BUSINESS HISTORY
XA, Inc., was originally incorporated in Nevada as Synreal Services Corp. ("Synreal") on August 28, 2000. The Company's business plan was to engage in the business of providing due diligence and administrative services for real estate syndications. Prior to entering into an Exchange Agreement, discussed below, and the consummation of the transactions thereunder, the Company was considered a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. Our principal executive offices are located at 875 North Michigan Avenue, Suite 2626, Chicago, Illinois 60611. Our telephone number is (312) 397-9100 and our fax number is (312) 573-1515.
On December 4, 2003, Synreal, The Experiential Agency, Inc., formerly G/M Productions, Inc., an Illinois corporation ("Experiential") and the former Experiential shareholders entered into an Exchange Agreement (the "Exchange" or "Acquisition") whereby Experiential became a wholly-owned subsidiary of the Company and control of the Company shifted to the former Experiential shareholders. In addition, Frank Goldstin, the Company's former Chief Executive Officer and a former director of the Company, entered into a stock purchase agreement with the Company's former officers and directors, Brian Chelin and Jennifer Wallace. Synreal was considered a "shell" at the time of the Acquisition; therefore, the transaction was treated as a reverse merger.
Effective February 2, 2004, the Company declared a 13 to 1 forward stock split. Effective December 9, 2004, the Company declared a 1 for 20 reverse stock
split. The effects of the stock splits have been retroactively reflected in this Form 10-KSB unless otherwise stated.
In June 2004, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Alpha Capital Aktiengesellschaft ("Alpha Capital"), Stonestreet Limited Partnership ("Stonestreet"), Whalehaven Funds Limited ("Whalehaven"), Greenwich Growth Fund Limited ("Greenwich") and Genesis Microcap Inc. ("Genesis") (collectively the "Note Holders") to purchase convertible promissory notes having an aggregate principal amount of $2,500,000, a 6% annual interest rate, and a conversion price of $0.25 per share (the "Convertible Notes" or "Notes"). Following the reverse stock split on December 9, 2004, the conversion price of the Notes would have been $5.00 per share, however, the Company agreed to change the conversion price of the Notes to $2.00 per share.
Alpha Capital, Stonestreet, Whalehaven, Greenwich and Genesis are collectively referred to herein as the "Purchasers." Of the $2,500,000 in Convertible Notes issued to the Note Holders, $467,500 in principal and $4,555.67 in interest have been converted into a total of 94,412 post split shares, leaving $2,032,500 (not including any accrued interest) which can be converted into approximately 1,016,250 shares of Common Stock. The Subscription Agreement also provided for the issuance of warrants to purchase up to an aggregate of 250,000 shares of Common Stock, with an exercise price of $9.60 per share (the "Class A Warrants"), and warrants to purchase up to an aggregate of 500,000 shares of Common Stock, with an exercise price of $5.00 per share (the "Class B Warrants"). The Class A Warrants are referred to herein as the "Warrants". The Company did not agree to change the exercise price of the Class A Warrants or the exercise price of the Class B Warrants. The Class A Warrants expire Four (4) years from the date they were issued. The Class B Warrants have expired and no Class B Warrants were ever exercised by the Purchasers.
In June 2004, the Company also entered into a Consulting Agreement with Loev Corporate Filings, Inc. ("Filings") for Edgar filing services for one year in exchange for 5,000 shares of Common Stock, which was subsequently revised in January 2005, to include the Company's Edgar filing services until May 2006, for an additional 30,000 shares of the Company's Common Stock.
As part of the Company's growth strategy, the Company purchased all of the assets of Fiori, Inc. an event decor company ("Fiori"), in August 2004, in exchange for 40,000 restricted shares of the Company's Common Stock and the assumption of certain liabilities of Fiori. Included in the assets purchased by the Company were accounts receivable, floral inventory, and glassware. Excluded from the sale of assets were insurance policies, claims for tax refunds, employee plans, and all real estate held by Fiori or affiliated entities. Additionally, the Company agreed to assume certain liabilities of Fiori, including accounts payable, accrued payroll, and customer deposits.
On January 3, 2005, in furtherance of the Company's growth through acquisition strategy, the Company entered into an Asset Acquisition Agreement to purchase certain assets of Musters & Company, Inc., a New York corporation ("Musters"), an event planning and decor company whose operations are located in the floral district in New York, in exchange for 150,000 restricted shares of the Company's Common Stock and the assumption of the leases of Musters. Entry into the Asset Acquisition Agreement was approved by the Company's board of directors on December 29, 2004. Included in the assets purchased by the Company were copyrights, contract rights, customer lists, goodwill, leasehold improvements, leases, permits, fixed assets, software, trademarks, trade names, trade secrets, internet domains, and phone numbers. Excluded from the sale of
assets were accounts receivable, insurance policies, claims for tax refunds, employee benefit plans (or interests therein) and all real estate (excluding leasehold improvements) either held by Musters or an affiliated entity. Additionally, the Company did not assume any of the liabilities of Musters in connection with the Asset Acquisition Agreement.
In the third quarter of 2005, we formed a wholly owned Nevada subsidiary, XA Scenes, Inc. ("XA Scenes"). XA Scenes was formed as a special events venue management firm. Our senior management team believes that there is a significant opportunity for XA Scenes to capitalize on the synergies that exist between our event marketing agency, The Experiential Agency, Inc., and selected joint venture partners.
The Company filed a Certificate of Amendment ("Amendment") to its Articles of Incorporation with the Secretary of State of Nevada, which became effective on December 19, 2005, to increase its authorized shares, reauthorize the par value of its common stock, reauthorize its preferred stock and to reauthorize the par value of its preferred stock. The Amendment increased the authorized shares of the Company to Twenty Million (20,000,000) shares of common stock, re-authorized the par value of $0.001 per share, re-authorized Five Hundred Thousand (500,000) shares of preferred stock, and re-authorized the par value of $0.001 per share of preferred stock.
Shares of the preferred stock of the Company may be issued from time to time in one or more series, each of which shall have distinctive designation or title as shall be determined by the Board of Directors of the Company ("Board of Directors") prior to the issuance of any shares thereof. Preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to any preferred stock designation.
On December 27, 2005, we entered into an Agreement with David M. Loev, an attorney, to be responsible for certain corporate/securities matters including the preparation of and/or review of Schedule 13ds, Form 3's, Form 4's, Schedule 13g's, Schedule 14a's, Schedule 14c's, Form 10-QSB's, Form 10-KSB's and Form 8-K's to be filed by us with the Securities and Exchange Commission and the review of our press releases (the "Legal Services Agreement"). In connection with the Legal Services Agreement, we agreed to pay Mr. Loev $4,250 per month, reimburse him for out of pocket expenses and to issue him 30,000 S-8 shares of our common stock, which shares were issued to Mr. Loev in February 2006. The Legal Services Agreement is in effect until December 31, 2006 and services provided outside of the Legal Services Agreement are to be rendered on an hourly basis.
BUSINESS OPERATIONS
The Company, through its wholly-owned subsidiary, Experiential, is a comprehensive event marketing, design and production services agency. With full-service offices in Chicago and New York City as well as a sales office in Los Angeles, XA is a leading provider of event services on an outsourced basis for corporations, associations and other organizations in the United States and abroad. XA provides its clients with a single source to their business communications and event planning needs.
For sixteen (16) years, XA has worked with clients around the globe to design and produce strategic multidimensional, highly stylized and integrated event programs. During the fiscal year ended December 31, 2005, XA planned and executed over one hundred and fifty (150) events that were attended by more than an aggregate of approximately thirty thousand (30,000) people in the United States and foreign markets. XA's clients during the year ended December 31, 2005 included L'Oreal USA, Barnes & Noble (NYSE:BKS), Cargo Magazine, VH1, W Hotels, Walt Disney Co. (NYSE:DIS), ABN AMRO (NYSE:ABN), Finesse, Kenneth Cole (NYSE:KCP), McDonald's Corporation (NYSE:MCD), Starbucks Corp. (NASDQ:SBUX), UNICEF, Beaty products, Starbucks, Royal Caribbean (NYSE:RCL), discovery networks, British Telecom, Heineken Light and the Wella Corporation. Additionally, XA planned Lennox Louis' wedding in Jamaica during the year ended 2005.
XA focuses on strategic growth that includes, among other things, the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. XA has developed a vertically integrated infrastructure that it believes will enhance its ability to continue to provide event services on a national basis. In order to provide its clients with a single source solution to their event planning needs, XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation and execution. XA believes that its vertically integrated organization, creative talent, technological leadership and its willingness to commit capital to acquire or develop proprietary exhibitions and special events are competitive advantages in fragmented industry in which most vendors provide a limited set of services on a local basis.
Industry and Market Overview
According to an event marketing study conducted by PROMO Magazine ("PROMO") in 2004, and published in its April 1, 2005 edition, marketers spent $166 billion in event marketing in 2004. The events industry in the United States is highly fragmented with several local and regional vendors that provide a limited range of services in two main segments: 1) business communications and event management; and 2) meeting, conferences and trade shows. The industry also consists of specialized vendors such as production companies, meeting planning companies, and destination logistics companies that may offer their services outside of the events industry.
Integrated business communications and event management services involve the design, production, planning and execution of an organization's message at conventions, sales meetings, conferences, executive presentations, shareholder and investor meetings, training sessions and product launches. The services range from concept and content creation to execution and general management of the entire event. Specific services may include staging, video and media development and production, production of brochures, handouts and other collateral materials, and the planning and execution of meetings and conventions. Local or regional firms generally offer a limited number of these services to clients. Most work is performed on a project-oriented basis and services are rendered on a fee basis.
The meetings, conferences and trade shows segment is comprised of exhibition owners and managers who typically use a wide range of business communications and event management services during production of an exhibition. This segment consists mainly of exhibitions, consumer shows and special events that typically provide a forum for face-to-face interaction and communication between buyers and sellers. While the largest owner-managers of exhibitions are divisions of several multinational publishing companies, competition in this industry remains highly fragmented.
XA believes that there is an increasing trend on the part of associations, historically the largest owners and operators of exhibitions, to outsource the operational management and often the ownership of exhibitions as they focus on their core missions and seek to improve efficiencies.
XA believes that the market or event planning services is positive for two reasons: 1) XA believes that companies in the United States are increasing their use of events to achieve their marketing efforts; and 2) XA believes that an increasing number of U.S. companies are outsourcing the production and design of events to specialized firms. As a result, XA's management believes that the market for event services is undergoing a shift towards outsourced management as organizations focus on their core competencies while at the same time seek to improve the professionalism, creativity and cost-efficiency of their events.
XA believes that the events industry revolves on a competitive axis based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations. As a vertically integrated service provider, XA believes that it will be able to offer a comprehensive solution to these organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship.
XA competes primarily with a large number of local and regional firms that also provide business communications and event management services. XA also competes with specialized vendors such as production companies, meeting planning companies and destination logistics companies. These primary competitors and specialized vendors, however, provide a limited range of services relative to the services that XA provides. XA competes in its market based on service breadth, quality, creativity, responsiveness, and geographic proximity to its clients and price. XA differentiates itself from its competitors by offering a single source solution to the market for business communication and event management services on a national basis, employing creative, energetic professionals, centralizing its administration and purchasing functions, and using advanced communications technologies.
Principal Products and Services
XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation, and execution. XA earns most of its revenue from event services fees that it charges clients regarding the following general service areas:
* Event Marketing; * Design and production; * Meetings, Conferences and Trade Shows; * Entertainment and Show Production; * Business Theater & General Sessions; * Mobile Marketing; * Audio/Visual Production; * Public Relations; * Destination Management; and * XA Interactive (Digital Marking).
XA earns a management fee when it provides general management services. XA earns fees on a fee-for-services basis when it undertakes event marketing and business communications projects.
The following is a more detailed description of the services that XA provides through its vertically integrated infrastructure:
The following is a more detailed description of the services that XA provides through its vertically integrated infrastructure:
General Management Services
XA offers general management services that provide its clients with centralized coordination and execution of the overall event. In connection with providing general management services, XA utilizes an executive producer responsible for overseeing the production of an event or exhibition. The executive producer coordinates the services that XA provides for the client. XA provides the following general management services:
* Project oversight; * Budget oversight; * Quality assurance and control; * Project funding and sponsorship development; * Project control and accountability; * Event promotion and marketing creation; * Schedule management; and * Fulfillment provider management.
Concept Creation
XA works with a client to craft the client's message, identify the best means of communicating that message, and develop cost-effective creative solutions. XA provides the following concept creation services:
* Joint determination of client needs and goals; * Market research to support message creation and communication; * Message content design; * Media selection; and * Initial project pricing and budgeting.
Content Creation
After the concept for an event is created, XA's professionals work to develop and produce the client's message. XA provides the following content creation services:
* Speech composition; * Speaker support-graphics creation; * Audio/Video production; * Digital media creation;
* Collateral materials design and distribution; * Entertainment and speaker scripting and booking; and * Theme and staging design.
Execution
XA uses internal resources to execute an event. As the clients' needs dictate, however, XA can structure its role so that it is transparent to attendants at the event. XA provides the following execution services:
* On-site quality and logistics control; * Hotel and venue coordination and buying; * Transportation management; * Security coordination; * Telemarketing services for the sale of exhibition space; * Hospitality management; * Registration management; * Cash and credit card payment management; * Entertainment coordination; * Tour program design; * Permit and approval procurement; and * Food and beverage management.
Fulfillment
Fulfillment is the last stage in the event process. It includes the actual provision of services such as catering, registration, transportation rental, audio and visual equipment rental, decoration rental and temporary on-site labor. XA offers fulfillment services using either internal resources or third-party vendors as determined on an event-by-event basis.
Full Service Offices
XA operates two full-service offices located in Chicago and New York City as well as a sales office in Los Angeles. Chicago is home to XA's headquarters, which serves as the centralized base for administration and purchasing. XA opened the Los Angeles and New York City offices during 2003. XA chose to open offices in New York City and Los Angeles to better serve its national client base by providing existing clients with local offices and staff to coordinate and provide ongoing integrated communication services. In addition, by having local offices operating in New York City and Los Angeles, XA is better able to acquire new clients and business opportunities through aggressive local business development activities.
Additionally, in December 2005, XA Scenes, entered into a lease on the ninth floor of 636-642 West 28th Street, New York, New York 10001, also known as the "Terminal Warehouse". We plan to use the Property for office space, event and production space and to host certain events in the future. The XA Scenes lease is described in greater detail under "Description of Property," below. When completed in approximately May 2006, the 11,500 square foot multi-use facility will consist of approximately 5,000 square feet of design production/office space and 6,500 square feet of special event space. The XA Scenes facility will provide clients with spectacular views of the Hudson River within a state of the art special events facility.
Growth Strategy
The major focus of XA's growth strategy over the next several years will be the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. XA's management has identified a number of targeted strategic acquisition opportunities in the form of business communications and event management companies in key regions throughout the United States. XA's targeted acquisitions are intended to add geographic coverage to XA's existing businesses as well as broaden XA's service offerings. The initial acquisitions will be focused on business communications and event management companies which are specialized in the on-site logistical aspects of the business communications and event management industry, and are located in the Chicago, New York City and Los Angeles areas.
XA will also fuel growth through a broader, carefully designed growth strategy that includes extending relationships with existing clients, building new client relationships, expanding its international client base, making selected infrastructure acquisitions, and expanding its media services. The Company is currently performing due diligence on a number of potential acquisitions, but has not entered into a formal Letter of Intent with any potential acquisition targets.
XA believes that substantial opportunities exist to expand relationships with existing clients by cross-selling the full range of XA's services, building out its national office network and expanding XA's service offerings, particularly with respect to XA events, multimedia and corporate branding capabilities. XA seeks to capitalize on the services provided to one division or operation of a client by selling its services to other divisions or operations, including their foreign operations. XA initiated advertising and public relations programs to enhance its brand recognition in the marketplace.
As organizations focus on their core competencies and seek to improve the professionalism, creativity and cost-efficiency of their events, XA believes they will continue to outsource the management of events. XA believes that many opportunities exist to add new clients with large-scale business communications and event management needs. XA seeks relationship-building opportunities through client referrals and its internal sales force.
XA believes that multinational organizations headquartered both inside and outside of the United States are increasingly interested in building relationships with business communications and event management firms and owners of events who can provide their services on a worldwide basis. XA's international client base continues to grow and in order to better serve these organizations, XA plans to aggressively expand its international client base over the next 12 to 24 months.
XA believes that as the event industry continues to consolidate there will be many domestic and international acquisition opportunities. XA may acquire or affiliate with select additional companies to expand its client base, further build out its infrastructure, add new service applications or provide additional operating efficiencies and synergies.
XA currently provides digital communications and multimedia services to clients in such areas as exhibition promotion, training programs and Internet home pages. XA designs and develops websites, CD-ROM / DVD-ROM materials, promotional videos, targeted marketing presentations and other multimedia products. XA believes that continued technological advances, coupled with the growing need of organizations to more effectively tailor their messages, will create opportunities for XA to develop new services for clients, particularly for business communications and event management services.
As part of the Company's growth strategy, the Company purchased all of the assets of Fiori, Inc. an event decor company ("Fiori"), in August 2004, in exchange for 40,000 restricted shares of the Company's Common Stock and in January 2005, the Company purchased certain assets of Musters, in exchange for 150,000 restricted shares of the Company's Common Stock and the assumption of the leases of Musters (as described above in greater detail under "Business History").
Creative Talent
A primary value that XA brings to its clients is the creative talent, energy and commitment of its employees. XA seeks to attract and retain the best personnel by developing attractive compensation, benefits and training programs and providing long-term career opportunities that its smaller competitors cannot duplicate. XA has thirty-two (32) full-time employees.
XA compliments its staff with a pool of over 100 professionals hired on a project-by-project basis who have distinguished themselves through prior experience with XA. XA is not a party to any collective bargaining agreement with a union. From time to time, however, XA does independently contract with, or hire, union personnel during the production of a particular meeting or event. XA considers itself to have good relations with its employees and independent contractors.
Today, corporations are searching for new ways to motivate, excite and impart a message to their audience. XA is able to help them accomplish these goals by designing a creative platform from which to communicate. For instance, most companies do not realize they can afford to do a concert event with headline talent because it has never been presented to them as a marketing tool. Most of XA's programs are more in line with the standard format of events (i.e., meetings and business theater).
Breaking the traditional mold can be a hard sell to a conservative client, but when XA's team can demonstrate how hosting one large, memorable event can save $250,000 from the marketing budget, and, most importantly, have a greater impact on attendees, the client understands the value of XA marketing.
To execute XA's expansion plans, XA has also recruited a number of senior executives with broad and diverse experience managing rapidly growing national and international businesses.
Centralized Administration and Purchasing
XA has centralized its administrative and purchasing functions to enhance cost efficiency and quality control. The corporate headquarters in Chicago are the center for administration, MIS, finance, accounting and human resources. XA has a national client base. XA oftentimes plans and executes multiple events for different national clients in a single geographic location. XA negotiates through the Chicago office with local vendors in these geographic locations for the provision of services to its national clients. XA repeatedly uses the same vendors in these local markets. XA believes that it enjoys purchasing power and economies of scale greater than that available to its local competitors.
Technological Capabilities
XA believes that it can invest more in technology than its local competitors and thereby become a leader in utilizing advanced technologies. XA is able to allocate its investment in technology over its large national event base, whereas a local competitor that does not have a national event base may not be willing to invest heavily in advanced technology. XA currently uses
advanced communications technologies such as digitized presentations and multimedia applications to provide high quality customer service. In addition, XA is creating business communication applications using media, such as DVD technology, plasma screens, interactive video and the satellite communications.
Sales and Marketing
XA's client list is comprised of a diverse mix of corporations, associations, universities and governmental entities. XA has a separate sales force that targets users of business communications and event management services. XA's senior management team and executive producers of events are frequently influential in establishing and expanding new client relationships. Sales personnel are compensated through a commission plan based on a percentage of either gross profits or gross revenues.
XA's sales force comprises four (4) full-time sales people who identify prospects, respond to requests for proposals and create solutions to clients' requests. XA has created compensation incentives to encourage the sales force to sell XA's wide range of services. New business is generated by:
* Pursuing client referrals from existing clients and other business contacts; * Expanding sales to existing clients by providing additional services; * New client solicitation; and * Strategic acquisitions.
An executive sales person and an executive producer will serve a large, national client and maintain the ongoing client relationship. The executive sales person will introduce the client to XA's national execution capabilities and, together with an executive producer, is responsible for maintaining the client relationship at the local level. These team leaders develop a close working relationship with clients that require a broad range of services for their events. XA staffs a particular project with team members that work under the direction of the executive producer. These team members are responsible for the overall project. The team selectively utilizes other Company resources in order to create the concept and content for an event and then to prepare and execute the event.
In general, XA's operations are generally organized to serve the two principal areas, with separate groups responsible for the business communications and events management components of XA's business. Professionals in XA's business communications group provide creative solutions for organizations seeking to develop and execute conventions, meetings and other means of communicating with their intended audiences. XA's event planning and destination logistics group, its entertainment production and distribution group and its multimedia and Internet services group provide support for XA's clients. XA's professionals work closely together to develop, produce and execute an event or communication.
XA has also initiated an advertising and corporate branding initiative to enhance its brand recognition in the marketplace. Under this program, XA has restructured its website and marketing materials.
Intellectual Property
The Company is the owner of the proprietary trademark, "The Experiential Agency(R)" (US Serial No: 78241557). Additionally, the Company has filed for a trademark for "XA" and "XA Scenes," but has not as of the date of this filing received approval of such trademarks.
The Company also owns the rights to the internet domain names, including:
* www.gmproductions.com; * www.gmprodutions.net; * www.expagency.com; * www.experientialagency.com; * www.theexperientialagency.com; and *www.musters.com.
The Company does not own any patents or licenses related to its products or services.
Competition
Companies in the events industry compete based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations.
XA competes primarily with a large number of local and regional firms as well as specialized vendors such as production companies meeting planning companies (such as Carat Face-to-Face), entertainment & show production firms and destination logistics companies. Most of these competitors and specialized vendors provide a limited range of services relative to XA's service offerings. As a vertically integrated service provider, we believe XA offers a comprehensive solution to client organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship. At the national level, XA faces larger competitors such as Jack Morton Worldwide - part of the Interpublic Group of Companies (IPG: NYSE), and George P. Johnson.
We believe that XA is positioning itself as the Event Marketing Partner with its unique selling point being the ability to act as a single source for the client's total event marketing needs. This would encompass the entire spectrum of services associated with event marketing, right from strategizing and defining an event portfolio, conceptualization of the event theme and content creation to the final implementation / management of the event itself and post event Return On Investment assessment.
XA, Inc., was originally incorporated in Nevada as Synreal Services Corp. ("Synreal") on August 28, 2000. The Company's business plan was to engage in the business of providing due diligence and administrative services for real estate syndications. Prior to entering into an Exchange Agreement, discussed below, and the consummation of the transactions thereunder, the Company was considered a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. Our principal executive offices are located at 875 North Michigan Avenue, Suite 2626, Chicago, Illinois 60611. Our telephone number is (312) 397-9100 and our fax number is (312) 573-1515.
On December 4, 2003, Synreal, The Experiential Agency, Inc., formerly G/M Productions, Inc., an Illinois corporation ("Experiential") and the former Experiential shareholders entered into an Exchange Agreement (the "Exchange" or "Acquisition") whereby Experiential became a wholly-owned subsidiary of the Company and control of the Company shifted to the former Experiential shareholders. In addition, Frank Goldstin, the Company's former Chief Executive Officer and a former director of the Company, entered into a stock purchase agreement with the Company's former officers and directors, Brian Chelin and Jennifer Wallace. Synreal was considered a "shell" at the time of the Acquisition; therefore, the transaction was treated as a reverse merger.
Effective February 2, 2004, the Company declared a 13 to 1 forward stock split. Effective December 9, 2004, the Company declared a 1 for 20 reverse stock
split. The effects of the stock splits have been retroactively reflected in this Form 10-KSB unless otherwise stated.
In June 2004, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Alpha Capital Aktiengesellschaft ("Alpha Capital"), Stonestreet Limited Partnership ("Stonestreet"), Whalehaven Funds Limited ("Whalehaven"), Greenwich Growth Fund Limited ("Greenwich") and Genesis Microcap Inc. ("Genesis") (collectively the "Note Holders") to purchase convertible promissory notes having an aggregate principal amount of $2,500,000, a 6% annual interest rate, and a conversion price of $0.25 per share (the "Convertible Notes" or "Notes"). Following the reverse stock split on December 9, 2004, the conversion price of the Notes would have been $5.00 per share, however, the Company agreed to change the conversion price of the Notes to $2.00 per share.
Alpha Capital, Stonestreet, Whalehaven, Greenwich and Genesis are collectively referred to herein as the "Purchasers." Of the $2,500,000 in Convertible Notes issued to the Note Holders, $467,500 in principal and $4,555.67 in interest have been converted into a total of 94,412 post split shares, leaving $2,032,500 (not including any accrued interest) which can be converted into approximately 1,016,250 shares of Common Stock. The Subscription Agreement also provided for the issuance of warrants to purchase up to an aggregate of 250,000 shares of Common Stock, with an exercise price of $9.60 per share (the "Class A Warrants"), and warrants to purchase up to an aggregate of 500,000 shares of Common Stock, with an exercise price of $5.00 per share (the "Class B Warrants"). The Class A Warrants are referred to herein as the "Warrants". The Company did not agree to change the exercise price of the Class A Warrants or the exercise price of the Class B Warrants. The Class A Warrants expire Four (4) years from the date they were issued. The Class B Warrants have expired and no Class B Warrants were ever exercised by the Purchasers.
In June 2004, the Company also entered into a Consulting Agreement with Loev Corporate Filings, Inc. ("Filings") for Edgar filing services for one year in exchange for 5,000 shares of Common Stock, which was subsequently revised in January 2005, to include the Company's Edgar filing services until May 2006, for an additional 30,000 shares of the Company's Common Stock.
As part of the Company's growth strategy, the Company purchased all of the assets of Fiori, Inc. an event decor company ("Fiori"), in August 2004, in exchange for 40,000 restricted shares of the Company's Common Stock and the assumption of certain liabilities of Fiori. Included in the assets purchased by the Company were accounts receivable, floral inventory, and glassware. Excluded from the sale of assets were insurance policies, claims for tax refunds, employee plans, and all real estate held by Fiori or affiliated entities. Additionally, the Company agreed to assume certain liabilities of Fiori, including accounts payable, accrued payroll, and customer deposits.
On January 3, 2005, in furtherance of the Company's growth through acquisition strategy, the Company entered into an Asset Acquisition Agreement to purchase certain assets of Musters & Company, Inc., a New York corporation ("Musters"), an event planning and decor company whose operations are located in the floral district in New York, in exchange for 150,000 restricted shares of the Company's Common Stock and the assumption of the leases of Musters. Entry into the Asset Acquisition Agreement was approved by the Company's board of directors on December 29, 2004. Included in the assets purchased by the Company were copyrights, contract rights, customer lists, goodwill, leasehold improvements, leases, permits, fixed assets, software, trademarks, trade names, trade secrets, internet domains, and phone numbers. Excluded from the sale of
assets were accounts receivable, insurance policies, claims for tax refunds, employee benefit plans (or interests therein) and all real estate (excluding leasehold improvements) either held by Musters or an affiliated entity. Additionally, the Company did not assume any of the liabilities of Musters in connection with the Asset Acquisition Agreement.
In the third quarter of 2005, we formed a wholly owned Nevada subsidiary, XA Scenes, Inc. ("XA Scenes"). XA Scenes was formed as a special events venue management firm. Our senior management team believes that there is a significant opportunity for XA Scenes to capitalize on the synergies that exist between our event marketing agency, The Experiential Agency, Inc., and selected joint venture partners.
The Company filed a Certificate of Amendment ("Amendment") to its Articles of Incorporation with the Secretary of State of Nevada, which became effective on December 19, 2005, to increase its authorized shares, reauthorize the par value of its common stock, reauthorize its preferred stock and to reauthorize the par value of its preferred stock. The Amendment increased the authorized shares of the Company to Twenty Million (20,000,000) shares of common stock, re-authorized the par value of $0.001 per share, re-authorized Five Hundred Thousand (500,000) shares of preferred stock, and re-authorized the par value of $0.001 per share of preferred stock.
Shares of the preferred stock of the Company may be issued from time to time in one or more series, each of which shall have distinctive designation or title as shall be determined by the Board of Directors of the Company ("Board of Directors") prior to the issuance of any shares thereof. Preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to any preferred stock designation.
On December 27, 2005, we entered into an Agreement with David M. Loev, an attorney, to be responsible for certain corporate/securities matters including the preparation of and/or review of Schedule 13ds, Form 3's, Form 4's, Schedule 13g's, Schedule 14a's, Schedule 14c's, Form 10-QSB's, Form 10-KSB's and Form 8-K's to be filed by us with the Securities and Exchange Commission and the review of our press releases (the "Legal Services Agreement"). In connection with the Legal Services Agreement, we agreed to pay Mr. Loev $4,250 per month, reimburse him for out of pocket expenses and to issue him 30,000 S-8 shares of our common stock, which shares were issued to Mr. Loev in February 2006. The Legal Services Agreement is in effect until December 31, 2006 and services provided outside of the Legal Services Agreement are to be rendered on an hourly basis.
BUSINESS OPERATIONS
The Company, through its wholly-owned subsidiary, Experiential, is a comprehensive event marketing, design and production services agency. With full-service offices in Chicago and New York City as well as a sales office in Los Angeles, XA is a leading provider of event services on an outsourced basis for corporations, associations and other organizations in the United States and abroad. XA provides its clients with a single source to their business communications and event planning needs.
For sixteen (16) years, XA has worked with clients around the globe to design and produce strategic multidimensional, highly stylized and integrated event programs. During the fiscal year ended December 31, 2005, XA planned and executed over one hundred and fifty (150) events that were attended by more than an aggregate of approximately thirty thousand (30,000) people in the United States and foreign markets. XA's clients during the year ended December 31, 2005 included L'Oreal USA, Barnes & Noble (NYSE:BKS), Cargo Magazine, VH1, W Hotels, Walt Disney Co. (NYSE:DIS), ABN AMRO (NYSE:ABN), Finesse, Kenneth Cole (NYSE:KCP), McDonald's Corporation (NYSE:MCD), Starbucks Corp. (NASDQ:SBUX), UNICEF, Beaty products, Starbucks, Royal Caribbean (NYSE:RCL), discovery networks, British Telecom, Heineken Light and the Wella Corporation. Additionally, XA planned Lennox Louis' wedding in Jamaica during the year ended 2005.
XA focuses on strategic growth that includes, among other things, the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. XA has developed a vertically integrated infrastructure that it believes will enhance its ability to continue to provide event services on a national basis. In order to provide its clients with a single source solution to their event planning needs, XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation and execution. XA believes that its vertically integrated organization, creative talent, technological leadership and its willingness to commit capital to acquire or develop proprietary exhibitions and special events are competitive advantages in fragmented industry in which most vendors provide a limited set of services on a local basis.
Industry and Market Overview
According to an event marketing study conducted by PROMO Magazine ("PROMO") in 2004, and published in its April 1, 2005 edition, marketers spent $166 billion in event marketing in 2004. The events industry in the United States is highly fragmented with several local and regional vendors that provide a limited range of services in two main segments: 1) business communications and event management; and 2) meeting, conferences and trade shows. The industry also consists of specialized vendors such as production companies, meeting planning companies, and destination logistics companies that may offer their services outside of the events industry.
Integrated business communications and event management services involve the design, production, planning and execution of an organization's message at conventions, sales meetings, conferences, executive presentations, shareholder and investor meetings, training sessions and product launches. The services range from concept and content creation to execution and general management of the entire event. Specific services may include staging, video and media development and production, production of brochures, handouts and other collateral materials, and the planning and execution of meetings and conventions. Local or regional firms generally offer a limited number of these services to clients. Most work is performed on a project-oriented basis and services are rendered on a fee basis.
The meetings, conferences and trade shows segment is comprised of exhibition owners and managers who typically use a wide range of business communications and event management services during production of an exhibition. This segment consists mainly of exhibitions, consumer shows and special events that typically provide a forum for face-to-face interaction and communication between buyers and sellers. While the largest owner-managers of exhibitions are divisions of several multinational publishing companies, competition in this industry remains highly fragmented.
XA believes that there is an increasing trend on the part of associations, historically the largest owners and operators of exhibitions, to outsource the operational management and often the ownership of exhibitions as they focus on their core missions and seek to improve efficiencies.
XA believes that the market or event planning services is positive for two reasons: 1) XA believes that companies in the United States are increasing their use of events to achieve their marketing efforts; and 2) XA believes that an increasing number of U.S. companies are outsourcing the production and design of events to specialized firms. As a result, XA's management believes that the market for event services is undergoing a shift towards outsourced management as organizations focus on their core competencies while at the same time seek to improve the professionalism, creativity and cost-efficiency of their events.
XA believes that the events industry revolves on a competitive axis based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations. As a vertically integrated service provider, XA believes that it will be able to offer a comprehensive solution to these organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship.
XA competes primarily with a large number of local and regional firms that also provide business communications and event management services. XA also competes with specialized vendors such as production companies, meeting planning companies and destination logistics companies. These primary competitors and specialized vendors, however, provide a limited range of services relative to the services that XA provides. XA competes in its market based on service breadth, quality, creativity, responsiveness, and geographic proximity to its clients and price. XA differentiates itself from its competitors by offering a single source solution to the market for business communication and event management services on a national basis, employing creative, energetic professionals, centralizing its administration and purchasing functions, and using advanced communications technologies.
Principal Products and Services
XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation, and execution. XA earns most of its revenue from event services fees that it charges clients regarding the following general service areas:
* Event Marketing; * Design and production; * Meetings, Conferences and Trade Shows; * Entertainment and Show Production; * Business Theater & General Sessions; * Mobile Marketing; * Audio/Visual Production; * Public Relations; * Destination Management; and * XA Interactive (Digital Marking).
XA earns a management fee when it provides general management services. XA earns fees on a fee-for-services basis when it undertakes event marketing and business communications projects.
The following is a more detailed description of the services that XA provides through its vertically integrated infrastructure:
The following is a more detailed description of the services that XA provides through its vertically integrated infrastructure:
General Management Services
XA offers general management services that provide its clients with centralized coordination and execution of the overall event. In connection with providing general management services, XA utilizes an executive producer responsible for overseeing the production of an event or exhibition. The executive producer coordinates the services that XA provides for the client. XA provides the following general management services:
* Project oversight; * Budget oversight; * Quality assurance and control; * Project funding and sponsorship development; * Project control and accountability; * Event promotion and marketing creation; * Schedule management; and * Fulfillment provider management.
Concept Creation
XA works with a client to craft the client's message, identify the best means of communicating that message, and develop cost-effective creative solutions. XA provides the following concept creation services:
* Joint determination of client needs and goals; * Market research to support message creation and communication; * Message content design; * Media selection; and * Initial project pricing and budgeting.
Content Creation
After the concept for an event is created, XA's professionals work to develop and produce the client's message. XA provides the following content creation services:
* Speech composition; * Speaker support-graphics creation; * Audio/Video production; * Digital media creation;
* Collateral materials design and distribution; * Entertainment and speaker scripting and booking; and * Theme and staging design.
Execution
XA uses internal resources to execute an event. As the clients' needs dictate, however, XA can structure its role so that it is transparent to attendants at the event. XA provides the following execution services:
* On-site quality and logistics control; * Hotel and venue coordination and buying; * Transportation management; * Security coordination; * Telemarketing services for the sale of exhibition space; * Hospitality management; * Registration management; * Cash and credit card payment management; * Entertainment coordination; * Tour program design; * Permit and approval procurement; and * Food and beverage management.
Fulfillment
Fulfillment is the last stage in the event process. It includes the actual provision of services such as catering, registration, transportation rental, audio and visual equipment rental, decoration rental and temporary on-site labor. XA offers fulfillment services using either internal resources or third-party vendors as determined on an event-by-event basis.
Full Service Offices
XA operates two full-service offices located in Chicago and New York City as well as a sales office in Los Angeles. Chicago is home to XA's headquarters, which serves as the centralized base for administration and purchasing. XA opened the Los Angeles and New York City offices during 2003. XA chose to open offices in New York City and Los Angeles to better serve its national client base by providing existing clients with local offices and staff to coordinate and provide ongoing integrated communication services. In addition, by having local offices operating in New York City and Los Angeles, XA is better able to acquire new clients and business opportunities through aggressive local business development activities.
Additionally, in December 2005, XA Scenes, entered into a lease on the ninth floor of 636-642 West 28th Street, New York, New York 10001, also known as the "Terminal Warehouse". We plan to use the Property for office space, event and production space and to host certain events in the future. The XA Scenes lease is described in greater detail under "Description of Property," below. When completed in approximately May 2006, the 11,500 square foot multi-use facility will consist of approximately 5,000 square feet of design production/office space and 6,500 square feet of special event space. The XA Scenes facility will provide clients with spectacular views of the Hudson River within a state of the art special events facility.
Growth Strategy
The major focus of XA's growth strategy over the next several years will be the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. XA's management has identified a number of targeted strategic acquisition opportunities in the form of business communications and event management companies in key regions throughout the United States. XA's targeted acquisitions are intended to add geographic coverage to XA's existing businesses as well as broaden XA's service offerings. The initial acquisitions will be focused on business communications and event management companies which are specialized in the on-site logistical aspects of the business communications and event management industry, and are located in the Chicago, New York City and Los Angeles areas.
XA will also fuel growth through a broader, carefully designed growth strategy that includes extending relationships with existing clients, building new client relationships, expanding its international client base, making selected infrastructure acquisitions, and expanding its media services. The Company is currently performing due diligence on a number of potential acquisitions, but has not entered into a formal Letter of Intent with any potential acquisition targets.
XA believes that substantial opportunities exist to expand relationships with existing clients by cross-selling the full range of XA's services, building out its national office network and expanding XA's service offerings, particularly with respect to XA events, multimedia and corporate branding capabilities. XA seeks to capitalize on the services provided to one division or operation of a client by selling its services to other divisions or operations, including their foreign operations. XA initiated advertising and public relations programs to enhance its brand recognition in the marketplace.
As organizations focus on their core competencies and seek to improve the professionalism, creativity and cost-efficiency of their events, XA believes they will continue to outsource the management of events. XA believes that many opportunities exist to add new clients with large-scale business communications and event management needs. XA seeks relationship-building opportunities through client referrals and its internal sales force.
XA believes that multinational organizations headquartered both inside and outside of the United States are increasingly interested in building relationships with business communications and event management firms and owners of events who can provide their services on a worldwide basis. XA's international client base continues to grow and in order to better serve these organizations, XA plans to aggressively expand its international client base over the next 12 to 24 months.
XA believes that as the event industry continues to consolidate there will be many domestic and international acquisition opportunities. XA may acquire or affiliate with select additional companies to expand its client base, further build out its infrastructure, add new service applications or provide additional operating efficiencies and synergies.
XA currently provides digital communications and multimedia services to clients in such areas as exhibition promotion, training programs and Internet home pages. XA designs and develops websites, CD-ROM / DVD-ROM materials, promotional videos, targeted marketing presentations and other multimedia products. XA believes that continued technological advances, coupled with the growing need of organizations to more effectively tailor their messages, will create opportunities for XA to develop new services for clients, particularly for business communications and event management services.
As part of the Company's growth strategy, the Company purchased all of the assets of Fiori, Inc. an event decor company ("Fiori"), in August 2004, in exchange for 40,000 restricted shares of the Company's Common Stock and in January 2005, the Company purchased certain assets of Musters, in exchange for 150,000 restricted shares of the Company's Common Stock and the assumption of the leases of Musters (as described above in greater detail under "Business History").
Creative Talent
A primary value that XA brings to its clients is the creative talent, energy and commitment of its employees. XA seeks to attract and retain the best personnel by developing attractive compensation, benefits and training programs and providing long-term career opportunities that its smaller competitors cannot duplicate. XA has thirty-two (32) full-time employees.
XA compliments its staff with a pool of over 100 professionals hired on a project-by-project basis who have distinguished themselves through prior experience with XA. XA is not a party to any collective bargaining agreement with a union. From time to time, however, XA does independently contract with, or hire, union personnel during the production of a particular meeting or event. XA considers itself to have good relations with its employees and independent contractors.
Today, corporations are searching for new ways to motivate, excite and impart a message to their audience. XA is able to help them accomplish these goals by designing a creative platform from which to communicate. For instance, most companies do not realize they can afford to do a concert event with headline talent because it has never been presented to them as a marketing tool. Most of XA's programs are more in line with the standard format of events (i.e., meetings and business theater).
Breaking the traditional mold can be a hard sell to a conservative client, but when XA's team can demonstrate how hosting one large, memorable event can save $250,000 from the marketing budget, and, most importantly, have a greater impact on attendees, the client understands the value of XA marketing.
To execute XA's expansion plans, XA has also recruited a number of senior executives with broad and diverse experience managing rapidly growing national and international businesses.
Centralized Administration and Purchasing
XA has centralized its administrative and purchasing functions to enhance cost efficiency and quality control. The corporate headquarters in Chicago are the center for administration, MIS, finance, accounting and human resources. XA has a national client base. XA oftentimes plans and executes multiple events for different national clients in a single geographic location. XA negotiates through the Chicago office with local vendors in these geographic locations for the provision of services to its national clients. XA repeatedly uses the same vendors in these local markets. XA believes that it enjoys purchasing power and economies of scale greater than that available to its local competitors.
Technological Capabilities
XA believes that it can invest more in technology than its local competitors and thereby become a leader in utilizing advanced technologies. XA is able to allocate its investment in technology over its large national event base, whereas a local competitor that does not have a national event base may not be willing to invest heavily in advanced technology. XA currently uses
advanced communications technologies such as digitized presentations and multimedia applications to provide high quality customer service. In addition, XA is creating business communication applications using media, such as DVD technology, plasma screens, interactive video and the satellite communications.
Sales and Marketing
XA's client list is comprised of a diverse mix of corporations, associations, universities and governmental entities. XA has a separate sales force that targets users of business communications and event management services. XA's senior management team and executive producers of events are frequently influential in establishing and expanding new client relationships. Sales personnel are compensated through a commission plan based on a percentage of either gross profits or gross revenues.
XA's sales force comprises four (4) full-time sales people who identify prospects, respond to requests for proposals and create solutions to clients' requests. XA has created compensation incentives to encourage the sales force to sell XA's wide range of services. New business is generated by:
* Pursuing client referrals from existing clients and other business contacts; * Expanding sales to existing clients by providing additional services; * New client solicitation; and * Strategic acquisitions.
An executive sales person and an executive producer will serve a large, national client and maintain the ongoing client relationship. The executive sales person will introduce the client to XA's national execution capabilities and, together with an executive producer, is responsible for maintaining the client relationship at the local level. These team leaders develop a close working relationship with clients that require a broad range of services for their events. XA staffs a particular project with team members that work under the direction of the executive producer. These team members are responsible for the overall project. The team selectively utilizes other Company resources in order to create the concept and content for an event and then to prepare and execute the event.
In general, XA's operations are generally organized to serve the two principal areas, with separate groups responsible for the business communications and events management components of XA's business. Professionals in XA's business communications group provide creative solutions for organizations seeking to develop and execute conventions, meetings and other means of communicating with their intended audiences. XA's event planning and destination logistics group, its entertainment production and distribution group and its multimedia and Internet services group provide support for XA's clients. XA's professionals work closely together to develop, produce and execute an event or communication.
XA has also initiated an advertising and corporate branding initiative to enhance its brand recognition in the marketplace. Under this program, XA has restructured its website and marketing materials.
Intellectual Property
The Company is the owner of the proprietary trademark, "The Experiential Agency(R)" (US Serial No: 78241557). Additionally, the Company has filed for a trademark for "XA" and "XA Scenes," but has not as of the date of this filing received approval of such trademarks.
The Company also owns the rights to the internet domain names, including:
* www.gmproductions.com; * www.gmprodutions.net; * www.expagency.com; * www.experientialagency.com; * www.theexperientialagency.com; and *www.musters.com.
The Company does not own any patents or licenses related to its products or services.
Competition
Companies in the events industry compete based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations.
XA competes primarily with a large number of local and regional firms as well as specialized vendors such as production companies meeting planning companies (such as Carat Face-to-Face), entertainment & show production firms and destination logistics companies. Most of these competitors and specialized vendors provide a limited range of services relative to XA's service offerings. As a vertically integrated service provider, we believe XA offers a comprehensive solution to client organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship. At the national level, XA faces larger competitors such as Jack Morton Worldwide - part of the Interpublic Group of Companies (IPG: NYSE), and George P. Johnson.
We believe that XA is positioning itself as the Event Marketing Partner with its unique selling point being the ability to act as a single source for the client's total event marketing needs. This would encompass the entire spectrum of services associated with event marketing, right from strategizing and defining an event portfolio, conceptualization of the event theme and content creation to the final implementation / management of the event itself and post event Return On Investment assessment.
