UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
Commission file number 000-31713
Rapidtron, Inc.
---------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0455472
- ------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3151 AIRWAY AVENUE, BUILDING Q
COSTA MESA, CALIFORNIA 92626
- ------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(949) 798-0652
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 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
--- ---
The number of shares of Common Stock, $0.001 par value, outstanding on
August 12, 2003, was 17,668,999 shares, held by approximately 300 shareholders.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2003. . . 1
Unaudited Condensed Consolidated Statements of Operations for the
Three-month and Six-month Periods Ended June 30, 2003 and 2002. . . . . 2
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six-month Periods Ended June 30, 2003 and 2002. . . . . . . . . 3
Notes to Unaudited Condensed Consolidated Financial Statements. . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 18
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 19
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 20
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
i
PART I -
ITEM 1. FINANCIAL STATEMENTS
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F-1
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003
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UNAUDITED
---------
ASSETS
CURRENT ASSETS
Cash $ 6,527
Accounts receivable, net 185,375
Inventory 340,274
Prepaid expenses and other current assets 62,300
------------
594,476
PROPERTY AND EQUIPMENT, NET 13,741
DEPOSITS AND OTHER ASSETS 17,623
------------
$ 625,840
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 572,378
Accrued liabilities 182,993
Due to related party 198,467
Loans due to related parties 538,161
Obligations under capital lease 5,111
------------
1,497,110
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.001 per share; 5,000,000
shares authorized; no shares issued or outstanding -
Common stock, par value $0.001 per share; 20,000,000
shares authorized; 17,649,002 shares issued and
outstanding 17,649
Additional paid-in capital 1,983,360
Accumulated deficit (2,872,279)
------------
(871,270)
------------
$ 625,840
============
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
1
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F-2
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
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========================================================================================================================
UNAUDITED
---------
THREE-MONTHS THREE-MONTHS SIX-MONTHS SIX-MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
NET SALES $ 164,766 $ 1,470,404 $ 262,265 $ 1,455,195
COST OF GOODS SOLD 99,593 794,196 143,945 827,268
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 65,173 676,208 118,320 627,927
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,011,143 325,589 1,436,774 586,216
---------------- ---------------- ---------------- ----------------
INCOME (LOSS) FROM OPERATIONS (945,970) 350,619 (1,318,454) 41,711
OTHER INCOME (EXPENSE)
Interest expense (36,638) (5,551) (58,992) (8,623)
Realized foreign exchange loss 1,015 - (12,757) (3,751)
Unrealized foreign exchange gain (loss) 8,433 698 (335) -
---------------- ---------------- ---------------- ----------------
(27,190) (4,853) (72,084) (12,374)
---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (973,160) 345,766 (1,390,538) 29,337
PROVISION FOR INCOME TAXES 800 - 800 800
---------------- ---------------- ---------------- ----------------
(continued)
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
2
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F-3
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
----------------------------------------------------------------------
========================================================================================================================
UNAUDITED
---------
THREE-MONTHS THREE-MONTHS SIX-MONTHS SIX-MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (973,960) $ 345,766 $ (1,391,338) 28,537
================ ================ ================ ================
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON
SHARE $ (0.07) $ 0.03 (0.11) 0.00
================ ================ ================ ================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,415,000 10,120,000 12,223,000 10,120,000
================ ================ ================ ================
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
3
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F-4
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
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UNAUDITED
---------
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(1,391,338) $ 28,537
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Provision for bad debts 7,000 -
Depreciation 3,501 2,043
Common stock issued for professional services 400,000 -
Unrealized foreign exchange loss 335 3,751
Changes in operating assets and liabilities:
Accounts receivable (113,216) (24,273)
Inventory (87,838) (87,112)
Prepaid expenses and other current assets 11,611 (14,766)
Deposits and other assets (3,722) (1,521)
Accounts payable (294,365) 529,267
Accrued liabilities 70,790 18,927
Due to related party 30,292 (440,322)
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,366,950) 14,531
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,797) (13,613)
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NET CASH USED IN INVESTING ACTIVITIES (1,797) (13,613)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans due to related parties 1,627,924 10,000
Principal payment of loans due to related parties (262,662) (2,763)
Principal payment of capital lease obligations (823) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,364,439 7,237
------------ ----------
NET (DECREASE) INCREASE IN CASH (4,308) 8,155
CASH - beginning of period 10,835 6,525
------------ ----------
CASH - end of period $ 6,527 $ 14,680
============ ==========
(continued)
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
4
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F-5
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
------------------------------------------------------
==========================================================================================
UNAUDITED
---------
2003 2002
------------ ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 10,558 $ -
============ ==========
Non-cash investing and financing activities:
Common stock issued to pay accrued salaries $ 64,000 $ -
============ ==========
Equipment acquired via capital lease $ 2,375 $ -
============ ==========
Stock issued to retire related party debt at $1.00 per share $ 1,648,024 $ -
============ ==========
Retire treasury stock $ 196,000 $ -
============ ==========
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
5
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F-6
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
BASIS OF PRESENTATION
THE MANAGEMENT OF RAPIDTRON, INC. (THE "COMPANY"), WITHOUT AUDIT, PREPARED THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE-MONTH AND SIX-MONTH
PERIODS ENDED JUNE 30, 2003 AND 2002. DUE TO THE MERGER WITH RAPIDTRON, INC., A
DELAWARE CORPORATION (SEE NOTE 2), THE REPORTED AMOUNTS ARE THOSE OF THE
SURVIVING CORPORATION. THE RESULTS OF OPERATIONS OF RAPIDTRON, INC. AND
SUBSIDIARY (FORMERLY KNOWN AS THE FURNISHING CLUB) PREVIOUSLY FILED IN PRIOR
YEARS ARE NOT INCLUDED HEREIN. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS
NECESSARY TO PRESENT FAIRLY, IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA, THE COMPANY'S CONSOLIDATED FINANCIAL
POSITION AS OF JUNE 30, 2003, AND THE RESULTS OF OPERATIONS AND CASH FLOWS FOR
THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002, HAVE BEEN
MADE. SUCH ADJUSTMENTS CONSIST ONLY OF NORMAL RECURRING ADJUSTMENTS.
Certain note disclosures normally included in our annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to instructions
for Form 10-QSB. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto which are included in Rapidtron, Inc.'s Form 8-K/A filed with
the Securities and Exchange Commission on June 5, 2003.
The results of operations for the three-month and six-month periods ended June
31, 2003 are not necessarily indicative of the results to be expected for the
full year.
BUSINESS
Rapidtron, Inc. (formerly The Furnishing Club, the "Company") was incorporated
in the State of Nevada in March 2000. The Company's wholly owed subsidiary,
also named Rapidtron, Inc., was incorporated in the State of Delaware in January
2000. The Company is headquartered in Costa Mesa, California and provides Radio
Frequency ("RF") Smart access control and ticketing/membership systems (the
"System") to the fitness, ski, entertainment and transportation industries in
North America. The System facilitates rapid operator-free entry and exit
through automated turnstiles or portals and optional hands-free entry. The
Company incorporates "Smart Card" debit/credit technology for retail purchases
and promotional/loyalty programs. The System is versatile and utilizes either
read-write RF Smart cards or bar code paper tickets. This dual capability allows
a venue to issue and re-issue numerous types and durations of access privilege
cards. Its open architecture allows for an easy interface with existing back
office software.
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
6
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F-7
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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1. BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
BUSINESS (continued)
During the three-month period ended June 30, 2003, the Company completed a
reverse merger (see Note 2). Effective May 8, 2003, the merged entity trades on
the Over the Counter Bulletin Board under the symbol "RPDT.OB".
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and include the accounts of the Company and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The Company's independent public accountants have included a "going concern"
explanatory paragraph in their audit report on the December 31, 2002 financial
statements, which have been prepared assuming the Company will continue as a
going concern. As such, the accompanying condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern, which contemplates, among other things, the realization of assets and
satisfaction of liabilities in the normal course of business. As of June 30,
2003, the Company has a working capital deficit of approximately $900,000,
recurring losses from operations, an accumulated deficit of approximately
$2,872,000, and has generated an operating cash flow deficit of approximately
$1,367,000 for the six-month period then ended. The Company intends to fund
operations through increased sales and debt and equity financing arrangements,
which may be insufficient to fund its capital expenditures, working capital and
other cash requirements for the year ending December 31, 2003.
Thereafter, the Company will be required to seek additional funds to finance its
long-term operations. The successful outcome of future activities cannot be
determined at this time, and there is no assurance that if achieved, the Company
will have sufficient funds to execute its intended business plan or generate
positive operating results.
In response to these problems, management has planned the following actions:
- Management intends to raise additional funds through future private
placement offerings.
- Management expects its increased marketing efforts to result in future
sales increases. There can be no assurances, however, that
management's expectations of future sales will be realized.
7
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F-8
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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1. BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
GOING CONCERN AND LIQUIDITY CONSIDERATIONS (continued)
These factors, among others, raise concerns about the Company's ability to
continue as a going concern. The accompanying condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market and is
primarily comprised of finished goods. Market is determined by comparison with
recent sales or net realizable value. Such net realizable value is based on
management's forecasts for sales of the Company's products or services in the
ensuing years. Should the demand for the Company's products prove to be
significantly less than anticipated, the ultimate realizable value of the
Company's inventory could be substantially less than amounts shown in the
accompanying balance sheet.
STOCK BASED COMPENSATION
At June 30, 2003, the Company had no stock-based compensation plans. Options to
acquire 150,000 options at December 31, 2002 were cancelled in connection with
the Merger (Note 2). No stock options were outstanding at June 30, 2003.
Additionally, in January 2003, the Company intended to grant to employees in
connection with certain employment agreements options to acquire up to 1,175,000
shares of the Company's common stock. However, such grants were contingent upon
the Company establishing a qualified stock option plan. As of August 18, 2003,
no qualified stock option plan has been established, and, therefore, no
additional options have been granted.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements discussed in the Notes to the December 31, 2002
and 2001 financial statements filed previously with the Securities and Exchange
Commission in Form 8-K/A on June 5, 2003 that were required to be adopted during
the year ended December 31, 2003 did not have a significant impact on the
Company's financial statements.
8
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F-9
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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2. REVERSE MERGER
On May 8, 2003, The Furnishing Club and subsidiary ("TFC"), a publicly traded
"shell" company (the previous public registrant), completed a reverse merger
under an Agreement and Plan of Merger (the "Plan" or "Merger") with Rapidtron,
Inc., a Delaware corporation (the "Private Company"), in a tax-free share
exchange under section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended. Immediately prior to the Merger, TFC had 20,000,000 shares authorized
and 19,993,752 shares of common stock issued and outstanding. Pursuant to the
Merger, all of the 10,052,000 issued and outstanding shares of common stock of
the Private Company (including 128,000 shares for the settlement of accrued
salaries, as discussed in Note 4) were exchanged for 9,600,000 shares of TFC, on
a 0.955 to 1 basis. Concurrent with the closing of the Merger, 13,943,750
shares of common stock of TFC were canceled, and the Private Company issued
5,598,002 shares of common stock. As a result, immediately after the Merger
15,650,002 shares of common stock were issued and outstanding.
Immediately after the Merger, the officers and directors of TFC resigned and the
management of the Private Company took control of such positions, therefore
reflecting a change of control. As a result, the transaction will be recorded
as a "reverse merger" whereby the Private Company was considered the accounting
acquirer as it retained control of TFC after the merger, however, legally the
Private Company became a wholly owned subsidiary of TFC after the Merger. In
connection with the Merger, TFC changed its name to Rapidtron, Inc. Since TFC's
continuing operations and balance sheet are insignificant, a pro forma
consolidated balance sheet at December 31, 2002 and consolidated statement of
operations for the year then ended are not presented here.
In connection with the terms of the Merger, all outstanding stock options
(150,000 in total) were cancelled.
3. LOANS DUE TO RELATED PARTY
During the six-month period ended June 30, 2003, the Company borrowed
approximately $1,618,000 from related parties. Such notes bore interest at
rates ranging from 6% to 10%, were secured by substantially all assets of the
Company, were convertible to the Company's common stock at approximately $1.00
per share, and all principal and interest was due within one year. Management
does not believe that the conversion option of these notes was considered a
beneficial conversion feature at the time such option was granted. The Company
also borrowed approximately $10,000 from employee-shareholders of the Company
during the six-month period ended June 30, 2003. Such loans are due on demand
and bear no interest.
9
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F-10
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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3. LOANS DUE TO RELATED PARTY (continued)
Immediately after the Merger (see Note 2), loans approximating $1,648,000 were
converted to the Company's common stock at approximately $1.00 per share (see
Note 4). During the six-month period ended June 30, 2003, principal payments
approximating $263,000 were made on certain other loans due to related parties.
4. EQUITY TRANSACTIONS
In January 2003, the Company issued 128,000 shares of the Company's common stock
to an employee to settle accrued salaries payable of $64,000.
Immediately after the Merger (see Note 2), the Company converted loans
approximating $1,648,000 into 1,599,000 shares of the Company's common stock
(see Note 3).
In connection with the Merger (see Note 2), the Company issued 400,000 shares of
common stock as finder's fees to certain individuals. Such shares were valued
at $1 per share based on recent stock sales and conversions of debt to equity.
The Company recorded acquisition costs totaling $400,000, which is included in
selling, general and administrative expenses in the accompanying condensed
consolidated statements of operations.
In connection with the Merger, the Company retired all 196,000 treasury shares.
5. EARNINGS PER SHARE
The Company computes net loss per common share using SFAS No. 128 "Earnings Per
Share." Basic loss per common share is computed based on the weighted average
number of shares outstanding for the period. Diluted loss per share is computed
by dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. There were no dilutive potential
common shares at June 30, 2003 (see Note 4). At June 30, 2002, outstanding
options to acquire 150,000 shares of common stock were not considered by
management to be potentially dilutive common shares due to the exercise price
being higher than the estimated stock price used in the EPS calculation.
Because the Company has no potentially dilutive common shares, basic and diluted
loss per share are the same. Additionally, for purposes of calculating diluted
loss per share, there were no adjustments to net loss.
10
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F-11
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
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6. EMPLOYMENT AGREEMENTS
In January 2003, the Company entered into employment agreements with certain
employees. The agreements expire on December 31, 2004 and can only be
terminated prior to such date by either party for "cause", as defined. The
agreements have provisions that include base salary amounts, various benefits,
the granting of stock options (see Note 1), and covenants not to compete. Upon
a resignation of an agreement with cause by the employee or without cause by the
Company, the Company is to immediately pay all accrued compensation, and is to
continue paying the base salary for 12 months following termination. Total
base salaries to be paid to these employees are as follows for the years ending
December 31:
2003 $ 360,000
2004 360,000
----------
$ 720,000
==========
7. CONTINGENCIES
At December 31,2002, the Company was under a distribution agreement with AXESS
AG, to purchase a minimum of $3,000,000 through May 2003. On December 11, 2002,
AXESS AG agreed that if the Company made certain payments and followed certain
conditions, the purchase commitment would be released. As of June 30, 2003,
management believes that all payments have been made and conditions have been
met, as required by AXESS AG.
8. SUBSEQUENT EVENTS
In July 2003, the Company sold 20,000 shares of its restricted common stock at
$1.00 per share.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
CAUTIONARY STATEMENTS:
This Quarterly Report on Form 10-QSB contains certain 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. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company's actual
financial condition, operating results and business performance may differ
materially from that projected or estimated by the Company in forward-looking
statements. The differences may be caused by a variety of factors, including but
not limited to adverse economic conditions and intense competition, including
intensification of price competition and the expansion of competition in
providing end -to-end product and system solutions as more fully described in
management discussion in this report. This report on Form 10-QSB contains, in
addition to historical information, forward-looking statements that involve
substantial risks and uncertainties. Our actual results could differ materially
from the results anticipated by us and discussed in the forward-looking
statements. Factors that could cause or contribute to such differences are
discussed in the section entitled "factors that may affect our business,
operating results, and financial condition" in the Company's 10-KSB, as amended,
for the year ended December 31, 2002.
GENERAL OVERVIEW:
We acquired Rapidtron, Inc., a Delaware corporation ("Rapidtron Delaware"), on
May 8, 2003, through a reverse-merger with our wholly-owned subsidiary, as more
fully described in our Form 8-K, filed with the Securities and Exchange
Commission on May 23, 2003, which is hereby incorporated by reference.
Rapidtron Delaware remains a wholly-owned subsidiary. As part of the
acquisition, we underwent a change in control, and as a result, the historical
financial statements presented in this report are those of Rapidtron Delaware.
Prior to our acquisition of Rapidtron Delaware, we had ceased our operations. On
or about May 8, 2003, we moved our principal place of business from Las Vegas,
Nevada to Costa Mesa, California. The business of Rapidtron Delaware remains
our only business. All historical comparisons made in our financial statements
and discussed below are comparisons of the performance of Rapidtron Delaware,
some of which occurred prior to our acquisition on May 8, 2003.
We specialize in providing solutions for Automated Access. Rapidtron researched
the marketplace for the past six (6) years to identify automated access needs in
the marketplace for specific industries, which led to development of Rapidtron's
versatile access system. As a result, Rapidtron is a provider of access control
and ticketing/membership systems to the fitness, winter resort, amusement,
transit industries and universities in North America. Rapidtron's system
facilitates rapid operator-free customer or member entry and exit through
automated turnstiles or portals and optional hands-free entry. This means
Rapidtron's unique system provides customers and members automated access
control to enter and exit facilities such as fitness clubs, university
recreational centers, or access to a ski lift.
Rapidtron's system and readers have open architecture, which allows for an easy
interface with the existing back-office computer software of the targeted venues
and marketplaces Rapidtron sells and serves. Rapidtron readers communicate data
to and from the computer software existing in the customer's back office for
managing information related to membership validation required for access, and
other information desired by the client. Rapidtron has accomplished interface
solutions with many major software providers to the venues it sells and services
(For example, in Fitness - Aphelion, CSI, Check Free and Computer Outfitters;
and in Resorts - all three major providers, Comptrol, RTP and Siriusware).
Rapidtron is continuing to invest and accomplish interface solutions with
software providers through investment in software programming with software
provider companies to allow Rapidtron's system to be compatible with a large
customer base.
Rapidtron's system is versatile and reads either bar code or RF Smart cards and
other media (tags, ID bracelets, etc.). This dual capability allows a venue to
issue and re-issue numerous types and durations of access privilege cards. Bar
code tickets and cards are commonly found in grocery stores where they are read
at check-out counters. Bar code tickets and cards are also common at fitness
12
clubs where they are checked by operator assisted manual scanning done at front
desk entry, and athletic and amusement venues where tickets are manually
checked, or manually scanned by staff members at entry to the arena or amusement
park. RF Smart cards, a technology that has been in existence since 1988,
primarily in Europe, incorporate an antenna and a 2K memory chip and
microprocessor laminated between two plastic sheets. RF Smart cards from
Rapidtron provide passive contactless identification technology. These cards
require no electrical contacts, or visual contact. Rapidtron RF smart cards
operate in harsh environmental conditions such as skiing at winter resorts in
extreme temperatures with hands- free operation at the turnstile, as the long
range antennas can read the cards in the pockets of the skier without being
removed and placed near the reader. Rapidtron RF Smart cards have read/write
memory, which means the card, when read by a Rapidtron RF ID readers, can read
the data on the card, debit (points or cash) and write new data in addition to
the value stored on the card.
Rapidtron's RF Smart card is passive, which means it is powered by the reader
field unlike an active card (transponder) with a battery. The Rapidtron card
and reader has a reading range of 10 to 120 centimeters. This allows the card
to be utilized for hands-free operation. The range of 10 to 120 centimeters is
totally dependent on the size of the antenna. Our indoor system of satellite
readers provide proximity reading of Smart cards at a range of up to 10
centimeters, and our resort systems with long range antennas can read cards at a
range of up to120 centimeters for hands free operation. The Rapidtron Smart
card utilizes a 13.56 MHZ transponder for fast communication speed. Rapidtron
currently utilizes the ISO 15693 standard chip.
Rapidtron's automated system allows a fitness club to use their existing bar
code membership cards to start and upgrade to Smart cards at any time.
Rapidtron can incorporate Smart card debit/credit technology for retail
purchases for a wallet-less workout or visit. Rapidtron's system offers a
variety of read/write Smart media: cards, key fobs, ID bracelets, for
multifunctional capabilities including access, debit/credit and affinity/loyalty
programs, parking and other uses. Rapidtron's unique printers can issue both
bar code tickets and Smart cards. Our Smart cards come with four color printing
on the front with the client's design. Utilizing our Thermo printer, the
reverse side can be printed on site with photos and copy that can be removed and
reprinted when re-programming the Smart cards on the printer. As a result, our
Thermo read/write Smart cards are 100% recyclable.
Our proven technology has been in operation for five years with over 2,000
access and 1,000 point of sale systems in Europe and North America. The
European installations were sold, installed and serviced by AXESS AG,
Rapidtron's supplier. Rapidtron has an exclusive Distribution Agreement for the
North American market with AXESS AG. All North American installations were
sold, installed and serviced by Rapidtron.
The following analysis of our operations refer primarily to those in the
fitness, winter resort, amusement and transit industries, and universities which
constitute the majority of our business activities.
RESULTS OF OPERATIONS OF THE COMPANY:
Three Months ended June 30, 2003 compared to three months ended June 30, 2002
and the six months ended June 30, 2003 compared to the six months ended June 30,
2002.
REVENUE
Our revenue for the three months ending June 30, 2003 was $164,766, a decrease
of $1,305,638 (89%) compared to the $1,470,404 from the same period last year.
During the six months ending June 30, 2003, we had revenues of $262,265, a
decrease of $1,192,930 (82%) from the $1,455,195 for the same period in fiscal
year 2002.
For the six month period ended June 30, 2003, the $1,192,930 decrease in sales
revenue was due entirely to the lack of sales in 2003 from transit, specifically
the Las Vegas Monorail Project, more fully described below. The Las Vegas
Monorail Company has chosen to go to magnetic stripe technologies to integrate
with the existing system in place with the RTP bus transit system, and will
consider an upgrade to Smart card systems in the future.
Bombardier is the supplier of the monorail and fare box collection system to the
Las Vegas Monorail Company. Bombardier conducted 1 1/2 years of due diligence on
our equipment and system and awarded us the contract for a Smart Card only Fare
Collection System in December 2001. The Las Vegas Monorail Company decided to
13
integrate with the Rapid Transit Company, the bus line in Las Vegas, which then
required the fare system to utilize a magnetic stripe rather than a Smart Card
in order to integrate their existing system. We fulfilled all the requirements
of the first phase of the contract resulting in earning the revenue of
approximately $1,350,000, but with the change to magnetic stripe, Bombardier was
forced to cancel the contract with Rapidtron. There still remains an opportunity
to provide Rapidtron's RF Smart card in the future as an upgrade to the LVMC.
We have chosen to focus our sales efforts on fitness clubs, winter resorts,
universities and colleges, and entertainment, niche markets where our system has
penetrated key venues with notable installations such as Bally Total Fitness,
the world's largest fitness club chain, Park City Resort, Utah and Copper
Mountain, Colorado well-known four-season resorts, and University of California,
Berkeley, a leading US university. We targeted these specific customers due to
their leadership position in each of their industries and the potential for
sizeable revenues related to their individual contracts and future contracts.
We have structured our sales, marketing and service around these 3 markets -
fitness clubs, universities, and winter resorts, while continuing to explore
opportunities in amusement such as auto racing and sports arenas. In this
regard, Rapidtron hired 18 new independent sales representatives across the US
and Canada to assist the selling effort in these targeted venues in the US and
Canada.
We expect to modestly increase our revenues in the targeted venues of fitness
clubs, winter resorts, and universities over the next quarter, and to
significantly increase our revenues in the targeted venues in the coming 12
months. We base these revenue growth expectations on the assumption that the
successful sales, installations, and operation of our Rapidtron systems to date
of industry leading customers in targeted venues will result in other customers
within each venue emulating the leader in making their purchase decisions. For
example, our Rapidtron system has now been operational in Bally Total Fitness,
the largest fitness club chain in North America with 420 clubs, since July,
2002. Our Rapidtron system is installed at 11 Bally locations with a purchase
order for a total of 25 club locations. Our Rapidtron system has been
operational at Copper Mountain since November 2001, and Park City, Utah since
November 2002 with an expansion scheduled for the 2003/2004 season. Our
Rapidtron system has been operational at University of California, Berkeley
since May 2002.
Actual results may differ from our expectations as a result of delay in sales to
the customers in the targeted venues.
GROSS PROFIT
For the three months ending June 30, 2003, gross profit totaled $65,173,
compared to $676,208 for the same period last year. The $611,035 decrease in
gross profit was primarily a result of the $1,305,638 drop in revenue. As
discussed above, the drop in revenue was entirely the result of the lack of
sales in 2003 from the transit market, specifically the Las Vegas Monorail
Project.
For the six months ending June 30, 2003, gross profit for the period was
$118,320, compared to gross profit of $627,927 for the same period last year.
This represents a decrease of $509,607 from the same period last year. The
decrease in gross profit is also primarily the result of the drop in sales from
the cancellation of the Las Vegas Monorail Project.
We expect to modestly improve our gross profit through increased sales in the
targeted venues of fitness clubs, winter resorts, and universities over the next
quarter, and to significantly increase our gross profit in the targeted venues
in the coming 12 months based on the same assumptions identified in our
revenues. The unfavorable currency variance of the US dollar to the Euro has
negatively impacted gross profit margins in 2003 due to our purchasing from a
European supplier. We expect the unfavorable currency variance of the US dollar
to the Euro to continue in 2003, and to continue to negatively impact gross
profit margins due to our plan to continue purchasing equipment, readers, and
cards from it's European supplier. Actual results may differ from our
expectations as a result of delay in sales revenues, and gross profit from those
revenues to the customers in the targeted venues.
OPERATING EXPENSES
During the three months ending June 30, 2003, selling, general & administrative
operating expenses totaled $1,011,143, an increase of $685,554 (211%) from the
$325,589 incurred during the same period last year. Included in the $1,011,143
of operating expenses for the current quarter is approximately $583,000 related
to costs associated with the merger with Rapidtron. Excluding the increased
costs associated with the merger, operating expenses were up $102,554 (32%) from
the same period last year. The remaining increase can be attributed to increased
salaries related to additional hires of a Financial Manager, a General Manager,
and Systems Technician.
14
For the six months ending June 30, 2003, selling, general & administrative
expenses totaled $1,436,774, an increase of $850,558, or 145%, from the $586,216
incurred during the same period last year. As noted above, the significant
portion of the increase was due to the $583,000 related to the reverse merger.
These were one-time charges that represent over one half of the increase in
operating expenses on a year-to-year basis.
We expect operating expenses in the ordinary course of business (not taking into
consideration the one time expenses in the first six months of 2003) to increase
modestly over the next quarter as a result of operating, marketing and selling
expenses to the fitness club, winter resort, university, and amusement markets.
We expect operating expenses in the ordinary course of business to increase
modestly over the next 12 months as a result of operating, marketing, selling,
service and sales commission expenses related to increased revenues. The
commissions paid to independent reps are less than 1% of expenses during this
period, however, will increase as a percentage of sales in the coming quarter,
and 12 months. Actual results may differ from our expectations as a result of
delay in sales revenues, and gross profit from those revenues, while operating
expenses continue to secure those sales to the customers in the targeted venues.
LOSS FROM OPERATIONS
During the three months ended June 30, 2003, we had a loss from operations of
$945,970, compared to a profit from operations in the prior year of $350,619.
Excluding approximately $583,000 for non-recurring professional fees due to the
reverse merger, the loss from operations in the current quarter was
approximately $362,970. Reduced sales in transit, and higher personnel costs to
focus on core business channels in fitness, winter resort, university, amusement
and financial reporting combined with increased legal and professional fees due
to the reverse merger were the factors driving the loss from operations in the
current quarter when compared to the profit in the same period in 2002.
The loss from operations for the first six months of fiscal 2003 was $1,318,454
compared to a profit from operations of $41,711 in the same period in the prior
year. Excluding the approximately $583,000 in fees due to the reverse merger, we
would have had a loss from operations of $735,454, resulting in a variance of
$771,165 from the prior year period.
The loss from operations for the six months ended June 30, 2003, was primarily
the result of the following (a) reduction in transit sales, (b) a delay in
roll-out of fitness club sales caused by our customers' software suppliers
delaying the completion and implementation of the software interface that allows
Rapidtron's system to work effectively with the customers back office software,
and (c) our increase in selling, general & administrative costs.
We expect overall loss from operations to increase over the next quarter as a
result of continued expenses in excess of the margin from a modest increase in
sales revenues during the same quarter. We expect overall loss from operations
to decrease over the next 12 months as a result of significant increases in
revenues and gross margin related to those sales. Actual results may differ
from our expectations as a result of delay in sales revenues, and gross profit
from those revenues, while operating expenses continue to secure those sales to
the customers in the targeted venues.
INTEREST EXPENSE
For the three months ending June 30, 2003, interest expense was $36,638.
Interest expense was $5,551 in the same quarter last year. Interest expense for
the six-month period was $58,992. In the same period last year, interest
expense was $8,623.
The increase in interest expense was primarily the result of higher debt to
related parties. At June 30, 2003, we owed $538,161 on notes due to related
parties, compared to $261,407 at June 30, 2002. Additionally, we borrowed
approximately $1,628,000 during the six months ended June 30, 2003, and made
re-payments through cash and stock issuances of approximately $1,911,000 during
such period.
We expect interest expense to decrease over the next quarter as a result of
conversion of debt to equity, and related decreased interest expense. Actual
results may differ from our expectations as a result of taking on additional
debt necessary to finance operations, and the related interest expense due to
not meeting sales expectations.
15
ASSETS AND LIABILITIES
At June 30, 2003, we had total assets of $625,840 compared to total assets of
$443,312 at December 31, 2002. Cash was $6,527 as of June 30, 2003, down
slightly from the $10,835 cash balance as of December 31, 2002. Cash used in
operations was $1,366,950, cash used in investing was $1,797, and cash provided
by financing activities was $1,364,439, with net cash used during the current
period being $4,308. Major cash out-flows included net debt payments of
$262,662, and net payments to product and equipment vendors of approximately
$502,000.
Net accounts receivable were $185,375 at June 30, 2003, an increase of $106,216
(134%) from the $79,159 at December 31, 2002. The increase in accounts
receivable is primarily due to new customers in fitness club industry that we
began doing business with in July 2002.
Net inventories increased $87,838 (35%), to $340,274, from the $252,436 at
December 31, 2002. A majority of the increase in inventory is due to purchases
to support shipments scheduled to fitness customers.
Net fixed assets totaled $13,741 at June 30, 2003, compared to $13,070 at
December 31, 2002. Purchases of fixed assets totaled $4,172 during the current
period, while depreciation totaled $3,501 resulting in a net decrease in fixed
assets of $671.
Total liabilities at June 30, 2003 were $1,497,110, a decrease of $538,158 (26%)
from the $2,035,268 at December 31, 2002. Accounts payable and accrued
liabilities were $755,372 at June 30, 2003, a decrease of $287,239 (28%) from
the $1,042,611 at December 31, 2002. The primary reason for the decrease in
accounts payable and accrued liabilities is that we paid vendors for product
purchased to support sales and inventory for fitness clubs from the proceeds of
debt financing during the period.
Accrued payroll totaled $149,915 at June 30, 2003, compared to $135,686 at
December 31, 2002. The increase was due primarily to senior executives only
receiving partial payment of their current and prior wages, with the remaining
amount being accrued. Accrued interest payable, which is included in accounts
payable and accrued liabilities, was $30,490 at June 30, 2003, an increase of
$20,584 from the $9,906 at December 31, 2002.
Notes payable and other debt totaled $543,272 at June 30, 2003, a decrease of
$131,210 (19%) from the $674,482 at December 31, 2002. Notes payable were
reduced by the conversion of Notes to equity at the close of the merger.
STOCKHOLDER'S DEFICIT
Stockholder's deficit was $871,270 at June 30, 2003, a decrease of $720,686 from
the $1,591,956 at December 31, 2002. The changes in stockholder's equity were as
follows:
Balance as of December 31, 2002 ($1,591,956)
Net Loss ($1,391,338)
Additional Paid in Capital $1,908,495
Common Stock 7,529
Cancellation of Treasury Stock 196,000
-------------
Balance as of June 30, 2003 ($871,270)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2003, we had $625,840 in total assets, including $6,527 in cash,
$185,375 in accounts receivable, $340,274 in inventories, and $62,300 in prepaid
expenses and other current assets. We consider the accounts receivable to have a
high probability of collection, as a majority of the receivables are to large
customers in the fitness club industry. Inventories consist primarily of
readers, turnstiles, and equipment and are very marketable, and will continue as
current product models during 2003. Fixed assets consist primarily of computers,
office furniture and equipment, software, and test equipment. Due to the age and
proprietary nature of most of the fixed assets, these assets probably have
limited value to those outside our Company. Additional inventory will be
acquired for fitness club, university, and winter resort sales in the 3rd
quarter for installation in 3rd and 4th quarter 2003.
16
Cash flow needs were met over the last quarter through sales revenues, and the
funds provided through the private placement per the Merger Agreement. Those
cash needs for rent, salary, marketing, services, software interface, inventory,
and receivables were met through loans, equity investment and revenues. Also at
June 30, 2003, total liabilities were $1,497,111, including accounts payable and
accrued liabilities of $755,372, and amounts due to related parties (including
due to related party and loans due to related parties) of $736,628. Loans to
related parties include $140,000 to John Creel and Steve Meineke, directors of
the Company.
Our negative cash flow from operations resulted primarily from our increased
receivables and inventory along with the pay down of payables to key vendors in
order to support growth in the fitness category.
We had negative working capital of $902,635 at June 30, 2003. We expect our
operations to continue using net cash through at least the third quarter of
fiscal year 2003 as we continue to invest in new business opportunities. Thus,
our success, including our ability to fund future operations, depends largely on
our ability to secure additional funding. There can be no assurance we will be
able to consummate debt or equity financings in a timely manner, on a basis
favorable to the Company, or at all.
We require cash flow of $300,000 in the next quarter for rent, salary,
marketing, services, software interface, and inventory, through revenues, loans,
and equity investment. We have an immediate need to raise $300,000 by end of
September 2003, and anticipate this raise through private placement of our
common stock. We require cash flow of $2,000,000 over the next 12 months for
operating expenses, new business development, potential merger, marketing,
services, software development for interface with business systems in targeted
industries, inventory, and receivables. We expect to achieve these cash flow
needs through operating revenues, loans, and equity investment. We anticipate
increased sales to fitness clubs, universities, winter resorts, amusement, and
transit contracts for the sale of equipment, readers, cards, service agreements.
We anticipate the raising of funds through the sale of stock, and bank
financing. Current monthly expenses are approximately $125,000, which should not
increase over the coming 12 months, with the exception of anticipated increase
due to sales commissions paid for increased sales volume secured by independent
sales agents, new business development, or merger. The allocation of expenses in
operating the business will be dictated by where those expenses can optimize
results through the production of sustained revenue growth. If we do not raise
the necessary capital or earn sufficient revenue to cover the foregoing
expenses, we will reduce variable overhead, such as marketing expenses, travel
and entertainment, software development, and reduction of personnel as feasible.
GOING CONCERN
The Company's independent certified public accountants have stated in their
reports included in the Company's Form 8-K/A filed on June 5, 2003 that the
Company has negative working capital, lack of operations history, and an
accumulated deficit. These conditions, among others, raise substantial doubt
about the Company's ability to continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
(a) John Creel, our president and chief accounting officer, and Steve
Meineke, our Treasurer, Principal Accounting Officer and Secretary,
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined under Rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended, as of the end of the period covered by this report, and they
concluded that our disclosure controls and procedures are effective.
(b) During the period covered by this report, we engaged the services of
Porter, LeVay, and Rose, a professional investment relations firm, to
advise us on complying with Regulation FD and the public disclosure
process. Our executives were trained in a seminar at their corporate
offices in New York City on correct policies, procedures, and
management controls for managing a publicly traded company.
(c) As of the date of this filing, we have adopted a new policy to require
each principal officer to complete a questionnaire, prior to filing a
report (including this report), regarding the information required to
be disclosed herein.
17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
The following charts outline the convertible debentures we issued and/ or
converted during the three months ended June 30, 2003. Following the chart is an
explanation or each such sale or conversion.
NEW CONVERTIBLE NOTES ISSUED DURING PERIOD COVERED BY REPORT
- ------------------------------------------------------------
NAME OF DATE OF DOLLAR DATE NOTE NUMBER OF SHARES COMMISSIONS
NOTE HOLDER NOTE ISSUED AMOUNT CONVERTED TO EQUITY OF COMMON STOCK ISSUED PAID
- -------------------- ------------ ---------- -------------------- ---------------------- ------------
Fort Holdings, Ltd. 4/3/2003 $ 250,000 5/8/2003 250,000
Hans, Hermann Schulz 4/24/2003 $ 50,000 5/8/2003 50,000 $ 5,000
Harald Plautz 5/5/2003 $ 19,978 5/8/2003 20,000 $ 2,000
Top View, AG 5/6/2003 $ 159,030 5/8/2003 142,500 $ 15,903
- ----------------------------------------------------------------------------------------------------------
TOTAL $ 479,008 462,500 $ 22,903
COMMON STOCK ISSUED UPON CONVERSION OF PREVIOUSLY ISSUED CONVERTIBLE NOTES
- --------------------------------------------------------------------------
NAME OF DATE OF DOLLAR DATE NOTE QTY OF SHARES COMMISSIONS
NOTE HOLDER NOTE ISSUED AMOUNT CONVERTED TO EQUITY CONVERTED TO AT CLOSE PAID
- --------------------- ------------- ------------- ------------------- --------------------- ------------
United Triumph, Inc. 10/31/2002 $ 180,000.00 5/8/2003 180,000
United Triumph, Inc. 11/7/2002 $ 70,000.00 5/8/2003 70,000
United Triumph, Inc. 11/26/2002 $ 80,000.00 5/8/2003 80,000
Furnishing Club, Inc. 12/30/2002 $ 100,000.00 5/8/2003 100,000
United Triumph, Inc. 1/7/2003 $ 70,000.00 5/8/2003 70,000
Top View, AG 1/9/2003 $ 83,435.19 5/8/2003 80,000
Fort Holdings, Ltd. 1/31/2003 $ 100,000.00 5/8/2003 100,000
Top View, AG 2/12/2003 $ 160,718.00 5/8/2003 150,000
Hans, Hermann Schulz 2/19/2003 $ 20,000.00 5/8/2003 20,000 $ 2,000
Daniel Rink 2/21/2003 $ 22,000.00 5/8/2003 22,000 $ 2,200
Hans, Hermann Schulz 3/14/2003 $ 30,000.00 5/8/2003 30,000 $ 30,000
Top View, AG 3/17/2003 $ 90,849.80 5/8/2003 84,500 $ 9,085
Top View, AG 3/18/2003 $ 158,693.00 5/8/2003 150,000 $ 15,869
- ----------------------------------------------------------------------------------------------------------
TOTAL $1,415,695.99 1,136,500 $ 59,154
NON-CONVERTIBLE DEBENTURES
- ---------------------------
NAME OF DATE OF DOLLAR
NOTE HOLDER NOTE ISSUED AMOUNT
- --------------- ------------ -----------
Corvus Holdings 2/27/2003 $250,000.00
Ceres Financial 4/02/2003 $150,000.00
John Creel 5/27/2003 $ 5,000.00
- ------------------------------------------
TOTAL $ 405,000
18
Convertible Notes and Common Stock Issued upon Conversion. During the three
- -------------------------------------------------------------
months ended June 30, 2003, we issued convertible notes in the principal amount
of $479,008, which were converted during the period covered by this report into
462,500 shares of our common stock. We issued an additional 1,136,500 shares of
our common stock upon conversion of similary convertible notes issued prior to
the period covered by this report. As a result, we issued a total of 1,599,000
shares of our common stock at a conversion price of US$1.00 or Euro 1.00 per
share, depending upon the terms of the convertible notes. Because of the
exchange rate between Euros and Dollars on the date of conversion, the actual,
average conversion rate was greater than $1.00 per share. Each of the foregoing
convertible notes have been integrated into the same offering because they are
substantially similar in terms and were sold over a period of less than 7
months. In connection with such sales, we relied on the exemption from
registration pursuant to Regulation S promulgated under the Securities Act of
1933 (the "Act"). In this offering, we issued stock in offshore transactions to
a total of 5 purchasers residing outside the United States. We did not solicit
or publish any advertisement, article, notice or other communication within the
United States regarding our intent to make this offering. There were
commissions paid in connection with each purchaser at a rate of 10% of the
capital raised. The stock certificates issued to the purchasers contained a
restrictive legend in accordance with Rule 905 and Rule 144. We may receive
additional funding from offshore investors under similar terms to the foregoing
convertible notes, and therefore we do not consider this offering to be closed
at this time.
Common Stock. In addition to the foregoing, during the period covered by this
- -------------
report, we issued a total of 10,000,000 shares of our common stock in connection
with the acquisition of Rapidtron Delaware, as disclosed in our Current Report
on Form 8-K, filed with the Securities and Exchange Commission on May 21, 2003,
which report is hereby incorporated by reference. In connection with such
sales, we relied on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933 and Rule 506. In this transaction, we issued stock
to a total of nine individuals. This was a unique transaction for the sole
purpose of affecting an acquisition of Rapditron Delaware, and no similar
transactions were entered into during the previous six months of such
transaction or since the closing of the offering. Some of these purchasers were
not accredited investors, and prior to closing the transaction, we supplied
information to each purchaser in compliance with Rule 502(b). We did not
publish any advertisement, article, notice or other communication intended for
public distribution regarding our intent to make this offering, and the officers
and directors of Rapidtron Delaware were introduced to our former officer and
director through our previous business contacts. The purchasers represented in
writing that the shares were being acquired for investment purposes only and not
for resale, and in addition, the stock certificates issued to the purchasers
contained a restrictive legend in accordance with Rule 144. The stock issued to
the purchasers has not been sold since closing. There were no underwriters.
The right to receive 400,000 shares of common stock in Rapidtron Delaware, which
right was subsequently converted into 400,000 shares of our common stock at
closing, was paid to two individuals as a commission in connection with this
offering. These 400,000 shares constitute a part of the total 10,000,000 shares
issued. This offer was closed upon acquisition of Rapidtron Delaware on May 8,
2003.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
On January 17, 2003, we received written consent in lieu of a meeting from the
holders of approximately seventy percent (70%) of our issued and outstanding
common stock, consenting to the following actions:
(1) Entering into and consummating the Agreement and Plan of Merger with
Rapidtron Delaware;
(2) The resignation of Dr. John Veltheer as a Director and appointment of
John Creel and Steve Meineke to serve as Directors of the Company,
together with Hendrik Rethwilm, upon the effective date of the merger;
(3) An amendment to our Articles of Incorporation to increase the number
of our authorized shares of common stock from 20,000,000 to
100,000,000 shares;
(4) The issuance of our shares of common stock to the then current
shareholders of Rapidtron Delaware at a ratio of 0.955033824 shares
for each Rapidtron Delaware share owned, with fractional shares
converted to cash at the rate of $1.00 per share; and
19
(5) The change of our name from The Furnishing Club to Rapidtron, Inc.
A copy of the written consent is included as an exhibit to this report and is
hereby incorporated by reference.
ITEM 5. OTHER INFORMATION
On May 13, 2003, the Registrant mailed a Dissenter's Notice to its stockholders,
which allows stockholders of record prior to January 17, 2003, to demand payment
for their shares as a result of the consummation of the Merger. Stockholders had
until June 13, 2003, to demand payment for their shares. We received no demands
for payment of shares from any dissenting stockholders.
On June 4, 2003, we issued a press release announcing a new relationship with
Bally Total Fitness. A copy of the press release is filed as an exhibit to this
report. We completed our installation of 11 of the 25 access systems, and we
have a contract to install all the remaining 14 of 25 access systems for gross
revenue of approximately $213,500.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.1 Amendment to Articles of Incorporation, dated May 8, 2003,
included as an Exhibit to our Form 10-QSB filed with the
Securities and Exchange Commission on May, 21, 2003.
10.1 Distribution Agreement with Axess AG, dated May 6, 2000, as
amended.
10.2 Promissory Note payable to John Creel, dated October 1, 2000, in
the principal amount of $12,500.
10.3 Promissory Note payable to Equus Marketing & Design, Inc., dated
April 25, 2001, in the principal amount of $150,000.
10.4 Promissory Note payable to John Creel, dated April 25, 2002, in
the principal amount of $150,000.
10.5 Promissory Note payable to Steve Meineke, dated October 3, 2002,
in the principal amount of $15,000.
10.6 Promissory Note payable to Peter Dermutz, dated December 28,
2001, in the principal amount of $170,000, as amended on December
28, 2002.
10.7 Letter Agreement between Equus Marketing & Design, Inc. and
Rapidtron, Inc., dated January 1, 2002, re: services.
10.8 Letter Agreement between Equus Marketing & Design, Inc. and
Rapidtron, Inc., dated January 1, 2002, re: administrative
expenses.
10.9 Amendment No. 1 to Employment Agreement with Peter Dermutz, dated
April 11, 2003.
10.10 Letter Agreement, amending Employment Agreement with Peter
Dermutz, dated August 12, 2003.
10.11 Amendment No. 1 to Employment Agreement with Steve Meineke,
dated April 11, 2003.
10.12 Letter Agreement, amending Employment Agreement with Steve
Meineke, dated August 12, 2003
10.13 Amendment No. 1 to Employment Agreement with John Creel, dated
April 11, 2003.
10.14 Letter Agreement, amending Employment Agreement with John Creel,
dated August 12, 2003
10.15 Purchase Order from Bally Total Fitness Corporation, dated
February 10, 2003.
20
10.16 Promissory Note payable to John Creel, dated August 2, 2001, in
the principal amount of $26,000.
10.17 Promissory Note payable to Larry Williams, dated October 20,
2002, in the principal amount of $51,410.
10.18 Promissory Note payable to John Creel, dated May 27, 2003, in
the principal amount of $5,000.
20.1 Dissenter's Notice, dated May 13, 2003.
22.1 Majority Consent Stockholders, dated January 17, 2003.
31.1 Certification of John Creel Pursuant to Rule 15d-14(a)
31.2 Certification of Steve Meineke Pursuant to Rule 15d-14(a)
32.1 Certification of John Creel Pursuant to Rule 15d-14(b)
32.2 Certification of Steve Meineke Pursuant to Rule 15d-14(b)
99.1 Press Release re: Bally's dated June 4, 2003
(b) Form 8-K
---------
Form 8-K filed April 2, 2003, reporting the Amendment to Agreement and Plan
of Merger.
Form 8-K/A filed June 4, 2003, containing Financial Statements of Rapidtron
Delaware, Inc., (formerly Rapidtron, Inc., a Delaware corporation),
for the years ended December 31, 2002 and 2001 (audited) and the Three
Months Ended March 31, 2003 and 2002 (unaudited).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
RAPIDTRON, INC.,
a Nevada corporation
Date: August 18, 2003
By: /s/ John Creel
- ---------------------------------------------
John Creel, President &
Chief Executive Officer
By: /s/ Steve Meineke
- ---------------------------------------------
Steve Meineke, Treasurer &
Principal Financial Officer
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