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EPAZZ INC - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT OTHERWISE INCLUDE
THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS", "PROJECTS",
"ESTIMATES", "PLANS", "MAY INCREASE", "MAY FLUCTUATE" AND SIMILAR EXPRESSIONS OR
FUTURE OR CONDITIONAL VERBS SUCH AS "SHOULD", "WOULD", "MAY" AND "COULD" ARE
GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR
FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES.
THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE
HEADING "RISK FACTORS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN
THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS
ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE
UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS, EXCEPT AS PROVIDED BY LAW. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO
JUNE 30, 2011. AS USED HEREIN, THE "COMPANY," "EPAZZ," "WE," "US," "OUR" AND
WORDS OF SIMILAR MEANING REFER TO EPAZZ, INC., AND INCLUDE EPAZZ'S WHOLLY OWNED
SUBSIDIARIES, DESK FLEX, INC., AN ILLINOIS CORPORATION ("DFI"), PROFESSIONAL
RESOURCE MANAGEMENT, INC., AN ILLINOIS CORPORATION AND INTELLISYS, INC., A
WISCONSIN CORPORATION ("INTELLISYS") UNLESS OTHERWISE STATED, OR THE CONTEXT
SUGGESTS OTHERWISE.
Business Overview
The Company was incorporated in the State of Illinois on March 23, 2000, to
create software to help college students organize their college information and
resources. The idea behind the Company was that if the information and resources
provided by colleges and universities was better organized and targeted toward
each individual, the students would encounter a personal experience with the
college or university that could lead to a lifetime relationship with the
institution. This concept is already used by business software designed to
retain relationships with clients, employees, vendors and partners.
The Company developed a web portal infrastructure operating system product
called BoxesOS v3.0. BoxesOS provides a web portal infrastructure operating
system designed to increase the satisfaction of key stakeholders (students,
faculty, alumni, employees, and clients) by enhancing the organizational
experience through the use of enterprise web-based applications to organize
their relationships and improve the lines of communication. BoxesOS decreases an
organization's operating expenses by providing development tools to create
advanced web applications. The applications can be created by non-technical
staff members of each institution. BoxesOS creates sources of revenue for Alumni
Associations and Non-Profit organizations through utilizing a web platform to
conduct e-commerce and provides e-commerce tools for small businesses to easily
create "my accounts" for their customers. It further reduces administrative
costs, by combining technology applications into one package, providing an
alternative solution to enterprise resource planner ("ERP") modules and showing
a return on investment for institutions by reducing the need for 3rd party
applications license fees. BoxesOS can also link a college or university's
resources with the business community by allowing businesses to better train
their employees by utilizing courseware development from higher education
institutions.
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On or about June 18, 2008, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with Desk Flex, Inc., an Illinois corporation
("DFI"), Professional Resource Management, Inc., an Illinois corporation ("PRMI"
and collectively with DFI, the "Target Companies") and Arthur A. Goes, an
individual and the sole stockholder of the Target Companies. The Purchase
Agreement consummated the transactions contemplated by the February 25, 2008,
non-binding letter of intent (the "Letter of Intent") the Company entered into,
to acquire 100% of the outstanding shares of the Target Companies. Pursuant to
the Purchase Agreement, the Company agreed to purchase 100% of the outstanding
shares of the Target Companies for an aggregate purchase price of $445,000 (the
"Purchase Price"). The Purchase Price was payable as follows:
(a) Mr. Goes retained the $10,000 originally paid by the Company in
connection with the parties' entry into the Letter of Intent;
(b) The Company paid Mr. Goes $210,000 in cash (the "Cash
Consideration") at the Closing (as defined below) of the Purchase
Agreement; and
(c) The Company provided Mr. Goes with a 7% Promissory Note in the
amount of $225,000 (the "Note"), described in greater detail
below.
Additionally, the Company agreed to assume an aggregate of approximately $15,475
in outstanding liabilities of DFI and PRMI in connection with the Closing.
The Purchase Agreement closed on June 18, 2008 ("Closing"), at which time Mr.
Goes delivered to the Company, 2,000 shares of DFI stock, representing 100% of
the issued and outstanding shares of DFI, and 1,000 shares of PRMI stock,
representing 100% of the issued and outstanding shares of PRMI. Also at Closing,
the Company delivered the Cash Consideration and the Note to Mr. Goes. As a
result of the Closing, DFI and PRMI became wholly-owned subsidiaries of the
Company.
The Note bears interest at the rate of seven percent (7%) per annum, and all
past due principal and interest (which failure to pay such amounts after a
fifteen (15) day cure period, shall be defined herein as an "Event of Default")
bear interest at the rate of twelve percent (12%) per annum until paid in
full. The Note, however, additionally provides that the Company shall have two
additional fifteen (15) day cure periods during the term of the Note resulting
in two thirty (30) day cure periods before an Event of Default occurs. The
principal amount of the Note is due on June 18, 2011. The Note is payable in
monthly installments of $6,947.35 (each a "Monthly Payment"), with the first
such Monthly Payment due on September 18, 2008, until such time as this Note is
paid in full. Provided, however, that if the total amount due under the Note is
less than any Monthly Payment, the Company shall only be obligated to pay the
remaining balance of the Note. The Note may be prepaid at any time without
penalty. As of the date of this report, the Company is current with all of its
required Monthly Payments. As June 30, 2011 this note has been paid in full.
Additionally, the Company agreed to secure the payment of the Note with a
Uniform Commercial Code Security Interest filing, which the Company agreed to
file, but which filing has not occurred to date, at Mr. Goes' request, at the
Company's expense, to grant Mr. Goes a security interest over all of the Target
Companies' tangible and intangible assets, and the outstanding stock of both of
the Target Companies until the Note is repaid. Pursuant to such requirement of
the Note, at the Closing, the Company entered into a Security Agreement with Mr.
Goes, whereby the Company granted Mr. Goes a security interest in all inventory,
equipment, appliances, furnishings and fixtures, stock certificates and
intellectual property now or hereafter owned by the Target Companies. Pursuant
to the Security Agreement, the Company also assigned to Mr. Goes a security
interest in all of its right, title, and interest to any trademarks, trade
names, contract rights, and leasehold interests in which it now has or hereafter
acquires to secure repayment of the Note.
Professional Resource Management, Inc. and Desk Flex, Inc. Business Overview
Professional Resource Management, Inc. was incorporated under the laws of
Illinois in June 1985. On or around December 31, 1997, Professional Resource
Management, Inc. established a wholly-owned subsidiary, PRM Transfer Corp. On or
around December 31, 1997, Professional Resource Management, Inc., PRM Transfer
Corp. and Arthur Goes entered into a Reorganization Agreement, whereby
Professional Resource Management, Inc. transferred all of its assets and
liabilities to PRM Transfer Corp., with the exception of those
assets pertaining to its proprietary source code or software product,
Desk/Flex. Also pursuant to the Reorganization Agreement, Professional Resource
Management, Inc. amended its corporate charter to change its name to Desk Flex,
Inc. ("DFI"), and PRM Transfer Corp. amended its charter to change its name to
Professional Resources Management, Inc. ("PRMI"). The transfer was effected in
an effort by Mr. Goes to better promote the Desk/Flex product.
PRMI and DFI are separate legal entities, but operate in conjunction. PRMI and
DFI share office space and certain employees. DFI's main source of revenue comes
from the "Desk/Flex Software" product, which it owns, and PRMI's main source of
revenue comes from the "Agent Power" product line, which it owns. PRMI also acts
as the general agent for DFI; however, there is no formal agency agreement
between the two companies.
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Recent Events
Convertible Note Fundings
On May 27, 2011, the Company entered into a Securities Purchase Agreement with
Asher Enterprises, Inc. ("Asher"), pursuant to which Asher agreed to purchase an
8% convertible promissory note in the amount of $50,000 (the "Convertible
Note") from the Company, which provides Asher the right to convert the
outstanding balance (including accrued and unpaid interest) of such Convertible
Note into shares of the Company's common stock at a conversion price equal to
59% of the average of the five lowest trading prices of the Company's common
stock during the ten trading days prior to such conversion date, at any time
after the expiration of 180 days from the date such Convertible Note was issued.
The Convertible Note, which accrues interest at the rate of 8% per annum, is
payable, along with interest thereon on February 28, 2012. In the event any
principal or interest is not timely paid, such amount accrues interest at 22%
per annum until paid in full. Asher is prohibited from converting the
Convertible Note into shares of the Company's common stock to the extent that
such conversion would result in Asher beneficially owning more than 4.99% of the
Company's common stock, subject to 61 days prior written notice to the Company
from Asher of Asher's intention to waive or modify such provision. The Company
can repay the Convertible Note prior to maturity (or conversion), provided that
it pays 135% of such note (and accrued and unpaid interest thereon) if the note
is repaid within the first 90 days after the issuance date; 140% of such note
(and accrued and unpaid interest thereon) if the note is repaid during the
period which is 91 and 120 days after the issuance date; 145% of such note (and
accrued and unpaid interest thereon) if the note is repaid during the period
which is 121 and 150 days after the issuance date; and 150% of such note (and
accrued and unpaid interest thereon) if the note is repaid during the period
which is 151 days and prior to 180 days after the issuance date. After 180 days
have elapsed from the issuance date the Company has no right to repay the
Convertible Note.
On June 28, 2011, the Company sold Asher an additional 8% Convertible Note in
the amount of $37,500 on substantially similar terms as the Convertible Note
described in the paragraph above (collectively the "Convertible Notes"), except
that the maturity date of such note was March 30, 2012.
On July 28, 2010, the Company initiated a 10 for 1 stock split. The result was
$5,448,294 shares of common stock issued and outstanding.
On July 28, 2010 the Company issued 20,000,000 shares of .01 par common stock to
Shaun Passley for prepaid compensation. Shaun Passley will begin to earn these
shares when the company reports revenue of $2 million on the 10k.
On July 28, 2010 the Company issued 2,500,000 shares of .01 par common stock to
Vivienne Passley for prepaid interest. Vivienne Passley will begin to earn
these shares on July 29, 2012.
On July 28, 2010 the Company issued 2,500,000 shares of .01 par common stock to
Fay Passley for prepaid interest. Fay Passley will begin to earn these shares
on July 29, 2012.
As a result of the above mentioned stock split and stock issuances the resulting
outstanding shares of common stock as of September 30, 2011 was 30,448,294.
On September 30, 2010, Epazz, Inc. acquired 100% of the voting rights and net
assets of IntelliSys, Inc. for $155,816. The purchase was made with a cash
payment of $125,000 and a $30,816 6% 10 year seller note payable. The purchase
resulted in goodwill of $53,588. The reason for the acquisition was to expand
Epazz, Inc.'s operations. According to the purchase method of accounting the
acquisition was recorded as follows:
Fair Value Fair Value
Cash 319 Accounts Payable 49,838
Account Receivable 15,362 Notes Payable 25,000
Fixed Assets, net 5,137 Accrued Expenses 14,932
Goodwill 53,588 Deferred Revenue 28,820
Intangible Asset - Software 200,000 Cash 125,000
Note payable 30,816
Total Assets 274,406 Total Liabilities and Equity 274,406
The following table presents the unaudited proforma results of continuing
operations for the three and nine months ended September 30, 2010 as if the
retained acquisition had been consummated at the beginning of the year. The
proforma results of continuing operations are prepared for comparative purposes
only and do not necessarily reflect the results that would have occurred had the
acquisition occurred at the beginning of the year presented or the results which
may occur in the future.
Three Nine
Months Months
Ending Ending
9/30/2010 9/30/2010
Revenue $ 463,019
153,492
Operating Expenses
General and Administrative 164,663 462,971
Depreciation and Amortization 22,202 52,043
Other Operating Expense - -
Total Operating Expense 186,865 515,014
Operating Loss (33,373) (51,995)
Other Income and Expense
Interest Income 12 58
Interest Expense (6,102) (18,626)
Total Other Income and Expense (6,090) (18,568)
Net Loss (39,463) (70,563)
Our Products
The Company currently offers five primary product lines. The EPAZZ BoxesOS v3.0
product is offered through EPAZZ, Inc., the Desk/Flex Software product is
offered through Desk Flex, Inc., the Agent Power product is offered through
Professional Resource Management, Inc. and the Company also offers the AutoHire
software described below. Additionally, as described above, subsequent to
September 30, 2010, the Company offers products through IntelliSys, described
below.
EPAZZ BoxesOS v3.0
EPAZZ BoxesOS v3.0 (Web Infrastructure Operating System) is the Company's
flagship product. It is the core package of EPAZZ, Inc.'s products and services.
EPAZZ BoxesOS integrates with each organization's back-end systems and provides
a customizable personal information system for each stakeholder.
Services include:
· Single sign-on: Provides a powerful single-sign-on with security
procedure to product users' information and identity.
· Course Management System: Manage distance, traditional courses and Calendar.
· Enterprise Web Site Content Management: Manage public sites with multi
contributors.
· · Integration Management Services: Integrated into Enterprise
Resource Planning ("ERP") and Mainframes.
· Email Management: Email server and web client.
· Instant Messenger Services: Instant messaging and alerts.
· Customer Relationship Management: Prospective students and alumni.
· Calendar/Scheduler Management: Event directory, groupware, and personal
calendar.
· Administrative Support Services: Online payment services.
· Business Services: Facility Management and Online Bookstore.
BoxesOS software provides:
Web Portal Component
BoxesOS Web Portal Component is a gateway to all of an organization's online
services and information resources. The Web Portal Component provides a Personal
Information System, which refers to the user's entire online environment - the
user's resources, information, graphics, color, layout, and organization. All
resources are customizable. The Web Portal Component simplifies organizations'
ability to create and deploy custom web applications with a common graphic user
interface and connectivity to the back-end systems.
Administrative Content Management
BoxesOS Content Management Component provides an organization with enterprise
level tools for creating, managing, organizing, archiving and sharing content.
Content can be delivered in many forms such as web pages, emails, polls,
documents, web forms, rich site summaries ("RSS"), and "hot news." The Content
Management Component enables staff members with little technical skills to
create web pages and processes without having any programming skills.
Work Hub
Work Hub provides a host of applications that can empower an organization to
increase productivity while decreasing costs. Work Hub helps to manage work flow
throughout an organization. Senior management is able to view a document for
approval before it is sent out to a client. A company can view all projects of
the enterprise in one page. Some of the applications in Work Hub are
products/services management, project management, invoice management, time
management, content management and sales management. Work Hub has clear graphic
charts with detail reports on many areas.
Central Repository
BoxesOS Central Knowledge Repository is a collection and indexing of shareable
content. Central Knowledge Repository installs a server index application on the
Windows 2003 platform to identify an organization's current knowledge assets.
All knowledge assets will be imported into a storage device. The server index
application will import the knowledge assets into a temporary folder before
moving into a main folder. The server index application will prompt the
organization's administrators to add detailed information about the knowledge
assets into the database by using a web form. These forms will allow the
administrators to add custom fields; therefore, allowing the organization to add
custom information to the database in the present and at a future date. The
organization would be able to group their knowledge objects by program, course,
subject, topic, users, content, or date.
ViewPoint
ViewPoint is BoxesOS central communication hub, calendaring, contact management
and scheduling system. ViewPoint works with or can be used as an alternative to
MS Outlook/MS Exchange Server. The web applications provide the institution with
an extensive range of options including communication system email web client
and an email server. Email applications provide features you would find on
popular web-based e-mail providers. ViewPoint provides robust threaded
discussion boards and a "chatting" environment. ViewPoint provides each user
with a personal calendar, which notifies users of scheduling conflicts and
appointments priorities. ViewPoint makes it easy to create group calendars and
public calendars. With the ViewPoint scheduling system users are able to
schedule group meetings together. The scheduling system will view each user's
calendar to see the next available time and date the group can meet.
Learning Management System
BoxesOS My Courses is an extensive application for learning management, and
e-learning. My Courses is an effective means for managing traditional courses,
distance learning courses, and self-paced courses. My Courses is a powerful
communication tool that can be effectively used by students, instructors,
employees and corporate trainers to make information flow easily, clearly and
faster. My Courses provides a robust grade book, powerful authoring content
tools, easy to use drop box, sharable folders, wide-ranging course calendar and
many more features all designed to provide customization to key stakeholders.
Organizations will be able to train their employees on systems using My Courses
self-paced settings, as well as test candidates on their skill sets before they
are hired.
Single Sign-on
Single Sign-on provides organizations the ability to log into multiple systems
with a single unique username and password. The username and password
authenticates the user's credentials to make sure the person who is accessing
the data is authorized to. BoxesOS uses Microsoft Active Directory Identity
Management to accomplish single sign on. Microsoft Active Directory allows
institutions to centrally manage and share user information. Active Directory
also acts as the single sign on point for bringing systems and applications
together. BoxesOS user management integrates with Active Directory.
Pathways Real-time Integration
EPAZZ Pathways is an integration suite enabling real-time connectivity with ERP
and Legacy systems. Pathways integration suite allows organizations to retrieve
data from ERPs and write data back to ERPs in real-time.
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AutoHire Software
The AutoHire system provides a tool to power career centers, post job ads to
sites and job boards, and to collect resumes online. The online processes
supported by the system provide the mechanism to comply with the record keeping
requirements of Title VII of the Civil Rights Act of 1964, which apply to
organizations employing 15 or more persons.
One of the most useful features of the AutoHire system is the interactive
question and online screening and ranking system. The interactive question
system provides a means for the client to maintain their own library of
questions and to attach selected questions to job opportunities posted.
Responses obtained can be used to screen and rank candidates to permit hiring
managers to focus their attention on only the most suitable candidates. We
believe that result can have a substantial impact on the cost of recruiting and
the quality of candidates selected.
By attaching interactive questions to job opportunities posted clients can
collect information not typically presented in a resume. The additional
information can often replace the initial interview process. Questions can be
multiple choice or narrative.
Desk Flex Software
DFI developed the Desk/Flex Software ("Desk/Flex") to enhance the value of
businesses' real estate investments and modernize their office space. Desk/Flex
lets businesses make better use of office space restrictions by enabling
employees to instantly access their workstation tools from multiple areas in and
outside of the office. Desk/Flex lets employees reserve space in advance or
claim space instantly. It adjusts the telephone switch (Private Branch Exchange
or "PBX") so that calls ring at the 'desk du jour', or go directly to voice mail
when a worker is not checked in.
Key Features of Desk/Flex include:
Quick and Easy Check-In - Check-in and Check-out to a workstation takes less
than 8 seconds, and advance reservations take only a few seconds more.
Point-and-Click Floor Maps - Desks that are available are identified by green
dots. Those that are in use are identified by red. An employee needs only to
click or touch (using an optional touch-screen) a green dot to select his or her
desk.
PBX Interaction - Desk/Flex connects to an employee's Nortel, Avaya or Cisco PBX
to ensure that the employee has phone access at his or her desk; the message
waiting light becomes operational; outside calls can be made only after checking
in; and an employee is automatically checked out overnight if he or she leaves a
workstation without checking out.
Web Browser and Local "Kiosk" Access - On site, the Desk/Flex kiosk(s) makes it
easy to select a vacant desk near a co-worker or centrally located at the
office. Even before leaving home a worker with access to the company intranet
can reserve a desk or locate a co-worker at any desk in the company's office via
a web browser.
Advance Reservations - Workers can easily choose and reserve workspaces ahead of
time for a particular date or range of dates.
Occupancy Reports - Management reports allow accurate measures of occupancy in
total or by type of desk so the total number or mix of desks can be adjusted to
meet client demand and save more office space expense in future months.
Desk/Flex is responsive to office size and needs, servicing small to large
businesses. Desk/Flex can be configured to administer a single site or multiple
sites locally or remotely. Desk/Flex has full integration capabilities with both
Nortel and Avaya, which combined represent the majority of the
telecommunications and inbound automatic call distributor ("ACD") market.
Agent Power Software
Agent Power Software ("Agent Power") is PRMI's proprietary software line. PRMI
believes Agent Power provides vital information and tools for call centers to
help improve their workforce management. Historical, real-time, and forecast
information is available at the touch of a button to plan, control, and monitor
a business's call center. Coordinated stand-alone modules allow a company to
develop employee schedules, track queue and agent performance, communicate this
information with the company's agents and improve workforce management.
Agent Power is a suite of six (6) applications. Each can operate on a
stand-alone basis, or can work in conjunction with the other applications. The
applications feature the following workforce management components:
· Planning and Scheduling;
· Agent Adherence;
· Agent Performance;
· ACD Group Performance;
· Real-Time Agent Status; and
· Info Screen.
All modules of Agent Power have full integration capabilities with Nortel,
Avaya, and ROLM ACDs, and the Planning and Scheduling module works with any
modern ACD system.
IntelliSys Software
IntelliSys developed the IPMC Software ("IPMC")(Integrated Plant Management
Control) which is a software system design for water and wastewater facility
management. IPMC is the technology-based strategy for optimizing operations by
automatically collecting, managing, organizing and disseminating information for
the operations, management, laboratory, maintenance, and engineering functions.
SystemView
SystemView displays the system processes and lets users control the system in
real time. It displays alarms, equipment status, summary accumulated and trend
data.
Features
• The Alarm/Event Journal records all alarms and status changes and has the
flexibility to query history based on tag names and time ranges.
• Smart Server provides communication with process control and automatic
collections of data. It is designed to normalize data, accumulate and summarize
statistics for the plant management and maintenance systems.
• Rapid application development tools dramatically reduce system development
time. Development tools are included with all applications.
MaintenanceView
MaintenanceView provides the traditional functional functionality of a
comprehensive maintenance management system including:
• Fixed asset and rotating equipment.
• Preventive scheduling and predictive reports and charts.
• Work order management.
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• Inventory and purchasing.
• Manufacture and vendor records.
• Parts inventory.
Features
• Ability to track maintenance costs by center, department, and location.
• Ability to customize user interface sorting by location, equipment type,
department, cost center, manufacturer or vendor.
• Ability to customize reports using MS Excel compatible spreadsheets to
accommodate users' specific needs.
Report View
Report View provides users with a historic picture of the operation of their
plant through centralized storage of data. Realistic graphics can be constructed
to assist the user in managing, accessing and analyzing real-time and manually
entered process or laboratory data.
Features
• Stores real-time and laboratory data in a secure open database.
• Time-based compression stores process information and manually collected
data.
• Flexible rapid application development tools allow creation of input
displays, reports and charts and navigation menus.
• Using MS Excel compatible spreadsheet, ReportView combines the
user-friendly features of familiar spreadsheet functions with the security of an
expandable database.
• Reporting tools provide easy access to retrieve summarized or raw data for
process-efficiency and compliance reports.
• Creates 2D and 3D presentations-quality charts in minutes.
• An efficient decision support system and dashboard development tools for
operations, maintenance, management and engineering.
Energy View
Energy View is an automated energy management dashboard tool. EnergyView
provides smart energy metering and power measurement technology to accurately
measure, store, track and analyze energy data. The energy metering and
submetering systems can link to SCADA (Supervisory Control and Data Acquisition)
or any PC to collect crucial energy data. In addition manual data on other
energy sources can be managed as part of the same energy management application.
The combination of hardware and software is designed to provide an end-to-end
solution from measurement to billing audits. The objective of the EnergyView
application is to improve the speed and quality of energy measurement
information, so that facility managers will be able to make better management
decisions, conserve energy and reduce operating costs.
Features
• Collect usage data manually and automatically.
• Normalize energy variables creating benchmarking variables.
• Provide comparisons of hourly usage to previous days.
• Calculate operating cost and savings by day, month and year-to-date.
• Forecast and alarm peak demands.
• Send alarms via local annunciation, email or pagers.
• Benchmarking.
• Local Factor Analysis.
• Automate Energy Billing Audits.
• Determine Changes in Energy Usage Patterns.
• Setting Saving Targets and Tracking Progress.
K9 Koordinator Software
Included in the assets acquired through the Purchase Contract was the K9
Koordinator software. The software was designed to focus on applications related
to pet care: pet boarding, daycare, grooming, training, and other pet care
services (including dog walking and pet sitting). Products can be used for most
animal types such as dogs, cats, horses, birds, rodents, snakes and pigs.
The K9 Koordinator is a complete management system for pet resorts (boarding
kennels), pet daycare centers, pet sitters, dog walkers, grooming shops, and
mobile groomers. The K9 Koordinator was designed to efficiently and easily
manage scheduling, clients, pet information, services, and retail information.
Key components of the K9 Koordinator software include webcam integration,
giftcard processing and management, and virtual kennel layout for run
assignments.
The K9 Koordinator has over 20 years of development and usage in the pet care
industry. K9 Koordinator users include pet resorts, boarding kennels, grooming
shops, mobile groomers, trainers, dog walkers, pet sitters, animal hospitals,
shelters, rescue organizations, and pet retailers.
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PLAN OF OPERATION
During the next twelve months, we plan to further develop our BoxesOS software,
and hope to expand our customer base for our Desk/Flex and Agent Power software
packages, funding permitting. We believe we can satisfy our cash requirements
for the next three months with our current cash on hand and revenues generated
from our operations. As such, continuing operations and completion of our plan
of operation, including making the Monthly Payments on our Note with the
IntelliSys Note (where required), the Third Party Lender Note and Convertible
Notes as described above, are subject to generating adequate revenue. We cannot
assure investors that adequate revenues will be generated. In the absence of our
projected revenues, we may be unable to proceed with our plan of operations.
Even without significant revenues within the next several months, we still
anticipate being able to continue with our present activities, but we may
require financing to potentially achieve our goal of profit, revenue and growth.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011, AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2010
For the three months ended September 30, 2011 we had revenue of $205,724
compared to revenue of $87,191 for the three months ended September 30, 2010, an
increase of $118,533 or 136% from the prior period. The increase in revenues is
mainly attributable to the sales generated by the Company which were deferred
that are now being recognized in accordance with the Company's revenue
recognition policy and from the sales generated by the company's newly acquired
companies.
General and administrative expenses increased by $90,570 or 128% to $161,495 for
the three months ended September 30, 2011 compared to general and administrative
expense of $70,925 for the three months ended September 30, 2010. The increase
in general and administrative expense is due mainly to the increase in cost
associated with the company's newly acquired companies.
We had depreciation and amortization expense of $31,623 for the three months
ended September 30, 2011 compared to $22,854 for the three months ended
September 30, 2010, an increase of $8,769 or 28% from the prior period. This
increase is due the Company having a greater depreciable asset base as a result
of the recent acquisitions, as described above.
Total operating expenses for the three months ended September 30, 2011 were
$193,118, compared to $93,779 for the three months ended September 30, 2010, an
increase of $99,339 or 106% from the prior period.
We had operating income of $12,606 for the three months ended September 30, 2011
compared to operating loss of $6,588 for the three months ended September 30,
2010, an increase of $19,194 or 291% from the prior period. The increase in
operating income is due to the company recognizing income that was deferred in
prior periods and to the increase in income received from the company's acquired
subsidiaries.
Interest expense was $12,108 for the three months ended September 30, 2011
compared to $5,543 for the three months ended September 30, 2010, an increase of
$5,234 or 94% from the prior period. Interest expense increased for the three
months ended September 30, 2011 due to the increase in loans payable at
September 30, 2011 as compared to September 30, 2010, as described below under
"Liquidity and Capital Resources".
We had a net loss of $121,789 for the three months ended September 30, 2011
compared to a net loss of $12,119 for the three months ended September 30, 2010,
an increase in net loss of $109,670 or 905% from the prior period. The increase
in net loss is due to the company recognizing derivative expense in the current
period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011, AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2010
For the nine months ended September 30, 2011 we had revenue of $646,023 compared
to revenue of $269,332 for the nine months ended September 30, 2010, an increase
of $376,691 or 140% from the prior period. The increase in revenues is mainly
attributable to the sales generated by the Company which were deferred that are
now being recognized in accordance with the Company's revenue recognition policy
and from the sales generated by the company's newly acquired companies.
General and administrative expenses increased by $241,388 or 109% to $462,198
for the nine months ended September 30, 2011 compared to general and
administrative expense of $220,810 for the nine months ended September 30,
2010. The increase in general and administrative expense is due mainly to the
increase in cost associated with the company's acquisitions, as described above.
We had depreciation and amortization expense of $91,626 for the nine months
ended September 30, 2011 compared to $52,043 for the nine months ended September
30, 2010, an increase of $39583 or 76% from the prior period. This increase is
due the Company having a greater depreciable asset base as a result of the
recent acquisitions, as described above.
Total operating expenses for the nine months ended September 30, 2011 were
$553,824, compared to $272,853 for the nine months ended September 30, 2010, an
increase of $280,971 or 103% from the prior period.
We had operating income of $92,199 for the nine months ended September 30, 2011
compared to operating loss of $3,521 for the nine months ended September 30,
2010, an increase of $95,720 or 2719% from the prior period. The increase in
operating income was mainly due to the sales generated by the Company which were
deferred that are now being recognized in accordance with the Company's revenue
recognition policy and sales generated by the company's newly acquired
subsidiaries.
Interest expense was $38,272 for the nine months ended September 30, 2011
compared to $17,430 for the nine months ended September 30, 2010, an increase of
$20,842 or 120% from the prior period. Interest expense increased for the nine
months ended September 30, 2011 due to the increase in loans payable at
September 30, 2011 as compared to September 30, 2010, as described below under
"Liquidity and Capital Resources.
We had a net loss of $68,334 for the nine months ended September 30, 2011
compared to a net loss of $20,893 for the nine months ended September 30, 2010,
an increase in net loss of $47,441 or 227% from the prior period. The increase
in net loss is mainly attributable to the sales generated by the Company which
were deferred and the company recognizing derivative expense in the current
period.
LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $308,469 as of September 30, 2011, consisting of
cash of $98,003, accounts receivable of $194,897, other current assets of
$13,252 and current deferred financing costs of $2,317.
We had non-current assets of $785,553 as of September 30, 2011, consisting of
property and equipment, net of accumulated depreciation of $184,187; intangible
assets, net of accumulated amortization of $534,446, and goodwill resulting from
the purchase of IntelliSys of $53,588.
We had total current liabilities of $632,015 as of September 30, 2011,
consisting of $113,085 of accounts payable and accrued liabilities, $204,659 of
deferred revenues, $46,537 of the current portion of capitalized leases,
$122,289 of derivative liability and $145,445 of the current portion of notes
payable.
We had negative working capital of $323,546 and a total accumulated deficit of
$1,939,539 as of September 30, 2011.
We had total liabilities of $1,422,386 as of September 30, 2011, which included
total current liabilities of $632,015 and long-term note payable, net of current
portion of $257,675, which represented payments due on the Note, described
below; long-term related party debt of $296,103 which represented amounts
payable to Star Financial as described below, $197,906 of other related party
debt, and long-term portion of capitalized leases of $38,687.
We had net cash provided by operating activities of $137,133 for the nine months
ended September 30, 2011, which was mainly due to $(68,334) of net loss,
depreciation and amortization of $91,627, $99,635 in changes in accounts
receivable offset by $5,000 in changes to other current assets and $103,084 of
changes to deferred revenue and accounts payable.
We did not use any cash for investing activities for the nine month ending
September 30, 2011.
We had $79,743 of net cash used for financing activities during the nine months
ended September 30, 2011, which represented the $152,644 repayment of long term
debt and capital leases and $157,786 of repayment of related party loans payable
offset by $146,102 of proceeds from long term debt and capital leases, $1,125 in
payment of deferred financing cost and $85,710 of proceeds from related party
loans.
On June 5, 2007, Epazz obtained a line of credit of $100,000 from a bank. The
outstanding balance on the line of credit bears interest at prime plus 4.5%
(9.5% at December 31, 2008) and expired on July 5, 2010. On June 5, 2010 this
line of credit was converted to a unsecured term loan which bears interest at 7%
and has a maturity date of June 5, 2014. Payments of $1,050 are due monthly.
At September 30, 2011 the balance on this unsecured loan was $93,559.
We also borrow from our Chief Executive Officer, Shaun Passley and other related
parties periodically under verbal agreements. The related party loans bear no
interest and are being repaid as funds become available. During the nine months
ended September 30, 2011, we borrowed an additional $85,710 from Mr. Passley and
other related parties. During the nine months ended September 30, 2011 we also
repaid $157,786 to Mr. Passley and other related parties. At September 30,
2011, the total principal outstanding was $211,807. All previously accrued
interest associated with these related party loans have been forgiven as of
December 31, 2009; accordingly no additional interest has been accrued as of
September 30, 2011.
In June 2008, the Company provided Arthur A. Goes a promissory note in the
amount of $225,000 (the "Note") in connection with the Stock Purchase Agreement
entered into with Desk Flex, Inc., Professional Resource Management, Inc. and
Mr. Goes. The Note bears interest at the rate of seven percent (7%) per annum,
and all past due principal and interest (which failure to pay such amounts after
a fifteen (15) day cure period, shall be defined herein as an "Event of
Default") bear interest at the rate of twelve percent (12%) per annum until paid
in full. The Note, however, additionally provides that the Company shall have
two additional fifteen (15) day cure periods during the term of the Note
resulting in two thirty (30) day cure periods before an Event of Default
occurs. The principal amount of the Note is due on June 18, 2011. The Note is
payable in monthly installments of $6,947.35, with the first such monthly
payment due on September 18, 2008, until such time as this Note is paid in
full. Provided, however, that if the total amount due under the Note is less
than any monthly payment, the Company shall only be obligated to pay the
remaining balance of the Note. The Note may be prepaid at any time without
penalty. As of the date of this report, the Company is current with all such
monthly payments; however, the Company is currently in a dispute with Mr. Goes
regarding who is the responsible party for the payment of certain accounting
fees associated with the audit and review of the financial statements of DFI and
PRMI. As of September 30, 2011, this note has been paid in full.
On June 4, 2008, the Company issued a note payable in the amount of $296,100 due
to Star Financial Corporation, which is owned by Fay Passley, the mother of our
Chief Executive Officer, Shaun Passley, which has since been amended (the "June
2008 Note", as amended from time to time). The loan is unsecured and bears
interest at 10%, with annual payments of principal and interest in the amount of
$106,951, originally due and payable beginning on December 1, 2009 and a
maturity date of June 4, 2013, which has since been extended and which repayment
terms have since been amended as provided below. In connection with the loan,
the Company paid $14,100 (5%) in financing costs that are being amortized over
the life of the loan using the effective interest method. The majority of the
funds borrowed pursuant to the June 2008 Note were used to pay the seller the
$210,000 payment in connection with the purchase of DFI and PRMI, as described
above. In April 2010, Star Financial, agreed to modify the repayment terms of
the June 2008 Note to provide for $100,000 to be due on August 1, 2011, $100,000
to be due on August 1, 2012, and the remaining balance of the June 2008 Note to
be due on August 1, 2013 in return for junior lien on the Company's assets.
--------------------------------------------------------------------------------
In May 2009, the Company issued 250,000 shares of the Company's Series A Common
Stock to Vivienne Passley, the aunt of Shaun Passley, our sole Director and
Chief Executive Officer, in connection with Ms. Passley's conversion of her
$6,000 note payable to shares of the Company's Series A Common Stock in
forgiveness of the note payable.
In May 2009, the Company issued 160,000 shares of the Company's Series A Common
Stock to L&F Lawn Services, Inc., a company own by Lloyd Passley the father of
Shaun Passley, as an interest payment on a loan payable due to L&F Lawn
Services, Inc. These shares were valued at $12,800.
In May 2009 the Company issued 240,000 shares of the Company's Series A Common
Stock to Vivienne Passley, the aunt of Shaun Passley, as an interest payment on
a loan payable due to Vivienne Passley. These shares were valued at $19,200.
Effective February 1, 2010, the Company entered into a Software Product Asset
Purchase Agreement (the "Software Rights Agreement") with Igenti, Inc., a
Florida corporation ("Igenti") to acquire the rights to Igenti's AutoHire
software, domain names, permits, customers, contracts, know-how, equipment,
software programs, receivables totaling approximately $10,000 and the
intellectual property of Igenti associated therewith (the "AutoHire Software").
The $170,000 purchase price included $50,000 in the form of a promissory note
(the "Igenti Note).
On July 29, 2010, the Company issued 20,000,000 post-Reverse Split shares of
Class A Common Stock to Shaun Passley, the Company's sole Director and Chief
Executive Officer in consideration for compensation for management services
rendered.
On July 29, 2010, the Company issued 2,500,000 post-Reverse Split shares of
Class A Common Stock to Vivienne Passley, a related party and the aunt of Shaun
Passley, our Chief Executive Officer, in consideration for and in lieu of
interest payments due to Star Financial Corporation on the June 2008 Note, from
July 29, 2010 to July 29, 2015. Vivienne Passley will begin to earn these shares
on July 29, 2012.
On July 29, 2010, the Company issued 2,500,000 post-Reverse Split shares of
Class A Common Stock to Fay Passley, a related party and the mother of our Chief
Executive Officer, Shaun Passley, for and in lieu of interest payments due to
Star Financial Corporation on the June 2008 Note, from July 29, 2010 to July 29,
2015. Fay Passley will begin to earn these shares on July 29, 2012.
On or about September 2, 2010, the Company entered into a Stock Purchase
Agreement (the "IntelliSys Purchase Agreement") with IntelliSys, Inc., a
Wisconsin corporation ("IntelliSys") and Paul Prahl, an individual and the sole
stockholder of IntelliSys. Pursuant to the IntelliSys Purchase Agreement, the
Company purchased 100% of the outstanding shares of IntelliSys from Mr. Prahl,
for an aggregate purchase price of $175,000 (the "Purchase Price"). The Purchase
Price included $125,000 in cash (the "Cash Consideration") and a note for
$30,816 (the "IntelliSys Note", described below). Additionally, the Company
agreed to assume an aggregate of approximately $28,137.76 in outstanding
liabilities of IntelliSys in connection with the Closing.
The Company also agreed to provide Mr. Prahl earn-out rights in connection with
the purchase, which provide that he will receive up to a maximum of $13,350 per
year for the three calendar years following the Closing (with the first such
calendar year beginning on January 1, 2011), based on the revenues generated by
IntelliSys during such applicable year based on the following schedule (the
"Earn-Out"):
Revenue for the Relevant Year Earn-Out
$0 to $350,000 $
0
$350,000.01 to $380,000 $
6,675
$380,000.01 to $395,000 $
10,012.50
$395,000.01 or more $
13,350
Provided that in no event shall the total amount payable to Mr. Prahl in
connection with the Earn-Out exceed $13,350 per year or $40,050 in aggregate.
--------------------------------------------------------------------------------
The IntelliSys Note bears interest at the rate of six percent (6%) per annum,
and all past-due principal and interest (which failure to pay such amounts after
a fifteen (15) day cure period, shall be defined herein as an "Event of
Default") bear interest at the rate of ten percent (10%) per annum until paid in
full. The IntelliSys Note, also provides that the Company shall have two
additional fifteen (15) day cure periods during the term of the IntelliSys Note
resulting in two thirty (30) day cure periods before an Event of Default occurs.
The principal amount of the IntelliSys Note is due on September 18, 2015. The
IntelliSys Note is payable in 60 monthly installments of $555.10 (each a
"Monthly Payment"), with the first such Monthly Payment due on September 15,
2010, and by way of a balloon payment of the remaining amount due on the due
date of the IntelliSys Note, subject to the requirements of the Newtek Note
(described below). Provided, however, that if the total amount due under the
IntelliSys Note is less than any Monthly Payment, the Company shall only be
obligated to pay the remaining balance of the IntelliSys Note. The IntelliSys
Note may be prepaid at any time without penalty.
Additionally, the Company agreed to secure the payment of the IntelliSys Note
with a Uniform Commercial Code Security Interest filing, which the Company
agreed to file, at Mr. Prahl's request, at the Company's expense, to grant Mr.
Prahl a security interest over all of IntelliSys' tangible and intangible
assets, and the outstanding stock of both of IntelliSys until the IntelliSys
Note is repaid, which security interest is junior to the Newtek Note (described
below).
On September 30, 2010, the Company obtained a $185,000 U.S. Small Business
Association Loan from Third Party Lender (the "Third Party Lender Note" and
"Third Party Lender"). The Third Party Lender Note bears interest at the rate
of the Prime Rate in effect from time to time plus 2.75% (which has an initial
interest rate of 6% per annum). The Company agreed to repay the Third Party
Lender Note at the rate of $2,053.88 per month, beginning in November 2010. The
Third Party Lender Note is due and payable on September 30, 2020. The repayment
of the Third Party Lender Note is secured by a security interest over
substantially all of the Company's property, including, but not limited to the
stock of IntelliSys which was purchased in connection with the IntelliSys
Purchase Agreement. Additionally, the Third Party Lender Note is guaranteed by
Shaun Passley, our Chief Executive Officer and Director, related parties, PRMI
and DFI. The Third Party Lender Note is also secured by a mortgage on the
properties of related parties and Shaun Passley. Mr. Prahl in connection with
the IntelliSys Note and Shaun Passley in connection with amounts owed to him by
the Company, agreed to accept no further payments on such debts until Third
Party Lender is paid in full. Finally, Shaun Passley agreed to further secure
the Third Party Lender Note with the proceeds of a personal insurance policy,
equal at least to the amount of the Third Party Lender Note. An aggregate of
$125,000 received in connection with the Third Party Lender Note was used to pay
Mr. Prahl the Cash Consideration due under the IntelliSys Purchase Agreement,
$50,000 was used for working capital, and $10,000 was paid in closing costs
associated with the note.
On May 27, 2011, the Company entered into a Securities Purchase Agreement with
Asher Enterprises, Inc. ("Asher"), pursuant to which Asher agreed to purchase an
8% convertible promissory note in the amount of $50,000 (the "Convertible Note")
from the Company, which provides Asher the right to convert the outstanding
balance (including accrued and unpaid interest) of such Convertible Note into
shares of the Company's common stock at a conversion price equal to 59% of the
average of the five lowest trading prices of the Company's common stock during
the ten trading days prior to such conversion date, at any time after the
expiration of 180 days from the date such Convertible Note was issued. The
Convertible Note, which accrues interest at the rate of 8% per annum, is
payable, along with interest thereon on February 28, 2012. In the event any
principal or interest is not timely paid, such amount accrues interest at 22%
per annum until paid in full. Asher is prohibited from converting the
Convertible Note into shares of the Company's common stock to the extent that
such conversion would result in Asher beneficially owning more than 4.99% of the
Company's common stock, subject to 61 days prior written notice to the Company
from Asher of Asher's intention to waive or modify such provision. The Company
can repay the Convertible Note prior to maturity (or conversion), provided that
it pays 135% of such note (and accrued and unpaid interest thereon) if the note
is repaid within the first 90 days after the issuance date; 140% of such note
(and accrued and unpaid interest thereon) if the note is repaid during the
period which is 91 and 120 days after the issuance date; 145% of such note (and
accrued and unpaid interest thereon) if the note is repaid during the period
which is 121 and 150 days after the issuance date; and 150% of such note (and
accrued and unpaid interest thereon) if the note is repaid during the period
which is 151 days and prior to 180 days after the issuance date. After 180 days
have elapsed from the issuance date the Company has no right to repay the
Convertible Note.
On June 28, 2011, the Company sold Asher an additional 8% Convertible Note in
the amount of $37,500 on substantially similar terms as the Convertible Note
described in the paragraph above (collectively the "Convertible Notes"), except
that the maturity date of such note was March 30, 2012.
We have no current commitment from our officers and Directors or any of our
shareholders to supplement our operations or provide us with financing in the
future. If we are unable to raise additional capital from conventional sources
and/or additional sales of stock in the future, we may be forced to curtail or
cease our operations. Even if we are able to continue our operations, the
failure to obtain financing could have a substantial adverse effect on our
business and financial results.
In the future, we may be required to seek additional capital by selling debt or
equity securities, selling assets, or otherwise be required to bring cash flows
in balance when we approach a condition of cash insufficiency. The sale of
additional equity or debt securities, if accomplished, may result in dilution to
our then shareholders. We provide no assurance that financing will be available
in amounts or on terms acceptable to us, or at all.
On October 26, 2011, we, through a newly-formed wholly-owned Illinois
subsidiary, K9 Bytes, Inc. ("K9 Sub"), entered into an Asset Purchase Contract
and Receipt Agreement with K9 Bytes, Inc., a Florida corporation ("K9 Bytes" and
the "Purchase Contract"). Pursuant to the Purchase Contract, we purchased all of
K9 Bytes assets, including all of its intellectual property, its business trade
name, website (k9bytessoftware.com), furniture, fixtures, equipment and
inventory, accounts receivable and goodwill in consideration for an aggregate of
$205,000, of which $175,000 was paid in cash at the closing and $30,000 was paid
by way of a Balloon Installment Promissory Note (the "K9 Note"). We did not
purchase and K9 Bytes agreed to retain and be responsible for any and all
liabilities of K9 Bytes. We agreed to indemnify and hold K9 Bytes harmless
against, among other things, any claims and liability associated with the future
operations of the assets purchased pursuant to the Purchase Contract and K9
Bytes agreed to indemnify and hold us harmless against any misrepresentations
made by K9 Bytes in the Purchase Contract; any failure of K9 Bytes to perform
any required term or condition of the Purchase Contract and any debts or other
obligations of K9 Bytes not specifically assumed pursuant to the Purchase
Contract in excess of $2,000.
The K9 Note accrues interest at 6% per annum and is payable in monthly
installments of $333 per month starting in November 2011 and ending on October
26, 2014, at which time the then remaining balance of the K9 Note ($23,017,
assuming no additional payments other than those scheduled) is due. The
repayment of the K9 Note is secured by all of the securities of K9 Sub, which
owns all of the assets purchased as a result of the Purchase Contract, provided
that Third Party Lender (as defined below), as a result of the SBA Loan
described below, has a first priority security interest to such securities. The
K9 Note is also personally guaranteed by Shaun Passley, our Chief Executive
Officer.
We raised the funds paid to K9 Bytes in connection with the Purchase Contract
through a $235,000 Small Business Association loan obtained by K9 Sub from the
Third Party Lender (the "SBA Loan"). The SBA Loan has a term of ten (10) years;
bears interest at the prime rate plus 2.75% per annum (currently 6%), adjusted
quarterly; is payable in monthly installments (beginning in December 2011) of
$2,609 per month; is guaranteed by the Company and personally guaranteed by
Shaun Passley, the Company's Chief Executive Officer; and is secured by all of
the assets of K9 Sub and the Company, 100% of the outstanding capital of K9 Sub
which is held by the Company, and a life insurance policy on Mr. Passley's life
in the amount of $235,000. A total of approximately $10,000 of the amount
borrowed under the SBA Loan was used to pay closing fees in connection with the
loan, $175,000 was used to pay K9 Bytes the cash amount due pursuant to the
terms of the Purchase Contract and $50,000 of such loan amount was made
available for working capital for the Company and K9 Bytes Illinois.
K9 Bytes agreed to subordinate the K9 Note to Third Party Lender's rights under
the SBA Loan. Additionally, Mr. Passley agreed to subordinate the amount he is
owed by the Company to the repayment of the SBA Loan.
We have no current commitment from our officers and Directors or any of our
shareholders to supplement our operations or provide us with financing in the
future. If we are unable to raise additional capital from conventional sources
and/or additional sales of stock in the future, we may be forced to curtail or
cease our operations. Even if we are able to continue our operations, the
failure to obtain financing could have a substantial adverse effect on our
business and financial results.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
is based upon our unaudited financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
uncollectible receivable, investment values, income taxes, the recapitalization
and contingencies. We base our estimates on various assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Recently issued accounting pronouncements. The Company does not expect the
adoption of any recently issued accounting pronouncements to have a significant
impact on the Company's results of operations, financial position or cash flows.
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