UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 2002
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. or Employer
incorporation or organization) Identification No.)
1901 AVENUE OF THE STARS, SUITE 1710
LOS ANGELES, CALIFORNIA 90067
(Address of principal executive offices) (Zip Code)
(877) 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 April 15, 2002, there were 35,680,679 shares of the registrant's
common stock, par value $0.001 issued and outstanding.
RETURN ASSURED INCORPORATED
FEBRUARY 28, 2002 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page
Number
Special Note Regarding Forward-Looking Statements..................... 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... 16
Item 3. Defaults in Senior Securities............................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 19
References in this report to "we", "us", "our" and similar terms means
Return Assured Incorporated, a Delaware corporation, formerly Hertz Technology
Group, Inc.
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 February 28, 2002 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.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountant's Report................................... 4
Consolidated Balance Sheet as of February 28, 2002 and August
31, 2001....................................................... 5
Consolidated Statements of Operations for the three months
ended February 28, 2002 and February 28, 2001 and for the
six months ended February 28, 2002 and February 28, 2001....... 6
Consolidated Statements of Cash Flows for the six months ended
February 28, 2002 and February 28, 2001........................ 7
Notes to Consolidated Financial Statements........................ 8-10
3
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 February 28, 2002, the related consolidated
statements of operations, and cash flows for the six-month periods ended
February 28, 2002 and 2001 and the related consolidated statements of
operations for the three-month periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements reported upon, the Company has no established source of
revenue, has sustained recurring net operating losses, and has a shareholders'
deficit. In addition, the holders of the preferred stock have the right to
redeem their shares for cash in an amount which exceeds available funds. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 4, 2002
4
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28,
2002 August 31,
(unaudited) 2001 (audited)
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 886 $ 972
Cash in escrow 2,808,056 3,000,978
Accounts receivable 2,158
Prepaid expenses and other current assets 3,086 59,359
Current assets of discontinued operations 1,511,083
- -------------------------------------------------------------------------------
Total current assets 2,812,028 4,574,550
Noncurrent Assets of Discontinued Operations 1,341,159
- -------------------------------------------------------------------------------
Total Assets $ 2,812,028 $ 5,915,709
===============================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities $ 1,500,477 $ 1,048,564
Note payable 200,000
Accrued loss on disposal of discontinued
operations 1,678,128
Current liabilities of discontinued
operations 467,658
- -------------------------------------------------------------------------------
Total current liabilities 1,500,477 3,394,350
Noncurrent Liabilities of Discontinued
Operations 483,289
- -------------------------------------------------------------------------------
Total liabilities 1,500,477 3,877,639
- -------------------------------------------------------------------------------
Commitments and Contingencies
Redeemable Preferred Stock, series A, $1,000
stated value; authorized 6,000 shares,
issued 5,000 shares, and outstanding 3,829
shares; no liquidation preference 3,828,873 3,828,873
- -------------------------------------------------------------------------------
Common Shareholders' Deficit:
Common stock - $.001 par value; authorized
100,000,000 shares, issued and outstanding
16,846,184 shares 16,847 16,847
Additional paid-in capital 10,933,382 10,933,382
Accumulated other comprehensive income 503 503
Accumulated deficit (13,468,054) (12,741,535)
- -------------------------------------------------------------------------------
Total common shareholders' deficit (2,517,322) (1,790,803)
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders'
Deficit $ 2,812,028 $ 5,915,709
================================================================================
See notes to consolidated financial statements
5
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited
----------------------------------------------------
Three-month Three-month Six-month Six-month
period period period period
ended ended ended ended
February February February February
28, 2002 28, 2001 28, 2002 28, 2001
- --------------------------------------------------------------------------------------
Revenue $ 7,862 $ 37,433
Cost of revenue 14,204 20,446
- --------------------------------------------------------------------------------------
Margin (6,342) 16,987
General and administrative
expenses:
Wages and salaries $ 50,220 238,910 $ 96,720 457,203
Professional fees 156,864 180,025 337,432 297,603
Financing fees 506,000
Insurance 24,051 39,856
Travel and promotion 26,141 88,277
Consulting fees 4,500 81,715 19,805 268,932
Rent 36,277 66,327
Office and miscellaneous 61,183 159,657 81,184 375,557
Internet service and
Web design 13,868 22,811
Telephone and utilities 194 14,979 366 34,540
Interest and finance
charges 24,954 511,101 46,052 592,890
Depreciation and
amortization 43,126 94,099
Legal settlement 78,169 78,169
- --------------------------------------------------------------------------------------
Loss from continuing
operations (376,084) (1,336,192) (659,728) (2,827,108)
Discontinued operations:
Income (loss) from operations
of discontinued segments 272,780 (47,804) (500,000)
- --------------------------------------------------------------------------------------
Net loss (376,084) (1,063,412) (707,532) (3,327,108)
Value of warrants issued in
connection with preferred
stock (669,350)
Dividends on preferred stock (9,441) (18,338) (18,987) (18,338)
- --------------------------------------------------------------------------------------
Net loss attributable to $ (385,525) $(1,081,750) $ (726,519) $(4,014,796)
common shareholders
======================================================================================
Net loss per share - basic $ (0.02) $ (0.17) $ (0.04) $ (0.51)
and diluted, continuing
operations
Net income (loss) per share
- - basic and diluted,
discontinued operations 0.03 (0.07)
- --------------------------------------------------------------------------------------
Net loss per share - basic $ (0.02) $ (0.14) $ (0.04) $ (0.58)
and diluted
======================================================================================
Weighted-average number of
shares outstanding 16,846,184 7,762,209 16,846,184 6,875,769
======================================================================================
See notes to consolidated financial statements
6
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
----------------------------
Six-month period ended February 28, 2002 2001
- ----------------------------------------------------------------------------------
Operating activities:
Net loss $ (707,532) $ (3,327,108)
Items not involving cash:
Depreciation and amortization 343,280
Compensation charge for excess of fair value
given in share repurchase 494,230
Services rendered in exchange for shares,
options and warrants 961,638
Loss on abandonment of assets 82,429
Noncash interest expense 68,800
(Increase) decrease in operating assets:
Accounts receivable 2,158 (270,765)
Inventory 32,983
Prepaid expenses 56,273 (30,295)
Current assets of discontinued operations 1,287,916
Noncurrent assets of discontinued operations 1,341,159
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities 456,093 469,652
Accrued loss on disposal of discontinued
operations (1,678,128)
Current liabilities of discontinued operations (467,658)
Noncurrent liabilities of discontinued
operations (483,289)
- ----------------------------------------------------------------------------------
Net cash used in operating activities (193,008) (1,175,156)
- ----------------------------------------------------------------------------------
Investing activities:
Acquisition of property and equipment (17,659)
Net cash received on merger 249,492
- ----------------------------------------------------------------------------------
Net cash provided by investing activities
231,833
- ----------------------------------------------------------------------------------
Financing activities:
Capital lease payments (33,965)
Payment of notes payable (200,000)
Issuance of common stock 200,000
Repurchase of common stock (435,000)
Issuance of preferred stock 5,000,000
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 4,531,035
- ----------------------------------------------------------------------------------
Increase (decrease) in cash (193,008) 3,587,712
Cash at beginning of period 3,001,950 132,107
- ----------------------------------------------------------------------------------
Cash at end of period $ 2,808,942 $ 3,719,819
==================================================================================
Supplemental disclosures of noncash investing and
financing activities:
Accrual of dividends on preferred stock $ 18,987 $ 29,182
==================================================================================
Payment of note payable and related accrued
interest through the disposal of assets $ 223,167
==================================================================================
See notes to consolidated financial statements
7
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Return Assured Incorporated (Return Assured Nevada) was incorporated under
the laws of the State of Nevada on June 10, 1999. The Company was deemed to
be in the development stage through October 13, 2000.
On October 13, 2000, Return Assured Nevada, through a reverse triangular
merger, became the accounting parent and the legal subsidiary of Hertz
Technology Group, Inc. ("Hertz"). Hertz subsequently changed its name to
Return Assured Incorporated ("Return Assured Delaware"), a Delaware
corporation. As a result, the former subsidiaries of Hertz became wholly
owned subsidiaries of Return Assured. The merger was accounted for as a
purchase with resulting goodwill of approximately $3,011,000. The
consolidated statements of operations and cash flows include the activity of
Hertz and its former subsidiaries only since the date of the merger. The
consolidated financial statements include the following companies, Return
Assured Delaware, Return Assured Nevada, Hertz Computer Corporation ("Hertz
Computer"), Hergo Ergonomic Support Systems, Inc. ("Hergo"), RemoteIT.com,
Inc. ("RemoteIT") and Edutec Computer Education Institute, Inc. ("Edutec")
(collectively, the "Company"). As further discussed below, the Company
disposed of Hergo, RemoteIT and Hertz Computer. The measurement date for
disposal of these operations was October 8, 2001.
Effective October 8, 2001, the Company divested itself of Hergo, RemoteIT and
Hertz Computer. In exchange for the Companies, Eli Hertz agreed to cancel all
debt that is owed to him by the Company (approximately $220,000) and agreed
to cancel his consulting agreement with the Company.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements, the Company has no
established source of revenue, has sustained recurring net losses, and has a
shareholders' deficit. In addition, the holders of the preferred stock have
the right to redeem their shares for cash in an amount which exceeds
available funds. The Company is currently seeking a merger candidate which
they believe will allow the Company to continue as a going concern.
The Company previously operated in four segments: the financial services
segment, the technology group segment, the Hergo segment, and the corporate
segment. The financial services segment includes the activity of Return
Assured Nevada. Return Assured Nevada provides assurance to customers through
its "Web Seal of Approval" that guarantees that customers who order products
through the Web sites displaying the seal that the Company will honor its
stated return policies. To date, the Company has not generated significant
revenue from this segment.
The technology group segment was comprised of RemoteIT, Hertz Computer and
Edutec. RemoteIT offered full service networking solutions and Internet and
Web-related services, including high-speed communications services. Hertz
Computer custom-designed and assembled personal workstations and networking,
communication and Web servers. Edutec offered state-of-the-art computerized
training facilities that can be used for software, sales,
8
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
education or management training. As of August 31, 2001, the Company has
ceased operations in Edutec and effective October 8, 2001, the Company
disposed of Hertz Computer and RemoteIT.
Hergo manufactured and sold space-saving modular racks and technical
furniture to help organize all types of computer hardware and communication
and electronic equipment. In addition, Hergo provided custom, contract
manufacturing and fabrication of specialty metal products for use in a
variety of industries. The Company disposed of Hergo effective October 8,
2001.
The corporate segment is comprised of Return Assured Delaware, which handles
the Company's corporate compliance and equity transactions.
The interim financial statements include all adjustments which, in the
opinion of management, are necessary to ensure that the financial statements
are not misleading.
Cash in escrow denotes cash being held by an attorney. These amounts are not
considered restricted because these funds are subject to withdrawal by the
Company at the Company's option.
2. CONTINGENCIES:
The Company was named in a lawsuit against Internet Business International,
Inc. by Michael Rose, et al, in Orange County Superior Court. The lawsuit
alleges that the Company breached a contract to pay a finder's fee on the
merger transaction. It is the Company's position that no liability exists,
and the Company intends to vigorously defend the suit. If the Company is
unsuccessful in defending this suit, the Company could incur a loss of
$750,000.
A creditor has filed a small claim in British Columbia, Canada against the
Company's Nevada subsidiary. The Company has filed a defense in this action
and, if unsuccessful, could incur a loss of approximately $12,000.
A legal proceeding is pending against the Company and two former officers, by
a former officer of a subsidiary of Return Assured. This former officer of
the Company's subsidiary is claiming that he is entitled to receive shares
from the Company for contributions in founding Return Assured's subsidiary.
It is the Company's position that its defense has merit. The two former
officers of the Company have escrowed 780,000 shares of the Company's common
stock they own to secure the claim if it is successful.
The landlord for the Company's former space in Vancouver has filed a lawsuit
against the Company for the Company's failure to pay rent in accordance with
a lease. The Company expects to settle this lawsuit.
Since an estimate of probable loss cannot be made, no accrual has been made
in accordance with Statement of Financial Accounting Standards No. 5.
9
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In February 2002, a judgment was made against the Company for its dismissal
of a former vice president of the Company in the amount of $78,169, including
accrued interest of $3,169. This judgment has been included in the Company's
consolidated statement of operations during the period ended February 28,
2002.
3. SEGMENT INFORMATION:
During the period ended February 28, 2001, the Company had four industry
segments: (i) financial services, (ii) technology group, (iii) Hergo, and
(iv) Corporate. In October 2001, the Company disposed of its Hergo segment
and portions of its technology group segment. The remainder of the technology
group ceased operations during the year ended August 31, 2001. The tables
below present information about operating segments.
For the six-month period ended February 28, 2002:
Financial
Services Corporate Consolidated
-------- --------- ------------
Loss from continuing operations $(644,029) $ (15,699) $ (659,728)
Assets 3,086 2,808,942 2,812,028
Note -- Certain loss amounts for the period ended November 28, 2001 have been
reclassified between segments.
For the three-month period ended February 28, 2002:
Financial
Services Corporate Consolidated
-------- --------- ------------
Loss from continuing operations $(381,684) $5,600 $(376,084)
For the six-month period ended February 28, 2001:
Financial Technology
Services Group Corporate Consolidated
-------- ----- --------- ------------
Revenue (unaffiliated) $ 9,982 $ 27,451 $ 0 $ 37,433
Loss from continuing
operations (1,706,947) (197,463) (922,698) (2,827,108)
For the three-month period ended February 28, 2001:
Financial Technology
Services Group Corporate Consolidated
-------- ----- --------- ------------
Revenue (unaffiliated) $ 9,982 $ (2,549) $ 429 $ 7,862
Loss from continuing
operations (751,780) $(80,660) $(503,752) (1,336,192)
4. DISCONTINUED OPERATIONS:
Revenue included in income (loss) from operations of discontinued segments
amounted to $1,449,746 and $2,198,474, respectively, for the three-month and
six-month periods ended February 28, 2001.
10
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 Statements" on Page 2.
FORWARD-LOOKING STATEMENTS
Except for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Risk Factors". You should carefully review
the risks described in other documents we file from time to time with the
Securities and Exchange Commission. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this report. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
11
Recent Events
In June 2001, we entered into a Merger and Share Exchange Agreement ("Merger
Agreement") with Internet Business's International, Inc. ("IBUI") at which time,
we planned to complete the Merger during fiscal year 2002. On January 14, 2002,
however, the two companies announced their mutual decision to terminate the
Merger Agreement and to cease all efforts underway to effectuate the merger. In
the prior fiscal year, we closed the business combination of our Return Assured
business and 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 into Return Assured Incorporated, a Nevada
Corporation. At the same time Hertz Technology Group changed its name to Return
Assured Incorporated. Initially, the Company believed that a merger with the
Hertz Technology Group would be attractive for a number of reasons: (i) The two
businesses might be able to exploit cross-marketing opportunities in the white
box, ISP, and web design businesses; (ii) Hertz's business lines could possibly
be used as a test market for Return Assured's Seal of Approval product; (iii)
Hertz had a good name with consumers and enterprise customers; (iv) Hertz had no
significant debts; and (v) Hertz had preferential lease terms at 75 Varick St.,
New York, which would be a good logistics center for Return Assured for the east
coast. We discovered, however, that the synergies we expected between Return
Assured and certain of the subsidiaries of the Hertz Technology Group including
Hergo Ergonomic Support Systems, Inc. ("Hergo") and its subsidiary RemoteIT.com
Inc. and Hertz Computer Corporation, did not materialize and, therefore, Return
Assured disposed of Hergo, RemoteIT.com Inc., and Hertz Computer Corporation
(collectively the "Hertz Businesses").
At the time of the merger of Return Assured and the Hertz Technology
Group, Return Assured entered into a note agreement with Eli Hertz, founder of
the Hertz Technology Group, in the principal amount of $290,000 plus interest at
10% per annum payable to Eli Hertz.
Return Assured entered into a settlement agreement with Eli Hertz
regarding the balance remaining on the note wherein Return Assured would pay the
remaining balance of the note in full by October 8, 2001; provided, however,
that the failure of Return Assured to pay the note in full would result in 100%
of the issued and outstanding stock of Hergo and Hertz Computer Corporation
being returned to Eli Hertz. In order to fully divest itself of the Hertz
Businesses, Return Assured did not pay the note in full by the due date, and,
consequently, all of the issued and outstanding shares of Hergo's and Hertz
Computer Corporation's common stock were transferred to Eli Hertz. These
transfers have resulted in Return Assured's disposition of Hergo and Hergo's
subsidiary, RemoteIT.com and Hertz Computer Corporation.
Edutec Computer Education Institute, Inc. ("Edutec") is a Return Assured
subsidiary which had training facilities equipped with personal computer
workstations and related audio-visual technology and whose business it was to
provide customers with access to such training facilities. Because Edutec
continued to sustain losses during fiscal 2001, the Company discontinued
Edutec's operations. Nevertheless, Edutec still exists as a New York corporation
and the Company has not disposed of Edutec's issued and outstanding shares of
common stock as of the date of this report.
12
Results of Operations
Due to the Company's divestiture of Hergo Technology Inc., RemoteIT.com
and Hertz Computer Corporation (collectively the "Hertz Businesses") in October
2001, the Company's financial results for the quarter ended February 28, 2002 do
not include any financial results of the Hertz businesses.
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.
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 Internet
Business International Inc ("IBUI") in May 2001 and executed a definitive merger
agreement in June 2001. On January 14, 2002, however, IBUI and Return Assured
mutually decided to terminate the merger agreement and ceased all activity in
process related to the merger.
Our Return Assured operations have not generated any significant revenues
since inception in June 1999 through February 28, 2002. Our Return Assured
operations have consisted of:
- determining the feasibility and potential market acceptance of our web
seal service;
- developing the infrastructure to deliver and monitor our web seal
service;
- 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.
The Company has received a database of names pursuant to the FreeLotto
Agreement and is reviewing options for the use of that database.
Return Assured is experiencing significant negative effects from the
overall downturn in Internet-related businesses. Sales have been affected as the
Edutec classroom was closed when the company gave up its lease on the Varick
Street space.
13
The launch of the Seal of Approval has been disappointing and staff in the
Financial services division has been reduced in an effort to control costs.
Management is rethinking the seal program with a view to re-launching a modified
product in an attempt to increase market acceptance of the product. This has
been precipitated by the general decline and rethinking of internet retailing as
well as a misjudging of the potential for the seal.
Initial probes of the potential of a Seal of Approval product for credit
card industry have been encouraging but remain largely in the discussion phase
at this time.
Results of Operations for the three-month period ended February 28, 2002 as
compared to the three-month period ended February 28, 2001
For the three-month period ended February 28, 2002, we generated net sales
of $-0- as compared to $7,862 for the three-month period ended February 28,
2001, representing a decrease of $7,862. Our cost of goods sold for the
three-month period ended February 28, 2002 was $-0- as compared to $14,204 for
the three-month period ended February 28, 2001. Our gross profit on sales was
$-0- for the three-month period ended February 28, 2002 as compared to a loss of
$6,342 for the three-month period ended February 28, 2001. The decrease in net
sales, costs of goods sold and gross profits can be directly attributed to the
re-deployment of the Company's resources from sales and marketing of the Return
Assured Web Seal of Approval to attempting to complete key securities filings in
connection with the now terminated merger with IBUI.
Our general and administrative costs aggregated approximately $376,084 for
the three-month period ended February 28, 2002 as compared to $1,329,850 for the
three-month period ended February 28, 2001, representing a decrease of $953,766.
These costs were lowered substantially as a result of the de-listing from the
NASDAQ SmallCap Market and the reduction of administrative responsibilities that
were associated with the listing. As well, management has been increasingly
active in the preparation of key securities filings and merger due diligence,
thereby lowering professional fees.
Results of Operations for the six-month period ended February 28, 2002 as
compared to the six-month period ended February 28, 2001
For the six-month period ended February 28, 2002, we generated net sales
of $-0- as compared to $37,433 for the six-month period ended February 28, 2001,
representing a decrease of $37,433. Our costs of goods sold for the six-month
period ended February 28, 2002 was $-0- as compared to $20,446 for the six-month
period ended February 28, 2001. Our gross profit on sales was $-0- for the
six-month period ended February 28, 2002 as compared to $16,987 for the
six-month period ended February 28, 2001. As discussed in the three-month
numbers above, during the six-month period ending February 29, 2002, the Company
re-deployed its resources towards the timely completion of the, now terminated,
IBUI merger.
Our general and administrative costs aggregated approximately $659,728 for
the six-month period ended February 28, 2002 as compared to $2,844,095 for the
six-month period ended February 28, 2001, representing a decrease of $2,184,367.
In the six-month period ending February 28, 2002 the decrease in general and
administrative expenses is directly attributable to management's increased
activity in the preparation of key securities filings and conducting merger due
diligence, thereby lowering professional fees.
14
Liquidity and Capital Resources
For the six months ended February 28, 2002, we had net cash used in
operating activities of $193,008 as compared to $1,175,156 for the six months
ended February 28, 2001. The change in the operating activities is due to the
fact that the Company has scaled back its business operations. We were unable to
generate cash flows from operating activities.
Cash provided by investment activities for the six months ended February
28, 2002 was nil as compared to $231,833 in net cash provided by investing
activities for the six months ended February 28, 2001. The reason for this
decrease is that most of the Company's investment activities were handled within
the Hertz businesses, which were disposed of on October 8, 2001.
Cash provided by financing activities for the six months ended February
28, 2002 totaled nil as compared to $4,531,035 in cash provided by financing
activities for the six months ended February 28, 2001.
At the end of the six months ended February 28, 2002, the Company had cash
in the amount of $2,808,942 as compared to $3,001,950 at the beginning of the
period, a decrease of $193,008.
The Company believes that its current cash will be sufficient to meet its
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 liquidity requirements, the Company 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 Return
Assured's stockholders. If the Company issues debt securities, fixed obligations
will increase and the Company may have to comply with covenants that might
inhibit its operations. Moreover, such financing may not be available in amounts
or on terms acceptable to the Company, if at all.
As of February 28, 2002, the Company had $2,808,942 in cash and $1,311,551
in working capital. The Company's cash is held in an intra-company escrow
arrangement, whereby the Company makes requests to the Finance Committee of the
Company's Board of Directors for funds to be released on an as-needed basis.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Legal Proceedings
Greg Chapman, the former president of Return Assured's Nevada subsidiary,
filed a lawsuit against the Company and John A. Carter, the former chairman of
Return Assured and Michael Mulberry, the former Vice President of Investor
Relations of the Company, claiming that he is entitled to receive shares from
the Company for contributions he claims to have made in the founding of the
subsidiary. We are defending against this lawsuit and believe that our defenses
have merit and that Mr. Chapman will not be successful. Messieurs Carter and
Mulberry have escrowed an aggregate of 780,000 shares of Return Assured's common
stock which they own to secure any successful claim by Mr. Chapman.
In February 2002, a judgment was entered against the Company for its
dismissal of a former vice president of the Company in the amount of $78,169,
including accrued interest of $3,169.
The Company was named in a lawsuit against Internet Business
International, Inc. by Michael Rose, et al, in Orange County Superior Court. The
allegations involve breach of contract by the Company 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. If the Company was
unsuccessful in defending this lawsuit, the Company could incur a loss of
approximately $750,000 USD.
In October 2001, a settlement was reached between Eli Hertz ("Hertz") and
Return Assured regarding a lawsuit brought by Hertz against the Company under
which Hertz claimed payment due under a note in the amount of $290,000. In
accordance with the terms of the settlement agreement, upon the default by the
Company on the note, all issued and outstanding shares of the common stock of
Hergo Technology, Inc. ("Hergo Shares") would be transferred to Hertz. The
Company defaulted on the note on or about October 8, 2001 and the Hergo Shares
were thereupon transferred to Hertz.
A creditor has filed a small claim in British Columbia Canada against the
Company's Nevada subsidiary. The Company has filed a defense in this action. If
the Company was unsuccessful in defending this lawsuit, the Company could incur
a loss of approximately $12,000 USD.
P. Sun's Enterprises (Vancouver) Ltd. has filed a lawsuit against the
Company for the Company's failure to pay rent in accordance with a lease
which the Company entered into for office space at 885 West Georgia Street in
Vancouver, British Columbia. The Company expects to settle this lawsuit.
Since estimated losses under the legal proceedings were not probable, no
accrual in required in accordance with SFAS 5.
Item 2. Changes in Securities and Use of Proceeds
There were no sales of securities during the quarter ended February 28,
2002.
Simultaneous with the merger of Return Assured with Hertz Technology Group
in the first quarter of fiscal 2001, we issued 5,000 shares of Series A
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Preferred Stock and 404,041 common stock purchase warrants in a private
placement to Global Emerging Markets ("GEM") for $5,000,000. These securities
were sold under the exemption from registration provided by Section 4(2) of the
Securities Act and Rule 506 promulgated under the Securities Act.
GEM converted a portion of the Series A preferred stock as follows: On
November 14, 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 On June 1, 2001, it converted $58,000 worth of
the preferred stock for 446,154 shares of common stock; On June 1, 2002, it
converted $60,000 worth of the preferred stock for 461,538 shares of common
stock; On June 1, 2001, it converted $62,499 worth of the preferred stock for
480,000 shares of common stock; On June 4, 2001 it converted $60,030 worth of
the preferred stock for 461,769 shares of common stock; On June 4, 2001, it
converted $61,000 worth of preferred stock for 469,231 shares of common stock;
On June 5, 2001, it converted $66,300 worth of the preferred stock for 510,000
shares of common stock; On June 6, 2001, it converted $5,550 worth of the
preferred stock for 42,689 shares of common stock. The above conversions include
$13,252 relating to accrued dividends on the Series A preferred 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. GEM did not convert any shares of preferred stock during the quarter ended
February 28, 2002.
Shares of common stock underlying the Series A Preferred 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 to register the common stock
underlying the Series A Preferred Shares was filed on Form S-3 on June 7, 2001,
and amended on June 26, 2001 and October 5, 2001, so that an additional
25,000,000 shares would be available for conversion. On February 2, 2002, the
Registration Statement on Form S-3 was converted to a Registration Statement on
Form SB-2. On April 3, 2002, the Company filed a Request for Withdrawal with the
Commission to withdraw the Registration Statement on Form SB-2.
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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").
Pursuant to the PlasmaNet Agreement, we have delivered into escrow
1,400,000 shares of common stock. All 1,400,000 have been delivered to
PlasmaNet. 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.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company was informed by Nasdaq that it was delisted in August 2001.
Return Assured appealed this decision primarily because of its estimate of the
market value of the stock upon its merger with IBUI. A decision on the appeal
was reached and Return Assured was informed by Nasdaq that the Company's common
stock was not going to be relisted on Nasdaq at this particular point in time.
The Company has filed a Preliminary Information Statement on Schedule 14C
with the Securities and Exchange Commission (the "Commission"), with regard to a
one (1) for sixty (60) reverse stock split of the Company's common stock. As
currently scheduled, the reverse stock split will become effective on a date
selected by the Company's Board of Directors on or after April 22, 2002.
On June 7, 2001, the Company filed a Form S-3 Registration Statement with
the Commission to register 25,000,000 shares of common stock to be held in
escrow and then issued upon conversion of the Series A Preferred Shares which
remain outstanding. On February 2, 2002, the Registration Statement on Form S-3
was converted to a Registration Statement on Form SB-2. On April 3, 2002, the
Company filed a Request for Withdrawal with the Commission to withdraw the
Registration Statement on Form SB-2.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Settlement Agreement dated July 2, 2001, by and between
Return Assured, Inc. and Eli E. Hertz.
(b) Reports on Form 8-K:
On December 4, 2001, Return Assured filed a report on Form 8-K to report
that it had disposed of certain of its wholly-owned subsidiaries including Hergo
Technology, Inc. and its wholly-owned subsidiary, RemoteIT.com, Inc. and that
the Company was in the process of disposing of its wholly owned computer
subsidiary, Hertz Computer Corporation.
On January 16, 2002, Return Assured filed a report on Form 8-K to report
that it had terminated a Merger Agreement and plans to merge with Internet
Business's International Inc.
No other Form 8-K's were filed during the period represented by this
Quarterly Report on Form 10-QSB.
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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: April 22, 2002 By: /s/ Matthew Sebal
----------------------------
Matthew Sebal
President and Chairman
(principal financial officer)
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