Epixtar Corporation

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Epixtar Corporation

  1. 1. - THE RESEARCH WORKS, INC. - World-Class Equity Research Services for Small-Cap and Microcap Stocks - - Epixtar Corporation Symbol/exchange: EPXR/OTC BB Average daily volume: 40,385 Stock price 8/27/03: $4.80 FD Shares outstanding (3/31): 15,145,382 52-week price range: $9.20 – $0.28 Equity market capitalization: $73 million Recent News Stock Price Chart SEC Filings This Successful ISP and Telecommunications Services Provider Plans to Offer a Full Range of Call Center Services through Offshore Telemarketing Centers Epixtar Corporation ("Epixtar" or the "Company") has employed outsource and offshore telemarketing with great success in the sale of its own telecommunications services, and it now plans to broaden its business model to include call center services marketed to third parties. Use of offshore telemarketing centers operated out of English speaking, technologically literate, developing nations should provide large savings. • The call-center industry serves a $50 billion market, of which the largest 10 companies control less than a 10% market share. Few economies of scale are evident for the larger firms, and Epixtar has a highly efficient business model, thanks to its innovations in personnel management and technology. The Company also has a first-mover advantage in Asian markets. • Epixtar’s marketing and technology investments are showing strong returns. Management plans to leverage these gains to make the transition to a full-service telemarketing firm and Business Processing Outsourcer (BPO), including use of international call center facilities. The Company recently announced the completion of the first round of $4 million in equity financing to build out a 1,500- seat flagship call center in Manila, Philippines. Epixtar plans to develop 4,000 seats of telemarketing capacity over the next 12 - 18 months. • Epixtar has strong revenue and earnings growth potential, with estimated five- year top-line CAGR of nearly 50%. The Company has recently been named to Florida Trend's Top 250 list of public companies. While 2Q revenue was down sequentially, its revenues grew 3-fold on a year-over-year basis. An approximate 100% gain in 2003 revenues appears likely. Management maintains that revenue was deferred from 2Q to the second half of the year, due to the transition to new facilities Profitability was achieved in the past three quarters and should expand in
  2. 2. the second half of this year, for EPS of $0.65 in 2003. • The Company’s stock appears to be undervalued. Its trades now trade at 7.4 and 3.7 times estimated earnings for 2003 and 2004, respectively. A comparison with a basket of similar companies reveals that the stock price would have to more than double to be on par with the peers’ average P/E of 17. _____________________________________________________________________________________ Address: 11900 Biscayne Boulevard, Suite 262, Miami, Florida 33181 Telephone: (305) 503-8600 Web site: epixtar.com State or other jurisdiction of incorporation or organization: Florida Auditors: Liebman Goldberg & Drogin LLP (Garden City, NY). In their review of the Company’s 2002 results, the auditors expressed a “going-concern” qualification. Investor contact: Irving Greenman, CFO (305).503-8600 Industry Background Banks and transportation firms have operated large corporate call centers for at least three decades, but technological advances now allow small companies to access high volume telephone facilities. The telecommunications boom of the 1990s facilitated a drop in bandwidth and switches costs, so many smaller companies now use telemarketing for technical assistance, customer service or direct marketing needs. Companies can now outsource their telemarketing business to third party call centers, which establish and maintain contact with prospective and existing customers. New technology also precipitated a shift in market focus from “inbound” call centers, which handle calls initiated by customers, towards “outbound” centers, in which agents initiate marketing calls. While inbound service still accounts for more traffic, outbound call centers appear to have great growth potential. Many companies choose to bid out their calling operations to Business Process Outsourcing (“BPO”) companies, due to the high fixed cost of telemarketing facilities. Outsource call centers are presented with a script and monitored by clients, and can fulfill various functions from order taking to billing. There are approximately 100,000 call centers with 2.5 million agent positions within the United States, and industry monitors have estimated that this figure could increase by more than 14% by CY 2005. While there are a handful of “super centers”, most locations only employ a small number of agents. The offshore outsourced model. The opportunity for offshore telemarketing centers is robust, due to growing numbers of technically literate English speakers in developing nations such as India, Malaysia and the Philippines, where labor and plant costs are low. Facilities outside the U.S. currently represent under one quarter of the world’s call centers, but this fraction should increase dramatically as more companies take notice of the savings and reliability offered. According to a recent report from consultants Frost and Sullivan, call center revenue in India is projected to grow to $735 million in 2008, up 2
  3. 3. from $237 million in 2002; Philippine BPO’s are expected to generate $112 million by 2008. Large capacity offshore facilities can serve multiple companies and several products simultaneously. Offshore telemarketing firms generally have inter-linked centers at several locations, which allows them to service spikes in call volume. Technology. The core technology of a call center is its automatic call distribution (“ACD”) system and centralized database. Also important is a quality control system for monitoring phone calls and providing feedback. Each marketer works with a computer and telephone set that are connected to a supervisor, telecommunications switch, and data network. An ACD system is a proprietary high volume phone switch for routing inbound call traffic through proper conduits to the appropriate agents. Historically, this switch only handled calls and log information, but modern ACD switches often include additional software to allow for a comprehensive calling solution. Switches now can manage all call information, and all of a center’s processes are automated, from initial transaction to customer management. Competition. The call center market is extremely fragmented; the largest company in the industry controls less than a 5% market share and the top 10 companies, less than 10%. The total market size is about $50 billion, leaving much opportunity for smaller players like Epixtar. Convergys Corporation (CVG/NYSE), the largest competitor, has annualized revenues of $2.2 billion and operating earnings of $274 million. Convergys employs 44,000 people in 45 centers throughout the world and is expanding abroad; it will compete with Epixtar for business in the Philippines. Epixtar has some competitive advantages. The Company has a first mover advantage of over one-year in entering the marketplace, and uses a performance based pay model that attracts and retains superior talent. India-based HCL Technologies is another large player in the BPO market, with annualized revenues of approximately $34 million from its BPO divisions. As of March 31, 2003, HCL Technologies employed 8,748 people in 26 offices within 14 countries and recently signed British Telecom to a five-year, $160 million BPO contract. While companies such as Convergys and HCL Technologies are highly visible, we do not believe they have a distinct market advantage in the telemarketing industry. As evidence, many large companies, such as AOL and G.E. Capital, have recognized the cost savings of offshore locations and built their own facilities, rather than outsource to BPO companies. Epixtar's Business Model Epixtar presently develops Internet and telecommunications services for small-to-medium sized businesses, and employs outsource telemarketing to promote customer acquisition and support services. The Company has 230,000 subscribers to its five brands of 3
  4. 4. business ISP services, and plans to launch additional ISP and telecommunications brands in 2003. Epixtar recently started selling other companies’ products as well; launching its first two Fortune 1,000 marketing service campaigns. Due to this business expansion, the Company’s revenue model will change dramatically with the opening of three large outsource call centers in Asia. Epixtar will then transition to a full-service telemarketing firm (inbound and outbound traffic), a move that will incorporate management’s years of successful experience in marketing its own products through such channels. Epixtar’s service offerings are different versions of dial-up ISP, with various enhancements added. All five brands include a customized web page, some include a link to a portal for legal or accounting services, and others come with discount long distance telephone services. The cost to customers is $29.95 per month, which is paid on a monthly basis with a one-month free trial. Customers are billed through local telephone service providers, and can cancel at any time, but the average customer life during the past nine months has risen to 6.5 months from 3 months. Customer acquisition costs total approximately $30, which is recovered in the first bill; the fixed cost of ongoing accounts is only about $2 per month. After the Company is able to handle its own calls, it should save an average of $6 per sale. Epixtar’s business is outsourced to more than two dozen telemarketing firms in the Philippines, India, Caribbean and the U.S. The Company maintains quality control by employing supervisors that train and monitor marketing agents; an independent firm also verifies each transaction to ensure proper billing. For added incentive, marketers’ pay is performance based. Customer service is crucial for Epixtar, so it has 16 full-time customer service employees in the U.S. and 9 in the Philippines. The Company also employs a country manager in India, and is in the process of hiring two more managers in the region. Outsourcing to offshore facilities has substantially reduced Epixtar’s costs, and the Company has been a pioneer in realizing these savings. Although international telephone rates have traditionally been about 50% higher than domestic rates, the infrastructure and payroll savings dwarf this cost, and technology enhancements should lower phone rates over time. Operating costs per hour of marketing per agent are $12-16 for Epixtar; this cost is evenly divided between salary, telecommunications and management expenses, and should be dramatically lower when the Company operates its own centers. Broadband telecommunications also allow for significant cost savings. With Voice over IP (VoIP), the Company is able to utilize broadband connectivity to transmit phone calls for less than five cents per call, which is less expensive than within U.S. VoIP involves digitizing voice phone calls into packets of data that can travel over the Internet eliminating per minute charges. Another benefit offshore telemarketing is the access to higher-educated sales staff. Whereas most telemarketers in the U.S. have only high-school degrees, the staff in the Philippines typically has four-year college degrees. Sales staff turnover in the Philippines 4
  5. 5. can be as low as the single digits, whereas U.S. turnover rates run from 20 to 50%. Future Plans Last quarter Epixtar announced the formation of a wholly owned subsidiary, Epixtar Marketing Services, Inc. (“EMS”) to offer its BPO telesales services. This subsidiary will leverage Epixtar's call center training and supervision skills to market its own business- to-business brands, as well as serve the needs of other companies. On June 24, the Company announced the completion of the first round of $4 million in equity financing to build out a 1,500-seat flagship call center in Manila, Philippines. Epixtar plans to develop 4,000 seats of telemarketing capacity over the next 12 - 18 months. These marketing desks will be located at two new facilities in the Philippines and one in India. This expansion should shift the Company’s core business away from its business-to-business telecommunication services. Epixtar plans to be a bi-directional outsource telemarketer for residential, small business and enterprise customers. These centers will handle Epixtar’s traditional customers, and should afford savings of $6 per sale of its technology packages, yet the majority of revenues should be generated by the management of other companies’ marketing needs. Management is attempting to raise additional financing to cover the remaining costs of its new facilities. Still, this financing should be significantly less than originally anticipated since Epixtar will receive government incentives. In this regard, Epixtar recently entered a Memorandum of Understanding with a Calcutta-based agency of the Indian government to establish a 1,000-seat call center and BPO facility with operations slated to begin in early November, 2003. Construction, labor and other costs of the new centers are expected to be so low that invested capital may be returned as revenue in one year. Each seat is projected to yield $1,600 in revenue per month (assuming 25 days of work) at one shift capacity. With 4,000 seats, sales are estimated to be $6.4 million per month or $76.8 million per year. Epixtar will likely run one and one half shifts per center, but this estimate only assumes one eight-hour shift. Additionally, our financial model is slightly more conservative as it assumes a less aggressive build, an average of 3,000 seats in FY 2004 and 4,000 seats in FY 2005. Company History Epixtar was established in 1994 under the name Pasta Bella to act as a holding company to acquire other businesses. The name was changed twice, first in 1997 to Global Asset Holdings, Inc. and again in 2002 to Epixtar Corporation. In November 2000, the Company bought a majority stake (80%) in SavOnCalling.com. SavOnCalling marketed and sold telecommunications services on a resale basis. In March 2001, the Company acquired National Online Services, a provider of Internet related services for small business subscribers. This subsidiary uses independent telemarketers for its business marketing efforts. 5
  6. 6. Balance Sheet on June 30, 2003 (giving effect to the acquisitions; in 000s) Cash & equivalents 1,891 --- Short-term debt 404 Other current assets 7,783 --- Other current liabilities 7,016 Total current assets 9,674 --- Long-term debt 2,474 Goodwill & other intangibles 16,801 Other long-term liabilities 55 Other assets 325 --- Shareholders’ equity 17,351 Total assets 27,300 --- Total liabilities & equity 23,300 On June 30, 2003, the Company had working capital of $2.3 million. Current assets included goodwill of approximately $17 million. There was long-term debt of $2.5 million, and other non-current liabilities totaled $55,000. Stockholders’ equity consisted of approximately 21,010 shares of preferred and 11 million shares of common stock. Income Statements (in $000s, unless otherwise noted) --- 2002A Q1 03A Q2 03A 2003E 2004E 2005E Revenue 26,251 12,367 9,268 51,298 104,680 129,529 Gross profit 8,469 6,383 5,121 27,683 62,808 80,308 Gross margin (%) 32.3 51.6 55.3 54.0 60.0 62.0 SG&A expense (10,234) (3,850) (3,578) (16,327) (31,404) (38,859) Other operating expense (99) (36) (41) (172) 0 0 Operating income (loss) (1,863) 2,497 1,502 11,184 31,404 41,449 Other income (loss) (582) (556) (132) (3,186) (9,421) (12,435) Net income (loss) (a) (2,446) 1,942 1,370 7,997 21,983 29,015 EPS $(0.23) $0.18 $0.13 $0.65 $1.30 $1.71 Avg. # of fully diluted shares(000s) (b) 10,503 10,503 10,516 12,482 16,900 17,000 (a) Although the Company did not pay taxes in FY 2002, we expect NOL carry-forwards of $1.6 million to expire this year and a tax rate of 30% to apply in future years. (b) Assuming additional 2 million shares and 1 million warrants from $7 million proposed offering. In 2004E, 4 million warrants from previous offering are exercisable. There is no way to estimate the Company's revenue and earnings prospects with any degree of precision, because there are myriad variables that might impact future results. Nevertheless, there is enough information to develop a set of assumptions upon which an earnings model can be built, with the understanding that the model is subject to significant revision if there are changes to the underlying assumptions. For example, there is a likelihood that during these years the Company will make acquisitions and raise additional equity capital, thereby altering the earnings outlook presented above. The rapid increases in revenue over the last six quarters indicate that the Company’s business model is scalable and can be highly profitable. We project top-line growth of approximately 100% in FY 2003E. Company guidance looks forward to $5-10 million in revenue from the new BPO business in 2003, growing to nearly 50% of total revenue in 2004. ISP revenue estimates are based upon historical growth restricted by maturity in the 6
  7. 7. marketplace. Revenue of $10-14 million per quarter is possible this year, but growth rates should decline next year as existing businesses mature. BPO revenue projections are based on an initial number of calling seats (less than 1,000) scaling to an average seat count of 3,000 next year. 1,000 additional average seats are anticipated for each subsequent year. We do not assume any added productivity in the outer years, but use a conservative estimate of $8 per hour, or $1,600 per seat per month. We believe that Epixtar is in an enviable position, as it can potentially achieve gross margins of over 90% from its new BPO business and 50% or greater from its traditional ISP business. We project blended gross margins of 50-55% through 2003 trending to 65% in the outer years. On an operating basis, profit margins of 35% are within reach (when fully seated), and we have projected operating margins of 25% by year-end. The Company will be paying taxes this year, so net margins are likely show an initial drop, rebounding to 21% next year. BPO net margins of 23% in 2004, climbing to 28% in 2006, are incorporated in our blended margins. Slightly more conservative than management guidance, we project EPS of $0.65 in 2003 increasing to $1.30 in 2004. Our FY 2004E share count incorporates dilution from proposed financing. Statements of Cash Flows (in $000s, unless otherwise noted) --- 6M 2003 6M 2002 Cash flows from operating activities: --- --- --- Net income (loss) 3,312 (3,140) --- Adjustments to reconcile net loss to net operating cash (3,927) (3,131) --- Net cash (used in) provided by operating activities (615) (9) Cash flows from investing activities: --- Net cash (used in) provided by investing activities (171) (204) Cash flows from financing activities: --- Net cash (used in) provided by financing activities 1,953 279 Net increase (decrease) in cash & equivalents 1,168 65 Note: This table gives effect to the acquisitions as if they had occurred on January 1, 2001. We do not believe the Company will require any additional financing to achieve its core business objectives. Positive operating cash flow of over $8 million in 2003 appears likely, even with entry into the BPO market. Financing for the Company’s facility build seems unlikely to pose much difficulty, because the return on invested capital is expected to be 12 months. The proposed financing for this build is an issuance of up to 2 million convertible preferred shares (convertible at $3.50 per share), with some warrant coverage, for proceeds of $6-7 million. Approximately 30% of this offering (representing 600,256 share of common stock) has been sold as of June 30, 2003. Shareholder Profile (June 30, 2003) Total common shares issued and outstanding 10,516,617 7
  8. 8. Float 3,721,079 Convertible preferred shares 600,286 Options outstanding (at $2.50) 929,000 Warrants outstanding (at $0.50, locked until 5/31/04) 4,000,000 Warrants outstanding (at $7, from financing) 294,140 Warrants outstanding (at $5, fees from financing) 60,025 Total fully diluted shares outstanding (treasury method) 15,145,382 Martin Miller 2,898,921 Stanley Muatt 2,803,000 Sheldon Goldstein 900,000 Executive Officers & directors as a group 3,078,921 Note: This table depicts beneficial ownership as determined in accordance with the rules of the SEC; some of the shares may be double counted. For additional details, refer to the Form 10-K for the year ended December 31, 2002. As of June 30, 2003, there were 10,516,617 common shares outstanding, with a float of approximately 35%, or 3.7 million shares. While 57% of the Company shares are held by two individuals (through their ownership of TransVoice), directors and officers only hold 30% of the Company. There were 49 holders of record of the Company's common stock, but since a substantial portion of the Company shares are held by a depository company, Epixtar believes the number of beneficial owners of the securities is substantially greater than 49. There are warrants to purchase 4,000,000 shares of common stock at an exercise price of $0.50 per share. Additionally, there are convertible preferred shares and warrants associated with the aforementioned financing that have been incorporated in the Shareholder Profile table even though the offering is not closed. Epixtar sold 21,010 shares of convertible preferred stock (30% of the initial offering) at a price of $100 per share for gross proceeds of $2,101,000. These preferred shares are convertible into 600,256 shares of common stock and have a dividend of 8% (redeemable at $200 per share). The company also issued warrants to purchase 14 shares of common stock with each preferred share sold, or 294,140 shares exercisable at $7.00 per share (expiration June 2008). These warrants can potentially yield proceeds of $2,058,980 for an aggregate offering of $4.2 million. Additional warrants to purchase 60,025 shares at $5 per share were issued as fees. Selected Investment Considerations • Larger competitors. The Company is competing against larger companies that may attract the top tier of the labor pool and have better access to capital. • Cramming complaints. During the past 12 months, the Company has established itself as a highly effective sales training company. However, in 3Q 2002, Epixtar temporary suspended marketing of one of its five brands, One Nation Calling Plan, since some of its outsource calling centers India used improper methods to obtain customers. Epixtar quickly implemented a quality assurance program, an internal 8
  9. 9. investigation, and began using independent monitors to examine sales records. There have been investigations by five states (yet to be resolved in three states) regarding Epixtar’s business practices. Our-Street.com allegedly filed complaints in March 2003 against Epixtar with the FTC and the SEC on behalf of consumers nationwide and shareholders of the Company. The complaints assert unfair or deceptive acts and practices in or affecting commerce. According to the grievances, the Company participated in “cramming,” the practice of billing people through local telephone companies for services that were said to be free, or that the victim had rejected. The complaint also asserts that in recent SEC filings, the Company failed to disclose these lawsuits and the income generated through the illegal practices. Epixtar has taken measures to address the cramming issues. The Company has a policy of refunding customers’ money if charges are disputed, and voice files of the sale in question are distributed to all those that inquire. • FTC regulation initiatives. The FTC has proposed additional regulation regarding “do not call” lists that apply mainly to residential customers. Epixtar’s key customers are small businesses, but the Company makes an effort to screen every call to help ensure that no potential customers are on such a list. • Stock volatility. The stock is thinly traded, has exhibited price volatility, and is a bulletin board stock subjecting broker-dealers to additional sales practice and disclosure requirements. The shares are appropriate only for risk-oriented investors. • Other risks. Additional risks are outlined in the Company's investor materials and SEC filings, and these are hereby incorporated by reference. Stock Valuation In view of the inconsistent revenue streams from Company operations and the fact that the Company is changing its business model and entering new markets, there is no readily available model to value Epixtar common shares. One method is to use a competitive analysis as well as a PEG (price to earnings over growth). Since many of the companies within the telemarketing industry are private, we are using only four public companies as the basis of our comparison. These companies include the remaining publicly held telemarketing companies: Convergys Corporation, Sitel Corporation (SWW/NYSE), TeleTech Holdings Inc. (TTEC/OTC) and West Corporation (WSTC/OTC). (HCL Technologies was not included since it is not a U.S.-based company). Comparative Valuation Analysis Telemarketing Price on Market Cap P/E P/E P/E company 8/26/03 ($ mil) LQA 2003E 2004E Convergys* 17.64 2,755 15.2x 15.6x 14.6x Sitel* 1.25 133 NM NM NM 9
  10. 10. TeleTech* 4.56 343 NM NM 28.5x West Corp.* 24.44 1,656 20.5x 18.6x 14.4x Average 21.0x 17.1x 19.2x Epixtar 4.80 73 9.2x 7.4x 3.7x * based on analyst consensus estimates as of 8/26/03 Teletech reported a loss for the latest quarter and is expected to earn $0.02 in FY 2003. Sitel does not currently have coverage. Epixtar appears to be undervalued relative to its competitors. The Company’s P/E ratios for projected earnings in both 2003E and 2004E are significantly below the group’s average. To achieve parity with its competitors, the Company’s share price would have to more than double (to $11 per share). However, Epixtar would still be trading at a slight discount to its competitors on 2004E earnings. On an absolute valuation basis, we estimate a five year top-line CAGR for Epixtar of nearly 50%, with earnings growing even more rapidly (unfeasible to calculate due to recent earnings losses). If we assume a growth rate of half our projection (25%) and a conservative last quarter annualized PEG of 1.0, Epixtar’s shares can be valued $13 per share, or more than double its recent trading range. Officers and Directors (Ages are as of December 31, 2002.) The Company is managed by executives with industry-respected careers in telemarketing and communications. Martin Miller (63), Chairman of the Board, CEO. Mr. Miller has been a private investor in Epixtar since 1997. Concurrently, he acted as the U. S. manager of corporate finance for a foreign investment group. William D. Rhodes (54), President and CEO of Epixtar Group, Inc. and Epistar BPO Services, Inc. Mr. Rhodes was appointed as President and CEO of Epixtar’s newly formed subsidiaries in June 2003 after serving as President of the Company since January 2002. He was founding President of National Online Services, Inc. before its acquisition by Epixtar. Mr. Rhodes’ other management positions include Chief Operating Officer of Equalnet Communications in Houston and President and COO of Valu-Line Communications in Longview, Texas. Previously, he worked for 20 years with Rockwell International. David Srour (40), Executive Vice President/Chief Operating Officer. Mr. Srour has served in this position since November 2001 and was recently appointed to Epixtar’s Board of Directors. Previously, Mr. Srour was Senior Director of Information Service of CarrAmerica and a Senior Manager at KPMG Consulting and Ernst and Young LLP. He has significant telecommunications experience, including roles as COO of iTelsa and SmarTel Communications. 10
  11. 11. Irving Greenman (67), Chief Financial Officer. Mr. Greenman has been employed by the Company since January 2000. Previously, he served in various executive positions, at Kaleidoscope Media Group, Inc. (an Entertainment Company), Medica Media, and Healthcare International. Mr. Greenman is a Certified Public Accountant in New York and in Florida. Ricardo Sablon (41), Senior Vice President/Chief Technology Officer. Mr. Sablon was previously vice president and chief telephony engineer for Equalnet Communications. Additionally, he was a founder of FreeCaller Communications (an advertiser sponsored long distance service that he patented) and chief executive of CaribeCom (a company that provided the first post-embargo commercial direct-dial service to Cuba from the U.S.). Gerald Dunne (41), Vice President/Chief Marketing Officer. Mr. Dunne was formerly the Chairman and CEO of Group Long Distance Inc., a publicly traded long distance reseller. In this role, he led the company to over 200,000 residential and small business subscribers before leaving to become CEO of Epixtar’s subsidiary, One World Public Communications Corp. Deborah Gambone (51), Vice President, Corporate Counsel and Secretary. Ms. Gambone has served as corporate counsel since December 2001 and became Secretary and a Vice President in November 2002. Previously, she was counsel to several firms including Vicon Group, International Research Group, Inc. and Telecomputing, Inc. David Berman (57), Director. David Berman is a practicing attorney in Miami, Florida and Epixtar’s outside director. Previously, Mr. Berman was a partner in Berman & Berman, a partnership in Miami, Florida specializing in tax law. _____________________________________________________________________________________ Notes: The Research Works, Inc. (hereinafter referred to as "RW") is a registered investment advisor that produces equity research reports. On May 14, 2003, in consideration for RW's research services to be performed through April 15, 2004, the Company paid RW a non-refundable fee of 13,617 common shares (restricted). This report is based on RW's independent analysis and judgment. The materials upon which the information in this report is based were supplied by the Company and other sources believed by RW to be reliable; except as otherwise indicated, RW has made no independent verification and does not guarantee the information's accuracy or completeness. Any interpretations, earnings estimates, and conclusions contained in this report are those of RW. This report is not intended to constitute a recommendation for any particular investor to purchase or sell any particular security or that any particular security is suitable for any particular investor. This report should not be construed as a recommendation or request to engage in any transaction, or an offer or solicitation of an offer to buy or sell any security or investment, and investors are advised to consult their personal broker or investment advisor before making any investment decision concerning any of the companies mentioned herein. Use of this report may be subject to applicable 11
  12. 12. rules of any self-regulatory organization of which you may be a member. The information contained in this report is subject to change without notice, and RW assumes no responsibility to update the information contained in this report. RW and/or its shareholders, officers, employees, independent contractors and/or members of their families may hold a position in and engage in transactions with respect to securities mentioned herein, and such purchases and sales may be consistent with or contrary to recommendations in this report. The David Bench Consulting Group, which is owned by the analyst who wrote this report, holds a position in the common shares of this Company which it received as compensation for the Mr. Bench's writing of RW's reports on this Company through April 15, 2004. The Research Works, Inc. 2003. All rights reserved. Additional and supporting information is available upon request. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward- looking statements. In order to comply with the terms of the safe harbor, RW notes that except for the description of historical facts contained herein, this report may contain certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company's press releases and elsewhere. Such statements are based on RW’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. These factors include those described in the Company's press releases and SEC filings, all of which are hereby incorporated by reference. No forward-looking statements are a guarantee of future results or events, and one should avoid placing undue reliance on such statements. _____________________________________________________________________________________ - August 27, 2003 David A. Bench - 12

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