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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended JUNE 30, 2004
Commission file number 0-32335
R WIRELESS INC.
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-2558702
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4210 COLUMBIA ROAD, SUITE 10-C
MARTINEZ, GEORGIA 30907-0401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 534-2202
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
(Title of class)
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
2004 2003
------------ ------------
(UNAUDITED)
ASSETS
CASH $ 323 $ 930
PROPERTY AND EQUIPMENT - NET 4,352 6,230
OTHER ASSETS 250 250
------------ ------------
$ 4,925 $ 7,410
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 318,246 $ 308,707
Short-term notes payable 20,598 20,598
Stockholder advances 46,184 46,884
------------ ------------
Total current liabilities 385,028 376,189
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Paid in capital - 1,000,000 preferred shares authorized; none
issued and outstanding -- --
Paid in capital - no par common - 50,000,000 shares authorized;
issued and outstanding 15,293,651 shares at June 30, 2004
and September 30, 2003 1,497,111 1,497,111
Less amounts receivable for the purchase of common stock (17,656) (92,159)
------------ ------------
1,479,455 1,404,952
Accumulated deficit (1,859,558) (1,773,731)
------------ ------------
(380,103) (368,779)
------------ ------------
$ 4,925 $ 7,410
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
2
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
REVENUES $ 5,895 $ 13,636 $ 22,755 $ 36,094
------------- ------------- ------------- -------------
OPERATING EXPENSES
Salaries, commissions and benefits -- 85,033 1,450 397,218
Professional fees 23,462 19,792 79,541 175,909
Office expense 28 937 479 3,318
Travel -- -- -- 9,283
Rent 401 2,000 1,463 6,000
Magazine printing 4,590 2,900 11,105 8,412
Depreciation 626 2,408 1,878 9,262
Utilities and telephone 237 455 830 1,152
Advertising 111 -- 471 --
Other 2,513 2,504 7,974 15,395
------------- ------------- ------------- -------------
31,968 116,029 105,191 625,949
------------- ------------- ------------- -------------
Operating loss from continuing operations (26,073) (102,393) (82,436) (589,855)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Gain on settlement of accounts payable 1,342 -- 1,715 --
Interest (1,906) (1,533) (5,106) (3,212)
------------- ------------- ------------- -------------
(564) (1,533) (3,391) (3,212)
------------- ------------- ------------- -------------
Loss from continuing operations before income taxes (26,637) (103,926) (85,827) (593,067)
PROVISION FOR INCOME TAXES -- -- -- --
------------- ------------- ------------- -------------
Loss from continuing operations (26,637) (103,926) (85,827) (593,067)
------------- ------------- ------------- -------------
DISCONTINUED OPERATIONS
Operating loss of discontinued Direct Lending operations -- -- -- (9,323)
Gain from disposal of discontinued Direct Lending operations -- -- -- 16,287
------------- ------------- ------------- -------------
Net income from discontinued Direct Lending operations -- -- -- 6,964
------------- ------------- ------------- -------------
Net loss $ (26,637) $ (103,926) $ (85,827) $ (586,103)
============= ============= ============= =============
PER SHARE INFORMATION:
Basic net loss per common share $ (0.00) $ (0.01) $ (0.01) $ (0.04)
============= ============= ============= =============
Weighted average shares outstanding 15,293,651 14,818,651 15,293,651 13,618,651
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
---------------------------------------------
AMOUNTS TOTAL
SHARES RECEIVABLE STOCKHOLDERS'
ISSUED AND PAID IN FOR COMMON ACCUMULATED EQUITY
OUTSTANDING CAPITAL STOCK ISSUED DEFICIT (DEFICIT)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2002 3,962,282 $ 808,053 $ -- $(1,260,356) $ (452,303)
Common stock issued for cash
and services 4,647,626 232,000 (92,159) -- 139,841
Common stock options awarded
as settlement for cash advances,
accrued interest and accrued
compensation -- 73,585 -- -- 73,585
Common stock issued as
repayment for notes payable
and related accrued interest 133,487 33,372 -- -- 33,372
Common stock issued for cash 75,256 30,101 -- -- 30,101
Common stock issued as
compensation to executives 4,500,000 225,000 -- -- 225,000
Common stock issued for
professional services 2,100,000 95,000 -- -- 95,000
Common stock cancelled (125,000) -- -- -- --
Net loss -- -- -- (513,375) (513,375)
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2003 15,293,651 1,497,111 (92,159) (1,773,731) (368,779)
Cash and services received from
stockholders for shares issued
in a prior period -- -- 74,503 -- 74,503
Net loss -- -- -- (85,827) (85,827)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 2004
(UNAUDITED) 15,293,651 $ 1,497,111 $ (17,656) $(1,859,558) $ (380,103)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED JUNE 30,
--------------------------
2004 2003
---------- ----------
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net loss $ (85,827) $(586,103)
Adjustments to reconcile net loss to net cash
used in operating activities of continuing operations:
Net income from discontinued Direct Lending operations -- (6,964)
Depreciation 1,878 9,262
Expenses settled by issuance of common stock -- 300,000
Professional services received for common stock issued
in a prior period 24,300 --
Changes in deferred and accrued amounts:
Accounts receivable -- 3,123
Other assets -- 1,055
Accounts payable and accrued expenses 9,539 156,139
Deferred revenues -- (2,848)
Adjustments for changes in operating assets and
liabilities of discontinued Direct Lending operations -- 12,412
---------- ----------
Net cash used in operating activities of continuing operations (50,110) (113,924)
---------- ----------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds, net of repayments, from short-term notes payable
and stockholder advances (700) (750)
Proceeds from the sale of common stock -- 114,507
Cash received from stockholder for shares issued in prior period 50,203 --
---------- ----------
Net cash provided by financing activities of continuing operations 49,503 113,757
---------- ----------
Net cash used in continuing operations (607) (167)
---------- ----------
CASH USED IN DISCONTINUED DIRECT LENDING OPERATIONS
Operating activities -- (18,441)
Investing activities -- 16,618
---------- ----------
Net cash used in discontinued Direct Lending operations -- (1,823)
---------- ----------
Net decrease in cash (607) (1,990)
CASH, BEGINNING OF PERIOD 930 2,489
---------- ----------
CASH, END OF PERIOD $ 323 $ 499
========== ==========
(Continued)
5
R WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED JUNE 30,
--------------------
2004 2003
------- -------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for interest $ 2,067 $ 3,791
======= =======
Cash paid for income taxes $ -- $ --
======= =======
Noncash financing activities
Common stock issued as repayment for cash advances,
notes payable and related accrued interest $ -- $33,371
======= =======
Common stock options awarded as settlement for cash
advances, accrued interest and accrued compensation $ -- $73,585
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
6
R WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements of R
Wireless Inc. and subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United
States of America for complete financial statements. The Company's
management believes that all adjustments considered necessary for a
fair presentation have been included in the consolidated financial
statements. For further information, refer to the consolidated
financial statements and footnotes thereto for the fiscal year ended
September 30, 2003, included in the Company's Form 10-KSB, filed on
March 12, 2004 with the Securities and Exchange Commission.
R Wireless, Inc., with its subsidiaries, has suffered recurring losses
while devoting substantially all of its efforts to raising capital,
identifying and pursuing businesses in the Wi-Fi and other industries
for alliances and potential business combinations, and developing
markets for its For Sale by Owner ("FSBO") advertising conducted
through its subsidiary Homes by Owner, Inc. ("Homes"), and offering
mortgage services through its now discontinued Direct Lending
operations. Additionally, the Company's total liabilities exceed its
total assets and the Company's liquidity is substantially dependent on
raising capital. The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates
continuing operations, realization of assets and liquidation of
liabilities in the ordinary course of business. The Company's ability
to continue as a going concern is dependent upon its ability to raise
sufficient capital to implement a successful business plan and to
generate profits sufficient to become financially viable. The
consolidated financial statements do not include adjustments relating
to the recoverability of recorded assets or liabilities that might be
necessary should the Company be unable to continue as a going concern.
Certain reclassifications have been made to the financial statements
for the nine months ended June 30, 2003 to conform to the current year
presentation. These reclassifications resulted in reporting an
additional $907 loss from discontinued operations offset by a $907
reduction in the loss from continuing operations.
NOTE 2 - AMOUNTS RECEIVABLE FOR THE PURCHASE OF COMMON STOCK
------------------------------------------------------------
On December 12, 2002, the Company signed an agreement with MA&N LLC
("MA&N") for the sale of shares of the Company, constituting, after
issuance, 51% of the outstanding shares on a fully diluted basis
(4,647,626 shares) for consideration of a total estimated value of
$232,000. MA&N had reduced the balance of the consideration payable to
the Company pursuant to the agreement to $17,656 at June 30, 2004 and
$92,159 at September 30, 2003, by funding the payment of current
expenses and accounts payable, and providing consulting services to the
Company. MA&N will continue to fund the Company and provide consulting
services until its shares are paid for in full.
MA&N charges the Company management and consulting fees at the rate of
$2,700 per month. The monthly fee also includes the use of MA&N's
offices, for which the Company does not have a formal lease agreement
with MA&N.
NOTE 3 - EXECUTIVE COMPENSATION
-------------------------------
In December 2002, as settlement for $73,585 of cash advances and
related accrued interest and unpaid compensation that was recognized in
periods prior to September 30, 2002, the Company awarded 294,341 common
stock options to a former director and current shareholder of the
Company. The options are exercisable at $0.01 per share and expire in
five years. No options have been exercised as of June 30, 2004.
(Continued)
7
NOTE 3 - EXECUTIVE COMPENSATION, CONTINUED
------------------------------------------
On January 15, 2003, the Company issued 3,000,000 shares and 1,500,000
shares of the Company's Common Stock for the compensation of Mark
Neuhaus, Chief Executive Officer, and Ned Baramov, Secretary/Treasurer,
respectively, pursuant to employment agreements expiring January 14,
2006 for Mr. Neuhaus, and January 14, 2004 for Mr. Baramov. The basis
per share used in the estimation of salary expense for the two
executives was $0.05, management's estimate of the fair value, which
estimate considered the stock price on January 15, 2003, and a discount
which reflects the restricted status of the newly issued shares. The
employment agreement for Mr. Baramov expired on January 14, 2004 and
has not been renewed, but Mr. Baramov continues to provide services to
the Company without direct compensation from the Company.
Mark Neuhaus's monthly salary of $25,000 a month, on deferred basis,
was rescinded on December 23, 2003. Mr. Neuhaus did not receive any
amounts from the rescinded compensation plan.
NOTE 4 - SEGMENT INFORMATION
----------------------------
In previously issued financial statements, the Company presented
segment information for Homes, an advertising segment that provides
advertising services for FSBO real estate and for businesses, and for
Direct, a mortgage segment that provided mortgage services to
individuals and small businesses as a mortgage broker. The Company
discontinued its Direct Lending operations and sold substantially all
of the assets of Direct in November of 2002. At June 30, 2004, the
Company had operations in a single industry segment, Homes. The Company
acquired certain Wi-Fi related assets at a total cost of $2,400 to
begin operations in the Wi-Fi industry, but at June 30, 2004, the
Company had no operating activities in this segment.
NOTE 5 - SUBSEQUENT EVENTS
--------------------------
On August 2, 2004 the Company and a consulting firm executed a
Management Consulting Agreement, pursuant to which the consulting firm
agreed for a six month period to provide consulting services to the
Company in relation to the evaluation of potential merger and
acquisition targets. Such services include but are not limited to
advising, evaluating and developing corporate strategy, providing
company guidance, and assisting in developing relationships and
opportunities. In consideration for such services and prior such
services, the Company agreed to issue 500,000 shares of its common
stock to the consulting firm.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes. In addition to historical
information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions, which could cause actual
results to differ materially from management's expectations. Factors that could
cause differences include, but are not limited to, continued reliance on
external sources of financing, fluctuations in pricing for the Company's
products and services, increased competition, as well as general conditions of
the marketplace.
As of June 30, 2004 the Company has never earned a profit, and has
incurred an accumulated deficit of $1,859,558. The acquisition of a controlling
interest in the Company by MA&N has given the Company access to additional funds
directly from MA&N, and the original business plan envisioned by MA&N, along
with alternative business opportunities, may elicit additional funds from third
parties. However, the MA&N resources are finite and there can be no assurance of
third party funding. The proposed Wi-Fi business has become very competitive and
capital-use intensive. The large number of established telecommunications
companies entering the Wi-Fi industry has reduced opportunities for R Wireless.
Management believes that only Wi-Fi equipment manufacturers are currently
successful in generating profits in the Wi-Fi industry, and service providers
have yet to develop a profitable business model. Consequently, the Company, with
the help of MA&N, has started looking for alternative opportunities.
R Wireless concentrated its efforts on strategic alliances, which could
gradually be built into one functional business unit. The main focus of the
Company was to acquire financially distressed Wi-Fi companies and leverage on
their existing assets. R Wireless has not completed any of the initiated
negotiations for mergers and acquisitions.
The Company's original business, the mortgage banking business
conducted by Direct Lending, Inc. ("Direct"), has been divested. The advertising
business is conducted by the Company's other subsidiary, Homes by Owner, Inc.
("Homes") It publishes the magazine, FOR SALE BY OWNER, which is currently
operating at a small deficit. Should there be no allocation of general corporate
overhead to its operation, management believes FOR SALE BY OWNER can at best be
made marginally profitable. By terminating the mortgage banking operations of
Direct and by reducing the expenses of producing the magazine, FOR SALE BY
OWNER, the Company has substantially reduced its operating costs. However, these
expense reductions do not eliminate the Company's current operating deficits.
Homes does not hold a lease for the office it currently occupies on a
month-to-month agreement. Homes prints two full-page ads in the magazine, valued
at $200, for every month Homes occupies the office.
On September 4, 2003, the Company signed an agreement with Jim Evans
("Evans"), the owner of Freedom Homes, Inc. ("Freedom"), an Augusta, Georgia
manufactured housing dealer, for the acquisition of Freedom by Homes in exchange
for stock of Homes that gave Evans a controlling interest in Homes. The
transaction was subject to a condition subsequent that a financing for Homes of
$500,000 must be completed by March 5, 2004, which subsequently was extended to
April 5, 2004. The condition subsequent was not fulfilled, and consequently the
shares of Freedom were returned to Mr. Evans, and the shares of Homes were
returned to R Wireless, Inc. At this time, the Company has no plans to expand
the operations of Homes.
LIQUIDITY
At present and historically, the Company has lacked liquidity as a
result of insufficient initial financing and continuing operating deficits. The
Company has maintained its ability to pay expenses through the sale of common
stock from time to time, principally to its former directors, who have made
significant investments. As a result of the change of control of the Company,
such funding from former directors is not likely to continue. Therefore, the
Company will need to rely for its future liquidity needs on the resources of its
new controlling shareholder, MA&N, until such time as it arranges other
financing or becomes profitable. The amount of funding receivable from MA&N has
been reduced to $17,656 at June 30, 2004, which is not sufficient to cover the
Company's liabilities. The Company will have to rely on additional financing to
satisfy all its obligations to vendors and creditors.
9
The main source of funds for the quarter ended June 30, 2004 was MA&N,
which funded $6,213 in legal, accounting and other professional fees. MA&N also
provided consulting and management services for a total of $8,100 during the
quarter ended June 30, 2004.
On December 12, 2002 MA&N gained control over the Company through the
acquisition of 4,647,626 shares of R Wireless Common Stock. Management valued
the consideration at $232,000 in exchange for the shares. As of June 30, 2004
MA&N had provided funding for $165,044 in cash disbursements and $49,300 worth
of consulting and management services. Although the Company's access to capital
resources remains limited, MA&N's involvement has helped R Wireless maintain its
current operations and consider potential Wi-Fi involvements and other possible
business alliances. MA&N will continue to fund current expenses, previous
operating obligations of the Company and its subsidiaries, consulting services,
and will provide management services until it has satisfied all its obligations,
as stated in its agreement with the Company dated December 12, 2002. However,
due to the change in the Company's strategic focus and the move away from the
development of a Wi-Fi business plan, the Company's management agreed that it is
not reasonable to require MA&N to acquire four additional Wi-Fi nodes, as stated
in the original agreement with the Company. Management has agreed that having
MA&N fund current expenses and accounts payable in lieu of acquiring Wi-Fi nodes
will be more beneficial to the Company.
CAPITAL EXPENDITURES
The Company has no material commitments for capital expenditures and
has had no need, in its previous and current operations, to make material
capital expenditures. The development of any business will require capital
expenditures, the exact extent of which is not now known, although it is
believed that the principal anticipated capital expenditures can be financed to
a substantial extent.
To date, the Company, with the help of MA&N, has acquired and installed
one Wi-Fi node. All associated expenses, amounting to $2,400 were funded by
MA&N.
RESULTS OF OPERATIONS
The following analysis of the Company's operating results excludes the
operations of Direct.
o THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THREE MONTHS
ENDED JUNE 30, 2003.
Revenues from continuing operations, or the revenues of Homes,
decreased $7,741 from $13,636 for the three months ended June 30, 2003 to $5,895
for the three months ended June 30, 2004, or 56.7%, as a result of the reduced
number of magazines published.
The operating loss from continuing operations decreased $76,320 from
$102,393 for the three months ended June 30, 2003 to $26,073, for the three
months ended June 30, 2004, or 74.5%, principally as a result of decreases (i)
in salaries, commissions and benefits of $85,033 from $85,033 for the three
months ended June 30, 2003 to $0 for the three months ended June 30, 2004, or
100% due to the lack of new employment agreements for the year 2004; (ii) in
office expenses of $909 from $937 for the three months ended June 30, 2003 to
$28 for the three months ended June 30, 2004, or 97% due to reduced use of
office space by Homes; (iii) in depreciation of $1,782 from $2,408 for the three
months ended June 30, 2003 to $626 for the three months ended June 30, 2004, or
74% due to the near fully-depreciated status of all fixed assets; (iv) in rent
expense of $1,599 from $2,000 for the three months ended June 30, 2003 to $401
for the three months ended June 30, 2004, or 80% due to reduced office space
rented by the Company in Martinez, Georgia, discontinued rent of office
equipment, and reliance on MA&N's office space in New York City, NY.
The decrease in the operating loss from continuing operations was
partially offset by increases (i) in magazine printing expenses of $1,690 from
$2,900 for the three months ended June 30, 2003 to $4,590 for the three months
ended June 30, 2004, or 58.3% due to the increased number of pages per issue and
higher quality color printing of the magazine; (ii) in professional fees of
$3,670 from $19,792 for the three months ended June 30, 2003 to $23,462 for the
three months ended June 30, 2004, or 18.5% due to the increased accounting fees
as a result of the Company's filing of tax returns for the year 2003.
10
o NINE MONTHS ENDED JUNE 30, 2004 COMPARED WITH NINE MONTHS
ENDED JUNE 30, 2003.
Revenues from continuing operations, or the revenues of Homes,
decreased $13,339 from $36,094 for the nine months ended June 30, 2003 to
$22,755 for the nine months ended June 30, 2004, or 37%, as a result of the
reduced number of magazines published.
The operating loss from continuing operations decreased $507,419 from
$589,855 for the nine months ended June 30, 2003 to $82,436 for the nine months
ended June 30, 2004, or 86%, principally as a result of the discontinuance of
Direct and decreases (i) in salaries, commissions and benefits of $395,768 from
$397,218 for the nine months ended June 30, 2003 to $1,450 for the nine months
ended June 30, 2004, or 99.6% due to the lack of new employment agreements for
the year 2004; (ii) in professional fees of $96,368 from $175,909 for the nine
months ended June 30, 2003 to $79,541 for the nine months ended June 30, 2004,
or 54.8% due to the reduced legal and accounting fees as a result of the
increased involvement of the Company in all filings under the Securities
Exchange Act of 1934; (iii) in other operating expenses of $7,421 from $15,395
for the nine months ended June 30, 2003 to $7,974 for the nine months ended June
30, 2004, or 48.2% due to reduced miscellaneous and entertainment expenses, and
the lack of license fees and taxes; (iv) in depreciation of $7,384 from $9,262
for the nine months ended June 30, 2003 to $1,878 for the nine months ended June
30, 2004, or 79.7% due to the near fully-depreciated status of all fixed assets;
(v) in rent expense of $4,537 from $6,000 for the nine months ended June 30,
2003 to $1,463 for the nine months ended June 30, 2004, or 75.6% due to reduced
office space rented by the Company in Martinez, Georgia and reliance on MA&N's
office space in New York City, NY.
The decrease in the operating loss from continuing operations was
partially offset by an increase in magazine printing expenses of $2,693 from
$8,412 for the nine months ended June 30, 2003 to $11,105 for the nine months
ended June 30, 2004, or 32% due to the increased number of pages per issue and
higher quality color printing of the magazine.
NET OPERATING LOSS CARRYFORWARDS FOR TAX PURPOSES
As of September 30, 2003, the Company has tax net operating loss
carryforwards totaling $1,662,790 that expire in 2018 through 2023.
Approximately $1,190,000 of the net operating loss carryforwards were incurred
prior to December 12, 2002 at which date MA&N acquired 51% of the Company and
are consequently subject to certain limitations described in section 382 of the
Internal Revenue Code. The Company estimates that, due to the limitations and
expiration dates, only $424,000 of the net operating losses incurred prior to
December 12, 2002 will be available to offset future taxable income.
Net operating losses after December 12, 2002 were $472,790. The total
net operating losses available to the Company to offset future taxable income is
$896,790. In view of the losses sustained in the nine months ended June 30,
2004, the net operating loss carryforwards will have increased as of that date.
This amount, net of tax (assuming an estimated net federal and state tax rate of
29.5%), together with $6,521 relating to intangible assets and $17,149 relating
to accrued wages resulting from differences in reporting for income tax and
financial statement purposes, or a total of $288,571 as of September 30, 2003,
offset by deferred tax liabilities relating to property and equipment in the
amount of $649, leaves a net deferred tax asset of $287,922 that may be used
against the Company's future income tax. For financial statement purposes, a
valuation allowance of $287,922, or 100%, has been taken against net deferred
taxes as of September 30, 2003. A larger equivalent valuation will be taken
against the larger amount of such assets as of June 30, 2004. There can be no
assurance that these deferred tax assets can ever be used. A deferred tax asset
can be used only if there is future taxable income, as to which there can be no
assurance in the case of the Company.
11
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-based Compensation - Transition and Disclosure", an amendment of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 and Accounting Pronouncement
Board ("APB") Opinion No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for
annual financial statements for fiscal years ending after December 15, 2002, and
for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002. The adoption of SFAS No. 148 did not
have a material effect on the Company's financial position or results of
operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and loan commitments that relate to the
origination of mortgage loans held for sale, and for hedging activities under
SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 did not have a
material impact on the financial condition or operating results of the Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances.) Many of those instruments
were previously classified as equity. SFAS No. 150 is generally effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
financial condition or operating results of the Company.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires a company,
at the time it issues a guarantee, to recognize an initial liability for the
fair value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of periods ending after December 15, 2002. The adoption of
FIN No. 45 did not have a material effect on the Company's financial position or
results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns, or both. FIN No. 46 also requires
disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. FIN No. 46
provides guidance for determining whether an entity qualifies as a variable
interest entity by considering, among other considerations, whether the entity
lacks sufficient equity or its equity holders lack adequate decision-making
ability. The consolidation requirements of FIN No. 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year or interim
period beginning after June 15, 2003. Certain of the disclosure requirements
apply in all financial statements issued after January 31, 2003, regardless of
when the variable interest entity was established. The adoption of FIN No. 46
did not have a material effect on the Company's financial position or results of
operations.
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Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until a future
date are not expected to have a material impact on the consolidated financial
statements upon adoption.
ITEM 3. CONTROLS AND PROCEDURES.
EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
The chief executive officer and the chief financial officer, after
evaluating the Company's "disclosure controls and procedures" (as defined in
Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and
15-d-14(c)) as of June 30, 2004, have concluded that the disclosure controls and
procedures are not effective to ensure that information the Company is required
to disclose in reports that the Company files or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Because of the
limited staff of the Company, all transactions are recorded, processed, and
summarized by management. Consequently the accuracy of all records is directly
known to management, and management has certified the correctness of all facts
set forth herein, to the best of their knowledge. However, the reporting
accuracy has been achieved at the expense of time, and the Company has been very
pressed to meet reporting deadlines.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal control over financial
reporting that occurred during the quarter ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. During fiscal year 2003,
the Company's management identified material weaknesses in the Company's
disclosure procedures and has taken corrective actions. Management has already
implemented disclosure procedural improvements, which should assure the
effectiveness, accuracy, and timeliness of the Company's financial reporting
systems in the future. As discussed in EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES, priority has been given to meeting all reporting deadlines.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Management is not currently aware of any pending, past or
present litigation which would be considered to have a material effect
on the Company. Management does not know of any outstanding bankruptcy
or receivership issues and is not aware of any securities law
violations.
Additionally, the Company has no material legal proceedings in
which any director, officer or affiliate of the issuer, any owner of
record or beneficially of more than 5% of any class of voting
securities of the Company, or security holder is a party adverse to the
Company or has a material interest adverse to the Company.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NA
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
On March 24, 2004, the SEC filed a civil complaint seeking a
temporary restraining order ("TRO") and other relief, alleging an
illegal distribution to the public of common stock of Universal
Express, Inc. ("Universal"), an unaffiliated organization, by
Universal's chief executive officer, its general counsel and four
others, including Mark Neuhaus, the Company's Chairman and Chief
Executive Officer. Several of the counts do not involve the four other
defendants, their involvement being alleged to be as purported
consultants to Universal, receiving stock for services at a discount
and promptly reselling it.
Mr. Neuhaus is alleged to have violated Sections 5(b) and (c)
and Sections 17(a)(1), (2) and (3) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. Mr. Neuhaus denies violation of any applicable law in
connection with his resale of Universal common stock. The Company
believes there is no connection between the Company and Universal other
than Mr. Neuhaus' position with the Company and the fact that Mr.
Neuhaus was a consultant to Universal and received and resold shares of
its common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B:
The following exhibits are filed with this Form 10-QSB:
EXHIBIT NO. EXHIBIT NAME
31.1 Certification by the CEO.
31.2 Certification by the CFO
32.1 Certification pursuant to Section 1350
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 2004.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
R WIRELESS INC.
(Registrant)
By /s/ Mark S. Neuhaus
----------------------
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: August 16, 2004
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Mark S. Neuhaus
-------------------
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: August 16, 2004
/s/ Ned Baramov
---------------
Ned Baramov, Secretary-Treasurer, (Chief Financial Officer)
Date: August 16, 2004
15