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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
For the period ended September 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to ____________
COMMISSION FILE NUMBER: 0-18049
EXUS GLOBAL, INC.
-----------------
(Exact name of registrant as specified in its charter)
Nevada 91-1317131
------ ----------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
115 East 57th 11th Floor New York, NY 10022
-------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: 212-514-6600
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date: There were 71,857,717 shares of the
Registrant's common stock issued and outstanding as of December 21, 2004.
EXUS GLOBAL, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet
September 30, 2004 (Unaudited) and December 31, 2003.................3
Statements of Operations (Unaudited)
For the Three and Nine Months Ended September 30, 2004 and 2003......4
Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2004 and 2003................5
Statement of Investments (Unaudited)
September 30, 2004...................................................6
Notes to Financial Statements..........................................7-10
Item 2 - Management's Discussion and Analysis or Plan of Operation....11-16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk......16
Item 4 - Controls and Procedures.........................................16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings...............................................16
Item 2 - Changes in Securities and Use of Proceeds.......................17
Item 3 - Default upon Senior Securities..................................17
Item 4 - Submission of Matters to a Vote of Security Holders.............17
Item 5 - Other Information...............................................17
Item 6 - Exhibits and Reports on Form 8-K................................17
Signatures...............................................................18
2
EXUS GLOBAL, INC.
BALANCE SHEETS
September 30, December 31,
2004 2003
----------- -----------
(Unaudited) (Audited)
ASSETS
Loans and investments in portfolio securities, at market or fair value:
Affiliated companies (cost of $365,539) .......... $ 410,629 $ -
Controlled companies (cost of $265,090) .......... 421,090 -
Cash ............................................... 165 812
Other assets ....................................... 500 13,350
----------- -----------
Total assets ................................... $ 832,384 $ 14,162
=========== ===========
LIABILITIES AND NET ASSETS (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ............ $ 485,264 $ 880,835
Due to officer ................................... 237,482 323,339
Convertible debentures payable ................... 202,375 -
Loans payable .................................... 241,232 237,500
----------- -----------
Total current liabilities ...................... 1,166,353 1,441,674
----------- -----------
Net assets (deficit):
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding ... - -
Series A preferred stock, no par value;
10,000,000 shares authorized; 0 and 10,000
shares issued and outstanding, respectively .... - 201,054
Series B preferred stock, $.001 par value;
10,000,000 shares authorized; 10,000,000 and
0 shares issued and outstanding, respectively .. 10,000 -
Common stock, $.001 par value, 900,000,000 shares
authorized 61,051,050 and 3,866,141 shares
issued and outstanding, respectively ........... 61,051 3,866
Additional paid-in-capital ....................... 9,358,932 7,717,625
Stock subscription receivable .................... - (14,750)
Accumulated deficit .............................. (9,763,952) (9,335,307)
----------- -----------
Total net assets (deficit) ..................... (333,969) (1,427,512)
----------- -----------
Total liabilities and net assets (deficit) ..... $ 832,384 $ 14,162
=========== ===========
Net assets per share ............................... $ (.01) $ (0.37)
=========== ===========
See accompanying notes to unaudited financial statements.
3
EXUS GLOBAL, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
---------- --------- ------------ ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating Expenses:
General and administrative fees $ 12,025 $ 15,493 $ 77,390 $ 60,152
Compensation and stock-based compensation 72,550 295,500 204,550 601,115
Professional fees 8,442 15,550 118,886 21,050
Interest expense 11,250 - 410,320 -
---------- --------- ------------ ----------
Total operating expenses 104,267 326,543 811,146 682,317
---------- --------- ----------- ----------
Investment Loss, net (104,267) (326,543) (811,146) (682,317)
Other Income:
Other income 81,500 90,803 181,500 90,803
---------- --------- ------------ ----------
Net decrease in net assets prior to net
realized and unrealized gains(losses) on
investments $ (22,267) (235,740) (629,66) (591,514)
---------- --------- ------------ ----------
Net Realized and Unrealized Appreciation on
Investments:
Net change in unrealized appreciation/
Depreciation on investments (130,385) - 201,000 -
---------- --------- ------------ ---------
Net realized and unrealized appreciation on
Investment transactions - - - -
---------- --------- ------------ ---------
Net increase (decrease) in net assets
resulting from operations $ (153,152) $(235,740) $ (428,646) $(591,514)
========== ========= ============ =========
Net decrease in net assets from
Operations per share, basic and diluted $ (.003) $ (0.09) $ (.01) $ (0.29)
========== ========= ============ =========
Weighted average number of shares 56,523,100 2,588,844 33,096,929 2,052,847
Outstanding, basic and diluted ========== ========= ============ =========
See accompanying notes to unaudited financial statements.
4
EXUS GLOBAL, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30
---------------------------
2004 2003
---------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net decrease in net assets resulting from operations $ (428,646) $ (591,514)
---------- -----------
Adjustments to reconcile net decrease in net
assets from operations to
net cash used in operating activities:
Net unrealized (gain)loss in investments (201,000) -
Stock issued for services - 481,115
Beneficial conversion 241,667 -
Director expense 8,750 -
Interest expense 10,000 -
Common Stock issued for anti-dilutive rights 130,000 29,000
Other income from reduction of debt (181,500) -
Changes in assets and liabilities:
(Increase) decrease in assets: - -
Other assets 12,850 -
Prepaid expenses - 30,000
Increase (decrease) in liabilities.
Accounts payable and accrued expenses (21,924) (227,701)
---------- -----------
Total adjustments (1,157) 312,414
---------- -----------
Net cash used in operating activities (429,803) (279,100)
---------- -----------
Cash flows from investing activities:
Cash paid for investments (364,469) (23,016)
---------- -----------
Cash flows from financing activities:
Proceeds from convertible debentures 325,000 -
Proceeds from officer 34,143 112,770
Proceeds from notes payable - 18,000
Repayment of notes payable (6,268) -
Common stock to be issued - 25,000
Proceeds from sale of common stock 416,000 108,000
Proceeds from subscription receivable 14,750 -
---------- -----------
Net cash provided by financing activities 793,625 263,770
---------- -----------
Net (decrease) in cash (647) (38,346)
Cash, beginning of year 812 38,933
---------- -----------
Cash, end of period $ 165 $ 587
========== ===========
Supplemental disclosure of cash flow information:
Interest $ 15,000 $ -
========== ===========
Income taxes $ - $ -
========== ===========
NON-CASH INVESTING AND FINANCIAL ACTIVITIES:
Common stock issued for debts $ 312,146 $ -
========== ===========
Common stock issued for convertible debentures $ 122,625 $ -
========== ===========
Common stock issued for investments $ 275,000 $ -
========== ===========
See accompanying notes to unaudited financial statements.
5
EXUS GLOBAL, INC.
STATEMENT OF INVESTMENTS
September 30, 2004
(Unaudited)
Percentage
Description of Cost and Fair
COMPANY of Business Ownership Loans Value Affiliation
-------------------------- ---------------------- ---------- -------- -------- -----------
AGI Partners, Ltd. Management Consulting 100% $265,090 $421,090 Yes (1)
Nevada Holding Group, Inc. Investment 6% $ 96,250 141,250 No (2)
Maxplanet Corp. Media Communication 52% $206,750 206,750 Yes (3)
E Education Network e-learning Development 40% $ 50,000 50,000 Yes (3)
Food Product Inc Food Distribution 10% $ 10,815 10,815 Yes (3)
GoIP Global, Inc Satellite Communications 10% $ 1,814 1,814 Yes (3)
-------- --------
TOTAL INVESTMENTS $630,629 $831,719
======== ========
(1) Fair value determined by the Company's Board of Directors using the
following formula: $306,000 revenue annualized plus net assets plus
outstanding loans.
(2) Price based on 5,650,000 shares of NVHG at .025 per share.
(3) Cost basis
See accompanying notes to unaudited financial statements
6
EXUS GLOBAL, INC.
Notes to the Financial Statements
September 30, 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company without
an audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
as of September 30, 2004, and the results of operations and cash flows for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These financial
statements should be read in conjunction with the audited financial statements
and related notes and schedules included in the Company's 2003 Annual Report
filed on Form 10-KSB dated December 31, 2003. The results of operations for the
periods ended September 30, 2004 and 2003 are not necessarily indicative of the
operating results for the full years.
Currently, the Company is a business development company engaged in the business
of investing in small to mid-sized companies primarily in the communications,
media, and distance-learning industries.
NOTE 2 - INVESTMENTS
The Company currently has investments in six entities:
AGI Partners, Ltd.
The first is an investment in a wholly-owned, unconsolidated subsidiary, AGI
Partners, Ltd. The Company issued 1,000,000 shares of its common stock to its
Chief Executive Officer for the acquisition of AGI partners, Ltd. (AGI) on
January 10, 2004. The shares were valued at $0.20 per share, which was the
closing price of January 10, 2004 on the date of issue. The Company subsequently
advanced a total of $65,090 to AGI as a loan. AGI is in the business of
providing management, consulting and other services to small and micro cap
companies. For the nine months, ending September 30, 2004 sales were $230,000
for consulting services with a net profit of $52,157.
E Education Network, Inc.
The second is an investment in a 40% owned unconsolidated entity, E Education
Network, Inc. In January 2004, the Company paid $50,000 in exchange for 50% of
the capital of E Education Network, Inc. (EEN). The balance of the shares of EEN
are owned by Daniel Imperato, Christ Investments Ltd and Orbitel-One Inc., a
Company controlled by Isaac H Sutton, Exus CEO. In March 2003, the Company
issued a dividend to Exus shareholders reducing the Company's interest to 40%.
EEN is an e-learning Company distributing their product by a prepaid
SMARTEDUCATION Card(TM). In July E Education Network, Inc. entered into an
Agreement with DiscoveryTel, Inc. to sell 10,000,000 shares of EEN, diluting
Exus' interest to 20%.
Maxplanet Corp.
The third is an investment in Maxplanet Corp. (MXNT). Exus holds 24 Million
shares of this Publicly Traded Company, which it has received from its portfolio
Company AGI Partners, Ltd. for services rendered. During April, May and June
Exus loaned $200,000 to AGI Partners, Ltd. and received these shares in lieu of
payment. As of September 30, 2004, the market value of these shares based on the
stock closing price was $192,000. Maxplanet is actively seeking acquisitions.
Nevada Holding Group, Inc.
The fourth is an investment in Nevada Holding Group, Inc. (NVHG). Exus holds
5.65 Million shares of this Publicly Traded Company of which 3,000,000 shares
were received from its portfolio Company AGI Partners, Ltd. During April, May
and September Exus loaned $30,000 to AGI Partners, Ltd. and received 3 million
shares in lieu of payment. Exus purchased an additional 3,000,000 shares in
September upon exercising an option and issuing 5,000,000 shares of Exus common
shares as payment. Subsequently 350,000 shares of NVHG have been paid to Exus
Directors for services rendered. As of September 30, 2004, the market value of
these shares based on the stock closing price was $1,412,500.
GoIP Global, Inc
In September, GoiP Global, Inc was formed to engage in providing broadband
internet satellite services in emerging markets. As of September 30, 2004, Exus
has loaned the company $1,814 mainly for incorporation costs.
7
Food Products Inc.
In September, Food Products, Inc was formed to engage in the distribution of
imported ethnic food products under exclusive licensing arrangements. As of
September 30, 2004, Exus has loaned the company $10,815 which covered the
incorporation expenses and samples.
As required by ASR 118, the investment committee of the company is required to
assign a fair value to all investments. To comply with Section 2(a) (41) of the
Investment Company Act and Rule 2a-4 under the Investment Company Act, it is
incumbent upon the board of directors to satisfy themselves that all appropriate
factors relevant to the value of securities for which market quotations are not
readily available have been considered and to determine the method of arriving
at the fair value of each such security. To the extent considered necessary, the
board may appoint persons to assist them in the determination of such value, and
to make the actual calculations pursuant to the board's direction. The board
must also, consistent with this responsibility, continuously review the
appropriateness of the method used in valuing each issue of security in the
company's portfolio. The directors must recognize their responsibilities in this
matter and whenever technical assistance is requested from individuals who are
not directors, the directors must carefully review the findings of such
intervals in order to satisfy themselves that the resulting valuations are fair.
No single standard for determining "fair value...in good faith" can be laid
down, since fair value depends upon the circumstances of each individual case.
As a general principle, the current "fair value" of an issue of securities being
valued by the board of directors would appear to be the amount which the owner
might reasonably expect to receive for them upon their current sale. Methods,
which are in accord with this principle, may, for example, be based on a
multiple of earnings, or a discount from market of a similar freely traded
security, or yield to maturity with respect to debt issues, or a combination of
these and other methods. Some of the general factors, which the directors should
consider in determining a valuation method for an individual issue of
securities, include:
1) the fundamental analytical data relating to the investment,
2) the nature and duration of restrictions on disposition of the securities, and
3) an evaluation of the forces which influence the market in which these
securities are purchased and sold. Among the more specific factors which are to
be considered are: type of security, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted securities
of the same class at time of purchase, special reports prepared by analysis,
information as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the securities, price
and extent of public trading in similar securities of the issuer or comparable
companies, and other relevant matters.
The board has arrived at the following valuation method for its investments.
Where there is not a readily available source for determining the market value
of any investment, either because the investment is not publicly traded, or is
thinly traded, and in absence of a recent appraisal, the value of the investment
shall be based on the following criteria:
1. Total amount of the Company's actual investment ("AI"). This amount
shall include all loans, purchase price of securities, and fair value of
securities given at the time of exchange.
2. Total revenues for the preceding twelve months ("R").
3. Earnings before interest, taxes and depreciation ("EBITD")
4. Estimate of likely sale price of investment ("ESP")
5. Net assets of investment ("NA")
6. Likelihood of investment generating positive returns (going concern).
The estimated value of each investment shall be determined as follows:
o Where no or limited revenues or earnings are present, then the value
shall be the greater of the investment's a) net assets, b) estimated
sales price, or c) total amount of actual investment.
8
o Where revenues and/or earnings are present, then the value shall be
the greater of one time (1x) revenues or three times (3x) earnings,
plus the greater of the net assets of the investment or the total
amount of the actual investment.
o Under both scenarios, the value of the investment shall be adjusted
down if there is a reasonable expectation that the Company will not be
able to recoup the investment or if there is reasonable doubt about
the investments ability to continue as a going concern.
Based on the previous methodology, the Company determined that:
The investment in AGI Partners, Ltd should be valued at $421,090 as of September
30, 2004. Based on annualized sales of $306,000 plus net assets of $50,000 also
included is a loan for $65,090. Accordingly, an unrealized gain of $156,000 has
been recorded through the period ended September 30, 2004.
The investment in E Education Network, Inc. consisted of an investment of
$50,000 at September 30, 2004, at which time a 50% ownership interest was
acquired. The Company issued a dividend to Exus shareholders reducing their
holding by 10% to the current 40% interest. The Company has determined that
since EEN continues to meet its monthly objectives with respect to development
of the program and that the value of the investment is not impaired. After the
acquisition in January 2004, the investment to EEN is being valued at cost.
The investment in Nevada Holding Group, Inc. is valued at a discount to market
value. Exus holds 5,650,000 restricted shares. NVHG has sold shares in the
private market at .025 per share therefore Exus is valuing its holding at
$141,250 versus the Closing market price per share as of September 30, 2004 of
..25 per share. Based on a cost basis of $105,000 an unrealized gain of $45,000
has been recorded through the period ended September 30, 2004.
The investment and loans in Maxplanet Corp. is valued at cost of $206,750, as of
September 30, 2004 Exus has received the 24 million shares of MXNT through AGI
PARTNERS, LTD its subsidiary. AGI Partners had earned these shares through
services rendered and has up streamed these shares to EXUS for cash proceeds of
$200,000.
The loan to GoIP Global, Inc. is valued at cost of $1,814 as of September 30,
2004.
The loan to Food Products Inc. is valued at cost of $10,815 as of September 30,
2004.
The Company has not retained independent appraisers to assist in the valuation
of the portfolio investments because the cost was determined to be prohibitive
for the current levels of investments.
NOTE 3 - EQUITY TRANSACTIONS
During the three months ended September 30, 2004 the Company issued 1,382,934
shares of its common stock under Regulation E upon the conversion of debt
totaling $20,744.
During the three months ended September 30, 2004, the Company sold 4,816,666 of
common stock under Regulation E for net cash proceeds of $76,000 for an average
price of .0157 per share.
In September the Company exercised its option to purchase 3,000,000 shares of
Nevada Holding Group INC (NVHG) by issuing 5,000,000 shares of common stock
under Regulation E for a transaction value of $75,000.
NOTE 4 - CONVERTIBLE DEBENTURES
During the nine months ended September 30, 2004, the Company raised $325,000 of
operating capital in the form of convertible debentures. The debentures have
varying terms of nine to twelve months, accrue interest at 8% to 12% per annum,
and convert at a discount of 50% to 20% of the closing bid for the Company's
common stock on the date of conversion. For the nine months ended September 30,
2004, the Company issued 5,025,000 shares of its common stock upon the
conversion of convertible debentures totaling $122,625. All of the remaining
debentures have matured and the Company is in default. At September 30, 2004,
the balance of the convertible debentures are $202,375. Management is in
discussions with the debenture holders who have advised the Company that they do
not wish to convert their debentures in to shares of the Company's common stock.
It is expected that the Company will enter into payout agreements with these
holders.
The convertible debentures contain an imbedded beneficial conversion feature
since the fair market value of the common stock exceeds the most beneficial
exercise price on the debenture Issuance Date. The value was computed
9
as $241,667. Since the conversion feature is exercisable immediately, the
$241,667 was recognized as interest expense in the three months ended September
30, 2004.
NOTE 5 - SUBSEQUENT EVENTS
Subsequent to September 30, 2004, the Company sold 6,806,667 shares of common
stock for net cash proceeds of $102,100.
In October, the Company issued 1,000,000 shares of Common stock to acquire
20,000 restricted shares of Amazon Biotech (AMZB) A transaction valued at
$15,000.
In October the Company issued 3,000,000 shares of Common Stock to a Debit Holder
in full settlement of outstanding debt and judgment, a transaction valued at
$45,000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts may contain forward-looking statements that involve a number of
known and unknown risks and uncertainties that could cause actual results to
differ materially from those discussed or anticipated by management. Potential
risks and uncertainties include, among other factors, general business
conditions, government regulations, manufacturing practices, competitive market
conditions, success of the Company's business strategy, delay of orders, changes
in the mix of products sold, availability of suppliers, concentration of sales
in markets and to certain customers, changes in manufacturing efficiencies,
development and introduction of new products, fluctuations in margins, timing of
significant orders, and other risks and uncertainties currently unknown to
management.
CRITICAL ACCOUNTING POLICIES
Exus Global, Inc.'s financial statements and related public financial
information are based on the application of accounting principles generally
accepted in the United States of America ("GAAP"). GAAP requires the use of
estimates; assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported. These estimates can also affect supplemental information
contained in our external disclosures, including information regarding
contingencies, risk and financial condition. We believe our use of estimates and
underlying accounting assumptions adhere to GAAP and are consistently and
conservatively applied. Valuations based on estimates are reviewed by us for
reasonableness and conservatism on a consistent basis. Primary areas where our
financial information is subject to the use of estimates, assumptions and the
application of judgment include acquisitions, valuation of investments, and the
realizability of deferred tax assets. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions.
VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS
The recoverability of long-lived assets requires considerable judgment and is
evaluated on an annual basis or more frequently if events or circumstances
indicate that the assets may be impaired. As it relates to definite life
intangible assets, we apply the impairment rules as required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed
Of" as amended by SFAS No. 144, which also requires significant judgment and
assumptions related to the expected future cash flows attributable to the
intangible asset. The impact of modifying any of these assumptions can have a
significant impact on the estimate of fair value and, thus, the recoverability
of the asset.
INCOME TAXES
We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities. We regularly review our deferred tax assets for recoverability and
establish a valuation allowance based upon historical losses, projected future
taxable income and the expected timing of the reversals of existing temporary
differences. As of September 30, 2004, we estimated the allowance on net
deferred tax assets to be one hundred percent of the net deferred tax assets.
VALUATION OF INVESTMENTS
As required by ASR 118, the investment committee of the company is required to
assign a fair value to all investments. To comply with Section 2(a) (41) of the
Investment Company Act and Rule 2a-4 under the Investment Company Act, it is
incumbent upon the board of directors to satisfy themselves that all appropriate
factors relevant to the value of securities for which market quotations are not
readily available have been considered and to determine the method of arriving
at the fair value of each such security. To the extent considered necessary, the
board may appoint persons to assist them in the determination of such value, and
to make the actual calculations pursuant to the board's direction. The board
must also, consistent with this responsibility, continuously review the
appropriateness of the method used in valuing each issue of security in the
company's portfolio. The directors must recognize their responsibilities in this
matter and whenever technical assistance is requested from individuals who are
not directors, the findings of such intervals must be carefully reviewed by the
directors in order to satisfy themselves that the resulting valuations are fair.
11
No single standard for determining "fair value...in good faith" can be laid
down, since fair value depends upon the circumstances of each individual case.
As a general principle, the current "fair value" of an issue of securities being
valued by the board of directors would appear to be the amount which the owner
might reasonably expect to receive for them upon their current sale. Methods,
which are in accord with this principle, may, for example, be based on a
multiple of earnings, or a discount from market of a similar freely traded
security, or yield to maturity with respect to debt issues, or a combination of
these and other methods. Some of the general factors, which the directors should
consider in determining a valuation method for an individual issue of
securities, include:
1) the fundamental analytical data relating to the investment, 2) the nature and
duration of restrictions on disposition of the securities, and 3) an evaluation
of the forces which influence the market in which these securities are purchased
and sold. Among the more specific factors which are to be considered are: type
of security, financial statements, cost at date of purchase, size of holding,
discount from market value of unrestricted securities of the same class at time
of purchase, special reports prepared by analysis, information as to any
transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Our board has arrived at the following valuation method for our investments.
Where there is not a readily available source for determining the market value
of any investment, either because the investment is not publicly traded, or is
thinly traded, or in absence of a recent appraisal, the value of the investment
shall be based on the following criteria:
1. Total amount of the Company's actual investment ("AI"). This amount
shall include all loans, purchase price of securities, and fair value of
securities given at the time of exchange.
2. Total revenues for the preceding twelve months ("R").
3. Earnings before interest, taxes and depreciation ("EBITD")
4. Estimate of likely sale price of investment ("ESP")
5. Net assets of investment ("NA")
6. Likelihood of investment generating positive returns (going concern).
The estimated value of each investment shall be determined as follows:
o Where no or limited revenues or earnings are present, then the value
shall be the greater of the investment's a) net assets, b) estimated
sales price, or c) total amount of actual investment.
o Where revenues and/or earnings are present, then the value shall be
the greater of one time (1x) revenues or three times (3x) earnings,
plus the greater of the net assets of the investment or the total
amount of the actual investment.
o Under both scenarios, the value of the investment shall be adjusted
down if there is a reasonable expectation that the Company will not be
able to recoup the investment or if there is reasonable doubt about
the investments ability to continue as a going concern.
We have not retained independent appraises to assist in the valuation of the
portfolio investments because the cost was determined to be prohibitive for the
current levels of investments.
COMPANY STRATEGY
Exus Global, Inc. ("we," "us," "our," the "Company" or "Exus") is a closed-end
Investment Company as defined in the Investment Company Act of 1940, as amended.
This election entities us to the status of Business Development Company (BDC).
We are engaged in the business of investing in small to mid-sized companies in
the communications, media, and distance-education industries. In addition, we
look to form strategic alliances with developing companies to facilitate speedy
entry of new technologies to the marketplace. We operate as a venture fund with
minimal expenses and our objective is to increase net asset value (NAV).
On January 26, 2004, our Board of Directors unanimously approved a resolution to
effect a 1-for-15 reverse split of our common stock, which was subsequently
approved by a vote of the majority of shareholders. This reverse split
12
was done to strengthen our capital structure and raise investment money to
implement our business strategy. On March 1, 2004, an amendment to the our
Articles of Incorporation was filed with the Secretary of State of Nevada
amending our Articles as described above. On March 9, 2004, our Board of
Directors elected to be regulated as a BDC under the Investment Company Act. A
BDC is required to maintain at least 70% of its assets invested in "eligible
portfolio companies," which are loosely defined as any domestic company which is
not publicly traded or that has less than $4 million in assets.
We are primarily engaged in the business of investing in and providing
managerial assistance to developing companies, which, in our opinion, have
significant growth potential. Our investment objective is to achieve long-term
capital appreciation, rather than current income, on our investments. Currently,
our investment activity is limited by our working capital. There is no assurance
that our objective will be achieved.
In October 2004, we entered into an agreement with a New York based financial
facilitator to open Letters of Credit to import merchandise for our portfolio
companies. The Agreement calls for a revolving credit facility of $6 million.
This Letter of Credit facility will further enhance what Exus can offer its
Portfolio companies beyond management, strategic alliances and short term
financing.
We presently provide management assistance to six portfolio companies.
In January 2004, we acquired 100% of the common stock of AGI Partners, LTD.
(AGI), a New York-based private company that provides management consulting,
accounting, and financial services to public companies, in exchange for
1,000,000 shares of our restricted common stock. Prior to the acquisition, AGI
was controlled by a member of our board of directors
During the first half of 2004, AGI received 24 million shares of Maxplanet Corp.
(MXNT) for services rendered. These shares have been up-streamed to Exus. MXNT
has been an Internet portal and multimedia company since the late 90s and is
currently listed on the Pink Sheets under ticker symbol "MXNT." In April, MXNT
announced the proposed acquisition of Wireless Ink, LLC. At this time,
management has reservations about weather this transaction will close. MXNT is
exploring other acquisition targets and continues to move towards relisting on
the Bulletin Board.
In the second quarter of 2004, AGI received 3,000,000 shares of Nevada Holding
Group, Inc (NVHG) for services rendered. These shares have been up-streamed to
Exus. In addition, Exus exercised its option and purchased 3,000,000 additional
shares. At this time Exus is holding a total of 5,650,000 shares and is
assisting NVHG with its filing requirements and strategic acquisitions. NVHG is
up-to-date with all its filing as of the date of this report and has a letter of
intent in place to be the exclusive provider of a proprietary remote earth
sensing technology. This technology is targeted at natural resource companies in
North and South America. As of the date of this report, NVHG's share price
closed at .16 per share, making the 5,650,000 share value to be $904,000.
In 2003, the Exus acquired 50% of the common stock of E Education Network, Inc.
(EEN), a Nevada corporation based in New York that distributes the Prepaid Smart
EducationCard for online e-learning. EEN has an extensive distribution potential
in emerging markets. In July, EEN entered into an agreement with DiscoveryTel,
Inc. - http://www.discoverytel.com - to manage EEN's online education business.
DiscoveryTel, Inc, in conjunction with its major shareholder Modern Africa Fund
- - http://www.mafm.com - will develop and offer online education through its
existing and growing infrastructure in Africa. Per terms of the agreement, 50%
of EEN will be acquired by DiscoveryTel, Inc. and its management group. However,
as of the date of this report, this transaction has not closed and there can be
no assurances that it will close in the future.
In the third quarter, Exus assisted in the establishment 2 new entities: GoIP
Global, Inc. and Food Products Inc. Both companies are in the development stage.
It should be noted that our prior auditors, Sherb & Co., LLC, have expressed in
their audit opinion letter accompanying the financial statements for the year
ended December 31, 2003 that there is substantial doubt about our ability to
continue as a going concern.
13
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2004 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 2003
Operating expenses for the three months ended September 30, 2004 were $104,267,
as compared to $326,543 for the three months ended September 30, 2003, a
decrease of $222,276. This decrease was mainly a result of a decrease in
stock-based compensation expense and professional fees.
General and administrative expenses, consisting primarily of office operations,
travel, data communications and supplies expenses, were $12,025 for the three
months ended September 30, 2004, as compared to $15,493 for the three months
ended September 30, 2003, a decrease of $3,468. This decrease is primarily a
result of decreased operations.
Compensation and stock-based compensation expense for the three months ended
September 30, 2004 was $72,550, as compared to $295,500 for the three months
ended September 30, 2003, a decrease of $229,950. The decrease is attributable
primarily to the payment of stock based compensation in fiscal 2003.
Professional fees for the three months ended September 30, 2004 were $8,442 as
compared to approximately $15,550 for the three months ended September 30, 2003.
The decrease is attributable primarily to legal fees associated with becoming a
Business Development Company incurred in 2003.
Interest expense for the three months ended September 30, 2004 was $11,250 and
was incurred on our notes payable and debentures payable. There was no interest
expense for the three months ended September 30, 2003, as there were no
debentures outstanding.
Other income for the three months ended September 30, 2004 was $81,500, as
compared to $90,803 for the three months ended September 30, 2003 and related to
the reduction of accrued expenses due to a prior over-accrual of expenses
related to our operations before becoming a business development company which
management has determined is not payable.
For the three months ended September 30, 2004, we recorded net unrealized
depreciation in investments of $130,385 as compared to net unrealized
appreciation of $0 for the three months ended September 30, 2003. The net
unrealized depreciation is attributable to our investment in AGI Partners, LTD
and Nevada Holding Group, Inc. In 2003, we did not operate as a business
development company and thus did not have investments.
Overall, we realized a net decrease in net assets resulting from operations of
$(153,152) for the three months ended September 30, 2004. Based on a
weighted-average of 56,523,100 (basic and diluted) shares outstanding, our net
decrease in net assets resulting from operations per weighted average common
share for the three months ended September 30, 2004 was $(0.003).
For the three months ended September 30, 2003, we realized a net decrease in net
assets resulting from operations of $(235,740). Based on a weighted-average
shares outstanding of 2,588,844 (basic and diluted), our net decrease in net
assets resulting from operations per weighted average common share for the three
months ended September 30, 2003 was $(0.09).
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Operating expenses for the nine months ended September 30, 2004 were $811,146 as
compared to $682,317 for the nine months ended September 30, 2003. This increase
was mainly a result of an increase in professional fees, general and
administrative expense, and interest expense, offset by a decrease in
stock-based compensation expense.
General and administrative expenses, consisting primarily of office operations,
travel, data communications and supplies expenses, were $77,390 for the nine
months ended September 30, 2004, as compared to $60,152 for the nine months
ended September 30, 2003. This increase is primarily a result of expenses from
increased operations.
Compensation and stock-based compensation expense for the nine months ended
September 30, 2004 were $204,550, as compared to $601,550 for the nine months
ended September 30, 2003. The decrease is attributable primarily to the
recording of stock-based compensation of $567,500 during the nine months ended
September 30,
14
2003 related to the granting of stock options, offset by increased director fees
of $24,550 for the nine months ended September 30, 2004.
Professional fees for the nine months ended September 30, 2004 were $118,886, as
compared to $21,050 for the nine months ended September 30, 2003. The increase
is attributable primarily to increased fees related to our SEC filings, and
legal fees associated with becoming a Business Development Company.
Interest expense for the nine months ended September 30, 2004 was $410,320 and
was incurred on our notes payable and debentures payable. Of this interest,
$241,667 related to the beneficial conversion feature of our convertible
debentures and $132,000 related to the issuance of 6,500,000 shares of common
stock under anti-dilutive provisions. There was no interest expense for the nine
months ended September 30, 2003 because there were no borrowings outstanding.
Other income for the nine months ended September 30, 2004 was $181,500, as
compared to $90,803 for the nine months ended September 30, 2003 and related to
the reduction of accrued expenses due to a prior over-accrual of expenses
related to our operations before becoming a business development company which
management has determined is not payable..
For the nine months ended September 30, 2004, we recorded net unrealized
appreciation on investments of $201,000 as compared to net unrealized
appreciation of $0 for the nine months ended September 30, 2003. The net
unrealized appreciation is attributable to our investment in AGI Partners, LTD
and our interest in Nevada Holding Group, Inc. In 2003, we did not operate as a
business development company.
Overall, we realized a net decrease in net assets resulting from operations of
$428,646 for the nine months ended September 30, 2004. Based on weighted-average
shares outstanding of 33,096,929 (basic and diluted), our net decrease in net
assets resulting from operations per weighted average common share for the nine
months ended September 30, 2004 was $(.01).
For the nine months ended September 30, 2003, we realized a net decrease in net
assets resulting from operations of $591,514. Based on a weighted-average shares
outstanding of 2,052,847 (basic and diluted), our net decrease in net assets
resulting from operations per weighted average common share for the nine months
ended September 30, 2003 was $(0.29).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had $165 in cash. The accompanying financial
statements have been prepared in conformity with principles of accounting
applicable to a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. We had a net
decrease in net assets from operations of $(428,646), incurred operating losses
from inception and have an accumulated deficit of $(9,763,952), and used cash in
operating activities of $(429,803) for the nine months ended September 30, 2004.
We require additional capital to meet our operating requirements. Management
plans to increase cash flows through the sale of securities (see following
paragraph below) and, through our on going operations. There are no assurances
that such plans will be successful. No adjustments have been made to the
accompanying financial statements, as a result of this uncertainty.
On March 9, 2004, we filed a notification with the Securities and Exchange
Commission of our intent to raise capital through the issuance of securities
exempt from registration under Regulation E of the Securities Act of 1933. This
exemption allows us to sell up to $5,000,000 of securities exempt from
registration. Through the end of September 30, 2004, we raised $426,000 through
the sale of 26,750,032 shares of our common stock in reliance upon the
Regulation E exemption.
For the nine months ended September 30, 2004, we used cash in operating
activities of $(429,803), as compared to $(279,100) for the nine months ended
September 30, 2003. This was attributable to cash used to fund our net decrease
in net assets resulting from operations of $(428,646) and the payment of
accounts payable and accrued expenses of $21,925.
For the nine months ended September 30, 2004, we used cash for investing in our
investee companies of $364,469.
For the nine months ended September 30, 2004, net cash provided by financing
activities was $793,625, as compared to net cash provided by financing
activities of $263,770 for the nine months ended September 30, 2003. During the
nine months ended September 30, 2004, we used cash to pay back notes payable of
$6,268, received
15
proceeds of $14,750 from the collection of subscriptions receivable, and
proceeds from an officer of $34,143, and received proceeds of $416,000 from the
sale of our common stock. Additionally, we received proceeds from the issuance
of subordinated convertible debentures of $325,000. The debentures bear interest
at 8%, mature ninety (90) days from the date of issuance, and are convertible
into common stock at a discount to market of 50% to 20% of the closing bid for
our common stock on the date of conversion. As of September 30, 2004, the
debentures were in default. We are in communication with the holders of the
debentures, who have advised that they do not wish to convert. We expect to
enter into payout agreements with these individuals once our financing efforts
are successful, of which there is no assurance.
There is no assurance that we will be able to raise any additional funds through
the issuance of the remaining convertible debentures or that any funds made
available will be adequate for us to continue as a going concern. Further, if we
are not able to generate positive cash flow from operations, or are unable to
secure adequate funding under acceptable terms, there is substantial doubt that
we can continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have invested in small and medium-sized companies, and our investments are
considered speculative in nature. Our investments often include securities that
are subject to legal or contractual restrictions on resale that adversely affect
the liquidity and marketability of such securities. As a result, we are subject
to risk of loss, which may prevent our stockholders from achieving price
appreciation and dividend distributions. The portion of our portfolio consisting
of investments in private companies is also subject to valuation risk. We value
our privately held investments based on a determination of their fair value made
in good faith by our board of directors on a quarterly basis in accordance with
our established guidelines. In the absence of a readily ascertainable market
value, the estimated values of our investments may differ significantly from the
values that would exist if a ready market for these securities existed. Any
changes in valuation are recorded in our statements of operations as "Net
unrealized gain (loss) on investments."
We consider the management of equity price risk essential to conducting our
business and maintaining our profitability. Our portfolio consists of
investments in private companies. We anticipate no impact on these investments
from modest changes in public market equity prices. However, should significant
changes in market prices occur,, there could be a long-term effect on valuations
of private companies, which could affect the carrying value and the amount and
timing of gains realized on these investments. This could also affect our
ability to generate cash through the sale of private equity investments, since
there may not be realistic initial public offering opportunities.
ITEM 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this quarterly report on Form
10-Q, the Company's chief executive officer and chief financial officer
conducted an evaluation of our disclosure controls and procedures (as defined in
Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934). Based upon this
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective in timely alerting him
of any material information relating to us that is required to be disclosed by
us in the reports we file or submit under the Securities Exchange Act of 1934.
(b) There have not been any significant changes in our internal control
over financial reporting that occurred during our most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 23, 2002, we entered into a consent judgment in the Superior Court of
New Jersey with a former employee in the amount of $37,500. We settled this
claim in October by the issuance of 3,000,000 common shares.
Recently, we were served with an action in the Supreme Court of the State of New
York to enforce a default judgment entered against us for $71,414.55 in the
Circuit Court of the County of Fairfax, Virginia. The default judgment was based
upon a breach of contract claim between the Plaintiff and us. We plan on
defending the action in a December 2004 hearing date. The judgment has been
accrued in the financial statements.
16
In October, we and our Directors were served with documents naming us as
defendants with a $40,000 default judgment for not answering an information
subpoena regarding Isaac Sutton, our CEO. We intend to take the appropriate
legal action to dismiss the judgment and provide the information requested if it
is available.
In September, we defaulted on an agreed monthly repayment of a $53,000 note.
Based on the prior settlement agreement the Creditor has the right to file a
Confession of Judgment against us and Isaac Sutton, our CEO.
We know of no material legal proceedings pending or threatened, or judgments
entered against any of its Directors or Officers in their capacity as such.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2004, we issued 1,382,934 shares of
our common stock under Regulation E upon the conversion of debt totaling
$20,744.
During the three months ended September 30, 2004, we sold 4,816,666 of common
stock under Regulation E for net cash proceeds of $76,000 for an average price
of .0157 per share.
In September, we exercised our option to purchase 3,000,000 shares of Nevada
Holding Group INC (NVHG) by issuing 5,000,000 shares of o our common stock under
Regulation E for a transaction value of $75,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
31.1 Certification by Chief Executive Officer Pursuant to Section 302
31.2 Certification by Chief Financial Officer Pursuant to Section 302
32.1 Certification by Chief Executive Officer Pursuant to Section 906
32.2 Certification by Chief Financial Officer Pursuant to Section 906
(b) Reports on Form 8-K
None
17
SIGNATURE PAGE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EXUS GLOBAL, INC.
DATE: December 21, 2004 /s/ Isaac H. Sutton
-----------------------------------
Isaac H. Sutton
Chief Executive Officer and
Chief Financial Officer
18