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 March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ______________ to ________________
Commission File No. 0-28879
WILMINGTON REXFORD, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0348508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
420 LINCOLN ROAD, SUITE 301, MIAMI BEACH, FL 33139
(Address of principal executive offices)
(403) 252-7766
(Issuer's telephone number)
E-TREND NETWORKS, INC.
5919 3RD STREET, S.E., CALGARY, ALBERTA CANADA T2H 1K3
(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 latest practicable date:
5,212,702 SHARES OF OUR COMMON STOCK $0.0001 PAR VALUE OUTSTANDING AS OF
MARCH 31, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2002 (unaudited) and September 30, 2001 3
Condensed Consolidated Statements of Operations and Comprehensive Loss
for the three and six months ended March 31, 2002 and 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 2002 and 2001 (unaudited) 5
Notes to unaudited condensed consolidated financial statements 6 - 9
ITEM 2. Management's Discussion and Analysis of Interim Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Change in Securities 15
ITEM 3. Defaults upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
2
WILMINGTON REXFORD, INC. AND SUBSIDIARIES
F/K/A E-TREND NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND SEPTEMBER 30, 2001
================================================================================================================================
(UNAUDITED) (Audited)
ASSETS MARCH 31, 2002 September 30, 2001
================================================================================================================================
CURRENT ASSETS
Cash and cash equivalents $ 85,295 $ 17,529
Cash- restricted 94,062 94,995
Marketable securities 62,645 129,699
Accounts receivable 270,436 47,083
Due from related parties- accounts receivable - 229,978
Inventory 281,831 229,320
Prepaid and other current assets 57,930 47,302
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 852,199 795,906
ADVANCES TO RELATED PARTY - 166,349
NOTES RECEIVABLE - RELATED PARTIES 64,382 -
NOTES RECEIVABLE 15,000 -
PROPERTY AND EQUIPMENT, NET 310,416 348,495
GOODWILL, NET 143,778 154,909
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,385,775 $ 1,465,659
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================================================================
CURRENT LIABILITIES
Line of credit $ 72,548 $ 103,817
Bank overdrafts 6,127 -
Accounts payable and accrued liabilities 542,027 407,221
Due to related party 18,082 -
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 638,784 511,038
- --------------------------------------------------------------------------------------------------------------------------------
NOTES PAYABLE - STOCKHOLDER 185,000 -
- --------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 842,643 842,643
Additional paid-in capital 3,601,406 3,601,406
Advance due from stockholder ( 22,800) ( 22,800)
Deferred stock-based compensation ( 85,532) ( 183,008)
Accumulated other comprehensive income (losses)
Unrealized loss on investments ( 79,106) ( 13,845)
Cumulative translation adjustment ( 48,315) ( 36,876)
Deficit ( 3,646,305) ( 3,232,899)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 561,991 954,621
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,385,775 $ 1,465,659
================================================================================================================================
See accompanying notes - unaudited.
3
WILMINGTON REXFORD, INC. AND SUBSIDIARIES
F/K/A E-TREND NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
====================================================================================================================================
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------------- -------------------------------------
2002 2001 2002 2001
====================================================================================================================================
SALES $ 469,720 $ 486,705 $ 1,215,977 $ 924,222
COST OF SALES 339,127 440,132 976,620 820,319
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 130,593 46,573 239,357 103,903
Operating expenses ( 283,965 ) ( 455,556 ) ( 608,056 ) ( 957,992 )
Depreciation and amortization ( 22,808 ) ( 30,149 ) ( 45,845 ) ( 43,707 )
Interest and other income 50 41,165 1,138 84,387
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS ($ 176,130 ) ($ 397,967 ) ($ 413,406 ) ($ 813,409 )
====================================================================================================================================
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) from investment ($ 69,360 ) $ 8,692 ($ 65,261 ) $ 8,692
Foreign currency translation adjustment 13,714 26,342 ( 11,439 ) 51,322
- ------------------------------------------------------- ----------------------------------------------------------------------------
COMPREHENSIVE LOSS ($ 231,776 ) ($ 362,933 ) ($ 490,106 ) ($ 753,395 )
====================================================================================================================================
Net loss per share, basic and diluted ($ 0.03 ) ($ 0.09 ) ($ 0.08 ) ($ 0.18 )
====================================================================================================================================
Weighted average common shares outstanding,
basic and diluted 5,212,702 4,481,867 5,212,702 4,481,867
====================================================================================================================================
See accompanying notes - unaudited.
4
WILMINGTON REXFORD, INC. AND SUBSIDIARIES
F/K/A E-TREND NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
=================================================================================================================================
2002 2001
=================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $ 413,406 ) ( $ 813,409 )
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 45,845 43,707
Amortization of deferred stock-based compensation 97,476 -
Cumulative translation adjustment ( 4,876 ) 51,322
Changes in operating assets and liabilities:
Accounts receivable 6,625 ( 561,948 )
Inventory ( 52,511 ) ( 64,181 )
Prepaid expenses and other current assets ( 10,628 ) ( 27,038 )
Accounts payable and accrued liabilities 134,806 363,976
- ---------------------------------------------------------------------------------------------------------------------------------
Total adjustments 216,737 ( 194,162 )
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ( 196,669 ) ( 1,007,571 )
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash consideration paid for company acquired - ( 168,000 )
Net (loans to) repayments from related party 166,349 ( 107,528 )
Issuance of notes receivable ( 79,382 ) -
Purchase of property and equipment ( 1,405 ) ( 33,673 )
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 85,562 ( 309,201 )
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 18,082 -
Net increase in bank overdraft 6,127 -
Proceeds on notes payable - related party 185,000 -
Net repayments on line of credit facility ( 31,269 ) ( 74,816 )
Proceeds from bank loan - 316,977
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 177,940 242,161
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 66,833 ( 1,074,611 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 112,524 1,866,159
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 179,357 $ 791,548
=================================================================================================================================
Supplemental Disclosures:
- ---------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 1,496 $ 2,068
=================================================================================================================================
Income taxes paid $ - $ -
=================================================================================================================================
See accompanying notes - unaudited.
5
WILMINGTON REXFORD, INC. AND SUBSIDIARIES
F/K/A E-TREND NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB for quarterly
reports under section 13 or 15(d) of the Securities Exchange Act of
1934. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal
recurring nature. Operating results for the three and six month periods
ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the year ending September 30, 2002.
The audited financial statements at September 30, 2001 which are
included in the Company's Annual Report on Form 10-KSB should be read
in conjunction with these condensed consolidated financial statements.
CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Wilmington Rexford, Inc. (Parent) and its wholly owned subsidiary
E-Trend Networks, Inc. (E-Trend) and its wholly owned subsidiary
Langara Distribution, Inc. (Langara) (collectively "the Company"). All
significant intercompany balances and transactions have been eliminated
in consolidation.
BUSINESS ACTIVITY
Wilmington Rexford, Inc. (WilRex) was incorporated on June 17, 1996
under the laws of the State of Colorado and changed its domicile in
February 2001 to the State of Delaware. WilRex targets investment
opportunities in industries with the potential to achieve significant
capital appreciation. E-Trend was incorporated on April 29, 1999 under
the laws of the State of Nevada and is an online "entertainment
superstore", specializing in the sale of movies, music, and
electronics. Langara was incorporated on June 28, 1999 under the laws
of the Province of Alberta Canada and manages an inventory of popular
music and movie titles. Langara offers business-to-business fulfillment
services to client electronic commerce companies and third party
e-commerce partners, as well as providing wholesale services to the
brick and mortar retailers.
6
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the respective
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK AND REVENUE
At March 31, 2002 approximately 79% of accounts receivables were from
one customer, VHQ Entertainment, Inc., a previous shareholder. Revenues
from the same customer accounted for approximately 47% and 38% of total
revenue for the three and six months ended March 31, 2002 and
approximately 54% and 51% of total revenue for the three and six months
ended March 31, 2001.
RECLASSIFICATIONS
Certain amounts in the March 31, 2001 and September 31, 2001 financial
statements have been reclassified to conform to the March 31, 2002
presentation.
NET LOSS PER SHARE
The Company applies Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128) which requires dual presentation of
net earnings (loss) per share: Basic and Diluted. Basic earnings (loss)
per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding
during the period. Outstanding stock options and warrants were not
considered in the calculation of diluted net loss per share as their
effect was anti-dilutive.
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB")
statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information". The Company has considered its operations and has
determined that it operates in three operating segments for purposes of
presenting financial information and evaluating performance, The
Parent targets investment opportunities, while it's wholly owned
subsidiaries E-Trend and Langara are retail and wholesale distributors
of entertainment products, respectively. As such, the accompanying
financial statements present information in a format that is consistent
with the financial information used by management for internal use.
7
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142), which is effective for fiscal years
beginning after December 15, 2001, except goodwill and intangible
assets acquired after June 30, 2001 are subject immediately to the
non-amortization and amortization provisions of this Statement. Under
the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statement. Other intangible
assets will continue to be amortized over their useful lives.
In August 2001, the Financial Accounting Standards Board Issued
Statement of Financial Accounting Standards No. 143 "Accounting for
Asset Retirement Obligations", effective for fiscal years beginning
after June 15, 2002. This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-lived Assets", effective for fiscal
years beginning after December 15, 2001. This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets.
The Company has not yet determined what the effects of these Statements
will be on its financial position and results of operations.
- --------------------------------------------------------------------------------
NOTE 3. LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplates continuation of the
Company as a going concern. Going concern assumes that the Company will
continue in operations 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 incurred substantial operating losses and negative cash
flows from inception through March 31, 2002. Although the Company
believes it will become cash flow positive from operations by the end
of the fiscal year ending September 30, 2002, there can be no assurance
that this will occur. In the absence of achieving positive cash flows
from operations or obtaining additional debt or equity financing, the
Company may have difficulty meeting obligations as they become due, and
may be forced to discontinue a business segment or overall operations.
To address these concerns, the Company continues to pursue new debt
and/or equity financing, is actively expanding its customer base and is
currently in process of implementing cost cutting strategies.
8
- --------------------------------------------------------------------------------
NOTE 3. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- --------------------------------------------------------------------------------
Management believes that actions presently being taken, as described in
the preceding paragraph, provide the opportunity for the Company to
continue as a going concern, however, there is no assurance this will
occur.
- --------------------------------------------------------------------------------
NOTE 4. LOANS PAYABLE STOCKHOLDER
- --------------------------------------------------------------------------------
During March 2002, the Company borrowed $185,000 from a stockholder.
The loan bears interest at 10% per annum and is due on April 1, 2003.
- --------------------------------------------------------------------------------
NOTE 5. BUSINESS SEGMENT INFORMATION
- --------------------------------------------------------------------------------
Principally all operations of E-Trend and Langara are conducted in
Canada. Information about operating segments is as follows:
Six Months Ended
March 31, 2002 Parent E-Trend Langara Total
===================================================================================================
Revenues from external
customers $ - $ 386,000 $ 830,000 $ 1,216,000
Intersegment revenues - - 274,000 274,000
Segment gain (loss) ( 83,000 ) ( 305,000 ) ( 25,000 ) ( 413,000 )
---------------------------------------------------------------------------------------------------
Three Months Ended
March 31, 2002
===================================================================================================
Revenues from external
customers $ - $ 100,000 $ 370,000 $ 470,000
Intersegment revenues - - 55,000 55,000
Segment gain (loss) ( 83,000 ) ( 57,000 ) ( 36,000 ) ( 176,000 )
---------------------------------------------------------------------------------------------------
Six Months Ended
March 31, 2001
===================================================================================================
Revenues from external
customers $ - $ 309,000 $ 615,000 $ 924,000
Intersegment revenues - - - -
Segment gain (loss) - ( 770,000 ) ( 44,000 ) ( 814,000 )
---------------------------------------------------------------------------------------------------
Three Months Ended
March 31, 2001
===================================================================================================
Revenues from external
customers $ - $ 190,000 $ 297,000 $ 487,000
Intersegment revenues - - - -
Segment gain (loss) - ( 358,000 ) ( 40,000 ) ( 398,000 )
---------------------------------------------------------------------------------------------------
9
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 Wilmington Rexford, Inc. for the three
and six months ended March 31, 2002, 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 three and six months ended March 31, 2002, should
be read in conjunction with the consolidated financial statements and related
notes of Wilmington Rexford, 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.
OVERVIEW
Wilmington Rexford is a strategic venture development company that acquires and
manages a portfolio of related businesses. Operating in a diverse set of
business activities, 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.
Our acquisition strategy relies upon two primary factors. First, our ability to
identify and acquire target businesses that fit within our general acquisition
criteria. Second, the continued availability of capital and financing resources
sufficient to complete these acquisitions. Our growth strategy relies upon a
number of factors, including our ability to efficiently integrate the businesses
of the companies we acquire, generate the anticipated economies of scale from
the integration, and maintain the historic sales growth of the acquired
businesses so as to generate organic organizational growth.
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.
Prior to the shift in the Company's business model, the Company incurred
significant losses since inception, and the Company's cost of sales and
operating expenses increased dramatically. This trend reflected the costs
associated with the Company's increased efforts to build market
10
awareness, attract new customers, recruit personnel, build operating
infrastructure, and develop and expand the Company's web site and related
transaction-processing systems. However, we initiated a restructuring plan in
the fourth quarter of 2001, which encompassed a series of cost-cutting
initiatives. Consistent with our plan, we intended to reduce our marketing
budget, our discount program, web site development activities, and technology
and operating infrastructure development.
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. Within our two operating subsidiaries,
Langara Distribution and E-Trend Networks, we derive revenues principally from
the sale of products. We recognize product revenue upon shipment of products.
NET SALES
Net sales were $ 469,720 and $486,705 for the three months ended March 31, 2002
and March 31, 2001, respectively, and $1,215,977 and $924,222 for the six months
ended March 31, 2002 and 2001 respectively, representing a decrease of 3%, and
an increase of 32%, respectively. Decreases in absolute dollars of net sales
during the three-months ended March 31, 2002 are primarily due to decreased unit
sales of our EntertainMe.com website. The decrease, both as a percentage of
revenues and in absolute dollars, was primarily attributable to the reduction of
our advertising campaign consistent with our cost cutting initiatives
implemented during the fourth quarter of 2001. Increases in absolute dollars
during the six months ended March 31, 2002, were primarily due to increased unit
sales in our Langara Distribution subsidiary, and an increase in our fulfillment
revenues.
GROSS PROFIT
Gross profit was $130,593 and $46,573 for the three months ended March 31, 2002
and 2001, respectively, and $239,357 and $103,903 for the six months ended March
31, 2002 and 2001, respectively, representing an increase of 180% and 130%,
respectively. Gross margin was 28% and 10% for the three months ended March 31,
2002 and 2001, respectively, and 20% and 11% for the six months ended March 31,
2002 and 2001, respectively. Increases in the absolute dollars of gross profit
for the six-month period primarily correspond with increases in units sold,
improvements in transportation and inventory management, improved product
sourcing, suspension of the Company's discount reward program, as well as
increased product sales of movies, through the EntertainMe.com website, which
carry a higher gross profit margin.
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 $283,965
and $455,556 for the three months ended March 31, 2002 and 2001 respectively,
representing 60% and 94% of net sales for the corresponding periods,
respectively, and $608,056 and $957,992 for the six months ended March 31, 2002
and 2001, respectively, representing 50% and 104% of net sales for the
corresponding periods, respectively. The decline in absolute dollars of
operating expenses was primarily due to our operational restructuring plan,
11
which reduced the number of headcount positions in finance and administration
within the Company, a reduction in our marketing budget, website development,
technology and operating infrastructure development, as well as a reduction in
spending due to the completion of the Company's website, and b2b software
platform, which were completed, and expensed, in the December 31, 2000 period.
NET LOSS
Net loss for the quarter was $176,130 and $397,967 for the three months ended
March 31, 2002 and 2001, respectively, and $413,406 and $813,409 for the six
months ended March 31, 2002 and 2001, 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.
Although the Company incurred significant losses prior to the Company's
announced strategic shift in business model, the Company initiated a
restructuring plan in the fourth quarter of 2001, instigated by the new
management team, which encompassed a series of cost-cutting initiatives.
Consistent with our plan, we intended to reduce our marketing budget, our
discount program, web site development activities, and technology and operating
infrastructure development. Furthermore, a series of operating expenses
pertaining to the Company's shift in business model and associated costs have
been accounted for, and expensed during the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2001, the Company had a working capital surplus of $213,415
compared to a surplus of $284,868 on September 30, 2001. Our cash and cash
equivalents balance was $85,295 and $17,529, and our marketable securities
balance was $62,645 and 129,699 on March 31, 2002 and September 31, 2001,
respectively.
Concurrent with the Company's change in controlling shareholder, the Company
recently received a debt financing commitment from eAngels International, Inc.,
for up to $1,000,000, of which $185,000 was drawn upon in the quarter ended
March 31, 2002. As of May 15, 2001, Wilmington Rexford has drawn upon $355,000
from the aforementioned eAngels International, Inc. debt financing commitment.
The Company is currently in negotiations with a series of funding sources to
place a $1,000,000 inventory line of credit for the Company's Langara
Distribution subsidiary. The Company believes that the placement of this
inventory line of credit would have an immediate, favorable effect on the
Company's financial position, as the Company would be able to attract, and
service, a larger, and a more diverse set of customers.
To date, virtually all of the Company's resources have been provided from the
sale of common stock and loans from related parties. 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.
12
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.
Immediately prior to the Company's announcement that it would be shifting its
business model, the Company commenced a series of initiatives within its Langara
Distribution and EntertainMe.com operations, to drive profitable, organic
growth, through product innovation, superior service, and additional service
lines, governed by a more stringent financial operating structure, and a
heightened emphasis on Return on Capital.
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 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.
Within our e-commerce operations, the 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.
FUTURE OPERATIONS
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. The Company will seek 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-
13
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; and
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.
The Company's venture development strategy is predicated on creating 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 its portfolio of operating
subsidiaries. While the option exists to retain each portfolio company within
its business segment, from time-to-time the Company will consider different
monetization efforts, which include a strategic sale to a larger consolidator or
a Public Offering of the portfolio company.
14
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
Shareholders of the registrant adopted the amendment to the Certificate
of Incorporation changing the name of the company to "Wilmington
Rexford, Inc." by means of a written consent dated January 14, 2002.
3,000,000 of the 5,212,702 shares of Common Stock issued and
outstanding voted in favor of adopting the Certificate of Amendment.
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
3.3 Certificate of Amendment of Certificate of Incorporation (3)<F3> N/A
10.1 Amended and Restated Investment Agreement with Swartz Private N/A
Equity, LLC (2)<F2>
10.2 Amended and Restated Registration Rights Agreement with Swartz N/A
Private Equity, LLC (2)<F2>
10.3 Amended Warrant to Purchase Common Stock issued to Swartz Private N/A
Equity, LLC (2)<F2>
10.4 Proposed Form of Video One Canada Ltd. Business Agreement with N/A
Langara Distribution (2)<F2>(4)<F4>
15
<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> Incorporated by reference to the exhibits filed with the
registrant's current report on Form 8-K dated February 19,
2002, file number 0-28879.
(4)<F4> Portions of this exhibit have been omitted pursuant to a
request for confidential treatment
</FN>
b. REPORTS ON FORM 8-K: None.
On February 19, 2002, the registrant filed a Form 8-K dated February 19, 2002,
disclosing, under Item 5 its name change, new CUSIP number, and new OTC BB
trading symbol. No financial statements were required to be filed.
16
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: May 20, 2002 By: /s/ Robert G. Taylor
------------------------------------------
Robert G. Taylor
President
Principal Financial and Accounting Officer
17