UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2003.
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange
Act of 1934 for the transition period from ______ to ______.
Commission File Number: 000-29445
Wrap-N-Roll USA, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 84-1432450
--------------------------------- --------------------------
(State or Other Jurisdiction of (IRS Employer ID Number)
Incorporation or Organization)
1056 East Platinum Way, Sandy, Utah 84094
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(Address of Principal Executive Offices and Zip Code)
Issuer's telephone number: (801) 576-8073
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to
the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of August 14, 2003, there were 10,550,000 shares of common stock
issued and outstanding.
Transitional Small business Format (Check one): Yes [ ] No [X]
FORM 10-QSB
WRAP-N-ROLL USA, INC.
TABLE OF CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . .20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . .23
ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . .24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . .24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . .24
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . .24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . .24
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
PART I
ITEM 1. FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
financial statements included in this Form 10-QSB reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for the periods presented. The
results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
WRAP-N-ROLL USA, INC.
CONTENTS
PAGE
- Unaudited Condensed Balance Sheets,
June 30, 2003 and December 31, 2002 4 - 5
- Unaudited Condensed Statements of Operations,
for the three and six months ended June 30, 2003
and 2002 6
- Unaudited Condensed Statements of Cash Flows,
for the six months ended June 30, 2003
and 2002 7 - 8
- Notes to Unaudited Condensed Financial Statements 9 - 19
WRAP-N-ROLL USA, INC.
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
2003 2002
___________ ___________
CURRENT ASSETS:
Cash $ 15 $ 247
Accounts receivable, net of
allowance for doubtful accounts
of $1,500 and $0, respectively - -
Related party receivable 1,864 1,484
Notes receivable - related party 5,120 9,432
___________ ___________
Total Current Assets 6,999 11,163
PROPERTY AND EQUIPMENT, net 17,251 20,387
___________ ___________
$ 24,250 $ 31,550
___________ ___________
[Continued]
-4-
WRAP-N-ROLL USA, INC.
UNAUDITED CONDENSED BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2003 2002
___________ ___________
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 41,634 $ 90,995
Accounts payable and accrued expenses
- related party 73,262 49,543
Judgments payable 39,548 -
Note payable 10,126 -
Notes payable - related party 38,071 29,171
Current portion of long-term debt 6,267 5,701
___________ ___________
Total Current Liabilities 208,908 175,410
LONG-TERM DEBT, less current portion 12,669 15,132
___________ ___________
Total Liabilities 221,577 190,542
___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value,
20,000,000 shares authorized,
10,550,000 shares issued and
outstanding 10,550 10,550
Capital in excess of par value 450 450
Retained earnings (deficit) (208,327) (169,992)
___________ ___________
Total Stockholders' Equity (Deficit)(197,327) (158,992)
___________ ___________
$ 24,250 $ 31,550
___________ ___________
Note: The Balance Sheet of December 31, 2002 was taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
-5-
WRAP-N-ROLL USA, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
____________________ ___________________
2003 2002 2003 2002
_________ _________ _________ ________
SALES REVENUE, net of returns,
discounts and allowances $ - $ 27,188 $ 3,000 $ 40,791
COST OF GOODS SOLD 2,154 22,572 4,951 33,145
_________ _________ _________ ________
GROSS PROFIT (LOSS) (2,154) 4,616 (1,951) 7,646
_________ _________ _________ ________
EXPENSES:
Selling - 31 - 31
General and administrative 19,740 29,753 32,218 61,142
_________ _________ _________ ________
Total Expenses (19,740) (29,784) (32,218) (61,173)
_________ _________ _________ ________
LOSS BEFORE OTHER INCOME
(EXPENSE) (21,894) (25,168) (34,169) (53,527)
_________ _________ _________ ________
OTHER INCOME (EXPENSE):
Interest income - related party 132 240 280 480
Interest expense - related party (804) (408) (1,481) (942)
Interest expense (1,902) (488) (2,965) (905)
_________ _________ _________ ________
Total Other Income (Expense) (2,574) (656) (4,166) (1,367)
_________ _________ _________ ________
LOSS BEFORE INCOME TAXES (24,468) (25,824) (38,335) (54,894)
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
_________ _________ _________ ________
NET LOSS $(24,468) $(25,824) $(38,335) $(54,894)
_________ _________ _________ ________
LOSS PER COMMON SHARE $ (.00) $ (.00) $ (.00) $ (.01)
_________ _________ _________ ________
The accompanying notes are an integral part of these unaudited condensed
financial statements.
-6-
WRAP-N-ROLL USA, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Six
Months Ended
June 30,
__________________
2003 2002
________ ________
Cash Flows from Operating Activities:
Net loss $(38,335) $(54,894)
Adjustments to reconcile net loss
to net cash used by operating activities:
Bad debt expense 1,500 -
Depreciation expense 3,136 3,136
Non-cash expenses 1,200 1,200
Changes in assets and liabilities:
(Increase) in accounts receivable (1,500) (7,642)
(Increase) in related party receivable (380) (480)
Increase in accounts payable and
accrued expenses 313 31,541
Increase in accounts payable and
accrued expenses - related party 26,219 8,986
________ ________
Net Cash (Used) by
Operating Activities (7,847) (18,153)
________ ________
Cash Flows from Investing Activities:
Receipts from notes receivable 3,112 60
________ ________
Net Cash Provided by
Investing Activities 3,112 60
________ ________
Cash Flows from Financing Activities:
Proceeds from notes payable - related party 6,400 6,000
Payments on long-term debt (1,897) (2,764)
________ ________
Net Cash Provided (Used) by
Financing Activities 4,503 3,236
________ ________
Net Increase (Decrease) in Cash (232) (14,857)
Cash at Beginning of Period 247 17,657
________ ________
Cash at End of Period $ 15 $ 2,800
________ ________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 268 $ 865
Income taxes $ - $ -
[Continued]
-7-
WRAP-N-ROLL USA, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
[Continued]
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the six months ended June 30, 2003:
In January 2003, the Company extended accounts payable of $10,126
into a new note payable.
In January 2003, the Company extended related party notes payable of
$26,671 and related accrued interest of $2,500 into two new notes
payable.
The Company applied expenses totaling $1,200 against notes
receivable.
For the six months ended June 30, 2002:
The Company applied expenses totaling $1,200 against notes
receivable.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
-8-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Wrap-N-Roll USA, Inc. ("the Company") was organized
under the laws of the State of Nevada on September 26, 1997 as Oxy
General Corporation. Effective November 17, 2000, the Company changed
its name from Oxy General Corporation to Wrap-N-Roll USA, Inc. The
Company provides specialized advertising services to businesses of all
sizes emphasizing large format digital printing on perforated and non-
perforated vinyl substrates. Through use of a special non-corrosive,
vinyl material with a patented adhesive made by 3M, the Company offers
businesses the ability to wrap the exterior of buildings, windows and
motor vehicles with an advertising message. In addition to the sale
of its wrapping services, the Company also offers advertising services
using wrapped property.
Condensed Financial Statements - The accompanying financial statements
have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 2003 and 2002 and for
the periods then ended have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been
condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 2002 audited
financial statements. The results of operations for the periods ended
June 30, 2003 and 2002 are not necessarily indicative of the operating
results for the full year.
Cash and Cash Equivalents - The Company considers all highly liquid
debt investments purchased with a maturity of three months or less to
be cash equivalents.
Accounts and Loans Receivable - The Company records accounts and loans
receivable at the lower of cost or fair value. The Company determines
the lower of cost or fair value of nonmortgage loans on an individual
asset basis. The Company recognizes interest income on an account
receivable based on the stated interest rate for past-due accounts
over the period that the account is past-due. The Company recognizes
interest income on a loan receivable based on the stated interest rate
over the term of the loan. The Company accumulates and defers fees
and costs associated with establishing a receivable to be amortized
over the estimated life of the related receivable. The Company
estimates allowances for doubtful accounts and loan losses based on
the aged receivable balance and historical losses. The Company
records interest income on delinquent accounts and loans receivable
only when payment is received. The Company first applies payments
received on delinquent accounts and loans receivable to eliminate the
outstanding principal. The Company charges off uncollectible accounts
and loans receivable when management estimates no possibility of
collecting the related receivable. The Company considers accounts and
loans receivable to be past-due or delinquent based on contractual
terms.
-9-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to operating
expense as incurred. Expenditures for additions and betterments that
extend the useful lives of property and equipment are capitalized,
upon being placed in service. When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation or
amortization is removed from the accounts and any resulting gain or
loss is included in operations. Depreciation is calculated using the
straight-line method and is based upon the estimated useful lives of
the assets of five years [See Note 2].
Revenue Recognition - The Company's revenue comes primarily from the
installation of advertising which is wrapped around a vehicle, window
or building. Installation revenue is recognized upon completion of
the installation. The Company also sells monthly advertising,
typically with a term ranging from 1 month to 1 year. The advertising
is displayed on vehicles owned or rented by the Company. Advertising
revenue is recognized over the term of the advertising agreement using
the straight-line method. The actual design, layout, printing and
installation of the advertising are subcontracted out to third party
vendors. These direct costs are recorded by the Company as cost of
goods sold.
Revenue derived from joint agreements or from commission type
agreements is recorded on a net basis. On a net basis, only the share
of revenue belonging to the Company is recorded as revenue.
Advance payments and deposits, which are received up front by the
Company, are deferred and recognized as revenue upon completion of the
installation or upon delivery of the advertising.
Advertising Costs - Advertising costs, except for costs associated
with direct-response advertising, are charged to operations when
incurred. The costs of direct-response advertising are capitalized
and amortized over the period during which future benefits are
expected to be received.
Loss Per Share - The computation of loss per share is based on the
weighted average number of shares outstanding during the period
presented in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" [See Note 13].
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amount of
revenues and expenses during the reported period. Actual results
could differ from those estimated.
-10-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", SFAS No. 147,
"Acquisitions of Certain Financial Institutions - an Amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9", SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123", SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities", and SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", were
recently issued. SFAS No. 146, 147, 148, 149 and 150 have no current
applicability to the Company or their effect on the financial
statements would not have been significant.
Reclassification - The financial statements for periods prior to June
30, 2003 have been reclassified to conform to the headings and
classifications used in the June 30, 2003 financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
June 30, December 31,
2003 2002
___________ ___________
Vehicles $ 31,365 $ 31,365
Less: Accumulated depreciation (14,114) (10,978)
___________ ___________
Net Property and Equipment $ 17,251 $ 20,387
___________ ___________
For the six months ended June 30, 2003 and 2002, respectively,
depreciation expense amounted to $3,136 and $3,136.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at:
June 30, December 31,
2003 2002
___________ ___________
Accounts payable $ 19,006 $ 69,840
Accrued payroll, taxes
and withholdings 20,769 21,130
Interest payable 1,859 25
___________ ___________
$ 41,634 $ 90,995
___________ ___________
-11-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTY
Accounts payable and accrued expenses to related parties consisted of
the following at:
June 30, December 31,
2003 2002
___________ ___________
Accrued payroll - related party $ 71,413 $ 46,674
Accrued interest - related party 1,849 2,869
___________ ___________
$ 73,262 $ 49,543
___________ ___________
NOTE 5 - JUDGMENTS PAYABLE
In March 2003, the Third District Court for Salt Lake County issued a
judgment against the Company for Prografix International, Inc. in the
amount of $34,682 [See Note 14]. The judgment provides for interest
to accrue on the principal balance at 10% per annum. For the six
months ended June 30, 2003 and 2002, respectively, interest expense
amounted to $1,168 and $0. At June 30, 2003, accrued interest
amounted to $1,168.
In April 2003, the Third District Court for Salt Lake County issued a
judgment against the Company for Metro Display, LLC in the amount of
$4,866 [See Note 14]. The judgment provides for interest to accrue on
the principal balance at 10% per annum. For the six months ended June
30, 2003 and 2002, respectively, interest expense amounted to $111 and
$0. At June 30, 2003, accrued interest amounted to $111.
The amounts recorded as judgments payable consisted of the following
at:
June 30, December 31,
2003 2002
_________ ___________
Judgment for Prografix International, Inc. $ 34,682 $ -
Judgment for Metro Display, LLC 4,866 -
_________ ___________
$ 39,548 $ -
_________ ___________
NOTE 6 - NOTE PAYABLE
On January 8, 2003, the Company extended an accounts payable balance
of $10,126 into a note payable to Mark E. Lehman & Associates, PLLC.
The note is secured by all the assets of the Company, accrues interest
at 8% per annum and was due May 30, 2003. This note payable is in
default. For the six months ended June 30, 2003 and 2002,
respectively, interest expense amounted to $386 and $0. At June 30,
2003, accrued interest amounted to $386.
-12-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following at:
June 30, December 31,
2003 2002
___________ ___________
Note payable to a financing
agency for 60 months at 3%
interest, secured by a
vehicle with a net book
value of $17,251 $ 18,936 $ 20,833
Less: Current portion (6,267) (5,701)
___________ ___________
$ 12,669 $ 15,132
___________ ___________
The long-term debt matures as follows for the twelve-month periods
ended:
June 30, Principal Due
____________ ___________
2004 $ 6,267
2005 5,927
2006 6,742
2007 -
2008 -
___________
$ 18,936
___________
For the six months ended June 30, 2003 and 2002, respectively,
Interest expense for long-term debt amounted to $438 and $349. At
June 30, 2003, accrued interest amounted to $195.
NOTE 8 - CAPITAL STOCK
Preferred stock - The Company has authorized 5,000,000 shares of
preferred stock, $.001 par value, with such rights, preferences and
designations and to be issued in such series as determined by the
Board of Directors. No shares were issued and outstanding at June 30,
2003 and December 31, 2002.
Common Stock - The Company has authorized 20,000,000 shares of common
stock with a par value of $.001.
Common Stock Cancellation - In June 2002, a shareholder of the Company
returned 450,000 shares of common stock for cancellation.
NOTE 9 - OPERATING LEASES
The Company had two cars under operating leases expiring in 2003. In
April 2001, the Company purchased a van to replace one of the cars.
As part of the purchase, the Company assigned the lease of the
original car to the financing agency [See Note 11].
-13-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 9 - OPERATING LEASES [Continued]
Minimum future rental payments under the remaining non-cancelable
operating lease for the twelve-month periods ended and in aggregate
are:
June 30, Amount
____________ ___________
2004 $ 1,926
2005 -
2006 -
2007 -
2008 -
___________
Total minimum future
rental payments: $ 1,926
___________
For the six months ended June 30, 2003 and 2002, respectively, lease
expense amounted to $1,297 and $1,736, respectively.
NOTE 10 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the Company to provide a net deferred tax asset
or liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting
methods and any available operating loss or tax credit carryforwards.
At June 30, 2003, the Company has available unused operating loss
carryforwards of approximately $51,600, which may be applied against
future taxable income and which expire in various years through 2023.
If certain substantial changes in the Company's ownership should
occur, there will be an annual limitation on the amount of net
operating loss carryforwards which can be utilized.
At June 30, 2003, the total of all deferred tax assets was
approximately $79,200 and the total of all deferred tax liabilities
was $1,300. The amount of and ultimate realization of the benefits
from the deferred tax assets for income tax purposes is dependent, in
part, upon the tax laws in effect, the future earnings of the Company,
and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss
carryforwards, the Company has established a valuation allowance of
approximately $77,900. The net change in the valuation allowance was
approximately $14,300 during the six months ended June 30, 2003.
-14-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES [Continued]
The temporary differences gave rise to the following deferred tax
asset (liability):
June 30,
2003
___________
Excess of tax over financial
accounting depreciation $ 1,745
Accrued compensation 34,384
Accounts payable 21,840
Accrued interest 1,383
Accounts receivable (560)
Allowance for bad debts 560
Interest receivable (695)
Net operating loss carryover 19,256
The components of federal income tax expense from continuing
operations consisted of the following for the six months ended:
June 30,
2003
___________
Current income tax expense:
Federal $ -
State -
___________
Net current tax expense $ -
___________
Deferred tax expense (benefit) resulted from:
Excess of tax over financial
accounting depreciation $ (620)
Accrued Compensation (9,216)
Accounts payable 4,210
Accrued interest expense (304)
Accounts receivable 560
Allowance for bad debts (560)
Interest receivable 142
Net operating loss carryover (8,512)
Valuation allowance 14,300
___________
Net deferred tax expense $ -
___________
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement
income.
-15-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES [Continued]
The reconciliation of income tax from continuing operations computed
at the U.S. federal statutory tax rate to the Company's effective rate
is as follows for the six months ended:
June 30,
2003
___________
Computed tax at the expected
federal statutory rate 34.00%
State income taxes, net of federal benefit 3.30
Valuation allowance (37.30)
___________
Effective income tax rates 0.00%
___________
NOTE 11 - RELATED PARTY TRANSACTIONS
Notes Receivable - On July 1, 2001, the Company extended a receivable
of $15,027 into a note receivable. On August 1, 2001 the Company
signed a note receivable with an officer/shareholder of the Company
for $2,500. Both notes accrue interest at 7% per annum and are due on
demand. At June 30, 2003, accrued interest amounted to $1,864. As of
June 30, 2003, the Company had applied rent and
utilities/miscellaneous expenses totaling $6,000 and a $1,000 down
payment made on behalf of the Company against the principal of the two
notes, plus the officer/shareholder repaid $5,407, resulting in
principal of $5,120 owed at June 30, 2003 [See below].
Purchase Agreement - On April 21, 2001, the Company purchased a van
for $31,365 to replace one of its leased cars. To finance the
purchase, an officer/shareholder of the Company paid $1,000 to the
financing agency and the Company assigned its operating lease to the
financing agency and recognized a $1,500 gain. The remaining $28,865
was financed through the financing agency in the name of the
officer/shareholder at 3% interest. The agreement was negotiated in
the name of the officer/shareholder to take advantage of certain
conditions and financing arrangements that were unavailable to the
Company. The Company then purchased the van from the
officer/shareholder on the same terms and conditions. The agreement
requires the Company to make 60 monthly payments of $518 directly to
the financing agency beginning June 8, 2001. At June 30, 2003, the
Company owed $18,936 on the purchase of the van [See Note 7].
Loan Payable - On May 28, 2002, an entity controlled by a former
shareholder of the Company loaned $1,000 to the Company as a 30-day
loan. On July 30, 2002, the loan was extended into a new note
payable.
Notes Payable - On April 1, 2003, the Company signed a $3,200 note
payable to a former shareholder of the Company. The note accrues
interest at 10% per annum and is due on demand. For the six months
ended June 30, 2003 and 2002, respectively, interest expense amounted
to $80 and $0. At June 30, 2003, accrued interest amounted to $80.
-16-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS [Continued]
On March 4, 2003, the Company signed a $3,200 note payable to a former
shareholder of the Company. The note accrues interest at 10% per
annum and is due on demand. For the six months ended June 30, 2003
and 2002, respectively, interest expense amounted to $104 and $0. At
June 30, 2003, accrued interest amounted to $104.
On January 8, 2003, the Company extended a note payable of $10,000 and
related accrued interest of $417 into a new note payable to an entity
controlled by a former shareholder of the Company. The note is
secured by all the assets of the Company, accrues interest at 8% per
annum and was due May 30, 2003. This note payable is in default. For
the six months ended June 30, 2003 and 2002, respectively, interest
expense amounted to $397 and $0. At June 30, 2003, accrued interest
amounted to $397.
On January 8, 2003, the Company extended a note payable of $16,671 and
related accrued interest of $2,084 into a new note payable to a former
shareholder of the Company. The note is secured by all the assets of
the Company, accrues interest at 8% per annum and was due May 30,
2003. This note payable is in default. For the six months ended June
30, 2003 and 2002, respectively, interest expense amounted to $715 and
$0. At June 30, 2003, accrued interest amounted to $715.
On October 17, 2002, the Company signed a $2,500 note payable to a
former shareholder of the Company. The note accrues interest at 10%
per annum and is due on demand. For the six months ended June 30,
2003 and 2002, respectively, interest expense amounted to $125. At
June 30, 2003, accrued interest amounted to $176.
On August 1, 2002, the Company extended a note payable of $5,000, a
$1,000 loan, related accrued interest of $108 and an additional loan
of $3,892 into a new note payable to a former shareholder of the
Company. The note accrued interest at 10% per annum and was due on
demand. On January 8, 2003, this note was extended into a new note
payable.
On April 15, 2002, the Company signed a $5,000 note payable to an
entity controlled by a former shareholder of the Company. The note
accrued interest at 10% per annum and was due on demand. On August 1,
2002, this note was extended into a new note payable.
On August 1, 2001, the Company extended a note payable of $812, a note
payable of $10,000, related accrued interest of $859 and an additional
loan of $5,000 into a new note payable to a former shareholder of the
Company. The note accrued interest at 10% per annum and was due on
demand. On January 8, 2003, this note was extended into a new note
payable.
Management Compensation - On January 1, 2001, the Company entered into
an employment agreement with an officer/shareholder of the Company to
pay $1,000 per month for three years. On April 1, 2001, the Company
increased the salary to $4,000 per month. For the six months ended
June 30, 2003 and 2002, respectively, the Company accrued payroll of
$24,738 and $8,044 and paid $0 and $16,882 to the officer/shareholder.
-17-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTY TRANSACTIONS [Continued]
Office Space/Utilities - On January 1, 2001, the Company entered into
rental and utilities agreements with an officer/shareholder of the
Company allowing the Company to use office space in his home for the
operations of the Company at a base rent of $100 per month and a base
utility expense of $100 per month. For the six months ended June 30,
2003 and 2002, respectively, the Company expensed $1,200 and $1,200,
as rent and utilities/miscellaneous expenses which have been applied
against the principal of two notes receivable from the
officer/shareholder [See above].
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America, which contemplate continuation of the Company as a going
concern. However, the Company has incurred losses since its inception
and has current liabilities in excess of current assets. These
factors raise substantial doubt about the ability of the Company to
continue as a going concern. In this regard, management is proposing
to raise any necessary additional funds not provided by operations
through loans or through additional sales of its common stock. There
is no assurance that the Company will be successful in raising this
additional capital or in achieving profitable operations. The
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
NOTE 13 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
______________________ ______________________
2003 2002 2003 2002
__________ __________ __________ __________
Loss from operations
available to common
shareholders (numerator) $(24,468) $ (25,824) $ (38,335) $ (54,894)
__________ __________ __________ __________
Weighted average number
of common shares outstanding
used in loss per share
for the period
(denominator) 10,550,000 10,876,374 10,550,000 10,937,845
__________ __________ __________ __________
Dilutive loss per share was not presented, as the Company had no
common stock equivalent shares for all periods presented that would
affect the computation of diluted loss per share.
-18-
WRAP-N-ROLL USA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Employment Agreement - On August 1, 2001, the Company entered into an
employment agreement with an employee. The agreement provided for a
$3,000 per month salary for a period of one year commencing August 1,
2001. The employment agreement continued on a month-to-month basis.
In November 2002, the Company terminated the employment agreement.
For the six months ended June 30, 2003 and 2002, respectively, the
Company accrued payroll of $0 and $8,803 and paid $0 and $9,890 to the
employee.
Litigation - In December 2002, Prografix International, Inc.
("Prografix"), a supplier of the Company, filed a complaint in the
Third District Court for Salt Lake County. Prografix claimed that the
Company had not paid for services rendered and sought a judgment
against the Company in the amount of unpaid invoices plus interest.
In March 2003, the court issued a judgment against the Company in the
amount of $34,682. The judgment provides for interest to accrue on
the unpaid principal balance at 10% per annum.
In February 2003, Metro Display, LLC ("MD"), a supplier of the
Company, filed a complaint in the Third District Court for Salt Lake
County. MD claimed that the Company had not paid for services
rendered and sought a judgment against the Company in the amount of
unpaid invoices plus collection costs. In April 2003, the court
issued a judgment against the Company in the amount of $4,866. The
judgment provides for interest to accrue on the unpaid principal
balance at 10% per annum.
NOTE 15 - CONCENTRATIONS
Significant Customer - For the six months ended June 30, 2003, all of
the Company's revenues came from just one customer. The loss of this
significant customer could adversely affect the Company's business and
financial position.
Geographic Region - During the six months ended June 30, 2003, all of
the Company's sales and operations were located in and around Salt
Lake City, Utah.
-19-
[THIS SPACE INTENTIONALLY LEFT BLANK]
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Wrap-N-Roll is a marketing company for specialty advertising in the
form of large format digital printing on perforated and non-perforated
vinyl substrates that can be applied to the exterior of buildings,
windows, and motor vehicles. We began this business in October 2000, but
did not realize any revenue from the business until the first quarter of
2001. Before then we had no business operations, so our specialty
advertising business is a new venture.
Our business is not capital intensive because we do not require
production or storage facilities to operate our business. We rely on
third party suppliers to produce and install the advertising product we
sell, and we place orders with suppliers only against purchase orders we
receive through our marketing efforts. The cost of production and
installation of the advertising product averages 81 percent of the total
invoice price.
Our operations recently commenced at the end of 2000 and we do not
have a history of operations from which we can evaluate our ability to
generate revenue at sufficient levels to sustain and develop our
operations without outside financing. We emphasize that it is
management's belief alone regarding the potential market for our
advertising product that serves as the basis for pursuing this business.
If our belief about the market for our product is wrong, then our sales
revenues will likely stagnate or decrease and our ability to sustain and
develop the business will be substantially impaired. In these
circumstances we would likely need to seek outside financing to sustain
our operations, and we do not know whether financing would be available on
acceptable terms. The foregoing factors raise substantial doubt about our
ability to continue as a going concern.
Results of Operations
****************************************************************
SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002,
AND THREE MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
****************************************************************
Revenue: The Company had revenues of $3,000 and $40,791 respectively
for the six month periods ended June 30, 2003 and 2002. The Company had
revenues of $0 and $27,188 respectively for the three-month periods ended
June 30, 2003 and 2002.
Our average monthly revenue rate over the first six months of 2003
was approximately $500. Our goal is to increase monthly revenue by at
least 10 percent each month over the next 12 months. At present our
marketing effort is limited to personal sales calls we initiate with
business owners in the Salt Lake City metropolitan area. We have set as a
sales goal an average of 20 van advertising installations and 10
installations on other vehicles per month. We have not implemented any
other form of advertising or marketing for our advertising product and
believe we can achieve our sales goals over the next 12 months with direct
sales efforts. We believe the revenue we generate internally from
marketing our specialty advertising products with our current personnel
and resources will be adequate to cover our costs of production and
operating expenses through the next 12 months.
Cost of Goods Sold: Cost of goods sold for the six month periods
ended June 30, 2003 and 2002 were $4,951 and $33,145 respectively. The
cost of goods sold for the three-month periods ended June 30, 2003 and
2002 were $2,154 and $22,572 respectively. Cost of goods sold includes
the cost of production of the advertising material we sell and its
installation.
20
General and Administrative Expenses: General and administrative
expenses and selling expenses for the six month periods ended June 30,
2003 and 2002 were $32,218 and $61,142 respectively. These expenses for
the three-month periods ended June 30, 2003 and 2002 were $19,740 and
$29,753 respectively.
Operating Expenses: Operating expenses consist primarily of salary
for our employee, office expenses, and professional fees. The total
salary accrued for and paid to Cliff Halling, our president, was $24,738
for the six month period ended June 30, 2003, compared to $24,926 for the
six month period ended June 30, 2002. The total salary accrued for and
paid to Mr. Halling for the three-month periods ended June 30, 2003 and
2002 was $13,108 and $12,692 respectively. His monthly salary is $4,000
through the remainder of 2003. Our vehicle leasing and purchase
obligations total $807 per month, which includes approximately $300
payable over a three-year term for the leased vehicle and the remainder
payable over a five-year term for the vehicle being purchased. Our office
rent and utilities through the six-month periods ended June 30, 2003 and
2002 was $1,200 and $1,200 respectively. Office rent and utilities for the
three-month periods ended June 30, 2003 and 2002 was $600 and $600
respectively. We expect our office expense will remain at a rate of
approximately $200 per month through the end of 2003. Professional fees
for the six-month periods ended June 30, 2003 and 2002 were $4,508 and
$7,849 respectively and for the three-month periods ended June 30, 2003
and 2002 were $4,508 and $4,449 respectively.
Wrap-N-Roll had two cars under operating leases expiring 2003. On
April 21, 2001, we purchased a new van to replace one of the cars. To
finance the purchase, Cliff Halling, our sole officer and director, paid
$1,000 to the financing agency. This payment made by Mr. Halling for our
benefit was applied to reduce his outstanding obligations payable to us.
Wrap-N-Roll also assigned the operating lease for the original car to the
financing agency and recognized a $1,500 gain on the assignment. The
remaining $28,865 was financed through an unrelated financing agency at an
interest rate of 3 percent.
Interest Expense and Interest Income: Interest expense for the six-
month periods ended June 30, 2003 and 2002, was $4,446 and $1,847
respectively. Interest expense for the three-month periods ended June 30,
2003 and 2002 was $2,706 and $896 respectively. We also recognized
interest income of $280 for the six-month period ended June 30, 2003, on a
note receivable from Cliff Halling compared to $480 for the six-month
period ended June 30, 2002. Interest income for the three-month periods
ended June 30, 2003 and 2002, was $132 and $240 respectively.
As a result of the foregoing factors, Wrap-N-Roll realized a net loss
of $38,335 for the six-month period ended June 30, 2003 compared to a net
loss of 54,894 for the six-month period ended June 30, 2002. Wrap-N-Roll
realized a net loss of $24,468 for the three-month period ended June 30,
2003 compared to a net loss of $25,824 for the three-month period ended
June 30, 2002.
********************************************************************
CALENDAR YEARS ENDED DECEMBER 31, 2002 AND 2001
********************************************************************
The Company had $59,111 in revenue for the calendar year ended
December 31, 2002 and $258,872 in revenue for the calendar year ended
December 31, 2001. The Company incurred $119,939 in net operating losses
for the calendar year ended December 31, 2002 as compared to $36,713 in
net operating losses for the calendar year ended December 31, 2001.
21
The net operating loss for all periods resulted primarily from
general
and administrative expenses and interest expense. The net loss per share
for
December 31, 2002 and December 31, 2001 was $0.01 and $0.00 per share
respectively.
General and administrative expenses for all periods ended consisted
of
general corporate administration, legal and professional expenses, and
accounting and auditing costs. These expenses were $103,934 for the
calendar
year ended December 31, 2002 and $96,859 for the calendar year ended
December 31, 2001.
Selling expenses for the calendar year ended December 31, 2002 and
2001 were $31 and $925 respectively.
Interest expense for the calendar year ended December 31, 2002 and
2001 was $6,649 and $3,059 respectively. We also recognized interest
income of $961 for the calendar year ended December 31, 2002, on a note
receivable from Cliff Halling.
For the current fiscal year, the Company anticipates incurring a loss
as
a result of legal and accounting expenses, expenses associated with
registration under the Securities Exchange Act of 1934, as amended, and
expenses associated with its new business plan, as described herein.
Liquidity and Capital Resources
At June 30, 2003, we had a working capital deficit of $201,909,
compared to a working capital of $100,098 at June 30, 2002.
Current assets consist primarily of cash in the amount of $15,
accounts receivable of $0, and notes receivable and accrued interest from
Cliff Halling, our president and sole director, in the amount of $6,984.
Prior to July 2001, Wrap-N-Roll advanced a total of $15,027 to Mr.
Halling, which is represented by a note payable to Wrap-N-Roll bearing
interest at 7 percent per annum and due on demand. We made a further
advance to Mr. Halling in the amount of $2,500 represented by a note dated
August 1, 2001, bearing interest at 7 percent per annum and due on demand.
Mr. Halling has repaid $5,407 on the notes, so that the outstanding
balance at June 30, 2003, was $5,120 with accrued interest of $1,864. We
do not have any present intention of making further advances to Mr.
Halling.
Current liabilities total $208,908 and consist primarily of $41,634
in accounts payable and accrued expenses, $73,262 of accounts payable and
accrued related party expenses, $39,548 owed for judgments, $10,126 of
notes payable, $38,071 of notes payable-related party and $6,267 on the
current portion due of notes payable.
At December 31, 2002 we had notes payable of $29,171 in the form of
three separate promissory notes, all to a former shareholder or an entity
controlled by a former shareholder. The first note, dated August 1, 2002
was in the amount of $16,671 and is due on demand, bearing interest at the
rate of 10% per annum. The second note dated July 30, 2002 was in the
amount of $10,000 and is due on demand, bearing interest at the rate of
10% per annum. The third note dated October 17, 2002 was in the amount of
$2,500 and was due on demand, bearing interest at the rate of 10% per
annum.
In March 2003, a former shareholder loaned us an additional $6,400
bearing interest at 10% per annum, payable on demand.
In January 2003, we entered into an agreement to secure the liability
of one of our debtors. This security agreement is in the amount of
$10,125.68 and is secured by a first lien on our assets with the exception
of our Company van, which is pledged to the loaning finance company. The
August 2002 and July 2002 notes along with accrued interest that were due
to a former shareholder were also secured in January 2003 by a second and
third lien against our assets, respectively. The amounts underlying these
secured positions totaling $38,072.00, excluding the van, were payable in
full May 30, 2003. These agreements are currently being renegotiated and
are accruing interest at a rate of 8% per annum.
22
Long-term debt at June 30, 2003, consisted of $18,936 due an
unrelated finance company that provided the financing on our van. The
obligation is payable in monthly installments over a term of five years
commencing in April 2001, bears interest at three percent per annum, and
is secured by our van with a net book value of $17,251.
If we achieve our revenue goals by the end of 2003, then we will
evaluate the feasibility of adding employees. New employees will be added
only if our operations can support the new employees without outside
financing and if we believe the addition of these employees will enable us
to penetrate our market more effectively. An increase in our operations
and the number of employees may require us to seek larger office space to
house our marketing and service personnel. Should this growth occur, we
do not expect that we would need more than approximately 600 square feet
of office space. We believe that there is an adequate supply of office
space in Salt Lake County, Utah to meet our need for larger space, should
it arise. Based solely on our informal investigation of office space, we
believe we could find suitable space to rent for $12 per square foot per
year, or a total of $7,200 per year for 600 square feet.
Wrap-N-Roll began generating sales revenue from its business
operations since the beginning of 2001. Consequently, we do not have a
history of operations that allows us to predict with any certainty whether
our sales will continue at current levels or decrease over the next 12
months.
In the past Cliff Halling, our president and sole director, agreed to
defer payment of his compensation when we did not have sufficient revenue
to pay the expense. We have no agreement or arrangement with Mr. Halling
to renew this practice in the future, should the need arise. We have also
relied in the past on loans from a previous stockholder, to provide
working capital for our operations. We similarly have no agreement or
arrangement with this person to provide financing in the future. Should
there be a substantial reduction in our sales revenue at any time over the
next 12 months it is likely we would need to seek outside financing to
fund our operations. We have not identified any sources for such
financing and we do not know whether any financing would be available to
us on acceptable terms.
PART II
ITEM 1. LEGAL PROCEEDINGS
In the fourth quarter of 2002 Prografix, a printing company,
filed a complaint against us in the Third District Court for Salt Lake
County for amounts due by us related to printing services. In the first
quarter of 2003, Prografix obtained a default judgment against us in the
amount of $34,682.47.
In the first quarter of 2003 Metro Display, a printing company, filed
a complaint against us for amounts due by us related to printing services
totaling approximately $4,866. In the second quarter of 2003, Metro
Display obtained a default judgment against us in the amount of $4,866.
We have not defended either case and do not intend to do so, since we
chose to conserve our resources as best as possible for our survival. Our
goal is to work our way to profitability and hopefully resolve the claims
against us.
No other claims are pending or have been threatened.
23
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation
S-B are listed in the Index to Exhibits, which is incorporated herein by
reference.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the last quarter of the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, this
report
has been signed below by the following persons on behalf by the
undersigned
thereunto duly authorized.
WRAP-N-ROLL USA, INC.
/s/ Cliff Halling
-----------------------------------
Date: August 14, 2003 By: Cliff Halling, President,
Secretary, Treasurer, Director
24
INDEX TO EXHIBITS
---------------------
SEC Ref
No. Page No. Description
- ------- -------- -----------
31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350.
25