U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1999
Commission file number: 0-18224
TOTALAXCESS.COM, INC.
(formerly Group V Corporation)
Delaware 95-4176781
(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
201 Clay Street, Oakland, CA 94607
(Address of Principal Executive Offices)
(510) 286-8700
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The Registrant had operating revenues of $1,271,673 for the year ended June
30, 1999.
As of June 30, 1999, the aggregate market value of the voting stock (based
upon the average closing bid and asked prices in the over-the-counter market as
quoted on NASD-OTC Bulletin Board as of June 30, 1999) held by non-affiliates
was approximately $64,731,022.
Class Outstanding at November 15, 1999, 1999
Common Stock, $.01 par value 128,727,643 shares
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business ........................................... 1
Item 2. Description of Properties ......................................... 6
Item 3. Legal Proceedings ................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders ............... 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters .......... 8
Item 6. Management's Discussion and Analysis .............................. 9
Item 7. Financial Statements .............................................. 10
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................ 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ..............10
Item 10.Executive Compensation .............................................15
Item 11.Security Ownership of Certain Beneficial Owners and Management .....17
Item 12.Certain Relationships and Related Transactions .....................18
Item 13.Exhibits and Reports on Form 8-K ...................................22
<PAGE>
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
TotalAxcess.com, Inc. (formerly, Group V Corporation) ("TotalAxcess", the
"Company", or the "Registrant") was originally incorporated in the State of
Delaware in 1987. TotalAxcess.com, Inc. began trading under the Company's new
name and ticker symbol, TXCI, in May 1999. Since the fiscal year ended June 30,
1997 and prior to May 1999, the Company's name was Group V Corporation
(formerly, NuOasis Gaming, Inc.). This name change reflects the Company's
continued progression into the Internet Marketing, Telecommunications and
E-Commerce business arenas.
The Registrant's core business is providing telecommunication services to a
wide-variety of consumers. These services take the form of one of the following
segments:
1) Non Switched One Plus long distance service 2) Non Switched wholesale
and retail pre-paid calling cards 3) Switched pre-paid calling cards 4)
Switched wholesale services 5) HitLoTTo(R) program
Switched telecommunications traffic refers to the process of selecting
paths for the transmission of video, data and voice information to a specific
recipient utilizing the Company's switching equipment. This switching equipment
requires the use of dedicated T1's, which are the trunks/lines that carry
telecommunications traffic. Tier 1 and Tier 2 carriers provide these
lines/circuits. Non-switched refers to utilizing a Tier 1or Tier 2 carrier's
switching equipment to carry either the Company's one plus long distance
customers telephony traffic or pre-paid calling card traffic.
Company Strategy
The Company's ongoing plan is to establish switching capabilities in
Southern California where it has leased space which is conveniently located near
several Tier 1 carriers that can provide the necessary T-1 connections. The
Company's plan is to negotiate with Tier 1 carriers to provide the necessary
circuits in order to carry up to 100,000,000 minutes of traffic per month.
TotalAxcess is negotiating with several equipment suppliers that will be
able to provide the additional switching equipment that the aforementioned
traffic will require. The Company estimates that it will need to acquire 5
additional switches. Each switch will have the ability to connect to
approximately 64 T1's and carry approximately 20 million minutes per switch.
The Company plans to aggressively market its One Plus long distance service
by providing competitive rates and simple plans to existing and new customers.
The marketing plan is to utilize Total Axcess' existing wide spread distribution
network, presently in place, to market to wholesale pre-paid calling card
customers. The goal is to steadily increase Company revenues from a steady
source of business that can be found in the residential long distance arena.
TotalAxcess has also been negotiating to provide several overseas companies
with telephony services to the United States. The Company would provide
high-volume switching services to these companies for traffic terminating in the
United States.
The Company intends to actively and aggressively pursue the increase of its
revenues and cash flow through the wholesale distribution and sale of pre-paid
calling cards and its One Plus long distance service. TotalAxcess is negotiating
with several equipment suppliers to obtain additional switching equipment that
will allow the Company to meet its projected business growth. This growth will
allow the Company to negotiate more competitive rates that will greatly enhance
the projected profitability of the Company. Management announced in August 1999
the strategic alliance with licensed long distance carrier Comnet that will
broaden their international pre-paid network services into Mexico. The Company
has been negotiating and is prepared to move forward with additional strategic
alliances' in Paraguay, India and Italy. Management believes that once
concluded, these alliances will increase revenues and cash flow.
Significant Customers and Suppliers
During the year ended June 30, 1999, the Company's largest customer,
Blackstone Calling Cards, Inc. accounted for approximately 41% of the Company's
total consolidated revenues.
During the year ended June 30, 1999, the Company's switching supplier
provided services through the following Tier 1 carriers: Qwest, Sprint, GTE.
This accounted for approximately 65% of the Company's total consolidated cost of
sales.
Competition
The telecommunications industry is highly competitive. Increased
consolidation and strategic alliances in the industry resulting from the
Telecommunications Act of 1996 have allowed significant new competitors to enter
the industry. Such consolidation could result in larger, better-capitalized
competitors. Many of the Company's existing and potential competitors compete
with significantly greater financial, personnel, marketing and other resources,
and have other competitive advantages. Furthermore, the telecommunications
industry is in a period of rapid technological evolution, marked by new
technologies and the introduction of new products and services. The
telecommunications industry is also subject to various degrees of federal,
state, local and international regulation.
The Business and History of National Pools Corporation
National Pools Corporation ("NPC") is a California corporation doing
business at 201 Clay Street, Oakland, California 94607. The Company believes
that NPC is the first company to have developed and marketed a pre-paid long
distance phone card with an innovative free method of group lottery play as a
value-added incentive to phone card purchase. The program developed by NPC is
named "HitLoTTo(R)" and facilitates lottery club participation in a number of
State Lotteries throughout the United States. The HitLoTTo(R) program uses a
unique pre-paid phone card promotion, telecommunications, and proprietary
computer software to organize and market electronic lottery clubs for lottery
players to participate in various State Lotteries. This program provides players
the opportunity to increase their chances of winning by 100 times by randomly
joining each club participant with 99 other club members. NPC offers its
proprietary HitLoTTo(R) service to the public through the sale of a pre-paid
phone card, the "HitLoTTo(R) Club Card." The HitLoTTo(R) Club Card is sold at
approved retail outlets in two denominations: $10 and $20. The Company's virtual
HitLoTTo Club Card will soon debut on a number of established e-commerce
websites. Each denomination of the HitLoTTo(R) Club Card features both
competitively priced long distance calling and corresponding free lottery club
plays, which act as a purchase incentive. The $10 HitLoTTo(R) Club Card offers
the purchaser one free lottery club play and the $20 HitLoTTo(R) Club Card
offers three free lotteries club plays. Special marketing opportunities have
increased the available lottery club plays to encourage participation in special
market offers. To join a HitLoTTo(R) Club, callers dial 1-888-HitLoTTo(R), enter
their Personal Identification Number ("PIN") found on the back of the card, and
after selecting the appropriate menu function are automatically entered into the
next available open lottery club of their choice; including Powerball, The Big
Game, Florida and California State Lotteries.
NPC administers the Clubs and purchases 100 state lottery tickets on behalf
of the club members. Voice response computers automatically form clubs of
players after callers enter their HitLoTTo(R) Club Card PIN and select the Club
of their choice. HitLoTTo(R) Club membership is allowed only after the PIN, and
appropriate account balance have been validated. Each club consists of one
hundred $1.00 corresponding State Lottery tickets, and each HitLoTTo(R) Club is
completed after receipt of 100 successful HitLoTTo(R) telephone calls. Each call
equates to one HitLoTTo(R) lottery club plays, and is formed for the next
available caller designated Super Lotto jackpot. Depending on the denomination
of pre-paid phone card purchased, callers may make the corresponding value of
long distance calls by selecting the appropriate menu option.
NPC acts as an agent of the club member (callers) by coordinating the
formation of groups of purchasers of lottery tickets. Once any of the available
HitLoTTo(R) Clubs has 100 members the club is closed, the computer starts a new
HitLoTTo(R) Club, and NPC purchases the 100 state lottery tickets on behalf of
the just closed club. Tickets are official State Lottery machine generated
"Quick Picks" and are always purchased in sequence (to avoid any manipulation of
tickets). The HitLoTTo(R) Club is then associated with the corresponding 100
tickets. The first and last sequence numbers are entered into NPC's database to
ensure the integrity of the club. Further, all tickets are endorsed and stamped
with the company name, the club number, date and time. The physical tickets are
placed in tamper proof storage until the validation process occurs the next
business day after the official drawing when the winning numbers are confirmed.
Winnings less than $599 are automatically credited to the player's HitLoTTo(R)
Club Card and added to the available account balance. Winning clubs are also
published on the Company's website- www. HitLoTTo(R).com. When a player has
depleted the value of the HitLoTTo(R) Club Card to an insufficient level to
participate in another HitLoTTo(R) Lottery Club, the remaining card balance can
be transferred to a new HitLoTTo(R) Club Card. HitLoTTo(R) players are able to
cash out their winnings at any time by calling the toll-free number and speaking
with a customer service representative.
Club winnings between $.01 and $599 are automatically credited to the
player's HitLoTTo(R) Club Card one business day after the lottery draw. NPC will
process winning tickets and claim prize winnings with the appropriate State
Lottery on behalf of club members up to $599. When club winnings are over $600,
NPC will provide the names of the individual winning club members to the state
lottery by filling out the State Lottery Multiple Ownership Claim form. In
general, a State Lottery will pay winnings in amounts between $600 and $1
million in a one-time payment directly to club members in accordance with the
State Lottery's established policies and procedures. The State Lottery generally
pays prize amounts of $1 million or more directly to winners either over a 20 to
26 year period or in a single lump-sum payment. NPC does not participate in any
winnings or prizes.
NPC's objective is to attract 1.5% of the more than 100 million active
lottery players in the U.S., spending $2.5 billion in average monthly lottery
tickets purchases and have them become members of an NPC administered
HitLoTTo(R) Club. During 1998, U.S. lottery sales totaled $35.9 billion and more
than half of all adult Americans bought at least one lottery ticket during that
same period. The Company believes this to be a reasonable market share which can
be attained by promoting convenient lottery play via the telephone, offering the
ability to participate in multiple State Lotteries otherwise unavailable and
increasing a player's chances of winning by a hundred fold.
Furthering this effort, the Company entered into a joint venture agreement
with CPNM/Internet Marketing Consortium in fiscal year 1999 to jointly promote
and market the Company's new virtual HitLoTTo product through a network of 10 or
more Internet retail affiliates. Management believes that these established
e-commerce websites will drive more than 200 million hits in potential retail
activity to the HitLoTTo product in the immediate future. Through a series of
cross-promotional multi-media marketing efforts with CPNM/Internet Marketing,
the Company's own e-commerce website will attempt to expand the existing market
channels for HitLoTTo and open access to the growing millions of Internet users
who sign on daily.
Although the electronic commerce/Internet portion of HitLoTTo sales is
expected to grow exponentially, the Company continues to work the traditional
retail channel, aggressively recruiting distributors and sales agents through
strategic placement of advertisements. The Company also successfully
participated in a leading pre-paid industry tradeshow and exposition, which
generated considerable editorial exposure for both the product and the Company.
NPC has introduced the HitLoTTo(R) Club Card in selected areas in several states
within the United States using local distributors, retail sales networks and
through direct sales efforts of Premier Plus Independent Marketing
Representatives. Marketed as "The Phone Card That Can Make You Rich", NPC has
created awareness for the HitLoTTo(R) Club Card through a number of "free play"
direct mail campaigns targeted to purchased lists of lottery enthusiasts, as
well as other potential customers. The Company's President has provided media
coverage for the Company with interviews in the "Wall Street Corporate
Reporter", "MSNBC Business Video", "Smart Money Magazine", "Stockbroker
Magazine", "Intele-Card News" and other significant news and media outlets. The
Company has produced a variety of retail Point of Sale (POS) materials to assist
with the promotion and marketing of the HitLoTTo(R) Club Card. Additionally, the
Company has provided its retail network with a number of education/training
materials designed to educate the retailer and consumer on the benefits and
features of this unique pre-paid phone card. To date, there have been 500
HitLoTTo(R) Clubs formed.
In May 1998, the Company obtained a legal opinion from James D. Cullen,
Esq., special counsel to TotalAxcess. After consideration and review of existing
pre-paid calling card and rules for promotion, the legal and factual matters
were found to be appropriate to distribute to all potential markets. The price
of the HitLoTTo(R) Club Card does not include any consideration for the purchase
and/or administration associated with the purchase of lottery tickets by NPC for
any HitLoTTo(R) Club. Mr. Cullen cites various recent findings, most notably The
Mississippi Gaming Commission v. Treasured Arts, Inc. 699 So. 2d 936, and the
offering of a similar service by the Illinois Lottery.
The Company's management is confident about the viability of the
HitLoTTo(R) pre-paid phone card strategy for marketing the program and believes
the acquisition of NPC represents an excellent opportunity for the Company.
Further the HitLoTTo Club Card now represents the convergence of three dynamic
industries: pre-paid telecommunications, lottery play and the Internet. However,
the ultimate market acceptance of the HitLoTTo(R) program cannot be guaranteed.
Although the HitLoTTo(R) program is registered and the system is proprietary,
the Registrant expects competition from those who may have more personnel and
greater financial resources than the Registrant.
The Acquisition of National Pools Corporation
On June 13, 1996, NuOasis Resorts, Inc. (formerly, Nona Morelli's II,
Inc.), ("Nona"), ("NuOasis Resorts"), granted an option (the "Option") to Joseph
Monterosso, the current President of the Company, to acquire 250,000 Series B
Preferred Shares of TotalAxcess (the "Series B Shares") owned by NuOasis
Resorts. The Option is exercisable at a price of $13.00 per share, and each
Series B share is convertible into 78 shares of TotalAxcess' common stock.
On December 19, 1996, TotalAxcess entered into Stock Purchase Agreements
with each of the shareholders of National Pools Corporation ("NPC ") pursuant to
which TotalAxcess agreed to issue a series of Secured Promissory Notes (the
"Notes") in the aggregate principal amount of $1,200,000 and 1,000,000 shares of
TotalAxcess' restricted common stock to the NPC shareholders in exchange for all
of the issued and outstanding shares of capital stock of NPC. The Notes are
convertible into a maximum of 241,900,000 shares of TotalAxcess common stock.
The conversion of the Notes is contingent upon NPC's operations achieving
certain financial goals over the next several fiscal years. The terms of the
conversion are, for every $250,000 of net annual operating income achieved by
NPC, $7,500 in principal amount of the Notes may be converted into 1,511,875
shares of restricted TotalAxcess common stock. The Notes are non-recourse to
TotalAxcess, secured by the assets of NPC, bear interest at 8% per annum, and
were due and payable on May 31, 1999. (The Company is exploring the possibility
of renegotiating the terms of the note. As part of this acquisition, NuOasis
Resorts and TotalAxcess agreed to a debt assumption agreement whereby NuOasis
Resorts assumed all TotalAxcess debt in excess of $20,000 on December 24, 1996,
except for amounts owed to certain affiliates, which have been converted into
shares of TotalAxcess common stock. The NPC Stock Purchase Agreements closed on
December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis Resorts of
approximately $1,665,000. The 128,041 Series B Shares acquired may be
immediately converted into 9,987,198 shares of restricted TotalAxcess common
stock. Additionally, on June 13, 1997, TotalAxcess sold its wholly owned
subsidiary, CMA, Inc., to NuOasis Resorts for cash of $1,140,000, notes
receivable from NPC aggregating $245,836 and a credit against the NuOasis
Resorts intercompany account of $95,000.
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
Shares from $13.00 per share to $72.20 per share, or approximately $1,585,000
for the 21,959 shares of Series B Preferred Stock. The option to purchase the
remaining 100,000 Series B Preferred shares was terminated. Concurrently,
NuOasis Resorts granted Mr. Monterosso a new option to purchase the remaining
100,000 Series B shares at an exercise price of $11.70 per share. Additionally,
as consideration for granting the new option, NuOasis Resorts acquired the right
to require Mr. Monterosso to purchase all or any remaining unexercised shares of
the 100,000 Series B shares in its entirety by September 1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20 per
share, by payment to NuOasis Resorts of approximately $1,585,000. The 21,959
Series B Shares acquired may be immediately converted into 1,712,802 shares of
restricted TotalAxcess common stock. Concurrent with the exercise of the Amended
Option, TotalAxcess released NuOasis Resorts from liability, if any, arising
from any events while NuOasis Resorts controlled TotalAxcess, in exchange for
approximately $1,585,000 of marketable securities.
On September 2, 1997, NuOasis Resorts sold to Mr. Monterosso 6,000,000 New
Class D Warrants in consideration for a $1,800,000 promissory note secured by
the New Class D Warrants, due in September 1998 (the "Warrant Note"). Each New
Class D Warrant is exercisable at $1.00 per share and entitles Mr. Monterosso to
receive, upon exercise, two shares of common stock, or a total of 12,000,000
common shares if all New Class D Warrants have been exercised. The New Class D
Warrants expire on March 30, 2004, and to date, none of the New Class D Warrants
have been exercised.
On September 2, 1997, NuOasis Resorts granted to Mr. Monterosso an option
to purchase 7,800,000 common shares of the Company exercisable at $0.15 per
share after NuOasis Resorts' converted its remaining 100,000 shares of Series B
Preferred Stock into 7,800,000 common shares.
As a result of the acquisition of NPC and the sales and purchases of the
Series B Preferred Stock, as discussed above, a change in control of the
Registrant occurred and the Registrant is no longer a controlled subsidiary of
NuOasis Resorts.
Acquisition and Sale of Casino Management of America, Inc.
On January 13, 1994, the Registrant entered into a Stock Purchase and
Business Combination Agreement (the "1994 Stock Purchase Agreement") with
NuOasis Resorts and its wholly owned subsidiary, Casino Management of America,
Inc. ("CMA"), whereby the Registrant agreed to purchase all of the outstanding
capital stock of CMA from NuOasis Resorts in exchange for the Registrant issuing
to NuOasis Resorts a) 2,000,000 shares of common stock; b) 250,000 shares of
Series B Convertible Preferred Stock; c) 6,000,000 New Class D common stock
purchase warrants; and d) an option to purchase up to an additional 6,000,000
shares of common stock. The closing occurred on March 30, 1994 (the "Closing
Date"), whereby CMA became a wholly owned subsidiary of the Registrant. The
former Board of Directors, with the exception of Gary L. Blum, resigned and
elected replacement Directors nominated by NuOasis Resorts.
At the Closing, the Registrant issued to NuOasis Resorts, 2,000,000 shares
of the Registrant's common stock, 250,000 shares of Series B Preferred Stock,
6,000,000 New Class D Warrants, and an option to purchase up to an additional
6,160,000 shares of the Registrant's common stock, exercisable under certain
conditions (the "NuOasis Resorts Option"). A Certificate of Designations,
Preferences and Rights, a Warrant Certificate and an Option Agreement setting
forth the terms and conditions of the Series B Preferred Stock, the New Class D
Warrants and the NuOasis Resorts Option, respectively, were prepared and
approved by the Registrant prior to the Closing Date and were filed as Exhibits
to a Current Report on Form 8-K dated March 31, 1994 and filed on April 11,
1994.
In June 1997, the Company sold CMA back to NuOasis Resorts (see
"Acquisition of National Pools Corporation").
As a result of the 1994 Stock Purchase Agreement with NuOasis Resorts, a
change in voting control of the Registrant occurred in March 1994 and the
Registrant effected a corporate name change to "NuOasis Gaming, Inc." on
September 23, 1994. Based on 30,000,000 shares of common stock outstanding at
September 30, 1994, NuOasis Resorts could vote 40.2% of the Registrant's voting
securities by virtue of its ownership of 491,847 shares of common stock and
250,000 shares of Series B Preferred Stock, and the Registrant became, at that
time, a controlled subsidiary of NuOasis Resorts.
Other Operating Subsidiaries and Businesses
(1) Lottery Publications Corporation
Lottery Publications Company ("LPC"), which published Lottery Insider
Magazine, was formed during the quarter ended March 31, 1998. Lottery Insider
Magazine was a monthly digest of player strategies, human-interest stories and
tips and statistics of interest to all Lottery players. A syndicated and award
winning editorial team headed the groundbreaking publication. Due to the
untimely death of its editor in chief, and the lack of any significant financial
contribution during the fiscal years ended June 30, 1999 and 1998, the Company
elected to cease operating LPC as a wholly owned subsidiary.
(2) Academy Network Services, Inc.
On May 15, 1998, and effective March 1, 1998, the Company, through its
newly formed wholly owned subsidiary, Academy Network Services, Inc. ("ANS"),
acquired certain capital leases related to telephone switching and platform
assets and office equipment (the "Ark-Tel Assets") of Ark-Tel, Inc., a wholly
owned subsidiary of Universal Network Services, Inc. ("UNSI"). Pursuant to the
related Asset Purchase Agreement, the Company acquired assets with an estimated
fair market value that approximated related lease obligations in exchange for
the forgiveness of amounts owed to the Company of approximately $300,000. The
excess of the total consideration paid over the estimated fair value of net
assets acquired approximated $300,000 and was charged to expense during the year
ended June 30, 1998. As discussed in item 6 management determined that certain
Ark-Tel Assets were not year 2000 compliant. As a long distance carrier, ANS
provides the full telecommunications and support service needs of the Company's
other subsidiaries. ANS generated revenues of $1,096,988 for the year ended June
30, 1999.
In June 1999, the Company elected to consolidate its operations in
California. As a result, all of the ANS assets have been relocated to California
and related assets and liabilities have been transferred to the books and
records of TotalAxcess. Accordingly, ANS has ceased to operate as a wholly owned
subsidiary.
(3) Premier Plus, Inc.
On April 7, 1998, the Company incorporated a new wholly-owned subsidiary,
Premier Plus, Inc. ("PPI"), as a network marketing company which sells and
distributes the Company's various telecommunication products and services,
including custom pre-paid calling cards, pre-paid calling cards, One-Plus
residential and business long distance services, Lottery Insider Magazine and
NPC's HitLoTTo(R) program. PPI has exclusive marketing and distribution rights
with a number of leading sports and travel service providers. PPI, at one time,
had approximately 200 independent sales representatives nationwide who were
centrally managed by the Company's operations in San Francisco, California. PPI
did not have significant operations during the fiscal years ended June 30, 1999
and 1998, and is no longer operational.
As of June 30, 1999, TotalAxcess employed a total of approximately 10
employees. None of the Company's employees are currently represented by a
collective bargaining agreement and the Company believes that its relations with
its employees are good.
ITEM 2. DESCRIPTION OF PROPERTIES.
(1) TotalAxcess.com, Inc.
TXCI leases office space in Oakland, California. The Oakland lease expires
July 2004. The monthly rent expense is $11,225.
(2) Lottery Publication Corporation
LPC leased office space in Naples, Florida. The Naples lease expired April
1999.
(3) Academy Network Services, Inc.
ANS leases office space in Springdale, Arkansas, and Little Rock, Arkansas.
The office space in Little Rock, Arkansas expires in March 2001 and the monthly
rent associated with this lease is $902.46. The lease in Springdale, Arkansas
expired in June 1999.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On August 28, 1998, the Company received a lawsuit (San Francisco Superior
Court Case No. 997548) filed by Worldcom Network Services, Inc. ("Worldcom") to
recover the sum of $2,208,362 allegedly due and owing as a result of a debt that
the Company allegedly guaranteed on behalf of UNSI. Although the Company denies
liability on the guarantee, the Company has reached a settlement with Worldcom
in which the Company will transfer 2,266,667 shares of its restricted common
stock to Worldcom. In exchange, Worldcom agrees to release the Company from any
and all liability, known and unknown up to the date of the related settlement
agreement, which is November 3, 1999.
On October 2, 1998, Pickett Communications, Inc. ("Pickett") filed a
complaint (San Francisco Superior Court Case No. 998281) for monetary damages
and challenged the Company's rights to use the HitLoTTo logo. In July 1999, a
settlement agreement was executed that requires the Company to release 218,036
shares of its restricted common stock to Pickett. This stock had previously been
issued to Pickett pursuant to a contract dated October 14, 1997 in which the
Company agreed to pay Pickett for services it provided to NPC. The Company has
previously refused to release the common stock, as NPC disputed certain charges,
which it believed were unauthorized.
On February 19, 1999, Accountempts and RHI Management Resources filed a
complaint (San Francisco Superior Court Case No. 301366) for breach of contract
to recover approximately $26,000 allegedly due and owing for temporary
employment services. On July 27, 1999, a settlement agreement was executed in
which the Company agreed to pay an aggregate amount of $24,000 at the rate of
$2,000 per month.
On August 30, 1999, the California Labor Commissioner awarded Joseph Arton
$34,426 in wages, interest and penalties based on claims that this individual
was an employee of the Company. As a result of the Company's appeal filed on
September 20, 1999, Joseph Arton filed a related complaint (San Francisco
Superior Court Case No. 306593). A trial is set for November 1999 that will
address the employee's claim for unpaid wages. The Company contends that Joseph
Arton was not an employee of the Company, but was an independent contractor.
Further, the Company is considering filing a cross complaint for breach of
contract.
On November 10, 1998, the Company filed legal action (TotalAxcess, Inc. v.
NuOasis Resorts, Inc; Nona Morelli's II, Inc.; NuOasis International, Inc.; Fred
Luke, Jr.; Rocci Howe; Steven H. Dong; John D. Desbrow; Archer & Weed; Richard
Weed) in San Francisco Superior Court, Case No. 999131. The suit alleges fraud
and misrepresentation in the sale of securities, which were not qualified for
sale and professional malpractice against legal counsel representing the
Defendants in this transaction. On July 26, 1999, NuOasis Resorts, Inc. and Nona
Morelli's II, Inc. filed a cross complaint against the Company alleging claims
for breach of contract, fraud, material misrepresentation in the purchase of
securities and libel, and seeks rescission of certain contracts and the
imposition of a constructive trust over certain securities. Also on July 26,
1999, Rocci Howe, Fred Luke, Jr. and Steven Dong filed cross complaints against
the Company alleging claims for breach of contract, indemnity and libel. All
counsel have stipulated to a change in venue from San Francisco to Orange County
Superior Court, and the San Francisco Court has transferred the file to the
Orange County Court. The trial date is set for July 2000. The Court ordered that
all claims the Company has against Richard Weed are to be arbitrated and that
this arbitration will not take place until after the trial. Management plans to
vigorously pursue its complaint and defend each cross complaint, which it
believes lack substantial merit.
On January 6, 1999, the Company filed a lawsuit (TotalAxcess.com, Inc. v.
Dennis Houston, Orange County Superior Court Case No. 809248). This complaint
alleges breach of fiduciary duty by Mr. Houston as one of the Company's
directors for failing to disclose material facts in the Ark-Tel Asset Purchase
Agreement which have resulted in the Company's being sued by Worldcom Network
Services, Inc. (see above). On June 29, 1999, Mr. Houston filed a cross
complaint alleging claims for breach of contract, breach of the implied covenant
of good faith and fair dealing, misrepresentation, fraud and embezzlement. The
Company is vigorously pursuing the matter against Mr. Houston and plans to
vigorously defend the cross complaint. At the present time, related legal
counsel has not yet received responses to discovery, but the court has set an
evaluation conference for December 2, 1999.
On June 26, 1997, the Company filed a lawsuit (TotalAxcess.com, Inc. v.
Network Long Distance, Inc.) filed in the District Court, City and County of
Denver, Case No. 97 CV 4131, Division 7. The complaint was filed against Network
Long Distance, Inc. and their transfer agent to compel them to release shares of
Network Long Distance, Inc.'s common stock (the "Shares") that was received by
the Company in connection with a release of liability granted to NuOasis
Resorts, Inc. Once the Shares were properly transferred to the Company, the
Company dismissed its claims as moot. However, Network Long Distance, Inc.
(currently known as Eclipse Communications, Inc. or "Eclipse") continues to
pursue the Shares through its counterclaims. Eclipse is claiming that it owns
some or all of the Shares and is seeking damages and an injunction prohibiting
the transfer of the Shares. In response to Eclipse's allegations, management has
indicated that it will vigorously contest the litigation, as it believes the
case to be groundless and without merit. This matter is currently set for trial
to commence in February 2000. Should Eclipse prevail in this matter, it may be
in a position to recover a significant portion of the stock at issue, or the
value thereof, plus 8% interest per annum from 1997 through trial.
Although there is no pending litigation at the present time, M.H. Meyerson
& Co. ("Meyerson") claims that it is entitled to 717,898 warrants to purchase
common stock of the Company pursuant to a December 12, 1997 Investment Banking
Agreement. The Company contends that Meyerson is not entitled to the warrants
because it failed to fulfill its obligations under the Investment Banking
Agreement. The Company is in settlement discussions regarding this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant's common stock is listed on the NASD-OTC Bulletin Board
where they currently trade under the symbol "TXCI". The Registrant's securities
are not publicly traded on any other market. Set forth below are the high and
low bid prices for the common stock of the Registrant for each quarterly period
commencing July 1, 1997:
Bid Price of Common Stock
Fiscal 1998 Low High
Quarter ended 09/30/97 $.13 $.27
Quarter ended 12/31/97 $.12 $.23
Quarter ended 03/31/98 $.09 $.17
Quarter ended 06/30/98 $.03 $.14
Bid Price of Common Stock
Fiscal 1999 Low High
Quarter ended 09/30/98 $.03 $.09
Quarter ended 12/31/98 $.02 $.05
Quarter ended 03/31/99 $.02 $.23
Quarter ended 06/30/99 $.09 $.98
Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commissions and may not necessarily represent actual transactions.
As of June 30, 1999, the Registrant had 4,880 shareholders of record and in
excess of 2,000 persons who were beneficial shareholders of its common stock.
The Registrant has never paid cash dividends on its common stock. At the
present time, the Registrant's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in order to finance
the development of its business. Dividends on common stock may not be paid
unless provision has been made for payment of preferred dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis
The Registrant has incurred net losses and negative cash flows from
operating activities since its inception in 1987. The Registrant had cash and
cash equivalents of approximately $572,951 and $62,408 as of June 30, 1999 and
1998, respectively, and working capital deficit of $(3,860,552) and $(2,523,352)
as of June 30, 1999 and 1998, respectively. The Company's revenues increased
from $552,472 to $1,271,673 between the years ended June 30, 1998 and June 30,
1999, respectively. This represents an increase of 130% in revenue. This
increase occurred primarily as the result of new telecommunication services
contracts secured by the Company in fiscal year 1999, particularly with
Blackstone Calling Card, Inc. Further, the Company increased its internal sales
force and independent distributor network relative to fiscal year 1998. Selling,
general and administrative expenses increased from $1,672,731 in fiscal year
1998 to $2,036,957 in fiscal year 1999, or a 22% increase. This overall increase
was the result of several factors including increases in salaries, wages and
benefits, payroll taxes, contract and temporary labor, travel and occupancy
costs to support the Company's increased operations in fiscal year 1999.
Further, marketing, promotion, and selling expenses also increased in an effort
to develop and expand the Company's operating strategies. Professional services
decreased in fiscal year 1999 to $428,600 from $569,860 in fiscal year 1998
primarily as the result of lower legal fees. Such fees declined in fiscal year
1999 as the Company negotiated the settlement of several previously outstanding
litigious matters. Depreciation and amortization expenses decreased to $32,656
in fiscal year 1999 from $71,891 in fiscal year 1998. This decrease resulted
from the cessation of depreciation for certain switching equipment that was not
used by the Company in fiscal year 1999. The increase in net interest expense
from $125,119 in fiscal year 1998 to $333,250 in fiscal year 1999 related
directly to the capital lease obligations assumed by the Company in March 1998.
In fiscal year 1999, the Company recorded an asset impairment charge of $651,450
related to equipment under capital lease that is not currently being used and is
not year 2000 compliant. The Company also realized losses on the sale of
marketable equity securities that aggregated $195,459, recognized litigation
settlement expenses aggregating $876,798, and recorded a gain on the forgiveness
of debt of $167,529 in fiscal year 1999. As a result of the above, the Company's
net loss for fiscal year 1999 increased to $4,826,505 ($0.07 per share) from
$3,104,920 in fiscal year 1998 ($0.06 per share).
This Annual Report on Form 10-KSB for the year ended June 30, 1999 (the
"Form 10-KSB") contains certain "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements are statements other than historical
information or statements of current condition and relate to future events or
the future financial performance of the Company. Some forward-looking statements
may be identified by use of such terms as "expects," "anticipates," "intends,"
"estimates," "believes" and words of similar import. These forward-looking
statements relate to plans, objectives and expectations for future operations.
In light of the risks and uncertainties inherent in all such projected operation
matters, the inclusion of forward-looking statements in this Form 10-KSB should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved or that any of the Company's
operating expectations will be realized. Revenues and results of operations are
difficult to forecast and could differ materially from those projected in the
forward-looking statements contained in this Form 10-KSB
The Company expects to increase revenues and cash flow through the
wholesale distribution and sale of pre-paid calling cards by expanding its
in-house sales force and adding more independent distributors to its network.
The Company's One Plus long distance service, which the Company is revamping to
provide more competitive rates, and additional services will be included as a
product for this sales force to market.
TotalAxcess' negotiation to obtain additional switching equipment is
critical to the Company's overall business plan to expand all of its
telecommunications services. In order, to achieve its projected business growth
TotalAxcess will need to acquire several switching platforms that will support
this expansion. The ultimate goal is for TotalAxcess to negotiate more
competitive rates from Tier 1 carrier's that will greatly enhance the projected
profitability of the Company.
Additionally, management announced in August 1999 the strategic alliance
with licensed long distance carrier Comnet that will broaden their international
pre-paid network services into Mexico. The Company has been negotiating and is
prepared to move forward with additional strategic alliances' in Paraguay, India
and Italy that management believes will further increase revenues and cash flow.
The Registrant will also continue to search for additional sources of equity
financing through the private placement of its common stock. Subsequent to June
30, 1999, the Company raised gross proceeds of $710,000 a private placement of
2,100,000 shares of its common stock.
The Registrant is also pursuing other joint venture, merger or acquisition
opportunities that may provide additional capital resources during fiscal 2000.
Year 2000
During the year ended June 30, 1999, management determined that the
telephone switching and platform assets acquired from Ark-Tel, Inc. were not
year 2000 compliant and that significant upgrades were required to prepare the
equipment to properly function in the year 2000. As a result, the Company has
ceased payment of required rents and management is in the process of
renegotiating the terms of the related leases. As a result of the cessation of
required rents, the Company is currently in default per the related lease terms.
In connection with the above, the Company has recognized a related asset
impairment charge of approximately $651,000 during the year ended June 30, 1999.
The Company does not believe that it will be required to significantly modify
its internal computer systems, or any equipment or products, other than the
equipment mentioned above. There can be no assurance that another entity's
failure to ensure year 2000 capability would not have an adverse effect on the
Company.
The vendors of the respective systems have upgraded and tested all
telecommunications systems utilized by the Company. Compliance certificates from
the respective vendors are on file at the Company's corporate offices. However,
the Company has contracted with other telecommunications carriers to run the
Company's traffic using their compliant telecommunications platforms in order
the guarantee year 2000 compliance.
Management expects that all of the Company's hardware and software is year
2000 compliant. These systems include all finance and general business
computers, network file servers and database servers.
ITEM 7. FINANCIAL STATEMENTS
Financial statements are referred to in Item 13(a) and listed in the Index
to Consolidated Financial Statements filed as part of this Annual Report on Form
10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
A Current Report on Form 8-K dated July 3, 1997 was filed on July 9, 1997,
reporting a change of accountants from Raimondo Pettit & Glassman to Haskell &
White LLP.
The report of Raimondo, Pettit & Glassman with respect to the 1995 and 1996
fiscal year financial statements included an explanatory paragraph with respect
to the substantial doubt existing about the ability of the Registrant to
continue as a going concern due to its recurring net losses, negative cash flows
from operating activities since its inception, limited liquid resources,
negative working capital and its primary operating subsidiary filing for
protection under Chapter 7 of the Bankruptcy Code.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Identification of Directors and Executive Officers
The Registrant, pursuant to its bylaws, maintains a Board of Directors of
between one and twenty-five directors and officers, comprised of President,
Secretary and Chief Financial Officer. The same person may hold any two or more
officer positions. The directors and officers during fiscal year 1999 and fiscal
year 1998 are as follows:
- -------------------------------------------------------------------------------
Position Held
- -------------------------------------------------------------------------------
Joseph Monterosso Director and President
Chairman of the Board 50 November 25, 1996 to Present
- -------------------------------------------------------------------------------
Dennis Houston Director
Chief Operating Officer 54 August 8, 1997 to Present
- -------------------------------------------------------------------------------
Russell F. McCann,Jr. Director 43 September 23, 1998 to Present
- -------------------------------------------------------------------------------
All directors of the Registrant hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified.
Vacancies in the Board of Directors are filled by the remaining members of the
Board until the next annual meeting of shareholders. The same current Directors
stand for election at the Registrant's next annual meeting. The officers of the
Registrant are elected by the Board of Directors at its first meeting after each
annual meeting of the Registrant's shareholders and serve at the discretion of
the Board of Directors or until their earlier resignation or death.
Directors are elected by a favorable vote of a plurality of the shares of
voting stock present, entitled to vote, and actually voting, in person or by
proxy, at the Annual Meeting. Accordingly, abstentions or broker non-voters as
to the election of Directors do not affect the election of the candidates
receiving the plurality of votes. Properly executed, unrevoked proxies will be
voted FOR election of the above-named nominees unless the stockholders indicate
that the proxy shall not be voted for any one or all of the nominees.
(b) Business Experience
The following is a brief account of the business experience for at least
the past five years of each director, director nominee and executive officer of
the Registrant, including principal occupations and employment during that
period, and the name and principal business of any corporation or other
organization in which such occupation and employment were carried on.
Current Directors and Officers
Joseph Monterosso: Mr. Monterosso has used his entrepreneurial skills to
launch a variety of companies over the past 25 years, culminating with National
Pools Corporation in 1992. Prior to NPC, Monterosso embarked upon fulfilling his
lifelong dream of producing his own automobile after attending the Geneva Auto
Show in 1986. After raising over $45 million for funding, Monterosso founded
Laforza Automobiles, Inc., which produced a four-wheel drive sport utility
vehicle for the luxury market and established a new mark in four-wheel drive
sport vehicles. Monterosso conceived the concept of a new kind of Sports Utility
Four Wheel Drive Vehicle when he discovered a unique Italian Sports Utility
Vehicle at the Geneva Auto Show in 1986. Monterosso negotiated the design,
licensing and purchase of the body stamps and dies from the manufacturer and
contracted Pininfarina in Turin to produce the automobile. Monterosso raised the
capital through U.S. investors and European partners. Monterosso negotiated all
vendor contracts in the U.S. and Italy, including the lengthy and delicate
negotiations with Ford to supply the power train and warranty. Monterosso headed
AutoItalia SpA, of Turin, the company that produced the automobile. Monterosso
supervised the redesign of the automobile to meet U.S. Department of
Transportation specifications and market expectations. Designing the interior
and the wheels himself, Monterosso resided in Turin at this time, commuting
monthly to his home in California, overseeing the production and delivery of the
automobile to the U.S.
Upon production of the finished body, interior and chassis in Turin, the
LaForza was flown to an after market assembler located in Detroit to receive the
Ford engine, drive train and electronics. A final fit and finish was done and
the LaForza was then delivered directly to the U.S. distributor, LaForza
Automobiles Inc., of Hayward, CA. LaForza Automobiles was independent of the
Italian production company, and was operated by a President and CPA. In late
1989, LaForza Automobiles Inc., caught in the market downturn and resulting
capital crunch, could not finance their marketing operation and filed for
bankruptcy protection and ceased doing business, eventually being liquidated.
Monterosso tried to salvage the situation by seeking capital for the U.S.
company, but was unsuccessful as he was given only weeks notice of the impending
financial shortfall. Without a distribution network, Monterosso closed down the
production of the automobile, paid AutoItalia's creditors and shelved the
designs for the next generation of the automobile that were in process and
returned to California in Mid-1990.
AutoItalia produced 650 LaForza vehicles for the U.S. market, almost all
are still on the road today and are a highly sought after collector's item,
ironically selling for more today than their original price. In hindsight,
Monterosso believes that the market timing could have been better and
capitalization stronger, while the basic concept was sound. He believes that
this is shown by the fact that the rounded, aerodynamic LaForza body style, four
wheel-on-the-fly technology, elegant, luxurious yet Spartan design, has
subsequently been copied by every sports utility manufacturer currently
producing vehicles worldwide; and that the Sports Utility / Light Truck 4 x 4
market is now the strongest share of the U.S. auto market.
In June 1979, Monterosso was named Sales and Operating Vice President for
Tony Ward, Inc., an importer of forklifts from Japan. Monterosso left Tony Ward,
Inc. to found North American Forklift, Inc. in July 1980. While living in
Australia from 1970 - 1979, Monterosso founded three successful firms including
a company that manufactured custom wheels and imported accessories for off-road
sport vehicles, which was subsequently sold to Ford Motor Corporation in 1979.
Dennis Houston: Mr. Houston has served as Chief Operating Officer since
July 1, 1997 and as a Director since August 8, 1997. In 1996, Mr. Houston joined
the Chesapeake and Potomac Telephone Co. (a former Bell Operating Company) as a
telecommunications consultant. He progressed through various executive
management positions in several of the (former) Bell Operating Companies before
moving to AT&T headquarters in New York City. His tenure with the Bell System
provided him with responsibilities and experience in commercial operations,
business office operations, network design, pricing, profitability, public
relations, personnel, Capitol Hill liaison, finance, sales and marketing. With
the advent of divestiture, Mr. Houston formed his own company initially
specializing in acquisitions and importing and exporting of telecommunication
equipment. Subsequently he formed several companies, including an organization
to franchise long distance companies, as well as the acquisition of financially
distressed telecommunications companies. In 1989, he led a group to acquire the
controlling interests in Uni-Net, Inc., a telecommunications holding company,
and subsequently merged its long distance telephone interests with Discount
Communications Services to help form the Universal Network Services
organization. On June 8, 1998, Universal Network Services filed for protection
under Chapter 11 of the U.S. Bankruptcy Code and has subsequently been
liquidated.
Russell F. McCann, Jr.: Mr. McCann is President and CEO of Actio Software
Corporation and on the Board of Trustees for the Bigelow Laboratory for the
Ocean Sciences in Boothbay, Maine. Actio Software Corporation was co-founded in
1996 by Mr. McCann; Actio is a pioneer in providing MSDS subscription services
and chemical management services via the Internet. The company maintains a
sophisticated MSDS database supporting a variety of MSDS standards. The database
is the backbone of a chemical management and reporting system, which is used to
automatically comply with a wide range of local, state and federal regulations.
Previous to Actio, Mr. McCann was Co-founder, President and CEO of Ares
Software Corporation. Ares invented and patented a parametric font technology
that used a single font outline that could be manipulated into a wide range of
typeface designs. This compact means of representing typefaces enabled printer
manufacturers to increase the number of typefaces offered in their printers
while simultaneously reducing memory requirements. Ares also had a wide range of
award winning Microsoft Windows and Apple Macintosh shrink-wrap software
products that were widely distributed through mail order resellers and computer
retailers. Adobe Systems Incorporated acquired Ares Software Corporation in
1995.
Prior to Ares, Mr. McCann was Vice President of Marketing and Sales for
Emerald City Software. Emerald City Software produced software development tools
for Apple Macintosh and NeXT computer platforms and developed shrink-wrap
software products designed to produce special typographic and 3 dimensional
effects using an Adobe PostScript printer. Under Mr. McCann's marketing and
sales leadership, sales of Emerald City products increased 600% over a 1-year
period. Adobe Systems acquired Emerald City in March 1990.
Mr. McCann also previously worked for Letraset Graphics Design Software, a
subsidiary of Esselte Business Systems, and Boston Software Publishers. Boston
Software Publishers, which Mr. McCann co-founded, shipped the first commercial
software product for the Apple Macintosh. This product helped define the desktop
publishing industry. He has a Bachelor of Science with high honors in political
science and economics and an MBA in finance and marketing from Northeastern
University and specialized marketing studies from the Sloan School of Management
at MIT.
(c) Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Registrant's officers and directors, and persons
who own more than ten percent of a registered class of the Registrant's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors, and greater than
ten-percent shareholders are required by Securities and Exchange Commission
regulations to furnish the Registrant with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Registrant, or representations that no Forms 5 were required or filed, the
Registrant believes that during the periods from July 1, 1997 through June 30,
1999, all Section 16(a) filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
(a) Summary Compensation Table
The following summary compensation table sets forth in summary form the
compensation received during each of the Registrant's last three completed
fiscal years by the Registrant's President. No other executive earned in excess
of $100,000.
Long Term Compensation
------------------------------------------------------------------------------
ANNUAL COMPENSATION Awards Payouts
------------------------------------------------------------------------------
Salary Bonus Other Restricted All
Annual Stock LTIP Other
Comp Award(s) Option Pay- Comp
$ $ $ $ # outs$ $
------------------------------------------------------------------------------
Joseph Monterosso
President & Chairman 99 $250000 - - - - - -
(11/25/96 through 98 $175000 - - - - - -
present) 97 $ 77083(1)- - - - - -
------------------------------------------------------------------------------
(1)Amounts incurred for fiscal year 1997 represent salary from December 24,
1996, through June 30, 1997; NPC was acquired on December 24, 1996. Mr.
Monterosso has deferred certain payments of his salary for each of the above
noted fiscal years.
(b) Option and Long Term Compensation
During fiscal year 1999, there were no options granted or exercised.
(c) Pension Plans and Other Benefit or Actuarial Plans
The Registrant has no annuity, pension or retirement plans or other plans
for which benefits are based on actuarial computations.
(d) Employment, Consulting and Advisory Management Contracts
Current Officers and Directors
On April 1, 1994, NPC entered into an employment agreement with Joseph
Monterosso to serve as the Company's Chief Executive Officer. In conjunction
with the acquisition of NPC, Mr. Monterosso became the Company's President and
Director on November 25, 1996, and Chairman on August 8, 1997. Subsequent to
June 30, 1997, the Board ratified the agreement with Mr. Monterosso. The
agreement initially compensates Mr. Monterosso $125,000 per annum and $250,000
per annum upon the first sale of the Company's HitLoTTo(R) Club Card, payable in
cash or in common stock of the Company. The first sale of the Company's
HitLoTTo(R) Club Card occurred in February 1998. Mr. Monterosso is also the
Company's Chief Financial Officer.
Former Officers and Directors
(e) Director Compensation
The Registrant has no standard arrangements by which its directors are
compensated.
(f) Interlocking Relationships of Directors
As of the date of this Report, there are no interlocking relationships of
Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 1999, the stock ownership of
each person known by the Registrant to be the beneficial owner of five percent
or more of the Registrant's voting securities and each officer, director,
director nominees, and all officers and directors as a group. Unless otherwise
indicated, each person has beneficial voting and investment power with respect
to the shares owned.
- ---------------------------------------------------------
Shares of Common Stock
- ---------------------------------------------------------
- ---------------------------------------------------------
Name of Beneficial Owners Number Percentage
- ---------------------------------------------------------
- ---------------------------------------------------------
Joseph Monterosso 17,533,745 13%
- ---------------------------------------------------------
- ---------------------------------------------------------
Russell F. McCann, Jr. 10,373,107 8%
- ---------------------------------------------------------
- ---------------------------------------------------------
Dano Construction, Inc. 9%
- ---------------------------------------------------------
- ---------------------------------------------------------
Brad Hunt 7%
- ---------------------------------------------------------
- ---------------------------------------------------------
Walter & Linda Gauger 5%
- ---------------------------------------------------------
- ---------------------------------------------------------
All directors and executive 27,906,852 21%
- ---------------------------------------------------------
The following table sets forth, as of June 30, 1999, the Series B Preferred
Stock and 14% Preferred Stock ownership of all holders of more than five percent
of the Series B Preferred Stock and 14% Preferred Stock of the Registrant. No
officers or directors own any shares of the 14% Preferred Stock.
- ------------------------------------ --------------------------
Shares of Series
- ------------------------------------ --------------------------
- ------------------------------------ --------------- ----------
Name of Beneficial Number Percentage
- ------------------------------------ --------------- ----------
- ------------------------------------ ----------- --------------
Jim Ceratani 3,376 9%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
Pat Kuleto 3,255 4%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
Tom Saberi 6,603 18%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
MCI/WorldCom 21,959 62%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
- ------------------------------------ --------------------------
Shares of Preferred Stock
- ------------------------------------ --------------------------
- ------------------------------------ ----------- --------------
Raymond C. Kitely 30,000 17.6%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
Eli Moshe 10,000 5.9%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
Walter K. Theis, M.D. 20,000 11.8%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
David Seror, 77,500 45.6%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
Neil Miller 15,000 8.8%
- ------------------------------------ ----------- --------------
- ------------------------------------ ----------- --------------
David Sheetrit 10,000 5.9%
- ------------------------------------ ----------- --------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
a) Sale of Common Stock to Blackstone Calling Cards, Inc.
In May 1999, the Company sold 500,000 shares of its common stock to
Blackstone Calling Cards, Inc. for cash of $50,000. During fiscal year 1999
Blackstone was the Company's primary customer for the distribution and sales of
pre-paid phone card.
b) Acquisition of Ark-Tel, Inc. Capital Leases
On May 15, 1998, and effective March 1, 1998, the Company, through its
newly formed wholly owned subsidiary, Academy Network Services, Inc. ("ANS"),
acquired certain capital leases related to telephone switching and platform
assets and office equipment (the "Ark-Tel Assets") of Ark-Tel, Inc., a wholly
owned subsidiary of UNSI. Pursuant to the related Asset Purchase Agreement, the
Company acquired assets with an estimated fair market value that approximated
related lease obligations in exchange for the forgiveness of amounts owed to the
Company of approximately $300,000. The excess of the total consideration paid
over the estimated fair value of net assets acquired approximated $300,000 and
was charged to expense during the year ended June 30, 1998.
c) NuOasis Exchange Agreement
In October 1997, the Company entered into an Exchange Agreement with
NuOasis Resorts, Inc. in which the Company exchanged marketable securities with
a net book value of $1,585,000 for $700,000 in cash, a $500,000 6% secured
promissory note receivable and 3,600,000 shares of common stock of NuOasis. Upon
the closing of this Exchange Agreement, the Company received cash from NuOasis
of $441,801 and the remaining cash balance that was provided for in the Exchange
Agreement of $258,199 was applied against amounts Mr. Monterosso owed to NuOasis
pursuant to the Amended Option and the Warrant Note. Furthermore, the $500,000
6% secured promissory note receivable was also applied against amounts Mr.
Monterosso owed to NuOasis pursuant to the Amended Option and the Warrant Note.
Subsequently Mr. Monterosso assigned his interest in the Series D Warrant and
Option to the Company.
d) Due to Stockholders
The Company's consolidated financial statements as of June 30, 1997 and for
the year then ended have been restated to reflect a liability that existed to
certain stockholders who contributed funds that permitted the Company to settle
certain NPC debts equaling $1.2 million dollars at significant discounts. In
December 1998, the Company's Board of Directors approved the issuance of
23,642,606 shares of the Company's common stock to these stockholders. The
Company recorded a related liability based on the estimated fair value of the
shares issued in the amount of $354,639 as of June 30, 1997.
As of June 30, 1999, the Company has an aggregate of $356,686 due to a Mr.
Monterosso and his wife. Related salaries and consulting expenses to these two
individuals aggregated $350,000 during the year ended June 30, 1999, and such
amount is included in selling, general and administrative expenses in the
accompanying consolidated statements of operations and comprehensive loss.
e) Issuance of Options and Warrant Purchase Agreement
On June 13, 1996, NuOasis Resorts, Inc. ("NuOasis Resorts"), the then
controlling parent of TotalAxcess, granted an option (the "Option") to Joseph
Monterosso, the current President of the Company, to acquire 250,000 Series B
Preferred Shares of TotalAxcess (the "Series B Shares") owned by NuOasis
Resorts. The Option is exercisable at a price of $13.00 per share.
On December 19, 1996, TotalAxcess entered into Stock Purchase Agreements
with each of the shareholders of NPC pursuant to which TotalAxcess agreed to
issue a series of Secured Promissory Notes (the "Notes") in the aggregate
principal amount of $1,200,000 and 1,000,000 shares of TotalAxcess restricted
common stock to the NPC shareholders in exchange for all of the issued and
outstanding shares of capital stock of NPC. The Notes are convertible into a
maximum of 241,900,000 shares of TotalAxcess common stock. The conversion of the
notes is contingent upon NPC's operations achieving certain financial goals over
the next several fiscal years. The terms of the conversion are, for every
$250,000 of net annual operating income achieved by NPC, $7,500 in principal
amount of the Notes may be converted into 1,511,875 shares of restricted
TotalAxcess common stock. The Notes are non-recourse to TotalAxcess, secured by
the assets of NPC, bear interest at 8% per annum, and are due and payable on May
31, 1999. As part of this acquisition, NuOasis Resorts and TotalAxcess agreed to
a debt assumption agreement whereby NuOasis Resorts assumed all TotalAxcess debt
in excess of $20,000 on December 24, 1996, except for amounts owed to certain
affiliates, which have been converted into shares of TotalAxcess common stock.
The NPC Stock Purchase Agreements closed on December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis Resorts of
approximately $1,665,000. The 128,041 Series B Shares acquired may be
immediately converted into 9,987,198 shares of restricted TotalAxcess common
stock. Additionally, on June 13, 1997, TotalAxcess sold its wholly owned
subsidiary, CMA, Inc., to NuOasis Resorts for cash of $1,140,000, notes
receivable for NPC aggregating $245,836 and a credit against the NuOasis Resorts
intercompany account of $95,000.
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
shares from $13.00 per share to $72.20 per share, or approximately $1,585,000
for the 21,959 shares of Series B Preferred Stock. The option to purchase the
remaining 100,000 Series B Preferred shares was terminated. Concurrently,
NuOasis Resorts granted Mr. Monterosso a new option to purchase the remaining
100,000 Series B shares at an exercise price of $11.70 per share. Additionally,
as consideration for granting the new option, NuOasis Resorts acquired the right
to require Mr. Monterosso to purchase all or any remaining unexercised shares of
the 100,000 Series B shares in its entirety by September 1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20 per
share, by payment to NuOasis Resorts of approximately $1,585,000. The 21,959
Series B Shares acquired may be immediately converted into 1,712,802 shares of
restricted TotalAxcess common stock. Concurrent with the exercise of the Amended
Option, TotalAxcess released NuOasis Resorts from liability, if any, arising
from any events while NuOasis Resorts controlled TotalAxcess, in exchange for
approximately $1,585,000 of marketable securities.
On September 2, 1997, NuOasis Resorts sold to Mr. Monterosso 6,000,000 New
Class D Warrants in consideration for a $1,800,000 promissory note secured by
the New Class D Warrants, due in September 1998. Each New Class D Warrant is
exercisable at $1.00 per share and entitles Mr. Monterosso to receive, upon
exercise, two shares of common stock, or a total of 12,000,000 common shares if
all New Class D Warrants have been exercised. The New Class D Warrants expire on
March 30, 2004, and to date, none of the New Class D Warrants have been
exercised.
On September 2, 1997, NuOasis Resorts granted to Mr. Monterosso an option
to purchase 7,800,000 common shares of the Company exercisable at $0.15 per
share after NuOasis Resorts' converted its remaining 100,000 shares of Series B
Preferred Stock into 7,800,000 common shares.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index to consolidated
financial statements are filed as part of this Report.
2. Financial Statement Schedules
There were no financial statement schedules required to be filed as part of
this Annual Report.
3. Exhibits
Unless otherwise noted, Exhibits are filed herewith.
Exhibit
Number Description
24.1 Schedule of Subsidiaries.
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for fiscal year 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TOTALAXCESS.COM, INC.
(formerly Group V Corporation.)
Date:November 15, 1999 By:
Joseph Monterosso, President and Director
Date: November 15, 1999 By:
Joseph Monterosso, President and Director
Date: November 15, 1999 By:
Russell F. McCann, Jr., Director
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date:November 15, 1999 By:
Joseph Monterosso, President and Director
Date:November 15, 1999 By:
Joseph Monterosso, President and Director
Date:November 15, 1999 By:
Russell F. McCann, Jr., Director
<PAGE>
TOTALAXCESS.COM, INC.
(Formerly Group V Corporation)
F-1
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TOTALAXCESS.COM, INC.
(formerly Group V Corporation.)
Date: November 15, 1999 By:/s/ Joseph Monterosso
Joseph Monterosso, President and Director
Date: November 15, 1999 By:/s/ Joseph Monterosso
Joseph Monterosso, President and Director
Date: November 15, 1999 By:/s/ Russell F. McCann, Jr.
Russell F. McCann, Jr., Director
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date:November 15, 1999 By:/s/ Joseph Monterosso
Joseph Monterosso, President and Director
Date:November 15, 1999 By:/s/ Joseph Monterosso
Joseph Monterosso, President and Director
Date:November 15, 1999 By:/s/ Russell F. McCann, Jr.
Russell F. McCann, Jr.,Director
<PAGE>
Table of Contents
Page
Independent Auditors' Report F-2
Financial Statements
Consolidated Balance Sheet F-3
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Stockholders' (Deficit) Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
<PAGE>
F-2
INDEPENDENT AUDITORS' REPORT
Board of Directors
TotalAxcess.com, Inc.
(Formerly Group V Corporation)
We have audited the accompanying consolidated balance sheet of
TotalAxcess.com, Inc. (formerly Group V Corporation) (the "Company") as of June
30, 1999, and the related consolidated statements of operations and
comprehensive loss, stockholders' (deficit) equity and cash flows for each of
the years ended June 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of June 30, 1999, and the consolidated results of its operations
and its cash flows for each of the years ended June 30, 1999 and 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations, and has net working capital and stockholders' equity
deficiencies. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
HASKELL & WHITE LLP
November 11, 1999
Newport Beach, California
<PAGE>
TOTALAXCESS.COM, INC.
(Formerly Group V Corporation)
Consolidated Balance Sheet
As of June 30, 1999
Assets
Current assets
Cash and cash equivalents $ 572,951
Marketable equity securities (Notes 1 and 2) 30,065
Accounts receivable 548,548
Prepaid expenses and other assets 62,366
Total current assets 1,213,930
Equipment and furniture, net (Notes 3 and 4) 85,000
Other assets 7,200
Total assets $ 1,306,130
See accompanying notes to consolidated financial statements
F-3
<PAGE>
Consolidated Balance Sheet (continued)
As of June 30, 1999
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable $ 1,353,075
Accrued expenses 355,865
Accrued interest 333,250
Convertible notes payable (Note 5) 1,100,717
Due to officer and related party (Note 7) 356,686
Capital lease obligations, current portion (Notes 3,4,and 9)
698,091
Accrued litigation settlements (Note 9) 876,798
Total current liabilities 5,074,482
Capital lease obligations,noncurrent portion (Notes 3,4,and 9) 6,355
Total liabilities 5,080,837
Commitments and contingencies (Notes 6 and 9)
Stockholders' (deficit) equity (Notes 6 and 11) Preferred stock - par value
$.01; authorized 1,000,000
shares; 14% cumulative convertible; redeemable; issued and
outstanding 170,000 shares (aggregate liquidation of $170,000) 1,700
Preferred Stock Series B-par value $2.00; authorized 150,000 shares;
convertible; issued and outstanding 35,193 shares (aggregate liquidation of
$70,386) 70,386
Common stock - par value $.01; authorized 333,000,000
shares; 124,655,200 shares issued and outstanding 1,246,552
Additional paid-in capital 18,910,893
Accumulated other comprehensive loss (100,145)
Accumulated deficit (23,904,093)
Total stockholders' (deficit) equity (3,774,707)
Total liabilities and stockholders'(deficit)equity $1,306,130
<PAGE>
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended June 30, 1999 and 1998
or the Year Ended June 30,
1999 1998
Revenues $1,271,673 $ 552,472
Operating costs 1,193,225 185,553
Gross profit 78,448 366,919
Cost and expenses
Selling, general and administrative 2,036,957 1,672,731
Professional services 428,600 569,860
Depreciation and amortization 32,656 71,891
Interest expense, net 333,250 125,119
Litigation settlement expenses (Note 9) 876,798 -
Asset impairment charge (Note 4) 651,450 -
Realized loss (gain) on sale of
marketable equity securities 195,459 (61,989)
Provision for stockholder and affiliate receivables
(Notes 2 and 6) 515,967 770,839
Write off of excess purchase price over basis of
net assets acquired (Note 3) - 316,497
Total costs and expenses (5,071,137) (3,464,948)
Loss before provision for income taxes and
extraordinary item (4,992,689) (3,098,029)
Provision for income taxes (Note 8) 1,345 6,891
Net loss before extraordinary item (4,994,034) (3,104,920)
Extraordinary item (Note 10) 167,529 -
Net loss (4,826,505) (3,104,920)
Other comprehensive (loss) income:
Unrealized holding loss arising during the year (31,051) (214,869)
Reclassification adjustment for losses
included in net loss 145,775 -
Other comprehensive income (loss) 114,724 (214,869)
Comprehensive loss $(4,771,781) $(3,319,789)
Net loss applicable to common stock $(4,850,305) $(3,128,720)
Basic and diluted net loss per common share $ (.07) $ (.06)
Weighted average common shares outstanding 68,693,700 48,889,880
<PAGE>
(please leave this page in as a spacer for excel spreadsheet...)
<PAGE>
<TABLE>
<S>
<C>
TOTALAXCESS.COM, INC.
(Formerly Group V Corporation)
Consolidated Statements of Stockholders' (Deficit) Equity
For the Years Ended June 30, 1999 and 1998
Preferred Accumulated
Preferred Series B Common Additional Other Shareholders'
Stock Stock Stock Stockholder Paid-In Comprehensive Accumulated (Deficit)
Shares Amount Shares Amount Shares Amount Receivable Capital Loss Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Bal,7/1/97 170000 $1,700 250000 $500,000 40059880 $ 400,598 $(584,167) $16,086,787 $ - $(15,972,668) $ 432,250
- -------------------------------------------------------------------------------------------------------------------------------
Conversion
of
Pref SerB (100000)(200,000) 7800000 78,000 - 122,000 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Common stock
issuance - - - - 1975000 19,750 - 434,500 - - 454,250
- -------------------------------------------------------------------------------------------------------------------------------
Reclassification
adjustment - - - - - - 8,000 (7,496) - - 504
- -------------------------------------------------------------------------------------------------------------------------------
Payments on stockholder
receivables - - - - - - 60,200 - - - 60,200
- -------------------------------------------------------------------------------------------------------------------------------
Other comprehensive
loss - - - - - - - - (214,869) - (214,869)
- -------------------------------------------------------------------------------------------------------------------------------
Net loss - - - - - - - - (3,104,920) (3,104,920)
- -------------------------------------------------------------------------------------------------------------------------------
Balances,
6/30/98 170000 1,700 150000 300,000 49834880 498,348 (515,967) 16,635,791 (214,869) (19,077,588) (2,372,585)
- -------------------------------------------------------------------------------------------------------------------------------
Conversion
of
Pref SerB (114807)(229,614) 8954946 89,550 - 140,064 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Conversion
of notes
payable - - - - 27569522 275,695 - 399,488 - - 675,183
- -------------------------------------------------------------------------------------------------------------------------------
Common stock
issuance - - - - 38295852 382,959 - 1,735,550 - - 2,118,509
- -------------------------------------------------------------------------------------------------------------------------------
Write-off
stockholder
receivables - - - - 515,967 - - - 515,967
- -------------------------------------------------------------------------------------------------------------------------------
Other
comprehensive
income - - - - - - - - 114,724 - 114,724
- -------------------------------------------------------------------------------------------------------------------------------
Net loss - - - - - - - - - (4,826,505) (4,826,505)
- --------------------===========================================================================================================
Balances,
6/30/99 170000 $1,700 35,193 $70,386 124655200 $1,246,552 $ - $ 18,910,893 $(100,145) $(23,904,093) $(3,774,707)
- --------------------===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1999 and 1998
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended June 30,
1999 1998
Cash flows from operating activities:
Net loss $(4,826,505) $ (3,104,920)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 32,656 71,891
Extraordinary item 167,529 -
Asset impairment charge 651,450 -
Provision for stockholder and
affiliate receivables 515,967 770,839
Stock issued in payment of services - 30,000
Write off of excess purchase price over
basis of net assets acquired - 316,497
Realized loss (gain) on marketable securities 195,459 (61,989)
Increase (decrease) from changes in
Marketable securities - (189,741)
Accounts receivable and advances (538,462) 45,407
Inventories 41,368 (41,407)
Prepaid expenses and other assets (46,448) 69,082
Other assets - 15,047
Accounts payable 405,013 368,287
Accrued expenses 241,849 22,352
Accrued interest 60,820 -
Due to officer and related party 356,686 -
Deferred revenue and other liabilities ( 7,068) (10,935)
Accrued litigation settlements 876,798 -
Net cash used in operating activities (1,872,888) (1,699,551)
Cash flows from investing activities:
Proceeds from sale of marketable equity securities 78,941 662,289
Acquisition of equipment and furniture (13,442) (62,803)
Net cash provided by investing activities 65,499 599,486
<PAGE>
Consolidated Statements of Cash Flows (continued)
For the Years Ended June 30, 1999 and 1998
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended June 30,
1999 1998
Cash flows from financing activities:
Proceeds from loans 575,900 -
Payments on stockholder receivables - 38,200
Proceeds related to the issuance of common stock 1,763,870 446,748
Payments on capital lease obligations (21,838) -
Net cash provided by financing activities 2,317,932 484,948
Net increase (decrease) in cash 510,543 (615,117)
Cash and cash equivalents, beginning of period 62,408 677,525
Cash and cash equivalents, end of period $ 572,951 $ 62,408
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes $ 1,345 $ 6,891
Interest $ 20,417 $ -
Non-cash investing and financing activities:
Acquisition of equipment and furniture and
assumption of capital leases $ 14,888 $ 711,395
Preferred Stock Series B converted to common stock$229,614 $ 200,000
Notes payable converted to common stock $591,900 $ -
<PAGE>
TOTALAXCESS.COM, INC.
(Formerly Group V Corporation)
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1999 and 1998
F-36
1. Business Activities and Summary of Significant Accounting Policies
Description of Business
TotalAxcess.com, Inc. (formerly Group V Corporation) (the "Company") was
originally incorporated in the State of Delaware in 1987. The Company has
historically operated as a holding company for leisure and entertainment related
businesses. During the year ended June 30, 1998, the Company, through its
wholly-owned subsidiaries, entered the one-plus and pre-paid telecommunications
industry as its main focus of operations.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended June
30, 1999, include the accounts of TotalAxcess.com, Inc., National Pools
Corporation ("NPC"), Lottery Publications Corporation ("LPC"), Academy Network
Services, Inc. ("ANS"), and Premier Plus, Inc. ("PPI").
The accompanying consolidated financial statements for the year ended June
30, 1998, include the accounts of TotalAxcess, NPC, LPC, from its inception on
October 15, 1997, ANS, from its inception on May 15, 1998 (Note 3), and PPI,
from its inception on April 7, 1998.
As used herein, the above is collectively referred to as the "Company,"
unless the context indicates otherwise. All intercompany accounts and
transactions have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the Company
has experienced recurring net losses, and has net working capital and
stockholders' equity deficiencies. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plan is to
actively search for additional sources of equity financing and new operating
opportunities. In addition, management expects that cash provided from operating
activities will increase, as products sold by the Company's wholly owned
subsidiaries gain market acceptance. Management expects to continue to operate
with minimal fixed overhead expenses and will attempt to use its stock to
satisfy
1. Business Activities and Summary of Significant Accounting Policies
(continued)
its financial obligations. The ultimate outcome of these plans is uncertain
and the consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company's telecommunication services provide PIN numbers for its
customers, who are primarily distributors of pre-paid phone cards. The PIN
numbers are pre-numbered code combinations that are imprinted on these cards by
the customers/distributors. This allows for the proper routing and time
recording of minutes used on the calling cards. The Company contracts with a
provider of switching equipment that processes the phone card calls when they
are ultimately used by the end consumer. When cards are ready for distribution
to end consumers, customers/distributors authorize the Company to activate a
specific sequence of PIN's. The Company then immediately notifies its switching
equipment contractor to activate the related PIN's. Upon activation of the
PIN's, the Company recognizes revenue, as the risks and rewards of the activated
PIN's are transferred to the customers/distributors and, generally, no right of
return exists. The Company typically bills its customers/distributors as calls
are made using activated PIN's. Sixty days after activation of each PIN, any
unbilled amounts for each activated PIN are billed in full. To adhere to the
matching principle, the Company accrues for the estimated cost of providing
telecommunication services for activated PIN's at the time revenue is
recognized.
Cash Equivalents
Cash equivalents are highly liquid investments with maturities of three
months or less when acquired.
1. Business Activities and Summary of Significant Accounting Policies
(continued)
Marketable Equity Securities
As of June 30, 1999, marketable equity securities consist of 650,292 shares
of common stock of NuOasis Resorts, Inc., a stockholder (Note 2). The Company
has classified these equity securities as available-for-sale and, accordingly,
they are presented in the accompanying consolidated balance sheet at their
estimated fair market value based on quoted market prices as of June 30, 1999.
Additionally, unrealized gains and losses on these securities are presented as a
component of other comprehensive loss in the accompanying consolidated
statements of operations and comprehensive loss.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107 requires
disclosure about fair value for all financial instruments whether or not
recognized, for financial statement purposes. Disclosure about fair value of
financial instruments is based on pertinent information available to management
as of June 30, 1999 and considerable judgment is necessary to interpret market
data and develop estimated fair value. The Company has determined that the fair
value of all financial instruments, which include accounts receivable, notes
payable, and capital lease obligations, approximated their carrying values as of
June 30, 1999.
Credit Risk
Financial instruments that potentially subject the Company to credit risk
at June 30, 1999 are primarily comprised of accounts receivable. The Company
generally does not require collateral on its accounts receivable and ongoing
credit evaluations of its customers are regularly performed.
As of June 30, 1999, substantially all of the Company's accounts receivable
is due from Blackstone Calling Card, Inc. This entity is also a stockholder of
the Company as it purchased 500,000 shares of common stock for cash of $50,000
during the year ended June 30, 1999 (Note 11).
The Company places its deposits with financial institutions which are
considered by management to be of high-credit quality. At times, balances in
these cash accounts may exceed the Federal Deposit Insurance Corporation (FDIC)
limit of $100,000. Uninsured balances at June 30, 1999 were approximately
$445,000.
1. Business Activities and Summary of Significant Accounting Policies
(continued)
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the average cost method. During the year ended June 30, 1999, the
Company wrote-off inventories that approximated $77,000, as it focused on
developing and expanding its telecommunications businesses. Related expenses are
included in operating costs in the accompanying consolidated statements of
operations and comprehensive loss for the year ended June 30, 1999.
Equipment and Furniture
Equipment and furniture are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets which is five to seven years. Maintenance and repairs are charged to
operations as incurred.
During the year ended June 30, 1998, the Company acquired certain capital
leases relating to telephone switching and platform assets and office equipment
(Note 3). Such assets have been recorded at their estimated fair market value on
the date of acquisition and are depreciated using the straight-line method over
their estimated useful lives which range from three to ten years (Note 4).
Long Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. For the purposes of evaluating
potential impairment, the Company's assets are grouped by the entity to which
they relate. Since adopting this statement, the Company gives consideration to
events or changes in circumstances for each of its entities. Related asset
impairment charges are presented on a separate line item in the accompanying
consolidated statement of operations and comprehensive loss and are described in
Note 4.
1.Business Activities and Summary of Significant Accounting Policies (continued)
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's taxable income for federal and state income tax reporting purposes.
Accounting for Employee Stock Options
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." In conformity with the
provisions of SFAS No. 123, the Company has determined that it will not change
to the fair value method prescribed by SFAS No. 123 and will continue to follow
Accounting Principles Board Opinion No. 25 for measurement and recognition of
employee stock-based transactions. There were no stock options granted to
employees during each of the years ended June 30, 1999 and 1998.
Issuance of Stock for Services
Shares of the Company's common stock issued for services are recorded in
accordance with SFAS No. 123 at the fair market value of the stock issued or the
fair market value of the services provided, whichever value is more reliably
measurable. The value of the services are typically stipulated by contractual
agreements.
Loss per Common Share
Loss per common share is computed based on the net loss for each period, as
adjusted for dividends required on preferred stock ($23,800 for each of the
years ended June 30, 1999 and 1998) and the weighted average number of common
shares outstanding. Common stock equivalents were not considered in the loss per
share calculations, as the effect would have been anti-dilutive. A schedule of
common shares reserved for issuance upon conversion, redemption or exercise of
various equity securities is included in Note 6.
<PAGE>
1.Business Activities and Summary of Significant Accounting Policies (continued)
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in an entity's financial statements. This statement requires an entity to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. This standard is effective for
fiscal years beginning after December 15, 1997 and the Company has applied the
provisions of this standard in the accompanying consolidated financial
statements.
Segments and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires public
enterprises to report financial and descriptive information about its reportable
operating segments and establishes standards for related disclosures about
product and services, geographic areas, and major customers. This standard is
effective for fiscal years beginning after December 15, 1997 and the Company has
applied the provisions of this standard as described below.
Currently, management believes that the Company has only one reportable
operating segment, as defined by SFAS No. 131, and the Company had no revenues
attributed to geographic locations outside the United States during each of the
years ended June 30, 1999 and 1998. During the year ended June 30, 1999, one
external customer, Blackstone Calling Cards, Inc. ("Blackstone"), accounted for
approximately 41% of the Company's gross revenues, and no other single external
customer accounted for 10 percent or more of the Company's gross revenues.
During the year ended June 30, 1998, no single external customer accounted for
10 percent or more of the Company's gross revenue.
Reclassifications
The consolidated financial statements for the year ended June 30, 1998 have
been reclassified, where necessary, to conform to the current year presentation.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company
On June 13, 1996, NuOasis Resorts, Inc. (formerly Nona Morelli's II, Inc.)
("NuOasis" or "Nona"), the then controlling parent of the Company, granted an
option (the "Option") to Joseph Monterosso, the current President of the
Company, to acquire 250,000 Series B
Preferred Shares of the Company (the "Series B Shares") owned by NuOasis
(Note 6). The Option is exercisable at a price of $13.00 per share and each
Series B share is convertible into 78 shares of the Company's common stock.
On December 19, 1996, the Company entered into Stock Purchase Agreements
with each of the shareholders of NPC pursuant to which the Company agreed to
issue a series of Secured Promissory Notes (the "Notes") in the aggregate
principal amount of $1,200,000 and 1,000,000 shares of the Company's restricted
common stock to the NPC shareholders in exchange for all of the issued and
outstanding shares of capital stock of NPC. The Notes are convertible into a
maximum of 241,900,000 shares of the Company's common stock. The conversion of
the Notes are contingent upon NPC's operations achieving certain financial goals
over the next several fiscal years. The terms of the conversion are, for every
$250,000 of net annual operating income achieved by NPC, $7,500 in principal
amount of the Notes may be converted into 1,511,875 shares of restricted common
stock. The Notes are non-recourse to the Company, secured by the assets of NPC,
bear interest at 8% per annum, and are due and payable on May 31, 1999 (Note 5).
As part of this acquisition, NuOasis and the Company agreed to a debt assumption
agreement whereby all Company debt in excess of $20,000 on December 24, 1996,
except for amounts owed to certain affiliates, which have been converted into
shares of the Company's common stock, was assumed by NuOasis (Note 10). The NPC
Stock Purchase Agreements closed on December 24, 1996.
On June 13, 1997, Mr. Monterosso exercised the Option to purchase 128,041
Series B Shares, at $13.00 per share, by payment to NuOasis of approximately
$1,665,000. Additionally on June 13, 1997, the Company sold its wholly owned
subsidiary, Casino Management of America ("CMA"), to NuOasis for cash of
$1,140,000, notes receivable from NPC aggregating $245,836, and a credit against
the NuOasis intercompany account of $95,000. The gain on sale of CMA of $799,478
has been accounted for as a capital contribution in the Company's consolidated
statement of stockholders' equity for the year ended June 30, 1997.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company (continued)
On August 22, 1997 and effective June 13, 1996, the Option was amended (the
"Amended Option") to increase the exercise price for 21,959 of the Series B
Shares from $13.00 per share to $72.20 per share, or approximately $1,585,000
for the 21,959 shares of Series B Preferred Stock. The option to purchase the
remaining 100,000 shares of Series B Shares was terminated. Concurrently,
NuOasis granted Mr. Monterosso a new option to purchase the remaining 100,000
Series B Shares at an exercise price of $11.70 per share. Additionally, as
consideration for granting the new option, NuOasis acquired the right to require
Mr. Monterosso to purchase all or any remaining unexercised shares of the
100,000 Series B Shares in its entirety by September 1, 1998.
Closing on September 2, 1997, but effective June 30, 1997, Mr. Monterosso
exercised the Amended Option to purchase 21,959 Series B Shares, at $72.20 per
share, by payment to NuOasis of approximately $1,585,000. Concurrent with the
exercise of the Amended Option, the Company released NuOasis from liability, if
any, arising from any events while NuOasis controlled the Company, in exchange
for approximately $1,585,000 of marketable securities (the "Securities"). Such
consideration has been accounted for as a capital contribution in the Company's
statement of stockholders' equity for the year ended June 30, 1997.
On September 2, 1997, NuOasis granted to Mr. Monterosso an option to
purchase 7,800,000 common shares of the Company exercisable at $0.15 per share
after NuOasis's election to convert its remaining 100,000 shares of Series B
Preferred Stock into 7,800,000 common shares.
On September 2, 1997, NuOasis sold to Mr. Monterosso 6,000,000 New Class D
Warrants in consideration for a $1,800,000 promissory note secured by the New
Class D Warrants, due in September 1998 (the "Warrant Note"). Each New Class D
Warrant is exercisable at $1.00 per share and entitles Mr. Monterosso to
receive, upon exercise, two shares of common stock, or a total of 12,000,000
common shares if all the of the New Class D Warrants are exercised. The New
Class D Warrants expire on March 30, 2004, and to date, none of the New Class D
Warrants have been exercised.
<PAGE>
2. Acquisition of National Pools Corporation and Change in Control of the
Company (continued)
In October 1997, the Company entered into an Exchange Agreement with
NuOasis in which the Company exchanged the Securities, having a net book value
of $1,585,000, for $700,000 in cash, a $500,000 6% secured promissory note
receivable and 3,600,000 shares of common stock of NuOasis. Upon the closing of
the Exchange Agreement, the Company received cash from NuOasis of $441,801 and
the remaining cash balance that was provided for in the Exchange Agreement of
$258,199 was applied against amounts Mr. Monterosso owed to NuOasis pursuant to
the Amended Option and Warrant Note. In addition, the $500,000 6% secured
promissory note receivable was not ultimately received by the Company as such
amount was also applied against amounts Mr. Monterosso owed to NuOasis pursuant
to the amended options and the Warrant Note. As a result of these transactions,
the Company has recorded a provision for affiliate receivable in the amount of
$758,199 during the year ended June 30, 1998.
In November 1998, the Company filed suit against NuOasis and others
alleging fraud and misrepresentation in connection with the above transactions
(Note 9).
As a result of the Company's acquisition of NPC and the sales and purchases
of the Series B Preferred Stock, as discussed above, a change in control of the
Company has occurred and the Company is no longer a controlled subsidiary of
NuOasis.
3. Acquisition of Ark-Tel, Inc. Leases
In September 1997, the Company agreed in principle to acquire a 50%
convertible net profits interest ("Net Profits Interest") in Universal Network
Services, Inc. ("UNSI"). NPC's Chief Operating Officer, who is also a director
of the Company, is a shareholder and officer of UNSI. The Net Profits Interest
was to provide the Company with up to 50% of UNSI's net operating profit and
grant the Company the option to convert its Net Profits Interest into an equity
interest of up to 100% of UNSI's issued and outstanding common stock. No formal
agreements were ever executed and during the quarter ended March 31, 1998, the
Company abandoned its acquisition of the Net Profits Interest in UNSI and
recorded $22,500 in related professional services expense. UNSI is an
interexchange carrier that provided telecommunications services to both
residential and business customers throughout the United States and certain
foreign countries. In August 1998, UNSI filed for protection under Chapter 11 of
the U.S. Bankruptcy Code.
<PAGE>
3. Acquisition of Ark-Tel, Inc. Leases (continued)
On May 15, 1998, and effective March 1, 1998, the Company acquired the
telephone switching and platform assets and office equipment of Ark-Tel, Inc., a
wholly owned subsidiary of UNSI. Pursuant to the related Asset Purchase
Agreement, the Company acquired certain capital and operating leases (Notes 4
and 9) whose remaining outstanding principle balances approximated the estimated
fair value of the related leased equipment. In exchange, the Company forgave
approximately $300,000 that was owed to the Company. The excess of the total
consideration paid over the estimated fair value of net assets acquired of
approximately $300,000 was charged to expense during the year ended June 30,
1998.
4. Equipment and Furniture
Equipment and furniture, net is comprised of the following at June 30, 1999:
Office equipment, furniture and fixtures $ 130,305
Telecommunications equipment 10,500
140,805
Less accumulated depreciation (55,805)
$ 85,000
During the year ended June 30, 1999, management determined that the
telephone switching and platform assets acquired from Ark-Tel, Inc. (Note 3),
were not currently year 2000 compliant and that significant equipment upgrades
were required to prepare the equipment for the year 2000. As a result, the
Company has ceased payment of required rents and management is in the process of
renegotiating the terms of related leases. The non-payment of required monthly
rents has resulted in an event of default per the related equipment lease terms.
Based on the above, management believes that the related equipment has been
impaired and the Company has recorded a related asset impairment charge
aggregating $651,450 during the year ended June 30, 1999.
<PAGE>
5. Convertible Notes Payable
In connection with the Stock Purchase Agreements with each of the
shareholders of NPC (Note 2), the Company issued Secured Promissory Notes (the
"Notes") in the aggregate principal amount of $1,200,000. The Notes are
convertible into a maximum of 241,900,000 shares of the Company's common stock.
The conversion of the Notes is contingent upon NPC's operations achieving
certain financial goals over the next several fiscal years. The terms of the
conversion are, for every $250,000 of net annual operating income achieved by
NPC, $7,500 in principal amount of the Notes may be converted into 1,511,875
shares of restricted common stock. The Notes are non-recourse, secured by the
assets of NPC, bear interest at 8% per annum, and were due and payable, with
related interest, on May 31, 1999.
During the year ended June 30, 1999, one note holder elected to convert
$134,283 of notes payable to 111,902 shares of the Company's common stock.
Accordingly, the remaining outstanding notes payable balance is $1,065,717 at
June 30, 1999. The Company is currently negotiating with related note holders to
extend the repayment terms of the notes.
In September 1998, the Company issued an additional series of 12%
convertible, subordinated notes payable, raising cash proceeds of $575,900.
Certain note holders elected to convert $540,900 of the notes payable into
27,457,620 shares of common stock. One note holder did not elect to convert,
and, accordingly, the $35,000 note payable remains outstanding at June 30, 1999.
The due date of the note payable was in April 1999 and the Company is currently
renegotiating repayment terms.
<PAGE>
6. Stockholders' (Deficit) Equity
Common Shares Reserved for Issuance
At June 30, 1999, shares of common stock were reserved for the exercise and
conversion of the following:
Preferred stock:
14% Preferred Stock issued and outstanding 170,000
Series B Preferred Stock issued and outstanding 2,745,054
Redeemable common stock purchase warrants:
New Class A (exercisable at $.50 per share) 1,530,000
New Class B (exercisable at $.75 per share) 3,080,000
New Class C (exercisable at $1.00 per share) 1,510,000
New Class D (exercisable at $.50 per share) 12,000,000
1993 Incentive and Non-qualified Stock
Options - available for grant 1,200,000
1991 Non-qualified Stock Options - available for grant 600,000
1989 Incentive Stock Options - available for grant 500,000
1989 Non-qualified Stock Options - available for grant 500,000
Other stock options:
Grants outstanding 847,500
NPC Convertible Notes Payable (Note 5) 214,900,000
Total 239,582,554
None of the common stock purchase warrants have been exercised as of the
date of this report, accordingly, no shares have been issued or reflected in the
stockholders' (deficit) equity section of the accompanying consolidated balance
sheet.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
Preferred Stock
During 1989, stockholders authorized the issuance of up to 1,000,000 shares
of preferred stock with a par value of $.01 per share.
During 1989, the Company sold 750,000 shares of preferred stock designated
as 14% cumulative convertible preferred stock (the "14% Preferred Stock"). The
14% Preferred Stock is redeemable, in whole or in part, at the option of the
Company at a redemption price of $100 per share plus any unpaid dividends
thereon to the redemption date. The 14% Preferred Stock has a liquidation value
of $1.00 per share, ranks, as to dividends and liquidation, prior to the common
stock and is convertible at the option of the holder upon 30 days notice into
one share of common stock, subject to adjustments in certain events.
Each share is entitled to one vote and an annual dividend of $.14 per
share. Dividends are cumulative and payable quarterly when declared. Dividends
on common stock may not be paid unless provision has been made for payment of
preferred dividends.
No 14% Preferred Stock was converted and no dividends were declared or paid
on the 14% Preferred Stock during each of the years ended June 30, 1999 and
1998. Dividends in arrears aggregated $205,825 at June 30, 1999.
The 14% Preferred Stock has a liquidation preference of the original
purchase price ($1.00 per share) plus unpaid dividends on each share thereof.
The balance of proceeds of liquidation, if any, is to be paid to the common
stockholders of the Company. A merger or reorganization or other transaction in
which control is transferred will be treated similar to liquidation.
Subject to anti-dilution adjustments, each share of 14% Preferred Stock is
convertible at any time into one share of the Company's common stock. Each share
of the 14% Preferred Stock votes on a 1:1 converted-to-common stock basis, and
the holders of 14% Preferred Stock and the holders of common stock shall vote
together as one class on all matters submitted to a vote of the Company's
stockholders. The conversion ratio of the 14% Preferred Stock to common stock
will be proportionally adjusted in the event of dilution, i.e. proportional
adjustments for stock splits and stock dividends will be made.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
In March 1994, the Company issued 250,000 shares of Series B Preferred
Stock to Nona. The Series B Preferred Stock has no redemption rights and is not
entitled to any dividends. It has a liquidation value of $2 per share in
preference to any payment on common stock, subject only to rights of the holders
of the 14% Preferred Stock. Each share is entitled to seventy-eight (78) votes
and shall be convertible into seventy-eight (78) fully paid and nonassessable
shares of common stock, or a total of 19,500,000 shares of common stock if all
of the shares of Series B Preferred Stock are converted.
Private Sale of Common Stock and New Warrants
During June 1993, the Company undertook a private placement of 25 units for
an aggregate sales price of $250,000 ("Private Placement I"), with each unit
consisting of 40,000 shares of common stock, 40,000 New Class A redeemable
common stock purchase warrants ("New Class A Warrants") and 40,000 New Class B
redeemable common stock purchase warrants ("New Class B Warrants"). Each New
Class A Warrant entitles the holder to purchase one share of common stock at the
price of $.50 per share for the period from August 1, 1993 to the effective date
of a registration statement registering the common stock and the common stock
underlying the New Class A Warrants offered and issuable under the related
private placement memorandum. Each New Class B Warrant entitles the holder to
purchase one share of common stock at the price of $.75 per share for the period
from August 1, 1993 to the effective date of a registration statement
registering the common stock and the common stock underlying the New Class B
Warrants offered and issuable under the related private placement memorandum.
During July 1993, the Company undertook a private placement of an
additional 25 units for an aggregate sales price of $250,000 ("Private Placement
II"), with each unit consisting of 40,000 shares of common stock, 40,000 New
Class A Warrants, and 40,000 New Class B Warrants.
During August 1993, the Company undertook a private placement of an
additional 20 units for an aggregate sales price of $200,000 ("Private Placement
III"), with each unit consisting of 40,000 shares of common stock, 40,000 New
Class A Warrants, and 40,000 New Class B Warrants.
In connection with Private Placements I, II and III, the Company received
proceeds of $559,000 (net of sales agent and other direct costs which aggregated
$141,000) from the sale of 70 units and issued 2,800,000 shares of common stock,
2,800,000 New Class A Warrants and 2,800,000 New Class B Warrants during fiscal
year 1993.
6. Stockholders' (Deficit) Equity (continued)
In September 1993, in an effort to encourage early exercise, the Company
offered one New Class C redeemable common stock purchase warrant ("New Class C
Warrants") for each New Class A Warrant exercised on or before September 30,
1993. In connection with that offer, 1,550,000 New Class A Warrants were
exercised resulting in the issuance of an additional 1,550,000 shares of common
stock for $775,000 and 1,550,000 New Class C Warrants. Each New Class C Warrant
entitles the holder to purchase one share of common stock at the price of $1.00
per share.
The Company received $50,000, $300,000 and $1,090,000 from other private
sales of 300,000, 1,371,500 and 1,090,000 shares of restricted common stock
during 1993, 1992 and 1991, respectively. The 1993 private sales included
100,000 New Class A Warrants and 100,000 New Class B Warrants. No amounts were
recorded on the balance sheet for the issuance or valuation of the warrants as
all proceeds were recorded in common stock and additional paid-in-capital
accounts. All New Class A, B and C Warrants are exercisable up to one year after
the effective date of the registration of the underlying stock. As of the date
of this report, the registration of the underlying stock has not been finalized
and therefore is not yet effective. In March 1994, the Company issued 6,000,000
New Class D Warrants to Nona. Each New Class D Warrant is exercisable at $1.00
per share and will entitle the holder to receive upon exercise two (2) shares of
common stock, or a total of 12,000,000 shares if all of the New Class D Warrants
are exercised. The New Class D Warrants expire on March 30, 2004, and to date,
none of the New Class D Warrants have been exercised. In September 1997, Nona
sold the New Class D Warrants to Mr. Monterosso for a $1,800,000 promissory note
secured by the New Class D Warrants (Note 2).
1993 Incentive and Non-qualified Stock Option Plans
Under stock option plans adopted on January 22, 1993, the Company's Board
of Directors may grant "incentive stock options" and "non-qualified stock
options" whereby option holders may purchase up to 1,200,000 shares of common
stock prior to the termination of the plan on January 22, 2003. Incentive stock
options may only be granted to officers and other employees; non-qualified stock
options may be granted to employees, advisors, consultants and members of the
Board of Directors of the Company. Incentive stock options may not be granted at
a price less than 100% of fair market value as of the date of grant to officers
and employees who own less than 10% of the Company's common stock and 110% of
fair market value to those officers and employees who own more than 10%.
Non-qualified stock options may be granted at a price to be determined by the
compensation committee of the Board of Directors on the
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
date such non-qualified stock options are granted. Options are exercisable
from the date of grant and expire no later than ten years from the date of grant
or such earlier date as determined by the compensation committee at the date of
grant. However, the term of an incentive stock option granted to an officer or
other employee who at the time of grant owns at least 10% of the Company's
common stock, shall not exceed five years. No options have been granted under
the 1993 incentive and non-qualified stock options plans.
1991 Non-qualified Stock Options
Under a stock option plan adopted on February 1, 1991, the Company's Board
of Directors may grant "non-qualified stock options" whereby employees may
purchase up to 600,000 shares of common stock prior to the termination of the
plan on February 1, 2001. Options must be granted at no less than 85% of fair
market value as of the date of grant. Options are exercisable from the date of
grant and expire no later than five years from the date of grant. No options
were issued or exercised during each of the years ended June 30, 1999 and 1998
and 600,000 options remain available for grant as of June 30, 1999.
1989 Incentive Stock Options
Under a stock option plan adopted on July 30, 1989, the Company's Board of
Directors may grant "incentive stock options" whereby employees may purchase up
to 500,000 shares of common stock prior to the termination of the plan on July
30, 1999. Options may not be granted at a price less than 100% of fair market
value as of the date of grant to officers and employees who own less than 10% of
the Company's common stock and 110% of fair market value to those officers and
employees who own more than 10%. Options are exercisable from the date of grant,
and expire no later than five years from the date of grant. No options were
issued or exercised during each of the years ended June 30, 1999 and 1998 and
500,000 options remain available for grant as of June 30, 1999.
<PAGE>
6. Stockholders' (Deficit) Equity (continued)
1989 Non-qualified Stock Options
Under a stock option plan adopted on July 30, 1989, the Company's Board of
Directors may grant "non-qualified stock options" whereby employees may purchase
up to 500,000 shares of common stock prior to the termination of the plan on
July 30, 1999. Options must be granted at no less than 85% of fair market value
as of the date of grant. Options are exercisable from the date of grant and
expire no later than five years from the date of grant. No options were issued
or exercised during each of the years ended June 30, 1999 and 1998 and 500,000
options remain available for grant as of June 30, 1999.
The Nona Option
In March 1994, the Company granted to Nona a nontransferable option for the
purchase of up to 6,160,000 shares of the Company's common stock. The exercise
price and total number of shares that can be purchased upon exercise of the
option is equal to the exercise price and number of shares of common stock
subject to New Class A, New Class B and New Class C Warrants outstanding at the
Closing Date that eventually expired unexercised. The Warrant Agreements extend
the expiration dates of the respective warrants to one year after the effective
date of a registration statement, at which time Nona may exercise its option
provided all the New Class A, B and C Warrants have not been exercised. Nona
does not hold any of the New Class A, B or C Warrants, nor is it currently
entitled to exercise its Option. In conjunction with the sale of the New Class D
Warrants (Note 2), Nona also sold its rights to exercise any remaining
unexercised New Class A, New Class B and New Class C Warrants.
Other Stock Options
A summary of other stock option transactions is as follows:
Year Ended Year Ended
June 30, 1999 June 30, 1998
Outstanding at beginning of year 847,500 847,500
Granted - -
Exercised - -
Cancelled - -
Issued - -
Outstanding at end of year 847,500 847,500
6. Stockholders' (Deficit) Equity (continued)
Stock Options Exercised
During the year ended June 30, 1997, certain affiliates of the Company
exercised stock options and the Company received notes in the aggregate amount
of $584,167 and aggregate cash payments of $67,874 as consideration for the
exercise of these options. The notes were originally due in May 1998 and earn
interest at 10% per annum. As the these receivables are substantially past their
due date and as the Company is currently involved in litigation with certain of
these debtors (Note 9), the Company recorded a provision against these
stockholder receivables of $515,967 during the year ended June 30, 1999.
7. Related Party Employment and Consulting Agreements
Due to Officer and Related Party
As of June 30, 1999, the Company owes Mr. Monterosso, an officer, and his
wife an aggregate of $356,686. During the years ended June 30, 1999 and 1998,
the Company recorded aggregate salaries and consulting expenses to these two
individuals of $350,000 and $183,000, respectively, and such amounts are
included in selling, general, and administration expenses in the accompanying
consolidated statements of operations and comprehensive loss.
Current and Former Officers and Directors
On April 1, 1994, NPC entered into an employment agreement with Joseph
Monterosso to serve as NPC's Chief Executive Officer. In conjunction with the
acquisition of NPC, Mr. Monterosso became the Company's President and Director
on November 25, 1996, and Chairman on August 8, 1997. The agreement compensates
Mr. Monterosso $125,000 per annum and $250,000 per annum upon the first sale of
the Company's HitLoTTo Value Card, payable in cash or in common stock of the
Company. The Company sold its first HitLoTTo Value Card in February 1998.
Effective July 1, 1997, the Company entered into an employment agreement
with Dennis Houston to serve as NPC's Chief Operating Officer and a Director.
The agreement compensates Mr. Houston $100,000 per annum through December 31,
1997, and $200,000 per annum through June 30, 2000, payable in cash or in common
stock. The agreement also granted Mr. Houston an option to purchase 5,250,000
common shares of the Company at an exercise price of $0.50 per share and
participation in the Company's management bonus program. This agreement, and
related stock options, was terminated in June 1998.
<PAGE>
7. Related Party Employment and Consulting Agreements (continued)
Effective July 1, 1997, the Company entered into a renewed employment
agreement with Steven H. Dong to perform accounting services and to hold the
office of Chief Financial Officer. The agreement compensates Mr. Dong $105,000
per annum through June 30, 1998, and $125,000 per annum through June 30, 1999,
payable in cash or in common stock of the Company. The agreement also granted
Mr. Dong an option to purchase 800,000 common shares of the Company at an
exercise price of $0.50 per share and participation in the Company's management
bonus program. This agreement, and related stock options, was terminated in
January 1998.
In August 1995, the Company entered into an Employment Agreement with Fred
G. Luke, the Company's former Chairman and President. Mr. Luke served as the
Company's Chairman and President since approximately March 30, 1994 through
August 8, 1997, and November 25, 1996, respectively. The terms of the Employment
Agreement call for Mr. Luke to receive $4,500 per month, retroactive to April 1,
1994, for five (5) years as a base salary; and, grant him an option to purchase
3,000,000 shares of the Company's common stock at an exercise price of $.12 per
share. In May 1997, 198,715 common shares were issued in settlement of all
amounts owed to Mr. Luke as of May 5, 1997. The Company had no amounts due to
Mr. Luke as of June 30, 1999 and 1998. Mr. Luke's Employment Agreement was
terminated effective May 5, 1997.
8. Income Taxes
The income tax effects of significant items comprising the Company's net
deferred income tax assets and liabilities are as follows as of June 30:
1999 1998
Asset impairment charge $ 259,501 $ -
Accrued litigation settlements 349,328 -
Accrued expenses 68,844 -
Valuation allowance (677,673) -
Current portion of deferred tax
assets $ - $ -
Net operating loss carryforwards $ 6,230,800 4,632,000
Valuation allowance (6,230,800) (4,632,000)
Long-term portion of deferred
tax assets $ - $ -
<PAGE>
8. Income Taxes (continued)
The reconciliation of income taxes computed at the federal statutory tax
rate to income tax expense at the effective income rate is as follows:
1999 1998
Federal statutory income tax (benefit) rate (34.0)% (34.0)%
Increases (decreases) resulting from:
Write off of excess purchase price over
basis of net assets acquired - 9.2
State tax effect (10.5) -
Net change in valuation allowance 44.5 24.8
Effective income tax (benefit) rate -% %
The Company has federal and state net operating losses ("NOL's")
approximating $15,934,000 and $10,570,000, respectively, as of June 30, 1999. A
significant portion of the NOL's resulted from the acquisition of NPC and may be
subject to ownership change limitations. The federal NOL's carryforwards begin
to expire in fiscal year 2005. The state NOL's carryforwards begin to expire in
fiscal year 1999. In addition, utilization of the NOL's may be limited on
Section 382 of the Internal Revenue Code due to additional ownership changes.
At June 30, 1999 and 1998, a 100% valuation allowance has been provided to
reduce the Company's net deferred tax assets for the amount by which the
deferred tax asset exceeded the net deferred tax liability resulting from all
temporary differences. The Company has provided the allowance since management
could not determine that is was "more likely than not" that the benefits of the
deferred tax assets would be realized.
9. Commitments and Contingencies
Legal Proceedings
On August 28, 1998, the Company received a lawsuit (San Francisco Superior
Court Case No. 997548) filed by Worldcom Network Services, Inc. ("Worldcom") to
recover the sum of $2,208,362 allegedly due and owing as a result of a debt that
the Company allegedly guaranteed on behalf of UNSI. Although the Company denies
liability on the guarantee, the Company has reached a settlement with Worldcom
in which the Company will transfer 2,266,667 shares of its restricted common
stock to Worldcom. In exchange, Worldcom agrees to release the Company from any
and all liability, known and unknown up to the date of the related settlement
agreement, which is November 3, 1999. As a
9. Commitments and Contingencies (continued)
result of the settlement, the Company recorded a litigation settlement
expense of $712,560 during the year ended June 30, 1999. The expense was
determined by multiplying the number of shares issued upon settlement by the
closing price of the Company's common stock on the date of settlement, less a
10% discount factor based on the restricted nature of shares issued.
On October 2, 1998, Pickett Communications, Inc. ("Pickett") filed a
complaint (San Francisco Superior Court Case No. 998281) for monetary damages
and challenged the Company's rights to use the HitLoTTo logo. In July 1999, a
settlement agreement was executed that requires the Company to release 218,036
shares of its restricted common stock to Pickett. This stock had previously been
issued to Pickett pursuant to a contract dated October 14, 1997 in which the
Company agreed to pay Pickett for services it provided to NPC. The Company had
previously refused to release the common stock, as NPC disputed certain charges
which it believed were unauthorized. As a result of the settlement, the Company
recorded a litigation settlement expense of $141,287 during the year ended June
30, 1999. The expense was determined by multiplying the number of shares issued
upon settlement by the closing price of the Company's common stock on the date
of settlement, less a 10% discount factor based on the restricted nature of
shares issued.
On February 19, 1999, Accountempts and RHI Management Resources filed a
complaint (San Francisco Superior Court Case No. 301366) for breach of contract
to recover approximately $26,000 allegedly due and owing for temporary
employment services. On July 27, 1999, a settlement agreement was executed in
which the Company agreed to pay an aggregate amount of $24,000 at the rate of
$2,000 per month. As the Company previously accrued $35,475 to these parties,
the Company recorded a litigation settlement gain of $11,475 during the year
ended June 30, 1999.
On August 30, 1999, the California Labor Commissioner awarded Joseph Arton
$34,426 in wages, interest and penalties based on claims that this individual
was an employee of the Company. As a result of the Company's appeal filed on
September 20, 1999, Joseph Arton filed a related complaint (San Francisco
Superior Court Case No. 306593). A trial is set for November 1999 that will
address the employee's claim for unpaid wages. The Company contends that Joseph
Arton was not an employee of the Company, but was an independent contractor.
Further, the Company is considering filing a cross complaint for breach of
contract. During the year ended June 30, 1999, the Company recognized a $34,426
litigation expense with respect to this matter.
<PAGE>
9. Commitments and Contingencies (continued)
On November 10, 1998, the Company filed legal action (TotalAxcess, Inc. v.
NuOasis Resorts, Inc; Nona Morelli's II, Inc.; NuOasis International, Inc.; Fred
Luke, Jr.; Rocci Howe; Steven H. Dong; John D. Desbrow; Archer & Weed; Richard
Weed) in San Francisco Superior Court, Case No. 999131. The suit alleges fraud
and misrepresentation in the sale of securities, which were not qualified for
sale and professional malpractice against legal counsel representing the
Defendants in this transaction. On July 26, 1999, NuOasis Resorts, Inc. and Nona
Morelli's II, Inc. filed a cross complaint against the Company alleging claims
for breach of contract, fraud, material misrepresentation in the purchase of
securities and libel, and seeks rescission of certain contracts and the
imposition of a constructive trust over certain securities. Also on July 26,
1999, Rocci Howe, Fred Luke, Jr. and Steven Dong filed cross complaints against
the Company alleging claims for breach of contract, indemnity and libel. All
counsel have stipulated to a change in venue from San Francisco to Orange County
Superior Court, and the San Francisco Court has transferred the file to the
Orange County Court. The trial date is set for July 2000. The Court ordered that
all claims the Company has against Richard Weed are to be arbitrated and that
this arbitration will not take place until after the trial. Management plans to
vigorously pursue its complaint and defend each cross complaint, which it
believes lack substantial merit.
On January 6, 1999, the Company filed a lawsuit (TotalAxcess.com, Inc. v.
Dennis Houston, Orange County Superior Court Case No. 809248). This complaint
alleges breach of fiduciary duty by Mr. Houston as one of the Company's
directors for failing to disclose material facts in the Ark-Tel Asset Purchase
Agreement which have resulted in the Company's being sued by Worldcom Network
Services, Inc. (see above). On June 29, 1999, Mr. Houston filed a cross
complaint alleging claims for breach of contract, breach of the implied covenant
of good faith and fair dealing, misrepresentation, fraud and embezzlement. The
Company is vigorously pursuing the matter against Mr. Houston and plans to
vigorously defend the cross complaint. At the present time, related legal
counsel has not yet received responses to discovery, but the court has set an
evaluation conference for December 2, 1999.
<PAGE>
9. Commitments and Contingencies (continued)
On June 26, 1997, the Company filed a lawsuit (TotalAxcess.com, Inc. v.
Network Long Distance, Inc.) filed in the District Court, City and County of
Denver, Case No. 97 CV 4131, Division 7. The complaint was filed against Network
Long Distance, Inc. and their transfer agent to compel them to release shares of
Network Long Distance, Inc.'s common stock (the "Shares") that was received by
the Company in connection with a release of liability granted to NuOasis
Resorts, Inc. Once the Shares were properly transferred to the Company, the
Company dismissed its claims as moot. However, Network Long Distance, Inc.
(currently known as Eclipse Communications, Inc. or "Eclipse") continues to
pursue the Shares through its counterclaims. Eclipse is claiming that it owns
some or all of the Shares and is seeking damages and an injunction prohibiting
the transfer of the Shares. In response to Eclipse's allegations, management has
indicated that it will vigorously contest the litigation, as it believes the
case to be groundless and without merit. This matter is currently set for trial
to commence in February 2000. Should Eclipse prevail in this matter, it may be
in a position to recover a significant portion of the stock at issue, or the
value thereof, plus 8% interest per annum from 1997 through trial.
Although there is no pending litigation at the present time, M.H. Meyerson
& Co. ("Meyerson") claims that it is entitled to 717,898 warrants to purchase
common stock of the Company pursuant to a December 12, 1997 Investment Banking
Agreement. The Company contends that Meyerson is not entitled to the warrants
because it failed to fulfill its obligations under the Investment Banking
Agreement. The Company is in settlement discussions regarding this matter.
Corporate Financing Program
During the year ended June 30, 1999, the Company implemented a program in
which current stockholders were invited to exchange their free trading shares of
common stock for a larger number of restricted common shares. Pursuant to the
Company's "Corporate Financing Program," each free trading share surrendered to
the Company entitled the contributing stockholder to 1.1333 shares of restricted
common stock. The shares of restricted common stock are issuable upon the
Company liquidating the free trading shares surrendered. As of June 30, 1999,
there are 1,048,003 shares of free trading common stock that are held in escrow
and that will require the issuance of 1,187,702 shares of restricted common
stock. Subsequent to June 30, 1999, the Company received an additional 584,147
free trading shares that will require the issuance of 662,014 restricted shares.
<PAGE>
9. Commitments and Contingencies (continued)
Capital and Operating Leases
The Company sublet office space in San Francisco, California from a
stockholder on a month to month basis, which ended in July 1999. On June 17,
1999, the Company entered into a five year operating lease for office space in
Oakland, California commencing August 1, 1999. Monthly lease payments under the
lease are $12,542. The Company also leased office space in Naples, Florida, and
Springdale Arkansas through April 1999. The Company continues to lease space in
Little Rock, Arkansas through March 2001. In addition, the Company acquired
certain operating and capital leases from Ark-Tel, Inc. (Note 3). Minimum annual
payments related to all noncancelable operating and capital leases are as
follows for the years ending June 30:
Operating Capital
2000 $ 321,856 $ 909,523
2001 269,895 6,529
2002 251,279 544
2003 251,279 -
2004 150,503 -
Thereafter 12,542 -
Total $ 1,257,354 916,596
Less amounts representing interest (212,149)
Present value of minimum lease payments 707,447
Capital lease obligations, current (698,091)
Capital lease obligations, noncurrent $ 6,356
Rent expense aggregated $182,961 and $61,877 in fiscal years 1999 and 1998,
respectively.
<PAGE>
9. Commitments and Contingencies (continued)
Year 2000
Other than the matter described in Note 4, the Company does not believe
that the impact of the year 2000 computer issue will have a significant impact
on its consolidated operations or consolidated financial position. Also, the
Company does not believe that it will be required to significantly modify its
internal computer systems, equipment or products. However, if internal systems
do not correctly recognize date information when the year changes to 2000, there
could be adverse impact on the Company's consolidated operations. There can be
no assurance that another entity's failure to ensure year 2000 capability would
not have an adverse effect on the Company.
Contractors of significant systems have upgraded and tested all
telecommunications systems utilized by the Company and related compliance
certificates are on file at the Company's corporate offices.
Management expects all of the Company's hardware and software to be year
2000 compliant by the end of calendar year 1999. These systems include all
finance and general business computers, network file servers, and database
servers. The Company's information technology department will perform all
necessary hardware and software upgrades and year 2000 tests.
10. Extraordinary Item
During the year ended June 30, 1999, the Company satisfied certain accounts
payable and accrued liabilities for amounts that were less than the carrying
values of the related liabilities. The resulting $167,529 of debt forgiveness
has been recorded as an extraordinary item in the accompanying consolidated
statements of operations and comprehensive loss. The item has not been presented
net of tax due to the Company's current year net loss and existing net operating
loss carryforwards.
11. Subsequent Events
Subsequent to June 30, 1999, the Company issued 2,100,000 shares of its
common stock and received gross proceeds aggregating $710,000 in connection with
private placements. Of these amounts, 1,750,000 shares and gross proceeds of
$510,000 related to sales to Blackstone. In addition, 641,784 shares of common
stock were issued upon the conversion of Series B Preferred Stock.
TOTALAXCESS.COM, INC.
Exhibit 24.1
SCHEDULE OF SUBSIDIARIES
This schedule contains a list of all subsidiaries, the state or other
jurisdiction of incorporation or organization of each, and the names under which
each subsidiaries do business.
Subsidiary: National Pools Corporation
State of Incorporation: Delaware
Subsidiary: Academy Network Services
State of Incorporation: Delaware
Subsidiary: Premier Plus, Inc.
State of Incorporation: Delaware
Subsidiary: Lottery Publications Corporation
State of Incorporation: Delaware
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-01-1998
<PERIOD-END> Jun-30-1999
<CASH> 572,951
<SECURITIES> 30,065
<RECEIVABLES> 548,548
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,213,930
<PP&E> 140,805
<DEPRECIATION> 55,805
<TOTAL-ASSETS> 1,306,130
<CURRENT-LIABILITIES> 5,074,482
<BONDS> 0
0
72,086
<COMMON> 1,246,552
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,306,130
<SALES> 0
<TOTAL-REVENUES> 1,271,673
<CGS> 1,193,225
<TOTAL-COSTS> (5,071,137)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,250
<INCOME-PRETAX> (4,992,689)
<INCOME-TAX> 1,345
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 167,529
<CHANGES> 0
<NET-INCOME> (4,826,505)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07
</TABLE>
