SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
|X| Quarterly Report Under Section 13 or 15(d) of Securities Exchange Act of 1934
|_| Transition Report Under section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from ______________ to _______________
For Period ended December 31, 2003
Commission File Number 0-26839
SNAP2 CORPORATION
(f/k/a White Rock Enterprises, Ltd.)
(Exact name of registrant as specified in its charter)
NEVADA | 88-0407246 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
2000 West Commercial Boulevard, Suite 133
Ft. Lauderdale, Florida 33309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING (ZIP CODE)
(954) 445-8993
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of common stock at the latest practicable date.
As of December 31, 2003, the registrant had 26,942,500 shares of common stock, $.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SNAP2 CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND DECEMBER 31, 2002
SNAP2 Corporation
Balance Sheets | December 31, 2003 | December 31, 2002 |
ASSETS | | |
Cash | $ 0 | $ 68,987 |
Accounts receivable | 0 | 344,894 |
Prepaid expenses | 0 | 6,500 |
Current assets | 0 | 420,381 |
Equipment, net of accumulated depreciation | 0 | 31,931 |
Other assets | 0 | 300 |
Total assets | $ 0
====== | $ 452,612
======= |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | |
Accounts Payable | $ 90,000 | $ 62,693 |
Line of credit | 0 | 130,000 |
Accrued payroll and related liabilities | 0 | 226,924 |
Accrued royalties | 0 | 37,000 |
Accrued interest payable | 0 | 23,190 |
Deferred income | 0 | 18,749 |
Current portion of long-term debt | 0 | 133,000 |
Current liabilities | 90,000 | 631,556 |
Long-term debt, net of current portion | 0 | 91,615 |
Deferred compensation, fair value of stock options | 0 | 315,900 |
Total liabilities | 90,000 | 1,039,071 |
STOCKHOLDERS' EQUITY: | | |
Common stock, authorized 50,000,000 shares at $.0001 par value, issued and outstanding 26,942,500 shares |
26,943
|
26,943
|
Additional paid-in capital | 1,953,246 | 1,435,771 |
Retained earnings of deficit | (2,070,189) | (2,044,704) |
Unearned compensation | 0 | (4,469) |
Total stockholders' Equity | (90,000) | (586,459) |
Total liabilities and stockholders' Equity | $ 0
======== | $ 452,612
======== |
The accompanying notes are an integral part of these financial statements.
SNAP2 Corporation
Statements of Operations
| Three months ending
December 31, 2003
| Three months ending
December 31, 2002 |
REVENUE | $ 0 | $ 465,487 |
Cost of Revenue | 0 | 135,792 |
Gross Profit | 0 | 329,695 |
Operating Expenses | | |
Research and development | 0 | 200 |
Sales and marketing | 0 | 177 |
General and administrative expenses | 0 | 89,652 |
Compensation – stock issues at less than fair value | 0 | 0 |
Compensation – options at fair value | 0 | (378,675) |
Operating expenses | 0 | (288,646) |
Other income and expenses | | |
Interest expense | 0 | (5,725) |
Gain on sale of equipment | 0 | 0 |
Gain on sale of technical assets | 0 | 0 |
Comprehensive income (loss) | $ 0
======== | $ 612,616
======== |
Retained earnings, beginning of year | (2,049,173) | (2,661,789) |
Net adjustment due to reorganization | (21,016) | 0 |
Retained earnings, end of period | $ (2,070,189)
========= | $ (2,049,173)
========= |
Earnings (loss) per share of common stock outstanding computed on net income (loss), principally from discontinued operations – basic and fully diluted |
$ 0.00
=======
|
$ 0.02
=========
|
Weighted average shares outstanding | | |
Basic and fully diluted | 26,942,500
======== | 26,942,500
========= |
The accompanying notes are an integral part of these financial statements.
SNAP2 CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM OCTOBER 1, 2001 TO DECEMBER 31, 2003
| | | | Common Stock | | Convertible preferred Stock | | Additional
paid-in capital |
| | | | Shares
| | Amount | | Shares | | Amount | |
| Balance, October 1, 2001 | | 17,856,000 | $ | 17,856 | | 10,000 | $ | 10 | $ | 1,457,209 |
| Mandatory conversion of preferred | | | | | | 0 | | 0 | | 0 |
| stock, February 2002 | | | 10,000,000 | | 10,000 | | (10,000) | | (10) | | (9,990) |
| Surrender of common stock on unfounded raising of capital | | | | | | | | | |
| (1,221,000) | | (1,221) | | 0 | | 0 | | 1,221 |
| Issuance of common stock for settlement | | | | | | | | | |
| of accounts payable | | | 307,500 | | 308 | | 0 | | 0 | | 1,799 |
| Cancellation of stock options | | 0 | | 0 | | 0 | | 0 | | 0 |
| Net gain (loss) | | | 0 | | 0 | | 0 | | 0 | | 0 |
| Balance, September 30, 2002 | | 26,942,500 | | 26,943 | | 0 | | 0 | | 1,450,239 |
| Gain on reorganization | | | 0 | | 0 | | 0 | | 0 | | 503,007 |
| Balance, September 30, 2003 | | 26,942,500 | | 26,943 | | 0 | | 0 | | 1,450,239 |
| Net gain (loss) | | 0 | | 0 | | 0 | | 0 | | 0 |
| Balance, December 31, 2003 | | 26,942,500
======== | $ | 26,943
======= | | 0
========= | $ | 0
========= | $ | 1,953,246
======== |
| | | | | | | | | | | | |
| | | | | | | | Cumulative Income (Loss)
| | Stockholders' Equity | | |
| Balance, October 1, 2001 | | | | $ | (2,238,981) | $ | (763,906) | | |
| Mandatory conversion of preferred | | | | | | 0 | | 0 | | |
| stock, February 2002 | | | | | | | 0 | | 0 | | |
| Surrender of common stock on unfounded raising of capital | | | | | | | | | |
| | | | | 0 | | 0 | | |
| Issuance of common stock for settlement | | | | | | | | | |
| of accounts payable | | | | | | | 0 | | 2,107 | | |
| Cancellation of stock options | | | | | | 26,916 | | 26,916 | | |
| Net gain (loss) | | | | | | | (449,724) | | (449,724) | | |
| Balance, September 30, 2002 | | | | | | (2,661,789) | | (1,184,607) | | |
| | | | | | | | | | | | |
| Net loss subsequent to reortanization | | | | | | (6,000) | | (6,000) | | |
| Gain on reorganization | | | | | | | 0 | | 503,007 | | |
| 2003 pre-reorganization credits to retained earnings | | | | | 597,600 | | 597,600 | | |
| Balance, September 30, 2003 | | | | | | (2,070,189) | | (90,000) | | |
| Net gain (loss) | | | | | | 0 | | 0 | | |
| Balance, December 31, 2003 | | | | | $ | (2,070,189)
========= | $ | (90,000)
========= | | |
The accompanying notes are an integral part of these financial statements
SNAP2 CORPORATION
STATEMENTS OF CASH FLOWS
| | | | | Three months ended
December 31, 2003 | | Three months ended
December 31, 2002 |
| | | | | |
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES | | | | |
Net Income (Loss) | | | $ | 0 | $ | 597,600 |
Adjustments to reconcile net loss to cash used by operating activity | | | | |
Depreciation | | | 0 | | 4,420 |
Amortization | | | 0 | | 547 |
Gain on sale of equipment | | 0 | | 0 |
Gain on sale of technology assets | | 0 | | 0 |
Compensation expense related to common stock issuance at less than fair value | | | | |
| 0 | | 0 |
Compensation expense related to fair value of vested stock options | | 0 | | (378,675) |
(Increase ) decrease in accounts receivable | | 0 | | (146,606) |
(Increase ) decrease in other assets | | 0 | | 0 |
Increase (decrease) in accounts payable and accrued expenses | | 0 | | (12,282) |
Increase (decrease) in deferred revenues | | 0 | | (12,282) |
NET CASH PROVIDED BY
OPERATING ACTIVITIES | | | | |
| 0 | | 52,582 |
| | | | | | | |
CASH FLOWS USED BY
INVESTING ACTIVITIES | | | | |
| | | |
Cash received from sale of property and equipment | | 0 | | 0 |
Cash received from sale of technology assets | | 0 | | 0 |
Purchases of property and equipment | | 0 | | (702) |
NET CASH USED BY
INVESTING ACTIVITIES | | | | |
| 0 | | (702) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
Net activity on short-term line of credit | | 0 | | (30,000) |
NET CASH PROVIDED BY
FINANCING ACTIVITIES | | | | |
| 0 | | (30,000) |
NET INCREASE IN CASH | | 0 | | 21,880 |
CASH AT BEGINNING OF PERIOD | | 0 | | 47,107 |
Cash absorbed in reorganization | | 0 | | 0 |
CASH AT END OF PERIOD | $ | 0
========= | $ | 68,987
========= |
The accompanying notes are an integral part of these financial statements.
SNAP 2 CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND DECEMBER 31, 2002NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated as White Rock Enterprises, Ltd. on October 8, 1998 under laws of the State of Nevada. The Company was originally formed to develop and market a dryer for boots and shoes. On February 28, 2000, the Company merged with ISES Corporation with the Company being the surviving entity. In connection with the merger the Company became a software product developer and software service provider for in-flight entertainment systems and set-top boxes (STB) for interactive television. The Company changed its name to Snap 2 Corporation pursuant to Articles of Amendment filed July 12, 2000. On January 1, 2003, the Company reorganized by disposal of all assets and liabilities. The post-reorganization business purpose is under review by new owners as part of development of the business plan.
The Company has adopted a fiscal year ending September 30.
The Company will adopt accounting policies and procedures based upon the nature of future transactions.
NOTE B EARNINGS (LOSS) PER SHARE
Basic EPS is determined using net income divided by the weighted average shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued. The Company has no shares outstanding that are potentially issuable, so basic and fully diluted EPS are the same.
NOTE C REORGANIZATION JANUARY 1, 2003
As of January 1, 2003, the Company reorganized. The stockholders sold all their shares to new owners. As part of the reorganization agreement the pre-reorganization stockholders received title to all assets and assumed all liabilities of the Company, resulting in a gain on reorganization. The gain of $1,100,607 consisted of the following elements:
First quarter operating results $ 597,600
Assets and liabilities assumed by others 503,007
Total $1,100,607
=========
The pre-reorganization operating income of $597,600 was credited directly to retained earnings. The net value of assets and liabilities assumed by others of $503,007 was applied as an increase in additional paid-in capital.
The reorganization was accounted for and reported as a reverse merger.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
The discussion in this Report on Form 10-QSB contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about the Company's business, based on management's current beliefs and assumptions made by management. Words such as "expects", "anticipates", "intends", "believes", "plans", "seeks", "estimates" and similar expressions or variations of these words are intended to identify such forward-looking statements. Additionally, statements that refer to the Company's estimated or anticipated future results, sales or marketing strategies, new product development or performance or other non-historical facts are forward-looking and reflect the Company's current perspective based on existing information. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth herein below under "Risk Factors That May Affect Future Results of Operations" as well as previous public filings with the Securities and Exchange Commission. The discussion of the Company's financial condition and results of operations should also be read in conjunction with the financial statements and related notes included in Item 1 of this quarterly report. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
SNAP2 Corporation (f/k/a White Rock Enterprises, Ltd.) (the "Company") is a software product developer and software service provider for interactive set-top boxes (STB) for interactive television. The Company was incorporated on October 8, 1998 under the laws of the State of Nevada originally for the purpose of developing and marketing its only product, a boot dryer that dries both boots and shoes for commercial and consumer use. Effective February 28, 2000 the Company merged with ISES Corporation (an Iowa corporation originally incorporated on May 14, 1997) ("ISES") with the Company being the survivor. In connection with the merger, the Company disposed of its boot dryer product to the original owner. The Company's name was subsequently changed to SNAP2 Corporation pursuant to Articles of Amendment filed July 12, 2000.
The resulting Company's activities to date have consisted of:
o Developing the Airsoft Travel Kit software product which includes destination information, language training, games and airline information for IFE systems.
o Licensing and installing the Airsoft Travel Kit Games on international and domestic airlines with IFE equipped aircraft, and subsequently selling these assets.
o Providing interactive television set-top box manufacturers with professional software design, programming and graphic design services.
o Research and development strategies to productize its intellectual property assets for interactive television.
o Contracting with interactive television suppliers to support promotional efforts of their related products.
o The Company is registered with the SEC as SNAP2 Corporation and is traded on the over-the-counter bulletin board:
OTCBB:SPTO.
On November 26, 2001 the Company entered into an Amended and Substituted Asset Purchase Agreement ("Agreement") with Inflight Digital Limited, a company incorporated under the laws of England and Wales ("Buyer") which superceded an earlier Asset Purchase Agreement between the parties dated September 6, 2001. Pursuant to the Agreement, the Company agreed to sell to the Buyer all of the Company's IFE assets. The IFE assets include all of the Company's rights and obligations under its contracts with airline operators for the provision of IFE products and services, the Company's rights and obligations under license and distribution agreements relating to its IFE business, the Company's files, books and records relating to its IFE assets and other tangible property and physical assets used by the Company solely in connection with IFE business. The Company also granted Buyer a perpetual, royalty free, exclusive worldwide license to use, for IFE business, only, the Company's intangible properties and rights relating to its IFE business. The transaction is described in the Company's Current Report on Amendment No. 1 to Form 8-K which was filed with the Securities and Exchange Commission on December 10, 2001.
The Company ceased operations at the beginning of the current quarter. The Company is currently seeking a possible merger candidate and is under new management to do so.
Management.
The Company's management positions are now held by:
William O’Keef -- President
Operations.
The Company operates from 2000 West Commercial Boulevard, Suite 133, Ft. Lauderdale, Florida 33309. Prior to that the Company was previously located at 2600 72nd Street and moved to its expanded facilities on May 23, 2000 to accommodate its growth and development. In addition to its offices in Des Moines, the Company also had a sales office in Austin, Texas. The combined offices developed market software products and services for IFE systems and STB for interactive television created by the Company.
Products.
Following re-organization the Company has no products for sale.
General and Administrative.
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Results of Operations
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Three Months Ended December 31, 2003
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Revenues
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Cost of Revenue
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Gross Profit
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Research and Development
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Sales and Marketing
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
General and Administrative
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Interest Expense
The Company ceased operations during the current period, therefore, no meaningful comparatives are available.
Three Months Ended December 31, 2003
Revenues
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Cost of Revenue
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Gross Profit
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Research and Development
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Sales and Marketing
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
General and Administrative
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Interest Expense
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Gain on Sale and License of IFE Assets
The Company ceased operations during the three months ended December 31, 2003, therefore, no meaningful comparatives are available.
Liquidity and Capital Resources
At its inception on February 28, 2000, (the date of filing of a Certificate of Merger with the Nevada Secretary of State), the Company merged with ISES Corporation with the Company as the surviving corporation. The merger was arranged for the Company by Investment Capital Corporation and Pursuit Capital LLC, venture capital firms located in Scottsdale, Arizona in accordance with understandings these entities reached with ISES Corporation to raise capital in private transactions. According to their agreement, these entities were to raise $2,000,000 to fund the Company's post-merger research and development, marketing and overall expansion. Pursuant to and in consideration of this arrangement and the identification of the potential merger as an investment opportunity, the Company issued 2,200,000 shares of its $.001 par value per share common stock to these entities and/or their designees. During the fiscal quarter ended June 30, 2000 these entities conducted a private placement on behalf of the Company and raised $760,000, the proceeds of which have been given to the Company. For these funds, the Company issued an additional 760,000 shares of its $.001 per share common stock. These entities are obligated to provide the Company with an additional $2,000,000 in equity (without further issuance of equity securities by the Company) of which $615,650 was received through June 30, 2002, leaving a balance of $1,384,350 to be provided by these entities. None of such shares of common stock was or will be registered under the Securities Act of 1933, as amended. Management believes that it is unlikely that these entities will provide any additional capital to the Company and is in the process of attempting to recover as many of such shares as possible. As of June 30, 2002, 1,097,000 shares have been surrendered by those entities in lieu of additional capital contributions. The Company has not taken action to either establish these shares as treasury stock or to cancel them and return them to authorized but unissued shares. Accordingly, the shares are outstanding in the names of the original owners on the Company's stock records.
As a result of the unfunded commitment, the Company entered into a $200,000 line of credit with a bank on November 10, 2000, which is guaranteed by a stockholder. The Company renewed this line of credit on January 29, 2002 through February 10, 2003.
Due to continued losses from operations during the three months ended December 31, 2003, the Company was not able to meet it obligations to make payroll on several occasions and has delayed paying vendors. In an effort to improve its liquidity, the Company has increased its consulting activities, reduced its work force by three employees and sold its IFE assets.
On November 26, 2001 the Company entered into an Amended and Substituted Asset Purchase Agreement with Inflight Digital Limited, a company incorporated under the laws of England and Wales ("Buyer") which superceded a previous agreement between the parties dated September 6, 2001. The Company used the initial proceeds from this transaction to become current on its payroll obligations and become more current on its vendor obligations. Terms of the IFE sale include a total purchase price for the sale and license of the IFE assets of $300,000 plus (i) fifty percent (50%) of all revenue received by Buyer from certain existing customers for a period of three (3) years after the closing; (ii) twenty-five percent (25%) of all revenues received by Buyer under certain new business generated by Buyer; (iii) an amount not to exceed $100,000 of the existing contract with British Airways as assigned to Buyer plus fifty percent (50%) of all revenue received by Buyer from British Airways during the three (3) years after closing; and (iv) $75,000 upon receipt of the consent of Air France that it will expand the number of aircraft using the software and fifty percent (50%) of the revenues received from Air France during the three (3) years after closing. For the quarter ended December 31, 2003, $21,259 was billed to the Buyer and recorded as license fees. The Company recorded license fees related to this Agreement for the three months ended December 31, 2003 of $85,834. Air France subsequently extended its existing contractual arrangement and is increasing the number of aircraft utilizing inflight entertainment packages. However, Air France has also indicated its intention to terminate the existing contract and utilize the services and products of another vendor. Consequently, it is unlikely that the Company will receive substantial additional revenues resulting from this customer. The Company and the Buyer have subsequently agreed that the Company may retain proceeds from the Air France contract prior to its termination. For the quarter ended December 31, 2003, proceeds of $92,000 were received by the Company and were comprised of $60,750 of license fees, $11,875 of maintenance fees and $19,375 of deferred income that will be recognized as revenue in the quarter ended December 31, 2003.
The Company is investigating several other financing activities, but there is no assurance any funding will be obtained, or if obtained, the terms may not be favorable. Also, the Company has focused its efforts on increasing revenues, primarily consulting revenues, in an effort to generate positive cash flow. The Company is dependent on four (4) key customers and the related contracts with these customers. If these customers do not renew there would be an adverse effect on the Company's operations. Due to the continued losses and the inability to pay its debts as they come due, the Company is currently analyzing its costs and expenses in an effort to achieve profitability. Also, the Company continues to seek and investigate potential transactions that may generate cash; however, there are no assurances that any such transactions will be identified or successfully closed.
Since incorporation, ISES (the Company's predecessor in interest pursuant to the merger) and the Company after the merger, have experienced various levels of losses and negative cash flow from operations and notwithstanding the merger, expects to experience negative cash flows in the foreseeable future, without a significant reduction in costs and expenses or increase in revenues. In addition, the Company needs to raise additional capital to begin product development efforts and there can be no assurance the merged Company will be able to obtain additional financing on favorable terms, if at all. If additional capital cannot be obtained on acceptable terms, if and when needed, the Company may not be able to further develop or enhance its products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on the Company's business.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
In addition to the other risk factors contained herein and within other filings with the Securities and Exchange Commission, the Company believes the following additional risk factors should be taken into consideration in evaluating its business:
Additional Funding Needed
The Company needs additional funding to pay its obligations as they come due, further develop or enhance its products, and take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Without additional funding the Company may not be able to continue as a going concern.
The Company's original financing plans were to obtain funding of approximately $2,000,000 as a result of the merger with ISES Corporation on February 28, 2000. Only $615,650 of funding was received. As a result of the unfunded commitment, the Company entered into a $200,000 line of credit with a bank, which is guaranteed by a stockholder, and entered into other debt arrangements of approximately $235,000. Also, the Company delayed paying vendors and employees.
On November 26, 2001 the Company entered into an Amended and Substituted Asset Purchase Agreement ("Agreement") with Inflight Digital Limited, a company incorporated under the laws of England and Wales ("Buyer") which superceded an earlier Asset Purchase Agreement between the parties dated September 6, 2001. Pursuant to the Agreement, the Company agreed to sell to the Buyer all of Company's IFE assets. The IFE assets include all of the Company's rights and obligations under its contracts with airline operators for the licensing of IFE products and services, the Company's rights and obligations under license and distribution agreements relating to its IFE business, Company's files, books and records relating to its IFE assets and other tangible property and physical assets used by the Company solely in connection with IFE business. The Company also granted Buyer a perpetual, royalty free, exclusive worldwide license for IFE business. Terms include a total purchase price for the sale and license of the IFE assets of $300,000 plus (i) fifty percent (50%) of all revenue received by Buyer from certain existing customers for a period of three (3) years after the closing; (ii) twenty-five percent (25%) of all revenues received by Buyer under certain new business generated by Buyer; (iii) an amount not to exceed $100,000 of the existing contract with British Airways as assigned to Buyer plus fifty percent (50%) of all revenue received by Buyer from British Airways during the three (3) years after closing; and (iv) $75,000 upon receipt of the consent of Air France that it will expand the number of aircraft using the software and fifty percent (50%) of the revenues received from Air France during the three (3) years after closing. In November 2001, the Company received $300,000 as a result of this transaction, which was recorded as a gain on sale. Additional amounts to be received will be recorded as license fees. For the quarter ended June 30, 2002, $21,259 was billed to the buyer and recorded as license fees. The Company recorded license fees related to this Agreement for the three months ended June 30, 2002 of $85,834. Air France subsequently extended its existing contractual arrangement and is increasing the number of aircraft utilizing inflight entertainment packages. However, Air France has also indicated its intention to terminate the existing contract and utilize the services and products of another vendor. Consequently, it is unlikely that the Company will receive substantial additional revenues resulting from this customer. The Company and the Buyer have subsequently agreed that the Company may retain proceeds from the Air France contract prior to its termination. For the quarter ended June 30, 2002, proceeds of $92,000 were received by the Company and were comprised of $60,750 of license fees, $11,875 of maintenance fees and $19,375 of deferred income that will be recognized as revenue in the quarter ended December 31, 2003.
The Company Expects to Incur Operating and Net Losses
Volatility of Stock Price
The market price of the Company's common stock is likely to fluctuate in the future. The Company believes that various factors, including quarterly fluctuations in results of operations, announcements of new products or partners by the Company or by its competitors, changes in interactive television and in-flight entertainment markets in general, or general economic, political and market conditions may significantly affect the market price of its common stock
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
The Company currently is not aware of any pending legal proceedings to which it is a party or to which any of its property is subject. The Company currently is not aware that any governmental authority is contemplating any proceedings against the Company or its property.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the merger of ISES with and into the Company, the Acquisition Agreement and Plan of Merger (previously filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed March 1, 2000) provided for the issuance of (i) 10,000,000 shares of common stock and (ii) 10,000 shares of convertible preferred stock which are automatically convertible into 10,000,000 shares of common stock of the Company two (2) years after the Closing Date of the Merger which was February 28, 2000. The preferred shares were converted on February 28, 2002.
An additional 2,200,000 shares of common stock were issued to various designees of Investment Capital Corporation and Pursuit Capital, LLC in connection with the merger, in exchange for the commitment of these entities to raise $2,000,000 to fund working capital needs and general corporate purposes, including, but not limited to, expansion of sales and marketing efforts, research and development activities, licensing of new technology and payment of additional legal and accounting services occasioned by the merger of the Company and ISES. These entities conducted a private placement of the Company's $.001 par value common stock during the fiscal quarter ended June 30, 2000 and raised $760,000, in consideration of which the Company issued an additional 760,000 shares of its common stock. These entities are obligated to provide the Company with an additional $2,000,000 in equity (without further issuance of equity securities by the Company) of which $615,650 was received through June 30, 2002 leaving a balance of $1,384,350 to be provided by these entities. None of such shares of common stock or preferred stock was or will be registered under the Securities Act of 1933, as amended. The funds received have been used for working capital. Management believes that it is unlikely that these entities will provide any additional capital to the Company and is in the process of attempting to recover as many of such shares as possible. As of June 30, 2002, 1,097,000 shares have been surrendered by those entities in lieu of additional capital contributions. The Company has not taken action to either establish these shares as treasury stock or to cancel them and return them to authorized but unissued shares. Accordingly, the shares are outstanding in the names of the original owners on the Company's stock records.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
The Company does not believe there is any information to report under this item.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company does not believe there is any information to report under this item.
ITEM 5: OTHER INFORMATION
The Company does not believe there is any information to report under this item.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Report on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunder duly authorized.
| SNAP2 CORPORATION |
Dated: January 29, 2004 | By: /s/ William O’Keef
William O’Keef, President |
I, William O’Keef, certify that:
1. I have reviewed this quarterly report on Form 10Q-SB of Snap2 Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors ( or person performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial date and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there are significant changes in internal controls or other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: January 29, 2004 | By: /s/ William O’Keef
William O’Keef, President |
Statement of Chief Executive Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings
I, William O’Keef, state and certify as follows:
The financial statements filed with the report on Form 10-QSB for the period ended December 31, 2003 fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 and that the information contained in said periodic report fairly presents, in all material respects, the financial condition and results of operations of Snap2 Corporation.
This Statement is submitted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Dated: January 29, 2004 | By: /s/ William O’Keef
William O’Keef, President |
