UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2002.
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number: 33-83526
RFP Express Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4453386
- ---------------------------------- -----------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8989 Rio San Diego Drive, #160, San Diego, CA 92108
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
619-400-8800
---------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--------- ------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value per share: 16,325,543 (as of April 30, 2002)
- --------------------------------------------------------------------------------
Transition Small Business Disclosure Format (check one):
Yes No X
------ ---
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
Table of Contents
Item Page
- ---- ----
Part I -- Financial Information 1
Item 1. Financial Statements. 1
Item 2. Management's Discussion and Analysis or Plan of Operations. 14
Introduction 14
Overview 14
Results of Operations 14
Liquidity and Capital Resources 15
Seasonality 16
Summary of Significant Accounting Policies 16
Forward-Looking Statements 16
Part II -- Other Information 18
Item 1. Legal Proceedings. 18
Item 2. Changes in Securities and Use of Proceeds. 18
Item 3. Defaults Upon Senior Securities. 18
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. 18
Item 6. Exhibits and Reports on Form 8-K. 19
- --------------------------------------------------------------------------------
i
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
Part I -- Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets ........................... 2-3
Condensed Consolidated Statements of Operations ................. 4
Condensed Consolidated Statements of Cash Flows ................. 5-6
Notes to Condensed Consolidated Financial Statements ............ 7-13
- --------------------------------------------------------------------------------
1
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
March 31, 2002 2001
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 31,615 $ 19,820
Accounts receivable 64,508 98,258
- --------------------------------------------------------------------------------
Total current assets 96,123 118,078
Fixed Assets - Net 133,551 179,810
Other Assets - Net 3,833 5,833
- --------------------------------------------------------------------------------
$ 233,507 $ 303,721
================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
March 31, 2002 2001
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current Liabilities
Current portion of notes payable (Note 3) $ 268,992 $ 74,365
Current portion of capitalized lease obligation 99,814 99,814
Accounts payable and accrued expenses 104,016 154,982
Related party payables (Note 5) 242,793 248,308
Accrued payroll and related taxes 49,787 47,264
Accrued interest 20,270 7,954
Deferred revenue 504,440 272,585
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 1,290,112 905,272
Notes Payable, Less Current Portion (Note 3) 990,857 1,108,765
- ----------------------------------------------------------------------------------------------------------
Total liabilities 2,280,969 2,014,037
Commitments and Contingencies (Notes 5 and 6)
Stockholders' Deficit
Preferred stock; 14,235,461 shares authorized; 2,085,461
and 1,495,461 shares issued and outstanding, respectively
(Note 4) 2,085 1,495
Common stock, $0.001 par value; 100,000,000 shares
authorized; 16,325,543 and 14,325,543 shares issued
and outstanding, respectively (Note 4) 16,326 14,326
Stock subscriptions receivable (2,963) (2,963)
Additional paid-in capital (Note 4) 19,864,164 18,629,610
Accumulated deficit (21,927,074) (20,352,784)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' deficit (2,047,462) (1,710,316)
- ----------------------------------------------------------------------------------------------------------
$ 233,507 $ 303,721
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
Quarters Ended March 31, 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 366,090 $ 192,086
Operating Expenses
Selling, general and administrative expenses (including non-cash
stock-based compensation of $56,345 and $66,780 for 2002 and 2001,
respectively (Note 4) 547,692 650,923
Loss from Operations (181,602) (458,837)
Other Income (Expense)
Gain (loss) on issuance of stock for debt (Note 6) 2,310 (41,850)
Interest expense (4,741) (11,332)
- ----------------------------------------------------------------------------------------------------------------------
Total Other Expense (2,431) (53,182)
- ----------------------------------------------------------------------------------------------------------------------
Net Loss $ (184,033) $ (512,019)
- ----------------------------------------------------------------------------------------------------------------------
Net Loss Per Share (Basic): $ (0.01) $ (0.04)
- ----------------------------------------------------------------------------------------------------------------------
Weighted-Average Shares Outstanding 16,325,543 14,301,816
======================================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
Quarters Ended March 31, 2002 2001
- ------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (184,033) $ (512,019)
Adjustments to reconcile net loss to net cash used
in operating activities:
Non-cash equity granted for services and interest 56,345 66,780
Depreciation and amortization 10,882 11,033
Net (gain) loss on stock issued for debt and services (2,310) 41,850
Change in operating assets and liabilities
Accounts receivable 43,200 54,872
Accounts payable, accrued payroll and accrued
expenses (8,566) (10,824)
Related party payables 1,522 (26,579)
Accrued interest 4,741 6,949
Deferred revenue (35,418) (25,550)
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (113,637) (393,488)
- ------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of fixed assets - (82,945)
============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows, Continued
Quarters Ended March 31, 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt and notes payable 167,000 318,509
Net proceeds from sale of preferred and common stock - 30,000
Principal payments on notes payable (21,748) (103,000)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 145,252 245,509
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 31,615 (230,924)
Cash at Beginning of Period - 250,744
- -----------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 31,615 $ 19,820
=================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ 3,155
Income taxes $ - $ 800
Noncash Investing and Financing Activities:
During 2002 and 2001 the Company granted stock options to purchase 370,000 and
365,000 shares, respectively, of the Company's common stock. These stock
options were valued in accordance with Statement of Financial Accounting
Standards No. 123 at approximately $56,300 and $66,800 for 2002 and 2001,
respectively. See Note 4.
During January 2001 the Company issued 450,000 shares of common stock with a
fair value of approximately $41,850 to satisfy debt related to professional
services. The fair value of the shares was calculated using the closing prices
surrounding the issuance dates.
================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of RFP Express Inc.
and subsidiaries (the "Company") include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. In the opinion of management,
the condensed consolidated financial statements reflect all normal and recurring
adjustments which are necessary for a fair presentation of the Company's
financial position, results of operations and cash flows as of the dates and for
the periods presented. The condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Consequently, these statements do not include all the
disclosures normally required by generally accepted accounting principles for
annual financial statements nor those normally made in the Company's Annual
Report on Form 10-KSB. Accordingly, reference should be made to the Company's
Form 10-KSB filed on April 16, 2002 and other reports the Company filed with the
Securities and Exchange Commission for additional disclosures, including a
summary of the Company's accounting policies, which have not materially changed.
The consolidated results of operations for the three months ended March 31, 2002
are not necessarily indicative of results that may be expected for the fiscal
year ending December 31, 2002 or any future period, and the Company makes no
representations related thereto.
The accompanying condensed consolidated financial statements as of March 31,
2002 and 2001 have been prepared assuming the Company will continue as a going
concern. However, the Company had a working capital deficit of $1,193,989 as of
March 31, 2002 and incurred a net loss of $184,033 for the three months then
ended. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. To meet both current and contractual commitments
and business growth objectives, the Company will require additional financing.
To address its financing needs, management's plan is to continue their
relationship with the financing source as discussed in the most recent Annual
Report. However, there can be no assurance that additional debt and equity
financing needed to fund operations will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities and the results of
operations during the reporting period. Actual results could differ materially
from those estimates.
Certain reclassifications have been made to the prior period condensed
consolidated financial statements to conform to the current period
presentations. These reclassifications had no effect on reported total assets or
net loss.
7
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 2. Summary of Significant Accounting Policies
None
Note 3. Notes Payable - Notes payable consisted of the following:
March 31, 2002 2001
- -------------------------------------------------------------------------------------------------
Notes Payable to NextGen Capital. Advances to the
Company based on performance targets. Notes are
intended to be converted into Series C preferred
shares. $167,000 $ 70,000
Account payable - vendor converted to a note on
June 21, 1999; interest at 8% per annum; payable
in monthly $2,000 installments of principal and
interest beginning July 1, 1999. - 4,365
Note payable; interest at 8% per annum; due on
December 5, 2003. Non-detachable warrants for
500,000 shares exercisable at $2.72 per share
were repriced to $0.05 per share. The warrants
expire on August 21, 2003. 314,928 314,928
Note payable; interest at 8% per annum; $200,000
of balance due on December 5, 2003. The
remaining balance is payable in monthly
installments of $5,000 beginning on January 15,
2002, with monthly installments increasing to
$10,000 starting on July 15, 2002.
Non-detachable warrants for 100,000 shares
exercisable at $0.10 per share were issued in
connection with the note. The warrants expire
on December 5, 2003.
(See Notes 5 and 6) 263,629 263,629
8
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. Notes
Payable, Cont'd March 31, 2002 2001
Note payable for a settlement with the Company's
former CEO to resolve all outstanding Company
obligations related to his employment;
interest at 4% per annum. 50% of the balance
payable on December 1, 2003 and the remaining
50% payable at the rate of $1,500 per month
beginning January 15, 2002. (See Notes 5 and
6) 201,056 204,056
Note payable for a settlement with the Company's
former CFO to resolve all outstanding Company
obligations related to his employment;
interest at 4% per annum. 50% of the balance
payable on December 1, 2003 and the remaining
50% payable at the rate of $1,500 per month
beginning January 15, 2002. (See Notes 5 and
6) 133,168 136,168
Note payable to a limited partnership; interest
at 8% per annum; due on December 5, 2003.
Non-detachable warrants for 100,000 shares
exercisable at $0.10 per share were issued in
connection with the note. The warrants expire
on December 5, 2003. 75,583 75,583
Note payable for a settlement with the Company's
former President to resolve all outstanding
Company obligations related to his employment;
interest at 8% per annum. Note payable settled
in full for $15,748 in cash and stock on
February 28, 2002. The settlement agreement
included 1,259,840 common shares which were
not issued as of March 31, 2002. (See Notes 5
and 6) 62,992 72,908
9
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. Notes
Payable, Cont'd March 31, 2002 2001
Note payable; interest at 8% per annum; due on
December 5, 2003. Non-detachable warrants for
65,000 shares exercisable at $0.10 per share
were issued in connection with the note. The
warrants expire on December 5, 2003. 31,493 31,493
Note payable to a related party; interest at 5% per
annum; principal and interest are due on February
16, 2004. (See Note 5) 10,000 10,000
------------------------------------------------------------------------------------
1,259,849 1,108,765
Less current portion (268,992) -
------------------------------------------------------------------------------------
Long-term portion $ 990,857 $1,108,765
------------------------------------------------------------------------------------
Future minimum principal payments on notes payable are as
follows:
Quarter Ending March 31,
------------------------------------------------------------------------------
2003 $ 268,992
2004 901,745
2005 36,000
2006 27,584
2007 18,000
Thereafter 7,528
------------------------------------------------------------------------------
$1,259,849
------------------------------------------------------------------------------
Note 4. Stockholders' Equity
Preferred stock
The Series C preferred shares have a liquidation preference equal to the greater
of (a) the purchase price for such shares plus an amount equal to 8% of the
liquidation preference per annum from the original issue date of such shares or
(b) the amount that would be distributed to each common stock holder of the
remaining assets of the Company available for distribution to stockholders which
would be distributed on a pro rata basis based on the number of shares of common
stock held.
10
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
Preferred stock (Cont'd)
Shares of Series C preferred stock are presently convertible into shares of
common stock at a 1:10 ratio and subject to anti-dilution adjustment in the
event of subsequent issuances of stock by the Company at a price less than the
conversion price of the Series C preferred stock, stock splits, stock dividends,
recapitalization and similar events.
Pursuant to the terms of the preferred stock, NextGen has the right to elect a
majority of the Board of Directors of the Company.
In January 2001 individuals purchased 60,000 shares of Series C Preferred Stock.
The individuals were also granted Series C warrants to purchase 60,000 shares of
Series C preferred stock. These Series C warrants are exercisable at a price of
$1.00 per share and expire on January 3, 2006. 40,000 of the shares were issued
to satisfy a $40,000 debt to a related party. The fair value of the shares at
that date was $40,000.
In February 2001 an individual purchased 10,000 shares of Series C preferred
stock. The individual was also granted Series C warrants to purchase 10,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on February 28, 2006.
In March 2001 NextGen Fund II, L.L.C. purchased 150,000 shares of Series C
preferred stock and NextGen SBS Fund II, L.L.C. purchased 100,000 shares of
Series C preferred stock for a combined total of 250,000 shares of Series C
preferred stock. NextGen was also granted Series C warrants to purchase 250,000
shares of Series C preferred stock. These Series C warrants are exercisable at a
price of $1.00 per share and expire on March 9, 2006.
Stock options
From January to March 2002, the Company granted 370,000 vesting stock options to
employees under the expanded 1997 Employees Non-Qualified Stock Option Plan.
Compensation expense of $56,345 was recorded in accordance with Statement of
Financial Accounting Standards No. 123 for the quarter ended March 31, 2002.
During the same period in 2001, the Company granted 365,000 vesting stock
options. Compensation expense of $66,780 was recorded for the quarter ended
March 31, 2001 also in accordance with SFAS No. 123.
5. Related Parties
The Secretary of the Company is also a partner in the law firm that represents
the Company in its legal matters.
11
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Related
Parties (Cont'd)
The Company had employment agreements with officers and directors that contained
compensation arrangements based on the achievement of certain Company goals
established by the Board of Directors. Long-term notes payable due to former
officers and directors of the Company were approximately $400,000 and $413,000
at March 31, 2002 and 2001, respectively.
The Company had previously maintained a management and services agreement with a
company that is owned and controlled by stockholders who also have significant
ownership of the Company. Expenses related to this previous management agreement
for the first quarter of 2002 and 2001 were $0 and $21,500, respectively.
Related long-term payables were approximately $273,000 at March 31, 2002 and
2001. The management services agreement was largely terminated in June 2000
except for network and internet services. The remainder of the contract was
terminated February 2001 when the Company purchased and began operating on
independent server equipment.
6. Commitments and Contingencies
On December 1, 2000, the Company entered into a settlement agreement with
TelNform, Inc. that required the Company to make monthly payments of $5,000
beginning on January 15, 2002. The Company failed to make the required payments
during the first quarter of 2002 and subsequently. However, certain officers and
significant stockholders of TelNform are also significant stockholders or
directors of the Company. The Company is in continuing settlement discussions
with TelNform, Inc.
On December 4, 2000, the Company entered into a letter agreement with Robert A.
Steiner, a former director and officer of the Company that required the Company
to make monthly payments of $1,500 to Steiner beginning on January 1, 2002. The
Company failed to make these required payments during the first quarter of 2002;
however, the parties settled the matter effective February 28, 2002. In
connection with the settlement, the Company paid $15,748 and agreed to issue a
total of 1,259,840 shares of common stock to Mr. Steiner and his designee. A net
gain on settlement of $2,310 has been recognized related to the terms of Mr.
Steiner's settlement agreement. Once the shares are issued, the settlement
agreement with Mr. Steiner at $0.05 per share will trigger the anti-dilution
provision for the preferred stock shareholders, decreasing the conversion price
from $0.10 per common share to $0.05 per common share.
12
RFP Express Inc. and Subsidiaries
(formerly The IXATA Group, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
Notes to Condensed Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. Commitments and
Contingencies (Cont'd)
On December 5, 2000, the Company entered into a settlement agreement and release
with each of Paul Silverman and Andrew Kent, both former directors and officers
of the Company. These agreements required the Company to make monthly payments
of $1,500 to each beginning on January 15, 2002. While the Company failed to
make the first two payments in a timely manner subsequent to December 31, 2001,
the payment obligation was met during the first quarter. Subsequently, the
Company has not met the monthly payment schedule. The Company is in continuing
settlement discussions with Silverman and Kent.
The Company has not yet filed federal or state tax returns for 1999 and 2000. As
a result, the Company is not currently in good standing with the State of
California. Tax return preparation for both years is currently in progress and
the Company anticipates filing the completed returns during the second quarter
of 2002.
13
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation.
Introduction
The following describes certain factors that produced changes in the results of
operations of RFP Express Inc. (the "Company") during the quarter ended March
31, 2002 and as compared with the quarter ended March 31, 2001 as indicated in
the Company's condensed consolidated financial statements. The following should
be read in conjunction with the condensed consolidated financial statements and
related notes. Historical results of operations are not necessarily indicative
of results for any future period. All material inter-company transactions have
been eliminated in the results presented in this Quarterly Report.
Certain matters discussed in this Quarterly Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ significantly
from the results, performance, or achievements expressed or implied in these
forward-looking statements. See "Forward-Looking Statements."
Overview
The Company was organized to develop and market prepaid wireless products and
services in various markets throughout the United States. In late 1998 the
Company established a new strategic objective of refocusing the Company's
mission to pursue new complimentary Internet-related and e-commerce
opportunities. In 1999 the Company actively implemented its new mission by,
among other actions, selling a portion of the Company's business no longer
considered essential for the new strategy and purchasing IXATA.COM., a company
whose business thrust was in line with the new strategy.
Upon closing the IXATA.COM acquisition, the Company established itself as a
provider of internet-based, business-to-business ("B2B") electronic commerce
services in the travel market, targeting existing and new corporate clients,
hotel and property management groups, and major travel agencies. The Company's
principal service, RFP ExpressSM, integrates a user-friendly, Internet-based
interface with a sophisticated data-warehousing system and email technology to
deliver automated solutions for creating, sending, receiving and managing the
preferred lodging programs request for proposal process in the hospitality
services market ("RFP process"). This process typically involves hundreds or, in
some cases, thousands of properties worldwide. By automating the users' RFP
business process, and also providing user-friendly Internet access to a
sophisticated data warehousing system, RFP ExpressSM provides dramatic cost
savings to users.
On November 11, 2000, the Company commenced principal operations and began
generating significant revenues. Accordingly, management no longer considers the
Company to be in the development stage. The Company's principal operations are
to provide internet based electronic commerce services in the travel market for
creative solutions for creating, receiving and managing preferred lodging
programs. Although the market reaction to the Company's service has been
positive, there can be no assurance that the Company will be able to obtain
profitiability.
Results of Operations
Revenues
Revenues are from two components, subscription revenues recognized over the life
of contracts and transaction revenues recognized the month of the transaction
activity. The subscription portion continues to generate recognizable revenue in
the period after the sale. The subscription portion of revenues from the
increased sales in
________________________________________________________________________________
14
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
2001 plus new sales in the first quarter of 2002 combined with transaction
revenues during the first quarter 2002 to increase sales to $366,090, a 91%
increase over sales of $192,086 for the same period in 2001.
Operating Expenses
Selling, general and administrative expenses (SG&A) were $547,692 for the
quarter ended March 31, 2002 as compared to $650,923 for the quarter ended March
31, 2001. The largest component of SG&A continues to be payroll and related
expenses. Payroll and related expenses decreased $73,310 during the first
quarter 2002 to $324,422 from $397,732 during the first quarter 2001. This
decrease is attributed to staff wage and hour reductions, and layoffs as the
Company entered its slow season in January 2002. Telephone and communications
services decreased $21,470 during the first quarter of 2002 versus the first
quarter of 2001. The expense for consultants and outside labor decreased $10,820
during the first quarter 2002 from the first quarter 2001. In the first quarter
of 2002 the consulting expense related to a preliminary assessment for
modernizing the RFP ExpressSM website user interface. A majority of the
consulting expense in 2001 related to acquiring and maintaining the Company's
independent server equipment. Rent increased $17,704 during the first three
months of 2002 to $44,910 from $27,206 during the first three months of 2001.
This increase is attributable to not recording full rent amounts in the month
prior to the first quarter. Following negotiations the monthly rent was reduced
to half in March 2002, but only after all past due amounts were paid. The
preceding factors combine to account for $87,896 of the $103,231 decrease in
SG&A expense during the first quarter 2002 from the first quarter 2001.
The loss on issuance of stock for debt decreased to $0 in the first quarter of
2002 compared with $41,850 in the first quarter of 2001 as no stock was issued
to settle debt in 2002. Interest expense decreased $6,591 to $4,741 in the first
three months of 2002 from $11,332 in the first three months of 2001 due to
restructuring the Company's obligations. Some short and long-term notes remain
and interest will be accrued on these until the balances are paid in full.
The net loss in the first quarter of 2002 decreased to $186,343 from $512,019 in
2001. This net improvement of $325,676 in the first quarter 2002 from the first
quarter 2001 is the result of both increased revenues and decreased operating
expenses. This change is attributable to aggressive cost reduction efforts while
maintaining sales growth targets.
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes.
Deferred tax assets consist primarily of income tax benefits from net operating
loss carry-forwards and amortization of goodwill. A valuation allowance has been
recorded to fully offset the deferred tax asset as it is more likely than not
that the assets will not be utilized. The valuation allowance increased
approximately $37,000 in the first quarter 2002, from $2,360,000 at December 31,
2001 to $2,397,000 at March 31, 2002.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses as a result of the
development and operation of its products, service platform and supporting
networks. The Company expected that such losses would continue as the Company
focused on the development and expansion of product offerings and its customer
base as cash provided by operations would not be sufficient to fund the
expansion. The Company had working capital deficits of $1,193,989 and $787,194
as of March 31, 2002 and 2001, respectively, and incurred net losses of $184,033
and $512,019 for 2002 and 2001, respectively. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
To address its financing needs, in September 2000, a preliminary agreement for
funding was reached with NextGen Capital, a Virginia-based venture capital firm
specializing in high technology and internet-related investments. On December 5,
2000, the Company closed a funding with NextGen and other private investors,
issuing shares of its newly-authorized Series C preferred stock and warrants to
purchase shares of preferred stock. In connection with the financing, NextGen
agreed to make additional investments upon the achievement of certain milestones
by the
________________________________________________________________________________
15
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
Company. The Company's relationship with NextGen continued through 2001 as the
Company met the required funding milestones during the year. As of December 31,
2001, the Company had issued 2,085,461 shares of its preferred stock and
warrants to purchase an additional 1,960,000 shares of preferred stock to
NextGen and other private investors for a total of $2,300,000. NextGen has
committed to continue funding the growth of the Company and its product
development, and will provide support in the form of loans to the Company, the
final structure of which is currently being negotiated. Loans totaling $167,000
had been advanced to the Company as of March 31, 2002. However, there is no
guarantee that NextGen will be able to provide funding as needed.
As of March 31, 2002, the Company had cash and cash equivalents of $31,615 as
compared to $19,820 as of March 31, 2001. This increase is attributable to
improved collections of accounts receivable and advances from NextGen as
required. The Company had accounts receivable totaling $64,508 at March 31, 2002
as compared with $98,258 at March 31, 2001. The decrease in accounts receivable
is attributable to improved collections during the first quarter 2002. Net cash
used in operating activities was $113,637 for the first quarter 2002 compared to
$393,488 for the first quarter 2001. The primary reason for the decrease is due
to a smaller loss for the first quarter 2002 compared to the first quarter 2001.
Net cash used in investing activities for the first quarter 2002 was $0 for the
purchase of fixed assets as compared with $82,945 for the first quarter 2001.
Net cash provided by financing activities for the first quarter 2002 totaled
$145,252 compared to $245,509 during the first quarter 2001. Cash infusions from
NextGen slowed for the first quarter 2002 as compared with the first quarter
2001 as the Company was able to provide cash for its operations through
increased sales and decreased operating expenses.
Seasonality
Sales of the Company's RFP Express(SM) products and services are generally
seasonal in nature. Most of the RFP processing transactions and related billable
activities occur in the third and fourth quarter. While the Company is pursuing
new services, which may reduce the revenue volatility of the Company's business,
there can be no assurance when revenues from such services will be realized.
Summary of Significant Accounting Policies
Critical Accounting Standards
The Company recognizes revenue from transaction revenues and sales of
subscriptions. Transaction revenues are recognized, net of an allowance for
uncollectible amounts, when substantially all significant services to be
provided by the Company have been performed. Subscription revenues are
recognized over the period of the subscription. An allowance has been provided
for uncollectible accounts based on management's evaluation of the accounts and
the customer's payment history.
In October 1995, the FASB Issued SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company adopted SFAS 123 in 1997. The Company values its
stock and stock options at fair value in accordance with SFAS No. 123, which
states that all transactions in which goods or services are received for the
issuance of equity instruments shall be accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
New Accounting Standards
There were no recent accounting pronouncements that effect the Company during
the first quarter 2002. For past pronouncements please refer to the Company's
10-KSB filed on April 16, 2002.
Forward-Looking Statements
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets, growth in existing markets, and the Company's
________________________________________________________________________________
16
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
ability to attract new sources of financing, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include, but are
not limited to:
... The Company has a short operating history upon which to base an investment
decision.
... The Company will require additional capital, which it may not be able to
obtain.
... The continued losses and negative working capital raise substantial doubt
about the Company's ability to continue as a going concern.
... The Company's failure to protect or maintain its intellectual property
rights could place it at a competitive disadvantage and result in loss of
revenue and higher expenses.
... The Company's business prospects depend on demand for and market acceptance
of the Internet.
... If the Company's market does not grow as expected, its revenues will be
below its expectations and its business and financial results will suffer.
... Any failure of the Company's Internet and e-commerce infrastructure could
lead to significant costs and disruptions which could reduce revenues and
harm business and financial results.
... The Company could lose customers and expose itself to liability if breaches
of its network security disrupt service to its customers or jeopardize the
security of confidential information stored in its computer systems.
... Rapid growth in the Company's business could strain its resources and harm
its business and financial results.
... The Company may not be able to compete in its highly competitive market.
... The Company depends on the services of senior management and other key
personnel and the ability to hire, train and retain skilled employees.
... Risks associated with operating in international markets could restrict the
Company's ability to expand globally and harm its business and prospects.
... Government regulation and legal uncertainties could limit the Company's
business or slow its growth.
... The Company's operating results may fluctuate in future periods which may
cause volatility or a decline in the price of its common stock.
... The Company's executive officers, directors, and parties related to them, in
the aggregate, control 83% of the Company's voting Stock and may have the
ability to control matters requiring stockholder approval.
... The Company's common stock may be delisted from the Nasdaq Over-the-Counter
Bulletin Board Service if the Company fails to make required filing with the
Securities and Exchange Commission.
... The Company's business partially depends on the free flow of services
through the channels of commerce, which have been and could be further
disrupted by terrorists' activities.
... The September 11, 2001 terrorist attacks have dramatically curtailed both
business and leisure travel and have exacerbated pressures on an already
weakened economy.
These and other risks described in the Company's most recent Annual Report must
be considered by any investor or potential investor in the Company.
________________________________________________________________________________
17
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
The Company defaulted in payment of three of its debts during the first quarter
of 2002.
On December 1, 2000 the Company entered into a settlement agreement with
TelNform, Inc. that required the Company to make monthly payments of $5,000
beginning on January 15, 2002 (See Notes 3 and 6 of the Notes to the Company's
Condensed Consolidated Financial Statements). The total principal amount of the
payments is $120,000. The Company failed to make the required payments
subsequent to December 31, 2001; however, certain officers and significant
stockholders of TelNform are also significant stockholders or directors of the
Company. The Company is in continuing settlement discussions with TelNform.
However, there can be no assurances that the Company will be able to settle the
matter.
On December 4, 2000, the Company entered into a letter agreement with Robert A.
Steiner, a former director and officer of the Company, that required the Company
to make monthly payments of $1,500 to Steiner beginning on January 1, 2002 (See
Notes 3 and 6 of the Notes to the Company's Condensed Consolidated Financial
Statements). The Company failed to make these required payments subsequent to
December 31, 2001; however, the parties settled the matter effective February
28, 2002. In connection with the settlement, the Company paid $15,748 and agreed
to issue a total of 1,259,840 shares of common stock to Mr. Steiner and his
designee. Once the shares are issued, the settlement agreement with Mr. Steiner
at $0.05 per share will trigger the anti-dilution provision of the Series C
Preferred Stock, decreasing the conversion price from $0.10 per common share to
$0.05 per common share and effectively doubling the number of shares of common
stock issuable upon conversion.
On December 5, 2000, the Company entered into a settlement agreement and release
with each of Paul Silverman and Andrew Kent, both former directors and officers
of the Company. These agreements required the Company to make monthly payments
of $1,500 to each beginning on January 15, 2002 (See Notes 3 and 6 of the Notes
to the Company's Condensed Consolidated Financial Statements). The total
principal payments required under these agreements is $340,224, in the
aggregate. Two payments of three were made to each during the first quarter of
2002. Subsequent to quarter end, no additional payments have been made in
connection with these debts. The Company is in continuing settlement discussions
with Silverman and Kent. Both have threatened actions if agreement cannot be
reached.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders in the first
quarter of 2002.
Item 5. Other Information.
There are 14,235,461 shares of Series C preferred stock outstanding at March 31,
2002. When issued, these shares were convertible to common stock at a 10:1
ratio. However, the conversion ratio is subject to adjustment if the Company
issues stock for less than the preferred stock's conversion price (initially,
$0.10 a share), subject to limited exceptions. In connection with the settlement
agreement with Robert Steiner, the Company agreed to issue 1,259,840 shares of
common stock to Mr. Steiner and his designee. Once the shares are issued, the
settlement
________________________________________________________________________________
18
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
agreement with Mr. Steiner at $0.05 per share will trigger the anti-dilution
provision of the Series C Preferred Stock, decreasing the conversion price from
$0.10 per common share to $0.05 per common share and effectively doubling the
number of shares of common stock issuable upon conversion.
Item 6. Exhibits and Reports on Form 8-K.
None.
________________________________________________________________________________
19
RFP Express Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2002
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RFP Express Inc.
Date: May 16, 2002 /s/ John C. Riener
------------------
By John C. Riener, Chief Executive Officer
________________________________________________________________________________
20