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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. _________________ )
EPIXTAR CORP.
(Name of small business issuer in its charter)
FL 7385 65-0722193
- -------------------------------- ----------------------------- ---------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
11900 Biscayne Boulevard, Miami, Florida 33181 (305) 503-8600
(Address and telephone number of principal executive offices)
same
-----------------------------------------
(Address of principal place of business or
intended principal place of business)
------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public
------------------------------------------------------------------------------
The foregoing securities registered include any additional shares issued to
prevent dilution resulting from stock splits, stock dividends or other
transactions pursuant to Rule 416 under the Securities Act of 1933.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [X].
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Tile of each Proposed Proposed
class of securities Amount to maximum offering maximum aggregate Amount of
to be registered be registered(1) price per unit(1) offering price(1) registration fee(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
par value $.0001 1,197,989 $4.65 $5,570,649 $450.67
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the bid and asked prices
of the common stock on the OTC Bulletin Board on June 26, 2003.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
1,197,989 Shares of Common Stock
EPIXTAR CORP
______________
Securityholders of Epixtar Corp., named under the caption "Selling
Securityholders" may offer and sell up to 1,197,989 shares of our common
stock. All of the shares offered will be issued in the future pursuant to
warrants and convertible preferred stock presently outstanding. We will not
receive any of the proceeds from the sale of shares by the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the symbol
EPXR. On June 26, 2003, the price of the Common Stock was $4.65 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Our common stock being offered by this prospectus involves a high degree of
risk. You should read the "Risk Factors" section beginning on page 6 before
you decide to purchase any common stock.
The date of this Prospectus is
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities,
in any state where the offer or sale is not permitted.
TABLE OF CONTENTS Page
Prospectus Summary
Risk Factors
Forward Looking Information
Use of Proceeds
Capitalization
Market Information
Management Discussion and Analysis of
Financial Condition and Results of
Operation
Our Business
Property
Legal Proceedings
Directors, Executive Officers
Security Ownership
Certain Relationships and Related Transactions
Plan of Distribution
Selling Securityholders
Description of Securities
Legal Matters
Experts
Available Information
Financial Statements
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
Prospectus summary
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding Epixtar Corp. and its financial statements and
the related notes appearing elsewhere in this prospectus.
Epixtar Corp.
Since June 2001 we have been engaged through subsidiaries in marketing
internet provider and other services to small businesses through telemarketing.
We have utilized independent telemarketers, although we train personnel of these
telemarketers and the telemarketers use scripts and procedures developed by us.
The telemarketers we utilize have been located in the Philippines, the
Caribbean, India and the United States.
New Direction
We believe that the methodology and our acquired expertise used in our
existing business, could be utilized for other products and services. We intend
to transition the emphasis of our business to that of providing marketing and
other services to third parties. We intend to establish our own international
telemarketing call centers. We have taken preliminary steps towards this
transition and have entered into arranagements with two customers.
Epixtar Corp. is also referred to in this prospectus as "Epixtar,"
"we," "us," or "our." These references shall include us and our subsidiaries
unless otherwise indicated by the context.
Our principal place of business is located at 11900 Biscayne Boulavard,
Miami, Florida 33181. Our general telephone number is (305) 503 8600.
1
THE OFFERING
Our Securities
Securities Offered by
The Selling Stockholders.......................... Shares of Common Stock
1,197,989 (1)
Outstanding before the Offering................... Preferred Common Shares
20,510
Common Stock 10,516,615 (2)
Outstanding after the Offering.................... Common Stock 11,714,604 (3)
Preferred Stock - none
Plan of distribution.............................. The offering includes the
offering of common stock
by purchasers in our recent
private placement upon conversion
of our Series A Preferred Stock
or exercise of warrants.
The offering also includes shares
issuable upon exercise of warrants
issued to an investment banker and
another entity providing bank services.
Sales of these shares may be made by
selling securityholders in the
open market or in privately
negotiated transactions.
Use of proceeds................................... We will not receive any proceeds
from the sale of shares owned by
the selling securityholders but may
receive proceeds upon exercise of
the warrants which will be utilized
for working capital.
- -------------------
(1) Represents shares of Common Stock not presently outstanding but issuable
upon conversion of preferred stock and exercise of warrants.
(2) Not including shares subject to convertible securities options and warrants
of which shares are offered by the selling securityholders.
(3) Assumes conversion of all Preferred Stock and exercise of warrants owned by
selling securityholders.
2
Selected Financial Data
The following selected financial data is qualified by reference to, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The financial information set forth below is audited with respect to
the annual periods ended December 31, 2002 and December 31, 2001.
FISCAL FISCAL Three Month* Three Month*
-------------------- ------------------- --------------------- --------------------
Year Ended Year Ended Ended Ended
-------------------- ------------------- --------------------- --------------------
12/31/02 12/31/01 3/31/03 3/31/02
Statement of Operations Data:
Revenues ............................. 26,250,851 1,189,723 12,366,775 2,066,131
Costs of goods sold .................. 17,781,967 1,684,615 5,983,628 1,607,815
Operating expenses.................... 10,233,529 2,298,048 3,849,705 1,363,820
Net Income (Loss) from operations..... (2,402,571) (4,840,595) 2,331,550 (990,788)
Interest and other income.............
Net Income (Loss).................... (2,445,889) (16,519,087) 1,941,878 (1,007,194)
As of* As of*
3/31/03 3/31/02
-------------------- -------------------
Selected Balance Sheet Data:
Cash and cash equivalents............. 242,209 722,674
Working capital....................... (1,188,060) (3,138,292)
Total assets.......................... 23,075,473 22,982,565
Total liabilities..................... 9,090,959 10,939,929
*unaudited
We will not receive any of the proceeds from the sale of the shares
owned by the selling securityholders.
3
Risk Factors
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
We believe this section addresses all material risks specific to us. Investing
in our common stock involves a high degree of risk. Any of the following risks
could adversely affect our business, financial condition and results of
operations and could result in a complete loss of your investment.
We have experienced losses from operations and may have losses in the future
We have had no operations prior to November 2000 and have had losses in each
year of our existence. We had had losses of $16,519,087 and $2,445,889
respectively for the years ended December 31, 2001 and December 31, 2002. We
have an accumulated deficit, as of March 31, 2003 of [___]. During the fourth
quarter of 2002 we had an operating profit and net income of $1,941,878 for the
first quarter of 2003. There is no assurance that we will have continue to
operate profitably in the future.
Our new business initiative may require funds that are unavailable and due to
start-up expenses may result in losses or reduction of income in the immediate
future.
We have recently determined to change our business operations by providing
direct marketing services and other services for third parties and acquiring and
operating an offshore infrastructure including telemarketing facilities. Since
this is a new operation we face all the risks that start up companies encounter.
There is no assurance we will be able to enter into substantial new arrangements
or that it can acquire any suitable infrastructure. Moreover, even if we enter
into any such arrangements or makes any acquisitions, there is no assurance that
such arrangements or acquisitions will be profitable.
Change in Accounting Policy and Restatement
In 2002, we determined to change our accounting policy to recognize
telemarketing and fulfillment costs as these expenses are incurred. Prior to the
change, we recognized this expense 45 days after it was incurred when the
customer was billed so that expense matched income. As a result of the change
(which is solely a timing issue) we restated our prior financial statements,
which increased the loss in prior periods.
If We Do Not Successfully Implement Our New Business, We must Increase our
Customer Base or face possible future Income and Liquidity Problems
Due to attrition of new customers in our existing business, we constantly seek
to retain our existing customer base and to find new customers through
telemarketing efforts for current products and with the introduction of new
products. If these efforts are unsuccessful, our future operations could be
negatively impacted.
4
Our Financials have been subject to a Going Concern Qualification and we have
had Liquidity Problems and may Have These Problems in the Future.
We had experienced liquidity problems in the past arising primarily from our
obligation to pay vendors prior to receipt of funds from customers. Our
customers presently receive one-month free service and may make payment 60 to 90
days thereafter. In addition, we have expended substantial sums to obtain new
products and enhance our infrastructure. As a result, we had a loss in 2002 and
on December 31, 2002, and we had a working capital deficiency. In 2002 and the
first quarter of 2003 we had positive cash flow and believe we have sufficient
capital from cash flow for the foreseeable future for present operations.
Because of our losses and working capital deficiency our financial statements
have a going concern limitation. We have gross proceeds of over $3,000,000
from a private financing which we believe will be sufficient to remove the going
concern qualification.
Intangible Assets - Possible Write Down of Goodwill and With Resulting
Substantial Expenses.
Our assets include $16,801,354 of goodwill. This reflects the excess of
acquisition cost, over the value of our National Online, Inc. subsidiary less
prior amortization. Under present accounting rules this asset may be written
down, in whole or in part, if it is unlikely that the full amount of excess
value will be realized. Based on an independent appraisal we have not written
down any amount of this good will in 2002. Any write down in the future will be
treated as an expense and reduce income. We also have included approximately
$958,000 debt restructuring cost as an asset as of December 31, 2002. This will
be amortized over a forty-one month period.
We will require additional capital for our new business model and if we fail to
obtain it we may not be able to implement this plan timely.
Our new business plan ensures the establishment of an overseas infrastructure,
including the acquisition and construction of call centers for telemarketing
operations. We do not have sufficient capital to fully implement our plans and,
do not anticipate deriving sufficient resources from our existing operation for
this purpose. We therefore, in all likelihood must seek additional financing. We
may not obtain the financing upon acceptable terms, if at all. If we do not
obtain sufficient financing we may not be able to implement our new plan in time
in the near future if at all.
We depend upon third-party vendors for collection of our accounts receivable and
telemarketing and other functions.
In connection with our existing business, our subsidiaries rely on third party
vendors including clearing agents or billing houses for collection of our
receivables and independent telemarketing firms and fulfillment houses to obtain
new customers. Most of our subsidiaries utilize the local telephone companies to
bill customers. In addition, we outsourced additional functions with an
arrangement with our principal shareholder. While we believe there are potential
replacements for our present vendors there is no assurance we will be able to
find adequate replacements upon suitable terms. We may be substantially
adversely affected by the loss of any third party provider.
We could also be adversely affected in numerous ways by failures of these third
parties. The number of customers obtained could be below expectations because of
the failure of the telemarketers. Telemarketers are required to adhere to script
and procedures to insure compliance with law. The failure of the telemarketers
to do so could lead to adverse public relations, government sanctions and
customer complaints. Local telephone companies and billing agents have limited
or declined any dealings with us. There could be unanticipated failures in any
additional outsourcing relationships. Because the Company's receivables
collected by a clearing agent are not segregated, we could lose these funds upon
any bankruptcy of a clearing agent.
5
Government Regulation and Customer Complaints entail costly compliance that may
lead to regulatory proceedings that could be expensive to defend and may result
in adverse judgment and detrimental publicity.
Our subsidiaries are subject to the oversight of various governmental agencies
including the Federal Communication Commission and the Federal Trade Commission.
These agencies and other federal and state agencies regulate telemarketing and
other marketing activities. We believe we are in material compliance with all
these regulations. While we have imposed strict controls on the telemarketers,
there is no assurance that telemarketers will always comply with legal
requirements. We receive customer complaints directly and through the better
business bureau and governmental regulatory agencies. Through our counsel,
including in-house counsel, we attempt to address all these complaints. If we
were ever found to have materially violated governmental regulations we may be
fined a substantial amount, and may be required to cease or modify our business
plans or otherwise limit operations, any of which could have a substantial
adverse effect on us. Because of the costs involved to defend these procedures,
we accepted a temporary restriction in jurisdictions where sales were
immaterial. We also have agreed to pay fines in an insubstantial amount and
change our script to settle state regulatory matters. We could however be
adversely affected if we are unable to meet any material change in regulations.
If we lose the services of our key personnel, our business and stock price could
suffer.
Our future success depends in large part on obtaining and retaining qualified
key personnel. We particulary need to recruit qualified personnel for our new
business. Our existing and new operations could be limited if we fail to obtain
and retain qualified key personnel.
6
If our shares are not listed on the American Stock Exchange, the Trading of our
Securities may be subject to restrictions and we may have to qualify on the new
Bulletin Board Exchange.
We have applied to have our shares of Common Stock listed on the American Stock
Exchange. If our application is denied, we will be subject to rules of the
Securities and Exchange Commission that impose additional requirements on
broker-dealers when selling penny stocks to persons other than established
customers and accredited investors. At the moment we do not believe our
securities are subject to these rules. In general, an accredited investor is a
person with assets in excess of $1,000,000 or annual income exceeding $200,000
individually, or $300,000 together with his or her spouse. The relevant
Securities Exchange Commission regulations generally define penny stocks to
include any non-Nasdaq equity security with a market price (as defined in the
regulations) of less than $5 per share. Under the penny stock regulations, a
broker-dealer must make a special suitability determination as to the purchaser
and must have the purchaser's prior written consent to the transaction. Prior to
any transaction in a penny stock covered by these rules, a broker-dealer must
deliver a disclosure schedule about the penny stock market prepared by the
Securities Exchange Commission. Broker-dealers must also make disclosure
concerning commissions payable to both the broker-dealer and any registered
representative and provide current quotations for the securities. Finally,
broker-dealers are required to send monthly statements disclosing recent price
information for the penny stock held in an account and information on the
limited market in penny stocks.
If our common stock were to be classified as a penny stock, these rules may
discourage broker-dealers from effecting transactions in our common stock or
affect their ability to sell our securities. As a result, purchasers and current
holders of our securities could find it more difficult to sell their securities.
The current bulletin board will be disbanded and replaced by a new bulletin
board exchange. There is no closure the company will be able to meet the
requirement of this new exchange. If it does not the liquidity of our
securities will be severely adversely affected.
Our business is highly competitive and this competition could adversely affect
our pricing structure.
Many companies offer products and services similar to those offered by us. Many
of these services and products are marketed by firms that are well established,
have reputations for success in the development and sale of these services and
products and have significantly greater financial, marketing, distribution,
personnel, and other resources than us. These resources permit such firms to
implement extensive advertising and promotional campaigns, both generally and in
response to efforts by additional competitors to enter into new markets and
introduce or compete for new services and products. There can be no assurance
that competitors will not develop products or services that are superior to
our products and services. Further, there can be no assurance that we will not
experience additional price competition, and that such competition may not
adversely affect our financial position and results of operations.
Bankruptcy of Subsidiary.
SavonCalling.com LLC, a wholly owned subsidiary has filed for protection under
chapter XI of the Bankruptcy code. This subsidiary's present operations generate
little or no income and it was subject to a lawsuit seeking substantial damages.
7
Foreign Operations create risks which could lead to losses.
While substantially all the our present sales are made to domestic customers, we
rely on a number of offshore telemarketers. This reliance on overseas operations
will increase as we implement our new business strategies and aquire foreign
assets. It is therefore anticipated that our business will be increasingly
subject to the risks of doing business abroad. These may include possible
limitations on capital repatriation, exchange rate fluctuations, ownership
restrictions and strict foreign regulations on the operations of our
subsidiaries.
New Corporate Governance Rules could adversely affect us by increasing expenses
and potential liability.
In the wake of Enron and other corporate scandals, new strict corporate
governance rules were enacted. We cannot determine the full impact of these
rules except that these rules will increase our expenses.
Our quarterly operating results may fluctuate, so the results of one quarter are
not necessarily indicative of results in the succeeding quarter.
Because our customers can be affected simultaneously by the same economic
factors, our operating results can vary significantly from one quarter to the
next. Our customers' spending tends to cluster in some periods and quarterely
results may vary based on the introduction of new products Therefore, you should
not expect that our results for any one quarter can be predictive of our
performance in the next succeeding quarter. Likewise, you should not use the
results for any particular quarter to predict our performance in the similar
period in any future year.
Stock ownership of our principal shareholders could delay or prevent stockholder
actions.
Principal stockholders beneficially own over 50 % of our outstanding common
stock and may be able to control decisions on corporate matters, including
election of directors, increases in our authorized capital stock, dissolution
and merger or sale of assets, and they will be able generally to direct our
affairs. This concentration of ownership may also have the effect of delaying,
deferring or preventing a change in our control and make transactions that could
give our public, minority stockholders the opportunity to realize a premium over
the then-prevailing market price for shares of common stock more difficult or
impossible.
Use of Proceeds
We will not receive any proceeds from the offering of the selling
securityholder. If any of the warrants are executed we may receive the exercise
price and will utilize these proceeds for working capital.
CAPITALIZATION
The following table sets forth under the column headed "Actual" our
actual capitalization at March 31, 2003, and the column headed "Adjusted" sets
forth our pro-forma capitalization adjusted as of such date reflecting the
completion of the offering. This section should be read in conjunction with the
Company's financial statements and related notes appearing elsewhere in the
Prospectus.
8
Actual Adjusted (2)
---------------- ----------------
Long Term Indebtness .........................................
Preferred Stock, $ .001 par value; 5,000,000
authorized of which 250,000 shares of Series A and ........
authorized and none will be outstanding
March 31, 2003 and as adjusted ............................
Common Stock, $ .001 par value; 50,000,000 shares ............
Authorized; 10,503,000 shares issued and outstanding .........
On March 31, 2003 and 11,578,323 as adjusted .................
Additional paid-in capital ...................................
Accumulated deficit ..........................................
Total stockholders' equity ..........................
- -------------------
(1) Does not include shares of common stock reserved for issuance upon the
exercise of options and warrants and shares issuable upon conversion of
our outstanding preferred shares.
9
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock has been quoted, under the symbol
"GAHI," on the OTC Bulletin Board until January 2003 when the symbol was changed
to EPXR as a result of our name change. Set forth below are the high and low
closing bid quotations for our common stock for each quarter of the last two
fiscal years, as reflected on the electronic bulletin board. The foregoing
information is believed to be accurate, but is not guaranteed. The quotations
listed below represent prices between dealers and do not include retail mark-up,
markdown or commission, and there can be no assurance that they represent actual
transactions.
Fiscal Year 2003
Quarter High Low
------- ------- -------
1st $4.15 $1.75
2nd (through 8.85 2.75
June 26,
2003)
Fiscal Year 2002
($) ($)
1st $3.50 $0.68
2nd $0.83 $0.29
3rd $0.31 $0.31
4th $1.95 $0.28
Fiscal Year 2001
($) ($)
1st 7.50 6.50
2nd 8.75 3.88
3rd 4.35 3.00
4th 4.75 2.40
Security Holders.
As of March 15, 2003, there were approximately 49 holders of record of our
common stock. Because a substantial portion of the shares of the Company are
held by a depository company in nominee name, we believe the number of
beneficial owners of the securities is substantially greater than 49.
Dividends
The Company has not paid any dividends on its common stock. The Company has no
plans to declare dividends in the immediate future but may, from time to time,
declare dividends in stock or cash.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
The Company was organized for the purpose of acquiring other entities or
businesses. Prior to November 2000, it had attempted to acquire several
businesses, however, none of those acquisitions were completed. In November
2000, the Company acquired SavOn but has since discontinued the then business of
this subsidiary. In March 2002, the Company acquired National Online and
commenced operations during 2001. We also commenced operation of One World
during 2001. We continued and expanded operations primarily with funds generated
from operations, making considerable expenditures in staffing and infrastructure
for our business.
10
The following discussion and analysis should be read in conjunction with the
financial statements and related notes contained elsewhere in this statement.
We have recently determined to change the focus of our operations to provide
telemarketing programs and other services for third parties using facilities we
will develop or acquire. The establishment of this business will require
substantial sums which may be in excess of recent financing and anticipated
cash flow of our existing business. There is no assurance that we will obtain
sufficient resources to development this new business without substantial
outside financing. In addition we will incur substantial cost and such costs may
have an impact upon our results of operators.
Set forth below are comparisons of financial results for the prior two fiscal
years and the first quarter of this year and prior years. These are intended to
aid in the discussion that follows.
11
Comparison of the Years 2002 to 2001
and first Quarter 2003 to first Quarter 2002
Annual 1st Quarter
---------------------------------------- ---------------------------------------
Item 2002 2001 Net Change 2003 2002 Net Change
- ---- ---------- --------- ---------- ---------- --------- ----------
Revenue .................. 26,250,851 1,189,723 25,061,128 12,366,775 2,066,131 10,280,644
Cost of Sales ............ 17,781,967 1,684,615 16,097,352 5,983,628 1,607,815 4,375,813
Selling, General
Administrative Expense ... 10,231,843 2,298,048 7,936,795 3,849,705 1,363,820 2,485,885
Depreciation, Amortization
& Interest Expense ....... 637,926 2,047,655 (1,409,729) 201,892 85,284 116,608
Net Income (Loss) ........ (2,410,887) (16,519,087) 14,108,200 1,941,878 (1,007,194) 2,949,072
Cash, Accounts Receivable
& Prepaid Expense, Etc ... 5,239,186 842,500 4,396,686 5,357,324 1,043,857 4,313,467
Property & Equipment
(Net of Depreciation) .... 406,971 201,466 205,505 448,356 370,282 78,074
12
Comparison of the First Quarter 2003 to the First Quarter 2002
The revenue derived from the our operating subsidiaries for the First Quarter of
2003 was $12,366,775 as compared to the revenue derived for the First Quarter of
2002 in the amount of $2,066,131. This increase of $10,280,644 resulted from
substantially increased sales in the first quarter of 2003.
The cost of sales for the First Quarter 2003 was $5,983,628 as compared to the
First Quarter 2002 of $1,607,815 an increase of $4,375,813. The percentage of
gross profit increased as a result of increased customer base and operating
efficiencies. The gross profit percentage for the three month period in 2003 was
51.6% as compared to 22.2% in 2002.
The selling, general and administration expense increased to $3,849,705 for the
First Quarter 2003 from $1,363,820 for the First Quarter 2002 due to increased
staffing levels to meet increased revenues and new business activities.
Interest expense increased $ 94,333 in the First Quarter of 2003 over the same
period 2002 because of increased borrowings.
Depreciation increased in the amount of $22,275 for the First Quarter 2002 over
2001.
We had net income for the First Quarter 3003 of $1,941,870 compared to a loss of
($1,007,194) comparable quarter as a result of the foregoing facts.
Our gross profit increased in the First Quarter 2003 from 2002 in the amount of
$5,924,831.
The Company cannot predict the effect that startup costs of developing our new
businesses will have on revenues and income in subsequent periods.
Comparison of 2002 to 2001
Our revenues increased from $1,189,723 in 2001 to $26,250,851 in 2002. This
resulted because we had a full year's sales of the Internet Subsidiaries as well
as increased monthly volume in 2002.
Our gross profit was of $8,468,884 in 2002 compared to a loss of ($494,892) in
2001. The increase resulted from higher sales and the ability as a result of
increased revenue to cover fixed costs accompanied by reductions in
telemarketing and other third party costs per customers.
During 2002, our selling, general and administrative expenses increased from
$2,298,048 from $10,233,529 reflecting higher personnel costs to meet increased
volume and development of new products. We have outsourced many customer service
functions and reduced our payroll expense substantially. As a result, these
costs may decrease relatively.
Interest expense increased approximately $448,000 in 2002 as a result of
increased borrowings. As a result of all of the foregoing, we had a loss from
continuing operation of $2,402,571 in 2002 compared to a such loss of $4,840,595
in 2001. Amortization expenses in 2001 were was approximately $1,950,000
reflecting nine months of amortization of the the National Online acquisition
which occurred in 2001. Because we discontinued SavOn's original then business
operations in 2001 we had a loss of approximately $1,551,537 in 2001 from
discontinued operations compared to $43,318 of these costs in 2002. Goodwill of
$10,120,955 relating to SavOn was written off in 2001.
13
Liquidity
Past Going Concern Considerations
We had a working capital deficit of approximately $3,138,392 as of December 31,
2002, and 1,200,000 as of March 31, 2002. This deficit combined with our loss of
$2,445,889 during 2002 necessitated that our financial statements have a going
concern qualifications. We have taken steps to change this status. We have been
cash positive during 2002 and have been able to pay our bills in the ordinary
course. Moreover in the fourth quarter of 2002 (based on unaudited statements)
we had an operating profit. In addition In June 2003 we completed a private
financing and received net proceeds of over $2,000,000,which we believe is
sufficient to remove the going concerns working capital qualifications. We are
also exploring various additional financing proposals.
Our liquidity problems in the past have arisen because there was a gap between
collection of revenue and the accured of expenses. This resulted primarily
because of the method of collection through local telephone companies which
receive billing through third party billing companies. There was a lag of as
much as ninety (90) days between the time services to our customers are
initiated and when the Company receives the related revenue. One additional
reason for this long initial collection cycle was the one month free service
provided to the customer. While a lag existed in receipt of funds and the date
services commence, there was no corresponding lag in our payables, including
telemarketing fees, communications costs and other costs of obtaining and
maintaining these customers. Telemarketing fees were due shortly after a
customer was signed. The size of the initial customer base was not sufficient to
overcome the lag and therefore we had negative cash flow from this operation.
We had a positive cash flow in 2002 and the first quarters of 2003. The positive
cash flow resulted from growth of our customer base as well as steps we have
taken to enhance cash flow. Currently most of our telemarketing fees are billed
monthly and are due 30 days from date of billing. National Online and other
similar subsidiaries have taken additional steps to increase its cash flow
including receipt of most receivables within sixty (60) days and receipt of
advances prior to payment of receivables from billing companies and factors of a
portion of the amount of the receivable. These measures together with the
increase of the customer base and greater revenues are now sufficient to
overcome the lag so that we had a positive cash flow during this period.
We believe we will be able to meet our obligations arising from our existing
business through cash flow from operations for the immediate future. There is no
assurance we will be able to continue to do so. If we are not able to meet these
obligations through cash flow, we will be required to seek additional financing.
Moreover we require additional financing for the transition to our new business
plan. There is no assurance we will be able to obtain any required financing.
Without this financing, we may not be able to meet our obligations in the future
or to develop our new business in a timely fashion if at all.
14
One of our billing houses which had advanced funds has terminated its
relationship with us. We believe that we still will be able to pay our expenses
in the ordinary course but the termination could have a future adverse impact.
Existing Agreements - Modifications
As of October 31, 2001 we entered into a Security Agreement and issued a grid
promissory note to Brookfield Investment Ltd. to cover the prior advances made
by Brookfield and any future advances. Pursuant to the agreement, Brookfield may
loan us amounts in the future but is not obligated to, nor has it done so. As of
December 31, 2002, the Note was in the amount of $2,474,000, excluding
outstanding interest. The note is repayable by the Company on demand and the
principal amount (exclusive of interest accrued prior to the date of the note)
accrues interest at a rate of 7% per year. The Security Agreement granted
Brookfield a security interest in the accounts receivable of the Company and all
its subsidiaries.
We and Brookfield modified the Brookfield Agreement and note obligations to
defer demand for payment (except on non payment defaults) until January
2004. Brookfield also agreed to subordinate its security interest to financing
lenders. We agreed to pay accrued interest on the note by July 2003 and issued
Brookfield a warrant to purchase its shares of common stock at an exercise price
of $.50 per share. In 2003 Brookfield also surrendered its entire security
interest.
Seasonality
Generally, our operations are not subject to seasonal factors. However, in
December 2002 we reduced its telemarketing activities because it believed
potential customers would be preoccuppied with holiday activities.
Restatement of Prior Financials
Subsequent to the issuance of our 2001 financial statements, management changed
its accounting policy pursuant to which it now expenses all telemarketing and
fulfillment costs for internet programs marketed by us as incurred. Previously
these costs were expensed forty-five days after they were incurred, in order to
coincide with the first billing to a customer obtained through its outside
telemarketers. As a result, we have restated its consolidated balance sheet as
of December 31, 2001 and as of last day of the following three calendar quarters
and the related consolidated statements of operations, stockholders' equity and
cash flows for the periods then ended. There was no restatement required for
December 31, 2000.
In June 2003, we sold shares of our convertible preferred stock for an
aggregate consideration in excess of $3,000,000. For each share sold the
purchasers received fourteen five year warrants to purchase our common stock at
an exercise price of $7.00 per share. The Preferred shares are convertible into
a number of shares of common stock equal to 100 divided by a conversion price of
per share of $3.50. This conversion price may be reduced to $2.00 if we do not
achieve performance goals.
Audit Committee
The Board of Directors currently acts as the Audit Committee under the rules of
the Securities & Exchange Commission. The Board has no member who would qualify
as a financial expert under the definition promulgated by the Securities &
Exchange Commission. Based on its size and relative simplicity of the Company's
financial statements the Company did not believe it was severely handicapped in
fulfilling its obligations. In connection with our pending application to the
American Stock Exchange we now seek to establish a separate audit committee. We
have added an independent director with financial statement knowledge.
15
BUSINESS
Our History
We were organized as a Florida corporation in June 1994 under the name Pasta
Bella, Inc. In 1997 we changed our name to Global Asset Holdings, Inc. We
adopted our name Epixtar Corp in 2002.
We had no business until November 14, 2000, when we acquired an 80% membership
interest in SavOnCalling.com, LLC. SavOn was engaged in the marketing and resale
of domestic and international telecommunications services. It is no longer in
this business and is subject to a reorganization proceeding under the federal
bankruptcy law.
On March 31, 2001, we acquired 100% of the outstanding shares of National Online
Services, Inc. At the time, National Online was developing a plan to market
internet provider services to small businesses through telemarketers. It
commenced operations in July 2001 and since that time we have been engaged in
marketing internet provider services for small businesses through telemarketing
predominantly located overseas. We have also marketed additional products and
services. As result of our experience, we have recently determined to offer our
services to third parties utilizing a telemarketing network we intend to
establish. We have formulated plans and have taken initial steps to develop
these plans.
Existing Business
Internet Provider Services
Substantially all our revenues for 2002 were derived from sales of internet
provider services for small businesses sold by our subsidiaries. These
subsidiaries market substantially similar products but each adds a different
item of additional value such as a telephone calling card or legal software.
National Online is the developer of the Web portal - TrueYellowPages.net. Our
subsidiaries market membership primarily to small business subscribers, much
like America Online(R) markets membership exclusively to residential customers.
It is estimated that a substantial number of small businesses in the United
States still do not have an online presence. We believe our subsidiaries meet
the needs of this class of small business by providing nationwide unlimited
Internet access and e-mail service; developing unique branded and customized Web
sites and hosting services; featuring the business prominently in the online
True Yellow Pages directory; registering the member-business in several of major
search engines; and, delivering simple online solutions for several areas of the
member-business - all administered as one service for one monthly fee which is
billed to the member's local telephone bill.
16
Internet/Technology
Our subsidiaries utilize the underlying dial-up network services of Qwest and
UUNet. Customers receive customizable web sites, dial-up Internet access and up
to six e-mail accounts. Our core customer network infrastructure is maintained
in colocation facilities equipped with redundant systems located in Virginia and
Florida. The web, e-mail, database and authentication servers are comprised of
Microsoft based systems. All management of the systems of our present business
takes place from the corporate offices in Florida.
Business Model for existing business
To date we market our products through independent telemarketers. The
personnel of these telemarketers receive required training from our corporate
trainers using a course syllabus developed by Epixtar. The telemarketers also
use scripts and operational procedures developed by us. We believe that the
methodology utilized by our internet subsidiaries may be utilized by us to sell
for other products and services, including that of other companies. This process
has already begun.
The following description is applicable to the existing products and services of
our existing business.
General-Sales Cycle
We acquire customers by direct contact through outsourced telemarketing. Each
prospect is offered a 30-day free trial of the service which begins upon receipt
of their welcome kit described below. The value of our product or service is
described through a sales script prepared by us that is presented by the agents
of the call centers. Lists of potential clients are provided by us to the call
centers. We purchase these lists after filtering out names to assure that the
business contacted are:
o part of a desirable demographic group
o in an Internet service area
o billable through one of our third party billing houses, or
o not on a state no-call list
To qualify for the free-trial offer, the respondent provides advance consent for
billing should he choose to remain a customer after the free-trial period ends.
The authorization for billing is digitally recorded for compliance and quality
control purposes. A charge for service or product is submitted to the customer's
phone company for billing and collection every month thereafter on the
anniversary of the conclusion of the free-trail period.
At the close of each business day, the call centers upload to our servers the
sales data and verification recordings are uploaded to our server and then
reviewed as part of our quality control.
Upon completion of the quality control process the sales data files are
processed in the case of our internet provider switches we automatically create
customer websites in a variety of styles utilizing the customer provided
information. E-mail and dial-up accounts are established upon acceptance. The
files are then processed to cause a Welcome Kit to be sent by mail.
17
Every Welcome Kit is personalized for each customer and sent with an internet
access CD-Rom, instructions for e-mail and website customization, and complete
terms and conditions pertaining to the customer's obligation to cancel should he
or she elect not to continue the service. We utilize contracted fulfillment
houses to process the mailings.
The billing department processes each customer's charges monthly on the
anniversary date of the completion of his trial period. Charges are processed
through third-party clearinghouses or billing houses that possess the direct
contracts with the local phone companies (LEC) servicing our mutual customers.
Telemarketers
The telemarketers we utilize are presently located in the Philippines, the
Caribbean, India and the United States. Our arrangement with the telemarketers
provides for the solicitation of customers in the United States solely with
leads provided by us using our approved sales procedures, including required
script and verification requests. The telemarketer is required to follow quality
assurance procedures including the voice recording of the customers acceptance
of the terms of the Company's offering. The sales verification process is
recorded to prevent violations of law as well as to ensure quality and
compliance. The telemarketer is not permitted to seek leads independently or to
deviate from the script and procedures. To assure compliance, we trains the
telemarketers and monitors compliance with its requirements including periodic
site visits and in some cases locating personnel at the site.
The telemarketer is entitled to a fee when it obtains a customer even if the
customer cancels after the trial period. We however can withhold payments from
the telemarketer for customers improperly obtained and may terminate the
arrangement for material breaches of its marketing agreement and has done so.
During the third quarter of 2002 we implemented an improved and pervasive
quality assurance program to insure that our call centers meet required quality
standards. This program includes of a review of all sales verification recording
files by an independent business process outsource company based in Manila,
Philippines. In the course of these monitoring activities, certain improprieties
were discovered at three of the Company's seven contact centers based in India.
As a consequence, we suspended sales activities at these India centers to
conduct a thorough investigation of those operations. The investigation was
recently concluded with a series of measures currently being implemented to
prevent future issues from arising. Another result of this action was the
temporary suspension of One Nation Calling Plan sales because the Company placed
this product for sale through these Indian outlets.*
Third-Party Billing Companies
We utilize the services of independent third party billing houses. These
independent clearinghouses perform several significant functions on the
Company's behalf. We submit our billing to one or more billing companies on a
weekly basis. These bills are screened to eliminate customers who are not served
with a LEC which accepts billing or otherwise does not qualify. The bills are
then submitted to the respective LEC which in turn bills the customer. Collected
funds are typically remitted to us within 60 to 90 days. The billing agent may
also have contact with the customer when questions arise concerning the bill.
Some billing companies offer advance funding arrangements with the availability
and extent of funding differing greatly. One of these billing companies has
terminated their relationship with us.
18
Retention Campaign
We utilize various methods to retain customers during the free trial period and
continuing into their normal service life. It is far less costly to retain a
customer than to obtain a new one. Customer care representatives charged with
retention have a number of tools available to them, foremost of which is
adjusting the terms of membership to be more favorable to the customers. These
may include a more competitive price, providing a free calling card and/or
software.
Customer Care
During the third quarter of 2002 we expanded our customer care capacity to
include an outsourced call center in addition to our Miami on-premises facility
to handle customer care calls. Customers might call customer care for a variety
of reasons including technical questions about the Internet access, e-mail
configuration or website editing; service questions such as what is their
billing date or end of trial date; questions regarding phone card usage; premium
redemption requests; cancellations; or other issues regarding the service or
billing. The Company staffs approximately sixteen full time trained customer
care specialists (CCS). Customer Care personnel are subject to continual formal
and informal training. Our outsourced facility employs approximately ninety
persons.
Each CCS has real time computer access to relevant customer data including
direct access to a customer's website and account configuration to provide
technical assistance, a chronological history of events including sale,
fulfillment, billing and inquiries. Calls arrive at the center either directly
from calling customers or are transferred from the relevant billing companies
whose 800 numbers generally appear on the customers' phone bill.
The Customer Care personnel also are engaged in our retention policy and in
regulatory and compliance matters.
New Business Direction
During our two year period of our existing operations we believe we have
developed a workable model for marketing of products and services particularly
those products and services directed toward small and medium sized businesses.
We have also developed expertise and effectiveness in various aspects of our
business including product development, sales, fulfillment and support
capabilities. During this period we have acquired extensive telemarketer
experience and developed relations with overseas telemarketing call centers
which we believe compete effectively with domestic call centers. While we have
had no direct contractual relationship with the actual call centers, we in fact
train their personnel, prepare the scripts and monitor their operations for
compliance with United States law and our policies.
Based upon our expertise, we have determined to transition our business
to provide telemarketing and direct response campaigns and other services for
third parties. An intergral part of our plan is to acquire and develop our own
international telemarketing call centers either through development, acquisition
or joint venture. We intend to take advantage of what we believe is a growing
trend for United States companies to outsource teleservices overseas. We believe
that ultimately this transition will require substantial capital investment for
the call centers, personnel and other infrastructure.
19
We will also have to engage additional personnel including foreign and
domestic executive officers.
We intend to offer the following services to customers:
o Campaign Services
- Design of the Campaign
- Implementation
- Management
o Data Management
- Lead management, distribution, and
tracking
- Reporting
- Response management
- Data mining
o Business Process Outsourcing
- Transcription
- Data Entry
- Accounting
o Fulfillment Services
- Provisioning
- Direct mail
- Call back
- Email
We believe there is an opportunity at this time to implement our plans
for a number of reasons. We believe there is a trend by large corporations to
outsource many economomic functions. This is true with telemarketing functions
where we believe internal operations of large companies are partnering with
firms which can assume responsibility for all facets of a telemarketing
campaign. We also believe competition has forced many of our competitors to
reduce their level of services thus creating a vacuum.
20
Our offshore operations, particularly in India and the Philippines,
have significant advantages as the availability of:
|o| low cost English speaking educated labor pools
|o| telecommunication infrastructures and government
incentives
General
Regulatory and Compliance Matters
We operate in a regulated business environment. In order to maintain our ability
to serve customers and collect revenue, we have taken a proactive approach to
resolving regulatory complaints or inquiries. Our Customer Care department has
primary responsibility for Customer care inquiries and compliance matters. Calls
are transferred to customer care management when the representative can not
resolve the situation. Most often, a resolution is achieved.
Most of the regulatory and compliance issues revolve around allegations of
unauthorized LEC billing. State Public Service Commissions, State Attorney
General Offices, and the FCC attempt to prevent "cramming" or the addition of a
specific charge or charges to a customer's local telephone bill without the
proper authorization. We do not approve, or participate in, cramming. Our
internal procedures reflect an absolute prohibition and zero tolerance for
cramming. Through our billing agreements we have agreed to adhere to the highest
disclosure standards. Our compliance policy includes the requirement that the
telemarketer, among other things, use an approved sales script and follow a
prescribed verification procedure. We record each customer authorization and
store the digital file for retrieval if needed to show compliance with the law.
We believe we have taken extraordinary steps to ensure that we do not violate
regulations relating to cramming. First we seek to avoid all sales in situations
that a prospective customer may not realize a change will be placed on the
customer's phone bill after the trial period. We do so by:
o Making certain that the script is adhered to by spot checks by
on location personnel and by long distance checking system.
o Making certain that the verification process is correct by
reviewing all verification recording by our personal and by
independent third parties.
21
Sales not properly authorized are rejected. We then take steps to make certain
that the customer during that period is aware that they will be billed after
that period. We do this by including a warning in our welcome package. This is
followed by an e-mail and letter to the customer with the same information sent
ten days prior to the billing date.
Despite our substantial efforts to minimize complaints, we have received
numerous complaints from governmental agencies and the better business bureau.
While complaints may be received informally, we are subject to formal regulatory
inquires as well as formal proceedings in several states. In two states, we have
negotiated settlements, which we believe resulted in total fines of less than
$10,000 and a requested script change. While we believe our script is fully
compliant with all regulations and not misleading we have agreed to the change
as part of an ongoing policy of complying with all regulators, including those
of state consumer protection agencies. We have also agreed to a temporary
restraining order in Missouri and North Carolina barring us from certain
business practices related to alleged unauthorized charges on a customer's
telephone bill. We intend to contest the imposition of a permanent injunction.
We are also subject to an investigatory subpoena in other states and are
cooperating fully.
In addition to proceedings described above, customer complaints have resulted in
the termination of arrangements with a billing house and a LEC. We do not
believe these terminations will have an impact on current revenues but future
complaints may lead to further terminations. We therefore have redoubled our
compliance efforts as discussed above.
Other Activity under existing Business
During 2002, the Company introduced three new products: Financial Freedom, One
Nation Calling Plan and Small Business Advantage now changed to Business to
Business Advantage.
Financial Freedom was the result of a partnership between us and the Financial
Freedom Foundation (FFF), to create a credit awareness and improvement product
billed through bank account debit or ACH. The product bundled, a financial
education kit and a stored value MasterCard, offered consumers the resources to
effectively create budgets, make informed buying and credit decisions, and
participate in an economy increasingly geared to card-based payments. During
test marketing of the Financial Freedom bundle, the rules governing ACH-type
debits changed dramatically rendering the product impractical to bill. We
therefore terminated the program during the fourth quarter of 2002.
Our new Long Distance product, The One Nation Calling Plan, is what we
believe is a competitive product targeted at small businesses and delivers long
distance, travel card, and toll-free access as well as e-mail service,
customized Web site and hosting, directory listings and search engine
notification. The service is built upon a reseller agreement with a tier-one
long distance carrier and provides One Nation customers with a long distance
package. To date, we have secured Intrastate certifications in 32 states with an
additional 14 in process. Concurrently, the Company has secured a Global 214
certification, which permits us to deliver international traffic.
22
The Business to Business Advantage Online is another internet services provider
product which combines extensive services tailored for small to medium sized
businesses. This product provides portal access to a third party service which
provides extensive accounting and legal resources, including legal forms and
will serve as a focal point for future product delivery. We began sales
activities for SBA Online during the last quarter of 2002.
Our subsidiary One World Public Communications Corp. provides international
direct dial service for coin telephones. Revenues from this service have been
minimal. We believe this business has potential but we have devoted our
resources to our other operations.
The Company is continually reviewing products and services to market.
Occasionally we will introduce a product or service unsuccessfully as occurred
with Financial Freedom as discussed above. Even though this marketing of this
product was discontinued we believe we gained valuable knowledge on test
marketing from this experience.
Employees
As of 2003, the Company had 64 employees. Of such number of employees eight
employees are engaged in engineering and computer systems; 22 employees are
engaged in marketing and sales; 27 employees are engaged in administration and
finance, including officers of the Company and 18 in customer services and
compliance.
Competition
Our subsidiaries face intense competition in the marketing and sale of our
services and products. In addition, there is intense competition to obtain the
products and services the Company will seek to market. Many of these services
and products are sought after or marketed by companies, which are well
established, have reputations for success in the development and sale of
services and products and have significantly greater financial, marketing,
distribution, personnel, and other resources than us. These resources permit
such companies to implement extensive advertising and promotional campaigns,
both generally and in response to efforts by additional competitors to enter
into new markets and introduce new services and products.
23
PROPERTY
Our office facilities consist of approximately 9,770 square feet of office space
in total located separate suites at 11900 Biscayne Blvd., Miami, Florida, 33181.
The leases for these suites expire April, 2008. The annual rental of these lease
totals approximately $354,000. We have executed an agreement to enter into a new
lease at our present location replacing existing arrangements, eliminating some
existing space and obtaining new and larger substitute space. Pursuant to this
arrangement we will lease a total of approximately 16,800 square feet. The lease
will be for five years at annual rentals ranging from approximately $328,000 to
approximately $380,000 in the final year.
LEGAL PROCEEDINGS
In August 2002 the Company's subsidiary, Savon, filed a petition under Chapter
11 under the United States Bankruptcy code in United States Bankruptcy Court for
the Southern District of Florida. Savon was as a defendant in a lawsuit brought
by Global Crossing Bandwidth, Inc., a wholesale telecommunications carrier which
had an agreement to provide service to Savon. Global Crossing alleged
$21,000,000 damages for breach of contract in its complaint, filed in the United
States District Court for the Eastern District of Michigan.
Savon had asserted counterclaims against Global Crossing for breach of the
agreement and tortious interference with customers. In conjunction with Global
Crossing's pending Chapter 11 proceeding, our counterclaim has been stayed.
While we therefore could not obtain a judgement against Global Crossing we would
incur substantial defense costs. Savon therefore filed for protection under the
bankruptcy code.
See "Business - Regulatory and Compliance Matters" for a description of
governmental proceedings arising in the normal course of business including
proceedings pending in Missouri and North Carolina.
24
Directors, Executive Officers,
Set forth below is information concerning the Company's directors and executive
officers:
Name Age Position
- ---- --- --------
Martin Miller 63 Chairman of the Board, Chief Executive Officer, Director
David Srour 42 President - Chief Operating Officer, Director
Irving Greenman 67 Chief Financial Officer, Director
Gerald Dunne 42 Executive Vice President
Deborah Gambone 51 Vice President, Corporate Counsel and Secretary
Ricardo Sablon 43 Vice President - Chief Technology Officer
William D. Rhodes 54 President National Online and other subsidiaries
David Berman 57 Director
Kenneth Elan 50 Director
Martin Miller has been a private investor for the last five years. During this
period he also acted as a United States manager of corporate finance for a
foreign investment group.
David Srour since June 2003 has been our president and Chief Operating Officer.
Prior to that he served as the Executive Vice President-Chief Operating Officer
since November, 2001. Prior to joining us, Mr. Srour was Senior Director of
Information Service of CarrAmerica, a former client of his at KPMG Consulting in
McLean, Virginia, where he was a Senior Manager from 2000 to 2001. At KPMG, Mr.
Srour specialized in eCommerce, project management and process improvement
consulting services for such clients as General Motors, Equity Office and
Security Capital. Beginning in 1997, he spent four years at Ernst and Young LLP,
providing information systems and process improvement consulting services
including back office and eCommerce implementations. Mr. Srour also has
significant telecommunications experience, including roles as COO of iTelsa and
SmarTel Communications.
Irving Greenman our Chief Financial Officer has been employed by
us since January 2000 in various executive capacities, including Chief Executive
Officer. During the last twenty four years has served in various executive
positions, including Chief Financial Officer and Chief Executive Officer, for
the past twenty-five years. He was Chief Financial Officer for Kaleidoscope
Media Group, Inc. (an Entertainment company), Medica Media and Healthcare
International, both of the latter companies in the healthcare field. Mr.
Greenman is a Certified Public Accountant in New York and in Florida.
Gerald M. Dunne is our Executive Vice President. He was formally the Chairman
and Chief Executive Officer of Group Long Distance Inc., a NASDAQ traded long
distance reseller. Mr. Dunne led that Company to over 200,000 residential and
small business subscribers before leaving to become Chief Executive of the
Company subsidiary, One World Public Communications Corp.
25
Deborah Gambone has been our corporate counsel since December 2001 and was
elected Secretary and a Vice President in November 2002. From February 1997
through April 2001 she was counsel to several firms: Vicon Group February 1997
to November 1998, International Research Group, Inc. March 1999 to December
1999, Telecomputing, Inc. January 2000 to March 2001. From April 2001 to
November 2001 she was an independent practitioner.
Ricardo Sablon is our Vice President-Chief Technology Officer. Mr.
Sablon was previously vice president and chief telephony engineer for Equalnet
Communications. Mr. Sablon was a founder of FreeCaller Communications, an
advertiser sponsored long distance service that he patented. In 1991, Mr. Sablon
was the chief executive of CaribeCom, a company that provided the first
post-embargo commercial direct-dial service to Cuba from the United States.
William D. Rhodes is the president of our XXX subsidiary and other subsidiaries.
He served as President of the Company from January 2002 until June 2003. In
February 2001, Mr. Rhodes was also the founding President of National Online
Services, Inc. (presently a subsidiary of the Company), establishing corporate
infrastructure for this new Internet service provider of "B-to-B" services. Mr.
Rhodes performed consulting services for us from September 2000 until February
2001. Prior to this, from February 1999 through July 2000, Mr. Rhodes served as
Chief Operating Officer of Equalnet Communications in Houston, TX with
responsibility for all company operations including customer care, billing,
provisioning and networks. From 1996 until 1999, Mr. Rhodes served as President
and COO of Valu-Line Communications in Longview, TX. In this capacity, Mr.
Rhodes has an MSEE and BSEE from the University of Missouri at Columbia and has
been involved in state-of-the-art electronics, navigation and communication
projects throughout his career including 20 years with Rockwell International.
David Berman is a practicing attorney in Miami, Florida and the Company's
outside director. For the previous four years, Mr. Berman has been a partner in
Berman & Berman, a partnership in Miami, Florida specializing in tax law.
Kenneth Elan has been a practicing attorney in New York City for over (25)
years. He specializes in litigation concentrating in commercial and securities
litigation.
Executive Compensation.
The following table sets forth information concerning compensation paid or
accrued by us or any of our subsidiaries for services rendered during the fiscal
year ended December 31, 2002 by all persons who acted as a Chief Executive
Officer and for the four highest paid officers earning in excess of $100,000
during 2002. Mr. Greenman did not receive compensation prior to the year 2001.
26
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Securities Underlying
Name and Bonus
Principal Position Year Salary ($) Awards ($) Options
- ------------------ ---- ---------- ---------- -------
Martin Miller 2002 None - -
Irving Greenman 2002 $300,000 $75,000
Chairman and CEO 2001 200,000 200,000
(2000 through 10/02
William Rhodes 151,630 $25,000
David Srour 186,969 $50,000
Gerald Dunne 146,315 $50,000
Richard Sablon 141,219 $25,000
Mr. Greenman was Chief Executive Officer for a portion of 2002 until Mr. Martin
Miller assumed that position.
OPTIONS
Set forth below with respect to the Officers named above is further information
concerning options to purchase common stock under the Company's stock option
plan.
Options Granted
No options were granted to any named officer in 2002:
Options Exercised and Options Retained
No option was exercised by any Officer named above in 2002.
Set forth below is certain information relating to options retained by Named
Officers:
Exercisable Unexercisable
----------- -------------
Irving Greenman 66,667 133,333
William Rhodes 33,333 66,667
David Srour 13,333 26,667
Richard Sablon 50,000 100,000
Gerald Dunne 16,667 33,333
The market price on December 31, 2002 was $1.85. The exercise price of all
options is $2.50. Therefore the options were not in the money.
Stock Option Plans
We have adopted an option plan entitled the Global Asset Holdings 2001 Stock
Option Plan (the "Option Plan"). The purpose of the Option Plan is to provide us
with a vehicle to attract, compensate and motivate selected eligible persons,
and to appropriately compensate them for their efforts, by creating a
broad-based stock plan which will enable us, in our sole discretion and from
time to time, to offer to or provide such eligible persons with incentives or
inducements in the form of awards as such term is defined below, thereby
affording such persons an opportunity to share in potential capital appreciation
of our common stock.
The Option Plan was approved by the board of directors and is subject to
approval by the shareholders. A total of 4,000,000 shares of common stock are
available for issuance under the plan.
27
Under the Option Plan, an eligible person is any person who, at the applicable
time of the grant or award under the Option Plan, is an employee, a director
and/or a consultant or advisor of ours, or of any parent or subsidiary. An award
can consist of: (i) an outright grant of shares of common stock or (ii) the
grant of options to purchase shares of Common Stock. As of December 31, 2001,
there were options outstanding to purchase 1,000,000 shares of common stock
under the Option Plan. An additional 100,000 was awarded to a director in 2002,
while 171,000 were forfeited leaving a balance of options to purchase 929,000
shares outstanding as of December 31, 2002. Of these shares, 740,000 shares are
subject to options granted to officers and directors with the balance subject to
options granted to non-officer employees.
The Option Plan provides for the granting of options which are intended to
qualify either as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986 or as options which are not intended to meet
the requirements of such section (non-statutory stock options"). The exercise
price of all incentive stock options must be at least equal to the fair market
value of such shares on the date of the grant or, in the case of incentive stock
options granted to the holder of more than 10% of our common stock, at least
110% of the fair market value of such shares on the date of the grant. The
maximum exercise period for which incentive stock options may be granted is ten
years from the date of grant (five years in the case of an individual owning
more than 10% of our common stock). The aggregate fair market value (determined
at the date of the option grant) of shares with respect to which incentive stock
options are exercisable for the first time by the holder of the option during
any calendar year shall not exceed $100,000.
The Option Plan provides for its administration by the board of directors or a
committee chosen by the board of directors, which has discretionary authority,
subject to certain restrictions, to determine the number of shares issued
pursuant to incentive stock options and non-statutory stock options and the
individuals to whom, the times at which and the exercise price for which options
will be granted.
The above description of the Option Plan is qualified in its entirety by
reference to the full text of the Option Plan, as well as the terms and
conditions of any award agreement governing the grant of an award under the
Option Plan. A copy of the Option Plan is included as an exhibit.
Additional Options
We have granted additional options to purchase 1,700,000 shares of our
common stock at $3.50 per share to our employees and service providers including
additional options to officers and directors as follows:
o David Srour 200,000
o Irving Greenman 100,000
o Gerald Dunne 200,000
o Deborah Gambone 100,000
o Richard Sablon 100,000
o William Rhodes 100,000
o Kenneth Elan 50,000
28
Director Compensation
The Company has no compensation arrangements with its directors. It has however
in July 2002 granted a stock option to David Berman pursuant to its Stock Option
Plan. This option is to produce 100,000 shares at fifty two cents per share and
is substantially similar to the options granted executive officer.
SECURITY OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of the common stock as of,March 31 2003 by,
o each stockholder known by us to be the beneficial owner of more than 5% of the
outstanding common stock,
o each director of ours,
o each named officer,
o and all directors and executive officers as a group. Except as otherwise
indicated, we believe that the beneficial owners of the common stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned Percentage
- ------------------- ------------------ -----------
Martin Miller (1)(2) 2,898,921 29%
Stanley Myatt (1) 2,803,000 28%
Sheldon Goldstein 900,000 8.6%
Irving Greenman (3) 66,667 *
William Rhodes (3) 33,333 *
David Berman (3) none
David Srour (3) 13,333
Richard Sablon (3) 50,000 *
Kenneth Elan none
Brookfield Investment Ltd.* 16,667
(9)
By all officers and
Directors as a group(1)(3) 3,078,921 30.2%
(1) Including 5,606,000 shares, registered in the name of Trans Voice, LLC.
Each of Messrs. Miller and Myatt is deemed to beneficially own this
percentage of the Company by virtue of their or their affiliates equal 50%
ownership of Trans Voice Investments Inc. which owns 100% of Trans Voice
LLC.
(2) Includes 95,921 shares owned by Mr. Miller and his spouse. It does not
include 122,500 shares owned by his spouse which Mr. Miller denies any
beneficial ownership.
(3) Represents shares underlying options exercisable within 60 days. In
addition to these aforesaid options additional shares are subject to
options not exercisable within 60 days as follows:
Irving Greenman 233,333
William Rhodes 166,667
David Berman 100,000
Kenneth Elan 50,000
David Srour 226,667
Richard Sablon 200,000
Gerald Dunne 233,333
All officers and directors as a group 1,410,000
(4) Brookfield owns of record 770,000 shares and warrants to purchase 4,000,000
shares of our Common Stock. We have been advised by Brookfield that all of
our securities held by it are held as nominee for several unrelated third
parties.
* less than 1%
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 14, 2000 we acquired the entire interest of Transvoice Ltd
in SavOn, a Florida limited liability company. Transvoice Ltd's interest
consisted of a 51% ownership interest in SavOn, which increased to 80% on
November 15, 2000 pursuant to an Acquisition Agreement between Transvoice Ltd (a
United Kingdom corporation) and Teltran International, Inc. (SavOn's former
majority member) dated May 1, 2000. The purchase price of Transvoice Ltd's
entire interest in SavOn was 2,000,000 shares of our common stock. The original
agreement provided if during the period commencing January 1, 2001 and ending
June 30, 2002 the accumulated net after tax income of SavOn is greater than
$1,200,000 then for each $1.00 of net after tax income of SavOn in excess of
$1,200,000 during the Earnings Period, Transvoice Ltd. will receive additional
shares of our common stock having a market value of $10.00 per share. Due to the
cancellation of the SavOn's agreement with Global Crossing, SavOn discontinued
its telecommunications business. Transvoice Ltd. claimed that it was deprived of
its right to additional shares as we would have no earnings. In lieu of all
claims of Transvoice Ltd. against us, the Company paid an additional $225,000
which was capitalized as part of goodwill.
On March 31, 2001 we entered into an agreement to purchase National Online. The
transaction was intended as a tax-free reorganization for federal income tax
purposes with our exchanging 2,000,000 of our shares for all of the outstanding
shares of National Online pursuant to section 368(a)(1)(B) of the Internal
Revenue Code of 1986. Prior to the transaction, the outstanding stock of
National Online was owned as follows: 80% by Transvoice Ltd, and 20% by Sheldon
Goldstein. Prior to the transaction, Transvoice Ltd. also held 2,000,000 shares
or 33 1/3 of our stock. Also, as part of the transaction, Global agreed to pay
additional contingent considerations to the former shareholders of National
Online. Such contingent consideration was payable, if during the eighteen month
period commencing April 1, 2001 and ending September 30, 2002, the accumulated
net after tax income of National Online was $1,200,000 or greater. In that
event, the former shareholders of National Online were to receive that number of
additional shares of us, valued at $10.00 per share, equivalent to the dollar
value of the excess of net after tax income of National Online over $1,200,000.
The former owners of National Online have claimed that we failed to commence
National Online's operations timely and adequately fund it. As of November 30,
2001 we and shareholders agreed to eliminate the contingent right and settle all
claims in consideration for an additional 2,500,000 shares of our common stock.
In April 2001 we entered into an oral agreement to pay TransVoice Investments,
Inc. $4.00 per customer (per month). On October 1, 2001, the agreement was
modified because the parties agreed the payments were excessive. Transvoice Inc.
is unaffiliated with Transvoice Ltd. Pursuant to the Payment Agreement National
Online is obligated to pay Transvoice Inc $150,000 per month as long as National
Online and affiliates operates its programs. In addition, Transvoice Inc. is to
receive an additional $1.00 for each additional customer in excess of 100,000
customers in any given month. National Online is also obligated to provide
office space and services to Transvoice Inc. to pay as consideration as a
finder's fee and for services provided in connection with the organization of
National Online. Messrs. Stanley Myatt and Martin Miller are sole stockholders
of Transvoice Inc. Transvoice Inc. owns the entire interest of Transvoice
L.L.C. which has been our principal shareholder since June 2002.
We have agreed with Trans Voice L.L.C. our principal stockholder to outsource
many aspects of the development of our new business plan including assisting us
in:
o Managing existing vendor relationships for sales campaigns and growth to
meet new business needs.
o Managing site selection, lease negotiations, design and build-out, of
Epixtar's offshore call centers.
o Negotiating incentive and financial assistance packages with government
ministries and agencies on behalf of Epixtar.
o Identifying commercial opportunities for Epixtar to sell new services and
developing new products for Epixtar to market.
o Identifying an negotiating merger and acquisition situations for Epixtar.
30
In the third quarter of 2002 we repaid loans aggregating $175,000 to Transvoice
Inc. and Stanley Myatt. The loans bore interest at seven percent per annum.
Based upon agreements in principle reached on November 20, 2002 the Company
entered into an agreement on December 6, 2002 relating to its note to Brookfield
Investments Ltd. ("Brookfield"). The note is in the amount of approximately
$2,800,000 and due on demand. The Company obtained an agreement to defer demand
for payment for over two years, and for Brookfield to subordinate its security
interest in the Company's and its subsidiaries' accounts receivable to certain
types of lenders. The Company agreed to issue 3,000,000 shares of the Company's
restricted common stock and agreed to repay accrued interest by July 2003. In
addition, the Company retained the right to prepay the loan without any penalty
at any time. The stock was never issued pending negotiations that began in
December 2002. After these negotiations, the parties determined to modify the
agreement ab initio and issue warrants to Brookfield to purchase 4,000,000
shares of the Company's common stock at an exercise price of $.50 per share in
lieu of issuing the 3,000,000 shares to Brookfield. The warrants are exercisable
during the period from May 31, 2003 until May 31, 2006. The market price was
forty ($.40) cents at the time of the agreement in principle in November 2002.
Subsequent to March 2003 Brookfield voluntarily agreed to surrender its security
interest.
Description of Securities
General
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the applicable
provisions of Florida law.
We are authorized to issue up to 50,000,000 shares of common stock,
$.001 par value per share, of which 10,516,615 shares were issued and
outstanding. Our certificate of incorporation authorizes 10,000,000 shares of
"blank check" preferred stock, of which we authorized the issuance of 250, 000
Series A preferred StocK of which 23,210 shares are outstanding.
Common Stock
Subject to the rights of holders of preferred stock, if any, holders of
shares of our common stock are entitled to share equally on a per share basis in
such dividends as may be declared by our Board of Directors out of funds legally
available therefore. There are presently no plans to pay dividends with respect
to the shares of our common stock. Upon our liquidation, dissolution or winding
up, after payment of creditors and the holders of any of our senior securities,
including preferred stock, if any, our assets will be divided pro rata on a per
share basis among the holders of the shares of our common stock. The common
stock is not subject to any liability for further assessments. There are no
conversions or redemption privileges nor any sinking fund provisions with
respect to the common stock and the common stock is not subject to call. The
holders of common stock do not have any pre-emptive or other subscription
rights.
31
Holders of shares of common stock are entitled to cast one vote for
each share held at all stockholders' meetings for all purposes, including the
election of directors. The common stock does not have cumulative voting rights.
Preferred Stock
Our Board of Directors has the authority, without further action by the
holders of the outstanding common stock, to issue shares of preferred stock from
time to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series.
Series A Preferred Stock
In conjunction with the June 2003 financing our board of directors a new created
Series A Convertible Preferred Stock with 250,000 Shares authorized. These
shares have the following terms.
o Conversion: Each share of Series A Preferred Stock will be
convertible, at the option of the holder, at any time after the
date of issuance into a number of shares of Common Stock
determined by dividing $100 by the Series A Conversion Price
initially $3.50. This price can be changed based upon dilution
and in 2004 and 2005 our performance during the prior year.
o Conversion Price
Performance Adjustment: The conversion price may be adjusted
based upon our performance in 2003 and 2004 as set forth below:
ADJUSTED
CONVERSION
YEAR NET INCOME PRICE
---- ---------- ----------
2003 less than $5,000,000 $2.00
$5,000,000 - $7,500,000 $3.00
above $7,500,000 $3.50
2004 less than $10,000,000 $2.00
$10,000,000-$12,500,000 $3.00
over $12,500,000 $3.50
32
The adjusted price, if any, will not be greater than 5% below market
value at the time of the adjustment, but may not be below $2.00.
o Anti-dilution Protection: With some exceptions including shares
issued pursuant to a merger or acquisition, or a lease line or
line of credit, if the Company issues or sells stock below the
current conversion price, then the conversion price shall be
reduced to the price of sale or issuance. The conversion price
of the Preferred Stock will also be subject to adjustment to
reflect stock dividends and stock splits.
o Automatic Conversion: The Series A Preferred will be
automatically converted into Common Stock upon the earlier to
occur of: (1) the closing of a public offering of our common
stock at ten dollars or more per share with gross proceeds of
$50,000,000 or (2) the vote of the holders of a majority of the
Series A Preferred voting separately as a single class.
o Dividend Rights: Holders of Series A Preferred shall be entitled
to receive cumulative dividends at an annual rate of $8.00 per
share from legally available funds. A pro-rata portion of
unpaid or undirected dividends will be taken into account upon
conversion or redemption
o Liquidation Preference: In the event of any involuntary or
voluntary liquidation, dissolution, or winding up of us, the
holders of Series A Preferred shall be entitled to receive, prior
and in preference to any distribution to the holders of Common
Stock, a liquidation payment in an amount equal to two times the
Series A Price per share plus any unpaid dividends.
33
o Voting Rights: Subject to any additional voting rights provided
by law), the Series A Preferred vote on an as-converted basis
together with the Common Stock on all matters presented to
stockholders.
o Protective Provisions: We are required to obtain approval of
Series A Preferred holders for actions which could have an
advise effect on the Series A Preferred including any actions
resulting in
o any change in the rights, preferences or privileges of the
Series A Preferred advisor.
o a change of control.
o a change in any business other than the business engaged
in by the Company at the time of Closing.
o Board Representation: The holders of the Series A Stock are
entitled to one seat on our board, or at the option of the
shareholders observer rights to the board. All related attendance
expenses will be paid by the us.
o Redemption Right: We have the right to repurchase the total
aggregate amount outstanding of Series A Preferred on the
anniversary date of the closing of this financing at a price
equal to $200 per share subject to the right of the holder to
exercise before repurchase.
34
Warrants
Brookfield Warrants
We have issued warrants to Brookfield Investments Ltd. to purchase
4,000,000 shares of our common stock at fifty cent per share. The warrant
expires in 200. The exercise price is adjusted upon stock splits, reverse splits
and similar occurances.
Investment Banking Warrants
In April 2003, we issued warrants to purchase 130,000 shares of our
Company stock to a firm we entered into an investment banking arrangement. These
warrants expire in October 2008 and are excusable at $3.39 per share.
Private Placement Warrants
In June 2003, we issued warrants to purchase 329,140 shares of our
common stock pursuant to our private placement. These warrants expire in June
2008 and are exercisable at a 7.00 per share. The warrants price of these
warrants is adjusted upon stock splits, reverse splits, reclassification and
sales below the exercise price.
We also issued warrants to purchase 67,368 shares of our common stock
to persons who provided services in connection with our private placement. These
warrants expire in 2008 and are execiseable at 5.00 per share.
All of these warrants other than the warrants owned by Brookfield
provide for cashless exercise. This means upon exercise the holder does not pay
cash for the exercise price. In lieu of cash the holder surrenders a sufficient
unexercised warrants equal to the number of shares of common stock having a then
market value equal to the aggregate exercise price.
35
Transfer agent
The transfer agent for our common stock is Interwest. Transfer xxxxx of
1981 East 4800 South Street, Salt Lake City, Utah 84117. Their telephone number
is (801)-272-7294
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Our bylaws provide that we will indemnify our officers and directors
for costs and expenses incurred in connection with the defense of actions,
suits, or proceedings against them on account of their being or having been
directors or officers of
, absent a finding of misconduct in the performance of their duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the above described provisions, or otherwise, we have has been
advised that in the opinion of the Securities and Exchange Commission their
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against these liabilities
(other than the payment by us of expenses incurred or paid by any director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of the issue.
Shares Eligible for Future Resale
As of June 15, 2003, we had an aggregate of 10,516,615 shares of our
common stock issued and outstanding, of which 6,516,615 shares are "restricted
securities," which may be sold only in compliance with Rule 144 under the
Securities Act of 1933, as amended or other exemptions from registration
requirements of this act. Rule 144 provides, in essence, that a person holding
restricted securities for a period of one year after payment therefore may sell,
in brokers' transactions or to market makers, an amount not exceeding 1% of the
outstanding class of securities being sold, or the average weekly reported
volume of trading of the class of securities being sold over a four-week period,
whichever is greater, during any three-month period. (Persons who are not our
affiliates and who had held their restricted securities for at least two years
are not subject to the volume or transaction limitations.) Substantially all of
our shares will be capable of sale pursuant to Rule 144 subject to the foregoing
limitation. The sale of a significant number of these shares in the public
market may adversely affect prevailing market prices of our securities.
36
SELLING SECURITIESHOLDERS
In June 2003, sold 23,510 shares of our convertible preferred stock for
an aggregate of $ or $100 per share. For each share sold the purchases received
14 five year warrants to purchase our common stock at an exercise price of $7.00
per share. The Preferred shares are convertible into a number of shares equal to
100 divided by a conversion price per share of $3.50. This conversion price may
be reduced to $2.00 if we did achieve performance goals.
In connection with the sale we paid fees equal to ten percent of the
amount raised to a third party and issued five year warrants to purchase
shares of common stock execiseable at a price of $5.00 per share.
The selling securities holders are purchasers in our private placement
or persons receiving warrants for services in connection with the offering. The
shares offered for sale are shares of common stock these persons have a right to
acquire upon converion of the preferred stock or exercise of the warrants. The
amount listed for each holder of preferred stock in each case represents the
number of shares which may be acquired upon conversion assuming we do not
achieve our performance goals.
The following table contains information concerning the beneficial
ownership of our common stock by the selling stockholders as adjusted for sales
by each selling stockholder.
Before the Offering After the Offering
------------------- -----------------------------
Identity of Shares Shares Beneficially Owned
Stockholder or Group Offered
---------------- -----------------------------
Wayne Saber 42,570
---------------- -----------------------------
Lisa M. Smukler 42,570
---------------- -----------------------------
A. Barclay 42,570
---------------- -----------------------------
Michael Hamblett 8,940 None
---------------- -----------------------------
Wolverine Trading, LLC 42,570 None
---------------- -----------------------------
Wexford Clearing 42,570 None
---------------- -----------------------------
Truk Opportunity Fund, LLC 84,570 None
---------------- -----------------------------
Abingdon Investments, LLC 44,699 None
---------------- -----------------------------
Steven B. Rosner 106,425 None
---------------- -----------------------------
SDS Merchant Fund, LP 212,850 None
---------------- -----------------------------
Daniel A. Gooze 85,140 None
Revocable Trust Dated 3/25/88
---------------- -----------------------------
Otape Investments LLC 127,710 None
---------------- -----------------------------
WEC Partners LLC 42,570 None
---------------- -----------------------------
Michael Associates 44,699 None
---------------- -----------------------------
Cristopher Fiore 42,570 None
---------------- -----------------------------
CD Investment Partners Ltd. 63,855 None
---------------- -----------------------------
SANDS Brothers & Co. Ltd. 163,584 None
---------------- -----------------------------
Alpine Capital Partners 33,684 None
---------------- -----------------------------
The selling securityholders who acquired their shares in our private placement
may sell shares issuable upon conversion of the preferred stock or exercise of
warrants set forth below is a breakdown of shares issuable pursuant to each
security.
Name Series A Preferred Warrants
- ---- ------------------ --------
Michael R. Hamblett 6,000 2,940
Wolverine Trading, LLC 28,570 14,000
Wexford Clearing 28,570 14,000
Truk Opportunity Fund, LLC 5,654 2,800
Abingdon Investments, LLC 29,999 14,700
Steven B. Rosner 71,425 35,000
SDS Merchant Fund, LP 142,850 70,000
Daniel A. Gooze 57,140 28,000
Wayne Saber 28,750
Lisa M. Smukler 28,750
A. Barclay 28,750
Otape Investments LLC 85,710 42,000
WEC Partners 27,570 14,000
Michael Associates 29,999 14,700
Cristopher Fiore 28,570 14,000
CD Investment Partners 42,855 21,000
The above assumes all of the shares being offered will be sold. Because
the selling stockholders may sell all, some or none of the shares that it holds,
the actual number of shares that will be sold by the selling stockholders upon
or prior to termination of this offering may vary. The selling stockholders may
have sold, transferred or otherwise disposed of all or a portion of their shares
since the date on which they provided the information regarding their common
stock in transactions exempt from the registration requirements of the
Securities Act. Additional information concerning the selling stockholders may
be set forth from time to time in prospectus supplements to this prospectus.
37
Plan of Distribution
Sale of the shares may be made from time to time by the selling stockholders, or
subject to applicable law, by pledgees, donees, distributees, transferees or
other successors in interest. These sales may be made:
o on the over-the-counter market
o on foreign securities exchange
o in privately negotiated transactions or otherwise
o in a combination of transactions at prices
o at terms then prevailing
o at prices related to the then current market price
o at privately negotiated prices
Without limiting the generality of the foregoing, the shares may be sold in one
or more of the following types of transactions.
38
o A block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transactionpurchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to
this Prospectus;
o an exchange distribution in accordance with the rules of such
exchange;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o face to face transactions between sellers and purchasers
without a broker dealer. In effecting sales, brokers or
dealers engaged by the selling stockholders may arrange for
other brokers or dealers to participate in the resales.
Brokers, dealers or agents may receive compensation in the form of commissions,
discounts or concessions from the selling stockholders in amounts to be
negotiated in connection with the sale. These brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the
selling stockholders, or any other broker-dealer, is acting as principal or
agent for the selling stockholders, the compensation to be received by
underwriters who may be selected by the selling stockholders, or any
broker-dealer, acting as principal or agent for the selling stockholders and the
compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
prospectus. Any dealer or broker participating in any distribution of the Shares
may be required to deliver a copy of this prospectus, including a prospectus
supplement, if any, to any person who purchasers any of the Shares from or
through such dealer or broker.
We have advised the selling stockholders that during if at any time they may be
engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Exchange Act. The selling shareholders have
acknowledged such advice by separate agreement and agree therein to comply with
such regulation. In general, Regulation M precludes the selling stockholders,
any affiliated purchasers and any broker-dealer or other person who participates
in such distribution from bidding for or purchasing or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. A "distribution" is
defined in the rules as an offering of securities that is distinguished from
ordinary trading activities and depends on the "magnitude of the offering and
the presence of special selling efforts and selling methods". Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
We have agreed to indemnify the selling securityholder against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments to which such securityholder may be required to make in
respect thereof.
39
Legal Matters
The validity of the common stock offered hereby will be passed upon for
Epixstar Corp. by Michael D DiGiovanna Esq. 212 Carnegie Center, Suite 206,
Princeton New Jersey 08540.
Experts
Our financial statements included in this prospectus and elsewhere in
the registration statement, to the extent and for the periods indicated in their
reports, have been audited by Liebman Goldberg & Drogin LLP independent
certified public accountants, whose reports thereon appear elsewhere herein and
in the registration statement.
Available Information
We have filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form SB-2 under the Securities Act with respect to our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock offered hereby, reference is made to the Registration
Statement and the exhibits and schedules filed as a part of the Registration
Statement. Statements contained in this prospectus concerning the contents of
any contract or any other document are not necessarily complete; reference is
made in each instance to copy of such contract or any other document filed as an
exhibit to the registration statement. Each such statement is qualified in all
respects by such reference to such exhibit. We are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended and in
accordance therewith file annual, quarterly and special reports, proxy
statements and other information with the SEC. The registration statement,
including exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, after payment of fees prescribed by
the Commission. The Commission also maintains a World Wide Web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the
Caddresshttp://www.sec.gov.
40
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
Table of Contents
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31,
2003 and December 31, 2002 F-1
Consolidated Statements of Operations for the three months
ending March 31, 2003 and 2002 F-2
Consolidated Statements and Cash Flows for the three months
ending March 31, 2003 and 2002 F-3
Notes to Financial Statements F-4
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 242,209 $ 722,674
Accounts receivable - net 4,326,210 3,802,326
Prepaid expenses and advances 11,596 59,940
Debt restructuring costs - current portion 500,000 500,000
Deferred billing costs 277,309 154,246
----------- ------------
Total current assets 5,357,324 5,239,186
----------- ------------
Property and equipment, net of accumulated depreciation of $141,374 and 448,356 406,971
$105,375 ----------- ------------
Other Assets:
Debt-restructuring costs - non current portion 333,333 458,333
Goodwill (net of amortization) 16,801,359 16,801,359
Deposits 135,101 76,716
----------- ------------
Total other assets 17,269,793 17,336,408
----------- ------------
Total assets $23,075,473 $ 22,982,565
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $ 404,466 $ 404,466
Accounts payable 3,229,738 3,211,934
Accounts payable - subject to compromise 385,401 385,401
Accrued expenses and taxes 834,552 1,398,664
Deferred revenue 1,227,528 2,897,693
Capitalized lease obligations - current portion 74,027 79,320
Corporate Income Tax Payable 389,672
----------- ------------
Total current liabilities 6,545,384 8,377,478
----------- ------------
Long-Term Liabilities:
Note payable 2,474,000 2,474,000
Capitalized lease obligations - non-current portion 71,575 88,451
Loan payable - 0
----------- ------------
Total long-term liabilities 2,545,575 2,562,451
----------- ------------
Total liabilities 9,090,959 10,939,929
----------- ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 10,000,000
shares authorized and -0- issued and outstanding - -
Common stock, $.001 par value per share, 50,000,000
shares authorized and 10,503,000 shares issued
and outstanding in 2003 and 2002, respectively 10,503 10,503
Additional paid in capital in excess of par value 31,757,997 31,757,997
Accumulated deficit (17,783,986) (19,725,864)
------------- ------------
Total stockholders' equity 13,984,514 12,042,636
------------- ------------
Total liabilities and stockholders' equity $ 23,075,471 $ 22,982,565
============= ============
See Accompanying Notes to Consolidated Financial Statements
Part 1 - Financial Information
F-1
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the First Quarter Ended March 31,
2003 2002
-------------- -------------
(RESTATED)
Revenues $ 12,366,775 $ 2,066,131
Cost of sales 5,983,628 1,607,815
-------------- ------------
Gross profit (loss) 6,383,147 458,316
Expenses:
Selling, general and administrative 3,849,705 1,363,820
-------------- ------------
Income(Loss) from operations 2,533,442 (905,504)
-------------- ------------
Interest expense 165,893 71,560
Depreciation 35,999 13,724
-------------- ------------
201,892 85,284
-------------- ------------
Income(Loss) from continuing operations 2,331,550 (990,788)
Loss from discontinued operation 0 (16,406)
-------------- ------------
Net Income(loss) before taxes $ 2,331,550 $ (1,007,194)
-------------- ------------
Less: Provision for Corporate Income Taxes 389,672 0
-------------- ------------
Net Income(Loss) 1,941,878 (1,007,194)
============== ============
Net Income(loss) per share (basic and diluted),
based upon 10,503,000 and 10,503,000 weighted
average shares outstanding for March 31, 2003
and 2002, respectively $ .185 $ (.10)
============= ============
See Accompanying Notes to Consolidated Financial Statements
Part 1 - Financial Information
F-2
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Quarter Ended March 31,
(Restated)
2003 2002
------------ ------------
Cash Flows from Operating Activities:
Net (loss) Income $ 1,941,878 $ (990,788)
Adjustments to Reconcile Net Loss to Net Cash
(Used in) Operating Activities:
Depreciation and amortization 160,999 13,724
Changes in Assets and Liabilities:
(Increase) in accounts receivable (523,884) (213,082)
Decrease (increase) in prepaid expenses and advances 48,344 (4,193)
(Increase) in deferred billing costs (123,063) (43,181)
(Increase) Decrease in deposits (58,385) 12,946
(Decrease) Increase in accounts payable and accrued expenses (546,308) 935,052
Increase in Corporation Income Tax Payable 389,672 -
(Decrease) Increase in deferred revenues (1,670,165) 267,129
----------- -----------
Net cash (used in) provided by operating activities (380,912) (22,393)
------------ -----------
Cash Flows from Investing Activities:
Acquisition of fixed assets (77,384) (182,536)
----------- -----------
Net cash (used in) investing activities (77,384) (182,536)
----------- -----------
Cash Flows from Financing Activities:
Increase in notes payable and capitalized lease obligations - 147,558
Repayment of notes and loans payable and capitalized lease obligations (22,169) -
----------- -----------
Net cash provided by financing activities (22,169) 147,558
----------- -----------
Decrease in cash (480,465) (57,371)
Cash, beginning of period 722,674 73,762
----------- -----------
Cash, end of period $ 242,209 $ 16,391
=========== ===========
Income Tax - -
Interest Paid $ 86,101
----------- -----------
See accompanying notes to consolidated financial statements
Part I- Financial Information
F-3
Epixtar Corp.
Formerly Global Asset Holdings, Inc.
Notes to Consolidated Financial Statements
March 31, 2003
Note 1 - Basis of Presentation:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three month period ended March 31,
2003 are not necessarily indicative of the results to be expected for
the full year.
Note 2 - Principle of Consolidation:
The consolidated financial statements include the accounts of Epixtar
Corp. and Its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Note 3 - Restatement
The company's consolidated financial statements included in the 2001
annual Report on Form 10-KSB were restated, whereby all telemarketing
and fulfillment costs are expensed as incurred. Previously these costs
were expensed after 45 days. All references to financial statements for
the quarter ending March 31, 2002 in this quarterly report, have been
changed to reflect this restatement.
F-4
Forward Looking Statements
Certain statements contained herein may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements are subject to various known and unknown risks and
uncertainties and the Company cautions you that any forward-looking information
provided by or on behalf of the Company is not a guarantee of future
performance. Our actual results could differ from those anticipated by such
forward-looking statements due to a number of factors, some of which are beyond
the Company's control, including (i) the volatile and competitive nature of our
industry, (ii) change in domestic and foreign economic and market conditions,
(iii) the effect of federal, state and foreign regulation on the Company's
business, (iv) changes in technology, (v) changes in charges of third party
providers, (vi) failure of third parties in performing services to us and (vii)
the continued acceptance of our products and the future acceptance of new
services and products. The Company does not undertake any obligation to publicly
update any forward-looking statement to reflect events or circumstances after
the date on which any statement is made or to reflect the occurrence of
unanticipated events.
2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
On November 14, 2000, the Company acquired an 80% membership interest in
SavonCalling.com, LLC ("SavOn"). SavOn was engaged in the marketing and resale
of domestic and international telecommunications services, we have since ceased
this business. On March 31, 2001, the Company acquired 100% of the outstanding
shares of National Online Services, Inc. ("National Online"). National Online
provides Internet related services to small business subscribers marketing
through independent telemarketers. The Company introduced additional products in
2002 all marketed in the same manner.
Substantially all the company's revenues for the first Quarter of 2003 were
derived from sales of internet provider services for small businesses. These
products were primarily sold by two subsidiaries National Online and Liberty
Online Services, Inc. ("Liberty Online"), both market substantially similar
products. During the 1st Quarter of 2003, Additional subsidiaries were
generating revenues from sales of products which were (except in 1 instance)
similar to internet provider services of National Online Services, Inc. but
offering additional or other services.
F-5
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
For the years ended December 31, 2002 and 2001
Independent Auditors' Report F-1
Financial Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements Statement of Stockholders' Deficit F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 -- F-21
The Board of Directors
Epixtar Corp. and Subsidiaries
Formerly Global Asset Holdings, Incorporated and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Epixtar Corp.
and Subsidiaries formerly Global Asset Holdings, Incorporated and Subsidiaries
as of December 31, 2002 and 2001, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Epixtar Corp. and
Subsidiaries formerly Global Asset Holdings, Incorporated and Subsidiaries as of
December 31, 2002 and 2001, and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a negative working capital, which raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are partially discussed in Notes 2 and 12.
Liebman Goldberg & Drogin, LLP
Garden City, New York
March 11, 2003
F-1
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2002 2001
------------ ------------
(Restated)
ASSETS
Current Assets:
Cash and cash equivalents $ 722,674 $ 73,883
Accounts receivable - net 3,802,326 731,511
Prepaid expenses and advances 59,940 1,666
Debt restructuring costs - current portion 500,000 -
Deferred billing costs 154,246 35,500
------------ ------------
Total current assets 5,239,186 842,560
------------ ------------
Property and equipment, net of accumulated depreciation
of $105,375 and $6,817 406,971 201,466
------------ ------------
Other Assets:
Debt-restructuring costs - non current portion 458,333 -
Goodwill (net of amortization) 16,801,359 16,801,359
Deposits 76,716 33,996
------------ ------------
Total other assets 17,336,408 16,835,355
------------ ------------
Total assets $ 22,982,565 $ 17,879,381
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $ 404,466 $ 2,649,000
Accounts payable 3,211,934 1,176,943
Accounts payable - subject to compromise 385,401 -
Accrued expenses and taxes 1,398,664 127,325
Deferred revenue 2,897,693 355,001
Capitalized lease obligations - current portion 79,320 29,861
------------ ------------
Total current liabilities 8,377,478 4,338,130
------------ ------------
Long-Term Liabilities:
Note payable 2,474,000 -
Capitalized lease obligations - non-current portion 88,451 30,514
Loan payable - 22,212
------------ ------------
Total long-term liabilities 2,562,451 52,726
------------ ------------
Total liabilities 10,939,929 4,390,856
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 10,000,000
shares authorized and -0- issued and outstanding - -
Common stock, $.001 par value per share, 50,000,000
shares authorized and 10,503,000 shares issued
and outstanding in 2002 and 2001, respectively 10,503 10,503
Additional paid in capital in excess of par value 31,757,997 30,757,997
Accumulated deficit (19,725,864) (17,279,975)
------------ ------------
Total stockholders' equity 12,042,636 13,488,525
------------ ------------
Total liabilities and stockholders' equity $ 22,982,565 $ 17,879,381
============ ============
See notes to consolidated financial statements
F-2
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
2002 2001
------------ ------------
(Restated)
Revenues $ 26,250,851 $ 1,189,723
Cost of sales 17,781,967 1,684,615
------------ ------------
Gross profit (loss) 8,468,884 (494,892)
Expenses:
Selling, general and administrative 10,233,529 2,298,048
------------ ------------
(Loss) from operations (1,764,645) (2,792,940)
------------ ------------
Interest expense 539,369 90,597
Depreciation 98,557 6,817
Amortization of purchased intangibles - 1,950,241
------------ ------------
637,926 2,047,655
------------ ------------
Loss from continuing operations (2,402,571) (4,840,595)
Loss from discontinued operation (43,318) (1,551,537)
Loss from disposal of discontinued operation
(write-off of goodwill) - (10,126,955)
------------ ------------
Net (loss) $ (2,445,889) $(16,519,087)
============ ============
Net (loss) per share (basic and diluted), based
upon 10,503,000 and 7,758,693 weighted
average shares outstanding for December 31,
2002 and 2001, respectively $ (0.23) $ (2.13)
============ ============
See notes to consolidated financial statements
F-3
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2002 and 2001
Common Stock Additional
----------------------------- Paid in Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
Balance - January 1, 2001 6,000,000 $ 6,000 $ 11,999,000 $ (763,487)
Issuance of shares to acquire
subsidiary 2,000,000 2,000 12,998,000 2,599
Issuance of shares re: cancellation
of earnout provision 2,500,000 2,500 5,747,500 -
Issuance of shares for services 3,000 3 13,497 $ -
Net (loss) for the year
December 31, 2001-restated - - - (16,519,087)
------------ ------------ ------------ ------------
Balance - December 31, 2001 10,503,000 10,503 30,757,997 (17,279,975)
Issuance of warrants re:
debt restructuring - - 1,000,000 -
Net (loss) for the year
December 31, 2002 - - - (2,445,889)
------------ ------------ ------------ ------------
Balance - December 31, 2002 10,503,000 $ 10,503 $ 31,757,997 $(19,725,864)
============ ============ ============ ============
See notes to consolidated financial statements
F-4
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(Restated)
2002 2001
------------ ------------
Cash Flows from Operating Activities:
Net (loss) $ (2,445,889) $(16,519,087)
Adjustments to Reconcile Net Loss to Net Cash
(Used in) Operating Activities:
Depreciation and amortization 140,224 3,798,922
Write-off of goodwill - 10,126,955
Changes in Assets and Liabilities:
(Increase) in accounts receivable (3,070,815) (716,215)
(Increase) Decrease in prepaid expenses and advances (58,274) 897
(Increase) in deferred billing costs (118,746) (35,500)
(Increase) in deposits (42,720) (30,973)
Increase in accounts payable and accrued expenses 3,306,330 960,455
Increase in accounts payable - subject to compromise 385,401 -
Increase in deferred revenues 2,542,692 355,001
------------ ------------
Net cash (used in) provided by operating activities 638,203 (2,059,545)
------------ ------------
Cash Flows from Investing Activities:
Acquisition of fixed assets-net of disposals to subsidiary (304,062) (127,094)
------------ ------------
Net cash (used in) investing activities (304,062) (127,094)
------------ ------------
Cash Flows from Financing Activities:
Increase in notes payable and capitalized lease obligations 624,282 2,424,375
Repayment of notes and loans payable and capitalized
lease obligations (309,632) -
Acquisition of goodwill (net of non-cash) stock issuance - (225,000)
Issuance of stock for services - 13,500
Investment in subsidiary - 1,000
------------ ------------
Net cash provided by financing activities 314,650 2,213,875
------------ ------------
Increase in cash 648,791 27,236
Cash, beginning of period 73,883 46,647
------------ ------------
Cash, end of period $ 722,674 $ 73,883
============ ============
Supplemental Disclosures:
Non-cash issuance of 4,503,000, common
shares of stock @ $.001 par value regarding
acquisition and for services @ December 31, 2001 $ - $ -
============ ============
Non-cash issuance of 4,000,000 common
stock warrants at .25 per warrant re: debt
restructuring at December 31, 2002 $ - $ -
============ ============
Income tax $ - $ -
============ ============
Interest paid $ 306,396 $ 6,925
============ ============
See notes to consolidated financial statements
F-5
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 1 - Description of Business:
- ---------------------------------
Epixtar Corp. (the "Company") was incorporated in Florida in June 1994.
The Company previously knows as Global Asset Holdings changed its name
on November 25, 2002. The Company was originally known as Pasta Bella,
Inc. and changed to Global in 1997. The Company was originally formed
for the acquisition of other entities or businesses.
On November 14, 2000, the Company acquired the entire interest held by
Transvoice Investments, Ltd. in SavOnCalling.com, LLC (80%).
Transvoice's original interest of 51% ownership in Savon increased to
80% on November 14, 2000, pursuant to an acquisition agreement dated
May 1, 2000 between Transvoice and Teltran International, Inc. Teltran
continues to hold a minority interest of 20% in Savon. Savon was
engaged in the marketing and resale of domestic and international
telecommunications services. During the year 2001, Savon discontinued
its business operations. On August 28, 2002, Savon filed for
reorganization under Chapter 11 of the federal bankruptcy code.
On March 31, 2001, the Company acquired all of the outstanding shares
of National Online Services, Inc. ("NOL"). Transvoice Investments, Ltd.
and a non-related party owned 80% and 20% of the outstanding shares
respectively. NOL was incorporated in February 2001 as a provider of
subscription based "yellow pages" internet directory services.
On June 1, 2001, the Company formed a new wholly owned subsidiary; One
World Public Communications, Corp. One World was formed to provide
low-rate pay phone service for international calls.
In December 2001, the Company formed two additional subsidiaries;
Merchant Internet Services Corp. and Liberty On-Line Services, Inc.
formerly Bell America Communications, Corp. Merchant was formed to
provide customer care service to customers of National Online Services.
Liberty On-Line was formed to offer small business solutions such as
internet access, web-site design hosting and telecommunication services
to customers obtained by using direct customer contact (telemarketing).
Additionally, during 2002, the Company formed seven additional wholly
owned subsidiaries. These subsidiaries will provide various internet,
telecommunication, telemarketing services as well as internal
management functions.
F-6
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
Principles of Consolidation:
----------------------------
The consolidated financial statements include the accounts of Epixtar
Corp. (formerly Global Asset Holdings, Inc.), its 80% owned subsidiary
SavOnCalling.com, LLC, and its wholly-owned subsidiaries; National
Online Services, Inc., One World Public Communications, Corp., Merchant
Internet Services Corp. and Liberty On-Line Services, Inc. Amerilinc,
Inc., Epixtar Communications Corp., Epixtar Financial Corp., Epixtar
Management Corp., Epixtar Solutions, Corp., Freedom Phonecard, Inc.,
and SBA Online, Inc. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition:
--------------------
Savon was a marketer and reseller of both domestic and international
telecommunications services. Beginning in March 2001, Savon
discontinued providing telecommunication services. While active as a
provider of telecommunication services, Savon recognized revenue upon
notification of customer usage from its carrier and subsequently billed
its customers. Savon continued to provide management services to the
Company and its other subsidiaries until the formation of Epixtar
Management Corp. in August 2002 and its Chapter 11 bankruptcy filing.
National Online Services is a provider of subscription based "yellow
pages" internet directory services. Its operations and sales began in
May 2001. NOL obtains its customers utilizing outside professional
telemarketing call centers. Thirty days after sign-up approval and
delivery of the computer software by a fulfillment provider, NOL
submits to its billing services, a batch listing of all new accounts on
a weekly basis. The billing services remit collections to NOL on a
weekly or monthly basis for collections from local exchange carriers
("LEC"), which are for billings that occurred approximately sixty to
ninety days prior. Revenue is recognized when a customer is billed for
the service. Since a portion of the billing may be earned in a
subsequent period, some revenue is deferred. Additionally, as is common
business practice in the telecommunications industry, the billing
services remit collections reduced by a "holdback or reserve". The
holdback or reserve represents anticipated uncollectible billings,
disputed billings or adjustments to a customer's account. The billing
companies holdback or reserve is an agreed upon percentage and
reconciled monthly with the Company.
One World Public Communications Corp. provides low rate long distance
international pay phone service. Its revenues in 2002 and 2001 have
been minimal. The pay phone operators are billed monthly, based upon
actual usage at each pay phone. When a call is initiated, revenues are
earned. Usage is determined from computerized information and telephone
switches. Actual billing of revenues is based upon contracts with the
pay phone operator and stated rates in the contract.
F-7
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Revenue Recognition (Continued):
--------------------------------
Merchant Internet Services Corp. provided customer care services to
existing and new customers of the Company's' operating subsidiaries.
During the year ended 2002, the Company determined it was more cost
effective to provide these services on an outsource basis.
Liberty On-Line Services, Inc. provides similar "internet services to
customers like National OnLine Services". Revenue Recognition polices
are the same as NOL.
Use of Estimates:
-----------------
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Property and Equipment:
-----------------------
Property and equipment are recorded at cost. Depreciation is computed
principally by the straight-line method for financial reporting
purposes and by accelerated methods for income tax purposes. Estimated
useful lives for financial reporting purposes range from five to seven
years. Expenditures, which significantly increase value or extend
useful asset lives are capitalized.
Cash and Cash Equivalents:
--------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Advertising Expense:
--------------------
The cost of advertising is expensed as incurred. The Company incurred
$4,744 and $19,419 in advertising costs during 2002 and 2001,
respectively.
Fair Value of Financial Instruments:
------------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value information, whether or not
recognized in the balance sheet, where it is practicable to estimate
that value. The amounts reported for cash, accounts receivable, prepaid
expenses, notes and loans payable, accounts payable and accrued
expenses approximate the fair value because of their short maturities.
F-8
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Concentration of Credit Risk:
-----------------------------
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and
cash equivalents and accounts receivable. The Company's investment
policy is to invest in low risk, highly liquid investments.
The Company utilizes the services of outside third-party billing
houses. Since the Company's receivables collected by clearing agents
are not segregated, there is a concentration risk and possible loss
upon the bankruptcy or defalcation of any clearing agent. There is no
substantial dependency on any billing house as they are utilized for
better cash flow management and compliance issues.
Additionally, the Company has depended on third-party vendors for its
telemarketing and fulfillment operations. Substantially, all of the
Company's telemarketing vendors operate their facilities outside the
United States.
Loss per Share:
---------------
The Company has adopted Financial Accounting Standards Board (FASB)
Statement No. 128, "Earnings per Share". The statement establishes
standards for computing and presenting earnings per share (EPS). It
replaced the presentation of primary EPS with a presentation of basic
EPS and also requires dual presentation of basic and diluted EPS on the
face of the income statement. The statement was retroactively applied
to the prior loss per share but did not have any effect.
Basic loss per share was computed by dividing the Company's net loss by
the weighted average number of common shares outstanding during the
period. There is no presentation of diluted loss per share as the
effect of common stock options, warrants and convertible debt amount
are antidilutive. Notes 6 and 11 discuss the issuance of warrants
issued for a debt restructure and options issued for the incentive
stock option plan. As previously stated, the issuance of the warrants
and options were anti-dilutive. The weighted average number of common
shares used to calculate loss per common share during the years ended
December 31, 2002 and 2001 was 10,503,000 shares and 7,758,693 shares,
respectively.
F-9
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Recent Accounting Pronouncements:
---------------------------------
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). This Statement addresses financial
accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, Intangible Assets. It
addresses how intangible assets that are acquired individually or with
a group of their assets should be accounted for in financial statements
upon their acquisition. This statement also addresses how goodwill and
other intangible assets should be accounted for after they have been
initially recognized in the financial statements. The provisions of
this Statement were required to be applied starting with fiscal years
beginning after December 15, 2001. The adoption of SFAS No. 142 and its
application to amounts currently included in the Corporation's balance
sheet did not have a material impact on the Corporation's accounting
and disclosures.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), and in August 2001 issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment and Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS
No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 144, which supersedes and
amends certain existing accounting and reporting pronouncements,
addresses financial accounting and reporting for the impairment or
disposal of long-lives assets. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002 and
SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001. The adoption of SFAS 143 and
144 and its application to amounts currently included in the
Corporation's balance sheet did not have a material impact on the
Corporation's accounting and disclosures.
In 2002, the Company adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock-Based Compensation--Transition and Disclosure (an
amendment to FASB Statement No. 123). SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results.
Goodwill:
---------
Goodwill represents the excess acquisition cost over the fair value of
the tangible and identified intangible net assets of the Savon and NOL
acquisitions. Goodwill is being amortized over an estimated useful life
of five years. Subsequent to December 31, 2001, the Company no longer
amortized goodwill for the NOL acquisition, but reviewed for impairment
as required in newly issued Statements of Financial Accounting
Standards previously and subsequently discussed.
F-10
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Goodwill (Continued):
---------------------
The Company performed its annual impairment test for goodwill. Goodwill
was allocated to the Company's various reporting units (subsidiaries),
which are part of the operating segment. SFAS No. 142 required the
Company to compare the fair value of goodwill to the carrying amount
and determine if impairment occurred. Impairment occurs when the fair
value of the goodwill is lower than the carrying value. Fair value was
determined by an outside valuation appraiser based on discounted cash
flows, market multiples or appraisal value as appropriate. For the year
ended December 31, 2002, there was no impairment.
During the year 2001, Savon discontinued its telecommunications
business and transferred its fixed assets to NOL. Based on the
acquisition cost, remaining goodwill after amortization was written
off.
Also, on November 30, 2001, the Company issued 2,500,000 additional
common shares to the sellers of NOL as consideration for cancellation
of the earnout provision of the original acquisition agreement. The
consideration of $5,750,000 became additional goodwill in the NOL
acquisition.
Income Taxes:
-------------
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes". SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes. Under SFAS No. 109,
deferred taxes are provided for temporary differences between the
carrying values of assets and liabilities for financial reporting and
tax purposes at the enacted rates at which these differences are
expected to reverse.
At December 31, 2002, the Company had a net operating loss carryforward
of $17,720,945. The Company's deferred tax asset relating to the net
operating loss carryforward was approximately $6,025,000. The tax
benefits recognized, must be reduced by a valuation allowance in
certain circumstances. The benefit of the Company's net operating loss
carryforwards have been reduced 100% by a valuation allowance because
of the possibility that the Company may not be able to continue as a
going concern.
F-11
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Income Taxes (Continued):
-------------------------
The deferred income tax balances were comprised of the following:
For the years ended December 31,
2002 2001
----------- -----------
Deferred tax assets: Restated
Net operating loss carryforwards $ 6,025,121 $ 5,616,490
Timing difference - goodwill 0 ( 442,054)
----------- -----------
Total gross deferred tax asset 6,025,121 5,174,436
Less: valuation allowance (6,025,121) (5,174,436)
----------- -----------
$ 0 $ 0
=========== ===========
The tax (benefit) expense for the years ended December 31, 2002 and
2001, consisted of the following:
2002 2001
----------- -----------
Current:
Federal $ 6,025,121 $ 5,616,490
State 0 0
----------- -----------
$(6,025,121) $(5,616,490)
=========== ===========
Non-Current:
Federal $ 0 $ 442,054
State 0 0
----------- -----------
$ 0 $( 442,054)
=========== ===========
Discontinued Operations:
------------------------
In March 2001, the Company discontinued operations of Savon. As
previously stated, the Company was a marketer and reseller of domestic
and international telecommunications services. The Company transferred
its furniture and fixtures at net book value to NOL who also assumed
the obligations thereon. The transaction was not material. However, the
parent did incur a substantial write down of goodwill in writing off
the Savon investment.
F-12
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Discontinued Operations (Continued):
------------------------------------
Summarized operating results of the discontinued operation are as
follows:
December 31,
2002 2001
---- ----
Sales $ - $ 1,051,659
Gross profit (loss) - 565,824
(Loss) from discontinued operation (43,318) (1,551,535)
(Loss) from discontinued operation including write-off
of goodwill - (11,678,492)
Savon and its minority interest owner, were named as defendants in a
lawsuit instituted by Savon's wholesale telecommunications carrier. The
lawsuit alleged breach of contract and other related theories and
damages. Subsequent to the initiation of the lawsuit, the plaintiff
filed Chapter 11 under the federal bankruptcy code. Savon had filed
what it believed to be valid counterclaims, which were dismissed when
the plaintiff filed Chapter 11. In August 2002, Savon also filed
Chapter 11 to stop the plaintiff's possible judgment and continuing
legal fees.
Going Concern:
--------------
As shown in the accompanying financial statements, the Company incurred
a net loss of $2,445,889 during the year ended December 31, 2002 and as
of that date, the Company's current liabilities exceeded its current
assets by $3,138,292. This raises doubt about its ability to continue
as a going concern. While the Company has been able to meet its
obligations and the revenue stream has been sufficient to do so, the
delay in collecting receivables and possible earlier payment
requirement to the telemarketers could require outside capital sources.
The Company also restructured its note payable from a demand note to a
note payable due in 2005. Without the restructuring, current
liabilities would have exceeded current assets by an additional
$2,474,000. Also, the discontinuance of the Savon segment of business
and the concentration of revenue from NOL and LOL which is in a
volatile industry subject to constant change; as well as substantial
sales growth require substantial capital. The formation of new
subsidiaries may also require additional capital.
F-13
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 2 - Summary of Significant Accounting Policies (Continued):
- ----------------------------------------------------------------
Business Segment:
-----------------
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements regarding products
and services geographic areas and major customers. SFAS No. 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources
and in assessing performance. The Company has determined that under
SFAS No. 131, it operates in one segment.
Note 3 - Accounts Receivable:
- -----------------------------
Accounts receivable at December 31, 2002 and 2001 consists of the
following:
2002 2001
---- ----
Accounts receivable - net of
holdback and reserves $6,303,320 $731,511
Accounts receivable - unbilled
receivables by LEC, Etc. 420,763 0
---------- --------
6,724,083 731,511
---------- --------
Allowance for uncollectibles 2,132,371 0
Estimated settlement liabilities 789,886 0
---------- --------
2,922,257 0
---------- --------
Accounts receivable - net $3,801,826 $731,511
========== ========
The Company's accounts receivable include the determined collectible
portion of receivables based upon reconciliation with the outside
billing services and local exchange carriers (LEC). While holdbacks and
reserves are expected to be collected, the Company has reserved
approximately fifty percent as an allowance at December 31, 2002. There
was no additional allowance provided in 2001. Additionally, based upon
notification from the billing companies, the Company reserved $789,886
at December 31, 2002 in anticipated adjustments due the billing
services as future settlements.
F-14
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 4 - Prepaid Expenses and Advances:
- ---------------------------------------
Prepaid expenses are summarized as follows:
December 31,
2002 2001
---- ----
Advance telemarketing payment $50,000 $ -
Prepaid insurance 9,940 1,666
------- ------
Total $59,940 $1,666
======= ======
Subsequent to the issuance of the Company's 2001 financial statements,
management corrected its accounting policy pursuant to which it now
expenses all telemarketing and fulfillment costs for internet programs
marketed by the Company as incurred. Previously these costs were
expensed forty-five days after they were incurred, in order to coincide
with the first billing to a customer obtained through its outside
telemarketers. As a result, the Company has restated its consolidated
balance sheet as of December 31, 2001 and the related consolidated
statements of operations, stockholders' equity and cash flows for the
year then ended. Prepaid expenses at December 31, 2001 previously
included $361,474 of prepaid telemarketing costs which have been
expensed. At December 31, 2002, prepaid telemarketing costs of $50,000
represent an advance payment to a telemarketer. Also during the
quarters ended March 31, June 30 and September 30, 2002, prepaid
expenses were restated to reflect expensing as incurred.
Note 5 - Debt Restructuring Costs:
- ----------------------------------
As discussed in Note 8, the Company issued 4,000,000 warrants to
Brookfield Investments, Ltd., to extend the grid promissory note from a
demand date until January 2005. Base upon a .25 value per warrant, the
Company has debt restructuring costs of $1,000,000. The modification of
terms of the original note require amortization over the two year
extension at $41,667 per month.
For the year ended December 31, 2002. debt restructuring costs are as
follows:
Debt restructure cost $ 1,000,000
Less: 2002 amortization ( 41,667)
-----------
958,333
Current portion - 1 year 500,000
-----------
Non-current portion $ 458,333
===========
F-15
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 6 - Property and Equipment:
- --------------------------------
Property and equipment are summarized by major classifications as
follows:
Useful Lives 2002 2001
------------ ---- ----
Machinery and equipment 5 - 7 years $353,284 $125,483
Furniture and fixtures 7 years 141,434 80,295
Leasehold improvements 5 years 17,628 2,505
-------- --------
512,346 208,283
Less: accumulated depreciation
and amortization 105,375 6,817
-------- --------
$406,971 $201,466
======== ========
Depreciation expense was $98,558 and $29,955 for the years ended
December 31, 2002 and 2001, respectively.
Note 7 - Deferred Billing Costs:
- --------------------------------
Deferred billing costs represent that portion of the Company's
fulfillment expenses which are deferred, since they relate to customers
who have not yet been billed or have a portion of their revenue which
is not yet earned.
Note 8 - Debt Restructuring:
- ----------------------------
Based upon an agreement reached in principle on November 20, 2002 the
Company entered into an agreement on December 6, 2002 to issue
3,000,000 shares of its common stock and pay all accrued interest in
July 2003 as consideration for the deferral of the demand payment
provision of the Brookfield loan. The revised payable date for the loan
is January 5, 2005. Subsequent to these negotiations, the Company and
Brookfield agreed to further modification, whereby the Company issued
warrants to Brookfield to purchase 4,000,000 shares of the Company's
common stock at an exercise price of $.50 per share. The warrants are
exercisable for three years beginning May 2003. At the time of the
original agreement in November 2002, the Company's common stock had a
market price of $.40. Based upon the Black-Scholes option price
calculation as determined by an outside valuation appraiser the value
of each warrant was $.25 and the transaction was valued at $1,000,000.
On October 31, 2001, the Company had executed a grid promissory note
and security agreement with Brookfield Investments, Ltd. Both the note
and security agreement were executed by Epixtar (formerly Global) (the
Company) and its subsidiaries; Savon, National Online and One World.
The promissory note covered loans to date as well as future advances up
to a total loan of $5,000,000. The note was payable on demand with
interest payable at 7% annually. The accounts receivable of the
companies that are part of the grid loan agreement, were covered by the
security agreement, including current and future accounts receivable up
to the unpaid loan balance. As part of the debt restructuring, all
other terms stayed in effect except the demand deferral.
F-16
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 9 - Notes Payable and Long-Term Debt:
- ------------------------------------------
In July 2002, the Company's subsidiary, National OnLine Services, Inc.
issued notes to two telemarketing vendors in the amounts of $302,532
and $101,934, respectively. The notes are payable in one year, bear
interest at 10% per annum and were given in lieu of outstanding
accounts payable.
In June 2001, the Company received loans of $2,474,000 from Brookfield
Investments, Ltd. and $175,000 from non-related parties. As discussed
further in Note 13, the Company repaid the $175,000 during 2002. At the
time of repayment, the lenders were related parties.
Long-term debt consisted of the following at December 31, 2002 and
2001:
2002 2001
---- ----
Note payable - due July 2003 - interest at 10% $ 404,466 $ 0
Note payable - due January 5, 2005 - interest at 7% 2,474,000 0
Capitalized equipment obligations with monthly
payments of $6,913 and $3,627, respectively and
interest at 7% to 14% annually 167,771 60,375
Loan payable - non-related party
non demand with interest at
7% annually - 22,212
---------- -------
3,046,237 82,587
Less: current portion 483,786 29,861
---------- -------
$2,562,451 $52,726
========== =======
Annual maturities of long-term debt are as follows:
For the year ending December 31,
2004 $64,677
2005 17,829
2006 5,945
Note 10- Accounts Payable - Subject to Compromise:
- --------------------------------------------------
As discussed in Note 2 and 15, the Company's subsidiary Savon, filed
for bankruptcy under Chapter 11. At the time of filing, Savon had
$385,401 in liabilities of which $351,263 was due to its
telecommunications carrier and related to the lawsuit initiated by the
carrier. Pre-petition liabilities are required to be segregated from
post-petition liabilities. Upon completion of a plan of reorganization
as part of Chapter 11 or change in bankruptcy status, liabilities
subject to compromise will be adjusted.
Note 11 - Deferred Revenue:
- ---------------------------
The Company's customers are billed on a thirty day cycle. Deferred
revenue represents the pro-rata portion of billings to customers that
as of year-end has not yet been earned. The Company's outside billing
services, bill customers on a weekly basis for monthly service.
F-17
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 12- Stockholders' Equity:
- ------------------------------
On March 31, 2001, the company issued 2,000,000 shares of its common
stock to acquire all of the outstanding shares of National Online
Services, Inc. ("NOL"). Transvoice Investments, Ltd. owned 80% and a
non-related party owned the remaining 20% of the outstanding shares.
The acquisition was recorded under the purchase method of accounting
and was valued at $13,000,000 based on the Company's publicly traded
stock price at the acquisition date. The acquisition agreement also
included an "Earnout Provision", whereby for the period April 1, 2001
to September 30, 2002; if NOL earned more than $1,200,000 in net income
after taxes, the Company would transfer additional shares of common
stock to the sellers having a market value of $10 per share for each
$1.00 in excess of the earnout base of $1,200,000.
On November 30, 2001, the Company and the sellers of NOL agreed to
cancel the earnout provision of the acquisition agreement. In
consideration of the cancellation, the Company issued 2,500,000 shares
of its common stock to the sellers. Based on the market value on
November 30, 2001, the transaction was valued at $5,750,000. Since the
original acquisition was accounted for as a purchase, this additional
consideration was considered goodwill.
During the year 2001, the Company issued 3,000 shares of its common
stock to a non-related party for consulting services. The fair value of
the shares issued and the contractual obligation was $13,500.
As previously discussed in Note 6, the Company issued 4,000,000
warrants with a value of $1,000,000 as consideration for its
debt-restructuring with Brookfield Investments, Ltd.
Note 13 - Related Party:
- ------------------------
As discussed in Notes 9 and 15, the Company repaid $175,000 in loans
and had a payment agreement with Transvoice Investments, Inc. During
2002, these transactions became related party events when Transvoice
Investments, Inc. acquired 5,600,000 shares of the Company's common
stock from Transvoice Investments Ltd. Transvoice Investments Ltd. was
the owner of 80% of National On Line, which the Company acquired on
November 14, 2000. The chairman of the board is one of two shareholders
in Transvoice Investments Inc.
F-18
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 14- Stock Option Plan:
- ---------------------------
Options granted under the 2001 incentive stock option plan are
exercisable at the market price at the date of grant and, subject to
termination of employment, expire five years from the date of grant,
are not transferable other than on death, and are exercisable in three
equal annual installments commencing one year from the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the grant
using a Black-Scholes option pricing model with the following weighted
average assumptions for 2002 and 2001, respectively: risk-free interest
rates of 4.08 and 3.12%, dividend yields of 0% and 0%, volatility
factors of the expected market price of the Company's common stock of
209% and 67%; and a weighted average expected life of the option of 5
years. The Black-Scholes computation was done by an outside valuation
appraiser.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
2002 2001
---- ----
Pro forma (net loss) $2,827,229 $ 0
Pro forma earnings per common share:
Basic and diluted .27 .00
F-19
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 14- Stock Option Plan (Continued):
- ---------------------------------------
A summary of the Company's stock option plan as of December 31, 2002
and 2001 is presented below:
2002 2001
----------------------------- -----------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
---------- -------------- ---------- --------------
Outstanding at the beginning of
the year 1,000,000 $2.50 -
Granted at fair value 100,000 .37 1,000,000 $2.50
Forfeited 171,000 2.50 -
Exercised - -
---------- ----- ---------- -----
Outstanding at the end of the year 929,000 1,000,000 $2.50
Options exercisable at year end 276,333 2.50 -
----- ---------- -----
Weighted-average fair value of options
Granted during the year $0.37 $1.38
Note 15- Commitments and Contingencies:
- ---------------------------------------
During 2001, the Company's subsidiary (Savon) and the minority interest
owner of Savon were named as defendants in a lawsuit instituted by
Savon's wholesale telecommunications carrier. The lawsuit alleged
breach of contract as well as other related theories and damages.
Subsequently, to the initiation of the lawsuit, the plaintiff filed
Chapter 11 under the federal bankruptcy code. Savon had filed what it
believed to be valid counterclaims, which were discussed when the
plaintiff filed Chapter 11. In August 2002. Savon filed Chapter 11 to
stop the plaintiff's possible judgment as well as continuing legal fees
it was incurring.
During 2001, the Company had a consulting agreement with a non-related
entity at $25,000 per month. The agreement which expired June 2001
provided for financial and telecommunications consulting, but could be
extended thirty months. Payments continued subsequent to June 2001. On
October 31, 2001, the Company agreed to enter into a payment agreement
with Transvoice Investments, Inc. (not related to Transvoice
Investments, Ltd. and not a related party at that time) at $150,000 per
month. The Company had previously agreed to pay through its subsidiary;
National Online; a fee of $4 per month for each continuing NOL
customer. The parties agreed to the modification in the belief that the
monthly fee would become excessive and cause a negative cash flow
effect on the Company based on the actual and anticipated signing of
customers by NOL. The modification, however, does include an additional
monthly fee of $1 per customer when the Company has in excess of
100,000 continuing customers.
F-20
EPIXTAR CORP. AND SUBSIDIARIES
FORMERLY GLOBAL ASSET HOLDINGS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note 15- Commitments and Contingencies (Continued):
- ---------------------------------------------------
As previously discussed, the Company uses telemarketing services to
obtain sales leads and customers. During the normal course of business,
the Company has received inquiries or complaints from regulatory
agencies. Despite its attempts to minimize complaints, certain states
have issued fines or temporary restraining orders. Additionally, the
Company is the subject of an investigation subpoena in Florida. While
the ultimate outcome of these matters cannot be ascertained, the
Company believes that there will not be a material adverse effect on
the Company's financial position, results of operations or cash flows.
The Company and its subsidiaries lease approximately 7,600 square feet
of office space until September 30, 2006. Rent expense for the years
ended December 31, 2002 and 2001 was $218,273 and $61,790,
respectively.
Annual rental commitments for the years ended December 31, are as
follows:
2003 $204,184
2004 211,814
2005 219,805
2006 169,436
Note 16 - Subsequent Events (Unaudited) Not Covered by Independent Auditor's
- ----------------------------------------------------------------------------
Report:
- -------
In March 2003, the Company agreed in principle to a new lease covering
existing and additional space at their location. The lease has not yet
been executed but the Company anticipates the leasing of approximately
16,800 square feet for five years beginning May 2003 at annual rentals
of $327,800 increasing to $380,000 in the final year. The Company also
has agreed to vacate approximately 2,900 square feet at the same
location, which had annual rental costs of approximately $59,000.
F-21
- ------------------------------------------------- -------------------------------------------------
You should rely only on the information contained EPIXTAR CORP.
in this document. We have not authorized anyone to
provide you with information that is different.
This document may only be used where it is legal shares of
to sell these securities. The information in this common stock
document may only be accurate on the date of this
document.
Additional risks and uncertainties not presently
known or that are currently deemed immaterial may _______________
also impair our business operations. The risks and
uncertainties described in this document and other PROSPECTUS
risks and uncertainties which we may face in the ________________
future will have a greater impact on those who
purchase our common stock from the Selling
securityholder. These purchasers will purchase our
common stock at the market price or at a privately
negotiated price and will run the risk of losing
their entire investment.
Until -----------------------------------------
all dealers that effect transactions in these
securities, whether or not participating in this
offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or
subscriptions.
_________________
2003
______________________
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
No statute, charter provisions, by-laws, contract or other arrangements that
insures or indemnifies a controlling person, director or officer of the issuer
affects his or her liability in that capacity.
Other Expenses of Issuance and Distribution.
Registration Fees:
Transfer Agent Fees:
Printing Costs:
Legal Fees:
Accounting Fees:
Sales Commissions/Finders' Fees:
Recent Sales of Unregistered Securities.
In June, 2003, the Registrant issued units of preferred stock convertible into
shares of its common in a private placement. In addition, these units included
warrants to purchase common stock of the Registrant. The Registrant believes
this issuance was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof.
In April, 2003, the Registrant issued 130,000 warrants to purchase shares of its
common stock to Sands Brothers as a result of the exercise of warrants held by
them. The Registrant believes this issuance was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
In April 2003, the Registrant issued 13,615 warrants to purchase shares of its
common stock to certain vendors and their designees in payment for amounts due
to them. The Registrant believes this issuance was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
Exhibits.
Location or
Exhibit Incorporation by
No. Description of Document Reference
- ------- ------------------------------- -----------------
2.1 Exchange Agreement for the Exhibit 10.23 to the Company's
Purchase of Part of Form 8-K filed with the
SavOnCalling.com, LLC between Commission on 11/27/2000.
Global Asset Holdings, Inc. and
Transvoice Investments, Ltd.
Dated November 14, 2000.
2.2 Exchange Agreement by and Exhibit 2.2 to the Company's Form
between Transvoice Investments 10-KSB filed with the Commisson on
Ltd., Sheldon Goldstein & Global 4/15/02
Asset Holdings, Inc. for
National Online Services, Inc.
Dated March 31, 2001
3.1(a) Certificate of Incorporation. Exhibit 3.1(a) to the
Company's Form 10-SB filed
with the Commission on 11/26/99
3.1(b) Amendments to Certificate of Exhibit 3.1(b) to the
Incorporation Company's Form 10-SB filed
with the Commission on 11/26/99
3.1(c) Amendment to Certificate of Exhibit 3.1(c) to the
Incorporation November 2002 Company's 10-KSB filed with the
Commission on
3.1(d) Amendment to Cert. of Incorporation Attached hereto
dated June 11, 2003
3.2 By-laws. Exhibit 3.2 to the Company's
Form 10-SB filed with the
Commission on 11/26/99
4.1 2001 Stock Option Plan Exhibit 4.1 to the Company's Form
10-KSB filed with the Commission on
4/15/02
4.2.1 Warrants issued to Brookfield Exhibit 4.2 to the Company's Form
Investments Ltd. Form 10-KSB filed with the Commission on
4/11/03
4.3 Securities Purchase Agreement Attached here to
Dated as of June 11, 2003 (previously
forwarded to you as May 30, i believe)
4.4 Warrant Issued in connection with Attached hereto
June 11, 2003 Private Placement
4.5 Registration Rights Agreement Attached hereto
dated as of June 11, 2003
10.1 Agreement and Release by and Exhibit 10.1 to the Company's Form
among Transvoice Investments 10-KSB filed with the Commission on
Ltd., Sheldon Goldstein and 4/15/02
Global Asset Holdings, Inc.
dated as of November 30, 2001
10.2 Brookfield Security Agreement Exhibit 10.2 to the Company's Form
dated as of October 31, 2001 10-KSB filed with the Commission on
4/15/02
10.2.1 Letter of Brookfield Exhibit 10.2.1 to the Company's Form
10-KSB filed with the Commission on 4/11/03
10.3 Payment Agreement entered into Exhibit 10.3 to the Company's Form
as of October 31, 2001 between 10-KSB filed with the Commission on
National Online Services, Inc. 4/15/02
and Trans Voice Investments, Inc.
10.3.1 Amendment to Restated Payment Exhibit 10.3.1 to the Company's Form
Agreement 10-KSB filed with the Commission on
4/11/03
10.4 Code of Ethics Exhibit 10.4 to the
Company's 10-KSB filed with the
Commission on 4/11/03
23.1 Consent of Independent
Certified Public Accountant Attached hereto
Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 15 of
this registration statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against these liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by a
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether the indemnification by it is against public
policy as expressed in the Securities Act of 1933, as amended, and will be
governed by the final adjudication of this issue.
II-1
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Miami,
State of Florida on June 30, 2003.
EPIXTAR CORP.
(Registrant)
/s/ Martin Miller Director, CEO
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By (Signatures and Title)
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated:
/s/ Irving Greenman
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(Signature)
Director, CFO
- -------------------------------------------------------------------------------
(Title)
6/30/03
- ---------------------------------------------------------------------
(Date)
/s/ William D. Rhodes
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(Signature)
Director, President
- -------------------------------------------------------------------------------
(Title)
6/30/03
- ---------------------------------------------------------------------
(Date)
/s/ David Srour
- -------------------------------------------------------------------------------
(Signature)
Director, Exec. V.P.
- -------------------------------------------------------------------------------
(Title)
6/30/03
- ---------------------------------------------------------------------
(Date)
/s/ Kenneth Elan
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(Signature)
Director
- -------------------------------------------------------------------------------
(Title)
6/30/03
- ---------------------------------------------------------------------
(Date)
/s/ David Berman
- -------------------------------------------------------------------------------
(Signature)
Director
- -------------------------------------------------------------------------------
(Title)
6/30/03
- ---------------------------------------------------------------------
(Date)