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
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-31713
RAPIDTRON, INC.
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(Exact name of small business issuer 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
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(Registrant's telephone number, including area code)
Check whether the issuer (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
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No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practical date: 20,454,843 shares of Common Stock,
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$0.001 par value, outstanding on May 14, 2004.
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Transitional Small Business Disclosure Format (check one): Yes No X
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RAPIDTRON, INC.
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statement. . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Operations. . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows. . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis . . . . . . . . . . . 13
Cautionary Statements: . . . . . . . . . . . . . . . . . . . . . . . . 13
General Overview:. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Results of Operations of the Company:. . . . . . . . . . . . . . . . . 14
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Loss from Operations . . . . . . . . . . . . . . . . . . . . . . . . . 16
Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 17
Stockholder's Deficit. . . . . . . . . . . . . . . . . . . . . . . . . 18
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . 18
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . 19
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults by The Company Upon Its Senior Securities . . . . 20
Item 4. Submission of Matter to a Vote of Security Holders . . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 20
PART III SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
================================================================================
UNAUDITED
================================================================================
ASSETS
CURRENT ASSETS
Cash $ 1,862
Accounts receivable, net of allowance for doubtful
accounts of $20,000 490,395
Inventory 511,631
Prepaid expenses and other current assets 181,330
------------
1,185,218
PROPERTY AND EQUIPMENT, NET 109,191
DEPOSITS AND OTHER ASSETS 12,380
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$ 1,306,789
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 934,364
Accrued liabilities 229,447
Due to related party 102,275
Loans due to related parties 291,284
Current portion of long-term debt 47,338
Obligations under capital lease 6,702
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1,611,410
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LONG-TERM DEBT, NET OF CURRENT PORTION 48,933
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 $0.001 per share; 100,000,000
shares authorized; 20,269,514 shares issued and
outstanding 20,270
Additional paid-in capital 5,114,886
Stock subscriptions receivable (305)
Accumulated deficit (5,488,405)
------------
(353,554)
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$ 1,306,789
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Page F-1 The accompanying notes are an integral part of these condensed
consolidated financial statements.
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
THREE-MONTHS THREE-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2004 2003
----------------- -----------------
NET SALES $ 481,949 $ 97,499
COST OF GOODS SOLD 346,012 58,124
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GROSS PROFIT 135,937 39,375
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,251,217 425,632
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LOSS FROM OPERATIONS (1,115,280) (386,257)
OTHER INCOME (EXPENSE)
Interest expense (6,491) (22,354)
Foreign exchange gain (loss) 19,408 (8,768)
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12,917 (31,122)
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LOSS BEFORE PROVISION FOR INCOME TAXES (1,102,363) (417,379)
PROVISION FOR INCOME TAXES 800 -
----------------- -----------------
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Page F-2 The accompanying notes are an integral part of these condensed
consolidated financial statements.
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
THREE-MONTHS THREE-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2004 2003
----------------- -----------------
NET LOSS $ (1,103,163) $ (417,379)
================= =================
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (0.06) $ (0.04)
================= =================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 19,992,000 10,051,000
================= =================
================================================================================
Page F-3 The accompanying notes are an integral part of these condensed
consolidated financial statements.
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,103,163) $(417,379)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 2,422 1,732
Common stock issued for professional services 62,999 -
Unrealized foreign exchange loss (gain) (43,700) 4,384
Changes in operating assets and liabilities:
Accounts receivable (173,008) 36,033
Inventory 46,571 4,558
Prepaid expenses and other current assets (13,654) 10,787
Deposits and other assets - (3,722)
Accounts payable 190,793 (169,680)
Accrued liabilities 32,210 64,669
Due to related party 14,930 42,730
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NET CASH USED IN OPERATING ACTIVITIES (983,600) (425,888)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (1,797)
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NET CASH USED IN INVESTING ACTIVITIES - (1,797)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans due to related parties - 420,000
Principal payment of loans due to related parties (32,985) (1,363)
Principal payment of capital lease obligations (809) (242)
Proceeds from exercise of warrant 400,000 -
Receipt of stock subscriptions receivable 535,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 901,206 418,395
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NET DECREASE IN CASH (82,394) (9,290)
CASH - beginning of period 84,256 10,835
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CASH - end of period $ 1,862 $ 1,545
============ ==========
(continued)
================================================================================
Page F-4 The accompanying notes are an integral part of these condensed
consolidated financial statements.
================================================================================
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
2004 2003
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Income taxes $ 800 $ -
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Interest $ 4,175 $ 945
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Non-cash investing and financing activities:
Common stock issued to settle payable $ 20,000 $ -
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Common stock issued for prepaid expenses $100,000 $ -
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Software acquired through debt $ 96,271 $ -
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Page F-5 The accompanying notes are an integral part of these condensed
consolidated financial statements.
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
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 periods ended
March 31, 2004 and 2003. Due to the merger with Rapidtron, Inc., a Delaware
corporation in May 2003, 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 March 31, 2004, and the results of operations and cash flows for the
three-month periods ended March 31, 2004 and 2003, 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 10-KSB filed with
the Securities and Exchange Commission on March 30, 2004.
The results of operations for the three-month periods ended March 31, 2004 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.
During the year ended December 31, 2003, the Company completed a reverse merger.
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.
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RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
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, 2003 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 March 31,
2004, the Company has a working capital deficit of approximately $379,000,
recurring losses from operations, an accumulated deficit of approximately
$5,488,000, and has generated an operating cash flow deficit of approximately
$984,000 for the three-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, 2004.
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.
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.
================================================================================
RAPIDTRON, INC.
(FORMERLY THE FURNISHING CLUB)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
================================================================================
UNAUDITED
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS (continued)
STOCK BASED COMPENSATION
As of March 31, 2004, the Company has one stock-based compensation plan. The
Company accounts for such grants under the recognition and measurement
principles of Accounting Principle Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. No stock-based employee
compensation cost is reflected in net loss, as all options granted in prior
periods had an exercise price equal to the estimated market value of the
underlying common stock on the date of grant. Had the Company applied the fair
value recognition provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," as amended, to stock-based
employee compensation, there would have been no material change to net loss or
loss per common share at March 31, 2004 and 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements discussed in the Notes to the December 31, 2003
and 2002 financial statements filed previously with the Securities and Exchange
Commission in Form 10-KSB on March 30, 2004 that were required to be adopted
during the year ended December 31, 2004 did not have a significant impact on the
Company's financial statements.
2. EQUITY TRANSACTIONS
During the three-month period ended March 31, 2004, a warrant holder converted
warrants to acquire 320,000 shares of the Company's common stock for cash
totaling $400,000.
In connection with a financial public relations agreement entered into in
January 2004 (see Note 4), the Company is required to issue 50,000 shares of its
restricted common stock during the term of the agreement in six equal monthly
installments of 8,333 shares, beginning on February 1, 2004. As of March 31,
2004, the Company has issued 16,666 shares of common stock under this agreement
and has recorded approximately $23,000 of public relations expenses during the
period then ended related to such issuances.
In November 2003, the Company entered into a consulting agreement with Big Sky
Management Ltd ("Big Sky"). Such agreement required the Company to issue
120,000 shares of its restricted common stock plus warrants to acquire 120,000
shares of common stock (collectively, the "Units") in exchange for $160,000 of
services to be performed during a 12-month period beginning on November 12,
2003. The Units were approved by the Board of Directors and issued in February
2004. The warrants are exercisable upon issuance at a price of $1.25 per share
at any time up to February 12, 2005 and, thereafter, at a price of $1.50 per
share at any time up to February 12, 2006, at which time such warrants shall
expire. Under this agreement, the Company is required to file a registration
statement on Form S-8 to register the common shares and the common shares
acquirable upon exercise of the warrants under the Securities Act of 1933, as
amended. At March 31, 2004, approximately $100,000 of expense under this
agreement is included in prepaid expenses and other current assets in the
accompanying condensed consolidated balance sheet.
During the three-month period ended March 31, 2004, the Company collected cash
totaling $535,000 related to stock subscriptions receivable.
2. EQUITY TRANSACTIONS (continued)
As noted above, warrants to acquire 120,000 shares of the Company's common stock
were granted in February 2004. The Company has estimated the grant date fair
value of such options to be $0.45 per share. Such fair value was estimated using
the Black-Scholes option-pricing model using the following assumptions: two-year
expected life; 49% estimated volatility; 1.88% risk free interest rate; and no
dividends.
3. LOSS 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. The Company reported a net loss
for the three-month periods ended March 31, 2004 and 2003. As a result, options
and warrants outstanding at March 31, 2004 and 2003 to acquire 2,182,000 and
150,000 shares of the Company's common stock, respectively have been excluded
from the calculation of diluted net loss per share, because their inclusion
would be antidilutive. Additionally, convertible debt to acquire 12,000 shares
of the Company's common stock at March 31, 2004 (see Note 4) have been excluded
from the calculation of diluted net loss per share, because those shares would
also be antidilutive. As such, basic and diluted loss per share are the same
for all periods presented. Additionally, for purposes of calculating diluted
loss per share, there were no adjustments to net loss.
4. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
To obtain the release of inventory on order from Axess AG, the Company filed a
UCC-1 Financing Statement on September 23, 2003, securing the related payable to
Axess AG of approximately $100,000. Such payable is secured by certain accounts
receivable totaling $100,000. Management believes that as of March 31, 2004,
the Company has met all conditions and obligations required by the security
agreement.
LILIOS AGREEMENT
On January 1, 2004, the Company entered into a public financial relations
agreement with Lilios Group, Inc. ("Lilios"), pursuant to which the Company will
pay Lilios $5,000 per month for six months, plus 50,000 shares of restricted
common stock, in six equal monthly installments. The Company may terminate the
agreement upon 30 days advance written notice, whereupon the obligation to issue
the remaining portion of the 50,000 shares will terminate.
STEVE MEINEKE TERMINATION
Effective March 1, 2004, the Company entered into a termination of employment
agreement with Steve Meineke, former Chief Financial Officer of the Comapny.
The Company agreed to pay Meineke Consulting, LLC, its 2002 accrued fees in the
amount of $6,987 prior to paying any unpaid wages earned by any employees in the
year 2003, and when it pays all other wages remaining unpaid for the year 2002,
pro rata and in proportion to all other unpaid wages earned in 2002 and
remaining unpaid as of March 1, 2004. The Company also agreed to pay to Steve
Meineke his 2003 accrued salary in the amount of $38,959 after all wages
remaining unpaid for the year 2002 are paid, and when it pays all other wages
remaining unpaid for the year ended December 31, 2003, pro rata and in
proportion to all other unpaid wages earned in 2003 and remaining unpaid as of
March 1, 2004. In addition, the
STEVE MEINEKE TERMINATION (CONTINUED)
Company delivered a replacement promissory note payable on demand to Steve
Meineke in the principal amount of $15,000, which is convertible into common
stock at $1.25 per share.
5. PIONEERING INNOVATIONS AGREEMENT
The Company entered into a software development agreement with Pioneering
Innovations Inc. ("Pioneering Innovations") on January 13, 2004. Pioneering
Innovations has developed a piece of software titled COM DLL, which allows the
Company's products to interface with customers existing back office software.
In accordance with this agreement, the Company purchased COM DLL for $100,000,
to be paid in 24 equal monthly installments of $4,166.67. As no interest rate
was specified in the agreement, the Company has applied a rate of 4% and
recorded the related debt and asset at $96,271. Additionally, the agreement
provides for support and maintenance services, related to new installations of
the Company's products, by Pioneering Innovations over its three-year term. As
consideration for such services, the Company will pay Pioneering Innovations 10
shares of the Company's restricted common stock per product installed that
becomes fully integrated and operational with COM DLL, up to 40,000 shares.
Such shares are due within 30 days of the end of each quarter. For the quarter
ended March 31, 2004, the Company completed 33 software integrations and owed
Pioneering Innovations 330 shares of common stock.
6. MARKETING SERVICES AGREEMENT
During the three-month period ended March 31, 2004, the Company entered into a
marketing services agreement. The Company incurred $400,000 in fees related to
such agreement, which is included in selling, general and administrative
expenses in the accompanying condensed consolidated statements of operations.
Services under this agreement were completed prior to March 31, 2004. There
were no similar expenditures during the three-month period ended March 31, 2003.
7. RELATED PARTY TRANSACTIONS
Equus Marketing and Design, Inc. ("Equus") is a party related to the Company
through commonality of ownership. The Company shares a facility and certain
administrative personnel with Equus (Equus is the lessee of the property and
employer of certain personnel). Additionally, Equus provides marketing services
to the Company. During the three-month periods ended March 31, 2004 and 2003,
the Company incurred expenses from Equus approximating $115,000 and $143,000,
respectively, and made repayments to Equus approximating $100,000 in each of the
three-month periods.
Other related party transactions are discussed elsewhere in the notes to the
condensed consolidated financial statements.
8. SUBSEQUENT EVENTS
AMOTHY AGREEMENT
On April 1, 2004, the Company has entered into a two-year management consulting
agreement with Amothy Corporation ("Amothy") pursuant to which the Company will
issue warrants for up to 1,000,000 shares of its restricted common stock,
exercisable at the rate of $1.46 per share for five years from the date the
warrants are vested. The warrants will vest as follows: 600,000 upon execution
of the agreement (expected on or about April 1,
AMOTHY AGREEMENT (CONTINUED)
2004), 200,000 on or about July 1, 2004, and 200,000 on or about October 1,
2004. The warrants have piggyback registration rights. If the warrants are not
registered at any time 12 months after the respective vesting dates of such
warrants, then the warrants will have a cashless exercise provision at Amothy's
option until such time as the shares underlying the warrants are registered.
Based on the fair value of the warrants on the grant date, the Company estimates
that it will record consulting fees approximating $650,000 over the life of this
agreement.
GENERATION CAPITAL UNIT PURCHASE AGREEMENT
Effective April 1, 2004, the Company sold in a private placement to Generation
Capital Associates ("Generation Capital"), an accredited investor, 160,000
"Units" consisting of one share of restricted common stock and one warrant to
purchase restricted common stock at a price of $1.46 for up to five years, for a
total purchase price of $200,000. If prior to April 1, 2006 the Company files a
new registration statement with the SEC, excluding any amendments to or
refilings of registration statements currently on file with the SEC, then the
Company is to include Generation Capital's resale of its shares in such
registration statement on the same terms and conditions as provided to the other
selling securities holders.
AXESS AG UCC-1 AGREEMENT
Subsequent to March 31, 2004, the Company financed the purchase of $250,000 of
inventory from Axess AG and granted to Axess AG a security interest in all of
the Company's existing accounts receivable to secure the payables. The Company
expects to satisfy this obligation from the sale of the inventory by the end of
the second quarter of 2004.
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. We 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 our Company, please be advised that our actual financial condition, operating
results and business performance may differ materially from that projected or
estimated by us 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 "Risk Factors" in our SB-2
filed on February 5, 2004, hereby incorporated by reference.
GENERAL OVERVIEW:
We specialize in providing solutions for automated access through our
wholly-owned operating company, Rapidtron Delaware. We distribute access
control and ticketing/membership systems to the fitness, winter resort,
amusement, transit industries and universities in North America. We have an
exclusive distribution agreement for the North American market with Axess AG, a
European manufacturer and distributor of such systems. We have jointly
researched and developed such systems with Axess AG, and we sell, install and
service all North American installations for Axess AG.
Our RF access control and ticketing/membership technology has been in operation
for five years with over 2,500 access and 1,500 point of sale systems in Europe
and North America. The European installations were sold, installed and serviced
by Axess AG, our supplier.
Our system facilitates rapid operator-free customer or member entry and exit
through automated turnstiles or portals and optional hands-free entry. This
means our 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.
We are competing with traditional bar code providers. Our system is versatile
and reads either bar code or RF Smart cards or 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 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. Our RF Smart cards provide passive contactless
identification technology. These cards require no electrical contacts, or
visual contact. Our 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. Our RF
Smart cards have read/write memory, which means the card, when read by one of
our 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.
Our 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 in which we sell and serve. Our 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. We have accomplished
interface solutions with many major software providers to the venues in which we
sell and service (for example, in Fitness - Aphelion, CSI, Check Free, Twin
Oaks, ASF and Computer Outfitters; and in Resorts - the three major providers,
Comptrol, RTP and Siriusware). We have completed a new software interface,
COMdll that provides the software provider a faster and easier interface than
before and are continuing to invest and accomplish interface solutions with
software providers through investment in software programming with software
provider companies to allow our system to be compatible with a large customer
base.
Our RF Smart card is passive, which means it is powered by the reader field
unlike an active card (transponder) with a battery. Our 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 to 120
centimeters for hands free operation. The Rapidtron Smart Card utilizes a 13.56
MHZ transponder for fast communication speed. We currently utilize the ISO 15693
standard chip. We are targeting the sale of our systems to existing bar code
users in the fitness, resort and amusement, and university industries who have
the opportunity to fully utilize the hands-free RF technology together with the
Smart card debit/credit technology.
Our automated system allows a fitness club to use its existing bar code
membership cards to start and upgrade to Smart cards at any time. We can
incorporate Smart card debit/credit technology for retail purchases for a
wallet-less workout or visit. Our 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. Our
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.
The following analysis of our operations refers primarily to those in the
fitness, winter resort, amusement, and universities, which constitute the
majority of our business activities. We are also exploring the possible
integration of biometric technology with our RF Smart card technologies that
would combine fingerprint identification systems with our access control
systems. This may result in the acquisition of or combination with an existing
biometric company. As a result, our current financial statements may not be
indicative of future results, and the business plan discussed below may be
modified accordingly. While we would expect any such acquisition to result in
an increase in our operating revenue, such an acquisition will result in an
increase in one-time expenses which are difficult at this time to predict and
will likely cause future net losses to continue for a longer period of time than
we currently estimate. If we are able to successfully acquire and combine such
technologies, we will begin to market our combined products to new industries
such as the government and security industries, while continuing to market the
RF and Smart card access control systems in our traditional markets discussed
below.
RESULTS OF OPERATIONS OF THE COMPANY:
Three Months ended March 31, 2004 compared to three months ended March 31, 2003.
REVENUE
Our revenue for the three months ending March 31, 2004 was $481,949, an increase
of $384,450 (394%) compared to the $97,499 from the same period last year.
For the three month period ended March 31, 2004, the $384,450 increase in our
sales revenue was due primarily to the increased sales in fitness. Sales in
fitness have expanded into several major national fitness chains and will
continue through 2004. We are currently in the process of fulfilling orders for
125 access control systems for two national fitness chains, totaling
approximately $1.7 million. We expect to recognize approximately $700,000 in
gross revenue from these sales in the second quarter of 2004 and approximately
$600,000 in gross revenue from these sale in the third quarter of 2004.
We have chosen to focus our sales efforts on fitness clubs, winter resorts and
entertainment, and universities and colleges, niche markets where our system has
penetrated key venues. We have made notable installations of our products with
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 U.S. 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. In this regard, we increased our focus in selling to the leading
fitness chains in 2003 which resulted in two sales orders totaling 125 access
control systems to be shipped through the first three quarters of 2004. We
have additional meetings scheduled with other leading fitness chains that have
shown interest in implementing our access control systems in their clubs.
Following our installation at UCLA John Wooden Center, and sales presentations
to more than 250 universities, we anticipate increased sales in 2004 with 8 new
universities currently analyzing our systems for potential implementations in
2004. While the winter resort business is now preparing for it's 2004/2005
season, we have expanded our presence with more installations at Park City,
Utah, and the hiring of Chris Perkins as our V.P. of Resort Sales. We expect
increased sales in each of the three targeted venues of fitness clubs,
universities, and winter resorts over the next quarter, and throughout 2004.
We expect to increase our revenues in the targeted venues of fitness clubs,
winter resorts, and universities in the second quarter of 2004, and to
significantly increase our revenues in the targeted venues in the upcoming 12
months. We base these revenue growth expectations on the assumption that the
successful sales, installations, and operation of our Rapidtron systems to date
with 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 80
locations with a national fitness club with 45 more scheduled over the next
several months, and we expect to continue to expand in the club's other
locations over the next 12 months. In the three months of 2004, we received
approximately eighty-five percent (85%) of our gross revenue from fitness clubs,
with 59% of gross revenues derived from one fitness customer. We expect to
continue our growth in sales to fitness clubs in 2004, and we have meetings
scheduled during the second quarter of 2004 with five other leading companies in
the fitness industry, who we are currently working with us for potential
implementations in 2004. As a result of these meetings, we hope to increase and
diversify our gross revenue received through sales in the fitness industry. As
of December 31, 2003, we have finalized and signed purchase orders with a major
national fitness chain and another leading fitness chain to purchase and install
a total of 125 Rapidtron systems in the first six months of 2004. We shipped
approximately 25% of these purchase orders in the first quarter. These
commitments will result in gross revenue of approximately $1.7 million over the
first three quarters of 2004. Some locations require platforms, an automated
rather than our standard manual Americans with Disability Act (ADA) gate and
multiple readers due to the size of the club. Our equipment offerings are
flexible, allowing us to handle different club needs and configurations.
Actual results may differ from our expectations as a result unexpected
modifications to our systems that may be requested to meet the specific needs of
potential customers that cause delay in the recognition of sales, or other
delays in expected sales to the customers in the targeted venues.
GROSS PROFIT
For the three months ending March 31, 2004, our gross profit totaled $135,936,
compared to $39,375 for the same period last year. The $96,561 increase in
gross profit was primarily a result of increased sales to fitness clubs.
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
continues to negatively impact gross profit margins in 2004 due to our
purchasing from a European supplier. We expect the unfavorable currency
variance of the US Dollar to the Euro to continue in 2004 with possibly slight
improvements, and to continue to negatively impact gross profit margins due to
our plan to continue purchasing equipment, readers, and cards from our European
supplier.
In the second quarter of 2004, we will be publishing 10% to 15% price increases
for our access control systems to our customers, which will result in improved
margins in the third and fourth quarter of 2004. In addition, we are in the
process of negotiating volume discounts from our equipment suppliers, which
should lead to reduced costs of goods in the later part of the second quarter.
Actual results may differ from our expectations as a result of delay in sales
revenues, and in the ability to use gross profit from those revenues to meet
orders from customers in the targeted venues. If we experience a delay in
receiving gross revenue, we may need to finance, through short-term debt or
equity financing, the acquisition and distribution of our products to meet the
increase in demand, resulting in smaller margins and a decrease in gross profit.
OPERATING EXPENSES
During the three months ending March 31, 2004, our selling, general &
administrative operating expenses totaled $1,251,217, an increase of $825,585
(194%) from the $425,632 incurred during the same period last year. Included in
the $825,585 increase of operating expenses for the current quarter is
approximately $550,000 related to a one-time increase in marketing costs
associated with the creation, production and distribution of marketing material
to potential investors, and investor relations/consulting of $50,000, pursuant
to the Unit Purchase Agreement discussed in the section titled "Transactions
with Selling Stockholders" in our registration statement on Form SB-2 filed with
the Commission on February 5, 2004, hereby incorporated by reference. In
addition, we incurred one-time expenses of approximately $60,000 in legal and
accounting fees for the filing of our SB-2 and $15,000 for our website
construction. Excluding the increased costs associated with the Unit Purchase
Agreement and the professional fees related to the filing of the SB-2, our
selling, general & administrative expenses were up approximately $150,000 (35%)
from the same period last year. The remaining increase can be primarily
attributed to increased salaries related to additional hires of a Financial
Manager, a Vice President of Resort Sales and his related travel expenses, a
Systems Technician and sales commissions for the increased sales.
We expect operating expenses in the ordinary course of business (not taking into
consideration the one time expenses related to the Unit Purchase Agreement and
the filing of the SB-2) 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 sales representatives
are less than 1% of selling, general and administrative expenses during this
period; however, will increase as a percentage of sales in the coming quarter,
and 12 months. In addition, we will incur additional one-time expenses related
to the filing of an amended registration statement on Form SB-2 related to the
Unit Purchase Agreement and the cost associated with keeping the registration
statement current and effective. We estimate these expenses to be $50,000 to
$75,000 over the second quarter of 2004. Additionally, we will record
approximately $390,000, $130,000 and $130,000 during the second, third and
fourth quarters of 2004, respectively, in connection with warrants granted
subsequent to March 31, 2004 for a management consulting agreement. Actual
results may differ from our expectations as a result of any delay in sales
revenues, and gross profit from those revenues, while operating expenses
continue to increase to secure and meet the demand of our customers in the
targeted venues.
LOSS FROM OPERATIONS
During the three months ended March 31, 2004, we had a loss from operations of
$1,115,280, compared to a loss from operations in the prior year of $386,257.
Excluding approximately $675,000 for expenses related to the Unit Purchase
Agreement and the professional fees related to the filing of the SB-2, the loss
from operations in the current quarter was approximately $440,000. Higher
personnel costs to focus on core business channels in fitness, winter resort,
university, amusement and financial reporting combined with increased costs
related unfavorable foreign currency exchange rates with our European supplier
were the factors driving the loss from operations in the current quarter when
compared to the loss in the same period in 2003.
We expect overall loss from operations to decrease over the next quarter as a
result of increased sales in fitness and
resorts and the absence of some of the one-time expenses previously mentioned.
We expect the 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 March 31, 2004, our interest expense was $6,491.
Our interest expense was $22,354 in the same quarter last year.
The decrease in interest expense was primarily the result of the payoff of debt
to related parties over the past 12 months. At March 31, 2004, we owed $291,284
on notes due to related parties, compared to $1,239,560 at March 31, 2003.
We expect interest expense to increase over the next quarter as we plan to
implement a revolving credit facility to help finance the increased working
capital needs as sales increase. Actual results may differ from our
expectations as a result of taking on additional debt necessary to finance
operations, due to not meeting sales expectations.
ASSETS AND LIABILITIES
At March 31, 2004, we had total assets of $1,306,789 compared to total assets of
$1,055,243 at December 31, 2003. Cash was $1,862 as of March 31, 2004, down from
the $84,256 cash balance as of December 31, 2003. Cash used in operations was
$983,600; cash used in investing activities was $0; and cash provided by
financing activities was $901,206; with net decrease in cash during the current
period being $82,394.
Our net accounts receivable were $490,395 at March 31, 2004, an increase of
$173,008 (54%) from the $317,387 at December 31, 2003. The increase in accounts
receivable is primarily due to sales in the fitness club industry.
Our net inventories decreased $46,571 (8%) over the past three months, to
$511,631, from the $558,202 at December 31, 2003. A decrease in inventory is
due to increased sales and the timing of receipts of incoming inventory
purchases. Inventory will increase over the next 12 months to support the
increased sales forecast.
Our net fixed assets totaled $109,191 at March 31, 2004, compared to $15,342 at
December 31, 2003. The increase in fixed assets is related to the purchase of
COM DLL software from Pioneer Innovations for the integration/interface of our
equipment with the back office accounting systems of our fitness customers. The
software was purchased for $96,271. Depreciation totaled $2,422, resulting in a
net increased in fixed assets of $93,849.
Our total liabilities at March 31, 2004, were $1,660,343, an increase of
$236,707 (16%) from the $1,423,636 at December 31, 2003. Our accounts payable
and accrued liabilities totaled $1,163,811 at March 31, 2004, an increase of
$159,300 (16%) from the $1,004,511 at December 31, 2003. There was an increase
in accounts payable of $127,093 and an increase in accrued liabilities of
$32,207. Our payables increased as a result of negotiating extended terms with
our suppliers to support payment terms offered to our customers, and the accrued
liabilities increased as a result of accruals for year-end audit fees and
payroll taxes, less decreases in customer deposits and the other reserves.
Our accrued payroll totaled $141,497 at March 31, 2004, compared to $96,164 at
December 31, 2003. The increase was due primarily to senior executives only
receiving partial payment of their current and prior wages, with the remaining
amount being accrued. Our accrued interest payable, which is included in
accrued liabilities, was $7,352 at March 31, 2004, an increase of $678 from the
$6,674 at December 31, 2003.
Our notes payable to related parties were $291,284, lease obligations $6,702 and
current and long-term debt of $96,271 (related to the purchase of the COM DLL
software) totaling $394,257 at March 31, 2004, an increase of
$62,477 (18%) from the $331,780 at December 31, 2003. The increase is related to
the debt incurred with the purchase of the software.
STOCKHOLDER'S DEFICIT
Our stockholder's deficit was $353,554 at March 31, 2004, an increase of $14,839
from the $368,393 at December 31, 2003. The changes in stockholder's equity
were as follows:
Balance as of December 31, 2003 ($368,393)
Net Loss ($1,103,163)
Increase in Additional Paid in Capital $ 582,545
Increase in Common Stock $ 457
Receipt of Stock Subscription Receivable $ 535,000
--------------
Balance as of March 31, 2004 ($353,554)
---------------
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, we had $1,306,789 in total assets, including $1,862 in
cash, $490,395 in accounts receivable, $511,631 in inventories, and $181,330 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. Subsequent to March 31, 2004,
we have financed the purchase of $250,000 of our inventory from Axess AG and
granted to Axess AG a security interest in all of our existing accounts
receivable to secure the payables. We expect to satisfy this obligation from
the sale of the inventory by the end of the second quarter of 2004.
Our inventories are finished goods consisting primarily of readers, turnstiles,
and equipment and are very marketable, and will continue as current product
models during 2004. Our 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 third parties. We will acquire additional inventory for
fitness club, university, and winter resort sales in the 2nd and 3rd quarter
supporting the increased sales.
At March 31, 2004, our total liabilities were $1,660,343, including accounts
payable and accrued liabilities of $1,163,811, and amounts due to related
parties (including due to related party and loans due to related parties) of
$393,559. Loans to related parties include $62,500 to John Creel and Steve
Meineke, directors of the Company.
We had negative working capital of $426,192 at March 31, 2004. Our negative cash
flow from operations resulted primarily from our loss and our increased
receivables. Our cash flow needs were met over the last quarter through sales
revenues and the proceeds of private placements. We expect our operations to
continue operating at a negative cash flow through at least the second and
third quarter of 2004 as we continue to invest in new business opportunities.
As a result, we will continue to rely upon short-term lines of credit with our
suppliers and potentially additional equity or debt financing. 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 expect gross revenues averaging between $400,000 to $1,000,000 per month over
the next quarter with net margins of approximately $140,000 to $350,000 per
month. Operating expenses will be approximately $175,000 per month consisting
of rent, salary, marketing, services, software interface, and other, excluding
the anticipated increase due to sales commissions paid for increased sales
volume secured by independent sales agents, new business development. The
income from operations will not be sufficient to meet the increased working
capital needs created by the increased sales over the next quarter. We expect
to meet these increased cash flow needs through additional third-party loans,
equity investment, and/ or a revolving credit facility.
Over the next 9 months, we project a loss from operations of approximately
$700,000 (excluding expenses related to future registration statement costs and
the expense that will be recorded in 2004 related to warrants issued for
consulting services), and an increase in receivables
of approximately $1,500,000. We expect to need approximately $2,000,000 from
third-party loans and equity investment in order to meet the additional working
capital needs.
The allocation of cash flow in operating the business will be dictated by where
those resources 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.
ITEM 3. CONTROLS AND PROCEDURES
John Creel, our President and Chief Executive Officer, and Peter Dermutz, our
Executive Vice President and our acting 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.
During the period covered by this report, we have adopted a new Code of Business
Conduct and Ethics. A copy of the code is attached the this report as Exhibit
99.1.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On or about February 27, 2004, we issued 320,000 shares of our common stock
upon exercise of a warrant more fully described on pages 16 and 17 of the
prospectus included in our registration statement on Form SB-2, filed with the
Commission on February 5, 2004 and hereby incorporated herein. We received
total proceeds of $400,000, which by agreement with the purchaser were used
solely for public relations and marketing services. The issuance and sale of
the shares was exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933 by virtue of Section 4(2). The sale did not
involve a public offering or general solicitation. No commissions were paid on
the issuance and sale of the shares. The stock certificates issued to the
purchasers contained a restrictive legend in accordance with Rule 905 and Rule
144.
On or about March 1, 2004, we issued a replacement note to one of our
directors, Steve Meineke, in the principal amount of $15,000, convertible into
our common stock at a rate of $1.25 per share. The issuance and sale of the
convertible note was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 by virtue of Section 4(2). The sale
did not involve a public offering or general solicitation. No commissions were
paid on the issuance and sale of the convertible note, and we received no cash
proceeds from the sale. The note was made strictly in replacement of a
non-convertible debt instrument.
On or about March 8, 2004, we issued 16,666 shares of our common stock to
an individual accredited investor in connection with financial services provided
to our company. We are obligated to issue a total of 50,000 shares of common
stock in accordance with a financial services agreement included as Exhibit 10.1
to this report. The issuance and sale of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2). The sale did not involve a public offering or
general solicitation. No commissions were paid on the issuance and sale of the
shares. The stock certificates issued to the purchasers contained a restrictive
legend in accordance with Rule 144. The offer was closed upon execution of the
agreement on or about January 1, 2004. We expect to issue all 50,000 shares by
July 1, 2004.
On or about April 1, 2004, we issued to an accredited investor, 160,000
shares of common stock for $1.25 per share, plus a warrant to issue 160,000
shares of common stock for $1.46 per share at any time through March 31, 2009.
We received total proceeds of $200,000. The issuance and sale of the shares was
exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2). The sale did not involve a public offering or general
solicitation. No commissions were paid on the issuance and sale of the shares.
The stock certificates issued to the purchasers contained a restrictive legend
in accordance with Rule 144. The offer was closed upon consummation of the sale
on April 1, 2004.
On or about April 1, 2004, we issued to an accredited investor, three
warrants to purchase a total of 1,000,000 shares of our common stock, as
follows: (1) one warrant to purchase up to 600,000 shares of common stock for
$1.46 per share, vested immediately and exercisable beginning April 1, 2004
through March 31, 2009, (2) one warrant to purchase up to 200,000 shares of
common stock at $1.46 per share, vesting and exercisable beginning on July 1,
2004, through June 30, 2009, and (3) one warrant to purchase up to 200,000
shares of common stock at $1.46 per share, vesting and exercisable beginning on
October 1, 2004, through September 30, 2009. The warrants were issued in
consideration of consulting services to be provided by the purchaser. The
400,000 unvested warrant will terminate if the purchaser fails to perform under
the services agreement. The issuance and sale of the convertible note was
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2). The sale did not involve a
public offering or general solicitation. No commissions were paid on the
issuance and sale of the warrants.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Financial Public Relations Agreement, dated January 1, 2004
10.2 Employment Termination Agreement, dated March 1, 2004
10.3 Director Service and Indemnification Agreement, dated March 1, 2004
10.4 Unit Purchase Agreement, dated April 1, 2004
10.5 Letter Agreement with Amothy Corporation, dated March 17, 2004
31.1 Certification of John Creel Pursuant to Rule 15d-14(a)
31.2 Certification of Peter Dermutz Pursuant to Rule 15d-14(a)
32.1 Certification of John Creel Pursuant to Rule 15d-14(b)
32.2 Certification of Peter Dermutz Pursuant to Rule 15d-14(b)
99.1 Code of Business Conduct and Ethics
(b) Reports on Form 8-K
Form 8-K filed March 1, 2004, regarding Items 5 and 7 (exhibits only) related to
the resignation of Steve Meineke as officer.
PART III SIGNATURES
In accordance with the requirements of the Exchange Act , the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RAPIDTRON, INC.,
a Nevada corporation
Date: May _____ ,2004
By:
-----------------------------
John Creel, President &
Chief Executive Officer
By:
-----------------------------
Peter Dermutz, Executive Vice
President, acting Secretary, Treasurer &
Principal Financial Officer