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| EPAZ.OB > SEC Filings for EPAZ.OB > Form 10-Q on 19-Nov-2008 | All Recent SEC Filings |
19-Nov-2008
Quarterly Report
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q"), CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF EPAZZ, INC. AND ITS WHOLLY OWNED SUBSIDIARIES DESK FLEX, INC. AND PROFESSIONAL RESOURCE MANAGEMENT, INC. (COLLECTIVELY, "THE COMPANY", "EPAZZ", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO SEPTEMBER 30, 2008.
Business Overview
The Company was incorporated in the State of Illinois on March 23, 2000, to create software to help college students organize their college information and resources. The idea behind the Company was that if the information and resources provided by colleges and universities was better organized and targeted toward each individual, the students would encounter a personal experience with the college or university that could lead to a lifetime relationship with the institution. This concept is already used by business software designed to retain relationships with clients, employees, vendors and partners.
The Company developed a web portal infrastructure operating system product called BoxesOS v3.0. BoxesOS provides a web portal infrastructure operating system designed to increase the satisfaction of key stakeholders (students, faculty, alumni, employees, and clients) by enhancing the organizational experience through the use of enterprise web-based applications to organize their relationships and improve the lines of communication. BoxesOS decreases an organization's operating expenses by providing development tools to create advanced web applications. The applications can be created by non-technical staff members of each institution. BoxesOS creates sources of revenue for Alumni Associations and Non-Profit organizations through utilizing a web platform to conduct e-commerce and provides e-commerce tools for small businesses to easily create "my accounts" for their customers. It further reduces administrative costs, by combining technology applications into one package, providing an alternative solution to enterprise resource planner ("ERP") modules and showing a return on investment for institutions by reducing the need for 3rd party applications license fees. BoxesOS can also link a college or university's resources with the business community by allowing businesses to better train their employees by utilizing courseware development from higher education institutions.
Recent Events:
On or about June 18, 2008, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Desk Flex, Inc., an Illinois corporation ("DFI"), Professional Resource Management, Inc., an Illinois corporation ("PRMI" and collectively with DFI, the "Target Companies") and Arthur A. Goes, an individual and the sole stockholder of the Target Companies. The Purchase Agreement consummated the transactions contemplated by the February 25, 2008, non-binding letter of intent (the "Letter of Intent") the Company entered into, to acquire 100% of the outstanding shares of the Target Companies. Pursuant to the Purchase Agreement, the Company agreed to purchase 100% of the outstanding shares of the Target Companies for an aggregate purchase price of $445,000 (the "Purchase Price"). The Purchase Price was payable as follows:
(a) Mr. Goes retained the $10,000 originally paid by the Company in connection with the parties' entry into the Letter of Intent;
(b) The Company paid Mr. Goes $210,000 in cash (the "Cash Consideration") at the Closing (as defined below) of the Purchase Agreement; and
(c) The Company provided Mr. Goes with a 7% Promissory Note in the amount of $225,000 (the "Note"), described in greater detail below.
Additionally, the Company agreed to assume an aggregate of approximately $15,475 in outstanding liabilities of DFI and PRMI in connection with the Closing.
The Purchase Agreement closed on June 18, 2008 ("Closing"), at which time Mr. Goes delivered to the Company, 2,000 shares of DFI stock, representing 100% of the issued and outstanding shares of DFI, and 1,000 shares of PRMI stock, representing 100% of the issued and outstanding shares of PRMI. Also at Closing, the Company delivered the Cash Consideration and the Note to Mr. Goes. As a result of the Closing, DFI and PRMI became wholly-owned subsidiaries of the Company.
The Note bears interest at the rate of seven percent (7%) per annum, and all past due principal and interest (which failure to pay such amounts after a fifteen (15) day cure period, shall be defined herein as an "Event of Default") bear interest at the rate of twelve percent (12%) per annum until paid in full. The Note, however, additionally provides that the Company shall have two additional fifteen (15) day cure periods during the term of the Note resulting in two thirty (30) day cure periods before an Event of Default occurs. The principal amount of the Note is due on June 18, 2011. The Note is payable in monthly installments of $6,947.35 (each a "Monthly Payment"), with the first such Monthly Payment due on September 18, 2008, until such time as this Note is paid in full. Provided, however, that if the total amount due under the Note is less than any Monthly Payment, the Company shall only be obligated to pay the remaining balance of the Note. The Note may be prepaid at any time without penalty. As of the date of this report, the Company is current with all of its required Monthly Payments.
Additionally, the Company agreed to secure the payment of the Note with a Uniform Commercial Code Security Interest filing, which the Company agreed to file, but which filing has not occurred to date, at Mr. Goes' request, at the Company's expense, to grant Mr. Goes a security interest over all of the Target Companies' tangible and intangible assets, and the outstanding stock of both of the Target Companies until the Note is repaid. Pursuant to such requirement of the Note, at the Closing, the Company entered into a Security Agreement with Mr. Goes, whereby the Company granted Mr. Goes a security interest in all inventory, equipment, appliances, furnishings and fixtures, stock certificates and intellectual property now or hereafter owned by the Target Companies. Pursuant to the Security Agreement, the Company also assigned to Mr. Goes a security interest in all of its right, title, and interest to any trademarks, trade names, contract rights, and leasehold interests in which it now has or hereafter acquires to secure repayment of the Note.
Professional Resource Management, Inc. and Desk Flex, Inc. Business Overview
Professional Resource Management, Inc. was incorporated under the laws of Illinois in June 1985. On or around December 31, 1997, Professional Resource Management, Inc. established a wholly owned subsidiary, PRM Transfer Corp. On or around December 31, 1997, Professional Resource Management, Inc., PRM Transfer Corp. and Arthur Goes entered into a Reorganization Agreement, whereby Professional Resource Management, Inc. transferred all of its assets and liabilities to PRM Transfer Corp., with the exception of those assets pertaining to its proprietary source code or software product, Desk/Flex. Also pursuant to the Reorganization Agreement, Professional Resource Management, Inc. amended its corporate charter to change its name to Desk Flex, Inc. ("DFI"), and PRM Transfer Corp. amended its charter to change its name to Professional Resources Management, Inc. ("PRMI"). The transfer was effected in an effort by Mr. Goes to better promote the Desk/Flex product.
PRMI and DFI are separate legal entities, but operate in conjunction. PRMI and DFI share office space and certain employees. DFI's main source of revenue comes from the "Desk/Flex Software" product, which it owns, and PRMI's main source of revenue comes from the "Agent Power" product line, which it owns. PRMI also acts as the general agent for DFI; however, there is no formal agency agreement between the two companies.
After the acquisition of the Target Companies which are now wholly owned subsidiaries of the Company (described in detail above), the Company offers three primary product lines under three different Company names. The EPAZZ BoxesOS v3.0 product is offered through EPAZZ, Inc., the Desk/Flex Software product is offered through Desk Flex, Inc. and the Agent Power product is offered through Professional Resource Management, Inc.
EPAZZ BoxesOS v3.0
EPAZZ BoxesOS v3.0 (Web Infrastructure Operating System) is the Company's flagship product. It is the core package of EPAZZ, Inc.'s products and services. EPAZZ BoxesOS integrates with each organization's back-end systems and provides a customizable personal information system for each stakeholder.
Services include:
· Single sign-on: Provides a powerful single-sign-on with security procedure to product users' information and identity.
· Course Management System: Manage distance, traditional courses and Calendar.
· Enterprise Web Site Content Management: Manage public sites with multi contributors.
· Integration Management Services: Integrated into Enterprise Resource Planning ("ERP") and Mainframes.
· Email Management: Email server and web client.
· Instant Messenger Services: Instant messaging and alerts.
· Customer Relationship Management: Prospective students and alumni.
· Calendar/Scheduler Management: Event directory, groupware, and personal calendar.
· Administrative Support Services: Online payment services.
· Business Services: Facility Management and Online Bookstore.
BoxesOS software provides:
Web Portal Component
BoxesOS Web Portal Component is a gateway to all of an organization's online services and information resources. The Web Portal Component provides a Personal Information System, which refers to the user's entire online environment - the user's resources, information, graphics, color, layout, and organization. All resources are customizable. The Web Portal Component simplifies organizations' ability to create and deploy custom web applications with a common graphic user interface and connectivity to the back-end systems.
Administrative Content Management
BoxesOS Content Management Component provides an organization with enterprise level tools for creating, managing, organizing, archiving and sharing content. Content can be delivered in many forms such as web pages, emails, polls, documents, web forms, rich site summaries ("RSS"), and "hot news." The Content Management Component enables staff members with little technical skills to create web pages and processes without having any programming skills.
Work Hub
Work Hub provides a host of applications that can empower an organization to increase productivity while decreasing costs. Work Hub helps to manage work flow throughout an organization. Senior management is able to view a document for approval before it is sent out to a client. A company can view all projects of the enterprise in one page. Some of the applications in Work Hub are products/services management, project management, invoice management, time management, content management and sales management. Work Hub has clear graphic charts with detail reports on many areas.
Central Repository
BoxesOS Central Knowledge Repository is a collection and indexing of shareable content. Central Knowledge Repository installs a server index application on the Windows 2003 platform to identify an organization's current knowledge assets. All knowledge assets will be imported into a storage device. The server index application will import the knowledge assets into a temporary folder before moving into a main folder. The server index application will prompt the organization's administrators to add detailed information about the knowledge assets into the database by using a web form. These forms will allow the administrators to add custom fields; therefore, allowing the organization to add custom information to the database in the present and at a future date. The organization would be able to group their knowledge objects by program, course, subject, topic, users, content, or date.
ViewPoint
ViewPoint is BoxesOS central communication hub, calendaring, contact management and scheduling system. ViewPoint works with or can be used as an alternative to MS Outlook/MS Exchange Server. The web applications provide the institution with an extensive range of options including communication system email web client and an email server. Email applications provide features you would find on popular web-based e-mail providers. ViewPoint provides robust threaded discussion boards and a "chatting" environment. ViewPoint provides each user with a personal calendar, which notifies users of scheduling conflicts and appointments priorities. ViewPoint makes it easy to create group calendars and public calendars. With the ViewPoint scheduling system users are able to schedule group meetings together. The scheduling system will view each user's calendar to see the next available time and date the group can meet.
Learning Management System
BoxesOS My Courses is an extensive application for learning management, and e-learning. My Courses is an effective means for managing traditional courses, distance learning courses, and self-paced courses. My Courses is a powerful communication tool that can be effectively used by students, instructors, employees and corporate trainers to make information flow easily, clearly and faster. My Courses provides a robust grade book, powerful authoring content tools, easy to use drop box, sharable folders, wide-ranging course calendar and many more features all designed to provide customization to key stakeholders. Organizations will be able to train their employees on systems using My Courses self-paced settings, as well as test candidates on their skill sets before they are hired.
Single Sign-on
Single Sign-on provides organizations the ability to log into multiple systems with a single unique username and password. The username and password authenticates the user's credentials to make sure the person who is accessing the data is authorized to. BoxesOS uses Microsoft Active Directory Identity Management to accomplish single sign on. Microsoft Active Directory allows institutions to centrally manage and share user information. Active Directory also acts as the single sign on point for bringing systems and applications together. BoxesOS user management integrates with Active Directory.
Pathways Real-time Integration
EPAZZ Pathways is an integration suite enabling real-time connectivity with ERP and Legacy systems. Pathways integration suite allows organizations to retrieve data from ERPs and write data back to ERPs in real-time.
Desk Flex Software
DFI developed the Desk/Flex Software ("Desk/Flex") to enhance the value of businesses' real estate investments and modernize their office space. Desk/Flex lets businesses make better use of office space restrictions by enabling employees to instantly access their workstation tools from multiple areas in and outside of the office. Desk/Flex lets employees reserve space in advance or claim space instantly. It adjusts the telephone switch (Private Branch Exchange or "PBX") so that calls ring at the 'desk du jour', or go directly to voice mail when a worker is not checked in.
Key Features of Desk/Flex include:
Quick and Easy Check-In - Check-in and Check-out to a workstation takes less than 8 seconds, and advance reservations take only a few seconds more.
Point-and-Click Floor Maps - Desks that are available are identified by green dots. Those that are in use are identified by red. An employee needs only to click or touch (using an optional touch-screen) a green dot to select his or her desk.
PBX Interaction - Desk/Flex connects to an employee's Nortel, Avaya or Cisco PBX to ensure that the employee has phone access at his or her desk; the message waiting light becomes operational; outside calls can be made only after checking in; and an employee is automatically checked out overnight if he or she leaves a workstation without checking out.
Web Browser and Local "Kiosk" Access - On site, the Desk/Flex kiosk(s) makes it easy to select a vacant desk near a co-worker or centrally located at the office. Even before leaving home a worker with access to the company intranet can reserve a desk or locate a co-worker at any desk in the company's office via a web browser.
Advance Reservations - Workers can easily choose and reserve workspaces ahead of time for a particular date or range of dates.
Occupancy Reports - Management reports allow accurate measures of occupancy in total or by type of desk so the total number or mix of desks can be adjusted to meet client demand and save more office space expense in future months.
Desk/Flex is responsive to office size and needs, servicing small to large businesses. Desk/Flex can be configured to administer a single site or multiple sites locally or remotely. Desk/Flex has full integration capabilities with both Nortel and Avaya, which combined represent the majority of the telecommunications and inbound automatic call distributor ("ACD") market.
Agent Power Software
Agent Power Software ("Agent Power") is PRMI's proprietary software line. PRMI believes Agent Power provides vital information and tools for call centers to help improve their workforce management. Historical, real-time, and forecast information is available at the touch of a button to plan, control, and monitor a business's call center. Coordinated stand-alone modules allow a company to develop employee schedules, track queue and agent performance, communicate this information with the company's agents and improve workforce management.
Agent Power is a suite of six (6) applications. Each can operate on a stand-alone basis, or can work in conjunction with the other applications. The applications feature the following workforce management components:
§ Planning and Scheduling;
§ Agent Adherence;
§ Agent Performance;
§ ACD Group Performance;
§ Real-Time Agent Status; and
§ Info Screen.
All modules of Agent Power have full integration capabilities with Nortel, Avaya, and ROLM ACDs, and the Planning and Scheduling module works with any modern ACD system.
During the next twelve months, we plan to work towards further development of our BoxesOS software, and hope to expand our customer base for our Desk/Flex and Agent Power software packages, funding permitting. We believe we can satisfy our cash requirements for the next three months with our current cash on hand and revenues generated from our operations. As such, continuing operations and completion of our plan of operation, including making the Monthly Payments on our Note with Mr. Goes, as described above, are subject to generating adequate revenue. We cannot assure investors that adequate revenues will be generated. In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without significant revenues within the next several months, we still anticipate being able to continue with our present activities, but we may require financing to potentially achieve our goal of profit, revenue and growth.
We anticipate needing to raise $100,000 in additional funds to continue our business operations for the next 12 months, including administrative and other costs, and the significant funds we will need to raise to make the Monthly Payments on our Note with Mr. Goes and the June 2008 Note (described below), which there can be no assurance will be raised. In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we would then not be able to proceed with our business plan for the development and marketing of our various products offered through the Company, including its subsidiaries. Should this occur, we would likely seek additional financing to support the continued operation of our business. We anticipate that, depending on market conditions and our plan of operations, we will incur operating losses in the foreseeable future. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit from sales to cover our operating expenses.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008, AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2007
For the three months ended September 30, 2008 we had revenue of $85,484, compared to revenue of $0 for the three months ended September 30, 2007. The increase in revenues is attributable to the Company's acquisition of DFI and PRMI, and revenues associated with our purchased Desk/Flex and Agent Power product lines.
We had cost of revenue expense of $0 for the three months ended September 30, 2008, compared to $415 for the three months ended September 30, 2007, a decrease of $415 from the prior period. This decrease in cost of revenue is attributable to the fact that the Company had expenses associated with the development of its BoxesOS software during the three months ended September 30, 2007; while the Company had no such expenses during the three months ended September 30, 2008, as its Desk/Flex and Agent Power product lines are already developed.
General and administrative expenses increased by $83,646 or 182% to $129,597 for the three months ended September 30, 2008 compared to general and administrative expenses of $45,951 for the three months ended September 30, 2007. This increase in general and administrative expenses was mainly due to increased legal, accounting and filing expenses associated with our status as a public reporting company during the three months ended September 30, 2008, compared to the three months ended September 30, 2007, when we were not a public reporting company, as well as increased expenses associated with the operations of DFI and PRMI, which were not present during the prior period.
We had depreciation and amortization expense of $24,153 for the three months ended September 30, 2008 compared to $104 for the three months ended September 30, 2007, an increase of $24,099 from the prior period. This increase in depreciation and amortization expenses is mainly attributable to amortization of the technology-based intangible assets associated with the purchase of DFI and PRMI which occurred in June 2008.
Total operating expenses for the three months ended September 30, 2008 were $153,750, compared to $46,470 for the three months ended September 30, 2007, an increase of $107,280 or 231% from the prior period. Operating expenses increased for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 as a result of the $83,646 or 182% increase in general and administrative expenses and the $24,099 increase in depreciation and amortization expenses for the three months ended September 30, 2008 compared to the three months ended September 30, 2007.
We had an operating loss of $68,266 for the three months ended September 30, 2008, compared to an operating loss of $46,470 for the three months ended September 30, 2007, an increase in operating loss of $21,796 or 46.9% from the prior period. The increase in operating loss was due to a $107,280 or 231% increase in total expenses which was not sufficiently offset by the $85,484 increase in revenue for the three months ended September 30, 2008, compared to the three months ended September 30, 2007.
Interest expense was $23,751 for the three months ended September 30, 2008 compared to $5,309 for the three months ended September 30, 2007, an increase of $18,442 or 347% from the prior period. Interest expense increased for the three months ended September 30, 2008 due to increased borrowings from our Chief Executive Officer, Shaun Passley, which bear interest at the rate of 15% per annum compared to the three months ended September 30, 2007, and interest expense associated with our borrowings under the Note and June 2008 Note (both described below), which were outstanding as of September 30, 2008, but not as of September 30, 2007.
We had a net loss of $91,984 for the three months ended September 30, 2008 compared to a net loss of $51,779 for the three months ended September 30, 2007, an increase in net loss of $40,205 or 77.6% from the prior period, which was mainly due to the $107,708 increase in operating expenses and the $18,014 increase in interest expense which was not sufficiently offset by the $85,484 increase in revenues for the three months ended September 30, 2008, compared to the three months ended September 30, 2007
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008, AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2007
For the nine months ended September 30, 2008 we had revenue of $95,209, compared to revenue of $0 for the nine months ended September 30, 2007. The increase in revenues is attributable to the Company's acquisition of DFI and PRMI, and revenues associated with our purchased Desk/Flex and Agent Power product lines.
We had cost of revenue expense of $15,080 for the nine months ended September 30, 2008, compared to $415 for the nine months ended September 30, 2007, an increase of $14,665 from the prior period. This increase in cost of revenue is attributable to increased expenses associated with development of new software products during the nine months ended September 30, 2008, which expenses were not present due to decreased software development during the nine months ended September 30, 2007.
General and administrative expenses increased by $97,566 or 105% to $190,248 for the nine months ended September 30, 2008 compared to general and administrative expenses of $92,682 for the nine months ended September 30, 2007. This increase in general and administrative expenses was due to increased legal, accounting and filing expenses associated with our status as a public reporting company during the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, when we were not a public reporting company, as well as increased expenses associated with the operations of DFI and PRMI, which were not present during the prior period.
We had depreciation and amortization expense of $28,052 for the nine months . . .
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