loss for the three
months ended March 31, 2008.





Nine
Months Ended March 31, 2009 compared to Nine Months Ended March 31,
2008





Total Revenues. Total
revenues increased approximately $2.1 million, or 78%, to approximately $4.8
million for the nine months ended March 31, 2009 as compared to approximately
$2.7 million for the nine months ended March 31, 2008. Of this increase,
approximately $342,000, or 16%, 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 $1.77 million.





License Revenue. License
revenue decreased approximately $346,000, or 56%, to approximately $272,000 for
the nine months ended March 31, 2009 as compared to approximately $618,000 in
the nine months ended March 31, 2008. This decrease is primarily due to fewer
sales of new licenses and subscriptions in the government, university and
research markets.


21





Service Revenue. Service
revenue increased approximately $588,000, or 59%, to approximately $1.6
million  for the nine months ended March 31, 2009 versus approximately
$1.0 million for the nine months ended March 31, 2008. This increase was
primarily driven by our US market, where approximately $488,000 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 $103,000 was attributable to our European
market.





Maintenance & Support
Revenue. Maintenance and support revenue increased approximately
$100,000, or 22%, to approximately $547,000 for the nine months ended March 31,
2009 compared to approximately $447,000 for the nine months ended March 31,
2008. 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 nine months ended March 31, 2009 and 2008 at approximately
$99,000.  We are placing less of an emphasis on hosting client
applications.





Database Subscription
Revenue. Database subscription revenue was approximately $2.3 million for
the nine months ended March 31, 2009. This was a new revenue line for us as a
result of our acquisition of Lawriter, LLC on February 1, 2008. Therefore, only
two months revenue, $498,000, for this service line existed for the nine months
ended March 31, 2008.





Cost of License Revenue. Cost
of license revenue was approximately $180,000 for the nine months ended March
31, 2009 as compared to approximately $48,000 for the nine months ended March
31, 2008, an increase of approximately $132,000, or 276%.   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 fourth quarter of 2009.





Cost of Service Revenue. Cost
of service revenue increased approximately $438,000, or 74%, to approximately
$1.0 million for the nine months ended March 31, 2009 versus approximately
$592,000 for the nine months ended March 31, 2008.   This
increase was a direct result of the increase in service revenue experienced for
the nine month period.





Cost of Maintenance & Support
Revenue. Cost of maintenance and support revenue decreased approximately
$202,000, or 87%, to approximately $31,000 for the nine months ended March 31,
2009 compared to approximately $233,000 for the nine months ended March 31,
2008.  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 $111,000
for the nine months ended March 31, 2009 versus approximately $70,000 for the
nine months ended March 31, 2008, an increase of approximately $41,000, or 59%.
This increase is a function of the increased costs we are incurring from our
third party hosting centers primarily incurred by SyynX.





Cost of Subscription Revenue.
Cost of subscription revenue was approximately $572,000 for the nine months
ended March 31, 2009. This was a new expense for us due to the acquisition of
Lawriter, LLC on February 1, 2008. Therefore, only two months of comparable cost
for this expense line, $173,000,  existed for the nine months ended
March 31, 2008.





General & Administrative
Expenses. General and administrative expenses remained flat at
approximately $6.2 million for the nine months ended March 31, 2009 versus the
nine months ended March 31, 2008.  Increased expenses were due
primarily to incremental general and administrative expenses of approximately
$37,000 and $1.1 million for SyynX and Lawriter respectively, increased
depreciation and amortization costs of approximately $621,000 associated with
intangibles and other assets acquired from SyynX and
Lawriter,  increased salaries and commissions of approximately
$145,000, increased insurance costs of approximately $99,000 primarily due to
directors and officers insurance costs, and increased stock option expense of
approximately $89,000.  These increases were offset by decreases in
costs relating to the reduction of the Company’s Netherland’s operations of
approximately $944,000 and a decrease in professional fees of approximately
$591,000.  Additionally, there was a foreign exchange loss of
approximately $549,000 reported as G&A expense for the nine months ended
March 31, 2008.  The impact of foreign exchange on the Company’s
results for the nine months ended March 31, 2009, was reported as Other income
in the Consolidated Statement of Operations.





Sales & Marketing. Sales
and marketing expenses remained relatively flat for the nine months ended March
31, 2009 compared to the nine months ended March 31, 2008, decreasing by
approximately $9,000.  The SyynX and Lawriter acquisitions contributed
approximately $458,000 and $250,000, respectively.    These
increases were offset by reduced costs in the Netherlands of approximately
$478,000, reduced travel and entertainment costs of approximately $84,000
and  reduced salaries, commissions and vacation costs of approximately
$154,000.





22





Research & Development.
Research and development costs decreased from approximately $1.06 million for
the nine months ended March 31, 2008 to approximately $470,000 for the nine
months ended March 31, 2009, a decrease of approximately $590,000, or 56%. 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 $10.75 million for the nine months ended March 31, 2009 compared
to approximately $10.5 million for the nine months ended March 31, 2008, an
increase of approximately $250,000, or 2.3%.  Additionally, a
favorable foreign exchange rate of approximately $872,000 was realized, a
benefit on forgiveness of indebtedness, with the bankruptcy of Collexis BV, of
approximately  $436,000 was recognized, and  an increase in
tax benefits relating to deferred taxes recognized in Germany on the SyynX
assets of approximately $28,000.   These benefits were reduced by
an increase in interest on acquisition debt of approximately
$224,000.  For the nine months ended March 31, 2009, the net loss of
$5.45 million was favorable when compared to the $7.92 million loss for the nine
months ended March 31, 2008.




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 nine months
ended March 31, 2009, we incurred a net loss of $5.45 million and as of March
31, 2009, we reported an accumulated deficit of $30.2 million.





In the
nine months ended March 31, 2009, 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 $6.4 million as of March 31, 2009 compared to a deficit of
$4.2 million as of June 30, 2008.





Our
financing activities during the nine months ended March 31, 2009 reflected
deferred payments associated with the Lawriter acquisition of approximately
$628,000 and the SyynX acquisition of approximately $406,000.  Cash
received on stock sales was approximately $2.3 million and cash received on a
convertible note of $560,000.   Net cash used in investing
activities was approximately $68,000 for the nine months ended March 31,
2009.




As of May
15, 2009, we had cash and cash equivalents of approximately $1.8 million. 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  two to three months.





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 $2.2
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.





In order to meet our
short-term working capital needs, we are currently conducting a private
placement of our common stock for up to $4.0 million. As of the date of this
report, we have accepted subscriptions for $3.12 million from a private investor
who has funded the subscribed amount.  We anticipate receiving an
additional $300,000 over the next fifteen days and the remaining $585,000 over
the next forty-five days.


23





With the
full subscription of our $4.0 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 July 31, 2009. However, this will
not provide sufficient capital to pay our deferred purchase obligations of
approximately $2.2 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.




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 March 31, 2009, 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 inInternal
Control—Integrated
Framework  issued by the Committee of Sponsoring Organizations
of the Treadway Commission.


24





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.




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 May
15, 2009, we had cash and cash equivalents of approximately $1.8 million. We
believe our current balance of cash and cash equivalents combined with any funds
generated from our operations will be sufficient to meet our working capital and
capital expenditure requirements for the next two to three months based upon our
estimates of funds required to operate our business during that
period.


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In order
to meet our short-term working capital needs, we are currently conducting a
private placement of our common stock for up to $4.0 million. As of the date of
this report, we have accepted subscriptions for $3.12 million from a private
investor who has funded the subscribed amount. We anticipate receiving an
additional $300,000 over the next fifteen days and the remaining $585,000 over
the next 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 nine months ended March 31,
2009, and the nine months ended March 31, 2008, our net losses were
approximately $5.5 million and $7.9 million, respectively. These losses include
expenditures associated with developing and selling software products, including
our Collexis Engine. We expect that our losses will continue for the foreseeable
future as we continue to invest in Collexis Engine enhancements and other
programs.





Accordingly,
we cannot assure you that we will be able to achieve or maintain profitability
in the future. If we do not achieve and sustain profitability, it will likely
have a material adverse effect on the market price of our common stock and our
financial condition.





We have concluded
that as of March 31, 2009, our internal control systems overdisclosure
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 nine months ended March 31, 2009 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”.


26





ITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




In April,
2009, the Company accepted subscriptions for 39,500,000 shares of its common
stock at $0.07 per share for total proceeds of $2,765,000 and in May 2009, we
accepted a subscription for 5,000,000 shares of common stock at $0.07 per share
for an additional $350,000 .





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. Placement fees of 8%
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.





ITEM 5.
              OTHER
      INFORMATION




None.




ITEM 6.
              EXHIBITS




10.1
            Subscription
      Agreement, dated as of March 4, 2009, by and between Collexis Holdings,
      Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1
      to our Current Report on Form 8-K filed on March 10, 2009).10.2
            Secured
      Convertible Promissory Note, dated as of March 4, 2009, issued by Collexis
      Holdings, Inc. to Alpha Capital Anstalt (incorporated by reference to
      Exhibit 10.2 to our Current Report on Form 8-K filed on March 10,
      2009).10.3
            Class
      A Common Stock Purchase Warrant, dated as of March 4, 2009, issued by
      Collexis Holdings, Inc. to Alpha Capital Anstalt (incorporated by
      reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March
      10, 2009).10.4
            Security
      Agreement, dated as of March 4, 2009, by and between Collexis Holdings,
      Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.4
      to our Current Report on Form 8-K filed on March 10, 2009).10.5
            Subsidiary
      Guaranty, dated as of March 4, 2009, by Biomed Experts, Inc., a Nevada
      corporation, Collexis US, Inc., a Delaware corporation, Lawriter LLC, an
      Ohio limited liability company for the benefit of Alpha Capital Anstalt
      (incorporated by reference to Exhibit 10.5 to our Current Report on Form
      8-K filed on March 10, 2009).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.


27


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:
      May 20, 2009
              By:
              /s/
      Mark MurphyMark
      MurphyChief
      Financial Officer




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