UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER 0-272592
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________TO __________________
REWARD ENTERPRISES, INC.
------------------------
(Exact name of registrant as specified in charter)
NEVADA 98-0203927
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
2033 MAIN STREET, SUITE 500,
SARASOTA, FL 34237
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(Address of principal executive offices) (Zip)
Issuer's telephone number, including area code (941) 928-7394
--------------
Securities registered pursuant to section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
----------------------------------------
(Title of Class)
As of June 28, 2004, the Company had 44,122,000 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one).
Yes [_] No [X]
PART I
FINANCIAL INFORMATION
INTRODUCTORY NOTE
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains "forward-looking statements" relating to Reward
Enterprises, Inc. ("Reward") which represent Reward's current expectations or
beliefs including, but not limited to, statements concerning Reward's
operations, performance, financial condition and growth. For this purpose, any
statements contained in this Form 10-QSB that are not statements of historical
fact are forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "anticipation", "intend", "could", "estimate",
or "continue" or the negative or other comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, such as losses, dependence on management,
variability of quarterly results, and the ability of Reward to continue its
growth strategy and competition, certain of which are beyond Reward's control.
Should one or more of these risks or uncertainties materialize or should the
underlying assumptions prove incorrect, actual outcomes and results could differ
materially from those indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
2
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31,
2003 June 30,
(Unaudited) 2003
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 117 $ 12,835
Accounts receivable, related party -- --
----------- -----------
TOTAL CURRENT ASSETS 117 12,835
----------- -----------
PROPERTY AND EQUIPMENT
Telecommunications Equipment 51,600 51,600
Website 145,979 145,979
Accumulated depreciation and amortization (63,258) (48,660)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 134,321 148,919
----------- -----------
OTHER ASSETS
Goodwill -- --
----------- -----------
TOTAL ASSETS $ 134,438 $ 161,754
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 111,217 $ 35,717
Interest payable 14,638 8,313
Notes payable, net of discount 81,500 70,000
Deferred income from Joint Venture 175,000 175,000
----------- -----------
TOTAL CURRENT LIABILITIES 382,355 289,030
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares
authorized, $0.001 par value; 18,722,000
and 18,722,000 shares issued and
outstanding, respectively 18,722 18,722
Additional paid-in capital 2,941,593 2,941,593
Stock options 10,400 10,400
Accumulated deficit during development
stage (3,218,632) (3,097,991)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (247,917) (127,276)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 134,438 $ 161,754
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
December 12,
1997
Three Months Three Months Six Months Six Months (Inception)
Ended Ended Ended Ended Through
December 31, December 31, December 31, December 31, December 31,
2003 2002 2003 2002 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------- -------------
R E V E N U E S -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
E X P E N S E S
Consulting fees 20,000 34,000 76,250 55,000 507,888
General and administrative 10,113 30,945 22,847 50,380 173,170
Legal and professional fees -- 5,551 -- 12,051 174,211
Travel and entertainment 39 3,182 621 11,383 49,506
Depreciation and amortization 7,299 7,299 14,598 14,598 67,024
Research and development -- 955 -- 2,705 88,035
Loss on impairment of asset -- -- 2,165,160
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 37,451 81,932 114,316 146,117 3,224,994
------------- ------------- ------------- ------------- -------------
OTHER INCOME AND EXPENSE
Interest expense 3,300 1,512 6,325 5,024 18,638
Gain from debt forgiveness -- -- -- -- (25,000)
------------- ------------- ------------- ------------- -------------
TOTAL OTHER EXPENSE 3,300 1,512 6,325 5,024 (6,362)
------------- ------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (40,751) (83,444) (120,641) (151,141) (3,218,632)
PROVISION FOR TAXES -- -- -- -- --
------------- ------------- ------------- ------------- -------------
NET LOSS (40,751) (83,444) (120,641) (151,141) (3,218,632)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss) -- -- --
------------- ------------- ------------- ------------- -------------
COMPREHENSIVE LOSS (40,751) $ (83,444) $ (120,641) $ (151,141) $ (3,218,632)
============= ============= ============= ============= =============
BASIC AND DILUTED
NET LOSS PER COMMON SHARE (0.00) $ (0.00) $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 18,722,000 18,690,132 18,722,000 18,281,035
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Common Stock Stock Deficit
----------------------------------- Options During Total
Number Additional Subscriptions and Development Stockholders'
of Shares Amount Paid-in Receivable Warrants Stage Equity
----------- -------- ---------- ------------- -------- ----------- ------------
Issuance of common stock in April 1998
for services valued at $0.01 per
share 1,000,000 $ 1,000 $ 9,000 $ (10,000) $ -- $ -- $ --
Net loss for period ending June 30,
1998 -- -- -- -- -- (10,000) (10,000)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 1998 1,000,000 1,000 9,000 (10,000) -- (10,000) (10,000)
Issuance of common stock in May 1999
for cash at an average of $0.10
per share 1,715,000 1,715 169,785 -- -- -- 171,500
Net loss for year ending June 30, 1999 -- -- -- -- (62,506) (62,506)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 1999
2,715,000 2,715 178,785 (10,000) -- (72,506) 98,994
Payables provided for stock
subscription -- -- -- 10,000 -- -- 10,000
Net loss for year ending June 30, 2000 -- -- -- -- -- (228,659) (228,659)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 2000 2,715,000 2,715 178,785 -- -- (301,165) (119,665)
Issuance of common stock in October
2000 for cash at $0.001 per
share 10,000,000 10,000 -- -- -- -- 10,000
Issuance of common stock in October
2000 for payment on loans
payable at $0.001 per share 200,000 200 -- -- -- -- 200
Stock options exercised at an average
of $0.10 per share in exchange
for consulting fees 2,230,000 2,230 222,770 -- -- -- 225,000
Stock options exercised at an average
of $0.14 per share in exchange
for cash 1,325,000 1,325 179,925 -- -- -- 181,250
Net loss for the year ended June 30,
2001 -- -- -- -- -- (151,401) (151,401)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 2001 16,470,000 16,470 581,480 -- -- (452,566) 145,384
Common stock issued in merger with
Q-Presents, Inc. at $0.35 per
share 6,000,000 6,000 2,094,000 -- -- -- 2,100,000
Common stock cancelled as part of
merger with Q-Presents, Inc. (10,200,000) (10,200) 10,200 -- -- -- --
Stock options exercised at an average
of $0.175 per share in exchange
for cash 572,000 572 112,428 -- -- -- 113,000
Issuance of common stock in December
2001 for cash at $0.001 per
share 890,000 890 -- -- -- -- 890
Issuance of common stock in exchange
for services at $0.005 per share 2,945,000 2,945 11,780 -- -- -- 14,725
Stock options issued for compensation
in December 2001 -- -- -- -- 10,400 -- 10,400
Issuance of common stock in January
and March 2002 for cash at an
average of $0.15 per share 660,000 660 30,840 -- -- -- 31,500
Issuance of stock warrants attached to
promissory notes in May 2002 -- -- -- -- -- -- --
Issuance of common stock in May and
June 2002 for cash at an average
of $0.12 per share 366,667 367 52,133 -- -- -- 52,500
Net loss for the year ended June 30,
2002 -- -- -- -- -- (238,921) (238,921)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 2002 17,703,667 17,704 2,892,861 -- 10,400 (691,487) 2,229,478
Issuance of common stock in July and
September 2002 for cash at an
average of $0.12 per share 293,333 293 38,207 -- -- -- 38,500
Issuance of common stock in October
2002 for Consulting Services 725,000 725 6,525 7,250
Expiration of Stock Warrants, May,
2003 4,000 4000
Net loss for the period ended June 30,
2003 -- -- -- -- -- (2,406,504) (2,406,504)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, June 30, 2003 18,722,000 $ 18,722 $2,941,593 $ -- $ 10,400 $(3,097,991) $ (127,276)
Net loss for the period ended December
31, 2003 -- -- -- -- -- (120,641) (120,641)
----------- -------- ---------- ------------- -------- ----------- ------------
Balance, December 31, 2003 (Unaudited) 18,722,000 18,722 2,941,593 -- 10,400 (3,218,632) (247,917)
=========== ======== ========== ============= ======== =========== ============
The accompanying notes are an integral part of these financial statements.
5
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dec 12,1997
Six Months Six Months (Inception)
Ended Ended Through
December 31, December 31, December 31,
2003 2002 2003
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Cash Flows From Operating Activities:
Net loss $ (120,641) $ (151,141) $ (3,218,632)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 14,598 14,598 66,892
Related party receivable reclass to compensation -- -- 26,000
Loss on impairment -- -- 2,165,160
Gain on forgiveness of debt -- -- (25,000)
Services provided in exchange for stock -- 7,250 31,975
Stock issued in exchange for payables -- -- 10,000
Stock options issued for compensation -- -- 14,400
Discount on note payable -- 2,000 --
Changes in assets and liabilities:
Other assets -- -- (60,000)
Accounts receivable, related party -- -- (26,000)
Accounts payable 75,500 8,857 181,277
Accrued expenses 6,325 3,024 169,638
Due to Joint Venture -- 100,000 175,000
------------ ------------ ------------
Net cash used by operating activities (24,218) (15,412) (489,290)
------------ ------------ ------------
Cash Flows From Investing Activities:
Changes to property and equipment -- (46,800) (60,526)
Decrease (increase) in loans receivable -- -- (140,000)
Cash from merger acquisition -- -- 9,093
------------ ------------ ------------
Net cash provided (used) by investing activities -- (46,800) (191,433)
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from related party loans -- -- 3,600
Payment on related party loans -- -- (3,400)
Proceeds from promissory notes 11,500 -- 81,500
Issuance of stock -- 38,500 599,140
------------ ------------ ------------
Net cash provided by financing activities 11,500 38,500 680,840
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (12,718) (23,712) 117
Foreign currency translation gain (loss) -- -- --
Cash and cash equivalents, beginning of period 12,835 24,717 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 117 $ 1,005 $ 117
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest expense paid $ -- $ -- $ --
============ ============ ============
Income taxes paid $ -- $ -- $ --
============ ============ ============
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Services exchanged for common stock $ $ $ 31,975
Subscribed stock in exchange for payables $ -- $ 7,250 $ 10,000
Payables exchanged for shares of stock $ -- $ -- $ 160,000
Stock issued in payment of loans payable $ -- $ -- $ 200
Stock issued for accrued consulting fees $ -- $ -- $ 65,000
Stock options issued for compensation $ -- $ -- $ 14,400
Stock issued for subsidiary $ -- $ -- $ 2,100,000
Website acquired through merger $ -- $ -- $ 145,979
The accompanying notes are an integral part of these financial statements.
6
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission requirements for
interim financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The financial statements
should be read in conjunction with the Form 10-KSB for the year ended June 30,
2003 of Reward Enterprises, Inc. (the "Company").
The interim financial statements present the condensed balance sheet, statements
of operations, and cash flows of Reward Enterprises, Inc. The financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States.
The interim financial information is unaudited. In the opinion of management,
all adjustments necessary to present fairly financial position of the company as
of December 31, 2003 and the results of operations and cash flows presented
herein have been included in the financial statements. Interim results are not
necessarily indicative of results of operations for the full year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
During February of 2004, majority shareholders of the Company sold a controlling
interest in the Company to Bell Investments, LLC of Sarasota, Florida.
7
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred a net loss of
approximately $2,406,504 for the year ended June 30, 2003, with an accumulated
loss from inception of approximately $3,097,991 at June 30, 2003. The Company's
current liabilities exceed its current assets by approximately $125,738 as of
December 31, 2003. The Company had a comprehensive net loss of $120,641 for the
six months ended December 31, 2003 and an accumulated deficit of $3,218,632 at
December 31, 2003.
These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include
adjustments relating to the recoverability and classification of reported asset
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing or sale of its common stock as may be required and
ultimately to attain profitability. Management's plan, in this regard, is to
seek a suitable operating company for merger, that can generate revenues and the
potential for earnings.
In February of 2004, certain key shareholders of the Company sold a controlling
interest in the Company to Bell Investments, LLC of Sarasota, Florida.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Reward Enterprises, Inc. (hereinafter "the Company"), was incorporated on
December 12, 1997, under the laws of the State of Nevada primarily for the
purpose of offering interactive online internet entertainment and game playing.
On August 15, 2001, the Company entered into a merger agreement with Q Presents,
Inc., which was incorporated in the State of California for the purpose of
providing innovative event management and marketing automation solutions to take
advantage of the meeting, hotel, trade show and convention industries. At the
time of the merger, the Company changed its focus to match that of Q Presents,
Inc.
The Company expected to generate revenue through licensing its "Q" automated
event management services and related supported offerings; licensing its
intranet and online services; sales of dedicated advertising; sales of related
merchandise; and its promotion and publicity services.
In early 2003, The Company's management entered into a joint venture to provide
specialized international communications including international voice, internet
access, and global network services to corporate clients, communication carriers
and internet service providers. The Company planned to utilize the web-based
platform that was originally intended as an event registration and automation
solution for its telecommunication business.
Subsequent of the period ended December 31, 2003, the Company has terminated all
of its operations. Certain shareholders of the Company have sold a controlling
interest to Bell Investments, LLC of Sarasota, Florida, and Earl Ingarfield
became the sole officer and director of the Company. These transactions occurred
in February 2004.
The Company's year end is June 30.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Reward Enterprises, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
Accounting Methods
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. The Company's financial statements are prepared using
the accrual method of accounting.
Basic and Diluted Loss Per Share
Net loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Basic and diluted loss
per share were the same, as the inclusion of common stock equivalents would be
anti-dilutive.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all short-term debt securities purchased with a maturity of three months or less
to be cash equivalents.
8
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
Interim Financial Statements
The interim financial statements reflect all adjustments, which are, in the
opinion of management, necessary to present fairly the results of operations for
the period. All such adjustments are normal recurring adjustments. The results
of operations for the period presented is not necessarily indicative of the
results to be expected for the full fiscal year.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred
income taxes are recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the "more
likely than not" standard imposed by SFAS No. 109 to allow recognition of such
an asset.
At December 31, 2003 and June 30, 2003, the Company had net deferred tax assets
of approximately $1,085,000 and $1,045,000, respectively, principally arising
from net operating loss carryforwards for income tax purposes, and a $10,400
book-tax difference related to stock options issued for services. As management
of the Company cannot determine that it is more likely than not that the Company
will realize the benefit of the net deferred tax asset, a valuation allowance
equal to the net deferred tax asset has been established as of December 31, 2003
and June 30, 2003 in the amounts of $1,085,000 and $1,045,000, respectively. The
change in the allowance account from June 30, 2003 to December 31, 2003 was
$40,000 as a result of a change in management's estimates.
At December 31, 2003 the Company has net operating loss carryforwards of
approximately $3,200,000, which expire in the years through 2023.
9
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
Use of Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Impaired Asset Policy
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 replaces SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This standard establishes a single
accounting model for long-lived assets to be disposed of by sale, including
discontinued operations. SFAS No. 144 requires that these long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued operations. This
statement is effective beginning for fiscal years after December 15, 2001.
The Company adopted SFAS No. 144 during the year ended June 30, 2002.
The Company impaired the remaining value of its goodwill of $2,100,000, acquired
in prior years under Financial Accounting Standards Board Statement Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) during the year
ending June 30, 2003. Under SFAS 142, the Company is required to periodically
assess the value of its intangible assets to determine underlying value.
The Company has recorded an impairment to its software license website and
computer hardware of $65,160 during the year ended June 30, 2001, effectively
reducing the recorded amount of these assets to $1,191 at June 30, 2001. As of
June 30, 2003, the Company had deemed its goodwill recorded on its financial
statements to be impaired (See Note 5).
Web Site Development
The Company has adopted SOP 98-1 as amplified by EITF 00-2, "Accounting for Web
Site Development Costs." In accordance with this adoption, the Company has
capitalized website development costs. During the year ended June 30, 2002, the
Company capitalized $145,979 of website development costs, which were acquired
in the August 15, 2001 merger. In November 2001, the Company began amortizing
the web site costs using the straight-line method over a five year expected life
for a total amortization expense of $14,598 at December 31, 2003. The Company
has recently entered into the specialized international communications market
and continues to utilize the website for this purpose, however these operations
were terminated in February 2004.
Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (hereinafter "SFAS No. 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", and SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". These statements establish accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. They require that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value.
10
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At December 31, 2003, the Company has not engaged in any transactions that would
be considered derivative instruments or hedging activities.
Compensated Absences
The Company currently does not have a policy regarding accruals of compensated
absences. The Company intends to expense these costs as incurred.
Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (hereinafter
"SFAS No. 150"). SFAS No. 150 establishes standards for classifying and
measuring certain financial instruments with characteristics of both liabilities
and equity and requires that those instruments be classified as liabilities in
statements of financial position. Previously, many of those instruments were
classified as equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
The Company has not yet determined the impact of the adoption of this statement.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149").
SFAS No. 149 amends and clarifies the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material
impact on the financial position or results of operations of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the fiscal 2003
presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Q Presents, Inc., after elimination of intercompany
accounts and transactions.
NOTE 3 - ACQUISITIONS
On August 15, 2001, Reward Enterprises, Inc. acquired Q Presents, Inc. with the
issuance of 6,000,000 shares of common stock in exchange for all of the
outstanding common stock of Q Presents, Inc. This transaction had an accounting
date of August 31, 2001, which was the date that the transaction was final. The
value of the stock issued at the fair market price of $0.35 per share was
$2,100,000.
11
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
The purchase price of Q Presents, Inc. was $2,100,000, determined by the fair
market value of Reward's stock. The net book deficit of assets acquired was
$105,588.
The assets and liabilities acquired were as follows as of August 31, 2001:
Cash in bank $ 9,093
Accounts receivable from officer 96
Website 43,000
-----------
Total Assets $ 52,189
===========
Accounts payable $ 15,169
Interest payable to Reward 2,601
Note payable to Reward 140,000
-----------
Total Liabilities $ 157,777
===========
Liabilities in excess of assets $ 105,588
===========
After the elimination of $2,601 of interest owed between the companies, as part
of the acquisition transaction, $102,987 was allotted to the value of the
website based upon costs expensed during the website's development. The balance
of the purchase price was allocated to goodwill that was acquired in the merger.
Pursuant to the acquisition, Q Presents, Inc. became a wholly owned subsidiary
of the Company.
In March 2004, the Company entered into a non-binding letter of intent with
Magna Yachts, Inc., a Canadian corporation, to acquire 100% of the outstanding
shares of Magna Yachts in exchange for a controlling interest of the Company's
common stock. On April 28, 2004, the parties terminated the non-binding letter
of intent.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. The useful
lives of property and equipment for purposes of computing depreciation is five
years. The computer equipment in the Company's Vancouver office was abandoned
when the Company moved to the Q Presents offices in California. The Company
deemed this remaining book value of $1,059 to be an office expense for the
quarter ending September 30, 2001.
NOTE 5 - GOODWILL
The Company acquired goodwill in the acquisition of Q Presents, Inc. (See Note
3). This goodwill will be accounted for in accordance with SFAS No. 142. (See
Note 2.) The Company will periodically review this asset for possible
impairment. At June 30, 2003 it was determined the asset was impaired due to a
permanent decline in the Company's stock value, and a charge for the impairment
of $2,100,000 was recorded under operating expenses.
12
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
NOTE 6 - COMMON STOCK
As of December 31, 2003 and June 30, 2003, the Company had 18,722,000 shares of
common stock issued and outstanding.
In January 2004, the Company issued 23,000,000 shares of its common stock to
Huntington Chase Financial Group in payment for consulting fees valued at
$325,000.
In January 2004, the Company paid 2,400,000 shares of its Common Stock to
unaffiliated third parties individual in payment for consulting services valued
at $33,740.
NOTE 7 - STOCK OPTIONS AND WARRANTS
In September 1998, the Company adopted the Reward Enterprises, Inc. 1999
Directors and Officers Stock Option Plan, a non-qualified plan. During 1999, the
Company granted 2,500,000 common stock options for the services of consultants.
The options issued include negotiation rights and begin vesting in June 1999,
with 25% of the eligible shares vesting each year until the recipients are fully
vested in their shares.
The Company entered into consulting agreements with three directors of the
Company, whereby two of the directors would each receive $5,000 per month and
1,000,000 common stock options (with half exercisable at $0.10 per share and
half exercisable at $0.25 per share) and the other director would receive $2,500
per month and 500,000 common stock options (with half exercisable at $0.10 per
share and half exercisable at $0.25 per share). These consulting agreements were
terminated effective October 31, 2000. All options related to these agreements
expire April 30, 2009. At March 2001, a total of 630,000 options were exercised
in exchange for accrued consulting fees due to them of $65,000.
On October 16, 2000, the Company adopted the 2000 Stock Option Plan, a
non-qualified plan, that allows the Company to distribute up to 7,000,000 shares
of common stock to directors, officers and employees. Stock options of 200,000
were granted to a consultant. The exercise price of these options is $0.10 per
share for the first 100,000 options and $0.25 per share for the balance of
100,000 options. These options will expire September 30, 2009. During November
2000, 2,230,000 options were granted with an exercise price of $0.10 per share,
in settlement of consulting fees with an expiration date of April 30, 2001.
During the year ending June 30, 2001 a total of 3,455,000 options were
exercised.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes option price calculation. The following assumptions were made in
estimating fair value: Risk-free interest rate of 5% and expected life of ten
years. A minimum volatility of 30% was used and resulted in no adjustment to
compensation.
Between October and December 2001, options to purchase 572,000 shares of common
stock were exercised and the Company received $103,000.
In December 2001, as part of the employment agreements with Mr. Edward Withrow
III and Mr. Warren K. Withrow, the Company issued stock options for 1,000,000
shares with exercise prices of $0.04 per share and 400,000 shares with exercise
prices of $0.10 per share. The Black-Scholes option price calculation of the
fair value of these options is $10,400, based upon a risk-free interest rate of
5%, volatility of 30% and a term of ten years.
13
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
The Company signed an agreement with SBI USA, a member of Softbank Investment
Group, in February 2002. (See Note 10.) This agreement included 3,000,000
warrants for purchase of 3,000,000 shares of common stock with exercise prices
of $0.50, $0.75, and $1.00 per share. In May of 2002, the Company attached
500,000 warrants for an equal number of shares of common stock to promissory
notes that were issued. (See Note 10.) The warrants have exercise prices from
$0.05 to $0.10 per share. The Company also attached 40,000 warrants to various
issuances of common stock in June 2002. The holders of the warrants may purchase
an equal number of common stock shares at exercise prices from $0.25 to $0.45
per share. These warrants were valued using the Black-Scholes option price
calculator using a risk-free interest rate of two percent, volatility of 70%, a
term of one year, and either an equity price of $0.05 or $0.12 depending on the
date of issuance. It was determined that the 400,000 warrants attached to one of
the promissory notes had a value of $4,000., with an expiration date of May 14,
2003. The 400,000 warrants were not exercised and subsequently expired.
Following is a summary of the Company's stock options:
Weighted
Number Average
Of Exercise
Shares Price
------------- ----------
Outstanding at 6-30-2002
1,803,000 $ 0.10
Granted -- --
Exercised -- --
Forfeited -- --
------------- ----------
Outstanding at 6-30-2003 1,803,000 $ 0.10
============= ==========
Options exercisable at 6-30-2003 1,803,000
=============
Weighted average fair value of options granted
during the year ended June 30, 2002 $ 0.01
==========
Outstanding at 6-30-2003
1,803,000 $ 0.10
Granted -- --
Exercised -- --
Forfeited -- --
------------- ----------
Outstanding at 12-31-2003
1,803,000 $ 0.10
============= ==========
Options exercisable at 12-31-2003
1,803,000
=============
Weighted average fair value of options granted
during the period ended December 31, 2003 --
==========
NOTE 8 - RELATED PARTY TRANSACTIONS
Certain consultants who received common stock options under the Company's
non-qualified stock option plan are the Company's directors and stockholders.
(See Note 6.) Until October 2001, an associate of a director of the Company
provided office space to the Company in exchange for services provided by the
director. The value of this space was considered to be $2,000 per month and was
considered to be a loan from the director at that time.
14
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
In September 2001, the Company's board of directors approved consulting
agreements with Edward W. Withrow III and Warren K. Withrow for
consulting/employment agreements providing for payments to each of $3,500 cash
per month and options to purchase up to 1,800,000 shares of common stock. These
options were subsequently reduced to 700,000 shares in December 2001 and the
cash value of services was increased to $10,000 per month, which was to begin in
April 2002; however, as of June 30, 2002, no compensation has been paid, and the
agreements are being renegotiated.
The Company has yet to finalize compensation agreements with its officers, but
has plans to do so in the very near future. These advances were written off as
compensation in June 30, 2003. In the period ended December 31, 2003, the
Company paid two of its officers a total of $46,250 as independent contractors
and consultants.
From time to time the Company receives funds from related parties in the form of
loans. These are recorded as unsecured, non-interest bearing, short-term loans,
payable upon demand. At December 31, 2003, there were no related party loans
outstanding.
In February 2004, the Company paid certain shareholders, who could be defined as
related parties, 24,000,000 shares of common stock for services, valued at
$339,000.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In February 2002, the Company entered into a non-exclusive financial advisory
contract with SBI USA, a member of Softbank Investment Group. In consideration
for the services of SBI, the Company is obligated to pay a $12,500 retainer
which becomes due and payable upon funding the Company's $500,000 promissory
note. The Company also granted common stock warrants pursuant to this agreement.
(See Note 7.) At December 31, 2003, the Company has not paid any of the
retainer, and has not received any funding from the issuance of the
aforementioned promissory note.
The Company's officers are employed as independent contractors and consultants',
and as such, are responsible for all related payroll taxes arising from any
payments made to them by the Company.
On June 1, 2003, the Company entered into a consulting agreement with Huntington
Chase Financial Group LLC. The terms of the agreement are $10,000 per month for
a six month period ending November 2003. All liabilities under this agreement
were satisfied by the Company in January 2004 through the issuance of 23,000,000
shares of common stock.
NOTE 10 - LOANS PAYABLE
The Company issued two convertible promissory notes for a total of $30,000 in
May 2002 and one promissory note for $25,000 in January 2003 and one promissory
note for $15,000 in June 2003 which bear interest rates at 20%, 15% and 15%
respectively. The two convertible notes had warrants attached, and were
convertible into common stock within 60 and 90 days of issuance. Neither note
was converted. Under their original terms, the notes were payable on or before
either 60 or 90 days from issuance. The $20,000 note is in default, and began
accruing interest at 25% in July 2002. The terms of the $10,000 note were
extended to December 31, 2002. The $4,000 value of the warrants on the $20,000
note resulted in that note being issued at a discount which will be amortized
over the life of the original note. On October 1, 2003, the Company entered into
a promissory note for monies received in the amount of $10,000. The note is due
and payable on November 1, 2003 at the rate of 12% interest per month with an
administrative fee of $1,400 for a total due of $11,500. The Company is
currently in default of said note and is negotiating the payment terms. A total
of $14,638 was accrued as interest on these notes at December 31, 2003.
15
REWARD ENTERPRISES, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2003
(UNAUDITED)
In February of 2004, under terms of the Stock and Promissory Note Purchase
Agreement executed between certain shareholders of the Company and Bell
Investments, LLC of Sarasota, FL, the Notes described above in the total amount
of $81,500 and the related interest accrued to the Notes of $17,938 was sold by
the holders of the Notes to Bell Investments, LLC. Bell Investments, LLC, the
majority stockholder of the Company, is now the holder of the Notes.
NOTE 11 - DEFERRED REVENUE FROM JOINT VENTURE
The Company has entered into revenue sharing agreements with five individuals
surrounding the Company's International Long Distance ("ILD") telecommunications
operation which delivers long distance telephone service from wholesale
telecommunication operators between the United States and India. The individuals
advanced $175,000 against future revenues that would be generated by the ILD.
The Company agreed to split the net profits of the IDL on a 50-50 basis during
the first twelve months of ILD being in operation. Profits are defined as gross
revenue from wholesalers less termination costs (the cost to terminate a
telephone call in India charged by the India telephone company), less the
Company's India partners share of 30% and other expenses that approximate
$20,000 a month. The maximum amount that the investors were to realize was a
100% return on investment. These advances were booked for financial statement
purposes as Deferred Revenue on the balance sheet of the Company as of June 30,
2003 and would have been recognized as revenue by the Company over twelve months
once successful operation began. Subsequent to December 31, 2003, the
arrangement has been terminated.
NOTE 12 - SUBSEQUENT EVENT
In January 2004, the Company issued 23,000,000 shares of its common stock to
Huntington Chase Financial Group in payment for consulting fees valued at
$325,000.
In January 2004, the Company paid 2,400,000 shares of its Common Stock to
unaffiliated third parties individual in payment for consulting services valued
at $33,740.
In February of 2004, under terms of the Stock and Promissory Note Purchase
Agreement executed between certain shareholders of the Company and Bell
Investments, LLC of Sarasota, FL, the Notes described above in the total amount
of $81,500 and the related interest accrued to the Notes of $17,938 was sold by
the holders of the Notes to Bell Investments, LLC. Bell Investments, LLC, the
majority stockholder of the Company, is now the holder of the Notes.
Subsequent of the period ended December 31, 2003, the Company has terminated all
of its operations. Certain shareholders of the Company have sold a controlling
interest to Bell Investments, LLC of Sarasota, Florida, and Earl Ingarfield
became the sole officer and director of the Company. These transactions occurred
in February 2004.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
GENERAL
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, and the Notes thereto included herein.
The information contained below includes statements of Reward Enterprises,
Inc.'s ("Reward") or management's beliefs, expectations, hopes, goals and plans
that, if not historical, are forward-looking statements subject to certain risks
and uncertainties that could cause actual results to differ materially from
those anticipated in the forward-looking statements. For a discussion on
forward-looking statements, see the information set forth in the Introductory
Note to this Quarterly Report under the caption "Forward Looking Statements",
which information is incorporated herein by reference.
GOING CONCERN
As reflected in Reward's financial statements for the three months ended
December 31, 2003, Reward's accumulated deficit of $3,218,832 and its working
capital deficiency of $382,238 raise substantial doubt about its ability to
continue as a going concern. The ability of Reward to continue as a going
concern is dependent on Reward's ability to raise additional debt or capital.
The financial statements for December 31, 2003 do not include any adjustments
that might be necessary if Reward is unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. At each balance
sheet date, management evaluates its estimates. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The estimates and critical
accounting policies that are most important in fully understanding and
evaluating our financial condition and results of operations include those
listed below.
ACCOUNTING METHODS
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
BASIC AND DILUTED LOSS PER SHARE
Net loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the period. The weighted average
number of shares was calculated by taking the number of shares outstanding and
weighting them by the amount of time that they were outstanding. Basic and
diluted loss per share were the same, as the inclusion of common stock
equivalents would be anti-dilutive.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents.
17
PROVISION FOR TAXES
Income taxes are provided based upon the liability method of accounting
pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. A valuation allowance is recorded
against deferred tax assets if management does not believe the Company has met
the "more likely than not" standard imposed by SFAS No. 109 to allow recognition
of such an asset.
At December 31, 2003 and June 30, 2003, the Company had net deferred tax
assets of approximately $1,085,000 and $1,045,000, respectively, principally
arising from net operating loss carryforwards for income tax purposes, and a
$10,400 book-tax difference related to stock options issued for services. As
management of the Company cannot determine that it is more likely than not that
the Company will realize the benefit of the net deferred tax asset, a valuation
allowance equal to the net deferred tax asset has been established as of
December 31, 2003 and June 30, 2003 in the amounts of $1,085,000 and $1,045,000,
respectively. The change in the allowance account from June 30, 2003 to December
31, 2003 was $40,000 as a result of a change in management's estimates.
At December 31, 2003, the Company had net operating loss carryforwards of
approximately $3,200,000 which expire in the years through 2023
IMPAIRED ASSET POLICY
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This standard establishes a single accounting model
for long-lived assets to be disposed of by sale, including discontinued
operations. SFAS No. 144 requires that these long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or discontinued operations. This statement is effective
beginning for fiscal years after December 15, 2001. The Company adopted SFAS No.
144 during the year ended June 30, 2002.
The Company impaired the remaining value of its goodwill of $2,100,000,
acquired in prior years under Financial Accounting Standards Board Statement
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) during the
year ending June 30, 2003. Under SFAS 142, the Company is required to
periodically assess the value of its intangible assets to determine underlying
value.
The Company has recorded an impairment to its software license website and
computer hardware of $65,160 during the year ended June 30, 2001, effectively
reducing the recorded amount of these assets to $1,191 at June 30, 2001. As of
June 30, 2003, the Company had deemed its goodwill recorded on its financial
statements to be impaired (See Note 5).
WEB SITE DEVELOPMENT
The Company has adopted SOP 98-1 as amplified by EITF 00-2, "Accounting
for Web Site Development Costs." In accordance with this adoption, the Company
has capitalized website development costs. During the year ended June 30, 2002,
the Company capitalized $145,979 of website development costs, which were
acquired in the August 15, 2001 merger. The Company had entered into the
specialized international communications market and continues to utilize the
website for this purpose, however, these operations have been terminated. In
November 2001, the Company began amortizing the web site costs using the
straight-line method over a five year expected life for a total amortization
expense of $14,598 at December 31, 2003.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2003,
COMPARED TO THE THREE MONTH PERIOD ENDED MARCH 31, 2003
REVENUES
Revenue for the period ended December 31, 2003, was $0.00, compared to
$0.00 in revenues for the period ended December 31, 2002. The Company currently
has very limited operations. While the Company has not identified a particular
merger candidate, the Company believes its best opportunity to generate revenue
is to acquire an operating company.
18
COST OF REVENUE. There was no cost of revenue for the three month periods
ended December 31, 2003 and December 31, 2002, as there was no revenue during
these periods.
GROSS PROFIT. There was no gross profit for the three month periods ended
December 31, 2003 and December 31, 2002.
OPERATING EXPENSES. Operating expenses for the three month period ended
December 31, 2003, were $37,451, as compared to $81,932, for the period ended
December 31, 2002 (restated). Operating expenses in 2003 consisted of $20,000 in
consulting fees, $10,113 in general and administrative expenses, $39 in travel
and entertainment and $7,299 in depreciation and amortization. In the 2002
period, Reward had higher consulting fees, higher general and administrative
expenses, had $5,551 in legal fees and had $955 in research and development.
OTHER INCOME (EXPENSE). Other income (expense) for the three month period
ended December 31, 2003 consisted of $3,300 in interest expense. In the 2002
period, the Company had interest expense of $1,512.
NET LOSS. Reward had a net loss of $40,751 for the three month period
ended December 31, 2003, as compared to a net loss of $83,444 for the three
month period ended December 31, 2002. The increase of $42,693 was mostly
attributable to increased operating expenses in the 2003 period.
LIQUIDITY AND CAPITAL RESOURCES
Reward's financial statements have been prepared on a going concern basis
that contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. Reward incurred a net loss of
$40,751 and $83,444 for the three month periods ended December 31, 2003 and
December 31, 2002, respectively, and has an accumulated deficit of $3,218,632 at
December 31, 2003. As of December 31, 2003, the Company had $117 of current
assets and current liabilities of $382,355.
Management recognizes that Reward must generate or obtain additional
capital to enable it to continue operations. Management may obtain additional
capital principally through the sale of equity or debit securities. The
realization of assets and satisfaction of liabilities in the normal course of
business is dependent upon Reward obtaining additional equity capital and
ultimately obtaining profitable operations. However, no assurances can be given
that Reward will be successful in these activities. Should any of these events
not occur, the accompanying consolidated financial statements will be materially
affected.
We had very limited operations and no revenues during the period ended
December 31, 2003.
For the six months ended December 31, 2003, the Company used net cash in
operations of $24,218, no cash for investing activities and had $11,500 cash
provided by financing activities.
The Company issued two convertible promissory notes for a total of $30,000
in May 2002 and one promissory note for $25,000 in January 2003 and one
promissory note for $15,000 in June 2003 which bear interest rates at 20%, 15%
and 15% respectively. The two convertible notes had warrants attached, and were
convertible into common stock within 60 and 90 days of issuance. Neither note
was converted. Under their original terms, the notes were payable on or before
either 60 or 90 days from issuance. The $20,000 note is in default, and began
accruing interest at 25% in July 2002. The terms of the $10,000 note were
extended to December 31, 2002. The $4,000 value of the warrants on the $20,000
note resulted in that note being issued at a discount which will be amortized
over the life of the original note. On October 1, 2003, the Company entered into
a promissory note for monies received in the amount of $10,000. The note is due
and payable on November 1, 2003 at the rate of 12% interest per month with an
administrative fee of $1,400 for a total due of $11,500. A total of $14,638 was
accrued as interest on these notes at December 31, 2003.
On October 1, 2003, the Company entered into a promissory note for monies
received in the amount of $10,000. The note is due and payable on November 1,
2003 at the rate of 12% interest per month with an administrative fee of $1,400
for a total due of $11,500.
In February of 2004, under terms of the Stock and Promissory Note Purchase
Agreement executed between certain shareholders of the Company and Bell
Investments, LLC of Sarasota, Florida, the Notes described above in the total
amount of $81,500 and the related interest accrued to the Notes of $17,938 was
sold by the holders of the Notes to Bell Investments, LLC. Bell Investments,
LLC, the majority stockholder of the Company, is now the holder of the Notes.
19
We anticipate that we will require significant capital to maintain our
corporate viability. We anticipate necessary funds will most likely be provided
by our existing shareholders or outside investors. We may be required to pledge
equity in the Company to induce individuals, officers or directors or other
shareholders to guarantee our loans when necessary.
Reward presently has minimal expenses as its officer is not taking any
salary. However, due to insufficient cash generated from operations, Reward
currently does not have internally generated cash sufficient to pay any incurred
expenses and other liabilities. As a result, Reward is dependent on investor
capital and loans to meet its expenses and obligations. There can be no
assurances that Reward will generate cash flow sufficient to meet future
obligations. There can be no assurances that Reward will be able to raise
sufficient additional capital in the future.
We have incurred losses since inception. Management believes that it will
require approximately $150,000 in additional capital to fund overall Company
operations for the next twelve months. Reward currently has $0.00 in cash and
cash equivalents as of March 31, 2004 and has $0.00 in cash as of June 28, 2004.
PLAN OF OPERATION
The Company plans to continue operating with small administrative and
consulting fees in the next fiscal year in order to continue operations.
From time to time, Reward may evaluate potential acquisitions involving
complementary businesses, content, products or technologies. Reward has no
present agreements or understanding with respect to any such acquisition.
Reward's future capital requirements and future operations will depend on many
factors, including whether Reward finds a suitable merger candidate.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Principal Executive Officer/Principal Financial Officer (one person)
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. The Company's disclosure controls and procedures are
designed to provide a reasonable level of assurance of achieving the Company's
disclosure control objectives. The Company's Principal Executive
Officer/Principal Accounting Officer has concluded that the Company's disclosure
controls and procedures are, in fact, effective at this reasonable assurance
level as of the period covered.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal controls for
the Company's quarter ended December 31, 2003, the Company's Principal Executive
Officer/Principal Financial Officer has determined that there are no changes to
the Company's internal controls over financial reporting that has materially
affected, or is reasonably likely to materially effect, the Company's internal
controls over financial reporting.
20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
No common stock has been issued during the three-month period ending
December 31, 2003.
In January 2004, the Company issued 23,000,000 shares of its common stock
to Huntington Chase Financial Group in payment for consulting fees valued at
$325,000.
In January 2004, the Company paid 2,400,000 shares of its Common Stock to
an unaffiliated third party individual in payment for consulting services valued
at $33,740.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company issued two convertible promissory notes for a total of $30,000
in May 2002 and one promissory note for $25,000 in January 2003 and one
promissory note for $15,000 in June 2003 which bear interest rates at 20%, 15%
and 15% respectively. The two convertible notes had warrants attached, and were
convertible into common stock within 60 and 90 days of issuance. Neither note
was converted. Under their original terms, the notes were payable on or before
either 60 or 90 days from issuance. The $20,000 note is in default, and began
accruing interest at 25% in July 2002. The terms of the $10,000 note were
extended to December 31, 2002. The $4,000 value of the warrants on the $20,000
note resulted in that note being issued at a discount which will be amortized
over the life of the original note. On October 1, 2003, the Company entered into
a promissory note for monies received in the amount of $10,000. The note is due
and payable on November 1, 2003 at the rate of 12% interest per month with an
administrative fee of $1,400 for a total due of $11,500. A total of $17,938 was
accrued as interest on these notes at March 31, 2004.
In February of 2004, under terms of the Stock and Promissory Note Purchase
Agreement executed between certain shareholders of the Company and Bell
Investments, LLC of Sarasota, FL, the Notes described above in the total amount
of $81,500 and the related interest accrued to the Notes of $14,637 was sold by
the holders of the Notes to Bell Investments, LLC. Bell Investments, LLC, the
majority stockholder of the Company, is now the holder of the Notes.
ITEM 4. SUBMISSION OF MATTERS TO BE A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the three
months ended December 31, 2003. However, the Company is in the process of
preparing and mailing a definitive information statement to shareholders setting
forth that the majority shareholder of the Company plans to approve an amendment
to the Company's Articles of Incorporation to increase the authorized shares of
common stock from 200,000,000 to 5,000,000,000 and to authorize 10,000,000
shares of preferred stock.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NUMBER TITLE OF DOCUMENT LOCATION
------------------- --------------------------------- ---------------------
31.1 Certification by Chief Provided herewith
Executive Officer/Principal
Accounting Officer pursuant to
15 U.S.C. Section 7241, as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of
2002
32.1 Certification by Chief Provided herewith
Executive Officer/Principal
Accounting Officer pursuant to
18 U.S.C. Section 1350, as
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of
2002
(B) REPORTS ON FORM 8-K:
During the three months ended December 31, 2003, the Company did not file
any current reports on Form 8-K with the Commission.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JUNE 28, 2004 REWARD ENTERPRISES, INC.
By: /s/ Earl Ingarfield
-------------------------------
Earl Ingarfield
Chief Executive Officer,
Principal Accounting Officer and
Director
23