UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 2002.
|_| Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
Commission file number: 33-83526
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RFP Express Inc.
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(Exact Name of Registrant as Specified in its Charter)
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Delaware 95-4453386
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(State of Incorporation) (I.R.S. Employer Identification No.)
8989 Rio San Diego Drive, #160, San Diego, CA 92108
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(Address of Principal Executive Offices)
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619-400-8800
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(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value per share: 17,710,383 (as of November 19, 2002)
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Transition Small Business Disclosure Format (check one):
Yes No |X|
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RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Table of Contents
Item Page
- ---- ----
Part I -- Financial Information 1
Item 1. Financial Statements. 1
Item 2. Management's Discussion and Analysis
or Plan of Operations. 16
Introduction 16
Overview 16
Results of Operations 17
Liquidity and Capital Resources 19
Seasonality 20
Critical Accounting Standards 20
New Accounting Standards 21
Forward-Looking Statements 21
Item 3. Controls and Procedures 22
Part II -- Other Information 23
Item 1. Legal Proceedings. 23
Item 2. Changes in Securities and Use of Proceeds. 23
Item 3. Defaults Upon Senior Securities. 23
Item 4. Submission of Matters to a Vote of
Security Holders. 23
Item 5. Other Information. 23
Item 6. Exhibits and Reports on Form 8-K. 24
i
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets ........................ 2-3
Condensed Consolidated Statements of Operations .............. 4
Condensed Consolidated Statements of Cash Flows .............. 5-6
Notes to Condensed Consolidated Financial Statements ......... 7-15
1
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
(unaudited)
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September 30, 2002 2001
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Assets
Current Assets
Cash $ 98,492 $ -
Accounts receivable net of allowance
for doubtful accounts 691,991 229,580
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Total current assets 790,483 229,580
Fixed Assets - Net 213,234 155,085
Other Assets - Net 2,833 4,833
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$ 1,006,550 $ 389,498
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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2
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets, Continued
(unaudited)
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September 30, 2002 2001
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Liabilities and Stockholders' Deficit
Current Liabilities
Checks written in excess of bank balance $ - $ 10,076
Current portion of notes payable (Note 2) 36,000 39,115
Current portion of capitalized lease obligation 105,779 99,814
Accounts payable and accrued expenses 108,023 106,688
Related party payables (Note 4) 247,830 247,290
Accrued payroll and related taxes 109,869 57,852
Accrued interest 41,297 18,913
Deferred revenue 1,008,798 535,287
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Total current liabilities 1,657,596 1,115,035
Long-Term Debt (Note 2) 1,215,857 1,070,515
Capitalized lease obligation, less current portion 28,028 -
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,901,481 2,185,550
Commitments and Contingencies
Stockholders' Deficit
Preferred stock, 10,000,000 shares authorized; 2,085,461
issued and outstanding in 2002 and 2001
(liquidation preference of $2,148,025) (Note 3) 2,085 2,085
Common stock, $.001 par value; 100,000,000 shares
authorized; 17,710,383 and 14,235,543 shares issued
and outstanding in 2002 and 2001, respectively 17,711 14,326
Stock subscriptions receivable (2,963) (2,963)
Additional paid-in capital (Note 3) 20,134,896 19,302,192
Accumulated deficit (22,046,660) (21,111,692)
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Total stockholders' deficit (1,894,931) (1,796,052)
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$ 1,006,550 $ 389,498
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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3
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2002 2002 2001 2001
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Revenues $ 1,050,068 $ 2,089,462 $ 364,038 $ 765,749
Operating Expenses
Selling, general and administrative expenses 891,186 2,116,357 574,260 1,817,616
Non cash stock-based compensation (Note 3) 56,500 259,220 101,441 154,918
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Total selling, general and administrative expenses 947,686 2,375,577 675,701 1,972,534
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Net Income (Loss) from Operations 102,382 (286,115) (311,663) (1,206,785)
Other Income (Expense)
Gain (loss) on issuance of stock for debt - 2,310 - (41,850)
Interest expense (11,062) (26,347) (5,567) (22,291)
Other income - 6,532 - -
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Total Other Income (Expense) (11,062) (17,505) (5,567) (64,141)
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Net Income (Loss) $ 91,320 $ (303,620) $ (317,230) $ (1,270,926)
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Net Income (Loss) Per Share (Basic) $ 0.01 $ (0.02) $ (0.02 $ (0.09)
Net Income (Loss) Per Share (Diluted) $ 0.00 $ (0.02) $ (0.02) $ (0.09)
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Weighted-Average Shares Outstanding - Basic 17,660,111 16,927,576 14,318,949 14,318,949
Weighted-Average Shares Outstanding - Diluted 64,597,902 16,927,576 14,318,949 14,318,949
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
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Cash Flows From Operating Activities
Net loss $ (303,620) $ (1,270,926)
Adjustments to reconcile net loss to net cash used
in operating activities:
Non-cash equity granted for services 265,470 154,918
Provision for Bad Debt 67,725 -
Depreciation and amortization 38,656 29,807
(Gain) loss on stock issued for debt (2,310) 41,850
Change in operating assets and liabilities:
Accounts receivable (652,008) (76,450)
Deferred revenue 468,940 237,152
Accounts payable, accrued payroll and accrued
expenses 83,782 (37,781)
Accrued interest 25,768 17,908
Related party payables 6,559 (27,597)
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Net cash used in operating activities (1,038) (931,119)
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Cash Flows From Investing Activities
Purchases of fixed assets (70,607) (86,744)
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Cash Flows From Financing Activities
Net payments on captial lease obligation (1,857) -
Proceeds from issuance of notes payable 243,000 748,509
Principal payments on notes payable (42,748) (111,466)
Net proceeds from sale of stock - 120,000
Checks written in excess of bank balance (28,258) 10,076
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 170,137 767,119
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Net increase (decrease) in cash 98,492 (250,744)
Cash at Beginning of Period - 250,744
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Cash at End of Period $ 98,492 $ -
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows, Continued
(unaudited)
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Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 8,722 $ 9,349
Income taxes $ 15,293 $ 4,082
Noncash Investing and Financing Activities:
During the first nine months of 2002 and 2001, respectively, the Company granted
stock options to purchase 1,590,000 and 333,500 shares of the Company's common
stock to employees. These stock options, in addition to options vesting in the
first nine months of 2002 and 2001 from earlier grants, were valued accordance
with SFAS 123 at $259,220 and $154,918, respectively. See Note 3.
During July 2002, the Company acquired approximately $35,000 of fixed assets
under a capital lease agreement.
During August 2002, the Company issued 125,000 shares of common stock with a
fair value of $6,250 to John C. Riener, the Company's CEO, in accordance with
Mr. Riener's employment agreement.
During January 2001, the Company issued 450,000 shares of common stock with a
fair value of approximately $41,850 to satisfy debt related to professional
services. The fair value of the shares was calculated using the closing prices
surrounding the issuance dates.
In March 2001, the Company converted $250,000 of notes payable-related party
into 250,000 shares of preferred stock. See Note 3.
In April and June of 2001, assets that had been on the Company books were
written off at net book value. The assets had been retained by Tel.n.Form
interactive and the net value of the assets was offset against an accounts
payable balance that was owed to Tel.n.Form. The remaining payable was paid in
full in June 2001.
In June of 2001, the Company converted $500,000 of notes payable-related party
into 500,000 shares of preferred stock. See Note 3.
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of RFP Express Inc.
and subsidiaries (the "Company") include the accounts of the Company and its
wholly owned subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation. In the opinion of management,
the condensed consolidated financial statements reflect all normal and recurring
adjustments, which are necessary for a fair presentation of the Company's
financial position, results of operations and cash flows as of the dates and for
the periods presented. The condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Consequently, these statements do not include all the
disclosures normally required by generally accepted accounting principles for
annual financial statements nor those normally made in the Company's Annual
Report on Form 10-KSB. Accordingly, reference should be made to the Company's
Form 10-KSB filed on April 16, 2002 and other reports the Company filed with the
Securities and Exchange Commission for additional disclosures, including a
summary of the Company's accounting policies, which have not materially changed.
The consolidated results of operations for the nine months ended September 30,
2002 are not necessarily indicative of results that may be expected for the
fiscal year ending December 31, 2002 or any future period, and the Company makes
no representations related thereto.
The accompanying condensed consolidated financial statements as of September 30,
2002 and 2001 have been prepared assuming the Company will continue as a going
concern. However, the Company had a working capital deficit of $867,113 as of
September 30, 2002 and incurred a net loss of $303,620 for the nine months then
ended. In addition, the Company defaulted in payment of one of its debts during
the nine months ended September 30, 2002 (see Note 5). These conditions raise
substantial doubt about the Company's ability to continue as a going concern. To
meet both current and contractual commitments and business growth objectives,
the Company will require additional financing. To address its financing needs,
management's plan is to continue their relationship with the financing source as
discussed in the most recent Annual Report. However, there can be no assurance
that additional debt and equity financing needed to fund operations will be
consummated or obtained in sufficient amounts necessary to meet the Company's
needs.
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities and the results of
operations during the reporting period. Actual results could differ materially
from those estimates.
7
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
Certain reclassifications have been made to the prior period, condensed
consolidated financial statements to conform to the current period
presentations. These reclassifications had no effect on reported total assets or
net loss.
NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted net income (loss) per share have been computed by dividing net
income (loss) available to common stockholders by the weighted average common
shares outstanding for the period, in accordance with SFAS No. 128, "Earnings
per Share." For the third quarter of 2002, certain options, warrants,
convertible debt and preferred stock outstanding were considered dilutive and
were included in the calculation of diluted net income (loss) per share.
Adjustments were made to add back interest on convertible debt of $6,352 to net
income for the third quarter of 2002. As a result of the net losses from
continuing operations incurred during the nine months ended 2002 and 2001, all
options, warrants, convertible debt and preferred stock outstanding were
considered anti-dilutive and were excluded from the calculations of diluted net
income (loss) per share. No adjustments were made to net loss attributable to
common stock in the calculation of basic or diluted earnings per share for the
nine months ended 2002 or 2001. Anti-dilutive securities and common stock
equivalents at September 30, 2002 which could be dilutive in future periods
include common stock options to purchase 6,783,500 shares of common stock and
warrants to purchase 2,803,553 shares of common stock.
Note 2. Notes Payable - Notes payable consisted of the following:
September 30, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Note Payable to NextGen Capital for advances to
the Company based on performance targets;
interest at 10% per annum; due on December 24,
2003. Notes can be converted into Series C
preferred shares.
$ 243,000 $ -
Note payable; interest at 8% per annum; due on
December 5, 2003. Non-detachable warrants for
500,000 shares exercisable at $2.72 per share
were repriced to $0.05 per share. The warrants
expire on August 21, 2003.
314,928 314,928
8
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
2. Notes
Payable, Cont'd September 30, 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Note payable; interest at 8% per annum; $200,000
of balance due on December 5, 2003. The
remaining balance is payable in monthly
installments of $5,000 beginning on January 15,
2002, with monthly installments increasing to
$10,000 starting on July 15, 2002.
Non-detachable warrants for 100,000 shares
exercisable at $0.10 per share were issued in
connection with the note. The warrants expire
on December 5, 2003.
263,629 263,629
Note payable for a settlement with the Company's
former CEO to resolve all outstanding Company
obligations related to his employment; interest
at 4% per annum. 50% of the balance payable on
December 1, 2003 and the remaining 50% payable
at the rate of $1,500 per month beginning
January 15, 2002. (See Notes 4 and 5)
190,556 204,056
Note payable for a settlement with the Company's
former CFO to resolve all outstanding Company
obligations related to his employment; interest
at 4% per annum. 50% of the balance payable on
December 1, 2003 and the remaining 50% payable
at the rate of $1,500 per month beginning
January 15, 2002. (See Notes 4 and 5)
122,668 136,168
9
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
2. Notes
Payable, Cont'd September 30, 2002 2001
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Note payable to a limited partnership; interest at
8% per annum; due on December 5, 2003.
Non-detachable warrants for 100,000 shares
exercisable at $0.10 per share were issued in
connection with the note. The warrants expire
on December 5, 2003.
75,583 75,583
Note payable for a settlement with the Company's
former President to resolve all outstanding
Company obligations related to his employment;
interest at 8% per annum. Note payable settled
in full for $15,748 in cash and stock on
February 28, 2002. The settlement agreement
included 1,259,840 common shares, which were
issued as of May 28, 2002. (See Notes 4 and 5)
- 72,908
Note payable; interest at 8% per annum; due on
December 5, 2003. Non-detachable warrants for
65,000 shares exercisable at $0.10 per share
were issued in connection with the note. The
warrants expire on December 5, 2003.
31,493 31,493
Note payable to a related party; interest at 5% per
annum; principal and interest are due on February
16, 2004. (See Note 4) 10,000 10,000
--------------------------------------------------------------------------------------------
1,251,857 1,108,765
Less current portion (36,000) (39,115)
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Long-term portion $ 1,215,857 $ 1,069,650
============================================================================================
10
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
2. Notes
Payable, Cont'd September 30,
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Future minimum principal payments on notes payable are as follows:
Year Ending September 30,
-------------------------------------------------------------------------
2003 $ 36,000
2004 1,144,745
2005 36,000
2006 18,584
2007 16,528
Thereafter -
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$1,251,857
=========================================================================
Note 3. Stockholders' Equity
Preferred stock
The Series C preferred shares have a liquidation preference equal to the greater
of (a) the purchase price for such shares plus an amount equal to 8% of the
liquidation preference per annum from the original issue date of such shares or
(b) the amount that would be distributed to each common stock holder of the
remaining assets of the Company available for distribution to stockholders which
would be distributed on a pro rata basis based on the number of shares of common
stock held.
Shares of Series C preferred stock are presently convertible into shares of
common stock at a 1:20 ratio, and are subject to anti-dilution adjustment in the
event of subsequent issuances of stock by the Company at a price less than the
conversion price of the Series C preferred stock, stock splits, stock dividends,
recapitalization and similar events.
Pursuant to the terms of the preferred stock, NextGen has the right to elect a
majority of the Board of Directors of the Company.
11
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
In January 2001 individuals purchased 60,000 shares of Series C preferred stock.
The individuals were also granted Series C warrants to purchase 60,000 shares of
Series C preferred stock. These Series C warrants are exercisable at a price of
$1.00 per share and expire on January 3, 2006. 40,000 of the shares were issued
to satisfy a $40,000 debt to a related party. The fair value of the shares at
that date was $40,000.
In February 2001 an individual purchased 10,000 shares of Series C preferred
stock. The individual was also granted Series C warrants to purchase 10,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on February 28, 2006.
In March 2001 NextGen Fund II, L.L.C. purchased 150,000 shares of Series C
preferred stock and NextGen SBS Fund II, L.L.C. purchased 100,000 shares of
Series C preferred stock for a combined total of 250,000 shares of Series C
preferred stock. NextGen was also granted Series C warrants to purchase 250,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on March 9, 2006.
In June 2001 NextGen Fund II, L.L.C. purchased 300,000 shares of Series C
preferred stock and NextGen SBS Fund II, L.L.C. purchased 200,000 shares of
Series C preferred stock for a combined total of 500,000 shares of Series C
preferred stock. NextGen was also granted Series C warrants to purchase 500,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on June 16, 2006.
In August 2001 NextGen Fund II, L.L.C. purchased 54,000 shares of Series C
preferred stock and NextGen SBS Fund II, L.L.C. purchased 36,000 shares of
Series C preferred stock for a combined total of 90,000 shares of Series C
preferred stock. NextGen was also granted Series C warrants to purchase 90,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on August 8, 2006.
Stock options
During the period January through September 2002 and January through September
2001, respectively, the Company granted 1,590,000 and 4,651,500 vesting stock
options to employees under the expanded 1997 Employees Non-Qualified Stock
Option Plan. During the first nine months of 2001, options to purchase 4,318,000
shares of the Company's commons stock were also returned or expired.
Compensation expense of $259,220 and $154,918 was recorded in accordance with
Statement of Financial Accounting Standards No. 123 for the nine months ended
September 30, 2002 and 2001, respectively.
12
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
Stock options, Cont'd
During the third quarter 2002 and the third quarter 2001, respectively, the
Company granted 1,150,000 and 433,000 vesting stock options to employees under
the expanded 1997 Employees Non-Qualified Stock Option Plan. During the third
quarter 2001, options to purchase 838,000 shares of the Company's commons stock
were also returned or expired. Compensation expense of $56,500 and $101,441 was
recorded in accordance with Statement of Financial Accounting Standards No. 123
for the third quarter ended September 30, 2002 and 2001, respectively.
Note 4. Related Parties
The Secretary of the Company is also a partner in the law firm that represents
the Company in its legal matters.
The Company had employment agreements with officers and directors that contained
compensation arrangements based on the achievement of certain Company goals
established by the Board of Directors. Long-term notes payable due to former
officers and directors of the Company were approximately $313,000 and $413,000
at September 30, 2002 and 2001, respectively.
The Company had previously maintained a management and services agreement with a
company that is owned and controlled by stockholders who also have significant
ownership of the Company. Expenses related to this management agreement for the
nine months ended September 30, 2002 and 2001 were $0 and $9,543, respectively.
Related long-term payables were approximately $270,000 at September 30, 2002 and
2001. The management services agreement was largely terminated in June 2000
except for network and internet services. The remainder of the contract was
terminated February 2001 when the Company purchased and began operating on
independent server equipment.
Note 5. Commitments and Contingencies
On December 1, 2000, the Company entered into a settlement agreement with
Tel.n.Form, Inc. that required the Company to make monthly payments of $5,000
beginning on January 15, 2002. The Company failed to make the required payments
during the nine months and quarter ended September 30, 2002. However, certain
officers and significant stockholders of Tel.n.Form are also significant
stockholders or directors of the Company. The Company is in continuing
settlement discussions with Tel.n.Form, Inc.
13
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
On December 4, 2000, the Company entered into a letter agreement with Robert A.
Steiner, a former director and officer of the Company that required the Company
to make monthly payments of $1,500 to Steiner beginning on January 1, 2002. The
Company failed to make these required payments during the first quarter of 2002;
however, the parties settled the matter effective February 28, 2002. In
connection with the settlement, the Company paid $15,748 and agreed to issue a
total of 1,259,840 shares of common stock to Mr. Steiner and his designee. A net
gain on settlement of $2,310 has been recognized related to the terms of Mr.
Steiner's settlement agreement. The shares were issued May 28, 2002. The
settlement agreement with Mr. Steiner at $0.05 per share triggered the
anti-dilution provision for the preferred stock shareholders, decreasing the
conversion price from $0.10 per common share to $0.05 per common share.
Management is currently considering authorizing additional shares of the
Company's common stock as well as other possible solutions.
On December 5, 2000, the Company entered into a settlement agreement and release
with each of Paul Silverman and Andrew Kent, both former directors and officers
of the Company. These agreements required the Company to make monthly payments
of $1,500 to each beginning on January 15, 2002. While the Company failed to
make the first two payments to both in a timely manner, the payment obligation
was met during the first quarter. Subsequently, the Company has met the monthly
payment schedule required by both Paul Silverman's and Andrew Kent's settlement
agreements.
Note 6. Segments
The Company's operating structure included two active operating segments for
2002.
Segment Products and Services
The Company had the following reportable segments in 2002: the RFP Express
software product (RFPX) and Custom Software Solutions Development (CSSD). RFP
Express is the Company's flagship product, which integrates a user-friendly
Internet interface, data-warehousing system with e-mail and fax technologies to
automate the RFP process for corporate travel managers. During the second
quarter of 2002, one of the Company's existing customers requested a custom
software solution to replace their current in-house RFP management and database
system. This contract was completed during the third quarter of 2002. Thus, a
second business segment developed in the second quarter of 2002 as the Company
started to fashion a custom solution for this customer from the existing
database and web programming.
14
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Notes to Condensed Consolidated Financial Statements
Note 6. Segments (Cont'd)
For the Three Months Ended September 30, 2002
-----------------------------------------------------------------------------------------
(In thousands) RFPX CSSD Total
-----------------------------------------------------------------------------------------
Net revenue from external
Customers $ 770 $ 280 $ 1,050
Depreciation and
amortization expense (17) - (17)
Segment profit (loss) $ 16 $ 75 $ 91
----------------------------------------------------
For the Nine Months Ended September 30, 2002
-----------------------------------------------------------------------------------------
(In thousands) RFPX CSSD Total
-----------------------------------------------------------------------------------------
Net revenue from external
Customers $ 1,539 $ 550 $ 2,089
Depreciation and
amortization expense (39) - (39)
Segment profit (loss) $ (507) $ 204 $ (303)
----------------------------------------------------
Total segment assets $ 917 $ 90 $ 1,007
Less intersegment assets - - -
----------------------------------------------------
Net segment assets $ 917 $ 90 $ 1,007
----------------------------------------------------
15
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Item 2. Management's Discussion and Analysis or Plan of Operation.
Introduction
The following describes certain factors that produced changes in the results of
operations of RFP Express Inc. (the "Company") during the quarter and nine
months ended September 30, 2002 and as compared with the quarter and nine months
ended September 30, 2001 as indicated in the Company's condensed consolidated
financial statements. The following should be read in conjunction with the
condensed consolidated financial statements and related notes. Historical
results of operations are not necessarily indicative of results for any future
period. All material inter-company transactions have been eliminated in the
results presented in this Quarterly Report.
Certain matters discussed in this Quarterly Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ significantly
from the results, performance, or achievements expressed or implied in these
forward-looking statements. See "Forward-Looking Statements."
Overview
The Company was organized to develop and market prepaid wireless products and
services in various markets throughout the United States. In late 1998 the
Company established a new strategic objective of refocusing the Company's
mission to pursue new complimentary Internet-related and e-commerce
opportunities. In 1999 the Company actively implemented its new mission by,
among other actions, selling a portion of the Company's business no longer
considered essential for the new strategy and purchasing IXATA.COM, a company
whose business thrust was in line with the new strategy.
Upon closing the IXATA.COM acquisition, the Company established itself as a
provider of internet-based, business-to-business ("B2B") electronic commerce
services in the travel market, targeting existing and new corporate clients,
hotel and property management groups, and major travel agencies. The Company's
principal service, RFP Express(SM), integrates a user-friendly, Internet-based
interface with a sophisticated data-warehousing system and email technology to
deliver automated solutions for creating, sending, receiving and managing the
preferred lodging programs request for proposal process in the hospitality
services market ("RFP process"). This process typically involves hundreds or, in
some cases, thousands of properties worldwide. By automating the users' RFP
business process, and also providing user-friendly Internet access to a
sophisticated data warehousing system, RFP Express(SM) provides dramatic cost
savings to users.
The Company's principal operations are to provide internet based electronic
commerce services in the travel market for creative solutions for creating,
receiving and managing preferred lodging programs. Although the market reaction
to the Company's service has been positive, there can be no assurance that the
Company will be able to attain profitability.
On April 8, 2002 the Company entered into a letter of intent agreement with an
existing hotel management company customer to begin designing and programming a
custom software solution to replace the customer's current RFP management and
database system. During the third quarter of 2002, the Company completed the
contract. As a result, the Company developed an entirely new business segment,
Custom Software Solutions Design for large hotel management companies. At the
successful completion of the current contract, other hotel management companies
have inquired about the custom software solution design service that the Company
now offers.
Results of Operations
16
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
The Nine Months Ending September 30, 2002 as Compared to the Nine Months Ending
- -------------------------------------------------------------------------------
September 30, 2001
- ------------------
Revenues
RFP Express(SM) revenues are from two components, subscription revenues
recognized over the life of contracts and transaction revenues recognized the
month of the transaction activity. The subscription portion continues to
generate recognizable revenue in the period after the sale. The subscription
portion of revenues from the sales in 2001 plus new sales during the nine months
ending September 30, 2002 combined with transaction revenues during the same
period to increase sales to $1,539,461, a 101% increase over sales of $765,749
for the same period in 2001. Increases in both subscription revenues and
transactions revenues were driven by doubling the Company's sales force and
re-structuring the Company's sales commission program.
Custom software solutions development revenues, accounted for using the
percentage of completion contract method, were $550,000 for the nine months
ended September 30, 2002 and zero for the nine months ended September 30, 2001.
The software customization contract was completed in the third quarter of 2002.
Combined, total revenues for the nine months ending September 30, 2002 were
$2,089,461, a 173% increase over the $765,749 total revenues for the same period
in 2001.
Operating Expenses
Selling, general and administrative expenses (SG&A) were $2,375,577 for the nine
months ended September 30, 2002, 20% or $403,043 more than $1,972,534 for the
nine months ended September 30, 2001. As a percentage of sales, however, SG&A
expense decreased to 101% of sales for the nine months ending September 30, 2002
from 237% of sales for the nine months ending September 30, 2001. The largest
component of SG&A continues to be payroll and related expenses. Payroll and
related expenses increased $148,494 or 12.6% during the nine months ending
September 30, 2002 to $1,330,605 from $1,182,110 during the nine months ending
September 30, 2001. This increase is attributable to the increase in the
commission structure and the increase in full-time staff over the same period in
the prior year. Non-cash stock-based compensation increased $104,302 to $259,220
during the nine months ending September 30, 2002 from $154,918 during the nine
months ending September 30, 2001. For the first time in over three years, the
Company recorded an entry for bad debts expense. This account increased $67,725
during the nine months ending September 30, 2002 from a balance of $0 for the
nine months ending September 30, 2001. Telephone and communications services
decreased $27,085 to $38,792 from $65,877 during the nine months ending
September 30, 2002 versus the nine months ending September 30, 2001. This
decrease was due to the Company purchasing and operating its own servers and web
hosting equipment during the nine moths ending September 30, 2002 versus paying
a fee to a former business partner to host the Company's website during the nine
months ending September 30, 2001. The expense for consultants and outside labor
increased $114,884 to $194,657 from $79,773 during the nine months ending
September 30, 2002 from the nine months ending September 30, 2001. In the first
nine months of 2002 the consulting expense related to an assessment for updating
the RFP Express(SM) website user interface, and the development of a user
interface for a new product. The consulting expense for the same period in 2001
related to acquiring and maintaining the Company's independent server equipment,
and hiring a marketing consultant on retainer. Legal and accounting expense
decreased $35,424 to $111,749 from $147,173 for the nine months ending September
30, 2002 as compared to the nine months ending September 30, 2001 due to fees
related to the December 2000 NextGen transaction spilling over into the first
quarter of 2001. Rent expense decreased $40,070 to $104,814 during the nine
months ending September 30, 2002 from $144,884 during the nine months ending
September 30, 2001. Costs for both the Company's health insurance and director's
and officer's insurance plans increased 50% and 21%, respectively in the nine
months ending September 30, 2002 as compared to the same period in 2001 for
total of $40,732 increase in cost. The preceding factors combine to account for
$373,558 of the $403,043 increase in SG&A expense during the nine months ending
September 30, 2002 from the nine months ending September 30, 2001.
17
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
The gain on issuance of stock for debt was $2,310 in the nine months ending
September 30, 2002 compared with a loss of $41,850 in the nine months ending
September 30, 2001. Interest expense increased $3,556 to $25,846 in the nine
months ending September 30, 2002 from $22,291 in the nine months ending
September 30, 2001 due to the Company accruing interest expense related to
advances from NextGen Capital. A $6,532 gain on debt-write off was recorded
during the nine months ending September 30, 2002 related to reducing accounts
payable balances.
The net loss during the nine months ending September 30, 2002 decreased to
$303,620 from $1,270,926 in 2001. This net improvement of $967,306 during the
nine months ending September 30, 2002 from the nine months ending September 30,
2001 is the result of both increased revenues and decreased operating expenses.
This change is attributable to achieving aggressive sales growth targets and
adding custom software development to the Company's services, which has
contributed significant revenue to date.
The Quarter Ended September 30, 2002 as Compared to the Quarter Ended
September 30, 2001
- ------------------------------------------------------------------------
Revenues
RFP Express(SM) revenues are from two components, subscription revenues
recognized over the life of contracts and transaction revenues recognized the
month of the transaction activity. The subscription portion continues to
generate recognizable revenue in the period after the sale. The subscription
portion of revenues from previous sales plus new sales during the third quarter
of 2002 combined with transaction revenues during the third quarter of 2002 to
increase sales to $827,953, a 127% increase over sales of $364,038 for the same
period in 2001.
Custom software solutions development revenues, accounted for using the
percentage of completion contract method, were $222,115 for the third quarter of
2002 and $0 for the same quarter in 2001. The software customization contract
was completed in the third quarter of 2002.
Combined, total revenues for the quarter ending September 30, 2002 were
$1,050,068, a 188% increase over the $364,038 total revenues for the same period
in 2001.
Operating Expenses
Selling, general and administrative expenses (SG&A) were $891,186 for the
quarter ended September 30 2002, $316,926 greater than the $574,260 for the
quarter ended September 30, 2001. As a percentage of sales, however, SG&A
expense decreased to 85% of sales for the quarter ending September 30, 2002 from
158% of sales for the quarter ending September 30, 2001. The largest component
of SG&A continues to be payroll and related expenses. Payroll and related
expenses increased $168,076 during the quarter ended September 30, 2002 to
$557,074 from $388,998 during the quarter ended September 30, 2001. This
increase is attributed to an increase in the number of employees during the
quarter ended September 30, 2002 over the same quarter in 2001 in addition to a
significant increase in the commission structure during the same period.
Non-cash stock-based compensation decreased $44,941 to $56,500 in the third
quarter of 2002 from $101,441 in the third quarter of 2001. For the first time
in over three years, the Company recorded an entry for bad debts expense. This
account increased $67,725 in the quarter ending September 30, 2002 from a
balance of $0 for the quarter ending September 30, 2001. Telephone and
communications services increased $3,175 to $16,772 during the third quarter of
2002 from $13,597 during the third quarter of 2001. This increase is due to the
greater volume of RFP's sent during the current year's period. The expense for
consultants and outside labor increased $52,896 to $69,639 from $16,743 during
the third quarter of 2002 from the third quarter of 2001. In the third quarter
of 2002 the consulting expense related to an assessment for updating the RFP
ExpressSM website user interface, and the development of a user interface for a
new product. The consulting expense for the same period in 2001 related to
acquiring and maintaining the Company's independent server equipment, and hiring
a marketing consultant on retainer. Related to the preceding programs, purchases
for small non-capitalized assets increased $14,413 to $16,772 for the quarter
ending September 30, 2002 from $2,359 for the quarter ending September 30, 2001.
Legal and accounting expense increased $15,294 to $40,631 from $25,337 during
the quarter ending September 30, 2002 as compared to the quarter ending
September 30, 2001 due to additional fees to prepare and file the Company's
corporate returns. Rent decreased $34,781 to $29,920 from
18
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
$64,701 during the third quarter of 2002 from the third quarter of 2001 due to
re-negotiating the lease in February 2002. Expense for the director's and
officer's insurance increased $17,961 to $22,106 from $4,144 during the third
quarter 2002 from the third quarter 2001, due to overall increasing insurance
costs for the internet industry. The preceding factors combine to account for
$259,820 of the $316,926 increase in SG&A expense during the third quarter 2002
from the third quarter 2001.
Interest expense increased $4,994 to $10,561 in the third quarter of 2002 from
$5,567 in the third quarter of 2001 due to accruing interest expense related to
advances from NextGen Capital.
The net income in the third quarter of 2002 increased to $91,320 from a net loss
of $317,230 in 2001. This net improvement of $408,550 is the result of increased
revenues during the period. This change is attributable to achieving aggressive
sales growth targets and adding a new segment to the Company, which has
contributed significant revenue to date.
Income Taxes
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes.
Deferred tax assets consist primarily of income tax benefits from net operating
loss carry-forwards and amortization of goodwill. A valuation allowance has been
recorded to fully offset the deferred tax asset as it is more likely than not
that the assets will not be utilized. The valuation allowance increased
approximately $18,000 during the nine months ending September 30, 2002, from
$2,360,000 at December 31, 2001 to $2,378,000 at September 30, 2002.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses as a result of the
development and operation of its products, service platform and supporting
networks. The Company expected that such losses would continue as the Company
focused on the development and expansion of product offerings and its customer
base as cash provided by operations would not be sufficient to fund the
expansion. The Company had working capital deficits of $867,113 and $885,455 as
of September 30, 2002 and 2001, respectively, and incurred net losses of
$303,620 and $1,270,926 for 2002 and 2001, respectively. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
To address its financing needs, in September 2000, a preliminary agreement for
funding was reached with NextGen Capital, a Virginia-based venture capital firm
specializing in high technology and internet-related investments. On December 5,
2000, the Company closed a funding with NextGen and other private investors,
issuing shares of its newly-authorized Series C preferred stock and warrants to
purchase shares of preferred stock. In connection with the financing, NextGen
agreed to make additional investments upon the achievement of certain milestones
by the Company. The Company's relationship with NextGen continued through 2001
as the Company met the required funding milestones during the year. As of
December 31, 2001, the Company had issued 2,085,461 shares of its preferred
stock and warrants to purchase an additional 1,960,000 shares of preferred stock
to NextGen and other private investors for a total of $2,300,000. NextGen has
committed to continue funding the growth of the Company and its product
development. Loans totaling $243,000 had been advanced to the Company as of June
30, 2002. On August 15, 2002 the Company issued NextGen notes respresenting
these advances and bearing interest at 10% per annum. These notes are
convertible by NextGen at any time into Series C preferred at $1.00 per share.
There is no guarantee that NextGen will be able to provide funding as needed,
however, the Company is currently operating from its own cash flows.
As of September 30, 2002, the Company had cash and cash equivalents of $98,492
as compared to $0 as of September 30, 2001. This increase is attributable to
improved collections of accounts receivable and increased sales during the
period. The Company had accounts receivable totaling $691,991 at September 30,
2002 as compared with $229,580 at September 30, 2001. The increase in accounts
receivable is attributable to increased sales during
19
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
the third quarter of 2002, the busiest quarter of the seasonal RFP business. Net
cash used in operating activities was $1,038 for the nine months ended September
30, 2002 compared to $931,119 for the same period in 2001. The primary reason
for the decrease is due to a smaller loss for the first nine months of 2002 as
compared to the first nine months of 2001. Net cash used in investing activities
for the nine months ending September 30, 2002 was $70,607 for the purchase of
fixed assets as compared with $86,744 for the nine months ending September 30,
2001. Net cash provided by financing activities for the first nine months of
2002 totaled $170,137 compared to $767,119 during the first nine months of 2001.
Cash infusions from NextGen ceased in May 2002 as the Company was able to
provide cash for its operations through increased sales and decreased operating
expenses.
Seasonality
Sales of the Company's RFP Express(SM) products and services are generally
seasonal in nature. Most of the RFP processing transactions and related billable
activities occur in the third and fourth quarter. While the Company is pursuing
new services, which may reduce the revenue volatility of the Company's business,
there can be no assurance when revenues from such services will be realized.
Summary of Significant Accounting Policies
Critical Accounting Standards
The Company recognizes revenue from transaction, sales of subscriptions, and
fixed price contracts.
Transaction revenues are recognized, net of an allowance for uncollectible
amounts, when substantially all significant services to be provided by the
Company have been performed.
Subscription revenues are recognized over the period of the subscription. An
allowance has been provided for uncollectible accounts based on management's
evaluation of the accounts and the customer's payment history.
The Company's revenues are also derived from fixed price contracts and are
recognized using the percentage-of-completion method of contract accounting
based on the ratio of total costs incurred to total estimated costs. Losses on
contracts are recognized when they become known and reasonably estimable. Actual
results of contracts may differ from management's estimates and such differences
could be material to the consolidated financial statements. Costs and estimated
earnings in excess of billings represent revenues recognized in excess of
amounts billed in accordance with the contractual billing terms.
In October 1995, the FASB Issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted SFAS 123 in 1997. The Company values its
stock and stock options at fair value in accordance with SFAS No. 123, which
states that all transactions in which goods or services are received for the
issuance of equity instruments shall be accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
20
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
New Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that SFAS, SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145
also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers."
Further, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate
an inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or described their applicability under changed
conditions. This pronouncement requires gains and losses from extinguishment of
debt to be classified as an extraordinary item only if the criteria in
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," have
been met. Further, lease modifications with economic effects similar to
sale-leaseback transactions must be accounted for in the same manner as
sale-leaseback transactions. The provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 shall be applied in fiscal years beginning after May
15, 2002. The provisions of SFAS No. 145 related to Statement 13 shall be
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 did not have a material impact on the
Company's consolidated financial position or results of operations for the nine
months ended September 30, 2002.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS 146 requires that a liability for costs associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. SFAS 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. We do not expect the adoption of
SFAS 146 to have a material impact on our operating results or financial
position.
Forward-Looking Statements
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets, growth in existing markets, and the Company's
ability to attract new sources of financing, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include, but are
not limited to:
o The Company has a short operating history upon which to base an investment
decision.
o The Company will require additional capital, which it may not be able to
obtain.
o The continued losses and negative working capital raise substantial doubt
about the Company's ability to continue as a going concern.
o The Company's failure to protect or maintain its intellectual property
rights could place it at a competitive disadvantage and result in loss of
revenue and higher expenses.
o If the Company's market does not grow as expected, its revenues will be
below its expectations and its business and financial results will suffer.
o Any failure of the Company's Internet and e-commerce infrastructure could
lead to significant costs and disruptions which could reduce revenues and
harm business and financial results.
21
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
o The Company could lose customers and expose itself to liability if breaches
of its network security disrupt service to its customers or jeopardize the
security of confidential information stored in its computer systems.
o Rapid growth in the Company's business could strain its resources and harm
its business and financial results.
o The Company may not be able to compete in its highly competitive market.
o The Company depends on the services of senior management and other key
personnel and the ability to hire, train and retain skilled employees.
o Risks associated with operating in international markets could restrict the
Company's ability to expand globally and harm its business and prospects.
o Government regulation and legal uncertainties could limit the Company's
business or slow its growth.
o The Company's operating results may fluctuate in future periods which may
cause volatility or a decline in the price of its common stock.
o The Company's executive officers, directors, and parties related to them,
in the aggregate, control 83% of the Company's voting stock and may have
the ability to control matters requiring stockholder approval.
o The Company's common stock may be delisted from the Nasdaq Over-the-Counter
Bulletin Board Service if the Company fails to make required filing with
the Securities and Exchange Commission and the Company may not qualify for
listing on the Bulletin Board Exchange when it replaces the OTCBB next
year.
o The Company's business partially depends on the free flow of services
through the channels of commerce, which have been and could be further
disrupted by terrorists' activities.
o The September 11, 2001 terrorist attacks have dramatically curtailed both
business and leisure travel and have exacerbated pressures on an already
weakened economy.
o Although the Company anticipates finding new customers for its Custom
Software Solutions Development segment, additional revenues from this
source are not guaranteed in the coming years.
These and other risks described in the Company's most recent Annual Report must
be considered by any investor or potential investor in the Company.
Item 3. Controls and Procedures
(a) Under the supervision and with the participation of our management,
including our Chief Executive Officer, who currently also acts as our principal
financial officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule13a-14(c) promulgated under the
Securities Exchange Act of 1934, as amended, within 90 days of the filing date
of this report. Based on their evaluation, our Chief Executive Officer concluded
that with the exception of needing extensions to file the quarterly10-Q and
annual 10-K reports, the Company's disclosure controls and procedures are
effective.
(b) There have been no significant changes (including corrective
actions with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph (a)
above.
22
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On August 8, 2002, the Company issued 125,000 shares of common stock with a fair
value of $6,250 to John C. Riener, the Company's CEO, pursuant to his employment
agreement. The Company believes the issuance to be exempt from registration
under ss. 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
The Company defaulted in payment of three of its debts during the nine months
ended September 30, 2002.
On December 1, 2000 the Company entered into a settlement agreement with
Telnform, Inc. that required the Company to make monthly payments of $5,000
beginning on January 15, 2002 (See Notes 2 and 5 of the Notes to the Company's
Condensed Consolidated Financial Statements). The total principal amount of the
payments is $120,000. The Company failed to make the required payments
subsequent to December 31, 2001 and as of September 30, 2002 the Company was
$60,000 in arrears on its payments to Telnform. However, certain officers and
significant stockholders of Telnform are also significant stockholders or
directors of the Company. The Company is in continuing settlement discussions
with Telnform. However, there can be no assurances that the Company will be able
to settle the matter.
On December 4, 2000, the Company entered into a letter agreement with Robert A.
Steiner, a former director and officer of the Company, that required the Company
to make monthly payments of $1,500 to Steiner beginning on January 1, 2002 (See
Notes 2 and 5 of the Notes to the Company's Condensed Consolidated Financial
Statements). The Company failed to make these required payments subsequent to
December 31, 2001; however, the parties settled the matter effective February
28, 2002. In connection with the settlement, the Company paid $15,748 and agreed
to issue a total of 1,259,840 shares of common stock to Mr. Steiner and his
designee. The shares were issued May 28, 2002. The settlement agreement with Mr.
Steiner at $0.05 per share triggered the anti-dilution provision of the Series C
Preferred Stock, decreasing the conversion price from $0.10 per common share to
$0.05 per common share and effectively doubling the number of shares of common
stock issuable upon conversion.
On December 5, 2000, the Company entered into a settlement agreement and release
with each of Paul Silverman and Andrew Kent, both former directors and officers
of the Company. These agreements required the Company to make monthly payments
of $1,500 to each beginning on January 15, 2002 (See Notes 2 and 5 of the Notes
to the Company's Condensed Consolidated Financial Statements). Two payments of
three were made to each during the first quarter of 2002. Subsequently, the
Company has met the monthly payment schedule required by Paul Silverman's and
Andrew Kent's settlement agreements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders in the third
quarter of 2002.
Item 5. Other Information.
Simultaneously with the filing of this quarterly report on Form 10-QSB, the
Company submitted to the Securities and Exchange Commission the certification of
this report by its chief executive and acting chief financial officer required
by 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002.
23
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statement re computation of per share earnings
(b) Reports on Form 8-K
None
24
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RFP Express Inc.
Date: November 19, 2002 /s/ John C. Riener
------------------
By John C. Riener, Chief Executive Officer
Section 302 Certification
I, John C. Riener, Chief Executive Officer and Acting Interim Chief Financial
Officer of RFP Express Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of RFP Express Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
25
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Nine Months and Quarter Ended September 30, 2002
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 19, 2002
By: /s/ John C. Riener
-------------------------------------
John C. Riener, Chief Executive Officer
and Acting Interim Chief Financial Officer
26