As filed with the Securities and Exchange Commission on July 28, 2005
An Exhibit List can be found on page II-6.
Registration No. 333-116648
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Post Effective Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLOBAL AXCESS CORP
(Name of small business issuer)
Nevada 7299 88-0199674
(State or other jurisdiction (Primary standard (IRS Employer
of incorporation) industrial code number) identification number)
224 Ponte Vedra Park Drive
Ponte Vedra Beach, Florida 32082
(904)-280-3950
(Address and telephone number of principal executive offices
and principal place of business)
Michael Dodak, Chief Executive Officer
GLOBAL AXCESS CORP
224 Ponte Vedra Park Drive
Ponte Vedra Beach, Florida 32082
(904)-280-3950
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor.
New York, New York 10018
(212) 930-9700 (212)
930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any 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, 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,
please check the following box. [ ]
i
CALCULATION OF REGISTRATION FEE
- ------------------------------ ------------------------ --------------------------- ---------------------------- -------------------
Title of each class of Amount to be Proposed maximum offering Proposed maximum Amount of
securities to be registered registered price per share (1) aggregate offering price registration fee
- ------------------------------ ------------------------ --------------------------- ---------------------------- -------------------
Common stock 14,624,175 $2.75 $40,216,481.25 $5,103.60
- ------------------------------ ------------------------ --------------------------- ---------------------------- -------------------
Common stock issuable upon
exercise of common stock
purchase warrants 10,317,811 $2.75 $28,373,980.25 $3,600.75
- ------------------------------ ------------------------ --------------------------- ---------------------------- -------------------
Total 24,941,986 $8,704.35*
- ------------------------------ ------------------------ --------------------------- ---------------------------- -------------------
*Previously paid.
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and 457(g) under the Securities Act of 1933, using
the average of the high and low price as reported on the Over-The-Counter
Bulletin Board on June 29, 2004, which was $2.75 per share.
EXPLANATORY NOTE
THIS FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK.
RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY
REGISTERED ON FORM SB-2 FILED ON JULY 2, 2004. IN ACCORDANCE WITH THE PURCHASE
AGREEMENTS ENTERED WITH EACH OF OUR INVESTORS, WE ARE OBLIGATED TO MAINTAIN AN
EFFECTIVE REGISTRATION STATEMENT FOR A SPECIFIC PERIOD OF TIME.
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.
ii
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 28, 2005
GLOBAL AXCESS CORP.
24,941,986 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
24,941,986 shares of our common stock, including 14,624,175 shares of common
stock and up to 10,317,811 issuable upon the exercise of common stock purchase
warrants. The selling stockholders may sell common stock from time to time in
the principal market on which the stock is traded at the prevailing market price
or in negotiated transactions. The selling stockholders may be deemed
underwriters of the shares of common stock, which they are offering. We will pay
the expenses of registering these shares.
THIS FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK.
RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY
REGISTERED ON FORM SB-2 FILED ON JULY 2, 2004. IN ACCORDANCE WITH THE PURCHASE
AGREEMENTS ENTERED WITH EACH OF OUR INVESTORS, WE ARE OBLIGATED TO MAINTAIN AN
EFFECTIVE REGISTRATION STATEMENT FOR A SPECIFIC PERIOD OF TIME.
Our common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the
symbol "GAXC". The last reported sales price per share of our common stock as
reported by the Over-The-Counter Bulletin Board on July 14, 2005, was $1.44.
Investing in these securities involves significant risks. See "Risk Factors"
beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _________, 2005.
The information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by Global
Axcess Corp., with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
1
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
GLOBAL AXCESS CORP
Through our wholly owned subsidiaries, we provide various services through our
automated teller machine (ATM) network. In addition, we also provide processing
services. We currently own, operate or provide management services to 3,500 ATMs
in our network spanning 42 states. We also provide proprietary ATM branding and
processing for 66 financial institutions with 583 branded sites nationwide.
Additionally, through a wholly owned subsidiary, we provide processing services
for approximately 850,000 transactions per month. For the year ended December
31, 2004, we generated net income of $1,139,889 as compared to $309,866 for the
comparable period in 2003. In addition, for the three months ended March 31,
2005, we generated net income of $178,918 as compared to net income of $90,170
for the comparable periods in 2003.
Our principal offices are located at 224 Ponte Vedra Park Drive, Ponte Vedra
Beach, Florida 32082 and our telephone number is (904) 280-3950. We are a Nevada
corporation.
- ------------------------------------------------------------ -----------------------------------------------------------------------
The Offering
- ------------------------------------------------------------ -----------------------------------------------------------------------
Common stock offered by selling stockholders............... 24,941,986 shares of common stock, including 14,624,175 shares of
common stock and up to 10,317,811 shares of common stock underlying
common stock purchase warrants. This number represents 137% of our
total number of shares outstanding assuming the exercise of all
common stock purchase warrants.
- ------------------------------------------------------------ -----------------------------------------------------------------------
Common stock to be outstanding after the offering........... Up to 24,941,986 shares assuming the exercise of all common stock
purchase warrants.
- ------------------------------------------------------------ -----------------------------------------------------------------------
Use of proceeds............................................. We will not receive any proceeds from the sale of the common stock.
However, we will receive the exercise price for any shares of common
stock delivered in connection with the exercise of the common stock
purchase warrants. We expect to use the proceeds received from the
exercise of the common stock purchase warrants, if any, for general
working capital purposes and acquisitions.
- ------------------------------------------------------------ -----------------------------------------------------------------------
OTCBB Symbol................................................ GAXC
- ------------------------------------------------------------ -----------------------------------------------------------------------
The above information regarding common stock to be outstanding after the
offering is based on 18,210,736 shares of common stock outstanding as of June
27, 2005 and assumes the exercise of warrants by our selling stockholders.
2
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment. There are a number of factors that are not identified herein
could have a negative effect. Among the factors that could cause actual results
to differ materially are the following:
o Changes in laws or card association rules affecting our ability to
impose surcharge fees, and continued customer willingness to pay
surcharge fees;
o Our ability to form new strategic relationships and maintain
existing relationships with issuers of credit cards and national and
regional card organizations;
o Our ability to expand our ATM base and transaction processing
business;
o The availability of financing at reasonable rates for vault cash and
for other corporate purposes, including funding our expansion plans;
o Our ability to maintain our existing relationships with Food Lion
and Kash and Karry;
o Our ability to keep our ATMs at other existing locations at
reasonable rental rates and to place additional ATMs in preferred
locations at reasonable rental rates;
o The extent and nature of competition from financial institutions,
credit card processors and third party operators, many of whom have
substantially greater resources;
o Our ability to maintain our ATMs and information systems technology
without significant system failures or breakdowns;
o Our ability to develop new products and enhance existing products to
be offered through ATMs, and our ability to successfully market
these products;
o Our ability to identify suitable acquisition candidates, to finance
and complete acquisitions and to successfully integrate acquired
assets and businesses into existing operations;
o Our ability to retain senior management and other key personnel; o
Our ability to comply with mandated Triple DES configuration; and
o Changes in general economic conditions.
If any of these risk factors occur, they could adversely affect our company and
may have a negative impact on our actual future results.
Risks Relating to Our Company
We have a limited operating history which may not be an indicator of our future
results
As a result of our limited operating history, our plan for rapid growth, and the
increasingly competitive nature of the markets in which we operate, the
historical financial data is of limited value in evaluating its future revenue
and operating expenses. Our planned expense levels will be based in part on
expectations concerning future revenue, which is difficult to forecast
accurately based on current plans of expansion and growth. We may be unable to
adjust spending in a timely manner to compensate for any unexpected shortfall in
revenue. Further, general and administrative expenses may increase significantly
as we expand operations. To the extent that these expenses precede, or are not
rapidly followed by, a corresponding increase in revenue, our business,
operating results, and financial condition will suffer.
We are dependent upon a few key personnel and their loss may negatively impact
our results from operations
Our success depends upon the continued contributions of certain key personnel,
including, among others, Michael Dodak, our Chief Executive Officer, and David
Fann, our President, who may be difficult to replace because of their extensive
experience in their fields, extensive market contacts and familiarity with our
activities. While we believe we have sufficient cross expertise, if any key
management employee were to cease employment, our operating results may suffer.
Our future success also depends in large part upon its ability to hire and
retain additional highly skilled managerial, operational and marketing
personnel. Should we be unable to attract and retain skilled personnel, our
performance may suffer.
The termination of our contract with our major customer could negatively impact
our results of operations and may result in our ceasing operations
Our contract with a major customer (Food Lion) expired in September 2001. We
signed new contracts with Food Lion, and an affiliated company, Kash n Karry, in
November 2001. The new contracts included the sites then operating of
approximately 550, and included an additional 400 sites. The new contracts were
for a five-year period for both the existing sites and the new sites. During
fiscal year 2003, we renegotiated these contracts to extend the lives until
April 2011 and have in service approximately 696 ATM sites. The sites maintained
by Food Lion and Kash n Karry constitute approximately 22% of our total sites
and 33% of our total ongoing revenues. Historically, these sites have generated
average revenue per site in excess of other sites. If we were to lose the Food
Lion and Kash n Karry accounts, our revenues would be substantially affected.
3
The continued growth and acceptance of debit cards as a means of payment could
negatively impact our results of operations
The use of debit cards by consumers has been growing. Consumers use debit cards
to make purchases from merchants, with the amount of the purchase automatically
deducted from the consumers' checking accounts. An increasing number of
merchants are accepting debit cards as a method of payment, and are also
permitting consumers to use the debit cards to obtain cash. The increasing use
of debit cards to obtain cash may reduce the number of cash withdrawals from our
ATMs, and may adversely affect our revenues from surcharge fees. A continued
increased in the use and acceptance of debit cards could have a material adverse
effect on our business, results of operations and financial condition.
Any regulation or elimination of surcharge or interchange fees could have a
materially adverse impact on our results of operations
There have been various efforts by both consumer groups and various legislators
to eliminate surcharge fees, which comprise a large portion of our revenue. In
the event that surcharges are terminated, the revenue generated from cash
withdrawal transactions would be significantly reduced and would cause
irreparable harm to our results of operations. There have also been efforts by
various legislators to eliminate interchange fees. Although this would have a
negative immediate impact, we believe, although we cannot guarantee, that the
industry will respond by increasing surcharge fees to make up the loss in
interchange fees. In the event that the loss of interchange fees could not be
passed through via an increase in surcharge fees, the elimination of interchange
would severally impact our company.
Mergers, acquisitions and personnel changes at financial institutions and
electronic funds transfer networks and independent sales organizations may
adversely affect our business, financial condition and results of operations
Currently, the banking industry is consolidating, causing the number of
financial institutions and ATM networks to decline. This consolidation could
cause us to lose:
o current and potential customers;
o market share if the combined entity determines that it is more
efficient to develop in-house products and services similar to ours
or use our competitors' product and services; and
o revenue if the combined institution is able to negotiate a greater
volume discount for, or discontinue the use of, our products and
services.
For example, one of the larger customers of our electronic transaction
processing business, the STAR Network, has been purchased by one of our
competitors, Concord EFS. Although we have a multi-year processing contract with
STAR, we cannot presently predict the possible long-term impact of this
acquisition on our business with certainty. The loss of STAR as a processing
customer would have an adverse effect on our business
The ATM and electronic transaction processing industries are increasingly
competitive, which could adversely impact our results from operations and
financial condition.
The ATM business is and can be expected to remain highly competitive. While our
principal competition comes from national and regional banks, we also compete
with independent ATM companies. All of these competitors offer services similar
to or substantially the same as those offered by our company. Most of these
competitors are larger, more established and have greater financial and other
resources than our company. Such competition could prevent us from obtaining or
maintaining desirable locations for our machines or could cause us to reduce our
user fees generated by our ATMs or could cause our profits to decline.
The independent ATM business has become increasingly competitive since entities
other than banks have entered the market and relatively few barriers exist to
entry. We face intense competition from a number of companies. Further, we
expect that competition will intensify as the movement towards increasing
consolidation within the financial services industry continues. Many of our
competitors have significantly greater financial, technical and marketing
resources, greater name recognition and a larger installed customer base than we
do.
In the market for electronic transaction processing, the principal factors on
which we compete are price and service levels. The future growth of our revenues
in this market is dependent upon securing an increasing volume of transactions.
If we cannot control our transaction processing expenses, we may not remain
price competitive and our revenues will be adversely affected.
In addition to our current competitors, we expect substantial competition from
established and new companies. We cannot assure you that we will be able to
compete effectively against current and future competitors. Increased
competition could result in price reductions, reduced gross margins or loss of
market share.
4
If our computer network and data centers were to suffer a significant
interruption, our business and customer reputation could be adversely impacted
and result in a loss of customers
Our ability to provide reliable service largely depends on the efficient and
uninterrupted operations of our computer network systems and data centers. Any
significant interruptions could severely harm our business and reputation and
result in a loss of customers. Our systems and operations could be exposed to
damage or interruption from fire, natural disaster, power loss,
telecommunications failure, unauthorized entry and computer viruses. Although we
have taken steps to prevent a system failure, we cannot be certain that our
measures will be successful and that we will not experience system failures.
Further, our property and business interruption insurance may not be adequate to
compensate us for all losses or failures that may occur.
We may be unable to protect our intellectual property rights, which could have a
negative impact on our results of operations
Despite our efforts to protect our intellectual property rights, third parties
may infringe or misappropriate our intellectual property rights, or otherwise
independently develop substantially equivalent products and services. The loss
of intellectual property protection or the inability to secure or enforce
intellectual property protection could harm our business and ability to compete.
We rely on a combination of trademark and copyright laws, trade secret
protection and confidentiality and license agreements to protect our trademarks,
software and know-how. We have also applied for patent protection on some of the
features of our newer products. We may be required to spend significant
resources to protect our trade secrets and monitor and police our intellectual
property rights.
Third parties may assert infringement claims against us in the future. In
particular, there has been a substantial increase in the issuance of business
process patents for Internet-related business processes, which may have broad
implications for all participants in Internet commerce. Claims for infringement
of these patents are becoming an increasing source of litigation. If we become
subject to an infringement claim, we may be required to modify our products,
services and technologies or obtain a license to permit our continued use of
those rights. We may not be able to do either of these things in a timely manner
or upon reasonable terms and conditions. Failure to do so could seriously harm
our business and operating results. In addition, future litigation relating to
infringement claims could result in substantial costs to us and a diversion of
management resources. Adverse determinations in any litigation or proceeding
could also subject us to significant liabilities and could prevent us from using
some of our products, services or technologies.
Risks Related To Our Stock
The substantial number of shares that are or will be eligible for sale,
including the 24,941,986 shares of common stock being registered pursuant to
this prospectus, which, assuming the exercise of all of our warrants, would
represent 137% of our total outstanding shares, could cause our common stock
price to decline even if we are successful.
Sales of significant amounts of common stock in the public market, or the
perception that such sales may occur, could materially affect the market price
of our common stock. These sales might also make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem appropriate. As of June 27, 2005, we have outstanding warrants to
purchase 10,317,811 shares which are being registered pursuant to this
prospectus and we are also registering 14,624,175 shares of common stock
pursuant to our prospectus. Assuming the exercise of all of our warrants, the
shares being registered pursuant to this prospectus would represent 137% of our
total outstanding.
We have anti-takeover provisions, which could inhibit potential investors or
delay or prevent a change of control that may favor you.
Some of the provisions of our certificate of incorporation, our bylaws and
Nevada law could, together or separately, discourage potential acquisition
proposals or delay or prevent a change in control. In particular, our board of
directors is authorized to issue up to 5,000,000 shares of preferred stock (less
any outstanding shares of preferred stock) with rights and privileges that might
be senior to our common stock, without the consent of the holders of the common
stock.
Our common stock is subject to the "Penny Stock" rules of the SEC and the
trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
5
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
6
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
could receive funds upon exercise of the common stock purchase warrants held by
the selling stockholders. We expect to use the proceeds received from the
exercise of the common stock purchase warrants, if any, for general working
capital purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We are authorized to issue a total of 45,000,000 shares of common stock, and
5,000,000 shares of preferred stock. We do not currently have any shares of our
preferred stock outstanding. Our common stock is traded on the Over-the-Counter
Bulletin Board under the symbol "GAXC". As of June 27, 2005, there were
18,210,736 shares of our common stock issued and outstanding.
On June 27, 2005, there were 717 registered holders of record of our common
stock. Because many of such shares are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders. The following table sets forth
the high and low sales price per share of our common stock.
Price Range
------------
High Low
------ ----
Fiscal 2005:
First Quarter $ 1.85 1.45
Second Quarter 1.60 1.05
Fiscal 2004:
First Quarter $ 6.05 2.25
Second Quarter 3.40 2.55
Third Quarter 2.75 1.40
Fourth Quarter 1.85 1.30
Fiscal 2003:
First Quarter $ .75 .30
Second Quarter 1.45 1.25
Third Quarter 1.65 .85
Fourth Quarter 1.80 1.50
We have paid no dividends on our common stock during the fiscal year ended
December 31, 2003, or during any period of the Company's existence.
The declaration of future dividends, whether in cash or in-kind, is within the
discretion of the Board of Directors and will depend upon business conditions,
our results of operations, our financial condition, and other factors.
7
Securities authorized for issuance under equity compensation plans:
As of December 31, 2004, we had the following securities authorized for issuance
under the equity compensation plans:
Number of Weighted-average Number of securities
Plan Category Securities to be exercise price of remaining available
issued upon outstanding for future issuance
exercise of options, warrants under equity
outstanding and rights compensation plans
options, warrants (excluding
and rights securities reflected
in column (a)
Equity compensation plans approved by security holders
Stock Options 2,444,700 $ 1.40 1,055,300
Warrants 10,815,868 $ 2.75 --
Equity compensation plans not approved by security holders -- -- --
Total 12,821,990 $ 4.10 887,100
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
Some of the information in this Form SB-2 contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
Critical Accounting Policies
The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend our business activities. To aid
in that understanding, management has identified our "critical accounting
policies". When more than one accounting principle, or the method of its
application, is generally accepted, management selects the principle or method
that is appropriate in the specific circumstances. Application of these
accounting principles requires our management to make estimates about the future
resolution of existing uncertainties. As a result, actual results could differ
from these estimates. Accordingly, these policies have the potential to have a
significant impact on our consolidated financial statements, either because of
the significance of the consolidated financial statement item to which they
relate, or because they require judgment and estimation due to the uncertainty
involved in measuring, at a specific point in time, events which are continuous
in nature. In preparing these consolidated financial statements, management has
made its best estimates and judgments of the amounts and disclosures included in
the consolidated financial statements. Except as separately discussed, we do not
believe there is a great likelihood that materially different amounts would be
reported under different conditions or by using different assumptions pertaining
to the accounting policies described below.
Revenue Recognition Policies. We recognize revenues as ATM cardholders use ATMs
or as services are rendered to customers. When the customer accepts the
convenience fee, also known as surcharge fees, and performs a transaction on the
ATM, revenue can then be recognized since that transaction is then captured by
the Company's database. In connection with recording revenue, estimates and
assumptions are required in determining the expected conversion of the revenue
streams to cash collected. The reserve estimation process requires that
management make assumptions based on historical results, future expectations,
the industry's economic and competitive environment, changes in the
creditworthiness of our customers, and other relevant factors. Revenues are also
adjusted with positive and negative processing accruals occurring in the
operation of the Company's ATM network in the ordinary course of business. It is
the policy of the Company to book as revenue all surcharge and interchange it
receives, whether for its owned ATMs or for those it manages. In the case of
managed ATMs, the Company then books as a commission all monies paid to the
owners of the ATMs. Where the Company provided only processing services through
it's wholly owned subsidiary, EFT Integration, the Company only records the fees
it charges to its customers as revenue. During consolidation of the financial
statements the Company eliminates the revenue earned by EFT Integration for the
processing of Company owned or managed ATMs. Surcharge fees are fees assessed
directly to the consumer utilizing the ATM terminals owned by the Company. The
surcharge fees assessed range from $1.50 to $2.50 based upon a cash withdrawal
transaction from the ATM terminals.
Interchange fees are fees assessed directly to the card issuer of the consumer.
The interchange fees are comprised of two fees: (1) an interchange fee ranging
from approximately $0.40 to $0.55 based upon each cash withdrawal transaction;
and (2) an interchange fee ranging from approximately $0.15 to $0.25 based upon
an account inquiry by the consumer.
Processing fees are earned by EFT Integration (EFTI), a wholly owned subsidiary
of the Company, for the switching of transactions between the ATMs and the
cardholders bank(s). The processing fees earned by EFTI for the switching of
transactions for Nationwide Money Services, Inc.'s ATMs are eliminated at time
of consolidation. However, EFTI switches transactions for companies other than
Nationwide Money Services.
Management fees are charged to various companies or individuals that use the
services of Nationwide Money Services to operate their ATMs. These fees are for
services such as cash management, project management and account management.
Software sales and services are recorded when complete, shipped and invoiced.
9
Allowance of Uncollectible Accounts Receivable. Merchants and investors have
been historically billed for reimbursable expenses of the Company as part of
negotiated contracts. The accounts receivable, for these reimbursed expense
invoices, have been historically reduced by an allowance for amounts that may
become uncollectible in the future. The Company reviews the accounts receivable
on a regular basis to determine the collectability of the accounts. The Company
reserves for accounts that have aged over 90 days and are no longer an active
account.
Equipment. ATM equipment comprises a significant portion of our total assets.
Changes in technology or changes in our intended use of these assets may cause
the estimated period of use or the value of these assets to change. We perform
annual internal studies to confirm the appropriateness of estimated economic
useful lives for each category of current equipment. Estimates and assumptions
used in setting depreciable lives require both judgment and estimates.
Goodwill
In July 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets,' which was required to be adopted for fiscal 2002. SFAS No. 142
established accounting and reporting standards for goodwill and intangible
assets resulting from business combinations. SFAS No. 142 included provisions
discontinuing the periodic amortization of, and requiring the assessment of the
potential impairments of, goodwill (and intangible assets deemed to have
indefinite lives). As SFAS No. 142 replaced the measurement guidelines for
goodwill impairment, goodwill not considered impaired under previous accounting
literature may be considered impaired under SFAS No. 142. SFAS No. 142 also
required that the Company complete a two-step goodwill impairment test. The
first step compared the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of a reporting unit exceeded its
carrying amount, goodwill is not considered to be impaired and the second step
was not required. SFAS 142 required completion of this first step within the
first three months of initial adoption and annually thereafter. If the carrying
amount of a reporting unit exceeded its fair value, the second step is performed
to measure the amount of impairment loss. The second step compared the implied
fair value of goodwill to the carrying value of a reporting unit's goodwill. The
implied fair value of goodwill is determined in a manner similar to accounting
for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting
unit. The excess of the fair value of the reporting unit over the amounts
assigned to the assets and liabilities is the implied fair value of goodwill.
This allocation process was only performed for purposes of evaluating goodwill
impairment and did not result in an entry to adjust the value of any assets or
liabilities. An impairment loss is recognized for any excess in the carrying
value of goodwill over the implied fair value of goodwill.
Asset Impairment
The Company reviews long-lived assets for impairment under SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Long-lived
assets to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The carrying amount of a long-lived asset is not recoverable if
it exceeds the sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset. Long-lived assets to be disposed of
are reported at the lower carrying amount or fair value less cost to sell.
During the year ended December 31, 2004, the Company determined that there were
no long-lived assets that were impaired.
In July 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets,' which was required to be adopted for fiscal 2002. SFAS No. 142
established accounting and reporting standards for goodwill and intangible
assets resulting from business combinations. SFAS No. 142 included provisions
discontinuing the periodic amortization of, and requiring the assessment of the
potential impairments of, goodwill (and intangible assets deemed to have
indefinite lives). As SFAS No. 142 replaced the measurement guidelines for
goodwill impairment, goodwill not considered impaired under previous accounting
literature may be considered impaired under SFAS No. 142. SFAS No. 142 also
required that the Company complete a two-step goodwill impairment test. The
first step compared the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of a reporting unit exceeded its
carrying amount, goodwill is not considered to be impaired and the second step
was not required. SFAS 142 required completion of this first step within the
first six months of initial adoption and annually thereafter. If the carrying
amount of a reporting unit exceeded its fair value, the second step is performed
to measure the amount of impairment loss. The second step compared the implied
fair value of goodwill to the carrying value of a reporting unit's goodwill. The
implied fair value of goodwill is determined in a manner similar to accounting
for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting
unit. The excess of the fair value of the reporting unit over the amounts
assigned to the assets and liabilities is the implied fair value of goodwill.
This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or
liabilities. An impairment loss is recognized for any excess in the carrying
value of goodwill over the implied fair value of goodwill.
Intangible assets with finite lives are stated at cost, net of accumulated
amortization, and are subject to impairment testing under certain circumstances
in accordance with SFAS No. 144 and other applicable pronouncements. These
assets are amortized on the straight-line and accelerated methods, as
appropriate, over their estimated useful lives or period of expected benefit.
Intangible assets with indefinite lives are subject to periodic impairment
testing in accordance with SFAS No. 142.
10
The second step compared the implied fair value of goodwill to the carrying
value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the
allocation of the assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair value of the
reporting unit over the amounts assigned to the assets and liabilities is the
implied fair value of goodwill. This allocation process is only performed for
purposes of evaluating goodwill impairment and does not result in an entry to
adjust the value of any assets or liabilities. An impairment loss is recognized
for any excess in the carrying value of goodwill over the implied fair value of
goodwill.
Overview
Through our wholly owned subsidiaries, we own and operate Automatic Teller
Machines ("ATM") with locations primarily in the Eastern United States. Our
revenues are principally derived from two types of fees, which we charge for
processing transactions on our ATM network. We receive an interchange fee from
the issuer of the credit or debit card for processing a transaction when a
cardholder uses an ATM in our network. In addition, in most cases we receive a
surcharge fee from the cardholder when the cardholder makes a cash withdrawal
from an ATM in our network.
Interchange fees are processing fees that are paid by the issuer of the credit
or debit card used in a transaction. Interchange fees vary for cash withdrawals,
balance inquiries, account transfers or uncompleted transactions, the primary
types of transactions that are currently processed on ATMs in our network. The
maximum amount of the interchange fees is established by the national and
regional card organizations and credit card issuers with whom we have a
relationship. We receive interchange fee for transactions on ATMs that we own,
but sometimes we rebate a portion of the fee to the owner of the ATM location
under the applicable lease for the ATM site. We also receive the interchange fee
for transactions on ATMs owned by third party vendors included within our
network, but we rebate all or a portion of each fee to the third party vendor
based upon negotiations between us. The interchange fees received by us vary
from network to network and to some extent from issuer to issuer, but generally
range from $0.15 to $0.55 per cash withdrawal. Interchange fees for balance
inquiries, account transfers and denied transactions are generally substantially
less than fees for cash withdrawals. The interchange fees received by us from
the card issuer are independent of the service fees charged by the card issuer
to the cardholder in connection with ATM transactions. Service fees charged by
card issuers to cardholders in connection with transactions through our network
range from zero to as much as $2.50 per transaction. We do not receive any
portion of these service fees.
In most markets we impose a surcharge fee for cash withdrawals. Surcharge fees
are a substantial additional source of revenue for us and other ATM network
operators. The surcharge fee for ATMs in our network ranges between $1.50 and
$2.50 per withdrawal. The surcharge fee for other ATMs in our network ranges
between $0.50 and $7.50 per withdrawal. We receive the full surcharge fee for
cash withdrawal transactions on ATMs that we own, but often we rebate a portion
of the fee to the owner of the ATM location under the applicable lease for the
ATM site. We also receive the full surcharge fee for cash withdrawal
transactions on ATMs owned by third party vendors included within our network,
but we rebate a all or a portion of each fee to the third party vendor based
upon a variety of factors, including transaction volume and the party
responsible for supplying vault cash to the ATM.
In addition to revenues derived from interchange and surcharge fees, we also
derive revenues from providing network management services to third parties
owning ATMs included in our ATM network. These services include 24 hour
transaction processing, monitoring and notification of ATM status and cash
condition, notification of ATM service interruptions, in some cases, dispatch of
field service personnel for necessary service calls and cash settlement and
reporting services. The fees for these services are paid by the owners of the
ATMs.
Interchange fees are credited to us by networks and credit card issuers on a
monthly basis and are paid to us in the following month by the 10th business
day. Surcharge fees are charged to the cardholder and credited to us by networks
and credit card issuers on a daily basis. We periodically rebate the portion of
these fees owed to ATM owners and owners of ATM locations. Fees for network
management services are generally paid to us on a monthly basis.
Our mission is to become a leading global ATM network and services provider
through network acquisition and internal development of value-added turnkey,
consumer and business-to-business transaction solutions and products. We believe
we are positioning ourselves to leverage our advanced technology, internal
processing, economies of scale and industry knowledge to capture a larger
portion of the non-bank ATM market. Importantly, having both project management
and transaction processing allows us to successfully compete in our industry.
When coupled with third-party products, we will be in a position to increase the
financial services offered by the ATM. These future financial and digital-based
products will be targeted towards the traditional ATM customer, as well as
potential new ATM customers. Although we have historically focused our
operations mainly in the Eastern region of the United States, we have commenced
expansion of our operations throughout the U.S.
Comparison of Results of Operations for the Three Months Ended March 31, 2005
and 2004
Revenues. We reported total revenue of $4,717,836 for the three month period
ended March 31, 2005 as compared to $2,800,481 for the three month period ended
March 31, 2004, respectively. This increase in the three month revenue is mainly
due to higher surcharge and interchange revenue from newly acquired ATM merchant
locations and increased internal sales of ATMs.
11
Cost of Revenues. Our total cost of revenues increased from $1,577,667 to
$2,704,439 in the three month periods ended March 31, 2004 and 2005,
respectively. Both the continued growth in our Branded Partners, and the
acquisitions during 2004 has had a significant impact on the level of the cost
of revenues for the three month period ending March 31, 2005. These factors have
increased the costs from 56.3% of total revenue for the three months ended March
31, 2004, to 57.3% of total revenue for the three months ended March 31, 2005.
Gross Margin. Gross profit as a percentage of revenue for the three month period
ended March 31, 2005 and 2004 was 42.7% or $2,013,397 and 43.7% or $1,222,814,
respectively.
Operating Expenses. Total operating expenses for the three months ended March
31, 2005 and 2004, were $1,712,938 and $1,111,503, respectively. The principal
components of operating expenses are professional fees, administrative salaries
and benefits, depreciation and amortization, consulting fees, occupancy costs,
sales and marketing expenses and administrative expenses. The increase during
the three months ended March 31, 2005 is mainly attributable to investment by
our company into two of its subsidiaries; Electronic Payment and Transfer, Corp.
and Axcess Technology, Corp. These investments made up 67% of the increase for
the similar period ended March 31, 2004. There was a slight increase in
depreciation and amortization due to the acquisitions during the first and
fourth quarters of 2004. There were also increases in investment relations,
audit and professional fees, salaries and wages, and employee taxes and benefits
during the three month period ending March 31, 2005 as compared to the similar
period ended March 31, 2004.
Income from Operations. We had income from operations for the three month period
ending March 31, 2005 in the amount of $300,459 as compared to income from
operations of $111,311 in the three month period ended March 31, 2004. The
increase in income from operations reported was mainly due to higher revenues
noted above.
Interest Expense. Interest expense increased for the three month period ending
March 31, 2005 to $121,541 from $21,141 for the three month period ending March
31, 2004. The increase in interest expense was caused by the additional loans
and leases acquired during the 2004 acquisitions and an increase in the number
of ATM leases as compared to 2004.
Income before Taxes. Net income before taxes of $178,918 for the three month
period ended March 31, 2005; as compared to income before taxes of $90,170 for
the three month period end March 31, 2004.
Income Taxes. We paid no income taxes in either of the respective periods ending
March 31, 2005 and 2004. This was a result of a net operating loss carry-forward
from 2001 of $6,623,640. We have unused operating loss carry forwards which will
expire in various periods through 2022.
Comparison of Results of Operations for the Fiscal Years Ended December 31, 2004
and 2003
Revenues. Our total revenues increased 36% to $13,907,950 for the fiscal year
ended December 31, 2004 ("fiscal 2004") from $10,201,765 for the fiscal year
ended December 31, 2003 ("fiscal 2003"). This increase is due to a number of
factors, but is mainly due to two main factors:
o added revenue generated from the three acquisitions during fiscal
2004; and
o from internal growth with increased locations.
Cost of Revenues. Our total cost of revenues increased by 29% from $6,377,846 or
62.5% of revenue to $8,204,890 or 59% of revenue in fiscal years ending December
31, 2003 and 2004, respectively. The principal components of cost of revenues
are cost of cash and cash replenishment, maintenance, producing salaries,
telecommunication services and transaction processing charges, interchange and
surcharge rebates and ATM site rentals. The decrease in cost of revenues is
mainly attributable to three factors: the reduction of unprofitable site
locations; the increase in branded cash locations under the Branded Cash
Program; and the addition of higher margin ATM merchant locations
The branded cash program saw an increase in the umber of financial institutions
to 66, an increase in fiscal 2004 of 32, from 34 at the end of fiscal 2003. The
number of sites increased from 352 branded ATM sites in fiscal 2003, to over 583
Branded Cash sites in fiscal 2004.
The acquisition of over 900 ATM merchant locations early in fiscal year 2004
added gross margins from that acquisition of approximately 70%, thus reducing
the weighted average of cost of revenues from fiscal year 2003.
Gross Margin. Gross profit as a percentage of revenues was 37.5% in 2003 and 41%
in 2004. The increase in fiscal 2004 was caused by a number of factors,
including the factors listed above in Cost of Revenue.
Operating Expenses. Our total operating expenses increased to $5,162,056 or
37.1% of revenue in fiscal 2004 from $3,665,794 or 35.9% of revenue in fiscal
2003. The principal components of operating expenses are general and
administrative expenses such as professional fees, administrative salaries and
benefits, consulting fees, occupancy costs, sales and marketing expenses and
administrative expenses. Operating expenses also includes depreciation and
amortization.
12
The increase in operating expenses is mainly attributable to increases in
selling, general and administrative expenses as a result of increases in
development costs for Electronic Payment & Transfer Corp., acquisition overhead
costs, and increases in investment relations, security systems costs, audit and
professional fees, salaries and wages, employee taxes and benefits during the
fiscal period 2004. In addition, there was a significant increase in
amortization of intangible merchant contracts from the acquisitions during the
year in the amount of $368,766 as compared to 2003.
Depreciation and Amortization. Depreciation and amortization has increased in
fiscal year 2004 to $1,159,561 from $790,795 in fiscal year 2003. This increase
in depreciation and amortization expense was due to several factors:
o the first is an increase in ATM equipment and developed software,
purchased and acquired during fiscal year 2004, whereby fixed
assets, net, have grown from $1,840,792 in fiscal year 2003 to
$4,945,588 in fiscal year 2004; and
o secondly, there was an increase in amortization of merchant
contracts purchased during the fiscal year 2004, with merchant
contract assets increasing from $1,170,017 in fiscal year 2003, to
$8,632,895 in fiscal year 2004.
See Financial Statement Footnotes #1 Significant Account Policies and #5
Intangible Assets, regarding the amortization of intangible merchant contracts.
Interest Expense. Interest expense has increased to $188,411 or 1.35% of revenue
in fiscal 2004 from $108,082 or 1.06% or revenue in fiscal 2003. This was mainly
due to the increased bank loans and notes of $4,121,346 in fiscal year 2004 from
$363,091 in fiscal year 2003, as well as increased capital leases from $306,700
during the fiscal year 2003 to $1,168,437 in fiscal year 2004.
Other Income/Expense. Other income decreased to $249,000 in fiscal year 2004 as
compared to other income of $259,823 in fiscal year 2003. The income in fiscal
year 2003 was attributable to debt cancellation by note holders. In fiscal year
2004 the income we had was a one time settlement income in connection with the
receipt of approximately $304,000 worth of stock returned and cancelled by the
Company to settle a claim by the Company. This was offset by increased
contingent reserves of $55,000 in fiscal year 2004.
Income before Taxes. We had income before taxes of $601,594 during the fiscal
year ended December 31, 2004 compared to income of $309,866 during the fiscal
year ended December 31, 2003 as a result of the factors discussed above.
Income Taxes. We paid no income taxes for fiscal 2003 or fiscal year 2004, as a
result of a loss in 2001 and a carryforward from 2001 of approximately
$7,500,000. We have unused operating loss carry forwards which will expire in
various periods through 2016. Due to accelerated depreciation and amortization
tax laws the Company realized a tax loss for 2004. The Company is expecting to
record a book income but another tax loss in 2005, and therefore is required to
use a valuation allowance and record a deferred tax benefit during fiscal year
2004 in the amount of $538,295. Due to the unforeseen nature of the business it
is unknown what valuation allowance will be needed in 2005, and therefore the
remaining unused operating loss carryforward will be available to offset future
income when known.
Impairment of Goodwill
Management has reviewed the remaining value of goodwill and merchant contracts
of $4,023,034 and $8,632,895, respectively, which is attributable to the
acquisition of Nationwide Money Services, Inc. and its wholly owned subsidiary,
EFT Integration; the acquisition of the Clearinghouse Services Agreement; and
the three asset acquisitions, during fiscal year 2004, and has determined that
there is no impairment of these assets based upon future expectations of cash
flow.
Liquidity and Capital Resources
Working Capital. As of March 31, 2005, we had current assets of $3,027,860 and
current liabilities of $4,127,249, which results in a negative working capital
of $1,099,388, as compared to current assets of $5,783,154 and current
liabilities of $1,191,223 resulting in a positive working capital of 4,591,931
as of March 31, 2004. The ratio of current assets to current liabilities
decreased to 0.73 at March 31, 2005 from 4.85 at March 31, 2004. It is expected
that cash provided from operations will be sufficient for the next nine months.
Additional Funding Sources
We have funded our operations and investment activities from cash flow generated
by operations and financing activities. Net cash provided by operating
activities during the three month period ending March 31, 2005 and 2004 was
$506,035 and $194,565, respectively. Net cash provided by operating activities
in the three month period ending March 31, 2005 consisted primarily of a net
income of $178,918, depreciation and amortization of $319,467. Decreases in
operating assets over liabilities amounted to $4,793. The decrease in the
operating assets were mainly due to higher levels of accounts receivable from
the acquisition by $163,359, and increases in accounts payable by $168,917.
We sold common stock for approximately $634,000 in proceeds, for future
acquisitions and working capital. Our sources of cash are adequate for the next
12 month's of operations.
13
In order to fulfill its business plan and expand its business, we must have
access to funding sources that are prepared to make equity or debt investments
in our securities.
In order to address this potential for growth, we have taken steps to raise
additional funds to finance its operations, including the potential for making
strategic acquisitions, which could better position our company for growth.
Historically, we have relied primarily upon institutional investors for this
purpose. There can be no guarantee that institutional funding will be available
to our company in the near future. We have conducted several private placement
offerings with accredited investors.
Our ability to attract investors depends upon a number of factors, some of which
are beyond our control. The key factors in this regard include general economic
conditions, the condition of ATM markets, the availability of alternative
investment opportunities, our past financial performance affecting our current
reputation in the financial community.
We are continuing our efforts to raise additional capital through equity or debt
financings. We estimate to continue our current business plan and acquisition
strategy, we will require approximately $16,800,000 in additional capital to
meet its needs for the next 12 months for acquisitions and such items as new ATM
leases and software development.
We will require significant additional financing in the future in order to
satisfy its acquisition plan. To fund our continued growth we intend to raise
additional capital through debt and equity financings, however, we cannot
guarantee that we will be able to raise funding through these types of
financings. The need for additional capital to finance operations and growth
will be greater should, among other things, revenue or expense estimates prove
to be incorrect, particularly if additional sources of capital are not raised in
sufficient amounts or on acceptable terms when needed. Consequently, we may be
required to reduce the scope of its business activities until other financing
can be obtained.
We do not use our own funds for vault cash, but rather relies upon third party
sources. In general, we rent the vault cash from financial institutions and pays
a negotiated interest rate for the use of the money. The vault cash is never in
the possession of, controlled or directed by our company but rather cycles from
the bank, to the armored car carrier, and to the ATM. Each days withdrawals are
settled back to the owner of the vault cash on the next business day. Both
Nationwide Money and its customers (the merchants) sign a document stating that
the vault cash belongs to the financial institution and that neither party has
any legal rights to the funds. The required vault cash is obtained under the
following arrangements.
o Palm Desert Bank. Nationwide Money Services has been using Palm Desert
National Bank as a vault cash provider since April of 2001. This relationship
was limited to the funding of a specific portfolio of ATMs and as a result
limited the growth potential of the relationship. During the third quarter of
2002, Nationwide Money and Palm Desert initiated discussions to expand the
relationship and for Palm Desert to provide vault cash for additional ATMs. As
of March 31, 2005, Nationwide Money had 105 ATMs funded by Palm Desert with a
vault cash outstanding balance of about $2,300,000. In January 2003, we entered
into an arrangement with Palm Desert allowing us to obtain up to $10,000,000 in
vault cash. The Palm Desert Bank arrangement has a term of two years and may be
terminated by Palm Desert Bank upon breach by us and upon the occurrence of
certain other events. Under this arrangement, we are required to pay a monthly
service fee on the outstanding amount equal to the prime rate of interest, plus
a specified percentage, and must pay monthly "bank" fees. Additionally the
Company is required to make a deposit with Palm Desert Bank in an amount
determined by the outstanding balance. We are also required to maintain
insurance on the vault cash.
o WSFS. On May 15, 2000, we entered into an arrangement with Wilmington Savings
Fund Society ("WSFS") allowing us to obtain up to $2,000,000 in vault cash. In
May 2002, we renewed the agreement with WSFS and increased the vault cash limit
to $5,000,000 and the new contract has a month-to-month term. Due to added
locations from our acquisitions we have increased the WSFS line as of March 31,
2005, to approximately $17,000,000. The WSFS contract may be terminated by WSFS
at any time upon breach by us and upon the occurrence of certain other events.
Under this arrangement, we are required to pay a monthly service fee on the
outstanding amount equal to the prime rate of interest, plus a specified
percentage, and must pay monthly "bank" and insurance fees. We are also required
to maintain insurance on the vault cash.
o Various Branded Cash Partners. Nationwide Money has partnered with numerous
banks and credit unions to market specific Nationwide ATMs to the cardholders of
these institutions. We add signage and marketing material to the ATM so that the
ATM is easily identified as being associated with the bank or credit union, and
the cardholders of these institutions receive surcharge free transactions at the
designated ATMs. This provides the bank or credit union additional marketing
power and another point of access to funds for their cardholders. In return for
this benefit, the bank or credit union, provide and manage the vault cash in the
specified ATM(s), as well as provide and pay for cash replenishment and first
line maintenance. The advantage to Nationwide Money is that this reduces the
costs associated with vault cash, cash replenishment and first line by
approximately 50%. Another advantage is that with a branded ATM, transactions
volumes traditionally increase more than at a non-branded ATM. As of March 31,
2005 , Nationwide Money had 68 branded partners, which funded over 600 ATMs in 8
states, with about $6.0 million in outstanding vault cash.
As a result of certain factors, our cash provided by operating activities has
increased from the same period a year ago. The Company is realizing more profit
and a higher level of depreciation/amortization, thus raising the cash from
operations by approximately $300,000. With this increase in operating cash flows
we have incurred additional demands on our available capital in connection with
the start-up expenses associated with our two new subsidiaries Axcess
Technologies Corp. and Electronic Payment & Transfer, Corp. The majority of the
funds remaining will be used to make acquisitions and fixed asset purchases.
14
As any newly-placed ATMs mature, such ATMs generally experience increased
activity and generate increased revenues. We believe that future cash flow from
operations will be sufficient to fund operations and to allow us to continue to
explore and pursue expansion opportunities.
If cash flow from operations is not sufficient to fund our operations, we may be
required to seek additional sources of financing. If any of our existing
financing arrangements are terminated, or if we seek additional funding to
expand our ATM network, additional financing may not be available when needed or
may not be available on acceptable terms. In that event, our ability to maintain
and expand our ATM network may be adversely affected. The loss of one or more
sources of vault cash funding or the loss of additional customers could have a
material adverse effect on our business, results of operations and financial
condition. As always, we continue to look for new and alternative vault cash
sources.
Contractual Obligations. Our ability to fund our capital needs is also impacted
by our overall capacity to acquire favorable financing terms in our acquisition
of ATMs. Our contractual obligations, including commitments for future payments
under non-cancelable lease arrangements and short and long-term debt
arrangements, are summarized below. We do not participate in, nor secure
financings for, any unconsolidated, limited or special purpose entities. We
anticipate that our capital expenditures (outside of acquisitions) for fiscal
2005 will total approximately $1,800,000, primarily for the acquisition of ATMs
and related ATM installation costs. We lease ATMs under capital lease agreements
that expire between in 2006 and 2008 and provide for lease payments at interest
rates up to 14% per annum. See Note 8 to the Consolidated Financial Statements
in the Form 10KSB Annual Report.
Inflation
Impact of Inflation and Changing Prices. While subject to inflation, we were not
impacted by inflation during the past two fiscal years in any material respect.
15
BUSINESS
History
Headquartered in Ponte Vedra Beach, Florida, through our wholly owned
subsidiaries, we provide services through our automated teller machine ("ATM")
network and also provides financial transaction processing. We plan to expand
through the strategic acquisition of profitable ATM portfolios and other related
businesses, internal growth and deployment of enhanced non-banking ATM consumer
products worldwide. We presently do not have definitive acquisition plans. We
were initially incorporated in Nevada on May 2, 1984 under the name of
Supermarket Video, Inc. We underwent several name changes until 1999, when it
changed its name to Netholdings.com, Inc. In June 2001, we changed our name to
Global Axcess Corp.
Recent Developments
On October 12, 2003, we commenced operations of Axcess Technology Corporation, a
wholly-owned subsidiary of our company, to develop software products to be sold
for ATM management and transaction processing. In addition, we added an office
in South Africa to assist with the development of the software products.
On October 24, 2003, we started Electronic Payment & Transfer, Corp. to continue
the development of card based products. These products include payroll cards,
debit cards and management of these cards for third parties. On October 8, 2003,
we purchased a contract to manage various aspects of a national community
program assisting housing authorities and their residents with registration,
technology and other benefits.
On February 6, 2004, we acquired ATM processing merchant agreements to service
900 automated teller machines from Progressive Ventures, Inc.("Progressive"), a
Texas corporation. We also acquired Progressive's trademark.
In September 2004, we completed our second acquisition of the year. In this
purchase, we received the rights to 111 ATM contract locations through out the
northeast region.
Also in September 2004, the third acquisition was completed and we acquired all
of the assets of the ATM Networks, Inc., which brought us an additional 745 ATM
contract locations.
During March 2005, we conducted an offering of up to 2,678,511 units (pre-split)
(the "Units") at a per Unit price of $1.12 with each Unit consisting of four
shares of common stock, $.001 par value per share and two common stock purchase
warrants exercisable at $0.35 per share to accredited investors pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506,
promulgated there-under. The warrants are exercisable for three years from the
date of issuance.
On March 30, 2005, Global completed the Offering. Pursuant to the closing,
Global sold an aggregate of 566,071 Units (pre-split) resulting in the issuance
of 452,857 (post-split) shares of Common Stock and Warrants to purchase 226,429
(post-split) shares of common stock to five accredited investors. As a result of
the closing, investors have subscribed for an aggregate amount totaling
$634,000. Offering costs related to this sale were $77,886, resulting in net
proceeds of $556,114.
In April 2005, the Board of Directors authorized a 1 for 5 reverse stock split.
All share and per share amounts in the accompanying statements have been
restated to give effect to such reverse stock split.
During May 2004, Robert Pearson has been appointed to our Board of Directors.
Mr. Pearson is also the Sr. VP of Investments for RENN Capital Group Inc., which
is a shareholder of our company.
Business Description
As of December 31, 2004, we owned, managed and operated over 3,500 ATMs in its
national network spanning 39 states and provide proprietary ATM branding and
processing for 66 financial institutions with 583 branded sites nationwide.
Under our processing subsidiary, we perform over 850,000 financial transactions
per month.
Nationwide Money Services, Inc.
Nationwide Money Services, Inc. is our wholly owned subsidiary and is engaged in
the business of operating a network of ATMs. The ATMs provide holders of debit
and credit cards access to cash, account information and other services at
convenient locations and times chosen by the cardholder. Debit and credit cards
are principally issued by banks and credit card companies.
To promote usage of ATMs in our network, we have relationships with national and
regional card organizations (also referred to as networks) which enable the
holder of a card issued by one member of the organization to use an ATM operated
by another member of the organization to process a transaction. These
relationships are provided through EFT Integration, a wholly owned subsidiary of
our company. EFT Integration has a relationship with the following card
organizations or networks:
16
o EFT Integration ("EFTI") has a direct relationship with STAR, a major
regional network;
o EFTI also processes a national credit union network through CU24;
o through third parties EFT Integration has relationships with Cirrus and
Pulse, the two principal national card organizations; and
o other card organizations, all of whose members are banks and ATM network
operators and or sponsored by member banks.
We also have relationships with major credit card issuers such as Visa,
MasterCard and Discover, which enable the holder of a credit card to use ATMs in
our network to process a transaction.
EFT Integration
EFT Integration operates a central processing center located in our headquarters
in Ponte Vedra Beach, Florida. The processing center is connected to each ATM in
our network through dedicated, dial-up communications circuits. The operation of
our processing center is critical to the successful operation of the ATM
network. At the processing center, EFT Integration maintains a "switch" which
links in a compatible manner ATMs in our network, the processing center and
similar processing or transaction authorization centers operated by card issuers
and card organizations. The switch makes possible the electronic exchange of
information necessary to conduct transactions at ATMs in our network. The switch
consists of a Dell computer system, telecommunications equipment, and Postilion
software (purchased from Mosaic Software) and proprietary software developed for
the operation of our network by our wholly owed subsidiary, Axcess Technology
Corp. The system has undergone rigorous testing by VISA and Mastercard and has
successfully passed a VISA CISP audit and is currently VISA CISP, Visa Canada
AIS, Mastercard SDP, American Express DSOP and Discover Disc Compliant for
secured transaction processing. EFTI has also passed an audit of Phase I of SAS
70 Controls and Procedures.
Management believes the computer system has sufficient capacity to meet any
growth in transaction volume achieved over the next three years and to permit
the development of new services being considered by us. Although the switch
translates between computers and makes routing decisions, it does not execute
the transactions. Transactions originated at ATMs in our network are routed by
the switch operated in our processing center to the card organization and card
issuer that processes the account records for the particular cardholder's
financial institution. In turn, the switch relays reply information and messages
from the computer center to the originating terminal.
To protect against power fluctuations or short-term interruptions, the
processing center has uninterruptible power supply systems with battery and
generator back-up. The processing center's data back-up systems would prevent
loss of transaction records due to power failure and permit the orderly shutdown
of the switch in an emergency. To provide continued operation in the event of a
catastrophic failure, all incoming ATM messages would be re-routed to a third
party processor. EFT Integration has an extensive disaster recovery plan for
immediate handling of ATM transactions in the case of a disaster scenario. The
plan entails processing, by secured parties, and use of data facilities in two
offsite locations. The plan has successfully been tested.
Revenue Sources
Transaction Fees. Our revenues are principally derived from two types of fees,
which we charge for processing transactions on our ATM network. We receive an
interchange fee from the issuer of the credit or debit card for processing a
transaction when a cardholder uses an ATM in our network. In addition, in most
cases, we receive a surcharge fee from the cardholder when the cardholder makes
a cash withdrawal from an ATM in our network.
17
ATM Network Management Services. In addition to revenues derived from
interchange and surcharge fees, we also derive revenues from providing ATM
network management services to banks and other third party owners of ATMs
included in our ATM network. These services include 24 hour transaction
processing, monitoring and notification of ATM status and cash condition,
notification of ATM service interruptions, in some cases, dispatch of field
service personnel for necessary service calls and cash settlement and reporting
services. Banks may choose whether to limit transactions on their ATMs to cards
issued by the bank or to permit acceptance of all cards accepted on our network.
Surcharge Fees. In April 1996, national debt and credit card organizations
changed the rules applicable to their members, including us, to permit the
imposition of surcharge fees on cash withdrawals from ATMs. Our business is
substantially dependent upon our ability to impose surcharge fees. Any changes
in laws or card association rules materially limiting our ability to impose
surcharge fees would have a material adverse effect on us. See "--Regulatory
Matters - Surcharge Regulation." Since April 1996, we have expanded the number
of ATMs in our network and have expanded our practice of imposing surcharge fees
on cash withdrawals on ATMs.
Recent Developments in Our Business
We have increased our Branded Cash program through financial institution
partners. As of December 2004, the number of Branded partners was 66. Our
"Branded Cash" program helps our financial partners by promoting the partner's
brand in its region. This is a program where Nationwide Money Services has
placed equipment we own into a merchant location. We allow a financial
institution (a bank or credit union) to brand the ATM with their name. There
name also is shown on the welcome screen on the ATM. The customers of the
financial institution that use the ATM receive a free (called "on-us" in the
industry) transaction when they withdraw money. However, the financial
institution still pays the interchange on the cash withdrawal. For this
privilege the financial institution supplies the cash, the cash replenishment
and first line maintenance to that ATM at a cost to Nationwide Money that is
lower than if Nationwide Money pays the financial institution for the rental of
money and pays independent third parties for the cash replenishment and first
line maintenance.
We have also continued to upgrade our ATMs with the newest technology, allowing
them to be Triple DES compliant and to increase their revenues through the
latest deployment technology for onscreen advertising.
We are also in discussions with various financial institutions in regards to
providing turnkey ATM solutions for their customers. Under this scenario, the
financial institution would purchase the ATM from our company and we would
provide various services, which would include installation, processing and
management of vault cash, maintenance and accounting functions.
We initiated the following two programs in 2004:
o the ATMs made easy program whereby we sell an ATM an obtain an
automatically renewable seven year merchant and processing contract.
o In 2004, we added another program whereby Nationwide Money Services
provides ATM management services for small and medium sized
financial institutions for their ATMs.
On February 24, 2003, our subsidiary, EFT Integration, received notification
from MPS Gateway terminating its processing agreement and sponsorship of EFT
Integration upon 180 days notification. In April 2003, EFT Integration switched
all processing to STAR Systems network. EFT Integration processes 88% of the
transactions generated from our company owned ATMs. In light of this, EFT
Integration and Nationwide Money have signed contracts for processing and
sponsorship with STAR and Concord EFS National Bank. In February 2004, we have
switched our settlement bank from Fifth Third Bank to Wachovia Bank.
Our ATM Network
General. ATM locations in our network are concentrated on the East coast. The
following lists the 10 states that we currently do a majority of our business
and the number of ATMs located in those states that are on our network.
18
STATE QUANTITY
----- --------
GA 831
-- ---
TX 675
-- ---
VA 363
-- ---
FL 314
-- ---
NC 235
-- ---
NM 209
-- ---
SC 204
-- ---
MD 157
-- ---
LA 79
-- --
TN 65
-- --
The operation of the network involves the performance of many complementary
tasks and services, including principally:
o acquiring ATMs for us or our customers,
o selecting locations for ATMs and entering into leases for access to those
locations,
o in the case of third party merchants, establishing relationships with them
for processing transactions on their ATMs,
o the sale of our Branded Cash services to local and regional banks or
credit unions (see section above "Branded Cash"),
o establishing relationships with national and regional card organizations
and credit card issuers to promote usage of ATMs in the network,
o operating and maintaining the computer system and related software
necessary to process transactions conducted on ATMs,
o processing transactions conducted on ATMs,
o supplying ATMs with cash and monitoring cash levels for re-supply, and
o managing the collection of fees generated from the operation of the
network.
ATM Locations. We believe that the profitable operation of an ATM is largely
dependent upon its location. We devote significant effort to the selection of
locations that will generate high cardholder utilization. One of the principal
factors affecting our further penetration of existing markets is the
availability of attractive sites. We attempt to identify locations in areas with
high pedestrian counts where people need access to cash and where use of the ATM
is convenient and secure. Management believes the identification of locations is
supported by the desire of retailers of all types to offer their customers
access to cash as an alternative to cashing checks, which avoids the financial
exposure and added overhead of cashing checks. Key target locations for our ATMs
include the following
o grocery stores,
o convenience stores and combination convenience stores and gas stations,
o major regional and national retailers,
o hotels,
o shopping malls,
o airports,
o colleges,
o amusement parks,
o sports arenas,
o theaters, and
o bowling alleys.
We believe that once a cardholder establishes a habitual pattern of using a
particular ATM, the cardholder will generally continue to use that ATM unless
there are significant problems with the location, such as a machine frequently
being out of service. It is our goal to secure key locations before our
competitors can do so, and become the habitual ATM location of card users in our
markets.
We enter into leases for our ATM locations. The leases generally provide for the
payment to the lessor of either a portion of the fees generated by use of the
ATM or a fixed monthly rent. Most of our leases have a term of approximately
five years with various renewable time periods. We generally have the right to
terminate a lease if the ATM does not meet certain performance standards. The
ATM site owner generally has the right to terminate a lease before the end of
the lease term if we breach the lease agreement or become the debtor in a
bankruptcy proceeding.
19
Typical ATM Transaction. In a typical ATM transaction processed by us, a debit
or credit cardholder inserts a credit or debit card into an ATM to withdraw
funds or obtain a balance inquiry. The transaction is routed from the ATM to our
processing center at EFT Integration or another third party processing company
by dedicated, dial-up communication links. The processing center computers
identify the card issuer by the bank identification number contained within the
card's magnetic strip. The transaction is then switched to the local issuing
bank or card organization (or its designated processor) for authorization. Once
the authorization is received, the authorization message is routed back to the
ATM and the transaction is completed.
Authorization of ATM transactions. Transactions processed on ATMs in our network
is the responsibility of the card issuer. We are not liable for dispensing cash
in error if we receive a proper authorization message from a card issuer.
Transaction Volumes. We monitor the number of transactions that are made by
cardholders on ATMs in our network. The transaction volumes processed on any
given ATM are affected by a number of factors, including location of the ATM,
the amount of time the ATM has been installed at that location, and market
demographics. Our experience is that the number of transactions on a newly
installed ATM is initially very low and increases for a period of three to six
months after installation as consumers become familiar with the location of the
machine. We processed a total of 7,309,045 transactions in fiscal 2004 and
6,565,344 transactions on our network in fiscal 2003.
Axcess Technology Corporation
We commenced operation of Axcess Technology Corporation, a wholly-owned
corporation, initiated to increase our development of propriety software
products for the ATM and banking industries. Axcess Technology Corp., has an
office at our headquarters in Ponte Vedra Beach, FL and an office near Cape
Town, South Africa.
Electronic Payment & Transfer, Corp.
Our new start-up subsidiary, Electronic Payment & Transfer, Corporation (EP&T)
has been established to offer prepaid debit card products directly through
employers and through financial service sales channels. EP&T's E-Payroll card
product, the "Easy Green Cash" card offer solutions to employers that:
o wish to lower payroll costs;
o need to pay employees without bank accounts; or
o need to pay employees that travel or employees at different locations.
EP&T's card products can also be bundled with other products and services
tailored to meet the segment of the public that are not, or not fully, served by
traditional financial services companies. The debit cards can be used to access
cash at ATMs, transfer funds or carryout transactions at POS devices. Subsequent
product offerings are expected to include cards tied consumer debt type
products, a bill payment network, card management and processing solutions and a
wider range of debit card based products. EP&T has the initial card products
available and are currently building a sales and marketing network to ramp up
revenue.
Acquisition Strategy
We believe there may be opportunities to purchase or merge with other ATM
deployers. These acquisition targets include many small-to-medium size ATM
deplorers located in the U.S. By absorbing the operations of these company(ies)
into one central operation and eliminating the duplication of overhead, the
economies-of-scale realized may increase the profit margins of our company. Our
first three acquisition were completed in February, 2004 with an approximately
900 ATM Merchant contracts added.
Business Continuity
Our business continuity plan includes the following two main components:
o a plan to ensure the continuous operation of our core transaction
processing systems; and
o a plan to minimize disruption of the remainder of our business functions.
Transaction Processing Systems
We maintain Universal Power Systems and diesel generators for back-up power
during temporary power outages. In the event of a longer-term business
interruption, we have a Business Continuity Plan that allows all incoming ATM
messages to be re-routed to our back up site at SunGard Availability Services.
SunGard is an international leader in business continuity services. Our back up
site is located in Carlstadt, New Jersey.
20
Other Business Functions.
We have a Business Continuity Plan for the remainder of our business functions
that can be broken down into four elements: Prevention, Event Management, Event
Mitigation, and Event Recovery. The plan addresses events such as vendor service
interruption, natural disasters, and internal systems problems. In the event of
a catastrophic event, we also maintain alternate SunGard sites in Lake Mary,
Florida and Atlanta, Georgia for office operations. These alternate sites
provide immediate access to the technical and office facilities required for
failover. Copies of all software and critical business information are
maintained off-site.
Competition
Competitive factors in our business include network availability and response
time, price to both the card issuer and to our customers, ATM location and
access to other networks. The market for the transaction processing and payment
services industry and specifically ATM services is highly competitive. Our
principal competitors are national ATM companies that have a dominant share of
the market. These companies have greater sales, financial, production,
distribution and marketing resources than us.
We have identified the following additional categories of ATM network operators:
o Financial Institutions. Banks have been traditional deployers of ATMs at
their banking facilities. However, many banks are starting to place ATMs
in retail environments where the bank has an existing relationship with
the retailer. This may limit the availability of locations for our ATMs.
o Credit Card Processors. Several of the credit card processors have
diversified their business by taking advantage of existing relationships
with merchants to place ATMs at sites with those merchants.
o Third Party Operators. This category includes data processing companies
that have historically provided ATM services to financial institutions,
but also includes small and regional network operators such as us.
o Companies that have the capability to provide both back office services
and ATM management services.
o Consolidators in the business such as TRM/E-Funds and Cardtronics/E-Trade.
Their networks consist of approximately 21,868 ATMs and 25,000 ATMs
respectively
Management believes that many of the above providers, with the exception of
Cardtronics, deploy ATMs to diversify their operations and that the operation of
the ATM network provides a secondary income source to a primary business.
Since April 1996, when national debt and credit card organizations changed rules
applicable to their members to permit the imposition of surcharge fees, there
has been increased competition, both from existing ATM network operators and
from new companies entering the industry. There can be no assurance that we will
continue to be able to compete successfully with national ATM companies. A
continued increase in competition could adversely affect our margins and may
have a material adverse effect on our financial condition and results of
operations.
ATM Network Technology
Most of the ATMs in our network are manufactured by Fujitsu or Triton, but we
own several other brands of ATMs such as Greenlink, Tidel, Tranax and others.
EFT Integration can process transactions generated by these brands of ATMs as
well as most other manufacturers such as IBM/Diebold, NCR, and Seimens/Nixdorf.
The wide range of advanced technology available for new ATMs provides our
customers with state-of-the-art electronics features and reliability through
sophisticated diagnostics and self-testing routines. The different machine types
can perform basic functions, such as dispensing cash and displaying account
information, as well as providing revenue opportunities for advertising and
selling products through the use of monochrome or color monitor graphics,
receipt message printing and stamp and coupon dispensing. Many of our ATMs are
modular and upgradeable so we may adapt them to provide additional services in
response to changing technology and consumer demand. Our field services staff
tests each ATM prior to placing it into the network.
Vault Cash.
An inventory of cash ("vault cash") is maintained in each ATM that is
replenished periodically based upon cash withdrawals. We rent vault cash for 671
of our ATMs from Banks located in the U.S. Through our Branded Cash program our
branded cash partners provide cash for 417 ATM. For the remaining 348 ATM's in
our network, we do not supply the vault cash. These would include merchant owned
ATM's where they supply their own cash, ATM's owned by other third party owners
and ATM's that are only processed through EFTI.
21
Significant Relationships.
We have agreements with Food Lion and Kash and Karry Stores for whom
approximately 629 and 67 ATMs, respectively, have been installed at their
locations as of December 31, 2004. The agreement for both of these grocery store
chains was originally for a five year period and set to automatically renew on
November 28, 2007, however the contract was extended in September, 2003 to run
through April, 2011 and set to automatically renew, unless terminated 60 days
prior. In addition, the site owner has the right to terminate the lease before
the end of the lease term under certain circumstances. Currently, there is no
such breach or circumstance. The aggregate revenues from Food Lion and Kash and
Karry Stores accounted for approximately 47.9% and 2.4% of our revenues in
fiscal year 2004, respectively. Kash n Karry stores closed 28 in 2004. The
impact on our revenues of these closed stores is expected to be a decrease of
approximately $235,000.
Trademarks
We have the following active trademark applications:
o ATMs Made Easy!;
o EasyGreen;
o EasyGreen Cash Card;
o EFT Integration, Inc. A Global Axcess Company;
o Electronic Payment & Transfer Corp A Global Axcess Company;
o Global Axcess Corp, Nationwide Money Services, Inc. A Global Axcess
Company; and
o Progressive ATM A Global Axcess Brand.
Software Copyrights
The following software has been developed in-house and thus copyright is
held by our company and/or its affiliates:
o VeloTran Acquirer (real-time transaction processing);
o VeloTran Card Management (pre-paid debit card management);
o VeloTran Online (offline transaction processing);
o Velotran Reconciliation & Settlement (transaction reconciliation &
settlement - offline transaction processing);
o VeloTran Security Server (real-time transaction processing);
o VeloTran Cash Expense Manager (ATM cash management - offline
framework component); VeloTran Cash Manager (ATM cash management -
offline framework component);
o VeloTran Commissions (ISO commission calculation & management -
offline framework component);
o VeloTran Profit Loss Analyzer (ATM profit analyzer - offline
framework component);
o VeloTran Remote Key Manager (ATM key management);
o VeloTran Terminal Manager (ATM configuration manager - offline
framework component);
o VeloTran TranModule (transaction file importer - offline framework
component);
o VeloTran TranQuery (transaction reporting service - offline
framework component);
o VeloTran Work Order (customer service issue tracking - offline
framework component); and
o TransManager (customer transaction management).
Regulatory Matters
Surcharge Regulation. The imposition of surcharges is not currently subject to
federal regulation, but has been banned by several states in which we currently
have no operations. Legislation to ban surcharges has been introduced but not
enacted in many other states as a result of activities of consumer advocacy
groups that believe that surcharges are unfair to consumers. Voters in San
Francisco and Santa Monica, California voted in 1999 to bar banks from charging
fees to non-customers who use their ATMs. Similar restrictions have been
proposed by other cities. The banking industry has resisted these efforts to
impose restrictions. We are not aware of the introduction of such legislation or
the submission to voters of such referendums applicable to us in any of the
states or cities in which we currently do business. Nevertheless, there can be
no assurance that surcharges will not be banned in the states where we operate,
and such a ban would have a material adverse effect on us.
Network Regulations. National and regional networks have adopted extensive
regulations that are applicable to various aspects of our operations and the
operations of other ATM network operators. We believe that we are in material
compliance with these regulations and, if any deficiencies were discovered, that
we would be able to correct them before they had a material adverse impact on
our business.
22
Triple Data Encryption Standard Compliance (Triple DES)- MasterCard and Star
Systems as well as other network providers for ATM transactions have issued a
security mandate that all ATMs be upgraded from DES to Triple DES technology (a
higher level of encryption). Triple DES uses an enhanced encryption key pad
residing in ATMs and point-of-sale terminals that makes it far more difficult
for even the fastest computers to determine all the possible algorithmic
combinations used to scramble PINs keyed in by consumers. The use of Single DES
keys, while effective for decades without any known security breaches by
computer hackers, is now thought to be vulnerable to today's faster computer
processors.
The nation's largest PIN-based debit network, Star, owned by Memphis,
Tenn.-based Concord EFS Inc., is mandating that after June 30, 2003, all new and
replacement ATMs be capable of supporting Triple DES transactions, and that
processors like EFT Integration be Triple DES ready by July 1, 2004. As of
December 31, 2003 EFT Integration has been made ready to process transactions
based on Triple DES requirements. MasterCard requires that every new or replaced
ATM to be Triple DES compliant by April 1, 2002 (MasterCard), and all ATMs that
are installed or to be installed must be Triple DES compliant by March 31, 2005.
VISA has given the networks until December 31, 2005 to be Triple DES compliant.
The industry is trying to move for all networks and Mastercard to allow the
industry to be ready at the latest December 31, 2005, however that has not fully
occurred as of today.
All new ATMs that we purchase are Triple DES compliant. A number of solutions
have been developed for legacy ATMs such as those in our network to upgrade them
from DES to Triple DES. The Company has approximately 650 legacy ATMs deployed.
All of these ATM's have an upgrade path. The current capital budget for upgrades
to these ATMs is approximately $1,800,000.
Although we believe that there will be solutions available for the upgrading of
its current network of ATMs and that it has planned financially for the upgrade
cost, there is no guarantee that these solutions will work or that the financing
will be available at the time of upgrading the ATMs. In the event that these
solutions do not work, or they are not affordable or our company cannot arrange
for financing of the upgrades, we may have to cease operation of those
non-compliant ATMs, which would have a material adverse effect on our company.
During the past two fiscal years ending December 31, 2003 and 2002, the amount
of research and development costs amounted to $270,596 and $252,986,
respectively. The amount of these activities borne directly by customers was $0.
Employees
At December 31, 2004, we had 62 full time employees working in the following
subsidiaries:
Global Axcess Corp 5
Nationwide Money Services 39
EFT Integration 3
Axcess Technology Corp 14
Electronic Payment & Transfer 1
None of our employees are represented by a labor union or covered by a
collective bargaining agreement. We have not experienced work stoppages and
consider our employee relations to be good. Our business is highly automated and
we outsource specialized, repetitive functions such as cash delivery and
security. As a result, our labor requirements for operation of the network are
relatively modest and are centered on monitoring activities to ensure service
quality and cash reconciliation and control.
DESCRIPTION OF PROPERTIES
The following is a description of our properties:
Approximate
Square
Location Footage Use
- ----------------------------- -------------- --------------------------------
Ponte Vedra, Florida 10,000 sq. ft. General office use;
operations,
accounting, software
development
and related
administrative
23
- ----------------------------- -------------- --------------------------------
West Columbia, South Carolina 3,600 sq. ft. General warehouse use,
equipment
storage, and maintenance
operations.
- ----------------------------- -------------- --------------------------------
Cape Town, South Africa 1,800 sq. ft. General Office use, software
Development
- ----------------------------- -------------- --------------------------------
Jacksonville, Texas 5,000 sq. ft. Office, general warehouse use,
equipment
storage, and maintenance
operations.
In general, all facilities are in good condition and are operating at capacities
that range from 85% to 100%. All facilities are leased under operating leases.
In comparison to similar facilities in the area, we believe the terms of the
lease are fair, and the monthly lease rate is at or below the cost for
comparable space.
LEGAL PROCEEDINGS
During the fourth quarter of 2002, the Business Software Alliance ("BSA")
conducted an audit of software in use by Global Axcess' subsidiary Nationwide
Money Services, Inc. ("NMS"). BSA alleges that NMS infringed on software
copyrights for Microsoft and Symantec. On December 5, 2002, BSA sent NMS a
letter requesting payment of $237,842 plus attorney fees for purportedly
misappropriated software that was installed on NMS computers. While
acknowledging that some software was inappropriately installed on NMS computers,
NMS disagrees with the facts presented in the BSA letter. NMS has settled with
the BSA subsequent to December 31, 2004. The Company has reserved the amounts
fully as of December 31, 2004.
In March 2004, the Company received a claim filed by James Collins, a previous
employee of Global Axcess Corp. The claim was filed in Superior court of
California, County of San Diego on March 2, 2004. The claim alleges the
following are owed in connection with the employment agreement:
o compensation, bonuses and other benefits of approximately $316,915; and o
450,000 restricted shares and 1,798,500 stock options exercisable at $0.75 per
share.
The Company believes that this claim is unfounded. The Company's management
believes that this claim will not have a material adverse effect on the
Company's consolidated results of operations, cash flows or financial position.
The Company's officers and directors are aware of no other threatened or pending
Litigation or government proceeding, which would have a material, adverse effect
on the Company. From time to time the Company may be a defendant (actual or
threatened) in certain lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse effect on the Company's financial position, results of
operations, or cash flows.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's executive officers, directors and key employees and their ages and
positions as of December 31, 2004 are as follows:
Name Age Positions
- ------------- --- -------------------------------------------
Michael Dodak 58 C.E.O. and Chairman
- ------------- --- -------------------------------------------
David Fann 50 President, Secretary and Director
- ------------- --- -------------------------------------------
David Surette 45 C.F.O.
24
- ------------- --- -------------------------------------------
Robert Colabrese 49 Executive Vice-President of Sales
- ------------ --- -------------------------------------------
George McQuain 49 CEO and COO of Nationwide Money
Services, Inc.
- ------------ --- -------------------------------------------
Donald Headlund 71 Director
- ------------ --- -------------------------------------------
Lock Ireland 61 Director
- ------------ --- -------------------------------------------
Robert Landis 46 Director
- ------------ --- -------------------------------------------
Georg Hochwimmer 36 Director
- ------------ --- -------------------------------------------
Robert Pearson 69 Director
- ------------ --- -------------------------------------------
The following is a brief description of each officer and director listed above:
Michael J. Dodak, Chairman of the Board and Chief Executive Officer
Prior to joining the Company, Mr. Dodak was Chief Executive Officer of
Nationwide Money, an independent ATM network operator and services provider that
was sold by First Data Corporation in June 2001. Mr. Dodak joined NMS as a
controller in early 1996. He assumed the various duties of a controller
including the production of financial statements, budgets, and the development
of the NMS database. In June 1997 he was promoted to C.E.O. and assumed full P&L
responsibilities. Prior to joining Nationwide, Mr. Dodak founded and served as
chief financial officer to several companies including an alternative energy
company, a medical supply company, and a for profit chain of schools. Earlier,
he was a senior financial analyst for Litton Industries and served as regional
controller for Damon Corporation, a large provider of clinical lab services. He
has Bachelor of Arts and MBA degrees from the University of California Los
Angeles. Mr. Dodak is responsible for the day-to-day operations of the Company.
David A. Fann, President and Director
Prior to joining the Company in March 2002, Mr. Fann was the Chief Executive
Officer and Chairman of the Board of TeraGlobal, Inc., a publicly traded
company, from September 1998 through September 2000. He was president of
TechnoVision Communications, Inc., a subsidiary of TeraGlobal from November of
1995 to September 2000. Mr. Fann has also served as Vice President of Sales and
Marketing for Quadraplex, Inc., a video network company. He co-founded Totally
Automated Systems Communications, a Unix-based communications company, and acted
as Vice President of that company from January 1993 through January 1995. From
January 1987 through December 1992 he served as Operations Officer for Networks,
Inc. Mr. 'Fann's main area of responsibility will be the raising of additional
capital to fund both the internal growth and acquisition strategy.
David J. Surette, Chief Financial Officer
Prior to joining the Company, Mr. Surette was the Chief Financial Officer of
National Service Direct, Inc. (NSDI), a majority owned subsidiary of SR
Teleperformance, a French publicly traded corporation in the telemarketing
industry. He was the CFO for NSDI from September 1999 until he joined the
Company in March 2003. Mr. Surette also served as an interim CFO for North
American Telephone Network, LLC, a related company to NSDI, during this same
period. NSDI has filed for bankruptcy in mid 2004. Prior to working with NSDI,
he was a Controller for ILD Telecommunications, Inc., in the pre-paid calling
card division, from June 1998 to August 1999. From 1996 to 1998 Mr. Surette was
the CFO and Director of Publishing for High Mountain Press, Inc., a book and
magazine publisher in the CAD and high tech markets. He was CFO and General
Manager, from 1991 to 1996, for a magazine publisher called CommTek
Communications Corp., a company in the satellite dish industry. Mr. Surette was
25
a Supervising Senior Accountant with KPMG Peat Marwick from 1987 to 1991. He has
a Bachelor of Science degree in Accounting from the University of Massachusetts,
and an MBA degree from Babson College. Mr. Surette also has his CPA from the
State of Virginia. Mr. Surette is married and has two children. Mr. Surette is
responsible for: financing the operations of the Company and its subsidiaries;
financing the acquisitions and internal growth of the Company; strategic, legal
and risk analysis for the Company; SEC filings of the Company; as well as the
day-to-day accounting and financial reporting.
Robert Colabrese, Executive Vice President of Sales
Mr. Colabrese, with more than 20 years of industry experience, joined NMS in
1996 as Vice President of Operations and was instrumental in building the cost
effective ATM installation, management, and customer service process NMS
operates under today. In 1999 he founded and was named President of EFT
Integration, Inc. where he created an innovative, forward thinking, state of the
art processing platform from the ground up. Prior to joining NMS, Mr. Colabrese
served in various management positions supporting and developing ATM software
and technical services for Mellon Bank NA. Mr. Colabrese received his Associates
degree in Specialized Electronics Technology form Penn Technical Institute in
Pittsburgh, Pennsylvania. Mr. Colabrese is married and has three children.
George McQuain, CEO and COO of Nationwide Money Services, Inc. and EFT
Integration, Inc.
George A. McQuain is Chief Executive Officer for Nationwide Money Services, Inc
("NMS") and EFT Integration, Inc. At NMS and EFTI, George is responsible for
strategic planning, business plan execution and day-to-day operations. Prior to
his association with NMS, George served as President and Chief Executive Officer
of Ntercept Communications, where he decisively improved sales, marketing and
product implementation. Prior to Ntercept, George led First Union National
Bank's national lockbox operations. Prior to First Union, George was Chief
Operating Officer of QuestPoint, a subsidiary of CoreStates Financial
Corporation. CoreStates was acquired by First Union in May 1998. George also
played a key leadership role at Nationwide Remittance Centers ("NRC"). NRC was
an entrepreneurial start-up which grew to revenues of $20 million and was
purchased by CoreStates. During his career at NRC, George was head of sales,
head of client service and quality, and head of operations. While at NRC, George
is credited with successfully turning around operational productivity and
quality. George's career also includes time at Marriott Corporation, the United
States Treasury Department, and the Office of the President of the United
States. George received his MBA in Finance and Management from George Mason
University in Fairfax, Virginia.
Donald Headlund, Director
Don Headlund is the President of Cardservice International where he leads all
aspects of the company's finance, sales and marketing, technology and operations
activities. He also serves on the Company's board of directors. Headlund joined
Cardservice International in July 1991 as an internal management consultant.
Within a few months, he was appointed chief financial officer, a position he
held until May 2000, when Cardservice International Chairman and Chief Executive
Officer, Chuck Burtzloff, named Headlund president of the company. Prior to
joining Cardservice International, Headlund served as president, chief executive
officer and director of Malibu Savings Bank from 1988 until 1991. Before joining
Malibu Savings Bank, Headlund was president, director and chief executive
officer at Valley Federal Savings and Loan Association for 20 years. Headlund is
a former captain in the United States Air Force. He received a Bachelor of Arts
degree in finance from Occidental College in Los Angeles, California.
Lock Ireland, Director
Currently a consultant and Director with Resource Corporate Management, Inc.,
Mr. Ireland has over 30 years experience in the Banking industry. Prior to this
he was the President and CEO for Resource Corporate Management, Inc. (RCMI) from
1994 to 2002., RCMI is a company that promotes new products and services with
26
community banks via the Bankers' Banks across the United States. Mr. Ireland has
held numerous positions from Vice-President to CEO with the following banks:
Bankers Trust of South Carolina, 1st Performance Bank, Republic National Bank
and Resource Bancshares. His current affiliations include being a Board Member
of the Jacksonville Economic Company and previous Board Governor for the
Jacksonville Chamber of Commerce. Mr. Ireland brings many affiliations and much
experience in the banking and financial industries to the Company.
Robert Landis, Director
Robert Landis is currently the Chairman, Chief Financial Officer and Treasurer
of Comprehensive Care Corporation, a publicly traded company located in Tampa,
Florida. He has been with Comprehensive Care for over 5 years, working directly
with all operations, financial and SEC filings for the company. Prior to this
Mr. Landis was with Maxicare Health Plans, Inc., as its Treasurer from
1983-1998. Mr. Landis was with two Accounting firms from 1981-1983, the first
was Price Waterhouse and the second was Irwin Shapiro Accountancy Corp. Robert
brings strong financial, operational and SEC experience to the Company, and will
be part of the Audit Review Committee for the Company.
Georg Hochwimmer, Director
Dr. Hochwimmer is a business consultant and academic responsible for aiding in
the development of several companies throughout Europe. Since 1994, Dr.
Hochwimmer has been a senior consultant on several engineering and
organizational and development projects; such as the development of a machinery
equipment distribution company (Rothlehner Arbeitsbuehnen GmbH). As the managing
director of General Research GmbH, a global business consulting firm, Dr.
Hochwimmer also serves on the board of directors of Lokando AG, an e-learning
company; Prevero AG, a business intelligence company; and egomedical, a medical
technology company. In addition, Dr. Hochwimmer serves as CEO of supraMAT
technologies AG, a investment company with activities in nanotechnology and
microsystems technology. Widely published in international scientific
publications; Dr. Hochwimmer has earned advanced degrees in chemistry, machinery
engineering, computer sciences and polymer chemistry.
Robert Pearson, Director
Mr. Pearson joined RENN Group in April 1997 and is Senior Vice-President -
Investments. Mr. Pearson brings more than thirty years of experience to RENN
Group's corporate finance function. From 1994 to 1997, Mr. Pearson was an
independent financial management consultant. From 1990 to 1994, he served as
Chief Financial Officer and Executive Vice-President of Thomas Group, Inc., a
management consulting firm, where he was instrumental in moving a small
privately held company from a start-up to a public company with more than $40
million in revenues. Prior to 1990, Mr. Pearson was responsible for all
administrative activities for the Superconducting Super Collider Laboratory. In
addition, from 1960 to 1986, Mr. Pearson served in a variety of positions at
Texas Instruments in financial planning and analysis, holding such positions as
Vice-President - Controller and Vice-President - Finance. Mr. Pearson holds a BS
in Business from the University of Maryland and was a W.A. Paton Scholar with an
MBA from the University of Michigan. He is a director of eOriginal, Inc.,
CaminoSoft Corp., Laserscope, Simtek Corporation, and Advanced Power
Technologies, Inc.
Committees
The Board of Directors has established an Audit Committee and a Compensation
Committee.
The Compensation Committee has met once in June 25, 2004. The function of the
Committee is to approve stock plans and option grants and review and make
recommendations to the Board of Directors regarding executive compensation and
benefits.
As of December 31, 2004, the Audit Committee consists of the following members:
Lock Ireland, Donald Headlund, Georg Hochwimmer and Robert Landis. Mr. Headlund
and Mr. Landis have been appointed to sit on the Audit Committee to serve as its
audit committee financial experts. Mr. Landis has been appointed to sit on the
audit committee to serve as its chairman. The Audit Committee has met four times
in fiscal year 2004, and once on March 31, 2005, prior to filing this Annual
10KSB report. Mr. Headlund is not considered independent. Mr. Landis and Mr.
Ireland are considered independent and Mr. Landis is considered to be a
sophisticated financial expert. In March of 2004 Mr. Hochwimmer was appointed to
the Audit Committee and is considered independent. Responsibilities of the
Committee include (1) reviewing financial statements and consulting with the
independent auditors concerning the Company's financial statements, accounting
and financial policies, and internal controls, (2) reviewing the scope of the
independent auditors' activities and the fees of the independent auditors, and
(3) reviewing the independence of the auditors. All of the members of the Audit
Committee shall meet the independence standards established by the National
Association of Securities Dealers.
The total number of meetings of the Board of Directors during the fiscal year
ended December 31, 2004 was none. The number of unanimous consents for approvals
on Board matters was thirteen (13). Each of the incumbent directors attended
100% of the aggregate of (i) the meetings of the Board during the year and (ii)
the total number of meetings of all committees of the Board on which the
incumbent directors served.
27
During 2004, there were four non-employee directors and three employee
directors. No Directors were compensated in the fiscal year 2004. Each director
for year 2004 who is not an employee of the Company is entitled to receive a
director's fee of 20,000 options exercisable to purchase shares of Common Stock
under the Stock Option Plan disbursed incrementally at 10,000 Options upon
acceptance to the Board and an additional 10,000 after 6 months of service to
the Board as a Director and 10,000 additional Options for every year of service
thereafter. All non-employee directors are reimbursed for expenses incurred in
attending meetings of the Board of Directors and any committees thereof.
Directors serving on committees of the Board receive no additional compensation
for attending any committee meeting held in connection with a meeting of the
Board except where there are extraordinary expenses approved prior to the
meeting by the CEO or President.
Code of Ethics
We have adopted our Code of Ethics and Business Conduct for Officers, Directors
and Employees that applies to all of the officers, directors and employees of
our company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of their ownership thereof and
changes in that ownership with the Securities and Exchange Commission ("SEC")
and the National Association of Securities Dealers, Inc. Executive officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all such reports they file.
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to our company during fiscal year 2003, we are not aware of any
director, officer or beneficial owner of more than ten percent of our Common
Stock that, during fiscal year 2003, failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by us with respect to the
fiscal year ended December 31, 2004 for the Chief Executive Officer and all
other executive offices whose total cash compensation exceeds $100,000 in the
fiscal year ended December 31, 2004.
Annual Compensation Long/Term Awards
Name and Principal Position Year Salary ($) Bonus ($) Securities Underlying Options
Michael Dodak 2004 $275,000 $15,000 120,000 (1)
CEO and Chairman 2003 $220,000 $50,000 150,000 (2)
2002 $220,002 60,000
2001 $109,283 300,000 (3)
David Fann 2004 $200,000 $6,700 120,000 (1)
President and Secretary 2003 $200,000 -- 150,000 (2)
2002 $80,000 -- 60,000
David Surette 2004 $125,000 $13,500 60,000 (1)
CFO 2003 $120,000 -- 85,500 (2) (4)
2002 -- -- --
Robert Colabrese 2004 $200,000 (5) $7,000 60,000 (1)
Executive Vice President Sales 2003 $135,000 -- 54,000 (2)
2002 $120,478 -- 40,000
2001 $67,522 5,000
George McQuain 2004 $140,000 $14,500 60,000 (1)
CEO & COO of NMS 2003 $130,000 -- 54,000 (2)
2002 $60,000 -- 40,000 (4)
(1) In 2004, the executive management was granted options based on certain goals
that would have to be met for fiscal year 2005 before they could be vested.
(2) In 2003, the executive management was granted options based on certain goals
that would have to be met for fiscal year 2004 before they could be vested.
(3) In 2001, Mr. Dodak was granted 300,000 stock options, which were
subsequently cancelled in 2002.
(4) Includes 30,000 options granted at date of hire which vests over 3 years.
(5) Combines commission payments of $65,000 during the year with salary of
$135,000. 29
28
Options/SARs Grants During Last Fiscal Year
The following table provides information related to options granted to our named
executive officers during the fiscal year ended December 31, 2004.
Name Number of Securities % of Total Exercise Price Expiration
Underlying Options Granted Per Share Date (3)
Options Granted in Fiscal 2004 (2)
Mike Dodak(1) 120,000 11.37% $1.30 12/1/2009
David Fann(1) 120,000 11.37% $1.30 12/1/2009
Robert Colabrese(1) 60,000 5.68% $1.30 12/1/2009
George McQuain(1) 60,000 5.68% $1.30 12/1/2009
David Surette(1) 60,000 5.68% $1.30 12/1/2009
(1) The options granted will not vest until after certain fiscal 2005 goals have
been met.
(2) Based on a total of 1,054,600 options granted during the fiscal year ended
December 31, 2004.
(3) Options may terminate before their expiration date upon death, disability,
or termination of employment.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth, for each of the named executive officers,
information concerning the number of shares received during fiscal 2004 upon
exercise of options and the aggregate dollar amount received from such exercise,
as well as the number and value of securities underlying unexercised options
held on December 31, 2004.
Shares Acquired Value Number of Securities Value of In The Money
on Exercise (#) Realized ($)(1) Underlying Options Options at Year End ($)(2)
at Year End (#)
Exercisable Unexercisable Exercisable Unexercisable
Name
Mike Dodak 182,487 $ 328,477 202,500 137,500 $62,250 $75,750
David Fann 182,486 $ 328,476 202,500 137,500 $62,250 $75,750
David Surette 18,248 $ 32,848 85,500 70,000 $52,550 $44,500
Robert Colabrese 72,994 $ 131,391 89,000 70,000 $38,025 $39,000
George McQuain -- -- 84,000 70,000 $32,400 $39,000
(1) Based on the difference between the option exercise price and the fair
market value of our common stock on the exercise date.
(2) Based on the difference between the option exercise price and the closing
sale price of $1.80 of our common stock as reported on the OTC Bulletin Board on
December 31, 2004, the last trading day of our 2004 fiscal year.
Employment Agreements
We have the following employment contracts with the named executive officers:
Michael Dodak has a new five year employment contract from June 30, 2004 to June
30, 2009, under Board and Mr. Dodak's approval. The agreement provides Mr. Dodak
with the following compensation: an annual salary of $250,000; which has been
increased to $275,000 once certain milestones were achieved, and can be raised
to $350,000 when other milestones are achieved; an annual bonus to be determined
and awarded by the Compensation Committee; and an 18 month severance agreement.
These amounts have been reported in the financial statements during the quarters
ended June 30, 2004 and September 30, 2004.
David Fann has a two year employment contract from April 29, 2002 to April 29,
2004, which was extended for two additional years until April 29, 2006 and then
extended again for one year until December 31, 2007, under Board and Mr. Fann's
approval. For performance as a director and officer, we will compensate Mr. Fann
with the following: a monthly salary of $7,500 per month, which has been
increased to $200,000 once certain milestones are achieved his salary can be
increased to $230,000 and an annual bonus and stock options to be determined and
awarded by the Compensation Committee.
Robert Colabrese has a two year employment contract from July 1, 2003 to
December 31, 2005. For performance as an executive vice-president, the Company
will compensate Mr. Colabrese with the following: an annual salary of $135,000
and a commission plan based on certain goals of the Company.
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 2003, we issued 120,000 shares of our common stock to Michael Dodak, a
stockholder, officer, and director of our company, through a Private Placement
Offering in an amount of $30,000.
In June 2003, we issued 200,000 shares of our common stock to David Fann, a
stockholder, officer, and director of our company, through a Private Placement
Offering in an amount of $50,000 offsetting an equal amount of debt owed to Mr.
Fann.
In June 2003, we issued 80,000 shares of our common stock to Robert Colabrese, a
stockholder, and officer of our company, through a Private Placement Offering in
an amount of $20,000.
In June 2003, we issued 20,000 shares of our common stock to David Surette, a
stockholder, and officer of our company, through a Private Placement Offering in
an amount of $5,000.
In June 2003, we issued 20,000 shares of its common stock to Robert Landis, a
stockholder and director of our company, through a Private Placement Offering in
an amount of $5,000.
In June 2003, we issued 80,000 shares of its common stock to Lock Ireland, a
stockholder and director of we, through a Private Placement Offering in an
amount of $20,000.
In July 2003, we issued 80,000 shares of its common stock to Michael Dodak, a
stockholder, officer, and director of our company, through a Private Placement
Offering in an amount of $20,000.
In February 2004, we issued 182,486 shares of common stock to Michael Dodak, a
stockholder, officer, and director of our company, through exercise of 200,000
Private Placement Offering Warrants at $0.50 per share and exercised as
cashless.
In February 2004, we issued 182,486 shares of common stock to David Fann, a
stockholder, officer, and director of our company, through exercise of 200,000
Private Placement Offering Warrants (offsetting an equal amount of debt
currently owed by our company) at $0.50 per share and exercised as cashless..
In February 2004, we issued 72,994 shares of common stock to Robert Colabrese, a
stockholder, and officer of our company, through exercise of 80,000 Private
Placement Offering Warrants at $0.50 per share and exercised as cashless.
In February 2004, we issued 18,248 shares of common stock to David Surette, a
stockholder, and officer of our company, through exercise of 20,000 Private
Placement Offering Warrants at $0.50 per share and exercised as cashless.
In February 2004, we issued 73,007 shares of common stock to Lock Ireland, a
stockholder and director of our company, through exercise of 80,000 Private
Placement Offering Warrants at $0.50 per share and exercised as cashless.
In March 2004, we issued 2,000 shares of common stock to Lock Ireland, a
stockholder and director of our company, through exercise of 6,000 Private
Placement Offering Warrants at $1.75 per share.
In March 2004, we issued 140,000 shares of common stock to BFS US Special
Opportunities Trust PLC, a stockholder and beneficial owner of our company,
through exercise of Private Placement Offering Warrants at $1.75 per share
In March 2004, we issued 140,000 shares of common stock to Renaissance Capital
Growth & Income Fund III, a stockholder and beneficial owner of our company,
through exercise of Private Placement Offering Warrants at $1.75 per share
In March 2004, we issued 140,000 shares of common stock to Renaissance US Growth
Investment Trust PLC, a stockholder and beneficial owner of our company, through
exercise of Private Placement Offering Warrants at $1.75 per share
In February 2004, we issued 53,332 shares of common stock to BFS US Special
Opportunities Trust PLC, a stockholder and beneficial owner of our company,
through a Private Placement Offering for $66,665 and we issued 1,066,668
Warrants exercisable from $1.75 to $5.00.
In February 2004, we issued 53,332 shares of common stock to Renaissance Capital
Growth & Income Fund III, a stockholder and beneficial owner of our company,
through a Private Placement Offering for $66,665 and we issued 1,066,668
Warrants exercisable from $1.75 to $5.00.
In February 2004, we issued 53,332 shares of common stock to Renaissance US
Growth Investment Trust PLC, a stockholder and beneficial owner of our company,
through a Private Placement Offering for $66,665 and we issued 1,066,668
Warrants exercisable from $1.75 to $5.00.
In February 2004, we issued 1,200,000 shares of common stock to Baron Partners,
LP, a stockholder and beneficial owner of our company, through a Private
Placement Offering for $1,500,000 and we issued 2,400,000 Warrants exercisable
from $1.75 to $5.00.
30
In September 2004, we issued 3,000 warrants to Lock Ireland, a stockholder and
director of our company, as part of a debenture with an exercise price of $1.75
per share.
In September 2004, we issued 60,000 warrants to BFS US Special Opportunities
Trust PLC, a stockholder and beneficial owner of our company, as part of a
debenture with an exercise price of $1.75 per share.
As of December 31, 2004, we had an unsecured promissory note in the amount of
$192,966 outstanding payable to Robert Mehlman, a stockholder of our company.
The note bears interest in the amount of 11% and is due in June 2013
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 27, 2005
o by each person who is known by us to beneficially own more than 5% of our
common stock;
o by each of our officers and directors; and
o by all of our officers and directors as a group.
Unless otherwise indicated, the shareholders listed in the table have sole
voting and investment power with respect to the shares indicated.
Name Number Percent(1)
- ---- ------ ----------
Mike Dodak 1,042,387 5.72% (3)
David Fann 971,336 5.33% (4)
David Surette 123,748 0.68% (5)
Robert Colabrese 262,148 1.44% (6)
George McQuain 94,000 0.52% (7)
Don Headlund(2) 8,000 0.04% (9)
Lock Ireland 215,507 1.18% (10)
Robert Landis 62,500 0.34% (11)
Georg Hochwimmer 15,000 0.08% (12)
Robert Pearson 5,000 0.03% (18)
------------------------------------
All executive officers and directors as a group
(10 persons) 2,799,626 15.37%
------------------------------------
Other 5% owners:
Barron Partners, LP 2,828,280 15.53% (13)
Rennaissance Capital Growth & Income Fund III, Inc. 1,960,000 10.76% (14)
Rennaissance U.S. Growth Investment Trust PLC 1,960,000 10.76% (15)
BFS U.S. Special Opportunities Trust PLC 2,020,000 11.09% (16)
Cardservice International, Inc. 1,406,292 7.72% (17)
The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the rules and
regulations promulgated under the Securities Exchange Act of 1934. Beneficially
owned securities may include securities owned by and for, among others, the
spouse and/or minor children of an individual and any other relative who has the
same home as such individual. Beneficially owned securities may also include
other securities as to which the individual has or shares voting or investment
power or which such person has the right to acquire within 60 days of March 10,
2004 pursuant to the conversion of convertible equity, exercise of options, or
otherwise. Beneficial ownership may be disclaimed as to certain of the
securities
(1)Based on 18,210,736 shares of common stock outstanding as of June 27, 2005.
(2)Does not include shares of common stock owned by Cardeservices International.
Donald Headlund is the President and an officer of Cardservices International.
Mr. Headlund owns 600 shares of First Data Corporation, which is 100% owner of
Cardservice International. Mr. Headlund owns approximately .0001% of the
outstanding shares of common stock of First Data Corporation.
31
(3)included are 832,387 common shares, 60,000 stock purchase options exercisable
at $0.90 per share and 150,000 exercisable at $1.70 per share
(4) included are 761,336 common shares, 60,000 stock purchase options
exercisable at $0.90 per share and 150,000 exercisable at $1.70 per share
(5) included are 38,248 common shares, 30,000 stock purchase options exercisable
at $0.35 per share and 55,500 stock purchase options exercisable at $1.70 per
share
(6) included are 163,1484 common shares, 5,000 stock purchase options
exercisable at $0.675, 40,000 stock options exercisable at $0.90 and 54,000
stock options exercisable at $1.70
(7) included are 40,000 stock options exercisable at $0.90 and 54,000 stock
purchase options exercisable at $1.70
(8) Intentionally left blank
(9) included are 8,000 common shares
(10)included are 168,007 common shares, 15,000 stock options exercisable at
$1.10, and 7,500 stock purchase warrants exercisable at $2.50 and 25,000 stock
options exercisable at $1.40
(11) included are 20,000 common shares, 15,000 stock options exercisable at
$1.10, and 7,500 stock options exercisable at $2.50 and 20,000 stock purchase
warrants exercisable at $0.50
(12) included are 10,000 stock options exercisable at $1.65 and 5,000 stock
options exercisable at $1.50
(13)included are 428,280 common shares and 2,400,000 stock purchase warrants
exercisable at prices ranging from $1.75 to $5.00
(14)included are 473,332 common shares and 1,486,668 stock purchase warrants
exercisable at prices ranging from $1.75 to $5.00
(15) included are 473,332 common shares and 1,486,668 stock purchase warrants
exercisable at prices ranging from $1.75 to $5.00
(16)included are 473,332 common shares and 1,546,668 stock purchase warrants
exercisable at prices ranging from $1.75 to $5.00
(17) included are 1,406,292 common shares
(18) included are 5,000 stock options exercisable at $1.20
DESCRIPTION OF SECURITIES BEING REGISTERED
Common Stock
We are authorized to issue up to 45,000,000 shares of common stock, par value
$.001. As of June 27, 2005, there were 18,210,736 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefore. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
non-assessable.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of preferred stock, par value
$.001 per shares. As of June 27, 2005, there were no shares of preferred stock
outstanding. The board of directors has authority, without action by the
stockholders, to issue all or any portion of the authorized but un-issued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series. The preferred stock, if and when issued, may carry rights
superior to those of the common stock.
32
We do not have any plans to issue any shares of preferred stock. However, we
consider it desirable to have one or more classes of preferred stock to provide
us with greater flexibility in the future in the event that we elect to
undertake an additional financing and in meeting corporate needs that may arise.
If opportunities arise that would make it desirable to issue preferred stock
through either public offerings or private placements, the provision for these
classes of stock in our certificate of incorporation would avoid the possible
delay and expense of a stockholders' meeting, except as may be required by law
or regulatory authorities. Issuance of the preferred stock would result,
however, in a series of securities outstanding that may have certain preferences
with respect to dividends, liquidation, redemption, and other matters over the
common stock which would result in dilution of the income per share and net book
value of the common stock. Issuance of additional common stock pursuant to any
conversion right that may be attached to the preferred stock may also result in
the dilution of the net income per share and net book value of the common stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. As a result, it is not possible at
this time to determine the respects in which a particular series of preferred
stock will be superior to our common stock. The board of directors does not have
any specific plan for the issuance of preferred stock at the present time and
does not intend to issue any such stock on terms which it deems are not in our
best interest or the best interests of our stockholders.
Common Stock Purchase Warrants
We currently have 10,425,200 common stock purchase warrants outstanding. The
common stock purchase warrants are each exercisable into one share of common
stock at the holder's option at various exercise prices and for various periods
of duration.
Transfer Agent
Our transfer agent is OTR, Inc., 1000 SW Broadway Street, Suite 920, Portland,
OR, 97205 and their telephone number is (503) 225-0375.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by the general corporate law of the State of Nevada, that our
directors or officers shall not be personally liable to us or our shareholders
for damages for breach of such director's or officer's fiduciary duty. The
effect of this provision of our Articles of Incorporation, as amended and
restated, is to eliminate our rights and our shareholders (through shareholders'
derivative suits on behalf of our company) to recover damages against a director
or officer for breach of the fiduciary duty of care as a director or officer
(including breaches resulting from negligent or grossly negligent behavior),
except under certain situations defined by statute. We believe that the
indemnification provisions in our Articles of Incorporation, as amended, are
necessary to attract and retain qualified persons as directors and officers.
Our By Laws also provide that the Board of Directors may also authorize us to
indemnify our employees or agents, and to advance the reasonable expenses of
such persons, to the same extent, following the same determinations and upon the
same conditions as are required for the indemnification of and advancement of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of any
state or the United States;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o through the writing of options on the shares
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
33
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box, puts
and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholders defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material arrangement with
a broker-dealer for the resale of the common stock, then we would be required to
amend the registration statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
34
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering (1) After the Offering (2)
------------------------------- ----------------------------------
Total
Shares
Name Number Percent Registered Number Percent
- ---------------------------------------- ---------------- --------- ---------- ------ -------
10TH STREET LAND (3) 382,486 2.10 382,486 0 0
MANAGEMENT
6150 MERIDIAN
AVE
SAN JOSE CA 95120
4 P MANAGEMENT (4) 137,600 * 137,600 0 0
PARTNERS
C/O INTERGLOBE FINANCE
SA
GENERAL GORSAN - QUAI 36
ZURICH SWITZERLAND 8002
AMY AIRINGTON 18,185 * 18,185 0 0
U/A/D 02/02/04
8419 VISTA VIEW DR.
DALLAS TX 75234
J EVERETT AIRINGTON CUST AMY CAITLIN 20,000 * 20,000 0 0
AIRINGTON
UNIF TRAN MIN ACT TX8419 VISTA VIEW DR
DALLAS TX 75243
CHRISTOPHER 38,185 * 38,185 0 0
AIRINGTON
J EVERETT AIRINGTON
CUST
APT 24A
IRVINE CA 92612-2936
EVERETT AIRINGTON 387,125 2.13 387,125 0 0
8419 VISTA VIEW DR
DALLAS TX 75243
MARK AIRINGTON 38,185 * 38,185 0 0
105 BOBWHITE
LUFKIN TX
75904
WENDY AMARAL 200 * 200 0 0
13043 FINGERTREE DRIVE
E
JACKSONVILLE FL
32246
JAMES A ARCHAMBEAU 10,000 * 10,000 0 0
9609 ESTATE
DALLAS TX 75238
ARMEN INVESTMENTS (4A) 20,000 * 20,000 0 0
KERIVON, ROUTE DE ROSPEZ
LANNION, FRANCE 22300
EDWARD ASHURIAN (5) 273,007 1.50 273,007 0 0
1332 BEACH BLVD
JACKSONVILLE BCH FL 32250
ASUNO INC (5A) 80,000 * 80,000 0 0
PO BOX 345
BASEL SWITZERLAND 4010
BANK JULIUS BAER & CO LTD (6) 72,000 * 72,000 0 0
BAHNHOFSTRASSE 36
ZURICH SWITZERLAND 8010
35
MICHAEL BARNES 8,400 * 8,400 0 0
120 FIRST AVE S
JACKSONVILLE FL 32250
BARRON PARTNERS LP (7) 3,600,000 19.77 3,600,000 0 0
730 FIFTH AVE
9TH FL
NEW YORK NY 10019
ROLAND BECK 20,000 * 20,000 0 0
C/O ALPHA SECURITIES
CHURERSTR. 82 PO BOX 348
PFAEFFIKON SWEDEN 8808
HEINZ-WERNER BECKER (8) 24,000 * 24,000 0 0
SUDETENATRA 30
SCHONECK GERMANY D61137
JEFFREY BELLINGER 200 * 200 0 0
15 MYSTIC
WAY
COLUMBIA SC 29229
WAYNE C BERG (9) 20,000 * 20,000 0 0
PO BOX 54613
JACKSONVILLE FL 32245-4613
WAYNE M BERG (9) 4,000 * 4,000 0 0
3151 ROUNDHAM LN
JACKSONVILLE FL 32225
BERKIN BUSINESS SA (10) 168,000 * 168,000 0 0
GENERAL GUISAN-QUAL 36
ZURICH SWITZERLAND CH-8002
BERKLEY, GORDON, LEVIN, 3,347 * 3,347 0 0
GOLDSTEIN & GARFINKEL LLP (11)
ATTN LOUIS GARFINKEL
2700 W SAHARA 5TH FL
LAS VEGAS NV 89102
BFS U.S. SPECIAL (12) OPPORTUNITIES TR 2,440,000 13.40 2,440,000 0 0
PLC
8080 N CETRAL EXPRESSWAY
STE 210-LB59
DALLAS TX 75206
JOHN W BICE (13) 40,000 * 40,000 0 0
1350 WOODMOOR DR
MONUMENT CO 80132
EDWARD BIDES 200 * 200 0 0
8956 DEER BERRY CT
JACKSONVILLE FL 32256
JOANNE BIRDWELL 200 * 200 0 0
10932 OAK RIDGE DRIVE
JACKSONVILLE FL 32225
INGO BREHME (14) 24,000 * 24,000 0 0
LENHACHPLALZ 1
MUNCHEN GERMANY D-80333
BRIDGES & PIPES LLC (15) 360,000 2.05 360,000 0 0
60 E 42ND ST
STE 2544
NEW YORK NY 10165
BARBARA BYERLY 540 * 540 0 0
C/O GLOBAL AXCESS
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
CAMBRANCH CAPITAL, INC.(16) 200,000 1.14 200,000 0 0
C/O DARYL IDLER
12109 VIA HACIENDA
RANCHO SAN DIEGO CA 92019
LESLIE CAMERON 200 * 200 0 0
534 16TH AVE N
JACKSONVILLE FL 32250
36
CARDSERVICE INTERNATIONAL INC (16A) 1,406,292 7.72 1,406,292 0 0
PO BOX 5180
SIMI VALLEY CA 93062-5180
FIL J CATANIA & DANETTE RUSSELL (17) 20,000 * 20,000 0 0
1710 BOLTON ABBEY DRIVE
JACKSONVILLE FL 32223
FIL J CATANIA (18) 40,000 * 40,000 0 0
1710 BOLTON ABBEY DR
JACKSONVILLE FL 32223
MICHAEL A CHANATRY (19) 60,000 * 60,000 0 0
12200 MANDARIN ROAD JACKSONVILLE FL
32223
TERRY CLAUDIO 200 * 200 0 0
11075 BARBIZON CIRCLE W
JACKSONVILLE FL 32257
BOB COLABRESE ** 198,154 * 198,154 0 0
172 SAWMILL LAKES BLVD
PONTE VEDRA BEACH
FL 32082
REBECCA ANN COLE 76,370 * 76,370 0 0
5024 SEA PINES DR
DALLAS TX 75287
SIDNEY M COLE 763,702 4.19 763,702 0 0
5024 SEA PINES
DALLAS TX 75287
CLAUDE W COLLIER JR (20) 444,000 2.44 444,000 0 0
1311 CREIGHTON BLUFF LN
JACKSONVILLE FL 32223
KATHERIN COLLINS (21) 24,000 * 24,000 0 0
33 CLYDE ST
BELMONT MA 02478
COLUMBIA MARKETING LTD (22) 296,000 1.63 296,000 0 0
C/O INTERGLOVE FINANCE SA
GENERAL GORSAN-QUAI 36
ZURICH SWITZERLAND 8002
DIANNE COOK & 2,000 * 2,000 0 0
BILL COOK
3570 SCHOONER RIDGE
ALPHARETTA GA 30005
GLEN COULTER 2,000 * 2,000 0 0
9792 EDMONDS WAY
#422
EDMONDS WA
98020
PAUL K COX (22A) 249,492 1.37 249,492 0 0
PO BOX 91685
W VANCOUVER BC V7V 3P3 CANADA
ANTHONY CUTRONE & 20,000 * 20,000 0 0
ELIZABETH CUTRONE (23)
11503 SUMMER HAVEN BLVD N
JACKSONVILLE FL 32258-2545
JERRY DANIELS (24) 50,000 * 50,000 0 0
281 LINKSIDE CIR
PONTE VEDRA BCH FL 32082
DANROG A/S (25) 24,000 * 24,000 0 0
GREVE STRANDVEJ 115
GREVE3 DENMARK 2670
JAN DEARMAN 19,124 * 19,124 0 0
27224 ARMADILLO WAY
EVERGREEN CO 80439
RICHARD DEPLANO (26) 24,000 * 24,000 0 0
500 BERWYN BAPTIST RD
#7 BRETTAGNE
DEVON PA 19333
TIMOTHY P DILLON 7,002 * 7,002 0 0
3526 CAMINITO CARMEL
LANDING
SAN DIEGO CA 92130
37
SALVATORE DI SECLI (27) 50,000 * 50,000 0 0
RANKESTRASSE 54
KUSNACHT SWITZERLAND 8700
MICHAEL DODAK & DEBBIE DODAK (28) ** 320,487 * 320,487 0 0
165 WOODLANDS CREEK DR
PONTE VEDRA BCH FL 32082
MICHAEL J DODAK** 86,500 * 86,500 0 0
165 WOODLANDS CREEK DR
PONTE VEDRA BEACH FL 32082
STEVEN DODAK 13,200 * 13,200 0 0
13785 WEEPING WILLOW WAY
JACKSONVILLE FL 32224
JEFFREY C DOHRMAN 38,185 * 38,185 0 0
711 E IMPERIAL HWY
STE 200
BREA CA 92821
MICHAEL DONDERER (29) 24,000 * 24,000 0 0
JAHNSTR. 45
73230 KIRCHHEIM/TECK GERMANY
DUCK PARTNERS LP (30) 120,000 * 120,000 0 0
78 FOREST AVE
LOCUST VALLEY NY 11560
CHRISTOPHER EDWARDS 200 * 200 0 0
13700 SUTTON PARK DRIVE #425
JACKSONVILLE FL 32224
NANCY EDWARDS 239 * 239 0 0
323 CO RD 4869
AZLE TX 76020
GUDRUN EIZ (31) 48,000 * 48,000 0 0
HALDENBACHSTR 8
ZURICH SWITZERLAND 8006
EPM AG (31A) 56,000 * 56,000 0 0
BAAR SWITZERLAND 6340
EPM HOLDINGS AG (32) 352,000 * 352,000 0 0
FALKGNWEG 9
BAAR GERMANY 6340
DAVID FANN ** 388,986 * 388,986 0 0
4336 BLUE HERON DR
PONTE VEDRA BEACH FL 32082
TOM FOSKETT 30,200 * 30,200 0 0
1367 RIVER BRICH LN
JACKSONVILLE FL 32207
NELLE D FOSTER 2,000 * 2,000 0 0
C/O GLOBAL AXCESS CORP
221 PONTE VEDRA PARK DR
PONTE VEDRA BEACH FL 32082
KURT FREIMANN (33) 48,000 * 48,000 0 0
TRANBENWEE 41
KUNSNACHT SWITZERLAND 8700
RENAISSANCE CAPITAL (34) GROWTH & 2,440,000 13.40 2,440,000 0 0
INCOME FUND III INC
8080 N CENTRAL EXPRESSWAY
STE. 210-LB59 DALLAS TX 75206
RENAISSANCE U.S. (35) GROWTH INVESTMENT 2,440,000 13.40 2,440,000 0 0
TRUST III, INC.
8080 N CENTRAL EXPRESSWAY
STE. 210-LB59 DALLAS TX 75206
BILL FULTON 238 * 238 0 0
323 WOODHURST DR
COPPELL TX 75014
38
GENERALS OF INTERCESSION (36) 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
KLAUS GERST (37) 24,000 * 24,000 0 0
ZIEGELSTAFF 1
O GERMANY D-85433
DAVID G GRAHAM (38) 444,000 * 444,000 0 0
1310 CREIGHTON BLUFF LN
JACKSONVILLE FL 32223
MICHAEL GRAMPP (39) 24,000 * 24,000 0 0
HANS-GRASSEL-WEG 5
MUNCHEN GERMANY D-81375
NATHAN GROFF (40) 108,000 * 108,000 0 0
859 WATERMAN RD S
JACKSONVILLE FL 32207
H. C. WAINWRIGHT & CO(41) 10,800 * 10,800 0 0
245 PARK AVE
44TH FL
NEW YORK NY 10167
DAVID HAFETZ (42) 80,000 * 80,000 0 0
602 KINNEY AVE
AUTSTIN TX 78704
BRYAN HANDS 2,000 * 2,000 0 0
3410 FOREST HILLS CIRCLE
GARLAND TX 75044
DAN HANDS 5,000 * 5,000 0 0
3410 FOREST HILLS CIR
GARLAND TX 75044
JACK HANDS 2,000 * 2,000 0 0
3410 FOREST HILLS CIRCLE
GARLAND TX 75044
DOUG H HARLAN 30,000 * 30,000 0 0
PO BOX 29176
INDIANAPOLIS IN 46629-0176
HAL P HARLAN (43) 130,000 * 130,000 0 0
PO BOX 29176
INDIANAPOLIS IN 46629-0176
HUGH P HARLAN 40,000 * 40,000 0 0
PO BOX 29176
INDIANAPOLIS IN 46629-0176
DEANNA HEIMAN 200 * 200 0 0
13700 SUTTON PARK DRIVE #425
JACKSONVILLE FL 32224
JEFF HELFMAN(44) 48,000 * 48,000 0 0
1816 SKYLINE DRIVE
FULLERTON CA 92831
CHEROLYN HENTZE 200 * 200 0 0
12564 REGINALD DR
JACKSONVILLE FL 32246
HISPANIC INTERNATIONAL MINISTRIES 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
JIM HOEY 500 * 500 0 0
C/O DAVE FANN
4336 BLUE HERON DR
PONTE VEDRA BEACH FL 32082
HEINZ HOFLIGER(45) 120,000 * 120,000 0 0
HAFENWEG 8
PAFFIKON GERMANY CH-8868
DAWN VAN HORN 200 * 200 0 0
2827 LANTANA LAKES DRIVE
JACKSONVILLE FL 32246
39
DAVID HOWE 200 * 200 0 0
120 LONG RIDGE DRIVE
COLUMBUS SC 29229
JOHN HOWE 200 * 200 0 0
120 LOJNG RIDGE DRIVE
COLUMBUS SC 29229
ROSEMARIE HUBER (46) 93,957 * 93,957 0 0
VON-PRACHBECK STRASSE 16
BROMBACH GERMANY 84363
DEB HUBERS 200 * 200 0 0
C/O MYLES HUBER
3790 VIA DE LAVALLE
DEL MAR CA 92014
MARION HUBERS 200 * 200 0 0
C/O MYLES HUBER
3790 VIA DE LAVALLE
DEL MAR CA 92014
DARYL C IDLER, JR 72,000 * 72,000 0 0
12109 VIA HACIENDA
RANCHO SAN DIEGO CA 92019
INDONESIAN RELIEF FUND (47) 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
INTERGLOBE FINANCE S.A. (47A) 16,800 * 16,800 0 0
GENERAL GUSIAN - QUAI 36
ZURICH SWITZERLAND CH-8002
LOCK IRELAND (47B) ** 185,007 * 185,007 0 0
2211 ALICIA LN
ATLANTIC BCH FL 32233
SHARON JACKSON 14,200 * 14,200 0 0
13317 TROPIC EGRET
DRIVE
JACKSONVILLE FL 32224
PETER JANSEN (48) 131,600 * 131,600 0 0
1345 OLD NORTHERN BLVD
ROSLYN NY 11576
JOSEF JANY (49) 30,000 * 30,000 0 0
WESTBURY 4
EGGENFELDEN GERMANY D-84307
MARTIN S JOHNSON FAMILY (50) 36,000 * 36,000 0 0
7946 IVANHOE AVE
STE 216
LA JOLLA CA 92037
NFS CUST 22,000 * 22,000 0 0
HARRIET JONES SEP IRA
1678 WOODMERE DR
JACKSONVILLE FL 32210
BEVERLY JUSTIN 200 * 200 0 0
4474 COBBLEFIELD CIRCLE W
JACKSONVILLE FL 32224
ANDRE DE KERTANGUY 5,425 * 5,425 0 0
136 BLVD HAUSSMANN
PARIS FRANCE 75008
TONYA KIMBALL 200 * 200 0 0
9647 US HWY 601
DOBSON NC 27017
KINGDOM CONNECTIONS INTERNATIONAL (51) 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
MIKE KOPPENHAFER (52) 40,000 * 40,000 0 0
1190 NECK RD
PONTE VEDRA BCH FL 32082
40
KRISTI KUBRICHT 200 * 200 0 0
118 FIRST AVE S #5
JACKSONVILLE FL 32250
JAMES LADNER (53) 120,000 * 120,000 0 0
GARTENSTRASSE 10
ZURICH GERMANY CH-8002
ROBERT J LANDIS (54) ** 40,000 * 40,000 0 0
16121 CARDEN DR
ODESSA FL 33556
MARISA LATTMAN (55) 600,000 * 600,000 0 0
AUBRIGSHRASSE 23
8833 SAMSTAGERN SWITZERLAND
DEBORA LEITNER 48,400 * 48,400 0 0
C/O CHARLES SCHAWB
333 BUSH ST, 14TH FL
SAN FRANCISCO CA 94104
JENNIFER LINDBLOM 200 * 200 0 0
2943 KELSO CIRLCE E
JACKSONVILLE FL 32250
LINGKOD 50,511 * 50,511 0 0
CRS TOWER RM 201
PERDIGON ST
QUIRINO AVE
PACO MANILA PHILIPPINES
THOMAS F LINNEN (55A) 520,000 * 520,000 0 0
404 CLEARWATER DR
PONTE VEDR BCH FL 32082-4170
M & S OF REGENCY INC (56) 48,000 * 48,000 0 0
9720 ATLANTIC BLVD
JACKSONVILLE FL 32225
JURIE GROBLER MALAN & 20,200 * 20,200 0 0
LOUISE MALAN
425 TIMBERWALK CT #1118
PONTE VEDRA BEACH FL 32080
PETER MARTETSCHLAGER (57) 24,000 * 24,000 0 0
HURNBECKSTRABE 28
MUNCHEN GERMANY 80939
SCOTT MARTIN 200 * 200 0 0
1012 OCEAN OAKS DRIVE S
FERNANDINA BEACH FL 32034
VICTOR MATTHEWS JR 12,000 * 12,000 0 0
PO BOX 1570
MECHANICSVILLE VA 23116
MCKENNON, WILSON & MORGAN LLP (58) 20,000 * 20,000 0 0
TWO VENTURE PLAZA,
SUITE 220
IRVINE CA 92618
ROBERT MEHLMAN 148,400 * 148,400 0 0
2027 HATHAWAY
WEST LAKE VILLAGE CA 91362
MEL TARI EVANGELISTIC ASSOCIATION 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
ALFRED J MELILLO 20,000 * 20,000 0 0
4964 WESTBRIAR DR
FT WORTH TX 76109-3132
HAROLD SCHNAIR SLAES TR 18,185 * 18,185 0 0
UA DTD 04/01/1984
ALFRED J MELILLO TTEE
4964 WESTBRIAR DR
FT. WORTH TX 76109-3132
J THOMAS MILLER 38,185 * 38,185 0 0
2711 HASKELL AVE
CITYPLACE, STE 2400
DALLAS TX 75204
41
MITCHELL MINISTRIES TRUST 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
RICHARD MOLINSKY (59) 240,000 * 240,000 0 0
52 LORDS HIGHWAY E]
WESTON CT 06833
DANIELLE MOORE 200 * 200 0 0
2350 EAGLESNEST RD JACKSONVILLE FL
32246
STEVEN B MORTENSEN (60) 126,497 * 126,497
5139 OTTER CREEK DR 0 0
PONTE VEDRA BEACH FL 32082
MONIKA NADLER (61) 20,000 * 20,000 0 0
HUERNBECKSTRASSE 28
MUENCHEN GERMANY 80939
ROBERT S NATHAN 25,200 * 25,200 0 0
500 EAST 77TH STREET APT 1621
NEW YORK NY 10162-0005
JERRY NEMEC (61A) 87,496 * 87,496 0 0
609 W COLCHESTER
EAGLE ID 83616
NETAL TREUHAND ANSTALT 20,000 * 20,000 0 0
LANDSTRASSE 124
POSTFACH 361
VADUZ LIECHTENSTEIN FL-9490
NEWCREST MANAGEMENT INC (61B) 248,400 * 248,400 0 0
3674 NEWCREST RD
SAN DIEGO CA 92130
LLOYD NEWTON 73,190 * 73,190 0 0
27224 ARMADILLO WAY
EVERGREEN CO 80439
KLAUS NIEBERGALL (62) 45,000 * 45,000 0 0
AM BERG 3
BAD BIRNBACH GERMANY D-84364
NORTHERN HILLS INC (62A) 8,600 * 8,600 0 0
301 N GUADULPE
STE 202
SANTA FE NM 87501
KYLE D OLINGER & (63) 40,000 * 40,000 0 0
JENNIFER T OLINGER
25 CLIFF VIEW DR
ASHVILLE NC 28803
BILL OVERCASH 2,000 * 2,000 0 0
1640 POWERS FERRY RD
BLDG 5 STE 250
MARRETTA GA 30067
PALMER IRREVOCALBE TR (64) 60,000 * 60,000 0 0
GLEN PALMER TTEE
2 SAWGRASS DR S
PONTE VEDRA BCH FL 32082
MIKE PEDIA 500 * 500 0 0
C/O MYLES HUBER
3790 VIA DE LAVALLE
DEL MAR CA 92014
CHRISTINE PETERSON 1,000 * 1,000 0 0
57261 LA JOLLA BLVD
#205
LA JOLLA CA 92037
HELMUT PITSCH (65) 24,000 * 24,000 0 0
KORNERSTR 5
MUNICH GERMANY D-80 469
BETTY POOLE 200 * 200 0 0
4273 TIDEVIEW DR
JACKSONVILLE FL 32250
42
PRAYER COMMAND POST (65A) 540 * 540 0 0
C/O GLOBAL AXCESS
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
CHARLES AND LEE PRIZZIA(66) 60,000 * 60,000 0 0
1033 SCOTT MILL ROAD
JACKSONVILLE FL 32257
MOHAMMAD RASHIDIAN 30,200 * 30,200 0 0
925 BUTTERCUP DRIVE
JACKSONVILLE FL 32259
RBSI 360 * 360 0 0
PO BOX 4491
OCEANSIDE CA 92052
MOLLIE REZGUI 200 * 200 0 0
221 COLIMA CT
APT # 1023
PONTE VEDRE BEACH FL 32082
STEFAN RICKINGER (67) 26,400 * 26,400 0 0
IN DER AU 1
PFARRKICHEN GERMANY D-84347
T J IZZO RIRA (67A) 80,000 * 80,000 0 0
880 CARILLON PARKWAY
PO BOX 12749
ST PETERSBURG FL 33733-2749
MIKE ROERICK 44,960 * 44,960 0 0
4020 BRAZOS DR
CARROLLTON TX 75007
WILLIAM L ROSS (68) 80,000 * 80,000 0 0
1950 LAKESIDE DR S
FERNANDINA BCH FL 32034
DEWEY M ROWLAND (70) 38,185 * 38,185 0 0
2476 E TIGER LILY DR
BOISE ID 83716
JOHANNA SALSBURY 200 * 200 0 0
100 FAIRWAY PARK BLVD #1502
PONTE VEDRA BEACH FL 32082
ERNST SCHOENBAECHLER (69) 382,486 * 382,486 0 0
PO BOX 107
8806 BAECH SWITZERLAND
SERVANT MINISTRIES (69) 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
STEVE SETTLES 444,000 * 444,000 0 0
1309 CREIGHTON BLUFF LN
JACKSONVILLE FL 32223
DAYN C SHULMAN 100 * 100 0 0
301 N GUADALUPE
STE 202
SANTA FE NM 87501
CHRIS SIBERT 200 * 200 0 0
618 1ST STREET
NEPTUNE BEACH FL 32266
CALEB B SILVER 100 * 100 0 0
301 N GUADALUPE
STE 202
SANTA FE NM 87501
CLAUDE A SILVER 100 * 100 0 0
301 N GUADALUPE
STE 202
SANTE FE NM 87501
43
SKYLINE WESLEYAN 40,000 * 40,000 0 0
12109 VIA HACIENDA
C/O DARYL IDLER
RANCHO SAN DIEGO CA 92019
GERHARD SPARRER 40,000 * 40,000 0 0
DIEKESTR 34
MUNICH GERMANY 81829
JOHANNES SPECKER (71) 30,000 * 30,000 0 0
FALLSTRASSE 8
MUNCHEN GERMANY 81369
NORBERT STEILEN (72) 64,000 * 64,000 0 0
LINDENSTRASSE 4
GRAEFELFING GERMANY 82166
GABRIELLE STONE 200 * 200 0 0
UNIF TRAN MIN ACT
SUSAN WRAY STONE CUST
3674 NEWCREST RD
SAN DIEGO CA 92130
SUSAN WRAY STONE CUST 200 * 200 0 0
GABRIELLE STONE
UNIF TRAN MIN ACT
3674 NEWCREST RD
SAN DIEGO CA 92130
GABRIELLE STONE 200 * 200 0 0
UNIF TRAN MIN ACT
SUSAN WRAY STONE CUST
3674 NEWCREST RD
SAN DIEGO CA 92130
SUSAN WRAY STONE 4,000 * 4,000 0 0
3674 NEWCREST RD
SAN DIEGO CA 92130
GRESHAM R STONEBURNER (73) 60,000 * 60,000 0 0
4312 PAWNEE STREET
JACKSONVILLE FL 32210
JOANN STROUD 540 * 540 0 0
C/O GLOBAL
224 PONTE VEDRA PARK DR
PONTE VEDRA BCH FL 32082
TERRANCE STUDER 200 * 200 0 0
1715 HODGES BLVD #720
JACKSONVILLE FL 32224
KIM SULLIVAN & ANNE SULLIVAN JT TEN 475 * 475 0 0
8140 GLEN ALTA WAY
CITRUS HEIGHT CA 95610
DAVID J SURETTE & KAREN L SURETTE ** 38,248 * 38,248 0 0
8787 SOUTHSIDE BLVD #304
JACKSONVILLE FL 32256
BRIGITTE TAUL
GL KONEVEJ 95 S TR
1850 FR BREG
DENMARK
BRIGITTE TAUL (74) 24,000 * 24,000 0 0
GL KONEVEJ 95 S TR
1850 FR BREG DENMARK
BARBARA THURNER (75) 36,000 * 36,000 0 0
BERGHAM 6A
OTTERFING GERMANY D-83634
ETHAN L TIMM 100 * 100 0 0
301 N GUADALUPE
STE 202
SANTA FE NM 87501
GARRET TOMMASULO 200 * 200 0 0
4421 HEDLEY WAY #208
CHARLOTTE NC 28210
WASHINGTON VELEZ 249 * 249 0 0
401 ENGLEWOOD WAY
HURST TX 76053
44
HARTMUT VOSS (76) 24,000 * 24,000 0 0
SCHMITTMANNSTRASSE 4
KOLN GERMANY D.50935
RICHARD A WEINTRAUB 39,679 * 39,679 0 0
4515 SADDLE MOUNTAIN CT
SAN DIEGO CA 92130
MICHAEL WIDMER (77) 20,000 * 20,000 0 0
147 ALTE LANDSTRASSE
THALWIL, ZURICH SWITZERLAND 8800
JEFFREY WISCH 800 * 800
9232 CLEMATIS ST
MANASSAS VA 20110 0 0
KRISTEEN WITT (77A) 24,000 * 24,000 0 0
1403 RANCH ROAD
WARSAW IN 46580
ARND WOLPERS (77B) 72,000 * 72,000 0 0
STERZENWEG 21
AMMERLAND GERMANY D-82541
WORLD CAREER MANAGEMENT (78) 15,000 * 15,000 0 0
C/O MYLES HUBER
3790 VIA DE LAVALLE
DEL MAR CA 92014
CHRISTINE JEAN WRAY 200 * 200 0 0
UNIF TRAN MIN ACT
RICHARD LOGAN WRAY CUST
3674 NEWCREST RD
SAN DIEGO CA 92130
JULIE P WRAY 20,000 * 20,000 0 0
3674 NEWCREST RD
SAN DIEGO CA 92130
MICHAEL LOGAN WRAY UNIF TRAN MIN ACT 200 * 200 0 0
RICHARD LOGAN WRAY CUST
3674 NEWCREST RD
SAN DIEGO CA 92130
RICHARD LOGAN WRAY 200 * 200 0 0
UNIF TRAN MIN ACT
RICHARD LOGAN WRAY CUST
3674 NEWCREST RD
SANDIEGO CA 92130
RICHARD WRAY 40,000 * 40,000 0 0
3674 NEWCREST RD
SAN DIEGO CA 92130
RICHARD LOGAN WRAY 1,000 * 1,000
3674 NEWCREST RD
SAN DIEGO CA 92 130
VALFRID E.PALMER Trust (78A) 60,000 * 60,000 0 0
VALFRID E. PALMER TTEE
2 SAWGRASS DR S
PONTE VEDRA BCH FL 32082
YOUTH FOR CHRIST 2,000 * 2,000 0 0
12109 VIA HACIENDA
C/O DARYL IDLER
RANCHO SAN DIEGO CA 92019
CAMARYN ZASTOUPIL & 10,000 * 10,000 0 0
PAUL ZASTOUPIL JT TEN
C/O DARYL IDLER
110 WEST "C" STREET
SAN DIEGO CA
92101
Elite Financial Communications Group, LLC (79) 40,000 * 40,000 0
605 Crescent Executive Ct., Suite 124
Lake Mary, FL 32746
TOTAL 24,941,986
45
* less than one percent
** Executive Officer and/or director of our company.
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. Based on 18,210,736 shares of common stock outstanding as of June 27,
2005.
(2) Assumes that all securities registered will be sold and that all shares of
common stock underlying the options and common stock purchase warrants will be
issued. Based on 24,911,999 shares of common stock outstanding
(3) Jerry Daniels is the President of 10th Street Land Management and holds
final voting and investment power over securities owned by it.
(4) Represents 97,600 shares of common stock and 40,000 common stock purchase
warrants. Konrad Meyer serves as the attorney in fact for 4P Management Partners
and holds final voting and investment power over securities owned by it.
(4A) Gerald de Carcaradec serves as the President of Armen Investments and holds
final voting and investment power over securities owned by it.
(5) Represents 210,007 shares of commons stock and 63,000 common stock purchase
warrants.
(5A) P.H. Bolle serves as the President of Asuno, Inc. and holds final voting
and investment power over securities owned by it.
(6) Represents 36,000 shares of commons stock and 36,000 common stock purchase
warrants.
(7) Represents 1,200,000 shares of commons stock and 2,400,000 common stock
purchase warrants. Andrew Worden serves as the Managing Partner of Barron
Partners LP and holds final voting and investment power over securities owned by
it.
(8) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(9) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(10) Represents 84,000 shares of commons stock and 84,000 common stock purchase
warrants. Kurt Freimann serves as the attorney in fact of Berkin Business SA and
holds final voting and investment power over securities owned by it.
(11) Louis Garfinkle serves as Partner of Berkley, Gordon, Levin, Goldstein &
Garfinkel LLP and holds final voting and investment power over securities owned
by it.
(12) Represents 953,332 shares of commons stock and 1,486,668 common stock
purchase warrants. Renaissance Capital Group, Inc., an investment adviser
registered under the Investment Advisers Act of 1940 ("Renaissance Group"), is
the investment adviser for BFS US Special Opportunities Trust PLC ("BFS") and
shares voting and investment power over securities owned by BFS.
(13) Represents 20,000 shares of commons stock and 20,000 common stock purchase
warrants.
(14) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(15) Represents 180,000 shares of commons stock and 180,000 common stock
purchase warrants. David Fuchs serves as the Managing Member of Bridges and
Pipes LLC and holds final voting and investment power over securities owned by
it.
(16) Daryl Idler serves as the President of Cambranch Capital Inc. and holds
final voting and investment power over securities owned by it.
(16A) Donald Headlund serves as the President of Cardservice International Inc.
and holds final voting and investment power over securities owned by it.
(17) Represents 8,000 shares of commons stock and 12,000 common stock purchase
warrants.
(18) Represents 16,000 shares of commons stock and 24,000 common stock purchase
warrants.
(19) Represents 30,000 shares of commons stock and 30,000 common stock purchase
warrants.
(20) Represents 222,000 shares of commons stock and 222,000 common stock
46
purchase warrants. 47 (21) Represents 12,000 shares of commons stock and 12,000
common stock purchase warrants.
(22) Represents 148,000 shares of commons stock and 148,000 common stock
purchase warrants.
(22A) Represents 237,492 shares of commons stock and 12,000 common stock
purchase warrants.
(23) Represents 8,000 shares of commons stock and 12,000 common stock purchase
warrants.
(24) Represents 20,000 shares of commons stock and 30,000 common stock purchase
warrants.
(25) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants. Kenneth Taul serves as the Manager of Danrog A/S and holds final
voting and investment power over securities owned by it.
(26) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(27) Represents 20,000 shares of commons stock and 30,000 common stock purchase
warrants.
(28) Intentionally left blank.
(29) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(30) Represents 60,000 shares of commons stock and 60,000 common stock purchase
warrants. James Mitchell Hull serves as the General Partner of Duck Partners, LP
and holds final voting and investment power over securities owned by it.
(31) Represents 24,000 shares of commons stock and 24,000 common stock purchase
warrants. Kurt Freimann serves as the Investment Adviser of Gudrun Eiz and holds
final voting and investment power over securities owned by it.
(31A) Represents 28,000 shares of commons stock and 28,000 common stock purchase
warrants. Kurt Freimann serves as the Sole Director of EPM AG and holds final
voting and investment power over securities owned by it.
(32) Represents 176,000 shares of commons stock and 176,000 common stock
purchase warrants. Kurt Freimann serves as the Sole Director of EPM Holdings AG
and holds final voting and investment power over securities owned by it.
(33) Represents 24,000 shares of commons stock and 24,000 common stock purchase
warrants.
(34) Represents 953,332 shares of commons stock and 1,486,668 common stock
purchase warrants. Renaissance Group serves as the investment adviser of
Renaissance Capital Growth & Income Fund III, Inc. ("RENN") and shares voting
and investment power over securities owned by RENN.
(35) Represents 953,332 shares of commons stock and 1,486,668 common stock
purchase warrants.
(36) Mike Jacobs serves as the President of General of Intercession and holds
final voting and investment power over securities owned by it.
(37) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(38) Represents 222,000 shares of commons stock and 222,000 common stock
purchase warrants.
(39) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(40) Represents 54,000 shares of commons stock and 54,000 common stock purchase
warrants.
(41) John R. Clarke serves as the President of HC Wainwright & Co. and holds
final voting and investment power over securities owned by it.
(42) Represents 40,000 shares of commons stock and 40,000 common stock purchase
warrants.
(43) Represents 30,000 shares of commons stock and 100,000 common stock purchase
warrants.
(44) Represents 24,000 shares of commons stock and 24,000 common stock purchase
warrants.
(45) Represents 60,000 shares of commons stock and 60,000 common stock purchase
warrants.
(46) Represents 81,957 shares of commons stock and 12,000 common stock purchase
warrants.
47
(47) Paul Tan serves as the President of the Indonesian Relief Fund and holds
final voting and investment power over securities owned by it.
(47A) Konrad Meyer serves as the President of Interglobe Finance SA and holds
final voting and investment power over securities owned by it.
(47B) Represents 92,000 shares of commons stock and 93,007 common stock purchase
warrants.
(48) Represents 47,200 shares of commons stock and 84,400 common stock purchase
warrants.
(49) Represents 15,000 shares of commons stock and 15,000 common stock purchase
warrants.
(50) Represents 18,000 shares of commons stock and 18,000 common stock purchase
warrants.
(51) Jill Griffith serves as the President of Kingdom Connections International
and holds final voting and investment power over securities owned by it.
(52) Represents 20,000 shares of commons stock and 20,000 common stock purchase
warrants.
(53) Represents 60,000 shares of commons stock and 60,000 common stock purchase
warrants.
(54) Represents 20,000 shares of commons stock and 20,000 common stock purchase
warrants.
(55) Represents 300,000 shares of commons stock and 300,000 common stock
purchase warrants.
(55A) Represents 240,000 shares of commons stock and 280,000 common stock
purchase warrants.
(56) Represents 24,000 shares of commons stock and 24,000 common stock purchase
warrants. Samir Salameh serves as the President of M&S Regency Inc. and holds
final voting and investment power over securities owned by it.
(57) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(58) Richard McKennon serves as the President of McKennon, Wilson & Morgan LLP
and holds final voting and investment power over securities owned by it.
(58A) Mel Tari serves as the President of Mel Tari Evangelistic Association and
holds final voting and investment power over securities owned by it.
(59) Represents 80,000 shares of commons stock and 160,000 common stock purchase
warrants.
(60) Represents 96,497 shares of commons stock and 30,000 common stock purchase
warrants.
(61) Represents 8,000 shares of commons stock and 12,000 common stock purchase
warrants.
(61A) Represents 74,296 shares of commons stock and 13,200 common stock purchase
warrants.
(61B) Richard Wray serves as the President of Newcrest Management Inc. and holds
final voting and investment power over securities owned by it.
(62) Represents 18,000 shares of commons stock and 27,000 common stock purchase
warrants.
(62A) David Silver serves as the President of Northern Hills Inc. and holds
final voting and investment power over securities owned by it.
(63) Represents 20,000 shares of commons stock and 20,000 common stock purchase
warrants.
(64) Represents 30,000 shares of commons stock and 30,000 common stock purchase
warrants.
(65) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(65A) Lynn Heatley serves as the President of Prayer Command Post and holds
final voting and investment power over securities owned by it.
(66) Represents 30,000 shares of commons stock and 30,000 common stock purchase
warrants.
48
(66A) Randy Coleman is the owner of RBSI and holds final voting and investment
power over securities owned by it.
(67) Represents 13,200 shares of commons stock and 13,200 common stock purchase
warrants.
(67A)Represents 40,000 shares of commons stock and 40,000 common stock purchase
warrants
(68) Represents 40,000 shares of commons stock and 40,000 common stock purchase
warrants.
(69) Nancy Coen serves as the President of Servant Ministries and holds final
voting and investment power over securities owned by it.
(70) Represents 18,185 shares of commons stock and 20,000 common stock purchase
warrants.
(71) Represents 15,000 shares of commons stock and 15,000 common stock purchase
warrants.
(72) Represents 32,000 shares of commons stock and 32,000 common stock purchase
warrants.
(73) Represents 30,000 shares of commons stock and 30,000 common stock purchase
warrants.
(74) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(75) Represents 18,000 shares of commons stock and 18,000 common stock purchase
warrants.
(76) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(77) Represents 8,000 shares of commons stock and 12,000 common stock purchase
warrants.
(77A) Represents 12,000 shares of commons stock and 12,000 common stock purchase
warrants.
(77B) Represents 36,000 shares of commons stock and 36,000 common stock purchase
warrants.
(78) Myles Huber serves as the President of World Career Management and holds
final voting and investment power over securities owned by it.
(78A) Represent 30,000 shares of commons stock and 30,000 common stock warrants
(79) Represent 40,000 shares of common stock underlying stock options. Dodi
Handy, serves as the President of Elite Financial Communications Group, LLC and
holds final voting and investment power over securities owned by it.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an opinion
with respect to the validity of the shares of common stock being offered hereby.
A member of Sichenzia Ross Friedman Ference LLP has received 85,000 shares of
common stock, from us for general corporate matters.
EXPERTS
Weinberg & Company, P.A. has audited, as set forth in their report thereon
appearing elsewhere herein, our financial statements at December 31, 2004 and
December 31, 2003, respectively, and for the year then ended that appear in the
prospectus. The financial statements referred to above are included in this
prospectus with reliance upon the auditors' opinion based on their expertise in
accounting and auditing.
49
CHANGE IN ACCOUNTANTS
Bradford & Company, LLC
On June 27, 2003, we notified L.L. Bradford & Company, LLC ("Bradford"), our
independent public accountants, that we were terminating their services,
effective as of that date. On June 27, 2003, we engaged Weinberg & Company, P.A.
as our principal independent accountant. This decision to dismiss Bradford and
engage Weinberg & Company, P.A. was taken upon the unanimous approval of our
Board of Directors.
During the last two fiscal years ended December 31, 2002 and December 31, 2001
and through June 27, 2003, there were no disagreements between us and Bradford
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of Bradford would have caused Bradford to make reference to the
matter in its reports on our financial statements, and Bradford's report on our
financial statements did not contain any other adverse opinion, disclaimer of
opinion, or modification or qualification of opinion. During the last two most
recent fiscal years ended December 31, 2002 and December 31, 2001 and through
June 27, 2003, there were no reportable events as the term described in Item
304(a)(1)(iv) of Regulation S-B.
During the two most recent fiscal years and through June 27, 2003, we have not
consulted with Weinberg & Company, P.A. regarding either:
o the application of accounting principles to any specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and neither a written report was provided to our
company nor oral advice was provided that Weinberg & Company, P.A. concluded was
an important factor considered by our company in reaching a decision as to the
accounting, auditing or financial reporting issue; or
o any matter that was either subject of disagreement or event, as defined in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304
of Regulation S-B, or a reportable event, as that term is explained in Item
304(a)(1)(iv)(A) of Regulation S-B.
We have requested that Bradford furnish us with a letter addressed to the
Securities and Exchange Commission stating whether it agrees with the above
statements. A copy of such letter, dated June 30, 2003, was filed as Exhibit
16.1 to the Company Form 8-K filed July 1, 2003.
Weinberg & Company, P.A.
On June 20, 2005, we notified Weinberg & Company, P.A. ("Weinberg"), our
independent public accountants, that we were terminating our services, effective
as of that date. Further, on June 23, 2005, we engaged Kirkland, Russ, Murphy &
Tapp, CPA ("Auditor") as our principal independent accountant. This decision to
engage Auditor was taken upon the unanimous approval of the Board of Directors
of our company.
During the last two fiscal years ended December 31, 2004 and December 31, 2003
and through June 20, 2005, (i) there were no disagreements between our company
and Weinberg on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Weinberg would have caused Weinberg to make reference to the
matter in its reports on the Company's financial statements, and (ii) Weinberg's
report on our financial statements did not contain any adverse opinion,
disclaimer of opinion, or modification or qualification of opinion. During the
last two most recent fiscal years ended December 31, 2004 and December 31, 2003
and through June 20, 2005, there were no reportable events as the term described
in Item 304(a)(1)(iv) of Regulation S-B.
During the two most recent fiscal years and through June 23, 2005 the Company
has not consulted with Auditor regarding either:
1. the application of accounting principles to any specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, and neither a written report was provided to our
company nor oral advice was provided that Auditor concluded was an important
factor considered by our company in reaching a decision as to the accounting,
auditing or financial reporting issue; or
2. any matter that was either subject of disagreement or event, as defined in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304
of Regulation S-B, or a reportable event, as that term is explained in Item
304(a)(1)(iv)(A) of Regulation S-B.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of our company filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
50
We are subject to the informational requirements of the Securities Exchange Act
of 1934 that require us to file reports, proxy statements and other information
with the Securities and Exchange Commission. Such reports, proxy statements and
other information may be inspected at public reference facilities of the SEC at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549. Copies of such
material can be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed
rates. The public could obtain information on the operation of the public
reference room by calling the Securities and Exchange Commission at
1-800-SEC-0330 Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
51
INDEX TO FINANCIAL STATEMENTS
GLOBAL AXCESS CORP.
FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2005 of Global Axcess Corp.
Condensed Consolidated Balance Sheet as of March 31, 2005 (unaudited) F-1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2005 and 2004 (unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004 (unaudited) F-3
Notes to condensed consolidated financial statements (unaudited) F-5
For the Years Ended December 31, 2004 and 2003 of Global Axcess Corp.
Report of Independent Certified Public Auditors
for the year ended December 31, 2004 F-4
Consolidated Balance Sheet as of December 31, 2004 F-16
Consolidated Statement of Income for the years ended
December 31, 2004 and 2003 F-17
Consolidated statements of Stockholders' Equity for the years ended
December 31, 2004 and 2003 F-18
Consolidated statements of Cash Flows for the years ended
December 31, 2004 and 2003 F-20
Notes to consolidated financial statements F-22
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
(Unaudited)
Current assets
Cash $ 669,516
Automated teller machine vault cash 396,913
Accounts receivable, net 1,408,169
Note receivable 99,895
Inventory 45,805
Deferred tax asset- current 216,017
Prepaid expenses and other current assets 191,544
--------------
Total current assets 3,027,859
Fixed assets, net 6,100,531
Other assets
Merchant contracts 8,543,294
Intangible assets, net 4,023,034
Deferred tax asset - long term 322,279
Other assets 171,098
--------------
Total other assets 13,059,705
--------------
Total assets $ 22,188,095
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 2,040,099
Automated teller machine vault cash payable 396,913
Note payable - related parties - current portion 16,486
Notes payable - current portion 101,585
Bank loan - current portion 1,125,000
Capital lease obligations - current portion 447,163
--------------
Total current liabilities 4,127,246
Long-term liabilities
Notes payable-related parties - long-term portion 2,365,833
Notes payable - long-term portion 100,000
Bank loan - long-term portion 312,500
Capital lease obligations - long-term portion 1,248,466
--------------
Total long-term liabilities 4,026,799
--------------
Total liabilities 8,154,045
--------------
Stockholders' equity
Preferred stock $0.001 par value; 5,000,000 shares
authorized, no shares issued and outstanding --
Common stock $0.001 par value; 45,000,000 shares
authorized, 18,199,951 shares issued and outstanding 18,200
Additional paid-in capital 18,923,057
Deferred offering costs (12,500)
Accumulated deficit (4,894,707)
--------------
Total stockholders' equity 14,034,050
--------------
Total liabilities and stockholders' equity $ 22,188,095
==============
See Accompanying Notes to Condensed Consolidated Financial Statements
F-1
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended March 31,
2005 2004
------------ ------------
Revenues $ 4,717,836 $ 2,800,481
Cost of revenues 2,704,439 1,577,667
------------ ------------
Gross profit 2,013,397 1,222,814
Operating expenses
Depreciation and amortization 319,467 300,331
General and administrative 1,393,471 811,172
------------ ------------
Total operating expenses 1,712,938 1,111,503
------------ ------------
Income from operations 300,459 111,311
------------ ------------
Other expense
Interest expense (121,541) (21,141)
------------ ------------
Total other expense (121,541) (21,141)
------------ ------------
Income before provision for income taxes 178,918 90,170
Provision for income tax -- --
------------ ------------
Net income $ 178,918 $ 90,170
============ ============
Basic income per common shares $ 0.010 $ 0.007
Basic weighted average number of
------------ ------------
common shares outstanding 17,751,630 12,660,895
------------ ------------
Fully diluted income per common share $ 0.010 $ 0.005
Fully diluted weighted average number
------------ ------------
of common shares outstanding 18,618,178 18,335,193
------------ ------------
See Accompanying Notes to Condensed Consolidated Financial Statements
F-2
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 178,918 $ 90,170
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock issued for services 4,542 --
Depreciation and amortization 319,467 300,331
Discount on loans 7,902 --
Changes in operating assets and liabilities:
Change in automated teller machine vault cash 58,823 (21,343)
Change in accounts receivable (163,359) (181,771)
Change in inventory (19,827) --
Change in prepaid expenses and other current assets 19,706 (5,431)
Change in other assets (10,231) (14,998)
Change in accounts payable and accrued liabilities 168,917 6,264
Change in automated teller machine vault cash payable (58,823) 21,343
------------ ------------
Net cash provided by operating activities $ 506,035 $ 194,565
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (836,792) (291,911)
Note receivable issued for loan -- (190,000)
Purchase of contracts (20,825) (3,940,000)
------------ ------------
Net cash (used) in investing activities $ (857,617) $ (4,421,911)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering cots 644,618 5,203,442
Proceeds from common stock to be issued -- 1,933,990
Proceeds from notes payable 48,406 --
Deferred offering costs (12,500) --
Payments on bank notes (156,250) --
Principal payments on notes payable -- (40,000)
Principal payments on notes payable - related parties -- (115,544)
Principal payments on capital lease obligations -- (50,799)
------------ ------------
Net cash provided by financing activities $ 524,274 $ 6,931,089
------------ ------------
Increase in cash $ 172,693 $ 2,703,743
Cash, beginning of period 496,823 1,832,079
------------ ------------
Cash, end of period $ 669,516 $ 4,535,822
============ ============
Supplemental disclosure of cash flow information:
Cash paid for income taxes -- --
Cash paid for interest $ 121,541 $ 21,141
============ ============
Supplemental schedule of non-cash investing and financing activities:
Issuance of 430,126 shares of common stock related to finder's
------------ ------------
fee for acquisition of common stock $ -- $ 107,532
============ ============
Issuance of 12,853,485 shares of common stock related to
------------ ------------
exchange of exercise of cashless warrants at $0.10 $ -- $ 1,285,349
============ ============
Issuance of stock to consultants for services provided $ 4,213 $ --
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
F-3
GLOBAL AXCESS CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying un-audited condensed consolidated financial statements
have been prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. These condensed consolidated financial statements
should be read in conjunction with the Form 10-KSB for the year ended
December 31, 2004 of Global Axcess Corp ("the Company").
The interim condensed consolidated financial statements present the
condensed consolidated balance sheet, statements of operations, and cash
flows of Global Axcess Corp and its subsidiaries. The condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
The interim condensed consolidated financial information is un-audited. In
the opinion of management, all adjustments necessary to present fairly the
financial position as of March 31, 2005 and the results of operations and
cash flows presented herein have been included in the condensed
consolidated financial statements. Interim results are not necessarily
indicative of results of operations for the full year.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business Global Axcess Corp, through its wholly owned
subsidiaries, is a network-based electronic commerce and transaction
processing company; an automated teller machine ("ATM") network and
processing consolidator; and a web-based solutions company to provide
financial services to the un-banked customer, such as payroll distribution
products, money transfer and pre-paid products/services.
Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
1 for 5 Reverse Stock Split
In April 2005, the Board of Directors authorized a 1 for 5 reverse stock
split. All share and per share amounts in the accompanying consolidated
financial statements and footnotes have been restated to give effect to
such reverse stock split.
Allowance and Amortization for Assets
On the Balance Sheet As of March 31, 2005 the Company reserved $35,983 as
an allowance for bad debt against the trade receivables of $287,162.
As of March 31, 2005 the Company has accumulated amortization totaling
$169,285 against intangible assets totaling $4,192,321.
Earnings Per Share
Basic net income per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted net income
per common share is computed based on the weighted average number of
common shares outstanding during the period increased by the effect of
dilutive stock options and stock purchase warrants using the treasury
stock method. The calculation of basic net income per common share and
diluted net income per common share is presented below:
F-4
The computations for basic and diluted weighted average earnings per share are
as follows:
Net Income Weighted Average Earnings
(Numerator Shares Per Share
Three months ended March 31, 2004
Basic weighted average
earnings per share:
Net income $ 90,170 12,660,895 $ 0.007
--------- ---------- -------
Diluted earnings per share:
Dilutive stock options & warrants 5,674,297
----------
Net income plus assumed conversions $ 90,170 18,335,193 $ 0.005
Three months ended March 31, 2005
Basic earnings per share:
Net Income $ 178,918 17,751,630 $ 0.010
--------- ---------- -------
Diluted earnings per share:
Dilutive stock options & warrants 866,548
----------
Net Income plus assumed conversions $ 178,918 18,618,178 $ 0.010
--------- ---------- -------
Stock-based compensation - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations, in accounting for stock options issued to employees. Under APB
No. 25, employee compensation cost is recognized when estimated fair value of
the underlying stock on the date of the grant exceeds exercise price of the
stock option. For stock options and warrants issued to non-employees, the
Company applies SFAS No. 123, Accounting for Stock-Based Compensation, which
requires the recognition of compensation cost based upon the fair value of stock
options at the grant date using the Black-Scholes option pricing model.
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure".
SFAS No. 148 amends the transition and disclosure provisions of SFAS No. 123. In
December 2004, the FASB issued a revision to SFAS No. 123 called SFAS No. 123R,
which revises the adoption period and transition periods for all entities using
the fair value method and applying a modified prospective method for accounting
for employee stock options. The Company will be adopting SFAS 123R as
recommended for Small Business (SB) filers, as of December 15, 2005 for periods
subsequent to that date. Currently, the Company is applying SFAS 123R and the
modified prospective method for valuing the disclosures.
The following table represents the effect on net income and earnings per share
if the Company had applied the fair value based method and recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", and the transition disclosure
provisions of SFAS No. 148, to stock-based employee compensation:
Three Months Ended
March 31, 2005 March 31, 2004
----------- ------------
Net income, as reported $ 178,918 $ 90,170
Add: Stock-based employee compensation
expense included in reported income
(loss), net of related tax effects -- --
----------- ------------
Deduct: Total stock-based employee
compensation expense determined underfair
value based methods for all awards,
net of related tax effects $ (68,227) $(1,327,041)
----------- ------------
Pro forma net income (loss) $ 110,690 $(1,236,871)
=========== ============
Net income/(loss) per common share
Basic income, as reported $ 0.006 $ 0.007
----------- ------------
Basic income/ (loss), pro forma $ 0.005 $ (0.10)
----------- ------------
F-5
3. COMMITMENTS AND CONTINGENCIES
Leased facilities - During March 2004, the Company extended the operating
lease for its facilities under a non-cancelable operating lease for an
additional 3 years expiring in March 2009. The agreement calls for an
annual base rent of approximately $180,326 with an annual cost of living
increase of 3%. Rent Expense during the three month period ending March
31, 2005 and 2004 was $62,962 and $76,606 , respectively.
Future minimum rental payments required under the operating lease for the
office facilities as of March 31, 2005 are as follows:
remaining nine months of 2005 $ 188,886
2006 257,674
2007 258,605
2008 209,713
2009 35,476
------------
$ 950,354
============
In January 2005, the Company entered into a new loan agreement with ATM Networks
Inc. at an interest rate of 6.25% per annum for 2 years. The balance as of March
31, 2005 is $48,406 and is included in notes payable current.
Capital lease obligations - During the three month period ending March
31, 2005 the Company entered into capital lease obligations as follows:
Capital leases entered into during the three month period ending March 3, 2005
maturing in 36 to 60 months with various rates from 5.99% to 12% totaling
$645,635 as of March 31, 2005.
Future minimum lease payments required for under capital lease obligations
as of March 31, 2005 are as follows:
Remaining nine months of 2005 $322,028
2006 473,453
2007 352,245
2008 289,920
2009 258,552
----------
Total capital lease obligations $1,696,198
==========
Legal proceedings - As of March 31, 2005, the Company has accrued legal
costs of $80,000 related to various legal proceedings.
There are no new pending or threatened litigation or legal proceedings since
December 31, 2004.
4. CHANGES IN STOCKHOLDERS' EQUITY
During March 2005 the Company conducted an offering of up to 2,678,511
units(pre-split) (the "Units") at a per Unit price of $1.12 with each Unit
consisting of four shares of common stock, $.001 par value per share (the
"Common Stock"), and two common stock purchase warrants (the "Warrants")
exercisable at $0.35 per share to accredited investors pursuant to Section 4(2)
of the Securities Act of 1933, as amended, and Rule 506, promulgated there-under
(the "Offering"). The warrants are exercisable for three years from the date of
issuance.
On March 30, 2005, Global completed the Offering. Pursuant to the closing,
Global sold an aggregate of 566,071 Units (pre-split) resulting in the issuance
of 452,857 (post-split) shares of Common Stock and Warrants to purchase 226,429
(post-split) shares of common stock to five accredited investors. As a result of
the closing, investors have subscribed for an aggregate amount totaling
$634,000. Offering costs related to this sale were $77,886, resulting in net
proceeds of $556,114.
In April 2005, the Board of Directors authorized a 1 for 5 reverse stock split.
All share and per share amounts in the accompanying consolidated financial
statements and footnotes have been restated to give effect to such reverse stock
split.
F-6
See the table below for all the equity transactions for the three month period
ending March 31, 2005:
Common Stock
----------------------------- Additional
Shares Amount Paid-in Capital
------------- ------------- -------------
Balance as of December 31, 2004 17,579,345 $ 87,897 $ 18,204,203
Issuance of common stock in March 2005
related to Private Placement 5 at $1.40
per share,net of ofering cost of $77,886 452,857 2,264 553,850
Issuance of common stock in February & March 2005
for Public Relations 2,548 13 4,200
Stock Warrants from PPM 1 offered in 2003
excercised at $0.50 per share 50,000 250 24,750
Stock Warrants from PPM 1 offered in 2003
excercised at $0.50 per share 100,000 500 49,500
Stock otions excercised in February 2005
excercised at $0.90 per share 15,000 75 13,425
Compensation to consultant for capital raise
Issuance of stock to employee 200 1 329
Reverse stock split (72,800) 72,800
Net Income
------------- ------------- -------------
Balance, March 31, 2005 18,199,951 18,200 18,923,057
============= ============= =============
Total
Deferred Offering Accumulated Stockholders'
Costs Deficit Equity
------------- ------------- -------------
Balance as of December 31, 2004 $ (5,073,625) $ 13,218,475
Issuance of common stock in March 2005
related to Private Placement 5 at $1.40
per share,net of ofering cost of $77,886 -- 556,114
Issuance of common stock in February & March 2005
for Public Relations -- 4,213
Stock Warrants from PPM 1 offered in 2003
excercised at $0.50 per share -- 25,000
Stock Warrants from PPM 1 offered in 2003
excercised at $0.50 per share -- 50,000
Stock otions excercised in February 2005
excercised at $0.90 per share -- 13,500
Compensation to consultant for capital raise (12,500) -- (12,500)
Issuance of stock to employee -- 330
Reverse stock split --
Net Income 178,918 178,918
------------- ------------- -------------
Balance, March 31, 2005 (12,500) (4,894,707) 14,034,050
============= ============= =============
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Global Axcess Corp and Subsidiaries
Ponte Vedra Beach, Florida
We have audited the accompanying consolidated balance sheet of Global Axcess
Corp and Subsidiaries (the "Company") as of December 31, 2004 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended December 31, 2004 and 2003. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Axcess Corp
and Subsidiaries as of December 31, 2004 and the consolidated results of their
operations and cash flows for the years ended December 31, 2004 and 2003 in
conformity with accounting principles generally accepted in the United States of
America.
March 10, 2005
/s/ Weinberg & Company, P.A.
------------------------
Weinberg & Company, P.A.
F-8
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
Current assets
Cash $ 496,823
Automated teller machine vault cash 455,736
Accounts receivable, net 1,244,810
Note receivable 99,895
Inventory 25,979
Deferred tax asset - current 216,017
Prepaid expense and other current assets 211,251
------------
Total current assets 2,750,511
Fixed assets, net 4,945,588
Other assets
Merchant contracts 8,632,896
Intangible assets, net 4,023,034
Deferred tax asset - long term 322,279
Other assets 160,867
------------
Total assets $ 20,835,175
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 1,871,181
Automated teller machine vault cash payable 455,736
Notes payable-related parties - curent portion 16,487
Notes payable - current portion 53,179
Bank notes - current portion 1,125,000
Capital lease obligations - current portion 328,162
------------
Total current liabilities 3,849,745
Long-term liabilities
Notes payable-related parties - long-term portion 2,357,931
Notes payable - long-term portion 100,000
Bank notes - long-term portion 468,750
Capital lease obligations - long-term portion 840,274
------------
Total liabilities 7,616,700
------------
Commitments and contingencies --
Stockholders' equity
Preferred stock; $0.001 par value; 25,000,000 shares
authorized, no shares issued and outstanding --
Common stock; $0.001 par value; 225,000,000 shares
authorized, 87,896,727 shares issued and
shares outstanding 87,897
Additional paid-in capital 18,204,203
Accumulated deficit (5,073,625)
------------
Total stockholders' equity 13,218,475
------------
Total liabilities and stockholders' equity $ 20,835,175
============
See Accompanying Notes to Consolidated Financial Statements
F-9
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the year ended For the year ended
December 31, 2004 December 31, 2003
Revenues $ 13,907,950 $ 10,201,765
Cost of revenues 8,204,890 6,377,846
-------------- --------------
Gross profit 5,703,060 3,823,919
-------------- --------------
Operating expenses
Depreciation and amortization 1,159,561 790,795
Selling, general and administrative 4,002,494 2,874,999
-------------- --------------
Total operating expenses 5,162,055 3,665,794
-------------- --------------
Income from operations 541,005 158,125
-------------- --------------
Other income (expense)
Settlement income 304,000 --
Foregiveness of debt -- 261,023
Other expenses (55,000) (1,200)
Interest expense (188,411) (108,082)
-------------- --------------
Total other income 60,589 151,741
-------------- --------------
Income before provision for income taxes 601,594 309,866
Federal income tax expense -- --
Provision for income tax benefit 538,295 --
-------------- --------------
Net income $ 1,139,889 $ 309,866
============== ==============
Basic income per common share $ 0.015 $ 0.009
Diluted income per common share $ 0.014 $ 0.004
Basic weighted average
common shares outstanding 78,116,293 35,163,217
Fully diluted weighted average
common shares outstanding 82,445,916 72,572,835
See Accompanying Notes to Consolidated Financial Statements
F-10
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Prepaid
Consulting
Common Stock Additional Common Stock Services Paid in
Shares Amount Paid-in Capital Payable Common Stock
------------ ------------ ------------ ------------ ----------------
Balance, December 31, 2002 23,528,148 $ 23,527 $ 8,305,223 $ -- $ (17,500)
Cancellation of shares in March 2003,
previously issued for an aqcuisition (655,000) (655) 655 -- --
Shares on administrative hold and
outstanding 1,000,000 1,000 (1,000) -- --
Cancellation of related party debt
May 2003 -- -- 45,000 -- --
Issuance of common stock in June
2003 in exchange of related party
debt cancellation 1,000,000 1,000 49,000 --
Issuance of common stock in June
2003 related to Private Placement
1 at $0.05 per share 8,110,000 8,110 385,734 -- --
Issuance of common stock in July
2003 related to Private Placement
1 at $0.05 per share 4,100,000 4,100 185,011 -- --
Issuance of common stock in July
2003 for finders fee relating to
Private Placement 1 385,000 385 (385) -- --
Cacellation of related party debt
September 2003 -- -- 6,295
Issuance of common stock in
September 2003 for finders fee
relating to Private Placement 1 70,000 70 (70) -- --
Purchase of Docutel contract
in October, 2003 750,000 750 424,734 -- --
Issuance of common stock in
November 2003 related to Private
Placement 2 at $0.25 per share 1,430,000 1,430 341,070 -- --
Issuance of common stock in
December 2003 related to Private
Placement 2 at $0.25 per share 6,550,000 6,550 1,500,802 -- --
Issuance of common stock in
December 2003 on exercise of employee
stock options, $0.135 per share 4,500 5 628 -- --
Issuance of common stock in
December 2003 on exercise of employee
stock options, $0.18 per share 10,000 10 1,790 -- --
Current year reclassificaiton of
prepaid consulting services into
accounts receivable -- -- -- -- 17,500
Issuance of Stock Options in
December 2003 based upon fair
value model -- -- 12,675
Funds received on December 31, 2003
shares have not been issued -- -- -- 32,500 --
Net income -- -- -- -- --
------------ ------------ ------------ ------------ ----------------
Balance, December 31, 2003 46,282,648 46,283 11,257,161 32,500 --
Total
Accumulated Stockholders
Deficit Equity
------------ ------------
Balance, December 31, 2002 $ (6,523,611) $ 1,787,639
Cancellation of shares in March 2003,
previously issued for an aqcuisition -- --
Shares on administrative hold and
outstanding -- --
Cancellation of related party debt
May 2003 -- 45,000
Issuance of common stock in June
2003 in exchange of related party
debt cancellation -- 50,000
Issuance of common stock in June
2003 related to Private Placement
1 at $0.05 per share -- 393,844
Issuance of common stock in July
2003 related to Private Placement
1 at $0.05 per share -- 189,111
Issuance of common stock in July
2003 for finders fee relating to
Private Placement 1 -- --
Cacellation of related party debt
September 2003 -- 6,295
Issuance of common stock in
September 2003 for finders fee
relating to Private Placement 1 -- --
Purchase of Docutel contract
in October, 2003 -- 425,484
Issuance of common stock in
November 2003 related to Private
Placement 2 at $0.25 per share -- 342,500
Issuance of common stock in
December 2003 related to Private
Placement 2 at $0.25 per share -- 1,507,352
Issuance of common stock in
December 2003 on exercise of employee
stock options, $0.135 per share -- 633
Issuance of common stock in
December 2003 on exercise of employee
stock options, $0.18 per share -- 1,800
Current year reclassificaiton of
prepaid consulting services into
accounts receivable -- 17,500
Issuance of Stock Options in
December 2003 based upon fair
value model -- 12,675
Funds received on December 31, 2003
shares have not been issued -- 32,500
Net income 309,866 309,866
------------ ------------
Balance, December 31, 2003 (6,213,514) 5,122,430
See Accompanying Notes to Consolidated Financial Statements
F-11
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY- CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Issuance of common stock in
January 2004 related to Private
Placement 2 at $0.25 per share 2,140,000 2,140 520,360 (32,500) - 490,000
Issuance of common stock in
January 2004 related to Private
Placement 3 at $0.25 per share 14,000,000 14,000 3,486,000 - - 3,500,000
Issuance of common stock in
January 2004 related to Reg S
Offering at $0.25 per share 4,408,126 4,408 1,035,092 - - 1,039,500
Stock Warrants from PPM 1 offered
in 2003 excercised on cashless
provision in February 2004 11,941,051 11,941 (11,941) - - -
Stock Warrants from debt cancellation
in 2003 excercised on cashless
provision in February 2004 912,434 912 (912) - - -
Stock Warrants excercised from reset
excercised at $0.10 in February 2004 429,550 430 42,525 - - 42,955
Stock Warrants from prior years
issuances excercised at $0.50 per
share in February 2004 166,666 167 83,166 - - 83,333
Issuance of common stock in
January 2004 related to warrant
exercise and other issuance per share 234,963 235 14,920 - - 15,155
Issuance of common stock in April 2004
related to warrant exercise at $0.35
per common share 7,526,789 7,526 1,989,598 1,997,124
Shares returned and cancelled from
settlement (380,000) (380) (303,620) (304,000)
Warrants issued with debt 68,549 68,549
Issuance of common stock in October
2004 on exercise of employee stock
options, $0.07 per share 12,500 13 862 - - 875
Issuance of common stock in December
2004 for consulting services 20,000 20 5,780 - - 5,800
Issuance of common stock in October
2004 on exercise of employee stock
options, $0.07 per share 200,000 200 19,800 - - 20,000
Issuance of common stock in December
2004 on exercise of employee stock
options, $0.135 per share 2,000 2 268 - - 270
Warrants issued for consulting services 9,094 9,094
Prepaid consulting services for
capital raise (12,500) (12,500)
Net Income for the year ended 12/31/04 1,139,889 1,139,889
-----------------------------------------------------------------------------
Balance, December 31, 2004 87,896,727 $ 87,897 $18,204,203 $ - $(5,073,625) $ 13,218,475
=============================================================================
See Accompanying Notes to Consolidated Financial Statements
F-12
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended For the year ended
December 31, 2004 December 31, 2003
Cash flows from operating activities:
Net income $ 1,139,889 $ 309,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock based compensation - 12,675
Depreciation and amortization 1,159,561 790,795
Deferred tax asset (538,296) -
Settlement income/Cancellation of debt - (261,023)
Changes in operating assets and liabilities:
Change in automated teller machine vault cash (157,031) (35,002)
Change in accounts receivable (794,134) (169,082)
Change in inventory (25,979) -
Change in prepaid expenses and other current assets (94,159) (29,251)
Change in other assets (138,886) 20,204
Change in accounts payable and accrued liabilities 1,087,855 (325,264)
Change in automated teller machine vault cash payable 157,031 35,002
Change in due to related parties - (161,152)
------------------------ ------------------------
Net cash provided by operating activities 1,795,851 187,768
------------------------ ------------------------
Cash flows from investing activities:
Loans to others (99,895) -
Purchase of fixed assets (2,845,167) (537,904)
Payment for business acquisition (10,719,398) -
------------------------ ------------------------
Net cash used in investing activities (13,664,460) (537,904)
------------------------ ------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,956,156 2,467,971
Proceeds from the issuance of bank loans 1,750,000 -
Proceeds form borrowing on notes payable - related parties 2,250,000 -
Proceeds from notes payable 177,807 -
Principal repayments on bank loans (156,250) -
Principal payments on notes payable (24,628) (31,583)
Principal payments on notes payable - related parties (238,673) (130,019)
Principal payments on capital lease obligations (181,059) (240,722)
------------------------ ------------------------
Net cash provided by financing activities 10,533,353 2,065,647
------------------------ ------------------------
(Decrease)/increase in cash (1,335,256) 1,715,511
Cash, beginning of year 1,832,079 116,568
------------------------ ------------------------
Cash, end of year $ 496,823 $ 1,832,079
======================== ========================
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ - $ -
------------------------ ------------------------
Cash paid for interest $ 188,411 $ 98,082
======================== ========================
See Accompanying Notes to Consolidated Financial Statements
F-13
GLOBAL AXCESS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended For the year ended
December 31, 2004 December 31, 2003
Cancellation of 655,000 shares of common stock
previously issued $ - $ 655
Debt cancellation of notes payable related parties $ - $243,981
Debt cancellation of notes payable $ - $ 17,042
Issuance of 750,000 shares of common stock for the purchase of
Docutel contract for clearinghouse services $ - $425,484
Issuance of 1,000,000 shares of common stock related to
exchange of related party debt $ - $ 50,000
Cancellation of related party debt with a grant of
1,000,000 warrants exercisable at $0.10 $ - $ 45,000
Issuance of 455,000 shares of common stock related to finder's
fee for acquisition of common stock $ - $ 22,750
Debt cancellation of related party debt of principal shareholder $ - $ 6,295
Stock Warrants from PPM 1 offered in 2003
excercised on cashless provision in February 2004 $(11,941) $ -
Stock Warrants from debt cancellation in 2003
excercised on cashless provision in February 2004 $ (912) $ -
Stock Warrants from reset offered in 2003
excercised on cashless provision in February 2004 $ 42,955 $ -
Warrants issued with debt during September 2004, recorded as a discount $ 68,549 $ -
See Accompanying Notes to Consolidated Financial Statements
F-14
GLOBAL AXCESS CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES
Description of business - Global Axcess Corp., through its wholly owned
subsidiaries, is an automated teller machine ("ATM") network and processing
consolidator that plans to expand through the strategic acquisition of
profitable ATM businesses, internal growth and, deployment of enhanced
non-banking ATM consumer products worldwide.
Global Axcess Corp (referred to as the "Company") was incorporated in
Nevada on May 2, 1984 under the name of Supermarket Video, Inc. The Company
underwent several name changes until June 2001, when it changed its name to
Global Axcess Corp. Global Axcess Corp is a holding company which conducts
all of its operations through its wholly owned subsidiaries. The
subsidiaries are Nationwide Money Services, Inc., EFT Integration, Inc.,
Axcess Technology Corp., and Electronic Payment & transfer Corp.
On October 12, 2003, the Company started Axcess Technology Corporation
("ATC") to develop software products to be sold for ATM management and
transaction processing. They added an office in South Africa to help with
the development ("ATCSA").
On October 24, 2003, the Company started Electronic Payment & Transfer,
Corp. to continue the development of card based products initiated under
the Company's subsidiaries. These products include payroll cards, debit
cards and management of a purchased contract for the Community Technology
Network Program (CTNP). The CTNP program was developed by Worldwide
Communications Group, Inc. to assist housing authorities and their
residents with registration, technology and other benefits. The CTNP's main
focus is assisting the U.S. Housing and Urban Development Department with
communications and registration of the housing residents. The contract was
purchased on October 8, 2003 from Docutel, Corp. for 750,000 shares of the
Company's common stock and 500,000 stock options exercisable at the then
current market price of $0.35 per share.
During December 2004 the Company has initiated registration of another
subsidiary in South Africa, called Cash Axcess Corp. The Company started
this operation to provide ATM services in South Africa.
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash concentration - The Company holds most of its bank accounts in
Wachovia Bank, and therefore exceeds the FDIC's limit of $100,000 federally
insured funds. The Company believes there is little or no risk in that the
funds are held in such a prominent and credible bank.
Merchant contract concentration - The Company contracts the locations for
its machines with various merchants. As of December 31, 2004, the Company
has approximately 1,438 active machines, of which approximately 696
machines are contracted through a single merchant. Revenues from this
merchant represent approximately 50% of total transaction fees.
Definition of fiscal year - The Company's fiscal year end is December 31.
Use of estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue recognition - Transaction service and processing fees are
recognized in the period that the service is performed. The Company
receives service fees paid by consumers utilizing certain ATMs owned or
managed by the Company and interchange fees paid by their banks. The
Company records all fees for the entire amount of fees to be received from
the transaction for both the ATMs owned and managed by the Company.
Processing fees are generally charged on a per transaction basis, depending
on the contractual arrangement with the customer. Software sales and
services are recorded when complete, shipped and invoiced. ATM sales are
recorded when the ATM is shipped and installed.
Accounts Receivable - The Company reviews the accounts receivable on a
regular basis to determine the collectibility of the accounts. The Company
reserves for accounts that have aged over 90 days and are no longer an
active account.
F-15
Translation adjustments - The financial position and results of operations
of the ATCSA operations are measured using the local currency as the
functional currency. Assets and liabilities of these operations are
translated at the exchange rate in effect at the balance sheet date. Income
statement accounts are translated at the average exchange rate during the
year. Translation adjustments arising from the use of differing exchange
rates from period to period are included in accumulated other comprehensive
gain or loss in the invested equity section of the balance sheets. Gains
and losses that result from foreign currency transactions are included in
the calculation of net income (loss).
Fixed assets - Fixed assets are stated at cost less accumulated
depreciation and amortization. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets, which
are generally 3 to 10 years. Leasehold improvements are amortized on a
straight-line basis over the term of the lease or the life of the asset,
whichever is shorter. The cost of repairs and maintenance is charged to
expense as incurred. Expenditures for property betterments and renewals are
capitalized. Upon sale or other disposition of a depreciable asset, cost
and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of fixed
assets or whether the remaining balance of fixed assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the fixed assets in
measuring their recoverability.
Intangibles Assets -Goodwill and Merchant Contracts - In July 2001, the
FASB issued SFAS No. 142, 'Goodwill and Other Intangible Assets,' which was
required to be adopted for fiscal 2002. SFAS No. 142 established accounting
and reporting standards for goodwill and intangible assets resulting from
business combinations. SFAS No. 142 included provisions discontinuing the
periodic amortization of, and requiring the assessment of the potential
impairments of, goodwill (and intangible assets deemed to have indefinite
lives). As SFAS No. 142 replaced the measurement guidelines for goodwill
impairment, goodwill not considered impaired under previous accounting
literature may be considered impaired under SFAS No. 142. SFAS No. 142 also
required that the Company complete a two-step goodwill impairment test. The
first step compared the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of a reporting unit exceeded
its carrying amount, goodwill is not considered to be impaired and the
second step was not required. SFAS 142 required completion of this first
step within the first six months of initial adoption and annually
thereafter. If the carrying amount of a reporting unit exceeded its fair
value, the second step is performed to measure the amount of impairment
loss. The second step compared the implied fair value of goodwill to the
carrying value of a reporting unit's goodwill. The implied fair value of
goodwill is determined in a manner similar to accounting for a business
combination with the allocation of the assessed fair value determined in
the first step to the assets and liabilities of the reporting unit. The
excess of the fair value of the reporting unit over the amounts assigned to
the assets and liabilities is the implied fair value of goodwill. This
allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any
assets or liabilities. An impairment loss is recognized for any excess in
the carrying value of goodwill over the implied fair value of goodwill.
Intangible assets with finite lives are stated at cost, net of accumulated
amortization, and are subject to impairment testing under certain
circumstances in accordance with SFAS No. 144 and other applicable
pronouncements. These assets are amortized on the straight-line and
accelerated methods, as appropriate, over their estimated useful lives or
period of expected benefit. Intangible assets with indefinite lives are
subject to periodic impairment testing in accordance with SFAS No. 142.
The Company's intangible assets are made up of merchant contracts with
automatic renewable lives. The Company has determined after careful review
of its contracts that the economic life of the contracts is extended and
estimated over 21 years (or 3 times renewal) as most of the contracts
auto-renew, and some have auto-renewed more than once. The Company will
amortize the merchant contracts over their estimated useful lives of 21
years. The Company will also be adopting SFAS 142 to reflect the fair value
of the merchant contracts, and will use a two step valuation process to
determine if there has been any impairment on the value of the merchant
contract assets. The first step will be to determine at each contract's
renewable period, whether they will actually renew and if not to amortize
the cost over the remaining life of the contract. The second step will be
to compare the fair value of each reporting unit to its carrying amount of
the merchant contracts, thus testing the impairment of the value of the
contracts. An impairment loss is recognized for any excess in the carrying
value of merchant contracts over the implied fair value of merchant
contracts.
F-16
Impairment of Long-Lived Assets - The Company reviews long-lived assets for
impairment under SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." Long-lived assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Long-lived assets to be disposed of are reported
at the lower carrying amount or fair value less cost to sell. During the
year ended December 31, 2004, the Company determined that there were no
long-lived assets that were impaired.
Fair value of financial instruments - The carrying amounts of the Company's
long-term liabilities approximate the estimated fair values at December 31,
2004, based upon the Company's ability to acquire similar debt at similar
maturities. The carrying values of all other financial instruments
approximate their fair value, because of the short-term maturities of these
instruments.
Earnings per share - Basic earnings per share exclude any dilutive effects
of options, warrants and convertible securities. Basic earnings per share
is computed using the weighted-average number of outstanding common stocks
during the applicable period. Diluted earnings per share is computed using
the weighted average number of common and common stock equivalent shares
outstanding during the period. Common stock equivalent shares are excluded
from the computation if their effect is antidilutive.
Common stock equivalents are calculated using options and warrants that can
be excercised, when the exercise price is at or above the market price
based on the previous quarter average price.
Income taxes - The Company accounts for its income taxes in accordance with
SFAS No. 109, which requires recognition of deferred tax assets and
liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Comprehensive income - The Company has no components of other comprehensive
income. Accordingly, net income equals comprehensive income for all
periods.
Segment information - The Company discloses segment information in
accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." The Company operates under one segment.
Advertising costs - Advertising costs incurred in the normal course of
operations are expensed as incurred. No advertising costs have been
incurred for the years ended December 31, 2004 and 2003.
Research and development costs - Research and development costs are charged
to expense when incurred. Costs incurred to internally develop software,
including costs incurred during all phases of development, are charged to
expense as incurred.
Externally Developed Software - Costs incurred to purchase external
software and internally develop, so as to put into production, are
capitalized over the life of the software for an average life of three
years.
Expenses of offering - The Company accounts for specific incremental costs
directly to a proposed or actual offering of securities as a direct charge
against the gross proceeds of the offering.
Stock-based compensation - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
Related Interpretations, in accounting for stock options issued to
employees. Under APB No. 25, employee compensation cost is recognized when
estimated fair value of the underlying stock on the date of the grant
exceeds exercise price of the stock option. For stock options and warrants
issued to non-employees, the Company applies SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the recognition of compensation
cost based upon the fair value of stock options at the grant date using the
Black-Scholes option pricing model.
The following table represents the effect on net income and earnings per
share if the Company had applied the fair value based method and
recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", to stock-based
employee compensation:
F-17
2004 2003
---- ----
Net income, as reported $ 1,139,889 $ 309,866
Add: Stock-based employee compensation
expense included in reported income (loss),
net of related tax effects -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all awards,
net of related tax effects (587,372) (673,752)
-------- ----------
Pro forma net income (loss) $ 552,517 $(363,886)
============ ==========
Net income/(loss) per common share
Basic income, as reported $ 0.01 $ 0.01
============ ==========
Basic income/ (loss), pro forma $ 0.01 $ (0.01)
============ ==========
In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure". SFAS No. 148 amends the transition and disclosure provisions
of SFAS No. 123. The Company is currently evaluating SFAS No. 148 to
determine if it will adopt SFAS No. 123 to account for employee stock
options using the fair value method and, if so, when to begin transition to
that method. In December 2004, the FASB issued a revision to SFAS No. 123
called SFAS No. 123R, which revises the adoption period and transition
periods for all entities using the fair value method and applying a
modified prospective method for accounting for employee stock options. The
Company will be adopting SFAS 123R as recommended for Small Business (SB)
filers, as of December 15, 2005 for periods subsequent to that date.
Currently, the Company is applying SFAS 123R and the modified prospective
method for valuing the disclosures.
Recent accounting pronouncements -
In January 2003, (as revised in December 2003) The Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements".
Interpretation No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics: (i) the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
support from other parties, which is provided through other interest that
will absorb some or all of the expected losses of the entity; (ii) the
equity investors lack one or more of the following essential
characteristics of a controlling financial interest: the direct or indirect
ability to make decisions about the entities activities through voting
rights or similar rights; or the obligation to absorb the expected losses
of the entity if they occur, which makes it possible for the entity to
finance its activities; the right to receive the expected residual returns
of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
Interpretation No. 46, as revised, also requires expanded disclosures by
the primary beneficiary (as defined) of a variable interest entity and by
an enterprise that holds a significant variable interest in a variable
interest entity but is not the primary beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no
later than the end of the first reporting period that ends after December
15, 2004. This effective date includes those entities to which
Interpretation 46 had previously been applied. However, prior to the
required application of Interpretation No. 46, a public entity that is a
small business issuer shall apply Interpretation 46 or this Interpretation
to those entities that are considered to be special-purpose entities no
later than as of the end of the first reporting period that ends after
December 15, 2003
Interpretation No. 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year
restated.
F-18
The implementation of the provisions of Interpretation No. 46 may have a
significant effect on the Company's consolidated financial statement
presentation or disclosure.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting
guidance contained in SFAS No. 150 requires that those instruments be
classified as liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatory redeemable
shares, which the issuing company is obligated to buy back in exchange for
cash or other assets. A second type includes put options and forward
purchase contracts, which involve instruments that do or may require the
issuer to buy back some of its shares in exchange for cash or other assets.
The third type of instruments that are liabilities under this Statement is
obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index,
or varies inversely with the value of the issuers' shares. SFAS No. 150
does not apply to features embedded in a financial instrument that is not a
derivative in its entirety.
Most of the provisions of SFAS No. 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are
consistent with the FASB's proposal to revise that definition to encompass
certain obligations that a reporting entity can or must settle by issuing
its own shares. This Statement shall be effective for financial instruments
entered into or modified after May 31, 2003 and otherwise shall be
effective at the beginning of the first interim period beginning after June
15, 2003, except for mandatory redeemable financial instruments of a
non-public entity, as to which the effective date is for fiscal periods
beginning after December 15, 2003.
In March 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff
Accounting bulletin ("SAB") No. 105, "Loan Commitments Accounted for as
Derivative Instruments". This bulletin contains specific guidance on the
inputs to a valuation-recognition model to measure loan commitments
accounted for at fair value, and requires that fair-value measurement
include only differences between the guaranteed interest rate in the loan
commitment and market interest rate, excluding any expected future cash
flows related to the customer relationship or loan servicing. In addition,
SAB105 requires the disclosure of the accounting policy for loan
commitments, including methods and assumptions used to estimate the fair
value of loan commitments, and any associated hedging strategies. SAB 105
is effective for derivative instruments entered into subsequent to March
31, 2004 and should also be applied to existing instruments as appropriate.
The Company has not yet completed its evaluation of SAB 105, but does not
anticipate a material impact on the financial statements.
In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment".
SFAS No. 123 (R) revises SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees". SFAS No. 123 (R) focuses primarily on the accounting
for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123 (R) requires companies to
recognize in the statement of operations the cost of employee services
received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). SFAS No.
123 (R) is effective as of the first interim or annual reporting period
that begins after June 15, 2005 for non-small business issuers and after
December 15, 2005 for small business issuers. Accordingly, the Company will
adopt SFAS No. 123 (R) in its quarter ending March 31, 2006. The Company is
currently evaluating the provisions of SFAS No. 123 (R) and has not yet
determined the impact, if any, that SFAS No. 123 (R) will have on its
financial statement presentation or disclosures.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 153, " Exchanges
of Non-Monetary Assets, an Amendment of APB No. 29". This Statement amends
APB Opinion No. 29, "Accounting for Nonmonetary Transactions". Earlier
guidance had been based on the principle that exchanges of nonmonetary
assets should be based on the fair value of the assets exchanged and APB
No. 29 included certain exceptions to this principle. However, FASB 153
eliminated the specific exceptions for nonmonetary exchanges with a general
exception for all exchanges of nonmonetary assets that do not have
commercial and economic substance. A nonmonetary exchange has commercial
substance only if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is
effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The implementation of this SFAS No. 153 is not
expected to have a material impact on the Company's financial statement
presentation or its disclosures.
F-19
Management does not believe the adoption of these statements will have a
material effect on the Company's consolidated financial position or results
of operations.
2. ACQUISITIONS OF ASSETS
On October 8, 2003 the Company purchased all rights and obligations of a
clearinghouse services contract. The Company issued 750,000 shares of
common stock and 500,000 common stock options at an exercise price of
$0.35, the then current market value as of the close of the signing of the
purchase, from Docutel Services Corp. The total book value of the contract
purchase was $425,484. Docutel Services Corp. is not eligible to receive
additional stock options based upon certain performance goals outlined in
the asset purchase agreement. Certain volumes have not been met, thus the
Company is eligible to receive all shares and options back. The Company has
currently requested all shares and options be returned. The Company has
stopped amortizing the value of this asset and has reviewed it for
collectibility.
The Company purchased 900 Merchant ATM contracts in February 2004. The
purchase price was $3,900,000 and is reflected in Merchant Contracts.
During September 2004, the Company made two acquisitions one for 111 ATM
contracts, and another for 745 ATM contracts. The prices for those
acquisitions were $918,000 and $7,000,000, respectively. In the latest two
acquisitions the Company also acquired ATM machines with the fair value of
$166,500 and $1,200,000, respectively.
When the Company acquires another companies assets, accounting principles
generally accepted in the United States of America require the Company to
estimate the fair value of the other company's tangible assets and
liabilities and identifiable intangible assets. Based upon these estimates,
the purchase price is allocated to the assets and liabilities of the
acquired company for the purpose of recording these items in the Company's
financial records. Any unallocated purchase price is recorded as goodwill.
The distinction between the amount of the purchase price allocated either
to tangible assets and liabilities or identifiable intangible assets and
goodwill is significant because goodwill is not amortized to the Company's
statements of operations but is instead subject to the annual impairment
test discussed earlier in Note 1. Estimates inherent in the process of this
purchase price allocation include assumptions regarding the timing and
amounts of future cash inflows and outflows, the salability of inventories,
selection of discount rates, contract renewal rates and general market
conditions.
Based on an allocation of fair values to fixed assets acquired and merchant
contracts acquired, the remaining value is allocated to goodwill. The
Company will be applying FAS 142 to review for impairment to the intangible
goodwill and merchant contracts as noted above. As of September 30, 2004
the Company had relied on the reported values of the assets acquired from
the seller to estimate fair value. In reviewing the seller's balances,
current fair values in the market, discounted cash flow analysis of the
merchant contracts; and after considering the outlay of cash for
maintenance and capital costs along with the projected income from the
future income stream from the contracts, the Company allocated
approximately $2,800,000 of the ATM Network's asset purchase to goodwill,
as of December 31, 2004, all other acquisitions assets had fair values
equal or greater than the acquisition price.
The Proforma statements of the acquisitions for 2004 are disclosed below
with combined seller information:
F-20
PROFORMA FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEET
Global Axcess Corp Combined Seller's
ASSETS Balance Sheet Balance Sheet Proforma
As of December 31, 2003 Balance Sheet
Audited
Current assets
Cash $ 1,832,079 $ (119,431) $ 1,712,648
Automated teller machine vault cash 298,705 298,705
Accounts receivable, net 450,676 320,000 770,676
Prepaid expense and other current assets 117,092 117,092
-----------------------------------------------------------
Total current assets 2,698,552 200,569 2,899,121
Fixed assets, net 1,840,792 1,366,500 3,207,292
Other assets
Intangible assets, net 2,312,926 10,441,500 12,754,426
Other assets 21,981 21,981
-----------------------------------------------------------
Total assets $ 6,874,251 $ 12,008,569 $ 18,882,820
===========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 783,326 $ $ 783,326
Automated teller machine vault cash payable 298,705 298,705
Notes payable-related parties - curent portion 48,320 48,320
Notes payable - current portion 40,000 1,125,000 1,165,000
Capital lease obligations - current portion 105,111 105,111
-----------------------------------------------------------
Total current liabilities 1,275,462 1,125,000 2,400,462
-----------------------------------------------------------
Long-term liabilities
Notes payable-related parties - long-term portion 274,771 274,771
Notes payable - long-term portion - 2,750,000 2,750,000
Capital lease obligations - long-term portion 201,588 201,588
-----------------------------------------------------------
Total liabilities 1,751,821 3,875,000 5,626,821
-----------------------------------------------------------
Commitments and contingencies -
Stockholders' equity
Preferred stock; $0.001 par value; 25,000,000 shares
authorized, no shares issued and outstanding - - -
Common stock; $0.001 par value; 125,000,000 shares
authorized, 46,282,648 shares issued and
shares outstanding 46,283 38,116 84,399
Additional paid-in capital 11,257,161 6,823,054 18,080,215
Common Stock Payable 32,500 32,500
Accumulated deficit (6,213,514) 1,272,398 (4,941,116)
----------------------------------------------------------
Total stockholders' equity 5,122,430 8,133,569 13,255,999
-
----------------------------------------------------------
Total liabilities and stockholders' equity $ 6,874,251 $ 12,008,569 $ 18,882,820
==========================================================
F-21
PROFORMA FINANCIAL INFORMATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
Global Axcess Corp Combined Seller's
For the year ended For the year ended Proforma
31-Dec-03
Audited
Revenues $ 10,201,765 $ 8,310,906 $ 18,512,671
Cost of revenues 6,377,846 4,094,055 10,471,901
---------------------------------------------------------
Gross profit 3,823,919 4,216,851 8,040,770
Operating expenses
Depreciation and amortization 790,795 928,171 1,718,966
Selling, general and administrative 2,874,999 1,946,282 4,821,281
---------------------------------------------------------
Total operating expenses 3,665,794 2,874,453 6,540,247
---------------------------------------------------------
Income from operations 158,125 1,342,398 1,500,523
---------------------------------------------------------
Other income (expense)
Settlement income - -
Foregiveness of debt 261,022 261,023
Other (expense)/income (1,200) - (1,200)
Gain on sale of equipment - - -
Interest expense (108,082) (70,000) (178,082)
---------------------------------------------------------
Total other income 151,740 (70,000) 81,741
---------------------------------------------------------
Income before provision for income taxes 309,866 1,272,398 1,582,264
Provision for income taxes - - -
---------------------------------------------------------
Net income $ 309,866 $ 1,272,398 $ 1,582,264
=========================================================
Basic income per common share $ 0.01 $ 0.03 $ 0.02
Diluted income per common share $ 0.00 $ 0.03 $ 0.02
Basic weighted average
common shares outstanding 35,163,217 38,117,617 73,280,834
Diluted weighted average
common shares outstanding 72,572,835 44,235,233 78,690,452
3. NOTE RECEIVABLE
The Company issued a note receivable in the amount of $190,000 in February
2004. The note is due within 1 year with an annual interest rate of 10%.
Principal and interest payments are to be made monthly. The note has been
amended to extend the term for 1 additional year. The amount remaining on
the note as of December 31, 2004 is $99,895.
F-22
4. FIXED ASSETS
Fixed assets consist of the following as of December 31, 2004:
Automated teller machines (A) $ 5,491,244
Furniture and fixtures 432,673
Computers, equipment and software (A) 2,185,757
Automobiles 30,152
Leasehold equipment 19,628
----------------
8,159,454
Less: accumulated depreciation and amortization (B) 3,213,866
----------------
Fixed assets, net $ 4,945,588
================
(A) See Note 9 for ATM's and computer's held under capital leases.
(B) Depreciation expense for the years ended December 31, 2004 and 2003 were;
$783,971 and $630,886, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 2004:
Goodwill & trademarks $ 4,289,296
Merchant contracts 9,256,531
----------------
13,545,827
Less: accumulated amortization (889,897)
----------------
Intangible assets, net $ 12,655,930
================
The Company recorded amortization expense of $375,590 and $159,908, as of
December 31, 2004 and 2003, respectively. Aggregate amortization over the
next five years, assuming a useful life of 21 years for merchant contracts
and intangible assets is expected to be as follows:
For the years ending
December 31,
2005 $472,830
2006 472,830
2007 464,749
2008 440,505
2009 440,505
6. AUTOMATED TELLER MACHINE VAULT CASH PAYABLE
Automated teller machine vault cash payable consists of funds collected
through providing network and switching services for ATMs. Additionally,
these funds have been reported as automated teller machine vault cash
payable on the balance sheet with offsetting automated teller machine vault
cash at December 31, 2004. As of December 31, 2004, automated teller
machine vault cash payable of $455,736 consists of cash collected through
network and switching services, payable to various third-parties. The cash
is secured with a proportionate share of the automated teller machine vault
cash, due on demand and the Company rents the vault cash from financial
institutions and pays a negotiated interest rate for the use of the funds.
F-23
7. NOTES PAYABLE - RELATED PARTIES
As of December 31, 2004, notes payable - related parties consist of the
following:
Promissory note in the amount of $218,981 to a stockholder,
unsecured, payable in monthly principal and interest installments of $3,000,
bearing an annual interest rate of 11%, and due June 2013 $ 192,966
Subordinated unsecured debenture of $2,250,000 provided by stockholders
of record with interest only payments made quarterly at a rate of 9%,
with balloon payments due September 15, 2007, net of discounts and fees 2,181,452
------------------
2,374,418
Less: amounts due within one year 16,487
------------------
Long-term portion of note payable $ 2,357,931
==================
As of December 31, 2004, principal payments on the notes payable are as
follows:
2005 $ 16,487
2006 14,715
2007 2,226,487
2008 18,471
Thereafter 98,258
------------------
$ 2,374,418
==================
8. NOTES PAYABLE
As of December 31, 2004, notes payable consist of the following:
In April 2004, the Company entered into a financing agreement with an
insurance company for $36,500 with interest payable at 8% that matures
in January 2005 $ 3,179
In September 2004, the Company entered into a subordinated promissory note
for $150,000 for consulting services associated with the acquisition assets
from ATM Networks, Inc.. The note is secured by the acquisition assets.
Interest is payable quarterly, at an annual interest rate of 6%, and the note
is discounted for warrants in the amount of $68,549. The note requires
annual payments in the amount of $50,000 for three years $ 150,000
------------------
153,179
Less: amounts due within one year 53,179
------------------
Long-term portion of notes payable $ 100,000
==================
F-24
9. BANK LOAN PAYABLE
In September 2004, the company entered into a senior secured loan with a
bank in the amount of $1,250,000, and a working capital line of credit in
the amount of $500,000. The loan and credit line are secured by all the
assets of the Company. Principal and interest is due monthly on the loan,
and the loan matures at the end of 2 years. The line of credit is due to be
paid off within one year. Interest, on both the loan and line of credit, is
at an annual rate of Bank Prime plus .25 basis points. The balance of the
loan as of December 31, 2004 was $1,593,750.
10. CAPITAL LEASE OBLIGATIONS
The Company is obligated under various capital leases for automated teller
machines and computer equipment. For financial reporting purposes, minimum
lease payments relating to the equipment have been capitalized. Capital
lease obligations totaling $1,168,437 require minimum monthly lease
payments ranging from $34 to $7,387 with interest rates ranging between
6.00% and 18.00%. The future minimum lease payments required under capital
lease obligations as of December 31, 2004, are as follows:
2005 $ 417,935
2006 368,694
2007 247,487
2008 196,957
2009 145,575
------------------
1,376,648
Less: amount representing interest 208,212
------------------
Present value of minimum lease payments 1,168,436
Less: current portion of capital lease obligations 328,162
------------------
$ 840,274
==================
Equipment leased under capital leases as of December 31, 2004, totals
$1,406,196, which is net of accumulated depreciation of $74,804.
11. OTHER INCOME
During fiscal year 2004 the Company had settled a claim whereby the Company
was returned 380,000 shares of common stock with a market value of
$304,000. The shares were subsequently cancelled.
12. COMMITMENTS AND CONTINGENCIES
Leased facilities - During September 2004, the Company renewed the
operating lease for its facilities under a non-cancelable operating lease.
The agreement calls for an annual base rent of approximately $180,326 with
an annual cost of living increase of 3%. Rent expense during the years
ending December 31, 2004 and 2003 was $159,125 and $119,613, respectively.
F-25
Future minimum rental payments required under the operating lease for the
office facilities as of December 31, 2004, are as follows:
2005 $ 189,915
2006 195,612
2007 201,480
2008 207,525
2009 52,262
------------------
Total $ 846,794
==================
Legal proceedings
During the fourth quarter of 2002, the Business Software Alliance ("BSA")
conducted an audit of software in use by Global Axcess' subsidiary
Nationwide Money Services, Inc. ("NMS"). BSA alleges that NMS infringed on
software copyrights for Microsoft and Symantec. On December 5, 2002, BSA
sent NMS a letter requesting payment of $237,842 plus attorney fees for
purportedly misappropriated software that was installed on NMS computers.
While acknowledging that some software was inappropriately installed on NMS
computers, NMS disagrees with the facts presented in the BSA letter. NMS
has settled with the BSA subsequent to December 31, 2004. The Company has
reserved the amounts fully as of December 31, 2004.
In March 2004, the Company received a claim filed by James Collins, a
previous employee of Global Axcess Corp. The claim was filed in Superior
court of California, County of San Diego on March 2, 2004. The claim
alleges the following are owed in connection with the employment agreement:
compensation, bonuses and other benefits of approximately $316,915; and
450,000 restricted shares and 1,798,500 stock options exercisable at $0.75
per share.
The Company believes that this claim is unfounded. The Company's management
believes that this claim will not have a material adverse effect on the
Company's consolidated results of operations, cash flows or financial
position.
The Company's officers and directors are aware of no other threatened or
pending Litigation or government proceeding, which would have a material,
adverse effect on the Company. From time to time the Company may be a
defendant (actual or threatened) in certain lawsuits encountered in the
ordinary course of its business, the resolution of which, in the opinion of
management, should not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
13. CONSULTING AND EMPLOYMENT AGREEMENTS
The Company has the following employment contracts with several executive
officers and consultants:
The Chairman and CEO has a new five year employment contract from June 30,
2004 to June 30, 2009, under Board and the Chairman's approval. The
agreement provides the Chairman with the following compensation: an annual
salary of $250,000; which has been increased to $275,000 once certain
milestones were achieved, and can be raised to $350,000 when other
milestones are achieved; an annual bonus to be determined and awarded by
the Compensation Committee; and an 18 month severance agreement. The
compensation under this agreement through December 31, 2004 was $137,500.
F-26
The President has a two year employment contract from April 29, 2002 to
April 29, 2004, which has been extended for two additional years until
April 29, 2006 under Board and the President's approval. For performance as
a director and officer, the Company will compensate the President with the
following: a monthly salary of $7,500, which has been increased to an
annual amount of $200,000 once certain milestones were achieved and an
annual bonus and stock options to be determined and awarded by the
Compensation Committee. The compensation under this agreement in 2004 and
2003 was, $200,000 and $125,000, respectively.
The Executive Vice-President has a two year employment contract from July
1, 2003 to December 31, 2005. For performance as an executive
vice-president, the Company will compensate the Executive Vice-President
with the following: an annual salary of $135,000 and a commission plan
based on certain goals of the Company. The compensation under this
agreement in 2004 and 2003 was, $200,000 and $135,000, respectively.
A Vice President of the Company has a two year contract from October 24,
2003 to October 24, 2005. For performance as a vice-president, the Company
will compensate the Vice President with a salary of $120,000 per year, and
has given 400,000 options at an exercise price of $0.34, as well as set
other performance goals with the possibility of obtaining 600,000
additional options at varying prices based on grant date. The compensation
under this agreement in 2004 and 2003 was, $120,000 and $25,000,
respectively.
14. COMMON STOCK
During the first quarter ending March 31, 2003, under a settlement
agreement, 655,000 shares of the Company's stock previously issued under an
acquisition with two individuals, were transferred back to the Company and
subsequently cancelled during the second quarter ended June 30, 2003.
During the second quarter ending June 30, 2003, the Company had issued a
Private Placement Offering, whereby the Company offered units at a price of
$.05 per unit with each unit consisting of one share of common stock and
one common stock purchase warrant. The offering closed in July 2003. The
amount of shares subscribed to totaled 12,210,000, as of September 30,
2003, of which $610,500 was received in cash, of which $21,251 and 455,000
shares of stock were issued as payment of fees.
Also during the second quarter, 1,000,000 shares of stock previously on
hold with the transfer agent, pending a legal claim, were released.
Also during the second quarter, $50,000 of debt due to a related party was
exchanged for 1,000,000 shares of the Company's common stock, valued at the
fair market value on the date of the exchange.
During the third and fourth quarter fiscal year 2003, the Company had
issued a second Private Placement Offering, whereby the Company offered
units at a price of $.50 per unit with each unit consisting of two shares
of common stock and one common stock purchase warrant. The offering closed
subsequent to December 31, 2003. The amount of shares subscribed to totaled
7,980,000, as of December 31, 2003, of which $1,995,000 was received in
cash, of which $145,147 was paid in fees.
Purchase of Contract -- In October 2003, the Company purchased the
Clearinghouse Services Agreement from Docutel Corporation for 750,000
shares of the Companies common stock and 500,000 stock purchase options
exercisable at $0.35. Under this Agreement the Company will be responsible
to collect data from various vendors that are providing product for a
prepaid debit card that will be issued to members of the Community
Technology Network Program (CTNP). Additionally the Company will be
responsible to collect the fees charged by the vendors to the cardholders
and to disburse the funds once collected to the vendors. The CTNP is a
program that is marketing various services as well as the prepaid debit
card to people who reside in the Department of Housing and Urban
Development sponsored housing. The Company earns a monthly fee on each
active card as well as additional fees based on the usage of the card by
the resident.
F-27
During the fourth quarter of fiscal year 2003, two employees exercised
stock options totaling 14,500 shares for a total cash payment of $2,408.
January 15, 2004, the Company closed its Regulation S private offering
whereby it raised $1,039,500 during the three months ended March 31, 2004
in connection with the sale of 2,204,063 (4,408,126 shares) units for $.50
per unit to accredited and issued four types of warrants (F Warrants, G
Warrants, H Warrants and I Warrants), which are exercisable for a period of
five years or for 18 months after the effective date of a registration
statement covering the shares of common stock underlying the warrants,
whichever is longer. The four warrants terms are as below: .
January 19, 2004, the Company closed its 2nd private offering whereby it
raised $490,000 during the three months ended March 31, 2004 in connection
with the sale of 1,070,000 (2,140,000 shares) units for $.50 per unit to
accredited and institutional investors. Each unit consists of two shares of
common stock of the Company and issued four types of warrants (F Warrants,
G Warrants, H Warrants and I Warrants), which are exercisable for a period
of five years or for 18 months after the effective date of a registration
statement covering the shares of common stock underlying the warrants,
whichever is longer. The four warrants terms are as below: . .
January 29, 2004, the Company raised $3,500,000 in connection with the sale
of 14,000,000 shares of common stock for $.25 per share to two
institutional investors. The investors, upon the purchase of every two
shares of common stock, also received four common stock purchase warrants,
which resulted in the issuance of 28,000,000 common stock purchase
warrants. The Company issued four types of warrants (F Warrants, G
Warrants, H Warrants and I Warrants), which are exercisable for a period of
five years or for 18 months after the effective date of a registration
statement covering the shares of common stock underlying the warrants,
whichever is longer. The four warrants terms are as follows:
o The F Warrants are exercisable at $.35 per share and are not callable by
the Company.
o The G Warrants are exercisable at $.35 per share and are callable by the
Company if the market price of the Company's common stock is equal to or in
excess of $0.70 for a period of twenty consecutive days and there is an
effective Registration Statement covering the shares common stock
underlying the G Warrant.
o The H Warrants are exercisable at $.50 per share and are callable by the
Company if the market price of the Company's common stock is equal to or in
excess of $1.00 for a period of twenty consecutive days and there is an
effective Registration Statement covering the shares common stock
underlying the H Warrant.
F-28
o The I Warrants are exercisable at $1.00 per share and are callable by the
Company if the market price of the Company's common stock is equal to or in
excess of $1.25 for a period of twenty consecutive days and there is an
effective Registration Statement covering the shares common stock
underlying the I Warrant.
All common shares associated with this private placement are restricted
securities in accordance with Rule 144 as promulgated under the Laws of the
Securities Act of 1933. However, the Company is required to file a
registration statement covering the shares of common stock and the shares
underlying the common stock purchase warrants no later then May 30, 2004
and it is required to go effective by July 29, 2004. The Company has
registered the above shares of common stock and underlying shares for stock
purchase warrants. .
During January 2004, shareholders exercised stock purchase warrants for
234,963 shares of common stock. These stock purchase warrants were
exercised at several prices per share for an amount of $15,155.
During the three months ending March 31, 2004 shareholders exercised stock
purchase warrants for an aggregate of 12,853,485 shares of common stock.
These stock purchase warrants were exercised on a cashless provision.
During February 2004, shareholders exercised stock purchase warrants for
429,550 shares of common stock. These stock purchase warrants were
exercised at $0.10 per share for an amount of $42,955.
Also during February 2004, shareholders exercised stock options for 166,666
shares of common stock. These stock options were exercised at $0.50 per
share for an amount of $83,333.
In March 2004, shareholders exercised stock purchase warrants at $0.35 per
share and received $1,997,124. The Company issued 7,526,789 shares on April
1, 2004.
During April, 2004 after a settlement with on 380,000 common shares were
returned to the Company. Initially these shares were issued in 2001 for
consulting fees and charged against income. At the time the settlement
occurred these shares had a market value of $0.80 per share for a total
value of $304,000 returned to Treasury of the company and is reflected in
other income.
During September 2004, the Company issued Debt with stock purchase warrants
attached at an exercise price of $0.35 per share. A total of 675,000 shares
underlying the stock purchase warrants for a fair value of $68,549 were
issued.
F-29
In October 2004 12,500 options were exercised by an employee at $0.07 per
share for $875
During the fourth quarter of the year, 20,000 shares were issued for
consulting services at a fair value of $5,800.
During October 2004, there was an exercise of 200,000 stock purchase
warrants at an exercise price of $0.10 per share.
In December 2004, an employee exercised 2,000 options at an exercise price
of $0.135 per share.
During December 2004 the Company issued 1,200,000 stock options for
consulting services at an exercise price of $0.30, for a fair value of
$9,094.
During December 2004, the Company prepaid $12,500 of consulting costs for
capital raising activities.
15. INCOME TAXES
The components of the provision for income taxes were as follows:
Income tax benefit for the years ended December 31, 2004 and 2003 is summarized
as follows:
2004 2003
Current:
Federal $ - $ -
State - -
Deferred:
Federal (453,212) -
State (85,084) -
------------------ -----------------
Income tax expense (benefit): $ (538,296) $ -
================== =================
Deferred income taxes arise from the temporary differences in reporting
assets and liabilities for income tax and financial reporting purposes.
These temporary differences primarily resulted from net operating losses
and different amortization and depreciation methods used for financial and
tax purposes.
F-30
The components of the deferred tax assets and the deferred tax liabilities
are shown below.
2004 2003
Deferred tax assets:
Arising from operating loss and credit carryforwards $ 2,854,197 $ 180,250
Valuation allowance (1,582,908) (180,250)
------------------- ----------------
Deferred tax assets 1,271,289 -
------------------- ----------------
Deferred tax liability:
Arising from accumulated depreciation and amortization 732,993 -
------------------- ----------------
Deferred tax liability 732,993 -
------------------- ----------------
Net deferred tax asset 538,296 -
=================== ================
Current portion 216,017 -
Non-current portion 322,279 -
------------------- ----------------
Net deferred tax asset $ 538,296 $ -
=================== ================
In assessing the realizable ability of the deferred tax assets, management
considers whether it is more likely than not, that some portion or all of
the deferred tax assets will not be realized. The valuation allowance at
December 31, 2004 is related to deferred tax assets arising from net
operating loss carryforwards. Management believes that based upon its
projection of future taxable income for the forseeable future, it is more
likely than not that the Company will not be able to realize the full
benefit of the net operating loss carryforwards before they expire, due to
the accelerated amortization and depreciation losses from the projected
acquisition assets.
At December 31, 2004, the Company has net operating loss carryforwards
totaling approximately $7,500,000 that may be offset against future taxable
income through 2016.
16. NET INCOME PER COMMON SHARE
Basic net income per share is computed based on the weighted average number
of common shares outstanding during the period. Diluted net income per
common share is computed based on the weighted average number of common
shares outstanding during the period increased by the effect of dilutive
stock options and stock purchase warrants using the treasury stock method.
The calculation of basic net income per common share and diluted net income
per common share is presented below:
F-31
The computations for basic and diluted weighted average earnings per share
are as follows:
Net Income Weighted Average Shares Earnings Per
(Numerator) (Denominator) Share
Year ended December 31, 2004 Basic weighted
average earnings per share:
Net income $ 1,139,889 78,116,293 $ 0.015
----------- ---------- -------
Diluted earnings per share:
Dilutive stock options & warrants 4,329,623
----------
Net income plus assumed conversions $ 1,139,889 82,445,916 $ 0.014
----------- ---------- -------
Year ended December 31, 2003 Basic earnings
per share:
Net Income $ 309,866 35,163,217 $ 0.009
----------- ---------- -------
Diluted earnings per share:
Dilutive stock options & warrants 37,409,618
----------
Net Income plus assumed converstions $ 309,866 72,572,835 $ 0.004
----------- ---------- -------
17. STOCK OPTIONS AND WARRANTS
Stock options - During the years ended December 31, 2004 and 2003, the
Company granted stock options totaling 6,623,000 and 6,197,000 shares of
its common stock, with a weighted average strike price of $0.32 and $0.32
per share, respectively. Certain stock options were exercisable upon grant
and have a life ranging from 4 months to 5 years. The following table
summarizes the Company's stock options activity under compensation plans:
Number Weighted
Of Average
Options Exercise Price
----------- ------------
Balance, December 31, 2002 4,266,500 $ 0.77
Options granted 6,197,000 0.32
Options canceled -- --
Options expired (614,000) 0.18
Options exercised (14,500) 0.17
----------- -------------
Balance, December 31, 2003 9,835,000 $ 0.52
Options granted 6,198,000 0.29
Options cancelled (500,000) 0.35
Options expired (2,688,334) 0.80
Options exercised (179,166) 0.07
----------- -------------
Balance, December 31, 2004 12,665,500 $ 0.38
=========== =============
Pro forma disclosure - Pro forma information regarding net income and net
earnings per share, as disclosed in Note 1, has been determined as if the
Company had accounted for its employee stock-based compensation plans and
other stock options under the fair value method of SFAS 123R. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants under the fixed option plans:
F-32
2004 2003
Weighted-average risk free interest rate 3.75% 1.42%
Expected life of option (years) 2.0 2.0
Expected stock volatility 70.5% 57.2%
Expected dividend yield 0.00% 0.00%
The following table summarizes information about options outstanding and
exercisable at December 31, 2004:
Shares Underlying Options Outstanding Shares Underlying Options Excercisable
Shares Weighted Weighted Shares Weighted
Underlying Average Average Underlying Average
Options Remaining Excerise Options Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Exercise Price
- -------------- ----------- ---------------- -------- ----------- --------------
$0.05-$0.25 2,400,500 2 years $ 0.16 1,819,250 $ 0.15
$0.26-$4.00 10,163,000 3 years $ 0.44 4,218,250 $ 0.35
----------- -------- ----------- --------------
12,563,500 $ 0.38 6,037,500 $ 0.49
----------- -------- ----------- --------------
Exercise Price
Equals, Exceeds or
Number of is Less Than Mkt. Weighted Weighted
Remaining Options Price of Stock Average Range of Average
Granted on Grant Date Exercise Price Exercise Price Fair Value
----------------- ------------------ -------------- -------------- ------------
-- Equals $ -- $ -- $ --
4,330,000 Exceeds 0.66 4.00 2,837,450
8,233,500 Less Than 0.24 0.30 1,969,335
----------------- ------------------ -------------- -------------- ------------
12,563,500 $ 0.38 $ -- $ 4,806,783
================= ================== ============== ============== ============
F-33
Stock warrants. The following table summarizes the Company's stock warrant
activity:
Number Weighted
Of Average
Warrants Exercise Price
----------- --------------
Balance, December 31, 2002 1,333,316 $ 9.17
----------- --------------
Warrants granted 34,225,000 0.39
Warrants canceled -- --
Warrants expired -- --
Warrants exercised -- --
----------- --------------
Balance, December 31, 2003 35,558,316 $ 0.72
Warrants granted 43,192,998 0.74
Warrants canceled -- --
Warrants expired 1,713,316 7.20
Warrants exercised 22,458,656 0.18
----------- --------------
Balance, December 31, 2004 54,579,342 $ 0.54
=========== ==============
Pro forma disclosure - SFAS No. 123 requires companies that follow APB No.
25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123. Accordingly, no pro forma disclosure is
required as stock warrants were issued for cash not as part of stock based
consideration.
The following table summarizes information about warrants outstanding and
exercisable at December 31, 2004:
Shares Underlying Options Outstanding Shares Underlying Options Excercisable
Shares Weighted Weighted Shares Weighted
Underlying Average Average Underlying Average
Options Remaining Excerise Options Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Exercise Price
- -------------- ----------- ---------------- -------- ----------- --------------
$ 0.10 2,600,000 1.5 years $ 0.10 2,600,000 $ 0.10
$ 0.30 2,200,000 0.5 years $ 0.30 2,200,000 $ 0.30
$ 0.35 21,682,004 2.1 years $ 0.35 21,682,004 $ 0.35
$ 0.50 14,090,336 2.1 years $ 0.50 14,090,336 $ 0.50
$ 1.00 14,007,002 2.1 years $ 1.00 14,007,002 $ 1.00
- ------------------------------------------------------------------------------------------------------
$ 0.54 54,579,342 $ 0.54 54,579,342 $ 0.54
=======================================================================================================
F-34
18. RELATED PARTY TRANSACTIONS
In May 2003, the Company issued 1,000,000 shares of its common stock to a
stockholder, officer, and director of the Company, through a Private
Placement Offering in an amount of $50,000.
In June 2003, the Company issued 1,000,000 shares of its common stock to a
stockholder, officer, and director of the Company, through a Private
Placement Offering in an amount of $50,000 offsetting an equal amount of
debt currently owed to the Company.
In June 2003, the Company issued 400,000 shares of its common stock to a
stockholder, and officer of the Company, through a Private Placement
Offering in an amount of $20,000.
In June 2003, the Company issued 100,000 shares of its common stock to a
stockholder, and officer of the Company, through a Private Placement
Offering in an amount of $5,000.
In June 2003, the Company issued 100,000 shares of its common stock to a
stockholder and director of the Company, through a Private Placement
Offering in an amount of $5,000.
In June 2003, the Company issued 400,000 shares of its common stock to a
stockholder and director of the Company, through a Private Placement
Offering in an amount of $20,000.
In July 2003, the Company issued 400,000 shares of its common stock to a
stockholder, officer, and director of the Company, through a Private
Placement Offering in an amount of $20,000.
In February 2004, we issued 912,435 shares of common stock to a
stockholder, officer, and director of the Company, through exercise of
1,000,000 Private Placement Offering Warrants at $0.10 per share and
exercised as cashless.
In February 2004, we issued 912,435 shares of common stock to a
stockholder, officer, and director of the Company, through exercise of
1,000,000 Private Placement Offering Warrants (offsetting an equal amount
of debt currently owed by the Company) at $0.10 per share and exercised as
cashless..
In February 2004, we issued 364,974 shares of common stock to a
stockholder, and officer of the Company, through exercise of 400,000
Private Placement Offering Warrants at $0.10 per share and exercised as
cashless.
In February 2004, we issued 91,244 shares of common stock to a stockholder,
and officer of the Company, through exercise of 100,000 Private Placement
Offering Warrants at $0.10 per share and exercised as cashless.
In February 2004, we issued 365,035 shares of common stock to a stockholder
and director of the Company, through exercise of 400,000 Private Placement
Offering Warrants at $0.10 per share and exercised as cashless.
F-35
In March 2004, we issued 10,000 shares of common stock to a stockholder and
director of the Company, through exercise of 10,000 Private Placement
Offering Warrants at $0.35 per share.
In March 2004, we issued 700,000 shares of common stock to a stockholder
and beneficial owner of the Company, through exercise of Private Placement
Offering Warrants at $0.35 per share
In March 2004, we issued 700,000 shares of common stock to a stockholder
and beneficial owner of the Company, through exercise of Private Placement
Offering Warrants at $0.35 per share
In March 2004, we issued 700,000 shares of common stock to a stockholder
and beneficial owner of the Company, through exercise of Private Placement
Offering Warrants at $0.35 per share
In February 2004, we issued 2,666,667 shares of common stock to a
stockholder and beneficial owner of the Company, through a Private
Placement Offering for $666,666.75 and we issued 5,333,334 Warrants
exercisable from $0.35 to $1.00.
In February 2004, we issued 2,666,667 shares of common stock to another
stockholder and beneficial owner of the Company, through a Private
Placement Offering for $666,666.75 and we issued 5,333,334 Warrants
exercisable from $0.35 to $1.00.
In February 2004, we issued 2,666,667 shares of common stock to another
stockholder and beneficial owner of the Company, through a Private
Placement Offering for $666,666.75 and we issued 5,333,334 Warrants
exercisable from $0.35 to $1.00.
In February 2004, we issued 6,000,000 shares of common stock to a
stockholder and beneficial owner of the Company, through a Private
Placement Offering for $1,500,000 and we issued 12,000,000 Warrants
exercisable from $0.35 to $1.00.
In September 2004, we issued 15,000 warrants to a stockholder and director
of the Company, as part of a debenture with an exercise price of $0.35 per
share.
In September 2004, we issued 330,000 warrants to a stockholder and
beneficial owner of the Company, as part of a debenture with an exercise
price of $0.35 per share.
As of December 31, 2004, the Company had an unsecured promissory note in
the amount of $192,966 outstanding payable to a stockholder of the Company.
The note bears interest in the amount of 11% and is due in June 2013.
During the fiscal years 2004 and 2003 there were payments on notes payable
- related parties of $57,814 and $262,447, respectively.
Also during fiscal year 2004 there were new proceeds from notes payable -
related parties in the amount of $2,250,000. These funds were used to
provide acquisition financing.
During June 2003, several of the Company's management acquired stock of the
Company, see Item 12 below under "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
During October 2003, the management of the Company was granted an incentive
stock option plan for performance goals effective during fiscal year 2004.
During December 2004 the management of the Company was granted an incentive
stock option plan for performance goals effective during fiscal year 2005.
See Item 10, "EXECUTIVE COMPENSATION" for more detail.
19. SUBSEQUENT EVENTS
In March 2005, the Company initiated Private Placement Memorandum #5. Units
offered consisted of four shares of common stock and two common stock
purchase warrants exercisable at $.35 per share for three years. The price
per unit is $1.12. The Company has closed the offering as of March 30, 2005
with an approximate capital raise of $634,000.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by the corporate law of the State of Nevada, that our directors
or officers shall not be personally liable to us or our shareholders for damages
for breach of such director's or officer's fiduciary duty. The effect of this
provision of our Articles of Incorporation, as amended and restated, is to
eliminate our rights and our shareholders (through shareholders' derivative
suits on behalf of our company) to recover damages against a director or officer
for breach of the fiduciary duty of care as a director or officer (including
breaches resulting from negligent or grossly negligent behavior), except under
certain situations defined by statute. We believe that the indemnification
provisions in our Articles of Incorporation, as amended, are necessary to
attract and retain qualified persons as directors and officers.
Our By Laws also provide that the Board of Directors may also authorize the
company to indemnify our employees or agents, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to our directors and officers. As of the date of this
Registration Statement, the Board of Directors has not extended indemnification
rights to persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 8,704.35
Accounting fees and
expenses 2,000.00*
Legal fees and expenses 10,000.00*
-----------
TOTAL $20,704.35*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On October 17, 2002, the Company issued an aggregate of 48,682 shares of common
stock to three accredited investors in exchange for services rendered.
From May 8, 2003 to July 30, 2003, the Company engaged in a private placement
pursuant to which it sold an aggregate of 2,442,000 units each consisting of one
share of common stock and one common stock purchase warrant for an aggregate
purchase price of $610,500 to several accredited investors.
From September 8, 2003 through January 15, 2004, the Company engaged in a
private placement pursuant to which it sold an aggregate of 1,972,000 units with
each unit consisting of two shares of common stock and one common stock purchase
warrant for an aggregate purchase price of $2,465,000 to several accredited
investors.
From September 8, 2003 through January 15, 2004, the Company engaged in a
private placement pursuant to which it sold an aggregate of 830,800 units with
each unit consisting of two shares of common stock and one common stock purchase
warrant for an aggregate purchase price of $1,038,500 to several accredited
investors pursuant to Regulation S as promulgated under the Securities Act of
1933, as amended.
In October 2003, the Company issued 150,000 shares of common stock to Docutel
Services Corp. for the purchase of a Clearinghouse Services contract in
connection with the Community Technology Network Program (CTNP). The shares were
valued at a price of $1.75 per share.
On January 29, 2004, the Company raised $1,699,995 in connection with the sale
of 1,359,996 shares of common stock for $1.25 per share to two institutional
investors. The investors, upon the purchase of every two shares of common stock,
also received four common stock purchase warrants, which resulted in the
issuance of 5,600,004 common stock purchase warrants.
On February 11, 2004, the Company issued 180,000 shares of common stock to two
accredited investors in consideration for services.
* Unless indicated otherwise, all of the above offerings and sales were deemed
to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities
Act of 1933, as amended. No advertising or general solicitation was employed in
offering the securities. The offerings and sales were made to a limited number
of persons, all of whom were accredited investors, business associates of Global
Axcess or executive officers of Global Axcess, and transfer was restricted by
Global Axcess in accordance with the requirements of the Securities Act of 1933.
In addition to representations by the above-referenced persons, we have made
independent determinations that all of the above-referenced persons were
accredited or sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
II-2
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References to
"the Company" in this Exhibit List mean Global Axcess Corp., Inc., a Nevada
corporation.
Exhibit Description No.
3.1 Articles of Incorporation - Restated and Amended May 30, 2001(Incorporated
by reference to form 10KSB filed with the SEC on March 31, 2003)
3.2 ByLaws of Global Axcess Corp. - As Amended (Incorporated by reference to
form 10KSB filed with the SEC on March 31, 2003);
3.3 Amendment to the Articles of Incorporation (Incorporated by reference to
Form 8-K filed with the SEC on May 3, 2005)
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (Incorporated by
reference to Form SB-2 Registration Statement filed with the SEC on June 18,
2004)
10.1 Agreement entered into with Food Lion, LLC and Nationwide Money Services,
Inc dated October 5, 2001 (Incorporated by reference to form 10KSB filed with
the SEC on April 16, 2002)
14.1 Code of Ethics and Business Conduct of Officers, Directors and Employees of
Global Axcess Corp. (Incorporated by reference to form 10KSB filed with the SEC
on March 31, 2003)
16.1 Letter from L.L. Bradford & Company, LLC, to the SEC noting agreement with
the disclosures in Item 4 (incorporated by reference form 8-K current report
filed with the SEC on July 1, 2003)
21.1 List of Subsidiaries (Incorporated by reference to Form SB-2 Registration
Statement filed with the SEC on June 18, 2004)
23.1 Consent of Weinberg & Company, P.A.
23.2 Consent of legal counsel (see Exhibit 5.1).
II-3
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the 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) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
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 authorizes this amendment no. 1
to the registration statement to be signed on its behalf by the undersigned, in
the City of Ponte Vedra Beach, State of Florida, on July 28, 2005.
GLOBAL AXCESS CORP.
By: /s/ Michael Dodak
-----------------
Name: Michael Dodak
Title: CEO
In accordance with the requirements of the Securities Act of 1933, this
amendment no. 1 to the registration statement was signed by the following
persons in the capacities and on July 28, 2005.
Signature Title
- ------------------------ ---------------------------
/s/Michael Dodak
- ----------------
Michael Dodak CEO, Chairman
/s/David Fann
- ----------------
David Fann President, Director
/S/ Don Headlund
- ----------------
Don Headlund Director
/s/ Lock Ireland
- ----------------
Lock Ireland Director
/S/ Robert Landis
- ----------------
Robert Landis Director
/s/Georg Hochwimmer
- ----------------
Georg Hochwimmer Director
/s/ Robert Pearson
- ----------------
Robert Pearson Director
/S/ David Surette
- ----------------
David Surette Chief Financial Officer
II-5