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 June 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
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 54,335,149 shares of the
Registrant's common stock issued and outstanding as of August 20, 2004.
EXUS GLOBAL, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2004
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet
June 30, 2004 (Unaudited) and December 31, 2003.................3
Statements of Operations (Unaudited)
For the Three and Six Months Ended June 30, 2004 and 2003.......4
Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2004 and 2003.................5
Statement of Investments (Unaudited)
June 30, 2004 ..................................................6
Notes to Financial Statements.........................................7-11
Item 2 - Management's Discussion and Analysis or Plan of Operation...12-18
Item 3 - Quantitative and Qualitative Disclosures about Market Risk.....19
Item 4 - Controls and Procedures........................................19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..............................................19
Item 2 - Changes in Securities and Use of Proceeds......................20
Item 3 - Default upon Senior Securities.................................20
Item 4 - Submission of Matters to a Vote of Security Holders............20
Item 5 - Other Information..............................................20
Item 6 - Exhibits and Reports on Form 8-K...............................21
Signatures..............................................................21
-2-
EXUS GLOBAL, INC.
BALANCE SHEETS
June 30, December 31,
2004 2003
----------- -----------
(Unaudited) (Audited)
ASSETS
Loans and investments in portfolio securities,
at market or fair value:
Affiliated companies (cost of $285,750) .......... $ 285,750 $ -
Controlled companies (cost of $210,462) .......... 541,847 -
Cash ............................................... 37,597 812
Other assets ....................................... 500 13,350
----------- -----------
Total assets ................................... $ 865,694 $ 14,162
=========== ===========
LIABILITIES AND NET ASSETS (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ............ $ 572,189 $ 880,835
Due to officer ................................... 199,326 323,339
Convertible debentures payable ................... 202,375 -
Loans payable .................................... 244,366 237,500
----------- -----------
Total current liabilities ...................... 1,218,256 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 49,851,816 and 3,866,141 shares
issued and outstanding, respectively ........... 49,852 3,866
Additional paid-in-capital ....................... 9,198,387 7,717,625
Stock subscription receivable .................... - (14,750)
Accumulated deficit .............................. (9,610,801) (9,335,307)
----------- -----------
Total net assets (deficit) ..................... (352,562) (1,427,512)
----------- -----------
Total liabilities and net assets (deficit) ..... $ 865,694 $ 14,162
=========== ===========
Net assets per share ............................... $ (0.01) $ (0.37)
=========== ===========
See accompanying notes to unaudited financial statements.
-3-
EXUS GLOBAL, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2004 2003 2004 2003
------------ ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating Expenses:
General and administration fees ..................... $ 37,569 $ 33,149 $ 65,365 $ 44,659
Compensation and stock-based compensation expense .. 68,000 60,000 132,000 305,615
Professional fees ................................... 18,971 2,000 110,444 5,500
Interest expense .................................... 150,362 - 399,070 -
------------ ----------- ------------ -----------
Total operating expenses ............................... 274,902 95,149 706,879 355,774
------------ ----------- ------------ -----------
Investment Loss, net ................................... (274,902) (95,149) (706,879) (355,774)
Other Income:
Other income ........................................ 80,000 - 100,000 -
------------ ----------- ------------ -----------
Net decrease in net assets prior to net realized and
unrealized gains on investments ........................ (194,902) (95,149) (606,879) (355,774)
------------ ----------- ------------ -----------
Net Realized and Unrealized Appreciation on Investments:
Net change in unrealized appreciation/
depreciation on investments ....................... 109,085 - 331,385 -
------------ ----------- ------------ -----------
Net realized and unrealized appreciation on
investment transactions ................................ 109,085 - 331,385 -
------------ ----------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations ...................................... $ (85,817) $ (95,149) $ (275,494) $ (355,774)
============ =========== ============ ===========
Net decrease in net assets from
operations per share, basic and diluted ................ $ (0.01) $ (0.05) $ (0.03) $ (0.20)
============ =========== ============ ===========
Weighted average number of shares outstanding,
basic and diluted ...................................... 15,189,845 1,919,902 10,166,145 1,780,406
============ =========== ============ ===========
See accompanying notes to unaudited financial statements.
-4-
EXUS GLOBAL, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
---------------------------
2004 2003
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net decrease in net assets resulting from operations ................ $(275,494) $(355,774)
--------- ---------
Adjustments to reconcile net decrease in nets
assets from operatrions to net cash used in operating activities:
Net unrealized gain in investments ............................ (331,385) -
Stock issued for services ..................................... - 185,615
Beneficial conversion ......................................... 241,667 -
Interest expense .............................................. 10,000 -
Common stock issued for anti-dilutive rights .................. 130,000 -
Other income from reduction of debt ........................... (100,000) -
Changes in assets and liabilities:
(Increase) decrease in assets:
Other assets .................................................. 12,850 15,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ......................... (37,244) (10,250)
--------- ---------
Total adjustments ............................................... (74,112) 190,365
--------- ---------
Net cash used in operating activities ............................... (349,606) (165,409)
--------- ---------
Cash flows from investing activities:
Cash paid for investments ......................................... (296,212) -
--------- ---------
Cash flows from financing activities:
Proceeds from convertible debentures .............................. 325,000 -
Proceeds from officer ............................................. (4,013) 129,971
Proceeds from notes payable ....................................... - 17,000
Repayment of notes payable ........................................ (3,134) -
Common stock to be issued ......................................... - (20,000)
Proceeds from sale of common stock ................................ 350,000 -
Proceeds from subscription receivable ............................. 14,750 -
--------- ---------
Net cash provided by financing activities ........................... 682,603 126,971
--------- ---------
Net increase (decrease) in cash ..................................... 36,785 (38,438)
Cash, beginning of year ............................................. 812 38,933
--------- ---------
Cash, end of period ................................................. $ 37,597 $ 495
========= =========
Supplemental disclosure of cash flow information:
Interest ...................................................... $ 15,000 $ -
========= =========
Income taxes .................................................. $ - $ -
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for debts ................................. $ 291,402 $ -
========= =========
Common stock issued for convertible debentures ................ $ 122,625 $ -
========= =========
Common stock issued for investment ............................ $ 200,000 $ -
========= =========
See notes to unaudited financial statements
-5-
EXUS GLOBAL, INC.
STATEMENT OF INVESTMENTS
June 30, 2004
(Unaudited)
Percentage
Description of Cost and Fair
COMPANY of Business Ownership Loans Value Affiliation
-------------------------- ---------------------- ---------- -------- -------- -----------
AGI Partners, Ltd. Management Consulting 100% $210,462 $541,847 Yes (1)
Nevada Holding Group, Inc. Investment 3% $ 30,000 30,000 No (2)
Maxplanet Corp. Media Communication 52% $205,750 205,750 Yes (2)
E Education Network e-learning Development 40% $ 50,000 50,000 Yes (2)
-------- --------
TOTAL INVESTMENTS $496,212 $827,597
======== ========
(1) Fair value determined by the Company's Board of Directors using the
following formula: $230,000 of semi annual revenue annualized plus net assts
(2) Cost basis
See accompanying notes to unaudited financial statements
-6-
EXUS GLOBAL, INC.
Notes to the Financial Statements
June 30, 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
June 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 June 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 education and
communication sectors.
NOTE 2 - INVESTMENTS
The Company currently has investments in four 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 $10,462 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 six months ending June 30, 2004 sales were $230,000 for
consulting services with a net profit of $81,847.
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%.
-7-
EXUS GLOBAL, INC.
Notes to the Financial Statements (continued)
June 30, 2004
NOTE 2 - INVESTMENTS (CONTINUED)
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 June 30, 2004 the market value of these shares based on the stock
closing price was $720,000. Through the introduction of AGI, Maxplanet has
entered into a Letter of Intent with Wireless Ink LLC a new age media company.
The acquisition is expected to close in the third quarter of 2004.
Nevada Holding Group, Inc.
The fourth is an investment in Nevada Holding Group, Inc. (NVHG). Exus holds 3
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 $30,000 to AGI Partners, Ltd. and received these shares in
lieu of payment. As of June 30, 2004 the market value of these shares based on
the stock closing price was $180,000.
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.
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
-8-
EXUS GLOBAL, INC.
Notes to the Financial Statements (continued)
June 30, 2004
NOTE 2 - INVESTMENTS (CONTINUED)
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.
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.
-9-
EXUS GLOBAL, INC.
Notes to the Financial Statements (continued)
June 30, 2004
NOTE 2 - INVESTMENTS (CONTINUED)
Based on the previous methodology, the Company determined that its investment in
AGI Partners, Ltd should be valued at $541,847 as of June 30, 2004. Accordingly,
an unrealized gain of $331,385 has been recorded through the period ended June
30, 2004.
The investment in E Education Network, Inc. consisted of an investment of
$50,000 at June 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 and loans to EEN are being valued using the
procedures described above.
The investment in Maxplanet Corp. is valued at cost of $205,750 as of June 30,
2004.
The investment in Nevada Holding Group, Inc. is valued at cost of $30,000 as of
June 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 April 2004, the Company canceled 4,396 shares of its common stock issued
for services in 2003.
During the three months ended June 30, 2004 the Company issued 4,791,667 shares
of its free trading common stock under Regulation E upon the conversion of
convertible debentures totaling $105,125. The shares were valued at an average
of $.022 per share.
During the three months ended June 30, 2004 the Company issued 3,540,467 shares
of its common stock under Regulation E upon the conversion of accrued expenses
totaling $53,107.
During the three months ended June 30, 2004, the Company sold 21,533,366 shares
of common stock under Regulation E for net cash proceeds of $350,000.
In June 2004, Isaac Sutton, CEO of Company, converted $120,000 of the Company
debt to 8,000,000 shares of the Company's restricted common stock.
In June 2004, the Company issued to New Canaan Investment Partners, LLC,
6,500,000 shares of the Company's Common Stock under an Anti Dilution Agreement
dated December 2002. The Company valued these common shares at the fair market
value on the dates of grant or $130,000, based on the quoted trading price and
recorded interest expense in this amount.
-10-
EXUS GLOBAL, INC.
Notes to the Financial Statements (continued)
June 30, 2004
NOTE 4 - CONVERTIBLE DEBENTURES
During the six months ended June 30, 2004, the Company raised $325,000 of
operating capital in the form of convertible debentures. The debentures have
varying terms of six 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 six months ended June 30, 2004,
the Company issued 5,025,000 shares of its free trading common stock upon the
conversion of convertible debentures totaling $122,625. At June 30, 2004, the
balance of the convertible debenture is $202,375.
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 as
$241,667. Since the conversion feature is exercisable immediately, the $241,667
was recognized as interest expense in the three months ended June 30, 2004.
NOTE 5 - SUBSEQUENT EVENTS
On July 1 John Skinner and Miller Mays resigned as Directors of the Company. Per
BDC rules a majority of directors are required to be independent. In July Exus
has invested in a company called GoIP Global, Inc. where Mr. John Skinner and
Mr. Miller Mays are principals which conflicts with their independent status as
Directors. In July Mr. Mark Mayoka was appointed as a new Board member and a
member of the Investment and Audit committees.
In July E Education Network, Inc. (EEN) entered into a Share Sale Agreement with
DiscoveryTel, Inc., whereby EEN will issue 10,000,000 shares (50%) of the
Company to DiscoveryTel, Inc. or their affiliates for $10,000 and management
services. In addition DiscoveryTel, Inc. has agreed to assume $50,000 debt which
is due by Exus to New Canaan Investment Partners, LLC, which has been confirmed
and agreed by New Canaan Investment Partners, LLC. New Canaan Investment
partners, LLC are principals in DiscoveryTel Inc.
Subsequent to June 30, 2004, the Company sold 4,483,333 shares of common stock
for net cash proceeds of $71,000.
-11-
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
The Company'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
the external disclosures of the Company 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 throughout the Company.
Primary areas where financial information of the Company 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 June 30, 2004, we estimated the allowance on net deferred tax
assets to be one hundred percent of the net deferred tax assets.
-12-
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.
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).
-13-
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.
The Company has 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. (the "Company") is a closed-end, non - diversified Investment
Company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). The Company is engaged in the business of investing in small to
mid-sized companies in the education, communication sectors and other companies
it deems appropriate. A business development company is a type of Investment
Company that generally must maintain 70% of its assets in new, financially
troubled or otherwise qualified companies and offers significant managerial
assistance to such companies.
The Company presently has four investee companies to which it provides
management assistance. Business development companies are not subject to the
full extent of regulation under the Investment Company Act, as amended. The
Registrant is primarily engaged in the business of investing in and providing
managerial assistance to developing companies, which, in its opinion, have
significant potential for growth. The Registrant's investment objective is to
achieve long-term capital appreciation, rather than current income, on its
investments. Currently, the Registrant's investment activity is limited by its
working capital. There is no assurance that the Company's objective will be
achieved.
In 2003, the Company acquired 50% of the common stock of E Education Network,
Inc, (EEN) a Nevada corporation based in New York that distributes a Prepaid
smart EducationCard for online learning, in exchange for $50,000 investment. EEN
has an extensive distribution network in Eastern Europe and emerging markets.
This world-wide network gives EEN even greater potential to increase stock
liquidity and raise investment money.
In July EEN entered into an agreement with DiscoveryTel, Inc. -
http://www.discoverytel.com - to manage the Company's online education business
which is focused on emerging markets. 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 the Company will be acquired by
DiscoveryTel, Inc. and its management group.
-14-
On January 15, 2004, the Company acquired 100% of the common stock of AGI
Partners, LTD., 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 the Company's restricted common stock. Prior to the
acquisition by the Company, AGI Partners, LTD was controlled by a member of the
Company's board of directors
On January 26, 2004, the Company's Board of Directors unanimously approved a
resolution to effect a 1 for 15 reverse split of the Company's common stock,
which was subsequently approved by a vote of the majority of shareholders. This
reverse split was done to better position the capital structure of the Company
in order to raise investment money to implement the Company's business strategy.
On March 1, 2004, an amendment to the Company's Articles of Incorporation was
filed with the Secretary of State of the State of Nevada amending the Company's
Articles as described above.
On March 9, 2004, the Company's Board of Directors elected to be regulated as a
business investment company under the Investment Company Act of 1940. As a
business development company ("BDC"), the Company 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
assets less than $4 million.
In the 1st and 2nd quarter, AGI Partners, Ltd. received for services rendered 24
Million shares of Maxplanet Corp. (MXNT). These shares have been up streamed to
Exus Global, Inc. Maxplanet Corp. 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, Maxplanet Corp. announced the proposed
acquisition of Wireless Ink, LLC and anticipates the closing in August 2004.
Wireless Ink enables a new form of media where the masses can engage in mobile
virtual communities for wireless service carriers, content publishers, and other
organizations and enterprises. By providing the most complete mobile website
publishing platform available today, Wireless Ink allows users to create,
maintain end update mobile websites within minutes and view them on their mobile
phones, PDAs or ether mobile devices. During the current product development and
testing phase, the company hosts approximately 4,000 mobile web sites. Reiter's
Wireless Data Web Log reported on February 12th, 2004 that WlNK site is "fast to
use", offers easy-to-read screens" and has "interesting features". More
information is available at http://wirelessink.com and http://winksite.com. Exus
holds 24 Million shares or 52% of the company prior to the acquisition.
It should be noted that the Company's 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 the
Company's ability to continue as a going concern.
-15-
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
OPERATING EXPENSES
Operating expenses for the three months ended June 30, 2004 were
$274,902 as compared to $95,149 for the three months ended June 30, 2003. This
increase was mainly a result of an increase in professional fees, compensation
expense, and interest expense.
General and administrative expenses, consisting primarily of office
operations, travel, data communications and supplies expenses, were $37,569 for
the three months ended June 30, 2004, as compared to $33,149 for the three
months ended June 30, 2003. This increase is primarily a result of expenses from
increased operations.
Compensation and stock-based compensation expense for the three months
ended June 30, 2004 were $68,000, as compared to $60,000 for the three months
ended June 30, 2003. The increase is attributable primarily to the payment of
director fees in fiscal 2004 of $8,000.
Professional fees for the three months ended June 30, 2004 were $18,971
as compared to approximately $2,000 for the three months ended June 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 three months ended June 30, 2004 was $150,362
and was incurred on our notes payable and debentures payable. Additionally, we
recorded interest expense of $132,000 related the issuance of 6,500,000 shares
of common stock under anti-dilutive provisions. There was no interest expense
for the three months ended June 30, 2003 because there were no borrowings
outstanding.
Other income for the three months ended June 30, 2004 was $80,000, as
compared to $0 for the three months ended June 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 in not payable.
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
For the three months ended June 30, 2004, we recorded net unrealized
appreciation on investments of $109,085 as compared to net unrealized
appreciation of $0 for the three months ended June 30, 2003. The net unrealized
appreciation is attributable to our investment in AGI Partners, LTD. In 2003, we
did not operate as a business development company.
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
Overall, we realized a net decrease in net assets resulting from
operations of $85,817 for the three months ended June 30, 2004. Based on a
weighted-average of 15,189,845 (basic and diluted) shares outstanding, our net
decrease in net assets resulting from operations per weighted average common
share for the three months ended June 30, 2004 was $(0.01).
For the three months ended June 30, 2003, we realized a net decrease in
net assets resulting from operations of $95,149. Based on a weighted-average
shares outstanding of 1,919,902 (basic and diluted), our net decrease in net
assets resulting from operations per weighted average common share for the three
months ended June 30, 2003 was $(0.05).
-16-
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 2004 were $706,879
as compared to $355,774 for the six months ended June 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 $65,365 for
the six months ended June 30, 2004, as compared to $44,659 for the six months
ended June 30, 2003. This increase is primarily a result of expenses from
increased operations.
Compensation and stock-based compensation expense for the six months
ended June 30, 2004 were $132,000, as compared to $305,615 for the six months
ended June 30, 2003. The decrease is attributable primarily to the recording of
stock-based compensation of $185.615 during the six months ended June 30, 2003
related to the granting of stock options, offset by increased director fees of
$12,000 for the six months ended June 30, 2004.
Professional fees for the six months ended June 30, 2004 were $110,444,
as compared to $5,500 for the six months ended June 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 six months ended June 30, 2004 was $399,070
and was incurred on our notes payable and debentures payable. Additionally, we
recorded interest expense of $241,667 related to the beneficial conversion
feature of our convertible debentures and recorded interest expense of $132,000
related the issuance of 6,500,000 shares of common stock under anti-dilutive
provisions. There was no interest expense for the six months ended June 30, 2003
because there were no borrowings outstanding.
Other income for the six months ended June 30, 2004 was $100,000, as
compared to $0 for the six months ended June 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 in not payable..
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
For the six months ended June 30, 2004, we recorded net unrealized
appreciation on investments of $331,385 as compared to net unrealized
appreciation of $0 for the six months ended June 30, 2003. The net unrealized
appreciation is attributable to our investment in AGI Partners, LTD. In 2003, we
did not operate as a business development company.
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
Overall, we realized a net decrease in net assets resulting from
operations of $275,494 for the six months ended June 30, 2004. Based on
weighted-average shares outstanding of 10,166,145 (basic and diluted), our net
decrease in net assets resulting from operations per weighted average common
share for the six months ended June 30, 2004 was $(0.03).
For the six months ended June 30, 2003, we realized a net decrease in
net assets resulting from operations of $355,774. Based on a weighted-average
shares outstanding of 1,780,406 (basic and diluted), our net decrease in net
assets resulting from operations per weighted average common share for the six
months ended June 30, 2003 was $(0.20).
-17-
LIQUIDITY AND CAPITAL RESOURCES
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. The Company had a net decrease in net assets from operations of
$(275,494),has incurred operating losses from inception and has an accumulated
deficit of $(9,610,801), and used cash in operating activities of $402,713 for
the six months ended June 30, 2004,. The Company requires additional capital to
meet its operating requirements. Management plans to increase cash flows through
the sale of securities (see following paragraph below) and, through it's on
going profitable 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, the Company filed a notification with the Commission of its
intent to raise capital through the issuance of securities exempt from
registration under Regulation E of the Securities Act of 1933. This exemption
allows the Company to sell up to $5,000,000 of securities exempt from
registration. Through the end of June 30, 2004, the Company raised $350,000
through the sale of 21,533,366 shares of common stock through the use of the
Regulation E exemption.
For the six months ended June 30, 2004, the Company used cash in operating
activities of $349,606, as compared to $165,409 for the three months ended June
30, 2003 and was attributable to cash used to fund our net decrease in net
assets resulting from operations of $275,494 and the payment of accounts payable
and accrued expenses of $37,244.
For the six months ended June 30, 2004, we used cash for the purpose of
investing in our investee companies of $296,212.
For the six months ended June 30, 2004, net cash provided by financing
activities was $682,603, as compared to net cash provided by financing
activities of $126,971 for the six months ended June 30, 2003. During the six
months ended June 30, 2004, we used cash to pay back an officer $(4,013) and
notes payable pf $(3,134), received proceeds from the collection of
subscriptions receivable of $14,750, and received proceeds of $350,000 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 sixty (60) days from the date of issuance, and are convertible
into common stock at a discount to market of 50% -20% from the closing bid price
on the date of conversion.
There is no assurance that the Company 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 the Company to continue as a going
concern. Further, if the Company is not able to generate positive cash flow from
operations, or is unable to secure adequate funding under acceptable terms,
there is substantial doubt that the company can continue as a going concern.
-18-
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 the Company's disclosure controls and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities
Exchange Act of 1934). Based upon this evaluation, the Company's chief
executive officer and chief financial officer concluded that the
Company's disclosure controls and procedures are effective in timely
alerting them of any material information relating to the Company that
is required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934.
(b) There have not been any significant changes in the Company's 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, the Company's internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named as a defendant in a breach of contract claim in the amount
of $5000 pending in the Civil Court of the City of New York, Small Claims Part.
The Company plans on defending the action and is scheduled for a hearing on
September 27, 2004.
On August 23, 2002, the Company entered into a consent judgment in the Superior
Court of New Jersey with a former employee in the amount of $37,500. The Company
is in discussions with the judgment creditor for settlement. The judgment has
been accrued in the financial statements.
-19-
Recently, the Company was served with an action in the Supreme Court of the
State of New York to enforce a default judgment entered against the Company 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 the
Company. The Company plans on defending the action in a September 2004 hearing
date. The judgment has been accrued in the financial statements.
The Company knows 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 June 30, 2004 we issued 3,540,467 shares of its
common stock under Regulation E upon the conversion of accrued expenses totaling
$53,107.
In June 2004, Isaac Sutton, CEO of Company, converted $120,000 of the Company
debt to 8,000,000 shares of the Company's restricted common stock.
In June 2004, we issued to New Canaan Investment Partners, LLC, 6,500,000 shares
of the Company's Common Stock under an Anti Dilution Agreement dated December
2002.
During April 2004, the Company canceled 4,396 shares of its common stock issued
for services in 2003.
During the three months ended June 30, 2004 the Company issued 4,791,667 shares
of its free trading common stock under Regulation E upon the conversion of
convertible debentures totaling $105,125. The shares were valued at an average
of $.022 per share.
During the three months ended June 30, 2004, the Company sold 21,533,366 shares
of common stock under Regulation E for net cash proceeds of $350,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On May 24, 2004, HJ & Associates was engaged as the new principal independent
accountants for Exus Global, Inc. (the "Registrant") and the Registrant
dismissed the Registrant's principal independent accountants, Sherb & Co., LLP,
which actions were recommended and approved by the Registrant's Board of
Directors.
-20-
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
On June 6, 2004, we filed an 8-K reporting a change in our certifying
accountants
On August 3, 2004, we filed an 8-K reporting our results of operations
and change in directors.
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.
DATE: AUGUST 20, 2004 /s/ Isaac H. Sutton
Isaac H. Sutton
Chief Executive Officer
-21-