1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended May 31, 2001 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ________________ Commission file number 0-21679 RETURN ASSURED INCORPORATED (Exact name of registrant as specified in its charter) Delaware 13-3896069 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 AVENUE OF THE STARS, SUITE 1710 LOS ANGELES, CALIFORNIA 90067 (Address of principal executive offices) (Zip Code) 887-807-4664 (Registrant's telephone number, including area code) Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | As of July 19, 2001 there were 16,850,799 shares of the registrant's common stock, par value $0.001 issued and outstanding. 2 RETURN ASSURED INCORPORATED MAY 31, 2001 QUARTERLY REPORT ON FORM 10-QSB TABLE OF CONTENTS Page Number Special Note Regarding Forward Looking Information ............. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ........................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................... 12 Item 2. Changes in Securities and Use of Proceeds....................... 12 Item 3. Defaults Upon Senior Securities................................. 13 Item 4. Submission of Matters to a Vote of Security Holders............. 14 Item 5. Other Information............................................... 14 Item 6. Exhibits and Reports on Form 8-K................................ 14 References in this report to "we", "us", "our" and similar terms means Return Assured Incorporated, a Delaware corporation, formerly Hertz Technology Group, Inc. 3 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS To the extent that the information presented in this Quarterly Report on Form 10-QSB for the quarter ended May 31, 2001 discusses financial projections, information or expectations about our products or markets, or otherwise makes statements about future events, such statements are forward-looking. We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties are described, among other places in this Quarterly Report, in "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report. When considering such forward-looking statements, you should keep in mind the risks referenced above and the other cautionary statements in this Quarterly Report. 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Independent Accountant's Report.................................... 4 Consolidated Balance Sheet as of May 31, 2001 and August 31, 2000. 5 Consolidated Statements of Operations for the three months ended 6 May 31, 2001 and May 31, 2000 and the nine months ended May 31, 2001 and May 31, 2000 Consolidated Statement of Shareholders' Equity..................... 7 Consolidated Statements of Cash Flows for the nine months ended May 31, 2001 and May 31, 2000........................... 8 Notes to Consolidated Financial Statements........................ 9-11 5 INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders of Return Assured Incorporated We have reviewed the accompanying consolidated balance sheet of Return Assured Incorporated and Subsidiaries as of May 31, 2001, and the related consolidated statements of operations for the three and nine month periods then ended, and the consolidated statements of shareholders' equity, and cash flows for the nine month period then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. GOLDSTEIN GOLUB KESSLER LLP New York, New York July 6, 2001 6 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) CONSOLIDATED BALANCE SHEET MAY 31, 2001 AUGUST 31, 2000 - -------------------------------------------------------------------------------------------------------------------- (unaudited) ASSETS Current: Cash $ 481,294 $ 132,107 Cash in Escrow 3,102,839 Accounts receivable (net of allowance for doubtful accounts of $52,550 as of May 31, 2001) 757,178 37,759 Inventory (Note 2) 478,833 Prepaid expenses 346,056 270,599 - -------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 5,166,200 440,465 Goodwill (net of accumulated amortization of $380,517) 10,302,298 Property and Equipment (net of accumulated depreciation of $1,069,898 and $16,817, respectively) 1,496,386 97,036 Deferred Offering Cost 1,129,361 Other Assets 44,624 - -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 17,009,508 $ 1,666,862 ==================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 1,218,420 $ 346,166 Current portion of capital lease obligations 140,184 Notes payable 200,000 - -------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,558,604 346,166 Capital Lease Obligation, net of current portion 509,939 Notes Payable 200,000 - -------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,068,543 546,166 Shareholders' Equity: Preferred stock, series A, stated value $1,000, authorized 6,000 shares, issued and outstanding 4,202 shares 4,202,252 Common stock - $0.001 par value; authorized 100,000,000 shares, issued and outstanding 13,974,803 and 4,695,685 shares, respectively 13,975 4,696 Additional paid-in capital 17,646,918 3,438,516 Accumulated other comprehensive income 503 503 Accumulated deficit (6,922,683) (2,323,019) - -------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 14,940,965 1,120,696 - -------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,009,508 $ 1,666,862 ==================================================================================================================== See Notes to Consolidated Financial Statements 7 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED MAY 31, 2001 MAY 31, 2000 MAY 31, 2001 MAY 31,2000 - ----------------------------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) Sales $ 1,369,641 $ 3,605,548 Cost of sales 708,894 2,026,367 - ----------------------------------------------------------------------------------------------------------------------------------- Margin 660,747 1,579,181 General and administrative expenses: Wages and salaries 722,072 $ 7,518 2,090,729 $ 7,518 Professional fees 218,821 79,010 524,066 97,081 Financing Fees 506,000 Insurance 52,078 83,686 Travel and promotion 36,159 43,954 156,219 60,538 Consulting fees 326,838 181,649 595,771 279,267 Rent 16,885 14,457 90,404 32,921 Office and miscellaneous 78,020 8,268 633,938 25,823 Internet service and web design 66,124 26,296 123,741 33,734 Telephone 20,586 48,378 Bad Debts 3,255 3,255 13,230 Interest and finance charges 11,945 545,859 Depreciation and amortization 131,743 4,322 504,762 10,133 - ----------------------------------------------------------------------------------------------------------------------------------- Loss from operations (1,023,779) (365,474) (4,327,627) (560,245) Other Income 2,231 427,744 - ----------------------------------------------------------------------------------------------------------------------------------- Net Loss (1,021,547) (365,474) (3,899,883) (560,245) Value of warrants issued in connection with preferred stock (669,350) Dividends on preferred stock (12,093) (30,431) - ----------------------------------------------------------------------------------------------------------------------------------- Net loss attributable to common shareholders $(1,033,640) $(365,474) $(4,599,664) $(560,245) =================================================================================================================================== Net loss per share - basic and diluted $ (0.12) N/A $ (0.61) N/A =================================================================================================================================== Weighted average number of shares outstanding 8,722,103 90 7,559,610 90 =================================================================================================================================== See Notes to Consolidated Financial Statements 8 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY Common Shares and Paid in Capital in Excess Additional Preferred of $0.001 Par Value Paid-in Stock Number Amount Capital - --------------------------------------------------------------------------------------------------------------------------- Issuance of common stock: For cash: Initial shares 90 $ 1 Subscriptions received Exchange loss Net loss - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1999 90 1 Common Stock: Private placement 1,445,685 1,446 $ 1,054,864 Shares issued for offering costs For proposed offering 340,000 340 485,860 For private placement 200,000 200 285,800 For private placement 200,000 200 285,800 Value of warrants issued in connection with proposed offering 233,726 Shares issued to founders' and other employees and consultants and recapitalization 2,095,000 2,095 885,381 Cancellation of original shares (90) (1) Financing fees 415,000 415 207,085 Exchange gain Net Loss - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 2000 4,695,685 4,696 3,438,516 - --------------------------------------------------------------------------------------------------------------------------- Preferred shares issued for cash $ 5,000,000 Exercise warrants for cash 100,000 100 199,900 Issuance of warrants for financing fee 100,000 100 199,900 Common Stock Issued as consequence of merger 2,353,304 2,353 12,351,329 Accrual of dividends on preferred stock Repurchase of common stock (115,385) (115) (724,885) Common Stock issued on conversion of preferred stock (797,748) 5,441,199 5,441 805,558 Value of warrants attached to preferred stock 669,350 Common stock issued for services (PlasmaNet) 1,400,000 1,400 585,250 Value of options and warrants granted to consultants 122,000 Net Loss - --------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 2001 $ 4,202,252 13,974,803 $ 13,975 $ 17,646,918 =========================================================================================================================== Comprehensive Total Shareholders' Accumulated Income Subscriptions Equity Deficit (Loss) Received (Deficiency) - ---------------------------------------------------------------------------------------------------------------------- Issuance of common stock: For cash: Initial shares $ 1 Subscriptions received $ 35,426 35,426 Exchange loss $ (33) (33) Net loss $ (61,713) (61,713) - ---------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1999 (61,713) (33) 35,426 (26,319) Common Stock: Private placement 1,056,310 Shares issued for offering costs 0 For proposed offering 486,200 For private placement 286,000 For private placement 286,000 Value of warrants issued in connection with proposed offering 233,726 Shares issued to founders' and other employees and consultants and recapitalization 887,476 Cancellation of original shares (35,426) (35,427) Financing fees 207,500 Exchange gain 536 536 Net Loss (2,261,306) (2,261,306) - ---------------------------------------------------------------------------------------------------------------------- Balance at August 31, 2000 (2,323,019) 503 1,120,696 - ---------------------------------------------------------------------------------------------------------------------- Preferred shares issued for cash 5,000,000 Exercise warrants for cash 200,000 Issuance of warrants for financing fee 200,000 Common Stock Issued as consequence of merger 12,353,682 Accrual of dividends on preferred stock (30,431) (30,431) Repurchase of common stock (725,000) Common Stock issued on conversion of preferred stock 13,251 Value of warrants attached to preferred stock (669,350) 0 Common stock issued for services (PlasmaNet) 586,650 Value of options and warrants granted to consultants 122,000 Net Loss (3,899,883) (3,899,883) - ---------------------------------------------------------------------------------------------------------------------- Balance at May 31, 2001 $(6,922,683) $ 503 $ 14,940,965 ====================================================================================================================== See Notes to Consolidated Financial Statements 7 9 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS NINE MONTHS ENDED ENDED MAY 31, 2001 MAY 31, 2000 - ------------------------------------------------------------------------------------------------------------------ Operating activities: Net loss $(3,899,883) $(560,245) Items not involving cash: Depreciation and amortization 775,849 10,133 Services rendered in exchange for shares, options and warrants 1,194,650 Loss on sale of assets 75,776 Changes in operating assets and liabilities: Accounts receivable 14,306 (21,302) Inventory (44,738) Prepaid expenses 242,866 (20,909) Other assets (44,623) Accounts payable and accrued liabilities 714,930 172,978 - ------------------------------------------------------------------------------------------------------------------ NET CASH USED IN OPERATING ACTIVITIES (970,867) (419,345) Investing activities: Acquisition of property and equipment (220,034) (93,046) Advances to shareholder (16,302) Cash received on sale of assets 6,350 Cash received in acquisition 249,492 - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 35,808 (109,348) Financing activities: Capital lease payments (87,915) Payment of notes payable (290,000) Issuance of common stock (cash) 200,000 530,862 Repurchase of common stock (435,000) Issuance of preferred stock 5,000,000 - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 4,387,085 530,862 EFFECT OF FOREIGN CURRENCY TRANSLATION (560) Increase in cash 3,452,026 1,609 Cash, beginning of period 132,107 2,674 - ------------------------------------------------------------------------------------------------------------------ Cash, end of period $ 3,584,133 $ 4,283 ================================================================================================================== Supplemental Schedule of noncash investing and financing activities: Fixed Assets acquired under capital leases $ 440,040 ================================================================================================================== See Notes to Consolidated Financial Statements 10 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS The accompanying consolidated financial statements are unaudited and in the opinion of management reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation in accordance with generally accepted accounting principles and with the instructions to Form 10-QSB. Operating results for the three month and nine month periods ended May 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2001. For further information, refer to the annual financial statements of Return Assured Incorporated and Hertz Technology Group Inc. included in the 10-KSB report previously filed. Return Assured Incorporated (the "Company") was incorporated under the laws of the State of Nevada on June 10, 1999. The Company was deemed to be in the development stage as more fully defined in Statement No. 7 of the Financial Accounting Standards Board, through the period ended May 31, 2001. The Company intends to provide a service that will guarantee customers who order products through the websites of merchant members will get the product and that the merchant member will honor its stated return policies. On October 13, 2000, the Company, through a reverse triangular merger, became the accounting parent company and the legal subsidiary of Hertz Technology Group Inc. ("Hertz"). Hertz subsequently was renamed Return Assured Incorporated, a Delaware corporation. As a result the former subsidiaries of Hertz have become wholly-owned subsidiaries. The Consolidated Financial Statements now include the following Companies, Return Assured Incorporated (Delaware), Return Assured Incorporated (Nevada), Hertz Computer Corporation, Hergo Ergonomic Support Systems Inc., Remote IT.com, Inc. and Edutec Computer Education Institute, Inc. The merger has been accounted for as a purchase with resulting goodwill amounting to $10,683,000. The consolidated Statements of Operations include the operations of Hertz and its subsidiaries since the date of the merger. 11 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) The following pro forma information assumes the acquisition had occurred at the beginning of the periods presented: Three Nine Nine Months Months Months Ended Ended Ended May 31 May 31, May 31, 2000 2001 2000 ---------- ---------- ---------- Sales 1,700,868 4,217,956 3,280,316 Net Loss (1,587,835) (4,249,312) (2,834,280) Loss per share - (0.75) (0.54) (1.33) basic and diluted Weighted average 2,129,173 7,898,044 2,129,173 number of shares outstanding The operations have ceased in Hertz Computer Corporation during the previous fiscal year and in Edutec subsequent to the end of the previous quarter. 2. INVENTORY As at May 31, 2001 inventory consists of: Raw materials 54,449 Work in progress 62,586 Finished goods 361,798 --------- $ 478,833 ========= 3. SEGMENT INFORMATION For the nine months ended May 31, 2001: ---------------------------------------------------------------------------------------------------------------- Financial Technology Services Hergo Group Corporate Consolidated ---------------------------------------------------------------------------------------------------------------- Assets 215,582 2,995,774 49,710 13,748,442 17,009,508 12 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) Sales 10,450 3,119,507 475,591 3,605,548 (unaffiliated) Net Loss (2,078,796) (72,780) (314,749) (1,433,558) (3,899,082) For the three months ended May 31, 2001: ---------------------------------------------------------------------------------------------------------------- Financial Technology Services Hergo Group Corporate Consolidated ---------------------------------------------------------------------------------------------------------------- Sales 468 1,346,657 22,516 1,369,641 (unaffiliated) Net Income (Loss) (371,849) 4,193 (188,489) (465,403) (1,021,548) 4. CAPITAL TRANSACTIONS The Company completed a financing of Series A Convertible Preferred Stock at the same time as the merger (the "Preferred Shares"). The Preferred Shares carry a dividend of 1% and are convertible at the lesser of the average three lowest Per Share Market Value Prices for the previous 45 day period preceding the conversion date or $3.00. Per Share Market Price is defined as the closing bid prices of the Company's common shares (the "Common Shares"). The Company placed in Escrow 8,267,195 Common Shares to facilitate conversion of the Preferred Shares. As of May 31, 2001, the holder of the Preferred Shares had converted $797,748 of Preferred Shares and $13,252 of accrued dividends into 5,441,199 Common Shares. The balance of the Common Shares in escrow were issued as a result of conversions subsequent to the balance sheet date. The Company has filed a registration statement on Form S-3 to provide an additional 8,000,000 shares to provide for future conversions. 5. NOTES PAYABLE Notes payable as of May 31, 2001 were due to a consultant of the Company on April 17, 2001. A payment of $90,000 was made to the consultant during the current period. The Company is currently in negotiations with the consultant regarding this note. 6. OTHER INCOME Other income primarily consists of the amount paid to the Company to 13 RETURN ASSURED INCORPORATED AND SUBSIDIARIES (FORMERLY A SURE ECOMMERCE, INC.) vacate the Varick Street Location and the buyout of a consulting contract the Company had previously entered into. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report. Certain statements in this Quarterly Report, which are not statements of historical fact, are forward-looking statements. See "Special Note Regarding Forward-Looking Information" on Page 3. GENERAL THE MERGER Earlier this fiscal year, we completed the business combination of the Return Assured business and the Hertz Technology Group business. On October 13, 2000 Asure Acquisition Corp., a wholly-owned subsidiary of Hertz Technology Group, Inc., a Delaware Corporation, was merged with and into Return Assured Incorporated, a Nevada Corporation. At the same time Hertz Technology Group changed its name to Return Assured Incorporated. As a result of this merger, Return Assured Incorporated (Nevada) became the predecessor for accounting purposes. The Consolidated Financial Statements now include the following companies: Return Assured Incorporated (Delaware); Hergo Ergonomic Support Systems Inc.; Return Assured Incorporated (Nevada); Hertz Computer Corporation; Remote IT.com, Inc.; and Edutec Computer Education Institute, Inc. The Company now operates in three principal areas; the financial services area consisting primarily of Return Assured's "Web Seal of Approval" and related services; the Hergo Group which is comprised of Hergo Ergonomic Support Systems Inc.; and the Technology Group comprised of Remote IT.com, Inc., Hertz Computer Corporation and Edutec Computer Education Institute Inc. Hertz Computer Corporation ceased manufacturing in the latter part of fiscal 2000, and Edutec ceased active operations in December with the termination of the Varick Street lease. Consideration is being given to the curtailment of operations of Remote IT.com, Inc. The Varick Street lease was terminated and the Company received $240,000 net for this termination. A total of $300,000 was paid, of which $60,000 was paid to the real estate broker for commission. Of these proceeds, $90,000 was paid to Eli Hertz, the Company's former President and Chairman, in partial satisfaction, of the $290,000 note payable to him. 15 The financial statements only include the Hertz operations from October 13, 2000, the date of the merger, to May 31 2001. PLAN OF OPERATIONS Results of Operations The timing of the commencement of our Return Assured operations has coincided with a significant downturn in the entire Internet sector and although initial signups with a number of merchants were encouraging, follow-through revenue has been very disappointing. In addition, the initial rush of inquiries and signups, announced in early January, have not resulted in significant revenues. As a result, the Company has reduced operations in the financial services area, and is looking towards a redefinition of the Return Assured Seal of Approval and its areas of operations. In addition, the Company has commenced the search for acquisition and merger candidates which will allow the Company to sustain operations beyond the resources which it currently has. Management recognizes that raising additional funds for a retail-based Internet business will be particularly difficult given the depressed state of the technology capital markets. The Company entered into a letter of intent to merge with the Affinity Group of St. Petersburg, Florida. In February, merger plans were abandoned by mutual consent of the parties. The Company continued its search for appropriate merger candidates. Upon finding a suitable merger candidate, the Company entered into a letter of intent to merge with Internet Business International Inc ("IBUI") in May 2001 and executed a definitive merger agreement in June 2001. Reference is made to the Company's Form 8-K filings on May 15, 2001 and June 28, 2001 for details of the proposed merger. Upon the completion of the merger with Hertz Technology Group Inc. on October 16, 2000, we also completed a financing in the amount of $5,000,000 through the issuance of 5,000 convertible Preferred Shares. Our Return Assured operations have not generated any significant revenues since inception in June 1999 through May 31, 2001. Our Return Assured operations have consisted of: 16 - determining the feasibility and potential market acceptance of our web seal service; - developing the infrastructure to deliver and monitor our web seal service; - structuring our cyber insurance policy with Lloyd's of London; - pursuing our marketing strategy by forming strategic relationships with web portals; - raising capital to finance our business plan; and - assembling our management team. As noted above, we have scaled back the Return Assured operations and are in the process of redefining our markets and products in response in order to generate higher revenues. This redefinition continues and currently we continue to test market the Seal of Approval with our merger partner, IBUI. The Company will also be meeting with our insurance underwriter to discuss our ongoing relationship and to ensure that our product development efforts can be reconciled with the needs of our insurer. The Company also intends to continue discussions in order to develop new products in several areas of customer satisfaction and buyer confidence focusing on customer needs and the direct marketing industry. The Company has received a database of names pursuant to the FreeLotto Agreement and is reviewing options for the use of that database. Most of our expenses through May 31, 2001 have been for wages and salaries, professional and consulting fees and financing fees. 17 LIQUIDITY AND CAPITAL RESOURCES In October 2000, we raised $5,000,000 from the sale of our Series A Convertible Preferred Stock. After giving effect to the merger, the sale of our Series A preferred stock and the redemption of Eli Hertz' common stock, we had, as of May 31, 2001, approximately: $ 3,584,133 in cash; and $ 3,607,596 in working capital. A significant portion of our working capital was to have been used to launch our web seal operations. The cash flow from operations has not been sufficient to meet our operating expenses. However, the Company has cut staff and operating expenses and scaled back operations in order to preserve cash. The cash position will be used in our ongoing effort to redefine the Company's business model and to launch new products when feasible. We believe that our current cash will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or to obtain a credit facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If we issue debt securities, our fixed obligations will increase and we may become subject to covenants that would restrict our operations. Such financing may not be available in amounts or on terms acceptable to us, if at all. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company has been named in several lawsuits which were launched against us during the quarter ended May 31, 2001: 1. We were named in a lawsuit against Internet Business International, Inc. by Michael Rose, et al, in Orange County Superior Court. This lawsuit alleges that the Company breached a contract to pay finder's fees on the merger transaction. It is the Company's position that no liability exists, and the Company intends to vigorously defend the lawsuit. 2. Michael Mulberry, a former Vice President of the Company, has filed a lawsuit against the Company claiming wrongful dismissal when his employment was terminated in February 2001. The outcome of this lawsuit is not determinable at this time. The Company intends to vigorously defend this lawsuit. 3. Eli Hertz has filed a lawsuit against the Company, claiming payment due under a note in the amount of $290,000. The Company has disputed the timing of the payments and the amount due. The Company is conducting settlement discussions; however, there can be no assurance that a settlement will be reached, and in the event that a settlement is not reached, the Company intends to vigorously defend the suit. 4. A creditor has filed a small claims action against the Company's Nevada subsidiary in British Columbia Canada. The Company has filed a defense in this action. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On December 15,2000, we entered into a Program Promotion Agreement with Plasma Net Inc., the provider of FreeLotto.com., a free online sweepstakes ("PlasmaNet"). Under the Agreement, PlasmaNet and Return Assured will create promotional programs enhanced by FreeLotto's relationship with its approximately 12,000,000 registered users. Under the programs, FreeLotto members that opt in, will have their contact information forwarded to us in real time for the purpose of new membership/database relationship management. The Company has received a database of names pursuant to the FreeLotto 19 Agreement and is reviewing options for the use of that database. In exchange for the above-mentioned membership generation, we will, at the end of each calendar week, issue $6.00 worth of our common stock to PlasmaNet for each new member referred by us for that week. We have delivered into escrow 1,400,000 shares of common stock. All 1,400,000 have been delivered to PlasmaNet for the registrations. These shares were subsequently registered pursuant to a Registration Statement on Form S-3 filed January 16, 2001 (the "Registration Statement"). These securities were sold under the exemptions from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Neither we nor any person acting on our behalf offered or sold the securities by means of any form of general solicitation or general advertising. PlasmaNet, Inc. represented in writing that it acquired the securities for its own account. A legend was placed on the certificates stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an applicable exemption. The holder of our outstanding Series A Preferred Stock converted a portion of such preferred stock. On November 11, 2000, it converted $50,000 worth of the preferred stock for 50,000 shares of common stock. On January 17, 2001, it converted $125,000 worth of the preferred stock for 529,661 shares of common stock. On May 16, 2001, it converted $30,000 worth of the preferred stock for 200,000 shares of common stock. On May 22, 2001, it converted $50,000 worth of the preferred stock for 384,615 shares of common stock. On May 23, 2001, it converted $55,000 worth of the preferred stock for 423,077 shares of common stock. On May 24, 2001, it converted $60,000 worth of the preferred stock for 461,538 shares of common stock. On May 25, 2001, it converted $60,000 worth of the preferred stock for 461,538 shares of common stock. On May 29, 2001, it converted $70,000 worth of the preferred stock for 538,462 shares of Common Stock. On May 29, 2001, it converted $62,000 worth of the preferred stock for 476,923 shares of common stock. On May 30, 2001, it converted $61,000 worth of the preferred stock for 469,231 shares of common stock. On May 30, 2001, it converted $66,000 worth of the preferred stock for 507,692 shares of Common Stock. On May 31, 2001, it converted $58,500 worth of the preferred stock for 450,000 shares of common stock. On May 31, 2001, it converted $63,500 worth of the preferred stock for 488,462 shares of common stock. These shares of common stock were delivered from escrow to the holder upon conversion under the exemption from registration provided by Section 4(2) of the Securities Act. 20 These shares were registered pursuant to a Registration Statement filed on Form S-3 ("S-3 Registration Statement") prior to and in anticipation of the Merger. This S-3 Registration Statement was filed under Hertz Technology Group Inc. dated August 28, 2000 and amended on both September 5, 2000 and October 4, 2000. An additional Registration Statement has been filed on Form S-3 on June 7, 2001 and amended on June 26, 2001, pursuant to the preferred share agreements, so that an additional 8,000,000 shares are available for conversion. The shares will be held in escrow until such conversions occur. The Company is awaiting comment from the Securities and Exchange Commission in respect of this Registration Statement ITEM 3. DEFAULTS IN SENIOR SECURITIES None. 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company is preparing a Registration Statement on Form S-4 (the "S-4 Registration Statement") and a proxy statement to request shareholders' approval of the following: 1. Sale of Hergo Ergonomic Systems Inc. and Remote IT.com, Inc.; 2. Consolidation of Securities; 3. The Proposed Merger with Internet Business International Inc.; 4. Election of the Board of Directors; 5. An increase in the number of authorized shares from 50,0000,000 to 200,000,000; 6. Change of the Company's Name. ITEM 5. OTHER INFORMATION The Company received a letter from Nasdaq indicating that it has not met the ongoing listing requirements in that the Company's Common Shares have traded below $1.00 for more than 30 consecutive trading days. The Company's Common Shares now must close above $1.00 for 10 consecutive trading days or the Company may be at risk of losing its Nasdaq listing. The Company has further received a letter informing us that the Company's securities may be delisted from the Nasdaq SmallCap Market. In order to avoid this delisting, the Company has appealed to Nasdaq. The Company has determined that, in addition to its proposed Merger with IBUI, a 1:6 consolidation of it securities is warranted. The Company met with the Nasdaq regarding the possible delisting of its securities on July 12, 2001. The Company was informed by Nasdaq that a decision on this matter would be made on or before August 12, 2001. The Company has filed a Form S-3 Registration Statement to register 8,000,000 common shares to be held in escrow to be issued on conversion of the Preferred Shares which remain outstanding. At the current conversion price, these 8,000,000 Common Shares will not be sufficient to provide for conversion of all of the outstanding Preferred Shares. 22 Item 6. Exhibits and Reports on Form 8-K EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1.1(1) Certificate of Incorporation, as amended. 3.1.2(2) Certificate of Incorporation, as amended. 3.1.3(2) Certificate of Incorporation, as amended. 3.1.4(2) Certificate of Incorporation, as amended. 3.1.5(3) Certificate of Incorporation, as amended. 3.1.6(4) Certificate of Incorporation. 3.2(1)(4) Bylaws. 4.1.1(5) Specimen Stock Certificate, Common Stock. 4.1.2(2)(6) Certificate of Designation of Convertible Preferred Stock, Series A, as amended. (1) Incorporated by reference to Return Assured's Current Report on Form 8-K (File No. 0-21679), filed on October 20, 2000. (2) Incorporated by reference to Return Assured's Registration Statement on Form S-8 (File No. 333-35004), filed on April 18, 2000. (3) Incorporated by reference to Amendment No. 2 to Return Assured's Registration Statement on Form SB-2 (File No. 333-09783), filed on October 21, 1996. (4) Incorporated by reference to Return Assured's Registration Statement on Form SB-2 (File No. 333-09783), filed on August 8, 1996. (5) Incorporated by reference to Return Assured's Annual Report on Form 10-KSB (File No. 0-21679), filed on December 14, 2000. 23 (6) Incorporated by reference to Return Assured's Registration Statement on Form S-3 (File No. 333-44614), filed on August 25, 2000. (b) Reports on Form 8-K: On May 15, 2001, Return Assured filed a report on Form 8-K to report that it had signed a Letter of Intent (the "LOI") with Internet Business's International, Inc. ("IBUI") to acquire IBUI through a reverse triangular merger. On June 26, 2001, Return Assured filed a report on Form 8-K to report that it had entered into an Agreement and Plan of Merger and Share Exchange (the "Merger Agreement") with IBUI to effect the planned acquisition of IBUI. No other Form 8-K's were filed during the period represented by this Quarterly Report on Form 10-QSB. 24 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RETURN ASSURED INCORPORATED Dated: July 20, 2001 By: /s/ Matthew Sebal ---------------------------------- Matthew Sebal President and Chief Executive Officer Dated: July 20, 2001 By: /s/ Michael Sweatman ---------------------------------- Michael Sweatman Chief Accounting Officer and Vice President, Finance