U.S. 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: December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from _________________ to ________________
Commission file number 0-28879
WILMINGTON REXFORD, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0348508
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5919 - 3RD STREET, S.E., CALGARY, ALBERTA, CANADA T2H 1K3
(Address of principal executive offices)
(403) 252-7766
(Issuer's telephone number)
E-TREND NETWORKS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date:
5,212,702 SHARES OF COMMON STOCK, $0.0001 PAR VALUE, AS OF
DECEMBER 31, 2001
Transitional Small Business Disclosure Format (check one); Yes No X
1
E-TREND NETWORKS, INC.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
- -------------------------------------------------------------------------------------------------
December 31, September 30,
2001 2001
- -------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 145,469 $ 112,524
Accounts receivable 71,105 47,083
Due from related parties (note 4):
VHQ Entertainment Inc. 339,488 229,346
Diz Investments Ltd. 2,383 632
Inventory 261,822 229,320
Prepaid expenses 43,898 47,302
- -------------------------------------------------------------------------------------------------
864,165 666,207
Advances to VHQ Entertainment Inc. (note 4) - 166,349
Investment in VHQ Entertainment Inc. (note 5) 132,267 129,699
Property and equipment (note 7) 327,468 348,495
Goodwill, net of accumulated amortization of $45,132 148,777 154,909
- -------------------------------------------------------------------------------------------------
$ 1,472,677 $ 1,465,659
=================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 8) $ 74,480 $ 103,817
Accounts payable and accrued liabilities 587,719 407,221
Deferred revenue 16,687 -
- -------------------------------------------------------------------------------------------------
678,886 511,038
Stockholders' equity:
Share capital (note 9) 842,643 842,643
Additional paid-in capital (note 9(b)) 3,601,406 3,601,406
Advance due from stockholder (note 9) (22,800) (22,800)
Deferred stock-based compensation (85,508) (183,008)
Deficit (3,470,175) (3,232,899)
Accumulated other comprehensive income (losses):
Unrealized loss on investment (note 5) (9,746) (13,845)
Cumulative translation adjustment (62,029) (36,876)
- -------------------------------------------------------------------------------------------------
739,791 954,621
Future operations (note 1)
- -------------------------------------------------------------------------------------------------
$ 1,472,677 $ 1,465,659
=================================================================================================
See accompanying notes to interim consolidated financial statements.
2
E-TREND NETWORKS, INC.
Consolidated Statements of Operations
Three months ended December 31, 2001 and 2000
(Expressed in U.S. Dollars)
(Unaudited)
=================================================================================================
2001 2000
- -------------------------------------------------------------------------------------------------
Sales:
Related parties (note 4) $ 378,229 $ 207,410
Unrelated parties 368,028 247,107
- -------------------------------------------------------------------------------------------------
746,257 454,517
Cost of sales 637,493 397,187
- -------------------------------------------------------------------------------------------------
108,764 57,330
Operating expenses 324,091 502,436
Depreciation of capital assets 18,190 10,226
Amortization of goodwill 4,847 3,332
Interest and other expense (income) (1,088) (43,222)
- -------------------------------------------------------------------------------------------------
Net loss for the period $ (237,276) $ (415,442)
=================================================================================================
Net loss per common share, basic (note 10) $ (0.05) $ (0.09)
=================================================================================================
Weighted average common shares outstanding, basic 5,212,702 4,822,701
=================================================================================================
See accompanying notes to interim consolidated financial statements.
3
E-TREND NETWORKS, INC.
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
COMMON SHARES Additional Advance
---------------------------- paid-In due from
Number Amount capital stockholder
- -------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 8,853,734 $ 8,854 $3,601,406 $ -
Issued in exchange for property and equipment 30,000 30,000 - -
-------------------------------------------------------
8,883,734 38,854 3,601,406 -
==============================================================================
Common shares of Cool Entertainment, Inc. at time of
acquisition (note 3) 38,340,636 13,488,710 - -
Effect of 1:100 reverse stock split (37,957,305) - - -
- ------------------------------------------------------------------------------
383,331
Issued in exchange for common shares of E-Trend Networks,
Inc. (note 3) 4,439,371 - - -
Elimination of Cool Entertainment, Inc. share capital under
reverse-take-over accounting - (13,488,710) - -
Issued for settlement of notes payable (note 3) 25,000 93,789 - -
Issued for settlement of notes payable (note 3) 15,000 45,000 - -
Issued in exchange for fees and services provided 253,680 481,992 - (22,800)
Issued for deferred stock-based compensation 96,320 183,008 - -
Net loss for the year - - - -
Charge for excess of consideration given over net book value
(note 3) - - - -
Unrealized loss on investment - - - -
Foreign currency translation adjustment - - - -
- -------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 5,212,702 842,643 3,601,406 (22,800)
Net loss for the period - - - -
Amortization of deferred stock-based compensation - - - -
Unrealized gain on investment - - - -
Foreign currency translation adjustment - - - -
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 5,212,702 $ 842,643 $3,601,406 $(22,800)
=========================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
Deferred Unrealized
stock-based gain (loss)
compensation Deficit on investment
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ - $ (866,495) $ 89,102
Issued in exchange for property and equipment - - -
----------------------------------------------
- (866,495) 89,102
==================================================================
Common shares of Cool Entertainment, Inc. at time of
acquisition (note 3) - - -
Effect of 1:100 reverse stock split - - -
- ------------------------------------------------------------------
Issued in exchange for common shares of E-Trend Networks,
Inc. (note 3) - - -
Elimination of Cool Entertainment, Inc. share capital under
reverse-take-over accounting - - -
Issued for settlement of notes payable (note 3) - - -
Issued for settlement of notes payable (note 3) - - -
Issued in exchange for fees and services provided - - -
Issued for deferred stock-based compensation (183,008) - -
Net loss for the year - (2,211,204) -
Charge for excess of consideration given over net book value
(note 3) - (155,200) -
Unrealized loss on investment - - (102,947)
Foreign currency translation adjustment - - -
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 (183,008) (3,232,899) (13,845)
Net loss for the period - (237,276) -
Amortization of deferred stock-based compensation 97,500 - -
Unrealized gain on investment - - 4,099
Foreign currency translation adjustment - - -
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ (85,508) $(3,470,175) $ (9,746)
================================================================================================================
- ------------------------------------------------------------------------------------------------
Cumulative Total
translation stockholders'
adjustment equity
- ------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $(18,792) $ 2,814,075
Issued in exchange for property and equipment - 30,000
------------------------------
(18,792) 2,844,075
==================================================================
Common shares of Cool Entertainment, Inc. at time of
acquisition (note 3) - 13,488,710
Effect of 1:100 reverse stock split - -
- ------------------------------------------------------------------
Issued in exchange for common shares of E-Trend Networks,
Inc. (note 3) - -
Elimination of Cool Entertainment, Inc. share capital under
reverse-take-over accounting - (13,488,710)
Issued for settlement of notes payable (note 3) - 93,789
Issued for settlement of notes payable (note 3) - 45,000
Issued in exchange for fees and services provided - 459,192
Issued for deferred stock-based compensation - -
Net loss for the year - (2,211,204)
Charge for excess of consideration given over net book value
(note 3) - (155,200)
Unrealized loss on investment - (102,947)
Foreign currency translation adjustment (18,084) (18,084)
- ------------------------------------------------------------------------------------------------
Balance, September 30, 2001 (36,876) 954,621
Net loss for the period - (237,276)
Amortization of deferred stock-based compensation - 97,500
Unrealized gain on investment - 4,099
Foreign currency translation adjustment (25,153) (25,153)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $(62,029) $ 793,791
================================================================================================
See accompanying notes to interim consolidated financial statements.
4
E-TREND NETWORKS, INC.
Consolidated Statements of Cash Flows
Three months ended December 31, 2001 and 2000
(Expressed in U.S. Dollars)
(Unaudited)
=================================================================================================
2001 2000
- -------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net loss for the period $(237,276) $ (415,442)
Add items not involving cash:
Amortization of deferred stock-based compensation 97,500 -
Unrealized foreign exchange (19,500) 9,326
Depreciation of capital assets 18,190 10,226
Amortization of goodwill 4,847 3,332
Net changes in non-cash working capital:
Accounts receivable (24,022) (243,809)
Due from related parties (111,893) 214,009
Inventory (32,502) (63,724)
Prepaid expenses 3,404 (4,222)
Accounts payable and accrued liabilities 180,498 232,498
Deferred revenue 16,687 -
- -------------------------------------------------------------------------------------------------
(104,067) (257,806)
Financing activities:
(Increase) decrease in advances to VHQ Entertainment Inc 166,349 (124,997)
Increase (decrease) in bank indebtedness (29,337) 7,731
Increase in demand loan - 333,300
Increase in loan to shareholder - (333,300)
- -------------------------------------------------------------------------------------------------
137,012 (117,266)
Investing activities:
Purchase of property and equipment - (39,985)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 32,945 (415,057)
Cash and cash equivalents, beginning of period 112,524 1,866,159
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 145,469 $ 1,451,102
=================================================================================================
Supplemental disclosures:
Interest paid $ 2,164 $ 1,616
Taxes paid $ - $ -
=================================================================================================
See accompanying notes to interim consolidated financial statements.
5
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
1. FUTURE OPERATIONS:
These consolidated financial statements have been prepared on the basis of
accounting principles applicable to a going concern, which assume that the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the normal
course of operations.
The Company has suffered substantial losses and negative operating cash
flow from inception through to December 31, 2001. As outlined in note 12,
an agreement has been reached whereby a new organization and management
team, led by eAngels International ("eAngels"), acquired a controlling
interest in the Company. The new management team's plans include (a) active
pursuit of new debt and/or equity financing, (b) completion of a bridge
financing arrangement of $500,000 with eAngels, (c) ongoing actions with
regard to the Company's two operating subsidiaries, to expand their
customer bases and increase revenue, (d) sale of the Company's investment
in VHQ Entertainment Inc., (e) an initiative to secure a bank line of
credit to be secured by inventory, to be used for further operating capital
and expansion, and (f) continuing constraint of operating expenses.
The application of the going concern concept is dependent upon the
Company's ability to successfully execute on its plans as outlined above,
to generate future positive operating cash flows, to secure additional
financing and to maintain the continued support of its creditors.
Management believes the going concern assumption to be appropriate. If the
going concern assumption were not appropriate for these consolidated
financial statements, then adjustments would be necessary to the carrying
values of assets, liabilities and stockholders' equity and in the balance
sheet classifications used.
2. BASIS OF PRESENTATION:
The Company was incorporated as The Moviesource.com Corp. under the
Business Corporations Act (Nevada) on April 29, 1999 and changed its name
to E-Trend Networks, Inc. effective February 10, 2000. Reference is made to
note 3 regarding further corporate developments.
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America, including all normal recurring adjustments that are, in the
opinion of management, necessary for the fair presentation of the
consolidated balance sheets at December 31, 2001 and September 30, 2001 and
the consolidated statements of operations, stockholders' equity and cash
flows for the three months ended December 31, 2001 and 2000.
6
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
2. BASIS OF PRESENTATION (CONTINUED):
The consolidated financial statements include the accounts of the Company
and those of its wholly-owned subsidiary, Langara Distribution Inc., an
Alberta, Canada corporation.
There have been no changes to the accounting policies as set out in the
Company's audited financial statements for the year ended September 30,
2001 during the interim period presented. These interim financial
statements should be read in conjunction with the Company's audited
financial statements for the year ended September 30, 2001. The financial
information included herein is unaudited.
3. BUSINESS COMBINATION:
Effective February 21, 2001 an arrangement was completed between the
Company and Cool Entertainment, Inc. ("Cool") whereby the Company's
stockholders exchanged all of their common shares for 4,439,371 common
shares of Cool. In connection with the transaction the Company also
acquired associated assets for cash and common shares.
Following the acquisition, the former shareholders of the Company held a
majority of the total issued and outstanding common shares of Cool; the
Company was thereby deemed to be the acquirer. Accordingly, the transaction
has been accounted for as a reverse-take-over using the purchase method
whereby the assets and liabilities of Cool have been recorded at their fair
market values and the operating results of Cool have been included in the
Company's financial statements from the effective date of the purchase. The
fair values of the net assets acquired is equal to their book values.
As Cool was a non-operating public shell at the time of the combination, no
goodwill has been recognized and the excess of the consideration paid over
the fair value of the identifiable assets acquired has been charged to
stockholders' equity.
===========================================================================
Net book value of assets acquired:
Property and equipment of Cool, at book value $ 10,940
Assets acquired in associated transactions 68,000
Less working capital deficiency (72,351)
---------------------------------------------------------------------------
$ 6,589
===========================================================================
7
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
3. BUSINESS COMBINATION (CONTINUED):
===========================================================================
Assigned value of 4,439,371 common shares issued in exchange
for common shares of Cool $ -
Settlement of liability assumed by the issue of 25,000 common shares 93,789
Issue of 15,000 common shares on the acquisition of associated assets 45,000
Cash paid on the acquisition of associated assets 23,000
-------------------------------------------------------------------------------------
161,789
Less excess of consideration given over net book value of assets acquired (155,200)
-------------------------------------------------------------------------------------
$ 6,589
=====================================================================================
Costs of $145,000 related to the acquisition were charged to operations as
they were in excess of the cash received on the business combination.
Other transactions relating to the foregoing arrangement, and integral
thereto, were as follows:
(i) Change of the Company's name from Cool Entertainment, Inc. to
E-Trend Networks, Inc.;
(ii) Re-domestication of the Company to the State of Delaware from the
State of Nevada;
(iii) Reverse stock split of 1-for-100 common shares;
(iv) Continuance, on an equivalent basis, of all of the unexpired and
unexercised outstanding stock options and warrants of the former
E-Trend company under the same terms and conditions;
(v) Cancellation of all of the outstanding warrants of Cool;
(vi) Settlement of a note payable of $93,789 to Fictional Media Inc., a
company controlled by stockholders of Cool, by way of the issuance
of 25,000 common shares; and
(vii) Cash payment of $23,000 and the issuance of a promissory note of
$45,000 by E-Trend to Fictional Media Inc. in exchange for property
and equipment, subsequently settled by way of the issuance of 15,000
common shares.
8
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
4. RELATED PARTY TRANSACTIONS AND ECONOMIC DEPENDENCE:
(a) VHQ Entertainment Inc.:
Up to December 27, 2001 VHQ Entertainment Inc. ("VHQ") represented
the Company's major stockholder. The advances to VHQ, at September
30, 2001 bore interest at 8%, were unsecured and had no fixed terms
of repayment. For the three months ended December 31, 2001 the
Company accrued interest income on these amounts of $1,712 (December
31, 2000- $5,884).
During the three months ended December 31, 2001 the Company sold
$375,992 (December 31, 2000 - $204,643) of its products to VHQ,
representing 50.4% of total sales (December 31, 2000 - 45.2%). These
transactions were considered to be in the normal course of business
and were measured at the exchange amount, being the amount of
consideration established and agreed to by the related parties. The
current amount due from VHQ relates to such sales.
(b) Diz Investments Ltd.:
During the three months ended December 31, 2001 the Company sold
$2,237 (December 31, 2000 - $1,767) of its products to Diz
Investments Ltd., a company owned by two of the Company's
stockholders. These transactions were considered to be in the normal
course of business and were measured at the exchange amount, being
the amount of consideration established and agreed to by the related
parties.
5. INVESTMENT:
The Company owns 99,900 common shares of VHQ Entertainment Inc., a
publicly-traded Canadian company, acquired in exchange for 100,000
pre-consolidation shares of the Company at an assigned value of $150,000.
The status of this investment at December 31, 2001 was as follows:
===========================================================================
Translated Unrealized Recorded
cost basis loss basis
---------------------------------------------------------------------------
VHQ Entertainment Inc. common shares $142,013 $(9,746) $132,267
===========================================================================
Management believes the unrealized loss on investment to be temporary.
9
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
6. FINANCIAL INSTRUMENTS:
Financial instruments of the Company at December 31, 2001 consist of cash
and cash equivalents, accounts receivable, amounts due from related
parties, an investment in VHQ Entertainment Inc. , bank indebtedness, and
accounts payable and accrued liabilities. There were no significant
differences between the carrying values of these instruments and their
estimated fair values.
The only financial instruments of the Company that are presently exposed to
concentration of credit risk are those related to VHQ Entertainment Inc.
7. PROPERTY AND EQUIPMENT:
===========================================================================
Accumulated Net book
December 31, 2001 Cost amortization value
---------------------------------------------------------------------------
Computer software $251,902 $ 78,899 $173,003
Computer hardware 120,466 32,429 88,037
Furniture and fixtures 31,681 3,057 28,624
Leasehold improvements 43,753 5,949 37,804
---------------------------------------------------------------------------
$447,802 $ 120,334 $327,468
===========================================================================
September 30, 2001
===========================================================================
Computer software $251,902 $ 66,830 $185,072
Computer hardware 120,466 25,289 95,177
Furniture and fixtures 31,681 2,321 29,360
Leasehold improvements 43,753 4,867 38,886
---------------------------------------------------------------------------
$447,802 $ 99,307 $348,495
===========================================================================
8. BANK INDEBTEDNESS:
The Company has a line of credit of $150,000 Canadian. Drawings bear
interest at prime plus 1/4% and are secured by a $150,000 Canadian deposit
included in cash and cash equivalents.
10
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
9. SHARE CAPITAL:
(a) Authorized capital:
Effective April 20, 2001 the Company's stockholders approved a change
to the Company's authorized share capital, from 20,000,000 preferred
shares with a par value of $0.001 per share and 80,000,000 common
shares with a par value of $0.0001 per share to 1,000,000 preferred
shares with a par value of $0.0001 per share and 20,000,000 common
shares with a par value of $0.0001 per share.
(b) Advance due from stockholder:
The advance due from a stockholder relates to the purchase of common
shares of the Company. The subject shares serve as security for the
advance.
(c) Options:
The Company is authorized to grant up to 4,000,000 options to purchase
common shares to employees, officers and directors. The following table
details the options outstanding at December 31, 2001:
=====================================================================================
Weighted
average
Number of exercise
options granted price
-------------------------------------------------------------------------------------
Outstanding at September 30 and December 31, 2001 441,500 $1.99
=====================================================================================
Exercisable at December, 2001 358,166 $1.93
=====================================================================================
(d) Warrants:
There were 100,000 common share purchase warrants outstanding at
December 31, 2001. Each warrant entitles the holder to purchase one
common share of the Company for $4 up to April 20, 2002. These warrants
were issued in connection with the acquisition of Langara Distribution
Inc.
(e) Financing agreement:
On July 3, 2001 the Company executed an equity financing agreement with
a U.S.-based corporation. Under the agreement the Company can, under
certain conditions, put common shares to the investor to a maximum of
$10 million over a three-year period. The required regulatory approval
of this agreement is pending.
11
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
10. LOSS PER SHARE:
===========================================================================================
2001 2000
-------------------------------------------------------------------------------------------
Net loss for the period $ 237,276 $ 415,442
Weighted average number of common shares outstanding 5,212,702 4,822,701
-------------------------------------------------------------------------------------------
Net loss per common share, basic $ 0.05 $ 0.09
===========================================================================================
The effect of the business combination (note 3) has been applied
retroactively in loss per share calculations.
11. SEGMENTED INFORMATION:
The Company has identified two segments of its operations:
(a) E-Trend Networks, Inc. - is a retail distributor of entertainment
products through an on-line "e-tail" site, "EntertainMe.com".
(b) Langara Distribution Inc. - provides fulfillment services to the
Company's "e-tail" site and to third-party e-commerce businesses, as
well as wholesale products to traditional retailers.
==========================================================================================================
Three months ended Inter-segment
December 31, 2001 E-Trend Langara elimination Total
----------------------------------------------------------------------------------------------------------
Revenue $ 286,495 $ 678,710 $ (218,948) $ 746,257
Costs and expenses 534,295 668,186 (218,948) 983,533
----------------------------------------------------------------------------------------------------------
Net loss $(247,800) $ 10,524 $ - $(237,276)
==========================================================================================================
Capital expenditures $ - $ - $ - $ -
==========================================================================================================
==========================================================================================================
Three months ended Inter-segment
December 31, 2000 E-Trend Langara elimination Total
----------------------------------------------------------------------------------------------------------
Revenue $ 136,196 $ 318,321 $ - $ 454,517
Costs and expenses 548,065 321,894 - 869,959
----------------------------------------------------------------------------------------------------------
Net loss $(411,869) $ (3,573) $ - $(415,442)
==========================================================================================================
Capital expenditures $ 37,114 $ 2,871 $ - $ 39,985
==========================================================================================================
12
E-TREND NETWORKS, INC.
Notes to Interim Consolidated Financial Statements
Three months ended December 31, 2001 and 2000
Expressed in U.S. Dollars)
(Unaudited)
================================================================================
11. SEGMENTED INFORMATION (CONTINUED):
===========================================================================
December 31, 2001 E-Trend Langara Total
---------------------------------------------------------------------------
Current assets $215,205 $648,960 $ 864,165
Property and equipment 308,633 18,835 327,468
Other assets 281,044 - 281,044
---------------------------------------------------------------------------
$804,882 $667,795 $1,472,677
===========================================================================
Due to its business relationship with E-Trend, Langara offers preferential
pricing to E-Trend.
12. SUBSEQUENT EVENTS:
By means of an agreement dated December 26, 2001 and amended on February
12, 2002, eAngels, through its operating entity, The Game Holdings, Ltd.,
agreed to purchase 2,000,000 common shares of the Company owned by VHQ
Entertainment Inc. In conjunction with the stock purchase, (a) the existing
officers and directors of the Company resigned and designees of the
purchaser were appointed in their place and (b) the Company initiated steps
to change its name to Wilmington Rexford, Inc., effective February 19,
2002.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management Discussion and Analysis (MD&A) focuses on key statistics from
the consolidated financial statements of E-Trend Networks, Inc. for the fiscal
quarter ended December 31, 2001, and pertains to known risks and uncertainties
relating to its businesses. This MD&A should not be considered all-inclusive, as
it excludes changes that may occur in general economic, political and
environmental conditions. This MD&A of the financial condition and results of
operations for the quarter ended December 31, 2002, and should be read in
conjunction with the consolidated financial statements and related notes of
E-Trend Networks, Inc.
RECENT EVENTS
On December 26th, 2001, an agreement was reached whereby a new organization and
management team lead by eAngels International would acquire controlling interest
in E-Trend Networks, Inc. Subsequent to the change in control, the controlling
shareholder announced the appointment of three representatives to its Board of
Directors, and the resignation of three former members of the Board of
Directors. Furthermore, on January 17th, 2002, the Company announced that it
would change its name to Wilmington Rexford, Inc., in an effort to properly
reflect changes in the Company's business focus. Concurrent with the name
change, the Company announced that it plans to focus its operations on venture
development, a business model predicated on the acquisition, financing, and
management of a diverse portfolio of related businesses. Wilmington Rexford will
also explore potential synergies within the Company's current operations by
expanding the product portfolio and service lines of its offline distribution
and fulfillment business, with that of its online e-commerce business,
capitalizing on the Company's existing Business-to-Business e-commerce
capabilities, as well as the Company's unique capacity to combine product supply
and technology infrastructure.
RESULTS OF OPERATIONS
The company is considered to be in the early stages of implementing its business
plan, since it has not generated significant revenues and is continuing to
develop its business, particularly the Web-based site that is currently in its
initial customer acquisition phase. The Company's website, (EntertainMe.com),
and its fulfillment and distribution subsidiary, Langara Distribution, Inc., and
the acquisition of complementary business or product lines, will serve as the
primary growth-drivers for the future.
NET SALES
Net sales were $746,257 and $454,517 for the three months ended December 31,
2001 and December 31 2000, respectively, representing an increase of 64%.
Increases in absolute dollars of net sales during the three-months ended
December 31, 2001 are primarily due to increased unit sales in our Langara
Distribution subsidiary, increases in our fulfillment revenues, and increased
traffic on the Company's website.
GROSS MARGINS
Gross margins increased to 15% for the three months ended December 31, 2001
period, from 13% for the December 31, 2000 period. Improvements in gross margin
primarily reflect our efforts to improve product sourcing as we continued to
increase the percentage of products sourced directly from music manufacturers, a
favorable mix in customer discounts and lower inventory charges as a percent of
sales, and to a lesser extent the higher margin sales of units sold through
Langara Distribution, Inc.
14
OPERATING COSTS
Operating expenses consist of payroll and related expenses for executive,
finance and administrative personnel, recruiting, professional fees and other
general corporate expenses; payroll and related expenses for development,
editorial, systems and telecommunications operations personnel and consultants;
systems and telecommunications infrastructure. Operating expenses were $324,091
and $502,436 for the three months ended December 31, 2001 and 2000 respectively,
representing approximately 43% and 111% of net sales, respectively. The decline
in absolute dollars of operating expenses was primarily due to our operational
restructuring plan, which reduced the number of headcount positions in finance
and administration within the Company, as well as a reduction in spending due to
the completion of the Company's website, and business-to-business software
platform, which were completed, and expensed, in the December 31, 2000 period.
NET LOSS
Net loss for the quarter was $237,276 and $ 415,442 for the three months ended
December 31, 2001 and 2000, respectively. The improvement in net loss in
comparison with the prior period was primarily due to increases in the Company's
gross profit margin, and decline in marketing, technology, and
administrative-related expenditures.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2001, the Company had a working capital surplus of $185,279
compared to a surplus of $155,169 on September 30, 2001. Our cash and cash
equivalents balance was $145,469 and $112,524, and our marketable securities
balance was $132,267 and $129,699 on December 31, 2001 and September 30, 2001,
respectively.
To date, virtually all of the company's resources have been provided from the
sale of common stock. At the current rate of expenditure, additional funds from
the sale of common stock or debt will have to be secured to enable the company
to continue to operate. We continually evaluate opportunities to sell additional
equity or debt securities, or obtain credit facilities from lenders for
strategic reasons or to further strengthen our financial position. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. In addition, we will, from time to time,
consider the acquisition of or investment in complementary businesses, products,
services and technologies, and the repurchase and retirement of debt, which
might impact our liquidity requirements or cause us to issue additional equity
or debt securities. There can be no assurance that financing will be available
in amounts or on terms acceptable to us, if at all.
BUSINESS RISKS AND MANAGEMENT
We announced a change to our current business plan in January of 2002 and
therefore have a very limited operating history under our current business plan.
Although we have formed and capitalized Wilmington Rexford, Inc., we have not
yet acquired any subsidiaries. In addition, each of our affiliate companies has
a limited operating history and has generated losses and very limited revenue
from operations since inception.
Within our venture development operations, we face competition for potential
acquisitions from a broad range of potential acquirers, including buyout funds,
strategic and financial investors and operating companies in the same industries
as the targets. Many of these competitors have greater financial resources and
brand name recognition than we do. These competitors may limit our opportunity
to acquire companies that meet our criteria or may adversely affect the prices
and
15
terms on which acquisitions may be made. If we cannot make acquisitions on
acceptable terms, then we may not be able to successfully execute our strategy.
The e-commerce market segments in which we compete are relatively new, rapidly
evolving and intensely competitive. In addition, the market segments in which we
participate are intensely competitive and we have many competitors in different
industries, including the Internet and retail industries.
THE FUTURE
Prior to the first quarter of 2002, the Company's principal business strategy
focused on the distribution of packaged entertainment media, through
distribution channels encompassing both online electronic commerce and
traditional bricks-and-mortar outlets. The Company operated an online retail
website WWW.ENTERTAINME.COM and through its fulfillment and distribution
subsidiary, Langara Distribution, the Company offered distribution and
fulfillment services to both traditional retail and online merchants.
On December 26th, 2001, an agreement was reached whereby a new organization and
management team lead by eAngels International would acquire controlling interest
in E-Trend Networks, Inc. Furthermore, January 17th, 2002, the Company announced
that it would change its name to Wilmington Rexford, Inc., in an effort to
properly reflect changes in the Company's business focus.
Concurrent with the name change, the Company announced that it plans to focus
its operations on venture development, a business model predicated on the
acquisition, financing, and management of a diverse portfolio of related
businesses. Together with experienced senior operating executives ("Industrial
Partners"), Wilmington Rexford seeks to make investments and or acquisitions
that meet its portfolio criteria, then pursue pre-defined strategies to support
the operating management in enhancing the value of these businesses.
Wilmington Rexford will employ the following key strategic initiatives:
o explore potential synergies within the Company's current operations by
expanding the product portfolio and service lines of its offline
distribution and fulfillment business, with that of its online
e-commerce business, capitalizing on the Company's existing
Business-to-Business e-commerce capabilities, as well as the Company's
unique capacity to combine product supply and technology
infrastructure;
o identify profitable middle market businesses whose enterprise value can
be enhanced through the adoption of an e-commerce strategy and other
technologies, the implementation of innovative business practices, the
addition of experienced industry specific management, and through other
traditional means of increasing efficiency and profitability;
o acquire companies and grow them organically, as well as via the
acquisition of complementary businesses or product lines as the lead or
majority investor;
o acquire companies with superior products that have long-term growth
potential but are performing below their optimal level, or companies
that fill a gap in existing product lines, immediately add to earnings,
and strengthen our position in one of our existing business segments.
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The hallmark of the Company's strategy is to create shareholder value through
higher earnings per share and stronger cash flow. The Company will deliver on
this strategy by generating revenue and earnings from stable, consistent
sources; through healthy organic business growth; through strong cash flow
generation; through acquisitions that are immediately accretive to earnings,
that fit within the Company's existing business segments; and, through a
relentless focus on productivity improvements throughout the businesses that the
Company acquires and operates within the Company.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
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
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
2.1 Agreement and Plan of Share Exchange (1)<F1> N/A
3.1 Certificate of Incorporation, as amended (2)<F2> N/A
3.2 Bylaws (2)<F2> N/A
10.1 Amended and Restated Investment Agreement with Swartz Private Equity, LLC (2)<F2> N/A
10.2 Amended and Restated Registration Rights Agreement with Swartz Private N/A
Equity, LLC (2)<F2>
10.3 Amended Warrant to Purchase Common Stock issued to Swartz Private Equity, N/A
LLC (2)<F2>
10.4 Proposed Form of Video One Canada Ltd. Business Agreement with Langara N/A
Distribution (2)(3)<F2><F3>
- --------------
<FN>
(1)<F1> Incorporated by reference to the exhibits filed with the registrant's
definitive information statement filed January 2, 2001 for the meeting
held January 26, 2001.
(2)<F2> Incorporated by reference to the exhibits filed with the registrant's
registration statement on Form SB-2, file number 333-70184.
(3)<F3> Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
</FN>
B) REPORTS ON FORM 8-K: None.
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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.
WILMINGTON REXFORD, INC.
(Registrant)
Date: February 19, 2002 By:/s/ ROBERT G. TAYLOR
-------------------------------------
Robert G. Taylor
President
Principal Financial and Accounting Officer
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